X the Meaning of Exploitation

§ 30. Let DD' be the employers' demand curve for labour and SS' the workers' supply curve in any district or occupation. Let PM be the wage that would result from free competition, i.e. that is equal to the general rate of wages for workpeople of the grade concerned; QM" the wage most profitable to the workpeople if they were combined; and RM' the wage most profitable to the employers. Then the range of indeterminateness described in Part III. Chapter VI. is constituted by all rates between QM" and RM'. There is necessarily exploitation if the employers succeed in paying any wage less than PM. Let us suppose that they succeed in paying a wage RM'. It follows that, if they obtain an amount of labour represented by OM', then the measure of unfairness in the wage is the excess of PM over RM', but the measure of exploitation is the excess of KM' over RM'. If the workpeople succeeded in establishing a wage larger than PM, the exchange index would necessarily fall on the demand curve to the left of P, say at the point Q, and we might speak of an exploitation of employers by workpeople, measured by the excess of QM" over FM".

[1] Whitehead, Introduction to Mathematics, p. 100.

[2] Principles of Mathematics, p. 5. I have substituted realistic for Mr. Russell's word applied in this passage.

[3] Science and Hypothesis, p. 141.

[4] Recent Developments in Physical Science, p. 30. The italics are mine.

[5] Marshall, The Old Generation of Economists and the New, p. 11.

[6] Lord Hugh Cecil, Conservatism, p. 18.

[7] Plunkett, Ireland in the New Century, p. 19.

[8] Wealth, pp. 17-18.

[9] The Evolution of Modern Germany, pp. 15-16.

[10] Dickinson, Letters of John Chinaman, pp. 25-6.

[11] Thus it is important to notice that machinery, as it comes to be more elaborate and expensive, makes it, pro tanto, more difficult for small men, alike in industry and agriculture, to start independent businesses of their own. Cf. Quaintance, Farm Machinery, p. 58.

[12] Munsterberg writes "that the feeling of monotony depends much less upon the particular kind of work than upon the special disposition of the individual" (Psychology and Industrial Efficiency, p. 198). But, of course, the ethical effect of monotony must be distinguished from the unpleasantness of it. Marshall maintains that monotony of life is the important thing, and argues that variety of life is compatible with monotony of occupation, in so far as machines take over straining forms of work, with the result that "nervous force is not very much exhausted by the ordinary work of a factory" (Principles of Economics, p. 263). Obviously much turns here on the length of the working day. Smart held that "the work of the majority is not only toilsome, monotonous, undeveloping, but takes up the better part of the day, and leaves little energy for other pursuits" (Second Thoughts of an Economist, p. 107).

[13] Cf. V.S. Clark, The Labour Movement in Australia, p. 32.

[14] Cf. Proceedings of the American Economic Association, vol. x. pp. 234-5.

[15] Cf. Mukerjee, The Foundations of Indian Economics, p. 386.

[16] Smith-Gordon and Staples, Rural Reconstruction in Ireland, p. 240. Cf. the enthusiastic picture which Wolff draws of the general social benefits of rural co-operation on the Raiffeisen plan: "How it creates a desire and readiness to receive and assimilate instruction, technical and general, how it helps to raise the character of the people united by it, making for sobriety, strict honesty, good family life, and good living generally." It has been seen, he says, to produce these effects "among the comparatively educated peasantry of Germany, the illiterate country folk of Italy, the primitive cultivators of Serbia, and it is beginning to have something the same effect among the ryots of India" (The Future of Agriculture, p. 481)

[17] Gilman, A Dividend to Labour, p. 15.

[18] Cf. Mazzini, The Duties of Man, p. 99.

[19] Cf. The Meaning of National Guilds, by Beckhover and Reckitt, passim. "The essence of Labour's demand for responsibility is that it should be recognised as responsible to the community, not to the capitalist" (p. 100). The goal of National Guilds "is the control of production by self-governing Guilds of workers sharing with the State the control of the produce of their labour" (p. 285). The fact that schemes of industrial reorganisation on these lines are exposed to serious practical difficulties, which their authors do not as yet seem fully to have faced, does not render any less admirable the spirit of this ideal.

[20] Mr. Hawtrey has criticised my analysis upon the ground that it implicitly makes equal satisfactions embody equal amounts of welfare, whereas, in fact, satisfactions are of various degrees of goodness and badness (The Economic Problem, pp. 184-5). There is, however, no difference in substance between Mr. Hawtrey and myself. We both take account of those variations of quality. Whether it is better to say, of two equal satisfactions, that one may in itself contain more good than the other, or to say that in themselves, qua satisfactions, they are equally good, but that their reactions upon the quality of the people enjoying them may differ in goodness, is chiefly a matter of words. I have substituted in the present text "the quality of people" for my original "people's characters."

[21] Cf. Darwin, Municipal Trade, p. 75.

[22] Thus, Sidgwick observes after a careful discussion: "There seems, therefore, to be a serious danger that a thorough-going equalisation of wealth among the members of a modern civilised community would have a tendency to check the growth of culture in the community" (Principles of Political Economy, p. 523).

[23] Practical Ethics, p. 20. Cf. Effertz: "Ce que les intéressés savent généralement mieux que les non-intéressés, ce sont les moyens propres á réaliser ce qu'ils croient étre leur intérét. Mais, dans Is détermination de I'intérêt le non-interessé voit générslement plus clair" (Antagonismes économiques, pp. 237-8).

[24] Wealth of Nations, p.333.

[25] Cf. The Recent Development of German Agriculture [Cd. 8305], 1916, p. 42 and passim.

[26] Logic, ii. p. 488

[27] Logic, ii. p. 490-91.

[28] Methods of Ethics, p. 126.

[29] The Ethics of T.H. Green, etc., p. 340

[30] Cf. my "Some Remarks on Utility," Economic Journal 1903, p. 58 et seq.

[31] If k be the fraction of importance that I attach to a pound in the hands of my heirs as compared with myself, and (t) the probability that I shall be alive t years from now, certain pound to me or my heirs then attracts me now equally with a certain pound multiplied by { (t)+k(1- (t))} to me then. This obviously increased by anything that increases either (t) or k

If, through an anticipated change of fortune or temperament, one pound after t years is expected to be equivalent to (1- a) times one pound now, a certain { (t)+k(1- (t))} pounds of the then prevailing sort to me then attracts me now equally with a (1-a){ (t)+k(1- (t))} pounds of the now prevailing sort to me then. Therefore, a certain pound to my heirs will be as persuasive to call out investment now as the above sum would be if I were certain to live for ever and always to be equally well off and the same in temperament.

[32] In this connection the following passage from Knoop's Principles and Methods of Municipal Trade is of interest: "To secure an additional supply of water to a town, ten or more years of continuous work may easily be required. This means that for several years a large amount of capital will be unproductive, thus seriously affecting the profits of the undertaking and making boards of directors very chary about entering upon any large scheme.... It is almost inconceivable that a water company would have undertaken the great schemes by which Manchester draws its supply of water from Lake Thirlmere in Cumberland, a distances of some 96 miles; Liverpool its supply from Lake Vyrnwy in North Wales, a distance of some 78 miles; and Brighton its supply from the Elan Valley in Mid Wales, a distance of some 80 miles" (loc. cit. p. 38).

[33] Cf. Chiozza-Money, The Triumph of Nationalisation, p. 199.

[34] Cf. Sidgwick, Principles of Political Economy, p. 410.

[35] Cf. my A Study in Public Finance, Part II. ch. x.

[36] For example, the case against the imposition of equal taxation upon two men, each of whom spends £450 a year, but the first has an income of £1000 and the second an income of £500 a year is, from the point of view of equity, overwhelming.

[37] It would be wrong to infer from the above that the large entry of women into industry during the war was associated with an approximately equal loss of work outside industry. For, first, a great deal of war work was undertaken by women who previously did little work of any kind; secondly, the place of women who entered industry was taken largely by other women who had previously done little—for example, many mistresses in servant-keeping houses themselves took the place of a servant; and, thirdly, owing to the absence of husbands and sons at the war, the domestic work, which women would have had to do if they had not gone into industry, would have been much less than in normal times.

[38] The Advertisement Regulation Act, 1907, allows local authorities to frame by-laws designed to prevent open-air advertising from affecting prejudicially the natural beauty of a landscape or the amenities of a public park or pleasure promenade. It is not, we may note in this connection, a decisive argument against underground, and in favour of overhead, systems of tramway power wires that they are more expensive. The London County Council deliberately chose the more expensive underground variety for aesthetic reasons.

[39] Marshall, Principles of Economics, p. 524.

[40] Ibid, p. 523

[41] Marshall, Principles of Economics, p. 80.

[42] Professor Fisher himself takes the position that the national dividend, or income, consists solely of services as received by ultimate consumers, whether from their material or from their human environment. Thus a piano or an overcoat made for me this year is not a part of this year's income, but an addition to capital. Only the services rendered to me during this year by these things are income (The Nature of Capital and Income, pp. 104 et seq.). This way of looking at the matter is obviously very attractive from a mathematical point of view. But the wide departure which it makes from the ordinary use of language involves disadvantages which seem to outweigh the gain in logical clarity. It is easy to fall into inconsistencies if we refuse to follow Professor Fisher's way; but it is not necessary to do so. So long as we do not do so, the choice of definitions is a matter, not of principles, but of convenience.

[43] For consistency it would be necessary to exempt new houses that are built to be occupied by their owners from the category of income and to place them in that of capital, if a money valuation of their annual rental value is included in income.

[44] [Cd. 6320], p. 8.

[45] Marshall, Principles of Economics, p. 614 n.

[46] CF. Flux, statistical Journal, 1913, p. 559.

[47] Quarterly Journal' of Economics, 1908, p.342. The report of the Census of Production, 1907, sanctions the view that an average life of ten years may reasonably be assigned to buildings and plant in general (Report, p. 35).

[48] In industries where large individual items of assets need replacement at fairly long intervals, it is usual to meet this need by the accumulation of a depreciation fund built up by annual instalments during the life of the wasting asset. For machinery which wears out in about equal quantities every year, Professor Young argues that, provided the renewals and repairs required every year are duly furnished, capital will be maintained intact by that fact alone, and no depreciation fund is necessary (Quarterly Journal of Economics, 1914, pp. 630 et seq.). It is true that by this method, when the plant has been running for some time, the capital is maintained in any one year at the level at which it stood in the preceding year. But Professor Young himself shows that, in static conditions, when a plant has been established for some time, it will normally be about half worn out (loc. cit. p. 632). If half-worn-out plant, that is to say, plant half-way through its normal life—is technically of the same efficiency as new plant, this fact does not injure his conclusion. But, in so far as the efficiency of plant diminishes with age, the case is otherwise. If the capital is to be maintained at the level at which it stood when first invested, it is necessary, not merely to provide renewals and repairs as needed, but also to maintain a permanent depreciation fund, to balance the difference between the values of a wholly new plant and of one the constituents of which are, on the average, half-way through their effective life. (Cf. also a discussion between Professor Young and Mr. J. S. Davis under the title "Depreciation and Rate Control" in the Quarterly Journal of Economics, Feb. 1915.)

[49] Professor Carver writes of the United States: "Taking the country over, it is probable that, other things equal, if the farmers had been compelled to buy fertilisers to maintain the fertility of their soil without depletion, the whole industry would have become bankrupt... The average farmer had never (up to about 1887) counted the partial exhaustion of the soil as a part of the cost of his crop" (Sketch of American Agriculture, p. 70.) Against this capital loss, however, must be set the capital gain due to the settlement of the land.

[50] Stamp, Wealth and Taxable Capacity, p. 57.

[51] Cf. Stamp, Wealth and Taxable Capacity, pp. 55-6.

[52] The reason why it is only claimed that the main part, not the whole, of what the Treasury receives under this head should be counted as income is (1) that commodity taxes may not always raise prices by their full amount, and (2) that they may indirectly cause production to contract.

[53] It should be noticed, however, that one paradox still remains uncorrected by the qualifications set out in the text. If a service, for which hitherto fees have been charged to business men, the fees being of a sort that it is lawful to deduct as a business expense before incomes are reckoned, comes to be provided for and to be paid for by an addition to income tax, the money income of the country is increased, though the real income is unchanged (cf. Stamp, Wealth and Taxable Capacity, pp. 52-3). The only way to get rid of this paradox would be to allow business men to deduct the cost of any services which, if paid for by fees, would count as a business expense, whether in fact they are paid for by fees or not.

[54] Principles of Economics, p. 593.

[55] Business Cycles (1927), p. 93.

[56] An exactly analogous difficulty emerges when we attempt to compare the size of the national dividend, as defined above, in two countries. Thus, if the German population with German tastes were given the national dividend of England, they might get less economic satisfaction than before; while, if the English population with English tastes were given the German national dividend, they also might get less economic satisfaction than before. The proposed definition would, in these circumstances, compel us to say both that the English dividend is larger (from the English point of view) than the German dividend, and also that the German dividend is larger (from the German point of view) than the English dividend. It may be added, though the point is not strictly relevant, that differences in comparative tastes between the people of two countries can sometimes, though not always, be detected by statistical methods. For example, Germans before the war would not eat mutton though it was a penny cheaper than pork, while Englishmen ate it readily (Cd. 4032, pp. xlviii and xlix). Again Germans eat rye bread, whereas English people eat white bread. We know that this is not due merely to the fact that rye bread is relatively cheap in Germany and that Germans are poorer than Englishmen, because, if it were cheapness alone that was responsible for the consumption of rye in Germany, there would presumably be a higher consumption of white bread among better-to-do Germans. This, however, is not found. Hence, we may legitimately infer that Germans have a taste for rye bread, as against wheaten bread, different from the English taste.

[57] Cf. Dr. Bowley's observation: "The values included in incomes are values in exchange, which are dependent, not only on the goods or services in question, but also on the whole complex of the income and purchases of the whole of a society... The numerical measurement of total national income is thus dependent on the distribution of income and would alter with it" (The Measurement of Social Phenomena, pp. 207-8). Cf. also stamp, British Incomes and Property, pp. 419-20.

[58] Principles of Economics, pp. 131-2, footnote.

[59] These words are necessary to take account of the fact that, if the aggregate money income of our group be altered, a second period £ will not be the same thing as a first period £.

[60] It is perhaps well to repeat here in symbols what has been stated previously in words, that, the equation of the demand curve for any commodity being p= (x), the money demand for an increment of h units means, not {(x+h) (x+h)-x (x)}, but

[61] Professor Irving Fisher, in his admirable study of The Making of Index Numbers, appears to take the view that there is a way of making measures of this sort which is right in an absolute sense, and not merely in the sense that it will yield a measure consonant with the particular purpose which we want the measure to serve. Having examined a great many different sorts of index numbers, he found that, after those suffering from definite defects of a technical sort had been eliminated, the remainder, though formed on widely different plans, gave approximately equivalent results, and concluded: "Humanly speaking, then, an index number is an absolutely accurate instrument" (p. 229). Now, the close consilience of the results reached by different methods undoubtedly suggests to the mind that there exists somewhere an absolutely right result to which they are all approximating. But there is, so far as I can see, no real ground for accepting this metaphysical suggestion. Consider the analogy of a measure designed to ascertain the average height of a group of trees. It is easy to find the arithmetical, the geometrical, or any other average of their heights. In many conditions all ordinary forms of average will work out very nearly the same. But this is no proof that there is stored up in heaven an ideal average height different from these and, in an absolute sense, more accurate or truer than any of them. There is a true arithmetical average, a true geometrical average, a true harmonic average; but the concept of an archetypal avenge right in an absolute sense is, as it seems to me, an illusion. When we want to satisfy a given purpose it is proper to ask: will the arithmetical or the geometrical average best serve our purpose? If the two averages happen to be nearly the same, we are in the happy position that it does not much matter should we accidently choose the wrong one. But we cannot properly say more than this, There is some reason to believe, however, that, when Professor Fisher claims that the choice of the formula for a price index number is independent of the purpose to be served, he is using the term purpose in a narrower sense than mine, and would not disagree with what is here said.

[62] This is necessary in order to conform to the definition of the national dividend given in Chapter III. Had we defined the dividend so that it included only what is actually consumed during the year, no machines would come into it. On our definition we ought strictly to include all new machinery and plant over and above what is required to maintain capital intact, minus an allowance for the part of the value of this machinery and plant that is used up in producing consumable goods during the year itself.

[63] This proposition and the results based upon it depend on the condition that our group is able to buy at the ruling price the quantity of any commodity which it wishes to buy at that price. When official maximum prices have been fixed, and people's purchases at those prices are restricted, either by a process of rationing or by the fact that at those prices there is not enough of the commodity to satisfy the demand, this condition is, of course, not realised. During the Great War the situation was further complicated by the fact that the legal prices were often departed from—at least in Germany—in practice.

[64] [Cd. 4032], pp. vii and xlv.

[65] A Treatise on Money, vol. i. p. 112.

[66] A. Treatise of Money, vol. i. p. 113.

[67] The Making of Index Numbers, p. 64.

[68] Loc. cit. pp. 72 and 74.

[69] The Making of Index Numbers, p. 242.

[70] Similar considerations suggest that the existence of "new commodities," or rather, in this case, different commodities, is a more serious obstacle in the way of comparing two distant than two neighbouring places, because it is much more likely that one of the two distant places (e.g. a tropical as against a polar region) than it is that one of the two neigbhouring places will purchase commodities that are not known in the other. As between distant places the chain method, about to be described, could theoretically be applied via a chain of intermediate places; but practically this method of comparison would probably prove unworkable.

[71] Cf. Marshall, Contemporary Review, March 1887, p. 371, etc.

[72] Professor Fisher does not, as it seems to me, take sufficient account of this aspect of the chain method. If there were no new commodities to be considered, or if new commodities as between distant years were unimportant, I should not quarrel with his position. It would then be true, as he argues, that, in a comparison of 1900 and 1920, our index number should be based directly on the prices and quantities ruling in those two years, and that the prices and quantities ruling in 1910, which, if the chain method were used, would be involved, are irrelevant, and resort to them a source of error. It is easy to see, for example, that, if the position of 1900 as to quantities and prices is exactly repeated in 1920, an index made on the chain method would probably not give, as it ought to do, a number for 1920 equal to that for 1900. (Cf. The Review of Economic Statistics, May 1921, p. 110.) But if, say, half the expenditure in 1920 is on commodities that did not exist in 1900, a chain comparison is no longer an inferior substitute for a direct comparison: it is the only sort of comparison that it is possible to make at all. For this reason it seems to me on the whole best that, in constructing a series of index numbers, we should employ the chain method, and not the method of calculating a number for each year relative to one (the same) base year. In the absence of new commodities the issue would be balanced, because, whereas the chain method gives perfectly correct results only as between successive years, the other method—except with constant weight formulae, which are inadmissible on other grounds—gives perfectly correct results only as between the base year and each other year. But the argument from new commodities tips the scale in favour of chain series. Of course, if, having constructed a chain series, we desire a more special comparison between two years (other than successive years) covered by it, and if, as between those years, the "new commodity" trouble happens to be unimportant, it will be well to calculate a new number directly for this purpose instead of using the series number. (For Fisher's view compare The Making of Index Numbers, p. 308, etc.)

[73] Professor Mitchell writes: "The sluggish movement of manufactured goods and of consumers' commodities in particular, the capricious jumping of farm products, the rapidly increasing dearness of lumber, etc., are all part and parcel of the fluctuations which the price level is actually undergoing.... Every restriction in the scope of the data implies a limitation in the significance of the results" (Bulletin of the U.S.A. Bureau of Labour Statistics, No. 173, pp. 66-7). This is quite correct as it stands, but it must not be interpreted to imply that both finished products and the raw materials embodied in those same finished products should be included.

[74] Cf. Marshall, Contemporary Review, March 1887, p. 374.

[75] Ibid. P. 375. Cf. also Marshall, Money, Credit, and Commerce,, p. 33.

[76] Mrs. Wood, Economic Journal, 1913, pp. 622-3.

[77] Cours d'économie politique, p. 281.

[78] This proposition can be proved by means of the principle of inverse probability. There are more ways in which a sample that will change in a given degree can be drawn from a complete collection which changes in that degree than there are ways in which such a sample could be drawn from a collection that changed in a different degree. Therefore any given sample that has been taken without bias from any collection is more likely to represent that collection correctly as it stands than it would do after being subjected to any kind of doctoring. It must be confessed, however, that the question, whether a commodity whose price has moved very differently from the main part of our sample ought to be included, is a delicate one. The omission of "extreme observations" is sometimes deemed desirable in the calculation of physical measurements. What should be done in this matter depends on whether or not a priori expectations, coupled with the general form of our sample, show that the original distribution, from which the sample is taken, obeys some ascertained law of error. Whether they do this or not will often be hard to decide. It should be added that the practical effect of omitting extreme observations is only likely to be important when the number of commodities included in our sample is small; and that it is just when this number is small that adequate grounds for exclusion are most difficult to come by.

[79] [Cd. 4032], p. xxxiv.

[80] J. M. Keynes, Economic Journal, 1908, p. 473.

[81] Cf. The Making of Index Numbers, p. 211, etc., and p. 260, etc.

[82] U.S. Bulletin of Labour, No. 173, p. 23.

[83] Cf. Walpole's account of the way in which the introduction of street lamps led to an increased demand for illuminants within the neighbouring houses (History of England, i. 86). An elaborate method of advertising electric light is quoted in Whyte's Electrical Industry (p. 57). A company undertakes to instal six lamps in a house free of all charge for a six months' trial, the house-holder paying only for the current that he uses. After the six months, the company undertakes to remove the whole arrangement if the customer so desires.

[84] Cf. Miss Octavia Hill's practice of insisting on the cleanliness of the stair-cases of her houses, and Sir H. Plunkett's account of the Cork Exhibition, 1902 (Ireland in the New Century, pp. 285-7).

[85] Jevons, Methods of Social Reform, p. 32. It should be noted, however, that Dr. Marshall believes this order of consideration to have a relatively small range. He writes: "Those demands, which show high elasticity in the long run, show a high elasticity almost at once; so that, subject to a few exceptions, we may speak of the demand for a commodity as being of high or low elasticity without specifying how far we are looking ahead" (Principles of Economics, p. 456).

[86] Cf. M. Bousquet (Weltwirtschaftliches Archiv, Oct. 1929, pp. 174 et seq.) for an opposite view. M. Bousquet argues that economic welfare depends on the relation between incomes and needs, and that an increase in income involves, after time for adjustment has been allowed, such an increase of needs that the original relation between income and needs is re-established. Hence, he concludes, the economic welfare of a representative man is a constant, unaffected in the long run by changes in his income.

[87] It should be noticed that one of the things to which people will divert consumption, if distribution is altered in favour of the poor, is the quasi-commodity, leisure. It is well established that the high-wage countries and industries are generally also both the short-hour countries and industries and the countries and industries in which the wage-earning work required from women and children in supplement of the family budget is the smallest. The former point is illustrated by some statistics of the wage rate and hours of labour of carpenters in the United States, Great Britain, France, Germany, and Belgium, published in No. 54 of the Bulletin of the U.S. Bureau of Labour (p. 1125). In illustration of the latter point, Sir Sydney Chapman notes the assertion that, whereas the German collier finds only 65·8 per cent of his family's earnings, the wealthier American collier finds 77·5 per cent (Work and Wages, i. p. 17). Mr. Rowntree's interesting table for York points, when properly analysed, in the same direction (Poverty, p. 171); and Miss Vessellitsky shows that low-paid home-work among women is found principally in those districts, e.g. East Anglia, "Where the bad conditions of male labour make it almost indispensable for the wife to supplement the husband's earnings," whereas, in districts where men's wages are good, women only work at industry if they themselves can obtain well-paid jobs (The Home-worker, p. 4). Again, reference may be made to the familiar correlation found in recent English history between rising wages and falling hours. Yet again, a study of the rates of wages and hours of labour in different districts in England would, I suspect, reveal a correlation of the same type. It does so for the wages and hours statistics of bricklayers as given in the Abstract of Labour Statistics for 1908 (pp. 42, etc.). These facts are somewhat awkward to fit in to the method of exposition followed in this book, because leisure is not included as a commodity in my definition of the national dividend: and in so far, therefore, as improved distribution causes leisure to be substituted for things, it must involve a decrease in the national dividend. Plainly, however, this sort of decrease should be ignored when we are considering the effect of changes of distribution on economic welfare; for the loss of welfare associated with the constriction of production to which they lead is necessarily less than the gain of welfare due to the leisure itself.

[88] The difficult case in which a transference leads to a contraction in the size of the dividend from the point of view of either the pre-change or the post-change period, and not from that of the other, will not be considered here. Henceforward it will be assumed that we have to do with changes in the dividend that are either positive or negative from both the relevant points of view, and, therefore, except for special reasons, we shall speak simply of increases and decreases in the dividend.

[89] Posthumous Essay on Social Freedom, Oxford and Cambridge Review, Jan. 1907.

[90] Di un Socialismo in accordo colla dottrina economica liberale, p. 285

[91] [Cd. 4795], p. 46.

[92] Similarly, of course, when we are taking a long view, the argument that a reduction in the real income of the rich inflicts a special injury, because it forces them to abandon habits to which they have grown accustomed, loses most of its force.

[93] Quarterly Journal of Economics, Feb. 1914, p. 261; and The Division of the Product of Industry before the War, 1918, pp. 11 and 14.

[95] Livelihood and poverty, pp. 46-7. The reason for the excess in the proportion of children in poverty is the twofold one, that poor families are apt to be larger than others, and that a large family is itself a cause of life in poverty. Cf. Bowley, The Measurement of Social Phenomena, p. 187.

[96] Urwick, Luxury and the Waste of Life, pp. 87 and 90.

[97] The National Income, 1924, p. 58.

[98] The National Income, 1924, pp. 58-9.

[99] Has Poverty Diminished, p.16. The discrepancies between the percentages given in this passage for 1913 and that given in Livelihood and Poverty is apparently due to the fact that in the latter work 480 houses inhabited by the middle and upper classes were excluded from the calculation (Cf. Livelihood and Poverty, p. 46, footnote).

[100] Has Poverty Diminished, p.21.

[101] The National Income, 1924, p. 59. It must, of course, be held in mind that a large part of the heavy taxation of rich persons goes to pay interest on war loan held by rich persons.

[102] Cf. Gini, Variabilità e mutabilitd, p. 72.

[103] If A be the mean income, n the number of incomes, and a1, a2...deviations from the mean, aggregate satisfaction, on our assumption, But we know that {a1 + a2+...}=0. We know nothing to sugest whether the sum of the terms beyond the third is positive or negative. But it is certain that 1/2 {a12+22+ &hellip}f'' is negative. If, therefore, the fourth and following terms are small relatively to the third term, it is certain, and in general it is probable, that aggregate satisfaction is larger, the smaller is (a12+a22+...). This latter sum, of course, varies in the same sense as the mean square deviation or standard deviation Dr. Dalton, in the course of an interesting article on "The Measurement of the Inequality of Incomes," has shown that, in a community where many incomes diverge widely from the average, the probability which the above argument establishes is only of a low order (Economic Journal, Sept. 1920, p. 355)

[104] Cf. Economic Journal, Dec. 1913, p. 641.

[105] But Cf. Sidgwick's observation: "It seems at least highly doubtful whether a mere increase in the number of human beings living as an average unskilled labourer lives in England can be regarded as involving a material increase in the quantum of human happiness" (Principles of Political Economy, p. 522, note). A population, which, in given conditions, maximises this quantum, seems to have a much better claim to be called the optimum population than a population which maximises real income per head. The practice, which has gained a certain currency, of using the term in this latter sense is, therefore, unfortunate.

[106] Cf. Pareto, Cours d' èconomic politique, pp. 88 et seq. Cf. also Marshall, Principles of Economics, pp. 189-90.

[107] Principles of Political Economy, pp. 252 and 254. Mr. Wright, commenting on the fall in the birth rate in the later nineteenth century, suggests that increased command over nature is more likely to be taken out in an improved standard of comfort when it manifests itself in a fall of prices than when it manifests itself in higher money wages; for people do not readily see behind money (Population, p. 117).

[108] La Repartition des richesses, p. 439.

[109] Cf. Mombert, Archiv für Socialwissenschaft, vol. xxxiv. p. 817. Cf. also Aftalion, Les Crises periodiques de surproduction, vol. i. pp. 208-9.

[110] Economic Journal, 1910, p. 385.

[111] The Relation of Fertility in Man to Social Status, pp. 15 and 19. M. Bertillon has shown that, in general, a high birth rate and a high death rate are correlated (La Depopulation de la France, pp. 66 et seq.). This correlation is partly due to the fact that the death of children induces parents to get more, and partly to the fact that a high birth rate often means many children born in poor circumstances and so likely to die. Thus, Dr. Newsholme suggests that the observed correlation "is probably due in great part to the fact that large families are common among the poorest classes, and these classes are specially exposed to influences producing excessive infant mortality" (Second Report on Infant Mortality [Cd. 6909], p. 57). A similar conclusion as regards the North of England is reached in Elderton's Report on the English Birth-rate, Part I.

[112] The Relation of Fertility in Man to Social Status, pp. 15 and 19.

[113] The Fall in the Birth-rate, p. 31.

[114] Journal of the Royal Statistical Society, 1920, p. 431.

[115] Cf. Journal of the Royal Statistical Society, 1920, p. 417.

[116] Cf. Leroy-Beaulieu's argument: "II se trouve dans les quartiers riches une plus forte proportion de ménages âgés, de gens retraités, de domestiques, classe particuliérement stérile, et personnes qui ne passent qu'une partie de l'année à la ville; la natalité enregistrée doit done y être plus faible, sans qu'on puisse rien en inférer. On qualifie le XVIe arrondissement qui compte 135,000 habitants comme un arrondissement riche et le VIIIe également qui, de son côte, compte 104,000 habitants. Or, il est manifeste que les gens vraiment riches ne représentent pas la dixiéme partie, peut-être pas même la vingtiéme partie, de la population de ces arrondissements dits riches; les gens opulents ne se comptent pas, même á Paris, par centaines de mille; le gros de la population de ces arrondissements est composé de domestiques, de concierges, de petits boutiquiers et d'ouvriers d'élite. Les conclusions que l'on tire de la natalité dans les quartiers dits riches de Paris sont donc sans valeur" (La Question de la population, p. 399).

[117] Cf. Darwin, "Eugenics in Relation to Economics and Statistics," Journal of the Royal Statistical Society, 1919, p. 7.

[118] The inducement to immigration offered by old-age pensions might be kept very small by a rule requiring previous residence of, say, 20 years as a condition of qualification; for a far-off benefit affects action but slightly, the more so if, as in this case, the possibility of death makes it uncertain as well as distant.

[119] Mendel's Principles of Heredity, p. 305.

[120] The Family and the Nation, p. 74.

[121] Independent Review, May 1906, p. 183.

[122] Probability the Basis of Eugenics, p. 29.

[123] Cf. Bateson, Presidential Address to the British Association, Nature, Aug. 1914, p. 677.

[124] The Family and the Nation, p. 71.

[125] Haycraft, Darwinism and Race Progress, p. 144.

[126] The Scope and Importance of National Eugenics, p. 38.

[127] Mendel's Principles of Heredity, p. 305.

[128] Ibid. p. 305. It is, however, important to remember that a bad recessive quality cannot be eliminated merely by preventing propagation among persons who manifest it; for it will also be borne in the germ-plasm of a number of apparently normal persons. Feeble-mindedness appears to be a recessive quality (cf. Gates, Heredity and Eugenics, p. 159). Calculation shows that, if 3 per cent of a population now is feeble-minded, it would require 250 generations (i.e. about 8000 years) to reduce the proportion to 1 in 100,000 by merely segregating or sterilising those who show the characteristics. To distinguish and to prevent propagation among those apparently normal persons who bear feeble-mindedness as a recessive quality would, however, be a task far beyond our present powers (cf. ibid. p. 173).

[129] The standard work on this subject is Eugenical Sterilisation in the United States, by Dr. H. H. Laughlin, 1922.

[130] Mendelism (second edition), pp. 80-81.

[131] Cf. Recent Progress in the Study of Variation, Heredity and Evolution, by R. H. Lock.

[132] Wilson, The Cell in Development and Inheritance, p. 13; quoted by R. H. Lock, Variation, Heredity and Evolution, p. 68.

[133] Heredity, p. 124.

[134] J. A. Thomson, Heredity, p. 198.

[135] Ibid. p. 204.

[136] Lock, Variation and Heredity, pp. 69-71.

[137] Punnett, Mendelism, p. 81.

[138] Eichholz, "Evidence to the Committee on Physical Deterioration," Report, p. 14. Dr. Eichholz's view appears to be formed a posteriori, and not to be an inference from general biological principles.

[139] Eugenics Review, November 1910, p. 236.

[140] An interesting comparison can be made between the process of evolution in these two worlds. In both we find three elements, the occurrence of, propagation of, and conflict between, mutations.

In both worlds the kind of mutations that occur appear to be fortuitous, and cannot be controlled, though in both it is sometimes suggested that the tendency to mutate is encouraged by large changes in, and particular kinds of, environment. For example, Rae suggested, as conditions favourable to the emergence of inventions, general upheavals, such as wars or migrations, and the adoption in any art of a new material—such as steel in building—either for lack of the old material or through the possession of a specially effective new one, and he maintained that the stable agricultural districts rarely yield inventions (The Sociological Theory of Capital, pp. 172-3). In both worlds again, with every increase of variability, the chance that a "good" mutation will occur is increased. Hence, ceteris paribus, environments that make for variability are a means to good. Thus, of local governments Marshall writes: "All power of variation that is consistent with order and economy of administration is an almost unmixed good. The prospects of progress are increased by the multiplicity of parallel experiments and the intercommunion of ideas between many people, each of whom has some opportunity of testing practically the value of his own suggestions" (Memorandum to the Royal Commission on Local Taxation, p. 123; cf. also Booth, Industry, v. p. 86; and Hobhouse, Democracy and Reaction, pp. 121-3).

The propagation of mutations, on the other hand, does not proceed in the same way among ideas as among organisms. Among the latter the fertility of the mutated members that survive is not, but among the former it is, affected by their adaptation or otherwise to successful struggle. Animals that are failures and those that are successes are equally likely, if they survive, to have offspring. But, among ideas, those that fail are likely to be barren and those that succeed to be prolific.

Still more marked is the difference between the character of the struggle that takes place between mutated members in the two groups. In the physical world the process is negative—the failures are cut off. In the world of ideas it is positive—successful ideas are adopted and imitated. One consequence of this is that, in general, a successful experiment diffuses itself much more rapidly than a successful "sport."

[141] This consideration affords a powerful argument for the expenditure of State funds upon training the girls of the present generation to become competent mothers and housewives, because, if only one generation were so taught, a family tradition would very probably become established, and the knowledge given in the first instance at public cost would propagate itself through successive generations without any further cost to anybody. (Cf. Report of the Inter-departmental Committee on Physical Deterioration, p. 42.)

[142] Cf. Fiske, Invention, p. 253.

[143] Majewski, La Science de la civilisation, p. 228.

[144] La Logique sociale, p. 352.

[145] Principles of Economics, p. 780.

[146] Ibid. p. 563.

[147] The importance of this point is illustrated by the observation of the London Education Committee of 1905, that the children born in a year when infant mortality is low have more than average physique, and vice versa. (Cf. Wells, New Worlds for Old, p. 216.)

[148] In later editions of his book Professor Punnett's argument is stated in a leas sweeping form and does not conflict with what has been said above. (Cf. Mendelism, third edition, p. 167.)

[149] Carr-Saunders, The Population Problem, pp. 480-81.

[150] Cf. Haycraft, Darwinism and Race Progress, p. 58.

[151] [Cd. 5263], p. 82 (1909-10).

[152] Report for 1909-10 [Cd. 5263], p. 17.

[153] Dr. Newsholme's argument was severely criticised—partly under a misapprehension of its purpose—by Professor Karl Pearson in his Cavendish lecture, 1912, p. 13. Dr. Newsholme replied in his second (1913) report [Cd. 6909], pp. 46-52.

[154] Heredity, p. 528.

[155] This class of difficulty is experienced in many statistical investigations of social problems. For example, an interesting inquiry into the inheritance of ability, as indicated by the Oxford class lists and the school lists of Harrow and Charterhouse, was published some years ago by Mr. Schuster. But the value of his results is in some measure—it is not possible to say in what measure—impaired by the fact that the possession of able parents is apt to be correlated with the reception of a good formal, and, still more, informal, education. Mr. Schuster argues (p. 23) that the error due to this circumstance is not likely to be large. (Cf. also Karl Pearson, Biometrika, vol. iii. p. 156.) M. Nicefero, on the other hand, in his study of Les Classes pauvres, lays stress on the effects of environment in promoting the physical and psychical inferiority of these classes; but he does not seem to justify by evidence his conclusion that "tous les facteurs—en dernière analyse—plongent leur racine bien plus dans le milien économique de la societé moderne que dans la structure même de l'individu" (p. 332).

[156] Pareto ignores these considerations when he argues (Systèmes socialistes, p. 13 et seq.) that an increase in the relative number of children born to the rich must make for national deterioration because, since the children of the rich are subjected to a less severe struggle than those of the poor, feeble children, who would die if born to the poor, will, if born to the rich, survive and, in turn, have feeble children. In view of the facts noted in the text, this circumstance should be regarded merely as a counteracting force, mitigating, but not destroying, the beneficial consequences likely to result from a relative increase in the fertility of the rich.

[157] Cf. ante, Chapter IX. § 3.

[1] Wealth of Nations, Book iv. chapter ix., third paragraph from the end.

[2] Pareto, Manuale di economia politica, pp. 444-5.

[3] Cannan, The History of Local Rates, p. 176. Cf. also Carver, Essays in Social Justice, p. 109.

[4] Cannan, Economic Review, July 1913, p. 333.

[5] Cf. Ely, Property and Contract, pp. 61 and 150.

[6] Ibid. pp. 616 aud 731.

[7] Cf. Marshall's observation: "Much remains to be done, by a careful collection of the statistics of demand and supply and a scientific interpretation of their results, in order to discover what are the limits of the work that society can with advantage do towards turning the economic actions of individuals into those channels in which they will add the most to the sum total of happiness" (Principles of Economics, p. 475).

[8] The Distribution of Wealth, p. 250. I have substituted "produced" for "earned" in the sentence quoted above.

[9] This definition tacitly assumes that the realised price is equal to the (marginal) demand price. If government limitation of price causes it to be temporarily less than this, the value of the marginal net product will need to be interpreted as the marginal (physical) net product multiplied by the marginal demand price, and the marginal demand price in these conditions will not be equal to the actual selling price.

[10] Cf. Marshall, Principles of Economics, p. 847. It will be noticed by the careful reader that, even when the additive marginal net product and the substitutive marginal net product are equal, the value of the marginal net product will be different according as marginal net product is interpreted as additive and as substitutive marginal net product. The difference will, however, in general, be of the second order of smalls.

[11] The considerations developed in Part III. Chapter IX. § 2 are here provisionally ignored.

[12] A minor point should be noticed in passing. In occupations in which no resources are employed, the value of the marginal net product of resources will, in general, be smaller than it is in occupations where some resources are employed, This circumstance clearly does not imply the existence of inequality among the values of marginal net products in any sense incompatible with the maximisation of the national dividend. But, if it should anywhere happen that the value of the marginal net product of resources in an occupation where no resources are employed is larger than it is in occupations where some resources are employed,—e.g. a profitable venture which for some reason people have failed to exploit,—that inequality would be an effective inequality and would be incompatible with the maximisation of the dividend.

[13] Çf. ante, Part I. Chapter VIII. § 7.

[14] Cf. post, Ch. V. § 6.

[15] For a study of this concept cf. post, Chapter XI.

[16] If equality of the values of marginal net products is attained when 1000 units of resources are devoted to the production of a particular thing, and also, because of decreasing supply price, when 5000 units are so devoted, the national dividend is necessarily larger under the latter arrangement. If equality is attained with 1000 units and also, because of reactions upon tastes, with 5000 units, both economic welfare and the national dividend, from the point of view of the period in which the 5000 units are operating, are necessarily larger under the latter arrangement. But the national dividend, from the point of view of the other period, may be smaller under the 5000 units arrangement. In these circumstances, the definition of p. 54 compels us to conclude that, from an absolute point of view, the dividends under the two arrangements are incommensurable.

[17] The shapes of the demand and supply curves and the size of the bounty must be such that, when the demand curve is raised by the bounty, it does not cut the supply curve at any point corresponding to its former point of intersection, but does cut it at a point corresponding to a point of stable equilibrium further to the right than this. This condition can readily be depicted in a diagram.

[18] The conception of the free play of self-interest must, of course, for this purpose, be taken to exclude monopoly action. Cf. post, Chapters XIV.-XVII.

[19] The proof is as follows. Let people's judgment concerning the value of the marginal net product of resources invested at B be correct, but let their estimate of the corresponding value at A differ from fact by a defined quantity k. Let the costs of movement between A and B be equated to an annual sum spread over the period during which the unit of resources that has moved may be expected to find profit in staying in its new place. This annual sum is not necessarily the same in respect of movements from A to B and movements from B to A. Transport, for example, "acts more easily down than up hill or stream [and]...the barrier of language acts more strongly from England to Germany than vice versa" (Macgregor, Industrial Combination, p. 24). For the present purpose, however, we may ignore this complication and represent costs in either direction by an annual sum equal to n. Construct a figure in which positive values are marked off to the right of O and negative values to the left. Mark off OM equal to k; and MQ, MP on either side of M each equal to n. It is then evident that the excess of the value of the marginal net product of resources at B over that at A—let this excess be known as h—is indeterminate and may lie anywhere between a value OQ, which may be either positive or negative, and a value OP which may also be either positive or negative. A diminution in the value of n is represented by movements on the part of the two points P and Q towards M. So long as the values of k and n are such that P and Q lie on opposite sides of O, it is obvious that these movements make impossible the largest positive and the largest negative values of h that were possible before, and have no other effect. When, however, P and Q lie on the same side of O—in which case, of course, all possible values of h are of the same sign—they make impossible both the largest values of h that were possible before and also the smallest values. This double change seems equally likely to increase or to diminish the value of h. Hence, if it were the fact that the points P and Q always lay on the same side of O, we could not infer that diminutions of the value of n would be likely to affect the value of h either way. In fact, however, it must often happen that P and Q lie on opposite sides of O. When account is taken of these cases as well as of the others, we can infer that, over the mass of many cases, diminutions in the value of n are likely to reduce the value of h. In other words, diminutions in the costs of movement are likely, in general, to make the values of the marginal net products of resources at A and B less unequal. Furthermore, it is evident that, when the distances MP and MQ are given, the probability that P and Q will both lie on the same side of O and, therefore, the probability that a diminution in the distances MP and MQ will be associated with an increase in the value of h, is smaller the smaller is the value of k.

[20] Cf. Cournot, Mathematical Theory of Wealth, ch. xi., and Edgeworth, "Theory of International Values," Economic Journal, 1894, p. 625.

[21] Cf. post, Part III. Ch. IX. §§ 11-14.

[22] To obviate misunderstanding two modifying considerations should be added. First, the presumption just established against the grant of a bounty to the industry of promoting mobility is merely a special case of the general presumption against the grant of a bounty to any industry. It may, therefore, be overthrown if there is special reason to believe that, in the absence of a bounty, investment in the industry in question would not be carried so far as is desirable. Secondly, when the State takes over the work of providing either information or the means of movement, and elects for any reason to sell the result of its efforts either for nothing or below cost price, we have, in general, to do, not merely with the grant of a bounty on these things, but at the same time with a real cheapening due to the introduction of large-scale methods. Even, therefore, though the bounty element in the new arrangement were proved to be injurious, it might still happen that that arrangement as a whole was beneficial.

[23] Principles of Economics, p. 608.

[24] Cf. Layton, Capital and Labour, ch. iv.

[25] Lavington, The English Capital Market, p. 281.

[26] Mitchell, Business Cycles, pp. 34-5.

[27] In Germany shares were, in no case, permitted of a lower denomination than £10, and they were not usually permitted of a lower denomination than £50. (Cf. Schuster, The Principles of German Civil Law, p. 44.) In 1924 the minimum denomination was reduced to £1 (20 marks), and the usual denomination to £5 (100 marks).

[28] Cf. Mitchell, Business Cycles, p. 585.

[29] Riesser, The German Great Banks, p. 555.

[30] The general practice of the English banks is to supply "banking facilities," that is to say advances, whether by discount of bills or otherwise, that have a short currency only, and not "financial facilities," i.e. advances with a long currency. It is sometimes claimed that this practice handicaps those British industries in which opportunities may arise for the profitable expansion of plant at short notice,—to make possible, for example, their acceptance of some large order which might throw open for them the entry into some new market; for the raising of fresh capital by an issue of shares or debentures necessarily takes time. It is also sometimes claimed that our banking practice makes it difficult for British traders to make their way in those foreign markets where purchasers are accustomed to expect very long credits. It was with a view to meeting these complaints that Lord Farringdon's Committee on Financial Facilities (1916) recommended that an institution should be established with a large capital, not undertaking ordinary deposit banking, but prepared to provide financial facilities both for the development of industries at home and, where necessary, for the conduct of foreign trade. This recommendation was acted upon, and an institution of the kind contemplated—the British Trade Corporation—was granted a Charter in April 1917.

[31] The Industrial Organisation of an Indian Province, p. 110.

[32] Report, p. 15.

[33] Cf. Wolff, People's Banks, p. 154.

[34] For an account of Raiffeisen and kindred Banks, cf. Fay, Co-operation at Home and Abroad, Part I.

[35] For an excellent account of these agencies cf. Lavington, The English Capital Market, ch. xviii.

[36] It must be remembered, as was indicated in § 5 of the preceding chapter, that this tendency is not without incidental disadvantages.

[37] Burton, Financial Crisis, p. 263.

[38] Cf. Meade, Corporation Finance, p. 231.

[39] The nature of the service of "waiting" has been much misunderstood. Sometimes it has been supposed to consist in the provision of money, sometimes in the provision of time, and, on both suppositions, it has been argued that no contribution whatever is made by it to the dividend. Neither supposition is correct. "Waiting" simply means postponing consumption which a person has power to enjoy immediately, thus allowing resources, which might have been destroyed, to assume the form of productive instruments and to act as "harness, by which natural powers are guided so as to assist mankind in his efforts" (Flux, Principles of Economics, p. 89). The unit of "waiting" is, therefore, the use of a given quantity of resources—for example, labour or machinery—for a given time. Thus, to take Professor Carver's example, if a manufacturer buys one ton of coal a day on each day of the year and buys each day's supply one day ahead, the waiting he supplies during that year is one ton of coal for one year—a year-ton of coal (Distribution of Wealth, p. 253). In more general terms, we may say that the unit of waiting is a year-value-unit, or, in the simpler, if less accurate, language of Dr. Cassel, a year-pound. The graver difficulties involved in the conception of uncertainty-bearing are discussed in Appendix I. A caution may be added against the common view that the amount of capital accumulated in any year is necessarily equal to the amount of "savings" made in it. This is not so even when savings are interpreted to mean net savings, thus eliminating the savings of one man that are lent to increase the consumption of another, and when temporary accumulations of unused claims upon services in the form of bank-money are ignored; for many savings which are meant to become capital in fact fail of their purpose through misdirection into wasteful uses.

[40] The essence of the guarantee given by the acceptor's signature is the same whether the bill is drawn in respect of goods received, or is an accommodation bill endorsed by an accepting-house, which lends its name for a consideration. The variety of accommodation bills known as "pig-on-bacon," where the acceptor is a branch of the drawing house under an alias, is, of course, different, because these bills, in effect, bear only one name; and the same thing is substantially true when the fortunes of the endorsing house and the original borrower are so closely interwoven that the failure of the one would almost certainly involve the failure of the other.

[41] The controversy between the advocates of limited and unlimited liability has sometimes been keen. In the ordinary banks and in the Schulze-Delitzsch People's Banks limited liability is the universal rule. On the other hand, in the People's Banks of Italy and originally, before their absorption by the Imperial Federation, in the Raiffeisen Banks of Germany (except that the law insists on some small shares) the method of unlimited liability was adopted, for the reason that the poor people, for whom the banks were designed, would find difficulty in becoming shareholders to any substantial extent.

[42] Cf. Brace, The Value of Organized Speculation, p. 142.

[43] Cf. Fisher, The Rate of Interest, p. 208.

[44] Quoted by Watkins, The Growth of Large Fortunes, p. 42.

[45] Ibid. pp. 48-9.

[46] For details of. Meade, Corporation Finance, pp. 153-7.

[47] Cf. my Industrial Fluctuations, Part I. chapter ix.

[48] Cf. post, Part III. Chapter IX. § 6.

[49] Thus, let y be the output of the commodity in question, and a, b, c the (physical) quantities of the several factors of production combined in making it. Then y=F(a,b,c). Let f1(a), f2(b) and f3(c) be the prices of these factors. Then, in respect of any quantity of output, the quantities of the several factors are determined by the equations

[50] Cf. Bonn, Modern Ireland, p. 63.

[51] Cf. Nicholson, Principles of Economics, vol. i. p. 418.

[52] Beamish, Municipal Problems, p. 565.

[53] Of course, the English plan is not so severe as the German in respect of investments in plant made near the end of the lease; for, presumably, for a short time the cost of manufacturing such plant will remain fairly constant. But for investments designed to create goodwill, and, through this, future business, it is exactly similar. Thus, after the agreement of 1905, by which the Post Office undertook to buy up in 1911 such part of the National Telephone Company's plant as proved suitable, at the cost of replacement, the Chairman of the Company stated that "the Company would not attempt to build up business that would require nursing as well as time to develop; it would confine itself to operations that from the start would pay interest and all other proper charges" (H. Meyer, Public Ownership and the Telephones, p. 309). A device for getting over the difficulty considered in the text was embodied in the contract extending the franchise of the Berlin Tramway Company to 1919. This contract provided, inter alia: "If, during the life of the contract, the city authorities require extensions within the city limits, which are not specified in the contract, the company must build as much as 93 miles, double track being counted as single. But the company should receive from the city one-third of the cost of construction of all lines ordered between Jan. 1, 1902, and Jan. 1, 1907; and one-half of the cost on all lines ordered between Jan. 1, 1908, and Jan. 1, 1914. For all lines ordered after that the city must pay the full costs of construction, or a full allowance towards the cost of operation, as determined by later agreement. The overhead trolley was to be employed at first, except where the city demanded storage batteries; but, if any other motor system should later prove practicable and in the judgment of the city authorities should appear more suitable, the company may introduce it; and, if the city authorities request, the company must introduce it. If increased cost accrue to the company thereby, due allowance being made for benefits obtained from the uew system, the city must indemnify the company" (Beamish, Municipal Problems, p. 563).

[54] Cf. Colson, Cours d'économie politique, vol. vi. p. 419.

[55] Cf. Taylor, Agricultural Economics, p. 305.

[56] Cf. Smith-Gordon and Staples, Rural Reconstruction in Ireland, p. 20.

[57] Cf. Taylor, Agricultural Economics, pp. 313 et seq.

[58] Cf. Taylor, ibid. p. 320.

[59] Report of the Committee on Tenant Farmers [Cd. 6030], p. 6. Notice given to a sitting tenant on the ground that his land is wanted for building is also "not incompatible with good husbandry" and carries no secondary compensation. There would plainly be danger in the grant of such compensation here, since it would encourage the investment of resources in agricultural improvements at the cost of a more than equivalent social injury in postponing the use for building of land that has become ripe for it.

[60] The argument for compensation, it should be noted, is not that it would benefit the tenant. Professor Nicholson is right when he observes "that compensation for improvements will not benefit the tenant so much as is generally supposed, because the privilege itself will have a pecuniary value; that is to say, a landlord will demand, and the tenant can afford to give, a higher rent in proportion. Under the old improving leases, as they were called, the rent was low because ultimately the permanent improvements were to go to the landlord" (Principles of Economics, vol. i. p. 322). Cf. Morison's account of Indian arrangements (The Industrial Organisation of an Indian Province, pp. 154-5).

[61] Cf. Rowntree, Land and Labour, p. 129.

[62] Land Enquiry Report, p. 378.

[63] Smith-Gordon and Staples, Rural Reconstruction in Ireland, p. 24.

[64] Bonn, Modern Ireland, p. 113.

[65] Principles of Political Economy, p. 406.

[66] Cf. Smart, Studies in Economics, p. 314.

[67] It has been said that in London, owing to the smoke, there is only 12 per cent as much sunlight as is astronomically possible, and that one fog in five is directly caused by smoke alone, while all the fogs are befouled and prolonged by it (J. W. Graham, The Destruction of Daylight, pp. 6 and 24). It would seem that mere ignorance and inertia prevent the adoption of smoke-preventing appliances in many instances where, through the addition they would make to the efficiency of fuel, they would be directly profitable to the users. The general interest, however, requires that these devices should be employed beyond the point at which they "pay." There seems no doubt that, by means of mechanical stokers, hot-air blasts and other arrangements, factory chimneys can be made practically smokeless. Noxious fumes from alkali works are suppressed by the law more vigorously than smoke (ibid. p. 126).

[68] Thus the Interim Report of the Departmental Committee on smoke and Noxious Vapours Abatement 1920 contains the following passages:

"17. Actual economic loss Due to Coal Smoke.—It is impossible to arrive at any complete and exact statistical statement of the amount of damage occasioned to the whole community by smoke. We may, however, quote the following investigations.

"A report on an exhaustive investigation conducted by an expert Committee of engineers, architects, and scientists in 1912 in Pittsburgh, U.S.A., estimated the cost of the smoke nuisance to Pittsburgh at approximately £4 per head of the population per annum.

"18. A valuable investigation was made in 1918 by the Manchester Air Pollution Advisory Board into the comparative cost of household washing in Manchester—a smoky town—as compared with Harrogate—a clean town. The investigator obtained 100 properly comparable statements for Manchester and Harrogate respectively as to the cost of the weekly washing in working-class houses. These showed an extra cost in Manchester of 7½d. a week per household for fuel and washing material. The total loss for the whole city, taking the extra cost of fuel and washing materials alone, disregarding the extra labour involved, and assuming no greater loss for middle-class than for working-class households (a considerable under-statement), works out at over £290,000 a year for a population of three quarters of a million."

[69] Cf. Taussig, Inventors and Money Makers, p. 51.

[70] In Germany the town-planning schemes of most cities render anti-social action of this kind impossible; but in America individual site-owners appear to be entirely free, and in England to be largely free, to do what they will with their land. (Cf. Howe, European Cities at Work, pp. 46, 95 and 346.)

[71] The Common Sense of Municipal Trading, pp. 19-20.

[72] Cf. Hutchins, Economic Journal, 1908, p. 227.

[73] Cf. Newsholme, Second Report on Infant and Child Mortality [Cd. 6909], p. 56. Similar considerations to the above hold good of night work by boys. The Departmental Committee on Night Employment did not, indeed, obtain any strong evidence that this work injures the boys' health. But they found that it reacts injuriously on their efficiency in another way, i.e. by practically precluding them from going on with their education in continuation classes and so forth. The theory of our factory laws appears to be that boys between 14 and 18 should only be permitted to work at night upon continuous processes of such a kind that great loss would result if they did not do so. The practice of these laws, however, permits them to be employed at night on unnecessary non-continuous processes which are carried out in the same factory as continuous processes. Consequently, the Committee recommend that in future "such permits should be granted in terms of processes, and not of premises, factories, or parts of factories without reference to processes" ([Cd. 6503], p. 17).

[74] Cf. Annual Report of the Local Government Board, 1909-10, p. 57. The suggestion that the injurious consequences of the factory work of mothers can be done away with, if the factory worker gets some unmarried woman to look after her home in factory hours, is mistaken, because it ignores the fact that a woman's work has a special personal value in respect of her own children. In Birmingham this fact seems to be recognised, for, after a little experience of the bad results of putting their children out to "mind," married women are apt, it was said before the war, to leave the factory and take to home work. (Cf. Cadbury, Women's Work, p. 175.)

[75] For example, J. A. Hobson, Sociological Review, July 1911, p. 197, and Gold, Prices and Wages, pp. 107-8. Even Sidgwick might be suspected of countenancing the argument set out in the text (cf. Principles of Political Economy, p. 408). It does not seem to have been noticed that this argument, if valid, would justify the State in prohibiting the use of new machinery that dispenses with the services of skilled mechanics until the generation of mechanics possessing that skill has been depleted by death.

[76] Cf. Knoop, Principles and Methods of Municipal Trading, p. 35.

[77] It should be noticed that the argument of the text may be applicable even where the product formerly consumed is wholly superseded by the new rival, and where, therefore, nobody is actually deriving diminished satisfaction from the old product: for it may be that complete supersession would not have come about unless people's desire for the old product had been reduced by the psychological reaction we have been contemplating. Furthermore, the preceding argument shows that inventions may actually diminish aggregate economic welfare; for they may cause labour to be withdrawn from other forms of productive service to make a new variety of some article to supersede an old one, whereas, if there had been no invention, the old one would have continued in use and would have yielded as much economic satisfaction as the new one yields now. This is true, broadly speaking, of inventions of new weapons of war, so far as these are known to all nations, because it is of no advantage to one country to have improved armaments if its rivals have them also.

[78] Royal Commission on Labour, Q. 8665.

[79] The application of the principle is incomplete, because the revenue from these taxes, administered through the Road Board, must be devoted, "not to the ordinary road maintenance at all, however onerous it might be, but exclusively to the execution of new and specific road improvements" (Webb, The King's Highway, p. 250). Thus, in the main, the motorist does not pay for the damage he does to the ordinary roads, but obtains in return for his payment an additional service useful to him rather than to the general public.

[80] Mavor, Report on the Canadian North-West, p. 36.

[81] Ibid. p. 78.

[82] C. Webb, Industrial Co-operation, p. 149.

[83] Mr. Dawson believes that this type of overcrowding prevails to a considerable extent in German towns. He writes: "The excessive width of the streets, insisted on by cast-iron regulations, adds greatly to the cost of house-building, and in order to recoup himself, and make the most of his profits, the builder begins to extend his house vertically instead of horizontally" (Municipal Life and Government in Germany, pp. 163-4). Hence German municipalities now often control the height of buildings, providing a scale of permitted heights which decreases on passing from the centre to the outlying parts of a town.

[84] Cf. post, Part II. Ch. XV.

[85] Under simple competition, there is no purpose in this advertisement, because, ex hypothesi, the market will take, at the market price, as much as any one small seller wants to sell. Practically monopolistic competition comprises all forms of imperfect competition.

[86] Cf. Jenks and Clark, The Trust Problem, pp. 26-7.

[87] Cf. Shaw, Quarterly Journal of Economics, 1912, p. 748.

[88] Cf. the discussion of "constructive" and "combative" advertisements in Marshall's Industry and Trade, pp. 304-7.

[89] Cf. Goodall, Advertizing, p. 49.

[90] Ibid. p. 2.

[91] It should be observed that this type of advertisement, which aims in effect at diverting custom from a rival to oneself, may be pressed to lengths that the laws of modern States will not tolerate. Thus in some European States certain definite false statements about awards alleged to have been won at exhibitions or about an exceptional offer of bankrupt stock, direct disparagement of a rival's character or produce, and attempts to pass off one's own goods as the goods of a well-known house are punishable offences. (Cf. Davies, Trust Laws and Unfair Competition, ch. x.)

[92] Of course the "resources" invested in these things are measured by the actual capital and labour involved in the production of the paragraphs, not by a monopoly charge—if such is made—exacted for them by the newspaper concerned.

[93] [Cd. 4677], p. 27.

[94] With solidified units the settlement locus—i.e. the range of possible bargains—lies along the contract curve, and with representative units along portions of the two reciprocal demand (or supply) curves. For a technical discussion of this and connected points cf. my paper "Equilibrium under Bilateral Monopoly" (Economic Journal, Jan. 1908, pp. 205 et seq.); also my Principles and Methods of Industrial Peace, Appendix A.

[95] It will be understood that net product here means net product of dividend. It is not, of course, denied that, if a poor man outbargains a rich one, there is a positive net product of economic satisfaction, and, if a rich man outbargains a poor one, a corresponding negative net product of satisfaction.

[96] Cf. American Economic Association, 1909, p. 51.

[97] The legislation of many States concerning private labour exchanges is relevant here. For an account of this legislation, cf. Becker and Bernhardt, Gesetzliche Regelung der Arbeitsvermittelung.

[98] Aves, Co-operative Industry, p. 16.

[99] Sidgwick, Principles of Political Economy, p. 416.

[100] For a lurid account of some of these methods vide Lawson, Frenzied Finance, passim, and for an analysis of the protective devices embodied in the celebrated German law of 1884, vide Schuster, "The Promotion of Companies and the Valuation of their Assets according to German Law," Economic Journal, 1900, p. 1 et seq. It should be observed that the device of "matched orders" may be made difficult by a rule forbidding offers and bids for large amounts of stock on the terms "all or none." For, when such a rule exists, there is more chance that a seller or buyer operating a matched order may be forced unwillingly to make a deal with some one other than his confidant. (Cf. Brace, The Value of Organised Speculation, p. 241.)

[101] It is interesting to observe that, whereas the law often, and public opinion generally, condemns a seller who withholds relevant information, a buyer who acts in this way is generally commended for his "good bargain." Thus to pick up a piece of valuable oak furniture in an out-of-the-way cottage for much less than it is worth is thought by some to be creditable; and nobody maintains that the Rothschild, who founded the fortunes of his house by buying government stock on the strength of his early knowledge of the battle of Waterloo, was bound in honour to make that information public before acting on it. The reason for this distinction probably is that the possessor of an article is presumed to have full opportunity of knowing its real value, and, if he fails to do this, becomes, for his carelessness, legitimate prey. A director of a company who bought up shares in that company on the strength of knowledge gained in the Board room, and so not available to the shareholders generally, would be universally condemned.

[102] Cf. Van Hise, Concentration and Control, pp. 76-8.

[103] Cf. post, Part II. Ch. XIX.

[1] Principles of Economics, p. 597.

[2] Methods of Social Reform, p. 61.

[3] Loc. cit. p. 17.

[4] We may notice that, when, as in such a country as India, the narrowness of the markets and other causes prevent the development of any large-scale industries, the top end of the industrial ladder is cut off, and there is a difficulty, analogous to the difficulty discussed in the text, about the provision of an adequate training-ground for the higher forms of business ability. (Cf. Morison, The Industrial Organisation of an Indian Province, p. 186.)

[5] In Industry and Trade, Bk. ii., chapters ii. and iii., Marshall, after distinguishing between standards particular to an individual producer and standards that are general to the greater part of an industry, has much interesting discussion of modern developments in standardisation.

[6] Taylor, The Principles of Scientific Management, p. 78.

[7] Taylor, The Principles of Scientific Management, p. 39.

[8] Cf. Emerson, Efficiency, ch. vii. Mr. Dicksee draws some instructive comparisons between these methods and the various forms of drill practised among soldiers. (Business Methods and the War, Lecture 2.)

[9] Health of Munition Workers Committee, Interim Report, p. 77.

[10] Cf. Miers, Mind and Work, p. 192.

[11] It is not necessary to suppose that this central value is actually attained in any industry; it is rather to be conceived as the level which would be attained under conditions of simple competition in an industry of constant supply price.

[12] In view of the definition of an increment of investment given in Chapter IX. § 2, we must not speak of units being added to the resources without qualification that flow into an occupation.

[13] In an industry, for whose product the demand has an elasticity equal to unity, the amount of resources devoted to production will obviously be the same whether, the social net product of any rth increment of investment being given, this social net product of that increment is equal to or greater than the private net product. Therefore, when there is an excess of social over private net product in respect of the marginal unit of resources invested, the effect of the existence of this excess, in conditions of competition, is that consumers obtain for nothing exactly this excess: and the effect of there being an excess of (the given) social above private net product in respect of the other units of invested resources is that they obtain for nothing the aggregate of all these excesses. In industries, however, in which the elasticity of demand is not equal to unity, the existence of an excess of (the given) social above private net product of various quantities of investment causes the quantity of investment made to be different from what it would otherwise have been. This implies that the effect on the consumers' material estate, due to the existence of an excess of social over private net product in respect of the unit of investment which is marginal when there is such an excess, is not simply the amount of that excess. In like manner the effect on their material estate of the sum of all the excesses of the units of resources that are in fact employed is not simply the sum of those excesses. It follows, of course, that the effect on their satisfaction (as expressed in money) is not measured, as it is in the case of unitary demand elasticity, by the excess of their aggregate demand price for the quantity of product they do secure over their aggregate demand price for the quantity that they would have secured had (the given) social net product throughout been equal to private net product. These considerations render it inappropriate, except when the elasticity of demand is unitary, to speak of the excess of marginal social net product over marginal private net product as equivalent, in conditions of competition, to what "accrues" to the consumer in consequence of there being such an excess. For this reason I have in the present text modified the phraseology employed in the corresponding passages of the third edition.

[14] For another use cf. post, Part IV. Ch. III.

[15] Professor Cannan has objected to the use of the term "law" in connection with diminishing and increasing returns as defined above, on the ground that, whereas in some industries diminishing, and in others increasing, returns prevail, a scientific law is a statement that holds true in all, and not only in some, circumstances (Wealth, p. 70). It might be answered that in fact this is only true of the most general laws of physics. Biologists, for example, regularly speak of Mendel's law of inheritance, without any implication that all inheritance obeys this law. But in any event the point is a verbal one.

[16] Geometrically the continuous fall in costs would be represented by a lowering of the whole supply curve.

[17] In this case the extent to which the seams are worked out at any time is, of course, a result of the scale of output that ruled in the past; but this leaves my distinction intact.

[18] This conception, though mathematically simple, needs to be handled carefully when translated into ordinary language. An industry conforms to conditions of decreasing, constant or increasing supply price simpliciter according as the rate of increase, from the standpoint of the industry, of the supply price (associated with increasing output) is negative, nil or positive: it conforms to conditions of decreasing, constant or increasing supply price from the standpoint of the community according as the rate of increase from the standpoint of the community is negative, nil or positive. The rate of increase from the standpoint of the industry of the supply price is a differential, the integral of which is the supply price. The rate of increase from the standpoint of the community of the supply price is also a differential, but the integral which corresponds to it has no real significance. The rate of change from the standpoint of the community in the supply price does not mean the rate of change in the supply price from the standpoint of the community. There is no separate supply price from the standpoint of the community: there is only one supply price from all standpoints.

[19] Work and Wages, vol. i. p. 166.

[20] Principles of Economics, p. 318.

[21] Cf. Appendix III. § 17.

[22] It is not, it should be understood, impossible that this should happen. For example, if an industry employed only a small proportion of the total supplies of two factors of production and nearly the whole supply of a third, and if an increase in the scale of output caused new methods to be introduced which led to an absolute decrease in the amount of this third factor that was wanted, the prices of the first two factors would be practically unchanged, while that of the third would fall substantially. As a result a units of the first plus b units of the second plus c units of the third might cost less money than before. Plainly, however, such a combination of circumstances is not likely to occur.

[23] It should be added that, when commonness or rareness is an element in the esteem in which a person holds a thing, it is often not general commonness or general rareness alone, but, in many instances, both commonness among one set of people and also rareness among another set. As Mr. McDougall writes of the followers of fashion: "Each victim is moved not only by the prestige of those whom he imitates but also by the desire to be different from the mass who have not yet adopted the fashion" (Social Psychology, p. 336). This aspect of the matter cannot, however, be pursued here.

[24] Cf. a papor by Dr. Clapham on "Empty Economic Boxes" in the Economic Journal for September 1922, and a reply by the present writer in the December issue of the same journal.

[25] It might have proved practicable to fix prices at a considerably lower level if the good and bad firms had been formed into a kind of pool, and the objective sought been normal profits for the pool as a whole. Professor Taussig has pointed out that, before an arrangement of this kind could be worked, very serious administrative difficulties would have to be overcome and an elaborate system of detailed costings set up (Quarterly Journal of Economics, Feb. 1919). Besides this technical objection, there is the further more general objection that efficient management in individual firms would be very greatly discouraged, since it would reap very little reward.

[26] Cf. Supplement to American Economic Review, March 1919, p. 244.

[27] Cannan, Economic Journal Dec. 1917, p. 468.

[28] Pareto, Cours d' économic politique, i. p. 20.

[29] Cf. Van Hise's account of the development of various important industries in the United States (Concentration and Control, pp. 42 et seq.) and Sir Sydney Chapman's discussion of the normal size of individual factories in the cotton industry (Journal of the Royal Statistical Society, April 1914, p. 513).

[30] Cf. Chapman, Work and Wages, vol. i. p. 237.

[31] Cf. Marshall, Industry and Trade, p. 601.

[32] Hobson, The Industrial System, p.187, quoted from W. R. Hamilton, The Cost of Production in Relation to Increasing Output.

[33] McCrosty, Economic Journal, Sept. 1902, p. 359.

[34] Dr. Liefmann writes: "Einige Trusts, so der Zucker- und Spiritustrust, bildeten sich zu einer einzigen Gesellschaft um, also im Wege der vollstandigen Verschmelzung, der Fusion, d.h. die betreffenden Unternehmungen gehen alle in einer einzigen derart auf, dass sie als besondere wirtschaftliche Organisation aufhoren zu existieren. Die meisten aber nahmen in neuester Zeit nach verschiedenen Versuchen die Form der sogenannten Holding Company, einer Kontrollgesellschaft, wie wir es nennen konnen, an, d.h. die Gesellschaft erwarb alle oder doch die Mehrheit der Aktien samtlicher zum Trust gehorender Einzelgesellschaften" (Kartelle und Trusts, p. 114).

[35] Report, p. 25. Cf. Marshall, Industry and Trade, p. 24, footnote.

[36] Cf. post, Part II. Chap. XIX. § 4.

[37] Cf. Jenks and Clark, The Trust Problem, p. 43.

[38] Cf. Brace, The Value of Organised Speculation, p. 210.

[39] For a very full study of the subject-matter of §§ 2-3, Cf. Marshall, Industry and Trade, Bk. ii. chaps. iii.-iv.

[40] Railway Conference, p. 26.

[41] The suggestion, that combination enables savings to be made in respect of the number or quality of traveling salesmen and so on, is not upset by the fact that, in some instances, after the formation of a combination, the aggregate annual wages paid to salesmen have increased. For the increase was probably due to attempts on the part of the combination to extend its market into fields which were not formerly occupied by any of its constituent members, or in which the business accessible to single firms was not enough to make it worth while for any of them to have salesmen there.

[42] The following passage from Mr. J. M. Clark's The Economics of Overhead Costs is interesting in this connection. "How great are the economies of combination? So far as horizontal combination goes, the most definite quantitative evidence is afforded by Dewing's study of thirty-five combinations, all of which merged at least five concerns which had formerly competed and all of which had had a ten-year history before 1914, when the disturbances due to the world-war made further comparisons irrelevant. He finds that the promoters of these combinations prophesied sufficient savings to increase their net earnings, on the average, about 43 per cent above their previous level. This average included only serious estimates, taking no account of what were obviously sheer exhibitions of rosy imagination. The outcome told another story, however, for the net earnings of the first year after consolidation averaged about 15 per cent less than the previous earnings of the constituent parts, while the result for the ten years following combination was still worse; about 18 per cent less than the previous earnings of the constituent parts, without allowing for the fact that considerable amounts of new capital were invested during the ten-year period" (loc. cit. pp. 146-7).

[43] If x is the quantity purchased and (x) the demand price per unit, the elasticity of demand is represented by If this is equal to unity for all values of x, the demand curve is a rectangular hyperbola. The verbal definition of the text is an approximate translation of the above technical definition, so long as the term small contained in it is emphasised. But, of course, a 50 per cent fall in price must be accompanied, if the elasticity of demand is to be equal to unity, by a 100 per cent rise in consumption. It will be understood, of course, that, when we speak of the gains from monopolisation depending on the elasticity of demand, there is a tacit implication that the elasticities as defined above, at the several points on the relevant range of the demand curve, do not greatly differ from one another. Mr. Dalton has suggested (The Inequality of Incomes p. 192 et seq.) that, when the price of anything increases by any finite percentage, the term "arc elasticity" should be used to represent this percentage change divided into the corresponding percentage change of quantity. But, since there would generally be a different arc elasticity for every different amount of price change from a given starting point, this new term might, in unpractised hands, easily lead to confusion.

[44] Cf. Report of the Federal Trade Commission, 1919, on the Meat-packing Industry, pp. 86 and 89.

[45] Cf. Macpherson, Transportation in Europe, p. 231.

[46] Cf. Johnson, American Railway Transportation, pp. 267-8.

[47] The Coal Question, p. 135.

[48] Cf. Besse, L'Agriculture en Angleterre, pp. 45 and 85.

[49] Cf. Levy, Monopole, Kartelle und Trusts, pp. 227, 229, 237.

[50] Cf. Chapman, Unemployment in Lancashire, p. 87.

[51] Cadbury, Women's Work, p. 172. It may be added that, from a short-period point of view, the elasticity of the demand for new production of certain durable goods is made greater than it would otherwise be by the fact that half-worn-out garments and other such things are possible substitutes for new ones. (Cf. Chapman, The Lancashire Cotton Industry, p. 120.

[52] Monopole, Kartelle und Trusts, p. 280.

[53] It should be noticed, however, that, though houses as wholes cannot be imported, it is becoming always easier to import parts of them. The imports of wrought stone, marble and joinery doubled between 1890 and 1902; whereas from the provinces to London the "imports" of these things have increased still more largely (Dearle, The London Building Trades, p. 52).

[54] Cf. Birck, Theory of Marginal Values, pp. 133-4.

[55] Unternehmeverb nde, p. 57.

[56] Cf. Levy, Monopole, Kartelle und Trusts, p. 172.

[57] Industry and Trade, p. 549.

[58] Levy,Monopole, Kartelle und Trusts, p. 187.

[59] Walker, Combinations in the German Coal Industry, p. 43.

[60] Robinson, American Economic Association, 1904, p. 126.

[61] V.S. Clark, United States Bulletin of Labour, No. 43, p. 1251.

[62] Meade, Corporation Finance, p. 36.

[63] Cf. ante, pp. 223-4.

[64] G. Hotelling, "Stability in Competition," Economic Journal, March 1929.

[65] Edgeworth, Giornale degli economisti, November 1897, p. 405.

[66] Thus, if y be the aggregate output of an industry and x the output of a firm of typical size, then, writing F(x, y) for the total cost of its output to this firm, we have x determined by the equation We must not suppose monopoly to come about because the introduction of a new technique has changed F into , in such wise that, for a given value of y, gives a larger value of x than does, thus reducing the number of firms in that industry, and so making the formation of a price agreement easier. We must suppose F to be the same under both systems.

[67] The agreements, short of pooling, between railways sometimes embrace agreements as to speed; those between the members of some, but not all, shipping conferences, agreements as to the relative number of sailings permitted to the various members (Royal Commission on Shipping Rings, Report, p. 23).

[68] Royal Commission on Shipping Rings, Report, p. 108.

[69] Changes in the Structure of World Economics since the War, p. 158.

[70] Recent Economic Changes, p. 139.

[71] Attention may be called here to a peculiar case. Suppose the same process to yield two joint products, one of which is controlled monopolistically but the other is not. Then, as shown above, if entry to the industry can be restricted, simple monopoly will make the outputs of both products less than they would be under simple competition. The whole of the non-monopolised joint product that is produced will be sold, but, provided that the demand for the monopolised product has an elasticity less than unity, and that, in respect of the most profitable scale of output, the demand price for the non-monopolised product exceeds the supply price of the process that produces both products, a part of the monopolised product will be thrown away. If entry to the industry is not restricted, more resources will flow into it than would so flow under simple competition. On the assumption that these are actually set to work and not left standing idle, this will mean that, in the above conditions, the output and sale of the non-monopolised joint product is larger than it would have been under simple competition. It is possible, though improbable, that, as a net result, there may be evolved a larger sum of consumers' surplus than simple competition would allow.

[72] Walker, Combination in the German Coal Industry, p. 274.

[73] It must be added, however, that, though trade marks are sometimes mere devices for creating monopoly power, there is, nevertheless, a valid reason for protecting them against infringement by legal enactments, because "an inducement is thereby given to make satisfactory articles and to continue making them." (Cf. Taussig, American Economic Review Supplement, vol. vi., 1916, p. 177.)

[74] A person's demand schedule for any commodity is the list of different quantities of that commodity that he would purchase at different price levels. Cf. Marshall, Principles of Economics, p. 96.

[75] For such an analysis, cf. my paper "Monopoly and Consumers' Surplus," Economic Journal, September 1904.

[76] Colson, Cours d' économie politique, vol. vi. p. 211. Special opportunities for injurious discrimination of this sort exist when a railway company is itself a large producer of some commodity, say coal, which it also transports for rival producers. To prevent the obvious abuses to which this state of things may lead, the "commodity clause" of the Hepburn Act passed in 1906 in the United States made it unlawful for any railway to engage in interstate transport of any commodity which had been mined or manufactured by itself. The law does not, however, prevent a railway from transporting a commodity produced by a company in which it holds a majority of the shares, and it can, therefore, be evaded without great difficulty. (Cf. Jones, The Anthracite Coal Combination, pp. 190 et seq.)

[77] Cf. ante, Part II. Ch. XI. § 13.

[78] Cf. Appendix III. §26.

[79] Cf. Appendix III. § 28.

[1] It is interesting to note that the problem of how retail shops should distribute their charges for the act of retailing over the various commodities that they sell is very closely analogous to the problem of railway charges. Among retail shops, however, there is the additional complication that a retailer is sometimes able to obtain a general advertisement for his shop by selling particular well-known goods practically free of retailer's profit.

[2] Cf. ante, Part II. Chapter III. § 4, footnote.

[3] It is, indeed, sometimes maintained that this will only happen it "simple competition" is defined to include complete transferability of the things that are sold among customers, and it is pointed out that competition, apart from this condition, has proved compatible with discriminating charges for services sold to different sets of persons by shipping companies and by retailers; different sorts of cargoes are carried at different rates, and the absolute charge for retailing work is different in regard to different articles. (Cf. G. P. Watkins, "The Theory of Differential Rates," Quarterly Journal of Economics, 1916, pp. 693-5). Reflection, however, shows that, when competition really prevails, seller A must always endeavour to undersell seller B by offering to serve B's better-paying customers at a rate slightly less than B is charging, and that this process must eventually level all rates. The explanation of the discriminations cited above is, not the absence of complete transferability, but the fact that custom and tacit understandings introduce an element of monopolistic action.

[4] Cf. Williams, Economics of Railway Transport, p. 212

[5] Acworth, Elements of Railway Economics, p. 120.

[6] Cf. Haines, Restrictive Railway Legislation, p. 148.

[7] Quarterly Journal of Economics, November 1910, p. 47.

[8] Acworth, Elements of Railway Economics, footnote, pp. 122-3.

[9] Cf. Marriott, The Fixing of Rates and Fares, p. 21.

[10] Principles of Economics, vol. i. p. 221. Cf. also vol. ii. p. 369.

[11] Taussig, "Theory of Railway Rates," in Ripley's Railway Problems, pp. 128-9.

[12] Principles of Economics, vol. i. p. 221.

[13] Quarterly Journal of Economics, 1913, p. 381.

[14] On the general subject of the relation of the concept of joint costs to railway service, cf. a discussion between Professor Taussig and the present writer in the Quarterly Journal of Economics for May and August 1913. Two further points should be added.

First, it is sometimes maintained that the concept of joint costs, in the sense assigned to it in the text, is applicable where only one sort of commodity is produced, provided that the units of process, by which the commodity is made, are large relatively to the units of commodity. When, for instance, the marginal unit of process produces 100 units of product, it may be argued that 100 units must yield a price sufficient to remunerate one unit of process, but that it is immaterial to the suppliers by what combination of individual prices the aggregate price of 100 units is made up. This suggestion, however, when stated in the above general form, ignores the fact that 100 units of product can be removed, not only by abstracting one unit from the fruit of each of a hundred units of process, but also by abolishing one unit of process, and that, under free competition, if any units of product were refused a price as high as 1/100th part of the supply price of a unit of process, this latter method of abstraction would naturally be employed. This shows that physically identical products, yielded by the same process at the same time, are not, in general, joint products in any sense, even though the marginal unit of the process of production is large. But this reply is not relevant, and the concept of joint supply cannot be ruled out, when the number of units of process that are actually being provided is the minimum number that it is practicable to provide so long as any are provided. In these circumstances there is nothing incompatible with the analysis of the text in regarding the resultant units of product as jointly supplied. The costs of constructing through any region the least expensive railway that it is possible to construct at all are joint costs of all the various items of service rendered by the railway. It is possible by following this line of analysis to reach the results obtained by the different line of analysis to be followed in § 8. In the special problem of the least expensive railway that it is possible to construct at all, the two lines are equally admissible. (Cf. Quarterly Journal of Economics, August 1913, p. 688.) Since, however, analysis by way of joint supply is only applicable in a single and peculiar type of problem, whereas analysis by way of discriminating monopoly, to be adopted in the text, is applicable to all problems, the latter method should be given preference.

Secondly, the concept of joint supply can, if desired, be applied to the same services rendered at different times by the same fixed plant. Thus the services of railways for night travelling and day travelling may be called joint, and different rates advocated on that ground. This consideration is especially important with electricity rates. It justifies differentiation of a form designed to carry off nearly equal supplies throughout the day or year. The same result can be obtained on a different route if we regard the services supplied at the two times as being the same service but subject to varying demands. The point of distinction, as against a railway carrying different things at the same time, is that the railway can be adjusted to carry any quantity of things, so that to carry A does not involve power to carry B; but a railway fitted to carry A in the day cannot be provided except in a form that gives power to carry A also at night. The distinction would, of course, lose most of its significance if the capital equipment were expected to maintain its full value over a defined period of use and not over a defined period of time; for then less night use now would make possible more day use later on. But in fact plant largely wears out through time independently of use; e.g. rails and ties deteriorate with weather (cf. Watkins, Electrical Rates, p. 203), and also tend to become obsolete.

[15] Cf. Johnson, American Railway Transportation, p. 138. It should be noticed that, whereas there is little jointness as between first and third class passenger service on railways, there is probably a considerable element of such jointness as between first and third class service on ships; because the structure of a ship necessarily involves the provision at the same time of more and of less comfortable parts of the vessel.

[16] Thus, let 1(x1), ( 2)x2... represent the demand prices in n separate markets, and f(x) the supply price.

The prices proper to the separate markets under monopoly plus discrimination of the third degree are given by the values of 1(x1), 2(x2)... that satisfy n equations of the form: These n equations are sufficient to determine the n unknowns.

[17] Where the curves representing the demand schedules are straight lines, this complex determinant dissolves into a simple one, namely, the comparative demand prices of those units which are most keenly demanded in each of the several markets. Under these conditions, if conditions of constant supply price prevail, the monopoly price proper to each market can be shown to be equal to one half of the difference between the supply price and the demand price of the unit that is most keenly demanded there.

[18] Quarterly Journal of Economics, November 1910, p. 38.

[19] Cf. Colson, Cours d' économie politique, vol. vi. p. 230.

[20] Cf. Rowntree, Land and Labour, p. 289.

[21] M. Colson suggests that a plan, under which all trains should take third class passengers, the fast trains charging a supplement, would be superior to the present Continental plan, under which a passenger, who wishes to travel fast, has to pay the whole difference between third and second class fare.

[22] Cf. Mahaim, Les Abonnements d'ouvriers, p. 12.

[23] Cf. Marriott, The Fixing of Rates and Fares, p. 27 et seq., for these lists.

[24] Cf. Quarterly Journal of Economics, November 1910, pp. 13, 15 and 29.

[25] Colson, Cours d' économic politique, vol. vi. p. 227.

[26] Cf. ibid, p. 227.

[27] Ripley, Railroads, Rates and Regulation, p. 318.

[28] Cf. Marriott, The Fixing of Rates and Fares, p. 43.

[29] Report of the Railway Conference, 1909, p. 99.

[30] Cf. ante, Part II. Chapter XVII. § 13.

[31] Railroad Transportation, p. 115. It may conceivably be objected to the construction of a railway in these circumstances that it will injure the rival industry of water carriage to an extent that will offset the advantages to which it leads. This objection can, however, be shown to be inapplicable, so long as the railway as a whole pays its way. Cf. ante, Part II. Chapter IX. § 11.

[32] Cf. ante, Part II. Chapter XVII. § 9, and Appendix III. § 26.

[33] Ibid.

[34] Economic Journal, 1913, p. 223.

[35] Mr. Bickerdike (Economic Journal, March 1911, p. 148) and Mr. Clark (Bulletin of American Economic Association, September 1911, p. 479) argue, in effect, that the transition from the one system to the other should occur, not when rising demand lifts the railway in question out of the stage just described, but when, if ever, it rises so high as to impinge on that point of the supply curve at which a negative slope passes into a positive one. There is not, in my opinion, any adequate ground for this view.

[36] It is possible to maintain, on lines similar to the above, that, after a railway has been built, and has reached the stage of profitable working on the cost of service principle, another stage will presently arrive, at which a return to the value of service principle would enable a second track to be laid down with advantage to the community, though, under a rate system based on the cost of service principle, such an extension would not as yet be profitable to the company. This argument justifies the establishment of a system of discriminating rates, to be applied to traffic carried on the new track only; and a modification of it justifies the establishment of such a system, to be applied exclusively to traffic carried in any additional train or truck which, apart from discrimination, it is just not worth while to run. In practice, however, it is impossible to apply the value of service principle in this limited way. If it is introduced for the traffic proper to the second track or the extra truck, it must, in real life, be introduced for all the traffic carried on the line. The argument set out above does not justify this.

[37] In Belgium the system of cheap workmen's tickets, which has been carried to great perfection, seems to act in this way. (Cf. Rowntree, Land and Labour, p. 108.) Dr. Mahaim offers some confirmation of the view that it acts so in the fact that Belgium is a land of "large towns" rather than of "great cities," a much larger proportion of the population living in communes of from 5000 to 20,000 inhabitants in that country than in France or Germany (Les Abonnements d'ouvriers, p. 149). At the same time, Dr. Mahaim admits that the cheap tickets have also an adverse effect. "On commence par aller á la ville on á l'usine en revenant tous les soirs ou tous les samedis chez soi; puis on s'habitue peu á peu an nouvean milieu, et l'on finit par s'y implanter" (ibid. p. 143). In fact the cheap tickets "apprennent le chemin de l'èmigration."

[38] Cf. Quarterly Journal of Economics, February 1911, pp. 292-3, 297-8 and 300: also Departmental Committee on Railway Rates, p. 10.

[39] Cf. Quarterly Journal of Economics, May 1911, pp. 493-5.

[40] Cf. post, Part II. Chapter XXI. § 2.

[41] Rural Denmark, pp. 195-6.

[42] In like manner, the charge that the development of Purchasers' Associations on the part of groups of persons other than ultimate consumers may make possible monopolistic action against these consumers is irrelevant; for, so also may the development of commercial firms.

[43] Rew, An Agricultural Faggot, p. 120.

[44] Care must be taken, however, not to treat as waste in the work of retailing those costs that are necessarily involved in the kind of retailing that the public chooses to ask for. "Imagine that every one intending to buy a pair of shoes or a suit of clothes was called on to send notice of his proposed purchase a week or two in advance, to give a preliminary account of the thing wanted, and then to accept an appointment for a stated place or time at which the purchases must be made. It is easy to see how the work of retailing could be systematised, how the selling force would be kept constantly employed, how stocks would be kept to the minimum. As things now stand, we pay heavily for the privilege of freedom in the use of our time, for vacillation and choice, for the maintenance of a stock and a staff adequate for all tastes and all emergencies. It is common to speak of the waste of competition; much of it is in reality the waste necessarily involved in liberty" (Taussig, American Economic Review, vol. vi. No. 1 Supplement, 1916, p. 182).

[45] Marshall, Inaugural Address to the Co-operative Congress, 1889, p. 8.

[46] Cf. Cours d'économie politique, p. 274.

[47] It should be added that, even if other things were equal, the payment of a dividend by a co-operative society trading at the same price as another concern would not prove greater efficiency of management; for, if, as is common, the society proceeded to a greater extent on a system of cash sales, the dividend would pro tanto be simply payment to purchases of interest on their earlier discharge of indebtedness.

[48] In the United States, where the President of a company often holds a very large individual interest, it appears that he sometimes acts on behalf of the company, just as a private owner would do. "Generally speaking, the President of an American Corporation acts just as freely and energetically on behalf of his company as he would on his own behalf" (Knoop, American Business Enterprise, p. 26). He only consults the directors when he wishes to do so.

[49] In the Danish co-operative bacon factories loyalty is generally enforced by a provision to the effect that members shall deliver all their saleable pigs (with certain specified exceptions) to the factory for a period of seven years, unless in the meantime they remove from the district (Rew, An Agricultural Faggot, pp. 123.4). In like manner many Irish dairying societies provide that "any member who shall supply milk to any creamery other than that owned by the society for the space of three years from the date of his admission to membership, without the consent in writing of the Committee, shall forfeit his shares together with all the money credited thereon" (Report on Co-operative Societies [Cd. 6045], 1912, p. xxxix). It will be noticed that in these classes of societies—and it is only in them that loyalty is enforced in the rules—the use of a considerable plant makes the maintenance of a steady demand a more important influence in eliminating cost than it would be in, say, an agricultural purchasing society.

[50] Ireland in the New Century, p. 241.

[51] Co-operation at Home and Abroad, p. 164.

[52] Cf. Inaugural Address to the Co-operative Congress, 1889, p. 7.

[53] Mavor, Report on the Canadian North-West, p. 44.

[54] Webb, A Constitution for the Socialistic Commonwealth, p. 252.

[55] For a full discussion of the various forms of co-operative activity, vide Fay, Co-operation at Home and Abroad. I am also indebted to Mr. Fay for useful criticism and suggestion in connection with this chapter.

[56] Municipal and Private Operation of Public Utilities (Report to the National Civic Federation, U.S.A.), vol. i. p. 39.

[57] Bemis, Municipal Monopolies, p. 174.

[58] Municipal and Private Operation of Public Utilities, vol. i. p. 429

[59] Marshall, "Economic Chivalry," Economic Journal, 1907, pp. 18-19.

[60] H. Meyer, Municipal Ownership in Great Britain, p. 258.

[61] Darwin, Municipal Trade, 102.

[1] Jenks and Clark, The Trust Problem, p. 295.

[2] Departmental Committee on Railway Agreements and Amalgamations, 1911, p. 18.

[3] Cf. American Economic Review Supplement, March 1914, p. 176. For a full account of American Anti-Trust Laws and Cases, cf. Davies, Trust Laws and Unfair Competition.

[4] Factors in Industrial and Commercial Efficiency, 1927, p. 107.

[5] Cf. Walker, Combinations in the German Coal Industry, p. 322. Mr. Walker points out, however, that this tendency, at all events in the Ruhr Kartel, is smaller than appears at first sight, since the large mines, by sinking more shafts and by buying up small mines, can increase their "participation" (ibid. p. 94). Morgenroth, in his Exportpolitik der Kartelle, emphasises this point in regard to Kartels generally. He points out further that the anti-economic effects of Kartels are mitigated by their tendency to lead to the development of "mixed works," which refuse to admit any limitation in their output of raw stuff to be worked up in their own further products. Thus among these important mixed works the selective influence of competition is not restrained by agreements (loc. cit. p. 72).

[6] Report of the Committee on Trusts, 1919, p. 3.

[7] Cf. Liefmann's statement: "Verschiedene grosse Unternehmungen erwarben nämlich diese kleinen Zechen nur um ihrer Beteiligungsziffer im Syndikat willen, legten sie aber dann still und forderten deren Absatzquote auf ihren eigenen Schächten billiger. War dies auch natürlich fur die betroffenen Arbeiter und Gemeinden sehr nachteilig, so ist dooh zu berücksichtigen, dass diese kleinen Zechen bei freier Konkurrenz langst zugrunde gegangen waren. Höchstens kann man sagen, dass daun die Still-legung und die Entlassung der Arbeiter sich weniger plötzlich vollzogen hatte und länger voraussehbar gewesen wäre" (Kartelle und Trusts, pp. 61-2).

[8] Cf. Macgregor, Industrial Combination, p. 34. This device rules prominently in the United States Steel Corporation (Van Hise, Concentration and Control, p. 136). An elaborate account of it is given by Jenks in the U.S.A. Bulletin of Labour, 1900, p. 675.

[9] Clark, The Control of Trusts (revised edition), p. 14.

[10] The Control of Trusts, p. 29.

[11] Professor Durand argues in favour of a policy of trust-breaking that, in general, the business units evolved apart from combination would be large enough to secure practically all the structural and other economies of production available to trusts (Quarterly Journal of Economies, 1914, p. 677 et seq.). It should be observed, however, that, even if this were true, the policy of trust-breaking would not be shown to be superior to one of depriving trusts of monopolistic power: for both policies would then lead to the establishment of business units of a size yielding maximum efficiency. In fact, however, it is plainly not true in all industries; and, when it is not true, trust-breaking leads to the establishment of units too small to yield maximum efficiency.

[12] For these reasons the admirable price studies in Jenks's Trust Problem are hardly adequate to support the favourable judgment as to the effect of combinations that he rests on them.

[13] This proposition is exactly true on the hypothesis that the curves of demand and supply are straight lines.

[14] The weapon of boycott can also be used to force upon retailers an agreement to maintain the prices of particular goods sold by them at a level dictated by the manufacturers of the goods. It would seem that manufacturers do not wish quality-articles to be sold too cheap to consumers, lest they should "lose caste" with them. But probably their main motive is the knowledge that, if the goods are made into "leaders," on which the retailers make scarcely any direct profit, and which serve merely to advertise other wares, the retailers will tend not to push their sale (Taussig, American Economic Review, vol. vi. No. 1 Supplement, 1916, pp. 172-3).

[15] This method is alleged to have been practised by the Standard Oil Company. The object, of course, is to obviate a clamour from customers in other markets for a similar cut on their purchases. (Cf. Davies, Trust Laws and Unfair Competition, p. 319.)

[16] U.S.A. Industrial Commission, I. i. p. 20.

[17] Hobson, Evolution of Modern Capitalism, p. 219.

[18] Cf. my paper, "Monopoly and Consumers' Surplus," Economic Journal, September 1904, p. 392.

[19] Thus Jenks (U.S.A. Bulletin of Labour, 1900, p. 679) states that "about half the combinations reporting sell direct to consumers."

[20] Times, 8th February 1903. Cf. Appendix to the Report of the (British) Committee on Trusts, 1919, p. 27. Action of this kind is directly prohibited in Australia under the Patents Act of 1903. (Cf. Davies, Trust Laws and Unfair Competition, p. 247.) The British Patents Act of 1907 permits it only provided that the lessee is given an opportunity of hiring the patented machine without the tying clauses on "reasonable," though not, of course, equal terms.

[21] Cf. Royal Commission on Shipping Rings, 1909, Report, p. 13. The Commissioners suggest that it is for this reason that the deferred rebate system is not applied to our outward trade in coal or to the greater part of our inward trade, which consists of rough goods, but only to those cargoes for which a regular service of high-class steamers is essential. (Cf. ibid. p. 77.)

[22] This method was described by the Royal Commissioners on Shipping Rings, 1909, thus: "The Companies issue a notice or circular to shippers informing them that, if at the end of a certain period (usually four or six months) they have not shipped goods by any vessels other than those despatched by members of the Conference, they will be credited with a sum equivalent to a certain part (usually 10 per cent) of the aggregate freights paid on their shipments during that period, and that this sum will be paid over to them, if at the end of a further period (usually four or six months) they have continued to confine their shipments to vessels belonging to members of the Conference. The sum so paid is known as a deferred rebate. Thus in the South African trade at the present day the amount of the rebate payable is 5 per cent of the freight paid by the shipper. The rebates are calculated in respect of two six-monthly periods ending with the 30th June and 31st December respectively, but their payment to the shipper is not due until a further period of six months has elapsed; that is to say, that, as to shipments made between the 1st January and the following 30th June, the rebates are payable on the 1st January following, and, as to shipments made between the 1st July and the 31st December, the rebates are payable on the following 1st July. It follows that in this instance the payment of the rebate on any particular item of cargo is withheld by the shipowners for at least six months and that, in the case of cargo shipped on the 1st January or 1st July, it is withheld for a period of twelve months. If during any period a shipper sends any quantity of goods, however small, by a vessel other than those despatched by the Conference Lines, he becomes disentitled to rebates on any of his shipments by Conference vessels during that period and the preceding one" (Report, pp. 9-10). Since the issue of the Royal Commission's Report a new method of tying shippers, known as the agreement system, has come into operation. When South African legislation in 1911 "forced the liner companies trading with South African to relinquish the rebate system, an agreement was drawn up after negotiations between the South African Trade Association and the South African Shipping Conference.... The shippers who sign agree to give their active support to the regular lines in the Conference. In return the lines undertake to maintain regular berth sailings at advertised dates, the ships to sail full or not full, and to provide sufficient tonnage for the ordinary requirements of the trade; and, further, to maintain stability of freights, which are definitely prescribed in the agreement, and equality of rates to large and small shippers alike" (Report of the Imperial Shipping Committee, 1923, Cmd. 1802, pp. 20-21).

[23] Royal Commission on Shipping Rings, Report, pp. 29-30.

[24] Ibid. p. 30. The decision of the House of Lords in the Mogul Steamship Co. case, 1892, was to the effect that the party injured by an arrangement of this kind had no ground of action for damages, but it did not, it would seem, necessarily imply that the combination against which action was brought was itself lawful (Davies, Trust Laws and Unfair Competition, p. 234). In a similar case in the German Imperial Court (1901), an injunction against discrimination was granted (ibid. p. 262).

[25] Cf. The Great Oil Octopus, p. 40; Ripley, Railroads, Rates and Regulation, p. 200.

[26] The same thing is true when the boycotting concern owns, as the Big Five meat-packers do, stockyards and cold-storage warehouses which their rivals must use and in respect of which they can make discriminating charges against them. The Federal Trade Commission, in their report on the meat-packing industry in 1919, urged that, to obviate this, the State should itself acquire these stockyards and cold-storage plants.

[27] United States Industrial Commission, vol. xviii. p. 154.

[28] It is instructive to read in M. Colson's great work (Cours d' économie politique, vol. vi. p. 398) that abusive discriminations "semblent être devenus bien plus rares en Angleterre qu'en Amérique, bien que l'Administration y ait des pouvoirs beaucoup moins étendus et que les pénalités y soient moins sévères, parce que l'entente entre Compagnies y est admise par la loi; au contraire en Amérique, les pouvoirs publics s' efforcent d'empêcher les accords qui mettraient fin à la concurrence, cause essentielle des inégalités de traitement, et par suite ne sont pas arrivés, jusqu'ici, à déraciner celles-ci."

[29] For these laws cf. Davies, Trust Laws and Unfair Competition, pp. 550-51. Australia (1906) has a more complicated law which condemns dumping in the Canadian sense, along with certain other forms of importation, under the general head of unfair competition, and meets it with a penalty, not a special duty. Cf. for a general discussion of anti-dumping legislation, Viner, Dumping (1923), ch. xi.-xiv. For the most recent facts cf. Memorandum on the Legislation of Different States for the Prevention of Dumping, Economic and Financial Section of the League of Nations, C.E., 1.7.1927.

[30] Clark, The Control of Trusts, p. 69.

[31] Economist, 25th Jan. 1910, p. 1412. Cf. Ripley, Railroads, Rates and Regulation, p. 566.

[32] The English Patents and Designs Amendment Act of 1907 prohibits exclusive dealing contracts of this kind, unless the seller, lessor or licensee proves that, when the contract was made, his competitors had the option of obtaining the patented goods on reasonable terms without the exclusive condition (Davies, Trust Laws and Unfair Competition, p. 539).

[33] Quoted by Ely, Monopolies and Trusts, p. 97.

[34] Economist, 28th Feb. 1903.

[35] Ripley, Railroads, Rates and Regulation, p. 209.

[36] P. de Roussiers, Cartels and Trusts and their Development (Economic and Financial Section of the League of Nations, 1927, II. 21), p. 9.

[37] Levy, Monopole, Kartelle und Trusts, p. 197.

[38] Cf. Jenks and Clark, The Trust Problem, pp. 69-70.

[39] Report of the Departmental Committee on Railway Agreements and Amalgamations, p. 21.

[40] Cf. Marshall, Industry and Trade, p. 625.

[41] Cf. Marshall, Principles of Economics, Bk. v. ch. xiv. § 9.

[42] The Imperial Shipping Committee 1923, while endorsing that policy, observe that (so far as shipping is concerned) "only two bodies of importance formed on the lines recommended by the Commission and since its appointment have come to their notice" (Cmd. 1802, p. 23).

[43] Cf. Appendix III. § 23.

[44] In technical language, the limitation of monopoly prices moves the exchange index along the demand curve towards the right; the limitation of competitive prices pushes the exchange index below the demand curve.

[45] Cf. Van Hise, Concentration and Control, p. 261.

[46] National Civic Federation,Municipal and Private Operation of Public Utilities, vol. i. p. 41.

[47] The text of these laws is printed in Appendix G to Jenks and Clark, The Trust Problem.

[48] Cf. Davies, Trust Laws and Unfair Competition, p. 294.

[49] Economist, March 26, 1910, p. 665. Cf. Annals of the American Academy, July 1912, p. 152.

[50] Cf. Johnson and Huebner, Principles of Ocean Transportation, p. 386.

[51] H. Meyer, Public Ownership and the Telephones, pp. 56, 199.

[52] Cf. the judgment of Chief-Justice White, laying down in this case what has now become known as "the rule of reason" in interpreting the Act (quoted by Jenks and Clark, The Trust Problem, p. 299.)

[53] Cf. Railway Conference Report, p. 57.

[54] With joint products, of course, it is impossible to isolate separate costs of production, and the "proper" price for each of them will depend on the comparative demands for them severally as well as upon their cost of production jointly: a fact which still further complicates the task of any would-be price-fixer.

[55] The careful reader will have noticed that, should the equipment possessed by the monopolist be larger than that proper to competition, it will not in fact be possible, at a price determined as above, to find a market for the whole of the output that it would be profitable to produce at that price. This fact, however, does not in any way impair the analysis of the text.

[56] The difficulty dealt with in the above section, which in earlier editions I had not noticed, was brought out in an illuminating article on "Control of Investment versus Control of Return" by Professor Knight in the Quarterly Journal of Economics for February 1930.

[57] Jenks and Clark, The Trust Problem, p. 90.

[58] Cf. Heilman, "Principles of Public Utility Valuation," Quarterly Journal of Economics, Feb. 1914, pp. 281-90.

[59] Cf. Barker, Public Utility Rates, chapters v. and vi.

[60] Cf. Bauer, "Fair Value for Effective Rate Control," American Economic Review, December 1924, pp. 664-6.

[61] Cf. Greene, Corporation Finance, p. 134.

[62] If a concern has been taken over by a company after the first stage of speculative adventure has been successfully passed, the purchase price will probably include a large sum above cost. This may be a fair remuneration for the risk taken and uncertainty borne. But clearly, after it has been paid, to allow the new company to reap profits which are both adjusted to the risks of the occupation and also calculated upon a capital which includes the above sum, would be to compel the public to reward it for risk-taking for which it has not been responsible, and recompense for which has already been made. For an excellent general discussion of good-will cf. Leake, Good-will, its nature and how to value it.

[63] American Economy Review Supplement, March 1913, p. 132.

[64] Cf. Hartman, Fair Values, p. 130 et seq.

[65] Bemis, Municipal Monopolies, p. 32.

[66] Municipal and Private Operation of Public Utilities, vol. i. p. 24.

[67] Cf. Whitten, Regulation of Public Service Companies in Great Britain, p. 224.

[68] H. Meyer, Municipal Ownership in Great Britain, p. 281.

[69] Cf. Whitten, Regulation of Public Service Companies in Great Britain, p. 129.

[70] Quarterly Journal of Economics, 1914, pp. 674-5; and The Trust Problem, p. 57.

[71] Cf. Acworth, State Railway Ownership, p. 103.

[72] Chiozza Money, The Triumph of Nationalization, pp. 86-7.

[73] Municipal and Private Operation of Public Utilities, vol. i. p. 287.

[74] Ibid. vol. i. p. 21.

[75] Bemis, Municipal Monopolies, pp. 289-90.

[76] Cf., inter alia, Knoop, Principles and Methods of Municipal Trading, chap. v.

[77] Municipal and Private Operation of Public Utilities, vol. i. p. 23.

[78] Municipal and Private Operation of Public Utilities, vol. i. p. 23.

[79] Mr. Hawtrey writes: "Substitute a functionary for an independent trader, and he finds himself precluded from doing anything which he cannot explain and defend if called upon, to his official superior.... The practical judgment is partly sub-couscious, and, in so far as it is conscious, its mental processes are not linguistic. To express in language even the decision itself is an effort; to express the grounds on which it is taken would often be a formidable exercise in both psychology and literary composition.... There is a tendency for any official hierarchy to be limited to those decisions that can be readily communicated in language from one functionary to another.... An enlightened bureaucracy would try by every available means to escape from this paralysing limitation, and to devolve and decentralise whenever possible. But the limitation is inherent in the system and cannot be avoided altogether" (The Economic Problem, pp. 339-40).

[80] Economics in the Light of War, p. 26.

[81] Holcombe, Public Ownership of Telephones on the Continent of Europe, p. 21.

[82] Acworth, State Railway Ownership, p. 12. The directors are, however, only appointed for one year, and it is, therefore, in the power of the government at any time to make the management, in effect, political by choosing directors subservient to itself.

[83] Cf. Holcombe, Public Ownership of Telephones on the Continent of Europe, p. 252.

[84] Municipal and Private Operation of Public Utilities, vol. i. p. 469.

[85] Bemis, Municipal Monopolies, p. 45.

[86] The advantage available for municipal enterprise, thus hinted at, turns upon the fact that, when people invest in any undertaking through an intermediary, they always face the possibility that this intermediary may prove to be dishonest and unwilling to fulfil his obligations. The uncertainty-bearing undertaken in this way is a real element in the cost of production. When the State is the intermediary, its honesty and financial strength are, in general, so well known that this element is practically eliminated.

[87] The Board of Agriculture has made a new departure in not requiring the County Councils to charge small holders, who hire land from them, rents high enough to provide this kind of sinking fund.—[Cd. 4245], p. 12.

[88] H. Meyer, Public Ouwership and the Telephones, p. 351.

[89] H. Meyer, Public Ownership and the Telephones, p. 18.

[90] Cf. Holcombe, Public Ownership of Telephones on the Continent of Europe, pp. 375 and 377.

[91] H. Meyer, Public Ownership and the Telephones, pp. 341-2.

[92] Mertz, History of European Thought, vol. i. p. 92.

[93] H. Meyer, Public Ownership and the Telephones in Great Britain, p. 349.

[94] L'Ètat moderne, pp. 55, 208.

[95] H. Meyer, Public Ownership and the Telephones in Great Britain, p. 65.

[96] Railway Nationalisation, p. 9.

[97] Economic Journal, 1907, pp. 21-2. Cf. also Ryan, Distributive Justice, p. 165.

[98] Municipal and Private Operation of Public Utilities, vol. i. p. 437.

[99] Cf. Aftalion, Les Fondements du Socialisme, pp. 233-4.

[100] Strobel, Socialisation in Theory and Practice, p. 281.

[101] Railway Nationalisation, p. 11.

[102] Bemis, Municipal Monopolies, p. 56.

[103] Knoop, Principles and Methods of Municipal Trading, p. 117. As Prof. Knoop further points out, it not infrequently happens that a municipality enters into an arrangement with smaller authorities to extend its tramway, water, or gas system beyond its own bonndaries so as to include adjacent areas also.

[104] Porter, Dangers of Municipal Ownership, p. 245.

[105] It may be objected that the alternative to municipal operation is usually municipal control, and that this control, when the area of the municipality is too small, may render private undertakings as inefficient as municipal undertakings would be. But it is easier to transfer control than it is to transfer operation to an authority of wider scope than the municipalities. The British Light Railways Act of 1906 establishes such a wider authority in the shape of the Light Railway Commissioners. (Cf. H. Meyer, Municipal Ownership in Great Britain, p. 69.) Again: "When, as in Massachusetts, it is not uncommon for a street railway company to operate franchises from ten, and, in one case, from nineteen different towns, independent municipal control is out of the question. The State railroad commission is the recognition in law of this condition of fact" (Rowe, Annals of the American Academy, 1900, p. 19).

[106] Railway Nationalisation, p. 21.

[107] Bemis, Municipal Monopolies, p. 46.

[108] This conclusion is not, of course, upset by the fact that, as shown in the recent Act for grouping British railways, it is possible for the State to further an expansion of the unit of management in an industry, while leaving that industry in private hands.

[109] Municipal and Private Operation of Public Utilities, vol. i. p. 23.

[1] Minutes of Evidence, p. 71 Clifford (Agricultural Lock-out, p. 179) describes the way in which farmers were stimulated by the 1874 dispute to improve their organisation, and to do the same work as before with fewer men. In like manner, the great anthracite coal strike in the United States in 1902 led to the invention of economical methods of utilising other fuels, which continued to be employed after normal conditions had returned.

[2] Goring, Engineering Magazine, vol. xx. p. 922.

[3] L. L. Price, Industrial Peace, p. 62.

[4] U.S.A. Industrial Commission, xvii. p. lxxv.

[5] Ibid. p. lxxvi.

[6] Royal Commission on Labour, Report, p. 49.

[7] Ibid. p. 49.

[8] Ibid. p. 49.

[9] Cf. Owen, Potteries, p. 142.

[10] The Claims of Labour, p. 190.

[11] As in the Midland Iron and Steel Board (Ashley, British Industries, p. 57).

[12] Industrial Conciliation Conference, p. 43. It may, perhaps, be suggested that a decision by a large majority, e.g. seven-eighths of those present, would be a still better plan, as it would eliminate the possibility of obstructive tactics on the part of a single faddist.

[13] U.S.A. Industrial Commission, xvii. p. c.

[14] Industrial Conciliation, p. 134.

[15] Cf. Aldrich, U.S. Federation of Labour, 1898, p. 253.

[16] This result came about in the federated coal district in 1896 (MacPherson, U.S.A. Bulletin of Labour, 1900, p. 478).

[17] Cf. the discussion in the boot and shoe trade conference previous to arbitration in 1893. The employers were careful to insist that the concessions they proposed were not to be taken as prejudicing their case in the event of arbitration becoming necessary. Cf. also Mr. V. S. Clark's Report on Labour Conditions in New Zealand, U.S.A. Bulletin of Labour, No. 49, pp. 1192-3.

[18] Industrial Commission, xvii. p. 500.

[19] Schultze-Gaevernitz, Social Peace, p. 165.

[20] Even Sir David Dale, though entirely trusted by the leaders of the employees, seems on one occasion to have been suspected by some of the rank and file, who knew him less well. (Cf. Price, Industrial Peace, p. 50.)

[21] Strikes and Lock-outs, 1892, p. 217. There was the same rule for the National Arbitration Board, agreed upon in 1901 between the American Newspaper Publishers' Association and the International Typographical Union (Industrial Commission, xvii. p. 367).

[22] The Window Glass Cutters' League of North America has the following interesting method of selection: "If the arbitrators cannot agree on the referee, then each arbitrator shall write two names of disinterested parties, not in any way connected with the glass business, on slips of paper, all names shall be put into a bag, and the first name drawn out shall be the person selected as the referee" (Rule 18, ibid. p. 365).

[23] This argument is more strong, but the preceding one is considerably less so, when the referendum is on the plan of that provided for in the rules of the American Amalgamated Association of Iron, Steel and Tin Workers. Here, when a conference between employers and employed fails to agree, "it requires two-thirds of all the members of the organisation voting to insist upon the demands which have given rise to the disagreement" (Industrial Commission, xvii. p. 340).

[24] Provision 9 of the Agreement Report on Collective Agreements [Cd. 5366], 1910, p. 231. When the Union failed to expel the London strikers in 1899, Lord James of Hereford awarded £300 damages from the Union's deposit to the employers (ibid. p. 505). Evasion of the fine by refusal to replace money withdrawn under it can be met by a rule that, in this event, the whole of the deposit shall be forfeited. When the agreement was renewed in 1909, the phrase providing for expulsion from the organisation was deleted.

[25] Loc. cit. p. 11.

[26] Cf. Mr. and Mrs. Webb's opinion of the efficacy of Lord Rosebery's luncheon party in conciliating the parties in the coal dispute of 1893 (Industrial Democracy, p. 242).

[27] The Durham Coal Strike, 1892.

[28] The Federation Coal Strike, 1893.

[29] The Clyde and Belfast Engineering Dispute, 1895.

[30] The London Cab Strike.

[31] Bulletin of U.S.A. Bureau of Labour, No. 60, p. 421.

[32] Labour Gazette, Feb. 1902, p. 39.

[33] U.S.A. Industrial Commission, vol. xvii. p. 423.

[34] Cf. The Report of the Industrial Council on Industrial Agreements, 1912, p. 7.

[35] Royal Commission on Labour, Report, p. 99. Of course, universal compulsion to accept awards, unaccompanied by universal compulsion of reference, would have this effect in a far more marked degree.

[36] Ramsay MacDonald, The Social Unrest, p. 109.

[37] Chapman, Economic Journal, 1899, p. 598.

[38] Gilman, Methods of Industrial Peace, pp. 116-17.

[39] Cf. Industrial Commission, vol. xvii. p. 329.

[40] Cole, The World of Labour, p. 314.

[41] Cf. Mond, Industry and Politics, p. 131.

[42] Cf. A Survey of Industrial Relations by the Committee on Industry and Trade, 1926, pp. 355 et seq.

[43] Report by Sir George Askwith [Cd. 6603], p. 17.

[44] United States Bulletin of Labour, No. 86, 1910, p. 17.

[45] Ibid. No. 76, p. 666.

[46] [Cd. 6603], p. 17.

[47] In Canada there have, in fact, been numerous illegal stoppages of work and very few attempts to enforce penalties for them. The Deputy Minister of Labour has stated publicly: "It has not been the policy of successive Ministers under whose authority the statute has not been the policy of successive Ministers under whose authority the statute has been administered to undertake the enforcement of the provision."—United States Bulletin of Labour, No. 233, 1918, p. 139. Cf. also Report of the Delegation to inquire into industrial conditions in Canada and the U.S.A. [Cmd. 2833], p. 80.

[48] This Amendment admits that a strike may be legal if (1) the strikers are not working under an award or industrial agreement or decide by secret ballot that the award no longer binds them, and (2) give fourteen days' notice to the Minister of Labour of their intention to begin a strike (Economic Journal, 1921, p. 309).

[49] Minimum Wage-fixing Machinery, International Labour Office (1927), p. 56.

[50] Ibid. pp. 85-7.

[51] State Experiments in Australia, p. 168.

[52] Cf. Montgomery, British and Continental Labour Policy, p. 345.

[53] Cf. The Report on Conciliation and Arbitration, to the Ministry of Reconstruction [Cd. 9099], 1918, Par. 2.

[54] Cf. ante, Part II. Chapter IX. § 14.

[55] Political Science Quarterly, vol. xii. p. 426.

[56] Cf. Chapman, The Lancashire Cotton Industry, p. 211.

[57] Schultze-Gaevernitz, Social Peace, p. 192.

[58] Schultze-Gaevernitz, Social Peace, p. 136.

[59] For a mathematical treatment of the problems discussed in this chapter, cf. Appendix A of my Principles and Methods of Industrial Peace.

[60] Goldmark, Fatigue and Efficiency, p. 284.

[61] Cf. Chapman, "Hours of Labour," Economic Journal, 1909, p. 360.

[62] Cf. Gini, Report to the League of Nations on Raw Materials and Foodstuffs, 1922, p. 41.

[63] Cf. Marshall, Royal Commission on Labour, Q. 4253.

[64] On the effects upon output of a pre-breakfast start, cf. [Cd. 8511], p. 58 et seq. This Report concluded that in certain types of munition work the start before breakfast might be abolished with advantage to the output (p. 66).

[65] Second Interim Report on Industrial Fatigue [Cd. 8335], p. 50.

[66] Cf. Leverhulme, The Six Hours Day, p. 21.

[67] Health of Munition Workers, Memorandum, No. 12 [Cd. 8344], p. 9.

[68] "Report on Hours of Work and their Relation to Output," 1927 (International Association for Social Progress, British Section), p. 6.

[69] Health of Munition Workers, Memorandum, No. 12 [Cd. 8344], p. 10.

[70] Conrad, Handwôrterbuch der Staatswissenschaften, vol. i. p. 1214.

[71] Report of the Labour Association, Special Committee on Hours of Labour in Continuous Industries, p. 10.

[72] Ibid. pp. 10, 11.

[73] For a good discussion of the pitfalls to be avoided in a concrete study of the relation between hours of labour and efficiency, cf. Sargent Florence, Use of Factory Statistics in the Investigation of Industrial Fatigue.

[74] Cf. Proud, Welfare Work, pp. 50-51.

[75] As Miss Goldmark points out, however, this consideration affords no excuse for the overtime that in fact often prevails in the United States Canneries among the workpeople who label and stamp the cans after they have been sealed (Fatigue and Efficiency, p. 187).

[76] Goldmark, Fatigue and Efficiency, p. 88.

[77] Second Interim Report on Industrial Fatigue [Cd. 8335], 1916, p. 16.

[78] Report of the Royal Commission on the Poor Laws, p. 1185, footnote.

[79] This point is illustrated indirectly by the small amount of overtime found among women workers, as compared with men workers, in the bespoke tailoring trade. The men are skilled hands whose number cannot easily be supplemented. But the women are unskilled hands, and "the readily available reserve of semi-skilled wives and daughters, who may at any time be pressed into work, tends to relieve the seasonal pressure upon the less skilled, or women's section of the trade" (Webb, Seasonal Trades, p. 87).

[80] But cf. post, § 13.

[81] This consideration is sometimes used as an argument against paying equal piece-rates to women engaged in the same operations as men. In certain engineering operations, for example, employers have claimed that women, being slower workers than men, involve much higher proportionate overhead charges (Report of the War Cabinet Committee on Women in Industry, p. 84). Plainly; however, reasoning of this type points to a lower piece-rate for all slow workers, whether male or female, than for fast workers, not to a lower piece-rate for women as such than to men as such.

[82] Jevons, Methods of Social Reform, p. 123.

[83] Arrangements are frequently made by progressive firms, both in America and in this country, for enabling workmen to submit suggestions that occur to them to the higher officials of the business, without the intervention of overseers and foremen, who might be actuated by motives of jealousy towards them; and for rewarding with prizes and premiums such suggestions as it is decided to adopt. (Cf. Gilman, A Dividend to Labour, p. 230; Rowntree, Industrial Betterment, p. 31, and Meakin, Model Factories and Villages, p. 322.) In Van Marken's establishment a premium is given for "evidences of good-fellowship and co-operation, thus encouraging those whose behaviour conduces to the smooth working of the concern" (Meakin, Model Factories and Villages, p. 315).

[84] Sargant Florence, Use of Factory Statistics in the Investigation of Industrial Fatigue, p. 72.

[85] La Crise et l'èvolution de l'agriculture en Angleterre, pp. 99-100.

[86] Cf. post, Chapter XV. § 2.

[87] Of course, this statement does not hold good of "collective piece-wages," where each man's pay depends upon the output of the whole group of which he forms a part. When the group is very small, some inducement to exertion is offered by this form of piece-wage, but, when the group is large, practically none.

[88] It may be noted that, if piece-wages were substituted for time-wages throughout industry generally, with the result that a large increase of effort was put out by workpeople, the value per unit of workpeople's effort would by that fact be slightly depreciated, and, therefore, the payment for a given effort and output would have to be slightly less than before. Thus, if under time-wages at 1s. an hour two pieces had normally been produced, so that 6d. was paid for each, under a general system of piece-wages the basis of adjustment would have to be slightly less than 6d. per piece. When, however, a change from time to piece-wages is accomplished in one industry only, the effect in this direction (after the distribution of workpeople among different industries has been adjusted) will, in general, be very small.

[89] McCabe, The Standard Rate in American Trade Unions, pp. 224-5.

[90] These plans can conveniently be represented by the following formulae, which are convertible into those printed by Schloss in the Journal of the Royal Economic Association for December 1915.

Let W be the standard wage, P the standard output, w the actual wage earned by a workman, and p the actual output of that workman:

Then the general formula for the Halsey plan is when n is any integer. In the particular variety of this plan employed in Mr. Halsey's works, n has the numerical value 2. The general formula of the Rowan plan is when f'(p) is negative.

In the particular variety of this plan employed in the Rowan works f'(p) is given the value P/p: and the maximum value to which w can attain is, therefore, 2W. In England, but not in Germany, plans of this type are usually associated with the guarantee of a minimum time-wage irrespective of output; that is to say, when p is P, the formula is not applied, but the standard wage W is paid.

[91] Cf. Chapman, Work and Wages, vol. ii. pp. 184-5.

[92] Rowan Thomson, The Rowan Premium Bonus System, p. 12.

[93] Report on Works Committees, 1918, p. 11.

[94] Cf. Report on Works Committees, 1918, pp. 37-8.

[95] For an excellent discussion of this subject cf. Webb, The Works Manager To-day, chap. vi.; also D. H. Cole, The Payment of Wages, passim. There is some evidence that "in Germany the strong antagonism to piece-work shown by organised labour in the early days of the German Republic is being displaced by a tendency to welcome its introduction, even in industries such as stone-cutting and the metal trades, in which it was formerly either quite excluded or bitterly opposed. According to the Reichs-Arbeitsblatt, this change of attitude is to be attributed, in the main, to the fact that the workers (under Article 165 of the German Federal Constitution) co-operate, on equal terms with the employers, in the regulation of wages conditions; and that Section 78 of the Works Council Act of 1920 specifically grants to the Workers' Council (or the Works Council, as the case may be) the right to supervise the application of collective agreements, or, where these do not exist, to co-operate with the employer in the fixing of piece-rates or the bases thereof. Similar provisions have been inserted in a large number of collective agreements. Thus the workers have both a statutory and, in many cases, a contractual guarantee that a piece-work system accepted by them shall not be applied in a one-sided fashion in favour of the employer, but that the proceeds of any increased output shall be shared by them also" (Labour Gazette, November 1922, p. 440).

[96] It should be noted that, in effect, a very stringent form of this method is employed as regards the number of hours during which workpeople work per day; for, if a man is not willing to work the regular factory day, he will not be employed at all and will get no wages. The reason for this is, of course, to be found in technical considerations of factory management. To have different men working in a factory different numbers of hours per day would be a much more serious inconvenience than to have them working with different intensities of effort.

[97] Going, Principles of Industrial Engineering, p. 135.

[98] Certain investigations into the effect of the Taylor system upon some women employed under it do not suggest that this evil possibility has been realised in fact (Quarterly Journal of Economics, 1914, p. 549). But Mr. Hoxie (Scientific Management and Labour, pp. 44 et seq.) is less optimistic upon this point. He writes: "As a matter of fact, time study for task setting is found in scientific management shops in all its possible variations, both with reference to methods and results. In some the highest standards are maintained in regard to all the factors enumerated—all or a large proportion of the workers are timed, the largest practicable number of readings is made, cordial relations are established between the time study man and the workers, and the latter are cautioned against speeding up when being timed, and, if doubt remains, the allowances are purposely made large to cover all possible errors. Liberality of the task is the keynote. In other shops the maximum task is just as surely sought, and the method is warped to this end. The swiftest men are selected for timing, they work under special inducements or fear, two or three readings suffice, allowances are disregarded or cut to a minimum. The task of 100 per cent efficiency is to all intents and purposes arbitrarily fixed, sometimes practically before the time study, at what it is judged the workers can be forced to do. The main use of the time study is to prove to the workers that the task can be done in the time allowed" (loc. cit. p. 53).

[99] Thus Mr. Cadbury writes of piece-wages: "If properly trained, the worker will try to find the quickest method of work, and the one involving the least strain; and it has been found that, when a piece-rate has been fixed where previously there had been a time-basis, the output has doubled without any undue strain on the part of the worker, largely as the result of adopting better methods. This especially applies to hand processes" (Experiments in Industrial Organisation, p. 142).

[1] Jackson, Report on Boy Labour, Royal Commission on the Poor Laws, Appendix, vol. xx. pp. 9-10.

[2] Jackson, Report on Boy Labour, Royal Commission on the Poor Laws, Appendix, vol. xx. p. 161. The general tendency of children to enter their parents' trades is illustrated by a very interesting special inquiry undertaken by Prof. Chapman and Mr. Abbot in the neighbourhood of Manchester (Statistical Journal, May 1913, pp. 599 et seq.).

[3] Jackson, Report on Boy Labour, Royal Commission on the Poor Laws, Appendix, vol. xx. p. 31.

[4] Psychology and Industrial Efficiency, pp. 54-5.

[5] Cf. Sir Sydney Chapman's observation: "Certain occupations cannot be entered by any adequate number of people until they have nearly attained their full strength; for instance, the occupations of manual workers on the railways, navvies, and dock labourers, and certain occupations in the building trades. This means that other callings must employ more young people than they can permanently find room for, unless some young people in search of work are to be left standing idle in the market-place. But to seek to obviate this tendency by making each industry more self-contained would not be a very wise proceeding, because it is poor economy to have a man doing a lad's work, or a lad doing a man's work, and from the operation of a certain amount of selection among the labour forces of the community productive efficiency results.... It may be that the partial cul-de-sac employment is a necessary part of a highly developed industrial system. If this is so, the establishment of labour-training institutes becomes doubly necessary, and an added importance attaches to Labour Exchanges with special reference to the claims of the rejected of certain trades, whom it is essential to deal with before they become demoralised or suffer in vigour or spirit" ("Industrial Recruiting and the Displacement of Labour," Proceedings of the Manchester Statistical Society, 1913-14, pp. 122-3).

[6] Munsterberg, Psychology of Industrial Efficiency, p. 126. Initial testing of capacity is, perhaps, not very important among workpeople who begin their career in large and varied establishments, where employees found unsuitable for the job they first select can be rapidly transferred to other jobs. Of firms which follow Mr. Taylor's doctrine of scientific management it is said that, "by a careful study of each individual of a group of men in any department, it may be found that many are not physically or temperamentally adapted to performing the particular functions required in that department, and that they are adapted to the performing of functions in some other department. There follows a redistribution of men between departments, with the result that, without an increase in aggregate energy expended, there is an increase in aggregate productivity. It is the scientific method of adapting instrument to purpose" (Tuck School Conference, Scientific Management, p. 6). But in comparatively small and homogeneous establishments—and these employ a very large proportion of the world's workers—"the working man who is a failure in the work which he undertook would usually have no opportunity to show his strong sides in the same factory, or at least to be protected against the consequences of his weak points. If his achievement is deficient in quality or quantity, he generally loses his place and makes a new trial in another factory under the same accidental conditions, without any deeper insight into his particular psychical traits and their relation to special industrial activities" (Munsterberg, Psychology of Industrial Efficiency, p. 121).

[7] These considerations enable us to perceive that, though, when the distribution of labour between places or firms is right, a large labour turn-over is a social waste, when the distribution is wrong, it may be a means of overcoming social waste.

[8] Select Committee on Home Work Report, 1908, p. viii.

[9] Cf. C. D. Wright's account of some American systems of company stores in regions remote from ordinary shops (The Industrial Evolution of the U.S.A., pp. 282 et seq.).

[10] Report of the Select Committee on the Truck Acts, p. 6. This provision can be evaded by a company establishing a provision store and informally putting pressure on its workpeople to buy there. The French law of 1910 meets this danger by forbidding any employer to "connect with his establishment any store at which he shall sell directly or indirectly to his employees or to their families provisions or goods of any description whatever" (Labour Gazette, May 1910, p. 156).

[11] Report of the Select Committee on the Truck Acts, p. 9.

[12] Thus, the Committee find that some deductions in respect of fines may be useful to secure discipline, and suggest that abuse be guarded against by a statutory provision that "the maximum fine or accumulation of fines in any one week permissible by law shall not exceed 5 per cent of the wages of the worker" (p. 29). Deductions for damage to materials and so on they hold may be usefully employed to prevent waste, under an arrangement, say, for charging for the material as given out and adding the value of it to the wage for the work in which it is afterwards incorporated (p. 41). Still, they conclude that, in view of the liability of such charges to become fraudulent, they should be prohibited, subject to a power of the Home Secretary to relax the prohibitions in special cases (e.g. of costly material). The Committee further hold that the general provisions of the Truck Acts should be extended to outworkers (p. 78). They discuss, but do not definitely recommend, rules prohibiting employers from making it compulsory for their hands to live in houses provided by them (p. 53). The real objection to such compulsion is, not so much that it may enable employers to veil the facts about real wages, as that it may enable them to put undue pressure on employees in times of strike.

[13] Cf. ante, p. 138.

[14] Cf. Booth, Life and Labour, Industry, vol. v. pp. 43 and 49. In like manner, Lord Dunraven observes that "Ireland has a larger population of aged than any other country in the king's dominions" (The Outlook in Ireland, p. 21). It must be noted, however, that we cannot infer decay or expansion unreservedly from such considerations, because, in some industries, the normal age distribution differs widely from the average. Messengers are young men who expect to become something else, and lightermen are generally retired sailors. Furthermore, some industries have an abnormal proportion of old workers, simply because they are abnormally healthy or attract abnormally healthy people.

[15] De Foville, Transformation des moyens de transport, p. 396. There is an exactly analogous phenomenon in the movement of capital between countries. People in the United States can move a given capital to Central or South America, and at the same time people in England move an equal capital to the United States at a less aggregate cost in uncertainty—because of differences of local knowledge—than that at which Englishmen could move that capital to Central or South America direct. Hence, this roundabout method of investment in fact occurs. (Cf. C. K. Hobson, The Export of Capital, pp. 29-32.)

[16] Cf. Mahaim, Les Abonnements d'ouvriers, p. 170.

[17] Llewellyn Smith, The Mobility of Labour, p. 19.

[18] La Question ouvrière en Angleterre, p. 334. Cf. also Marshall, Principles of Economics, pp. 207 and 258.

[19] Report of the Royal Commission on the Poor Laws, p. 406.

[20] Cf. Cannan, The Reorganisation of Industry (Ruskin College), Series iii. p. 11.

[21] Cf. Muckerjee, The Foundations of Indian Economics, p. 323.

[22] Cost of Living of the Working Classes [Cd. 3864], p. 284.

[23] Principles of Economics, footnote to p. 715.

[24] Cannan. Wealth, p. 206.

[25] The Round Table, March 1916, p. 275.

[26] Cf. post, Chapter XIV. § 10.

[27] Report of the Royal Commission on the Poor Laws, p. 401.

[28] This conclusion involves the verbally inconvenient result that the ideal distribution of labour, when brought about in certain ways, is not the best possible distribution. Confusion will be avoided, however, if we recollect that the distribution we have called ideal, namely, that which, subject to the qualifications of § 2, makes the values of the marginal net products of labour everywhere equal, is only ideal in an absolute sense. It is the best distribution accessible to a man who has unlimited power over all relevant circumstances, and can, therefore, at will abolish costs of movement. But it is not the best distribution accessible to one who must accept the costs of movement as brute fact, and has, therefore, to aim at maximising the national dividend subject to that limiting condition. Cf. ante, Part II. Chapter V. § 6.

[29] Royal Commission on the Poor Laws, Minority Report, p. 1125.

[30] Unemployment in the London Building Trades, p. 133.

[31] Royal Commission on the Poor Laws, Minority Report, p. 1125.

[32] [Cd. 2304], p. 65.

[33] Ibid. p. 93.

[34] For an account of the introduction of the new policy at the Docks after the strike of 1889, cf. Report of the Royal Commission on the Poor Laws, p. 356. Sir William Beveridge summarises the changes introduced thus: "Formerly each of the forty-seven departments of the Company's work was a separate unit for the engagement of men; each department had its insignificant nucleus of regular hands and its attendant crowd of more or less loosely attached casuals; 80 percent of the work was done by irregular labour. Now the whole Dock system is, so far as the Company's work goes, the unit for the engagement of men; 80 percent of the work is done by a unified staff of weekly servants directed from one spot to another by a central office" (Beveridge, Economic Journal, 1907, p. 73).

[35] Report of the Committee on Distress from Want of Employment, Evidence by Aves, Q. 10,917.

[36] Report of the Transvaal Indigency Commission, p. 135.

[37] Royal Commission on the Poor Laws, Majority Report, p. 403.

[38] Report of the International Labour Office on Remedies for Unemployment, 1922, p. 70.

[39] Cf. Report of the Committee on the Work of Employment Exchanges, 1920, p. 13.

[40] Beveridge, Contemporary Review, April 1908, p. 392.

[41] Cf. National Insurance Act, § 99 (1).

[42] Labour Gazette, May 1923, p. 161.

[43] Cf. Schloss, Economic Journal, 1907, p. 78; Bulletin de l'Association pour la lutte centre le chômage, Sept. 1913, p. 839; and the Report of the Committee on the Work of the Employment Exchanges, 1920, p. 13.

[44] It is to be expected, therefore, that the turn-over of labour will, in general, be lower for skilled than for unskilled workers. For evidence that this is so in the United States cf. Schlichter, The Labour Turn-over, pp. 57-64. But cf. also ibid. p. 73.

[45] Cf. Fay, Co-partnership in Industry, p. 90.

[46] Webb, Seasonal Trades, p. 43.

[47] Ibid. p. 23.

[48] Third Report of the Committee on Distress from Want of Employment, Evidence, Q. 4540.

[49] Third Report of the Committee on Distress from Want of Employment, Evidence, Q. 4541 et seq.

[50] Report on the Cost of Living in German Towns [Cd. 4032], p. 522.

[51] Report of the Royal Commission on the Poor Law, p. 1156, footnote.

[52] Report on Collective Agreements, 1910, p. xxviii.

[53] Cf. Chapman, Unemployment in Lancashire, p. 51. When a firm employs both factory workers and home workers, it is, of course, to its interest in bad times to withdraw work from home workers rather than to reduce factory work and home work equally, because it is thus enabled to keep its machinery going. It may be added that the power to treat home workers in this way indirectly checks employers from superseding home work altogether by factory work, because it enables them to face the prospect of periodic expansions without the need of erecting factories too large for the demand of ordinary times. (Cf. Vessilitsky, The Home Worker, p. 3.)

[54] Of course, it is not meant that in these trades no short time is known. On the contrary, even when the dismissal method is adopted for contractions of work from below the normal, what is, in effect, the short-time method is always adopted to some extent for contractions from above the normal. Thus, in the engineering trade, whereas the average amount of formal short time is very small, overtime adds on the average 3¾ per cent to the normal man's working time (Cd. 2337, p. 100), and, as against overtime working, normal hours are, of course, really short time. All that is meant is that "the main method by which these industries adjust themselves to a change in demand is by throwing out workers or taking on more workers" (Llewellyn Smith, Third Report of the Committee on Distress from Unemployment, Evidence, Q. 4540).

[55] Economic Review of the Foreign Press, July 22, 1921, p. 190.

[56] The interval is probably partly due to resistance made possible by savings, the pawning of household goods, children's earnings, etc.; partly to the fact that a check to the inflow of pauperism will not involve a diminution of pauperism until the inflow falls below the outflow brought about by death and other causes. (Cf. Beveridge, Unemployment, p. 49.)

[57] Hunter, Poverty, p. 3.

[58] Beveridge, Unemployment, p. 50.

[59] Economic Journal, 1910, p. 518.

[60] Répartition des richesses, p. 612.

[61] In Belgium the cheapness of workmen's tickets on the railways enables many workers to live in cottages with gradens attached to them, to the cultivation of which they turn when out of ordinary work. (Cf. Rowntree, Unemployment, p. 267.)

[62] Quoted in the Minority Report, p. 1138. It has been abundantly proved, however, that the aggregate consumption of drink in the United Kingdom is greatest in periods of good employment, for the reason, no doubt, that good employment is usually associated with high spending power among the people generally. Cf. A. D. Webb, "The Consumption of Alcoholic Liquors in the United Kingdom" (Statistical Journal, Jan. 1913), and Carter, The Control of the Drink Trade, pp. 90-94. It does not follow, of course, that those who are actually unemployed must drink less than they did when employed.

[63] Alden, The Unemployed, a National Question, p. 6.

[64] Report of the Transvaal Indigency Commission, p. 120.

[65] Some evidence before the Unskilled Labour Committee of the C.O.S. relates how an attempt to convert casual dockers into permanent hands failed through the men refusing to turn up regularly (Report, p. 183).

[66] United States Bulletin of the Bureau of Labour, No. 79, pp. 906-7.

[67] For an account of the work of the Cotton Control Board during the war, cf. H. D. Henderson, The Cotton Control Board. In August 1918, the rota system, which had been established in September 1917, was abolished, and it was decided that the proceeds of the special levy should, henceforward, only be used for giving out-of-work pay to men played off definitely and continuously. The Jute Control in March 1918 introduced a scheme for compensating workers dismissed owing to a decision to stop certain machinery with a view to reducing jute consumption by 10 per cent. But the compensation was specifically confined to workpeople who were not able to find other employment, and any workman who refused suitable employment without reasonable cause was to receive no further benefit (cf. Labour Gazette, 1918, p. 135). A similar condition was made in a plan adopted in Germany at about the same time for compensating workpeople whose work was stopped through shortage of coal (Labour Gazette, 1918, p. 141).

[68] Under the British Insurance Act of 1927 an applicant for benefit may be asked to accept work, under suitable conditions, in an occupation other than his own; but naturally this is only likely to be done as a last resort.

[69] Cf. The Third Winter of Unemployment, by Dr. Bowley and others, pp. 24-5.

[70] Cf. Mény, Le Travail á domicile, p. 173.

[71] The Australian Trade Marks Act of 1905, which directed that all goods sold should be marked with a label, showing whether or not their makers employed Union labour exclusively, was ruled by the High Court to be unconstitutional, on the ground that the Federal title to legislate about trade marks did not permit legislation in respect of marks not designed for the benefit of the manufacturer using them (Economist, Sept. 19, 1908, p. 532).

[72] Report of the Fair Wages Committee, p. 50. Unless the requisition that contractors shall pay standard wages is made to apply to all their work, and not merely to their work on particular contracts, unscrupulous contractors can evade it by employing the same men for part of their time on contract work at full wages and for another part of their time on other work at exceptionally low wages.

[73] In this connection it is interesting to observe that the State Wages Boards of California, Oregon, Washington and Wisconsin are given power to regulate, not merely wage rates, but also hours of work and "conditions of labour" for the women whom they cover (The World's Labour Laws, Feb. 1914, p. 78).

[74] Mr. Lloyd writes: "The chief reason why the grinders both in Sheffield and Solingen have been better organised than the cutlers is that they are more congregated at their work" (Economic Journal, 1908, p. 379).

[75] It is sometimes suggested that the law could be enforced more easily if the giver-out-of-work, or even the landlord, as well as the employer, in a domestic workshop, were made legally responsible for breaches of the law. (Cf. Webb, Evidence before the Royal Commission on Labour [C. 7063-1], Q. 3740.) In Massachusetts responsibility is sometimes thrown on the giver-out-of-work.

[76] Cf. the difficulties experienced in New Zealand and Victoria in enforcing the law limiting the hours of shop assistants. In New South Wales these difficulties are partly avoided by means of a general law regulating the hours for all shops, whether employing assistants or not. (Cf. Aves, Report on Hours of Employment in Shops, p. 12.)

[77] Mrs. Macdonald, Economic Journal, 1908, p. 142.

[78] Cf. Vessilitsky, The Home Worker, chap. vii.

[79] Hutchings and Harrison, History of Factory Legislation, p. 269. For evidence as to the favourable reaction of Trade Boards upon organisation in the tailoring trade, cf. Tawney, Minimum Rates in the Tailoring Industry, pp. 90-94.

[80] For illustrations of this difficulty cf. Tillyard, The Worker and the State, p. 58.

[81] Cf. Tillyard, The Worker and the State, p. 60.

[82] Cf. Tawney, Minimum Rates in the Tailoring Industry, pp. 50-51.

[83] Cf. Bulkley, Minimum Rates in the Box-making Industry, pp. 21-2.

[84] The World's Labour Laws, Feb. 1913, p. 49. A summary of this law and of the similar laws of other American States is given in Marconcini's Industria domestica salariata, pp. 546 et seq.

[85] Report of the Royal Commission on the Poor Laws, Appendix, vol. xvii. p. 377.

[86] Mr. St. Leger, in his book, Australian Socialism, pp. 394 et seq., prints the judgment of the Supreme Court.

[87] Federal Handbook, p. 476. Cf. Bryce, Modern Democracies, vol. ii. p. 245.

[88] Cf. Labour Gazette, Jan. 1913, p. 204. By the end of 1923 seventeen States of the U.S.A. bad passed some kind of minimum wage legislation, but decisions of the courts have since that time ruled most of the laws to be unconstitutional. New laws relying on the sanction of public opinion only, have been passed in Massachusetts and Wisconsin (cf. Minimum Wage-fixing Machinery (Intermediate Labour Office, 1927), pp. 113 et seq.; and Report of the Delegation to study Industrial Conditions in Canada and the U.S.A. [Cmd. 2833], 1927, p. 92).

[89] Cf. Mitchell, Organised Labour, p. 345.

[90] Cf. my Principles and Methods of Industrial Peace, pp. 191-2.

[91] Report of the Royal Commission on the Poor Laws, p. 353.

[92] Unemployment in the London Building Trade, p. 127.

[93] Unemployment, p. 197.

[94] U.S.A. Bulletin of Labour, No. 72, p. 761.

[95] Ibid. p. 766.

[96] Schloss, Report on Agencies and Methods for dealing with the Unemployed, p. 84.

[97] Cf. Williams, The First Year's Working of the Liverpool Docks Scheme, chapter i.

[98] U.S.A. Bulletin of Labour, No. 72, p. 803.

[99] Cf. Schloss, Report on Agencies and Methods for dealing with the Unemployed, p. 87.

[100] Report of the Charity Organisation Society's Committee on Unskilled Labour, 1908, p. 170.

[101] Cf. Messrs. Pringle and Jackson's Report to the Poor Law Commission, Appendix, vol. xix. p. 15.

[102] Report of the Royal Commission on the Poor Laws, pp. 335 and 354.

[103] Report on Dock Labour, p. 19.

[104] Report of the Royal Commission on the Poor Laws, pp. 410-11.

[105] Explanatory Memorandum Cd. 8911, p. 5.

[1] If we were considering the relative earnings of all classes in the population, it would be convenient to define as fair the relation which would prevail if not only the conditions postulated in the text were satisfied, but also the inequalities of opportunity for education and training referred to in Chapter IX. § 1 were removed. The discussion as to when interference with what is unfair in this wider sense is socially advantageous would follow the same lines as the discussion in the text. Here, however, we are concerned with fairness inside the wage-earning class where inequalities of opportunity play a comparatively unimportant part.

[2] Marshall, Introduction to L. L. Price's Industrial Peace, p. xiii. I have ventured to substitute equal for Marshall's equally rare natural abilities, which does not seem to be quite correct. (Cf. post, Chapter XVI.)

[3] Cf. ante, Part II. Chapter II. § 4. As will appear more in detail presently, efficiency thus conceived is not merely a function of a worker's personal quality, but also of surrounding circumstances. But, none the less, other things being equal, an enhancement of physical, mental, and moral strength in general carries with it an enhancement of efficiency. It is necessary to distinguish this use of the term from two other uses. Efficiency does not mean for us, as it means for engineers, the ratio of the output of energy to the intake of fuel, or, in other words, the ratio of the value of a workman's product to his wage. Nor yet does it mean for us, as it means for Mr. Emerson, the ratio of a man's actual output to the output which the tasksetter holds that he ought to be able to produce without undue strain, a man of 100 per cent efficiency being one who produces exactly the allotted task.

[4] Cf. post, Chapter XVI.

[5] Clause 8 of agreement, U.S. Bulletin of Labour, January 1897, p. 173.

[6] Cf. ante, Chapter IX. § 2.

[7] Cf. Vessilitsky, The Home Worker, p. 13.

[8] It should be noted, however, that, as old employees die off, these costs will disappear; for to young men contemplating a choice between the occupation we are considering and others there will be no costs. Hence, if wages there are still unfairly low after a number of years, this will presumably not be because of costs and the above argument against interference does not apply.

[9] Thus, in so far as home workers earn a wage equal to their marginal worth—which is often low because they are in direct competition with machinery of great efficiency—and are prevented from moving into factory work by family necessities, the national dividend, apart from possible reactions on capacity, would be injured by any forcing up of their wage rate.

[10] Cf. Appendix III. § 30.

[11] Report of the Land Inquiry Committee, 1914, vol. i. p. 40.

[12] It is sometimes thought that an employer's power of exploitation is always greater under a piece-wage than under a time-wage system. But this is not so. Workpeople engaged in operations, the pace of which is dependent upon machinery controlled by employers, often prefer piece-wages on the ground that, under that system, they will be subjected to less overstrain through speeding up than they would have to put up with under time-wages. The cotton operatives and the operatives in those sections of the boot-trade where machinery is largely employed appear to take this view. (Cf. Lloyd, Trade Unionism, pp. 92-4.)

[13] Webb, Industrial Democracy, p. 675.

[14] There is reason to believe that the excessive pressure to which children were subjected under the old factory system was partly due to the fact that overseers were paid piece-wages. (Cf. Gilman, A Dividend to Labour, p. 32.) In like manner, the "sweating" that is sometimes found among the employees of sub-contractors is probably traceable, not to the system of sub-contract, but to the fact that sub-contractors are generally small masters on piece profits.

[15] It may possibly be argued against the above analysis that, though an employer may succeed, by bargaining, in forcing upon workmen, other than the man most expensive to him, a wage below the value of their marginal net product, it cannot pay him to treat this man so. For it will be to his interest to go on engaging fresh hands till the wage and the value of the marginal net product of the workman most expensive to him are equal. Hence, it is impossible for any employer who pays to all his workpeople the same efficiency-wage to pay to any of them less than the value of the marginal net product of their work. This argument, however, tacitly assumes that an employer, whom it would pay to engage fresh hands at an exploited wage rate, will be able to do this to an indefinite extent. No such assumption is warranted.

[16] It is possible that exploitation may lead the exploited workpeople to do more work than they would have done with better wages, and may thus, despite the considerations that follow, involve an increase in the national dividend. In view, however, of the reactions that are likely to be set up in their capacity, it is very unlikely that an effect of this kind will be permanent. In any event, this sort of increase in the dividend, if it were to come about, nobody would regard as a sufficient atonement for the exploitation. I propose, therefore, while noting here this possible economic disharmony, to ignore it in the body of my argument.

[17] It is thus perfectly correct to attribute a portion of the transference from arable to grass farming that has taken place in England since the 'seventies to the low rates of wages driving the labourers off the land. (Cf. Hall, Agriculture after the War, p. 121.) Another and a larger portion of it is, however, due to the cheapening of imported food, which has rendered the employment of British resources in direct food production less profitable relatively to other employments than it used to be. To substitute grass farming for arable farming is merely one way of reducing the resources devoted to food production in this country, as against the production of other things by the sale of which food can be purchased from abroad; for, as Sir A.D. Hall observes, "land [apart, of course, from special sorts of land] under arable cultivation produces nearly three times as much food as when under grass and employs ten times as many men" (ibid. p. 127).

[18] Industrial Unrest and the Living Wage, p. 155.

[19] Black, Makers of our Clothes, pp. 185 and 192.

[20] Cf. Hayes, "The Rate of Wages and the Use of Machinery," American Economic Review, September 1923, pp. 461 et seq.

[21] Economic Journal, Mar. 1931, p. 20. In the later age-groups, it may be noticed, alongside of a continuing efflux, there is also a certain reinflux into industry of women whose husbands have died. Sir Sydney Chapman refers to this point in connection with home work, pointing out that much of this work requires only such skill as can be acquired by anybody at any time of life, and is taken up by untrained persons, who "suddenly find it necessary to do something, or have to make money" (Home Work, Manchester Statistical Society, Jan. 1910, p. 93).

[22] This analysis may be formulated mathematically as follows:

Let w1 be the rate of women's wages per day, w2 the rate of men's wages per day.

Then, since the amount of women's labour offered in industry at any given wage depends in part upon the rate of men's wages—being, in general, smaller the larger these are—the supply of women's labour may be written f1(w1, w2). In like manner, the supply of men's labour may be written f2(w1, w2).

And we know that and are positive, and and are negative.

Again, since the amount of women's labour demanded in industry at any given wage depends upon the rate of men's wages—being, in general, smaller the smaller these are—the demand for women's labour may be written 1 (w1, w2), and the demand for men's labour 2(w1, w2). And we know that are negative, and and are positive.

The two equations, which suffice to determine our two unknowns, are:

(1) f1(w1, w2) = 1(w1, w2) (2) f2(w1, w2) = 2(w1, w2)

It may be added that, if the proportion of women and men offering work in industry were determined solely by the proportion of women and men in existence, we should have to do with a straightforward problem of joint-supply; for, obviously, the comparative numbers of the two sexes are determined by physiological causes outside the range of economic influences. In these conditions, therefore, both the supply of women workers and the supply of men workers would be functions of one variable, this variable being some symbol of a normal family income, such as (w1, w2). For f1(w1, w2) and f2(w1, w2) we should have to write f(w1, w2) and kf1(w1, w2) and in countries where males and females survive in equal numbers, k would be equal to unity.

[23] It is interesting to note that in the European War, while the withdrawal of men from industry for the army naturally tended to raise men's wages relatively to women's wages, the character of the commodities demanded by the public was changed in a way tending in the opposite direction. Ordinary tailoring and munition making, the demand for both of which enormously expanded, appear to be better adapted for women's work than the general run of industries. In the Report of the Conference of the British Association on Outlets for Labour after the War it is suggested that, on the whole, the special war demand of the Government was "a demand for a class of goods in the production of which a greater proportion of women rather than men can be more usefully and economically employed than under normal peace conditions" (Report, 1915, p. 8).

[24] It so happens in fact—as indeed is probable a priori—that the range of these marginal occupations is in this country small. The Poor Law Commissioners report: "About four-fifths of the occupied male population are engaged in employments which they monopolise, or in which women are a negligible factor as regards possible competition, such as agriculture, mining, fishing, building, transport, wood, gas and water, and the staple metal and machine-making trades, all of which are virtually male preserves. Only one-fifth of the males are engaged in trades where women enter to the extent of 1 per cent of the whole number of occupied females" (Report, p. 324). Mr. and Mrs. Webb witness to the same effect: "There are a very small number of cases in which men and women compete directly with each other for employment on precisely the same operation in one and the same process" (Webb, Industrial Democracy, p. 506. Cf. also Smart, Economic Studies, p. 118.) When one sex appears to be invading the province of the other, the fact generally is that the process, as well as the workers, is being changed. Thus, machinery and males have come into lace and laundry work: machinery and females into boot-making and tailoring. The Poor Law Commissioners report: "In the boot and shoe trade—which has been distinctively a male industry—women are certainly obtaining a relatively stronger hold, owing to the division of labour which now furnishes certain lighter processes, suitable for women, that were formerly done as part of the general work of male shoemakers. Slipper-making, for instance, is now passing entirely into female hands" (Report of the Royal Commission on the Poor Law, p. 324). Also, on the authority of the Board of Trade inquiry into the Cost of Living of the Working Classes: "The same phenomenon occurs in other fields; for instance, in Sheffield, file-cutting, an occupation which used to be largely done by female out-workers—the work requiring rather dexterity than strength—is now being done by heavy machinery requiring male attendants" (ibid. p. 324). The Commissioners summarise their views thus: "The conclusion is that, while women and juveniles are now engaged in many industries in which the specialisation of machinery enables them to take part, they are not, in any considerable trade or process, displacing adult males in the sense that they are being more largely employed to do work identical with that formerly done by men. The great expansion of women's labour seems to have been in new fields of employment, or in fields which men never occupied. It should also be borne in mind that, even when women are employed where men used to be employed, this is largely due to the men going into more highly paid industries. Mining, machine-making, and building have of late years attracted an abnormal number of men and boys" (ibid. p. 325). This view is fully borne out by what occurred during the European War. The British Association Conference of 1915 on Outlets for Labour after the War reported: "Even during the present time of stress, when women are to a certain extent doing work which would normally be done by men, the work, as shown in the detailed portion of this Report dealing with separate trades, is very rarely similar either as regards process or conditions. With the introduction of women the work has often to be subdivided, and the men generally have at least the arduousness of their work increased, with oft-times the addition of over-time and night-work and a larger amount of work entailing a greater strain. Where workshops have been recently built for women workers, they have been equipped with machines of a different type from what would have been installed had the management been able to procure trained men" (loc. cit. p. 15). Cf. also Report of the War Cabinet Committee on Women in Industry, 1919, pp. 21-2.

[25] The scheme of analysis worked out in the text can also be applied to the case in which one class of worker is not more efficient in any job than another class, but is as efficient in some jobs. If the number of persons in this class is more than enough to fill the jobs in which they are as efficient as the others, their wage-rate will, in equilibrium, be less than that of the others, but, if their number is not more than enough for this, their wage-rate will, in equilibrium, be equal to that of the others. In this connection the following passage from Mr. Henry Ford's book My Life and Work is of interest: "The subdivision of industry opens places that can be filled by practically any one. There are more places in subdivision industry that can be filled by blind men than there are blind men. There are more places that can be filled by cripples than there are cripples. And in most of these places the man who short-sightedly might be considered as an object of charity can earn just as adequate a living as the keenest and most able-bodied. It is waste to put an able-bodied man in a job that might just as well be cared for by a cripple" (loc. cit. p. 209).

[26] Report of the Royal Commission on the Poor Laws, p. 323.

[27] Wealth, p. 206.

[28] It is possible to employ the term "unfair" wages in reference to women's wages in a somewhat different sense, and to hold that women's wages in general are unfairly low, because they fall short of what they would have been, were it not that custom and tradition permanently exclude women from certain occupations suited to their powers, and so force some of them to take up work for which they are relatively ill-fitted. As was shown in Chapter IX., the removal of all artificial barriers of this kind would benefit the national dividend. But, so long as the barriers are left standing, reasoning analogous to that employed in § 6 of the present chapter proves that any attempt to force up women's wages towards what they would be if the barriers were removed, will injure the national dividend.

[29] Labour Gazette, Sept. 1915, p. 357.

[30] Cf. for an elaborate attempt on these lines, Gannt, Work, Wages, and Profits, ch. iv. In the Birmingham brass trades "the executive of the National Union of Brass Workers grades each worker according to his ability, and places him in one of seven different classes, for each of which a minimum wage is set by collective bargaining. If an employer challenges the qualifications of any man, a practical examination in the processes of the trade is given him by the manager of the Municipal Brass Trades School" (Goodrich, The Frontier of Control, p.165). This, however, is a very unusual arrangement.

[31] Unemployment, p. 124, footnote.

[32] Ibid. p. 124. The peculiarity and uncertainty of these arrangements is brought out in Mr. Barnes' evidence to the Poor Law Commissioners: "In the Amalgamated Society of Engineers we do not require a man to shift from one town to another after he is fifty years of age, and, putting it generally, we do not require him to get the standard rate of wages—according to the discretion of the committees who may deal with the matter—after about fifty-five years of age." But the percentage of men who take advantage of this is very small. "In fact, although we allow men to work under the rate at fifty-five years of age, it is rather the case that the men at fifty-five, or even sixty, do not avail themselves of the opportunity. So strong is the sense of discipline in the trade unions, and their sense of loyalty to their fellows, that in most cases a man would rather give up work altogether than accept work at the lower rate. So that, instead of trade unions standing in the way of the men accepting lower rates, the opposite is the fact, and the trade unions rather enourage it" (Evidence of Mr. G.N.Barnes, M.P., quoted in the Report of the Commission, p. 313, footnote).

[33] Cf. Broadhead, State Regulation of Labour in New Zealand, p. 66.

[34] Cf. Aves. Report on Wages Boards, p. 61, and Raynaud, Vers le salaire minimum, p. 96.

[35] The danger of allowing under-rating to become a means of evasion of awards is clearly seen by those in charge of the Acts. "In granting permits, the Chief Inspector is guided by claims based on personal disability of some kind, and not by the exigenoies either of an industry or of a particular business. If conditions have changed, making the applications for permits more urgent on that account, the view is held, very consistently, that the occasion would then have arisen for the reconsideration of its determination by the Board concerned. While the determinations are in force, wages conditions, it is held, should conform to them, and in their power to arrest or postpone a fall some consider that they will in the future prove their greatest value. Such is the hope, but to that form of testing they have not yet been subjected. The point, which it is necessary to emphasise here, is that at such a period the permit is not regarded as the appropriate instrument on which to fall back" (Aves, Report on Wages Boards, p. 63).

[36] It should be noted that, when it is a question of an excess of wage sought by particular men above the standard time-wage, the unions under a time-wage system are not in a position to resort to collective bargaining, and that, therefore, the employers' bargaining power is more likely to be superior to the workpeople's than it is as regards the standard itself. (Cf. McCabe, The Standard Rate in American Trade Unions, p. 114.)

[37] McCabe, The Standard Rate in American Trade Unions, p. 118 n.

[38] Cf. Webb. Socialism and the National Minimum, p. 73.

[39] Quarterly Journal of Economics, 1910, p. 678. The tendency of the minimum to become the maximum is, of course, stronger in some circumstances than in others. Thus, Mr. Broadhead writes of New Zealand: "In those trades, in which there is no competition with the outside world, many of the workers, according to their degree of skill, are paid more than the minimum wage fixed by the court, but in others, in which there is competiton with the imported article, the practice of making the minimum the maximum wage is, I believe, pretty general. In the latter case the employers contend that they cannot afford to pay to any worker any more than is fixed by law" (State Regulation of Labour in New Zealand, p. 72).

[40] Holland and Barnett, Studies in American Trade Unionism, p. 118.

[41] "Minimum Wage Legislation," U.S. Bulletin of Labour Statistics, 1915, p. 136, No. 167.

[42] For example, a New Zealand employer told Mr. Aves that "he was alive to the danger of a rigid scale of remuneration, and that to some of his men he was paying 'something extra' a day. But this was done 'on the quiet.' The men are paid in paper and metal currency, the loose coinage being folded in the notes. The array of little packages was shown me. All are paid with great rapidity, and 'no one can tell what any one else receives" (Report on Wages Boards [Cd. 4167], p. 109). In like manner, an English employer told the Charity Organisation Society's Committee on Unskilled Labour: "If one man is better than another, we give him 1s. or 2s. extra at the end of the week. We have to be careful that other men do not know that, or they want to know why. They cannot understand that it is because the man has served us better. You cannot say openly, 'I will give you 2s. more.' The man would be considered a favourite, and he would have a warm time in the stable at night" (Report, p. 109).

[43] Cf. for confirmatory evidence from America, Schlichter, The Turnover of Factory Labour, pp. 44-5.

[44] Cf. British and Foreign Trade and Industry, Second Series, p. 99.

[45] There is evidence that in the industrial depression of 1922 in Great Britain the incidence of unemployment among men, which was, as might have been expected, least between the ages 25-40, was higher in the early twenties than among elderly men. (Cf. Mozley, "The Incidence of Unemployment by Age and Sex," Economic Journal, December 1922, p. 484.) A possible explanation is that men in the early twenties would be those who had been prevented by the war from learning a skilled trade, that the wages of unskilled workers were unduly high relatively to those of skilled workers, and that, therefore, unskilled workers, among whom these young men were abnormally numberous, found it harder to obtain employment than skilled workers. This "explanation" is, however, little better than a guess. It is interesting to note that in 1921 a law was passed in Italy to the effect that, "in the case of dismissals being necessary, preference in the retaining of hands be given to the oldest workmen and to those having the largest families" (Review of the Foreign Press, July 1921, p. 191).

[46] Beveridge, Unemployment, p. 72.

[47] Report on an investigation into the employment and insurance history of a sample of persons insured against unemployment in Great Britain, 1927; pp. 46-7.

[48] Ibid. p. 38.

[49] Report of the Transvaal Indigency Commission, p. 121.

[50] Cf. ante, Part II. Chap. II. § 4.

[51] Report on Standard Price Rates, 1900, p. xiv.

[52] Report on Standard Price Rates, 1900, p. xvi.

[53] Schloss, Report on Gain-sharing, p. 113. For a detailed account of the arrangements by which piece-scales in the United States are adjusted to variations in the sizes and patterns of products, the materials used and the physical conditions of the work, cf. McCabe, The Standard Rate in American Trade Unions, chapter i.

[54] Engineering Magazine, 1901, p. 624.

[55] Cf. Hoxie, Scientific Management and Labour, p. 51.

[56] Black, Makers of our Clothes, p. 145.

[57] Cf. Cole, The Payment of Wages, p. 4.

[58] Going, Principles of Industrial Engineering, p. 123.

[59] Principles of Economics, p. 162.

[60] Ibid. p. 162. footnote.

[61] If the produce-curves for two acres are parallel to one another, then, as Marshall shows, whatever the shape of these curves, an increase of demand for the product (say wheat) makes the rentability of the inferior acre a larger proportion than before of the rentability of the other. If the curves are straight lines and one lies above the other throughout its length, the same thing is true, even though the curves are not parallel. If the curves are straight lines and cut one another, it is not true. If they are straight lines and if they coincide initially (i.e.) in respect of the first dose of investment) the ratio between the rentabilities of the two acres is the same in all states of demand. If they are not parallel and are not straight lines, no general statement can be made. These results are easily demonstrated by means of simple diagrams.

[62] Biological Fact and the Structure of Society, p. 32.

[63] Cf. ante, Chap. XIV. § 1.

[64] Loc. cit. pp. 204-214.

[65] Bulletin of the U.S. Bureau of Labour Statistics, No. 167, pp. 165-6.

[66] Ibid. p. 167.

[67] Cf. his interesting book, A New Province for Law and Order. For skilled workers he aimed at adding to the basic wage. "a secondary wage," in the determination of which a dominant part should be played by considerations as to what the trade would bear. It will be noticed that, on Mr. Justice Higgins' principles, the real rate of wages for unskilled workers would never change at all.

[68] Cf. Bulletin of the U.S.A. Bureau of Labour, No. 285. These laws, so far as they affect minors, do not stipulate for a wage that shall cover subsistence, but merely for one that is "suitable" and "not unreasonably low."

[69] Mr. Rowntree has shown that in York, if a minimum wage based on a family of as many as five dependent children were established, no less than 20 per cent of the children born would be inadequately provided for for five years or more (The Human Needs of Labour, p. 41).

[70] The Measurement of Social Phenomena, pp. 179-80.

[71] Women's Supplement to New Statesman, Feb. 21, 1914.

[72] Chapman, Work and Wages, vol. ii. p. 263. Since the passing of the Industrial Arbitration (Further Amendment) Act of 1918, it is no longer wholly true, for New South Wales, that agriculture is untouched by the arbitration laws.

[73] Labour Gazette, March 1923, pp. 86-7.

[74] Ibid. p. 86.

[75] Cf. Rathbone, Economic Journal, 1920, p. 551.

[76] Cf. Heimann, "The Family-Wage Controversy in Germany," Economic Journal, December 1923, p. 513. For an account of "family-wage" arrangement in France, cf. Douglas, "Family Allowances and Clearing Funds in France," in the Quarterly Journal of Economics, February 1924. An interesting discussion of family wages and alternative forms of family endowment is contained in Miss Rathbone's book, The Disinherited Family. Cf. also Cohen, Family Income Increase.

[77] For an account of this Act cf. The Quarterly Journal of Economics, May 1928, pp. 500 et seq.

[78] Cf. Tawney, Minimum Wages in the Tailoring Trade, pp. 121-34; and Bulkley, Minimum Wages in the Box-making Trade, p. 51. In the box-making industry the workpeople's capacity has also been benefited in an indirect way, because the enforcement of higher rates has induced employers to pay more attention to their training; "every worker has to be trained to earn the minimum, whereas formerly it did not matter how little they earned" (loc. cit. p. 51).

[79] Aves, Report on Wages Boards, p. 88.

[80] Labour Gazette, March 1909, p. 103.

[81] Cf. Aves, Report on Wages Board, p. 88; and Raynaud, Vers le salaire minimum, p. 335.

[82] Ibid. p. 88.

[83] The World's Labour Laws, Feb. 1914. p. 47.

[84] Cf. Douglas, American Economic Review, December 1919, p. 709. Cf. also Bulletin of the U. S. Bureau of Labour, No. 285, pp. 22 et seq.

[85] Cf. post, Part IV. Chapter III. § 8.

[86] It may be suggested that under a piecework system this device is impracticable, since a given wage bears the same relation to a given output, whoever the worker may be. But (1) equal pieces are not always of the same quality, and are not always obtained with the same amount of injury to the employer's property (e.g. in coal-mining, a ton of coal badly cut may damage the general conditions of the mine in the neighbourhood); and (2) even when two pieces are similar in all respects, one man, in finishing his, may occupy the fixed plant of his employer for a longer time than his neighbour.

[87] Since on the overtime plan workpeople get less money and, therefore, the marginal utility of money to them is slightly higher, the amount of work forthcoming under the overtime plan should in strictness be slightly larger than under the other.

[88] Report on the Cost of Living in German Towns [Cd. 4032], p. 521.

[89] Economic Journal, 1903, p. 194.

[90] This is the advice given him by Smart, Sliding Scales, p. 13. It may be noted that the pawn-shop and the power to get credit afford, for short periods of unemployment, a partial, though sometimes an injurious, substitute for saving.

[91] Cf. for illustrations, L. L. Price, Industrial Peace, p. 80.

[92] Cadbury, Women's Work and Wages, p. 93.

[93] Bowley, Elements of Statistics, p. 305.

[94] Le Chômage et la profession, pp. 336-7. M. Lazard adds: "A ce premier avantage, proper aux grandes enterprises, du fait de leur organisation commerciale, il s'en ajoute d'autres, résultant du mechanisme de la production. Lorsque la direction de l'industries est concentrée dans un petit nombre de mains, les chefs d'enterprises connaissent le marché; qu'ils fournissent mieux que ne font, dans leurs sphères respectives, les petits ou moyens entrepreneurs des autres branches industrielles. Sachant sur qualle consommation ils penvent compter, ils règlent leur production en conséquence... Notre hypothèse demanderait d'silleurs à être vérifiée, car plus d'une industrie fait apparemment exception à la règle indiquée; on remarque, par exemple, que l'agriculture, l'industrie humaine par excellence, est assez épargnée par le chomage, bien que l'effectif moyen des établissements y soit trèduit. Il semble que l'on puisse attribuer cet état de choses au fait que les débouchés sont plus stables dans l'agriculture que dans l'industrie proprement dits; en outre, le nombre des entreprises agricoles est naturellement limité par l'inextensibilité de la surface cultivée" (ibid. pp. 337-8).

[95] Ibid. p. 337.

[96] Report, p. x.

[97] Industry, v. p. 253.

[98] "Steadying Employment," Annals of the American Academy of Political Science, May 1916, pp. 6-7.

[99] Cf. Price, Industrial Peace, p. 97.

[100] Cf. Marshall, Economics of Industry, p. 381 n.

[101] Cf. Dearle, Economic Journal, 1908, p. 103.

[102] Cf. Committee on Distress from Want of Employment, Q. 4580.

[103] Cf. Sheriff Jameson's award in a shale-miners' arbitration (Economic Journal, 1904, p. 309).

[104] When specialisation, either to trade or place, is very high, the labour supply will, for considerable variations of wage, remain practically constant. The workman may know that his skill is useless in other districts or occupations, and may, therefore, be driven to accept a great drop in wages before leaving. Nor (except for navvies and other labourers, the muscular character of whose work makes it specially dependent upon their nourishment) need his capacity suffer appreciably. Thus the supply may be perfectly inelastic. It may also be inelastic on account of conservative feeling among the workers affected. For example, Dr. Clapham writes of the decline of the hand-loom industry: "The independence and professional pride of the old race of weavers made them hate the thought of the factory, and stick to their home work with a tenacity that, in the long run, did them no good" (Bradford Textile Society, June 1905, p. 43).

[105] Statistical Journal, Dec. 1904, p. 635.

[106] These considerations justify the establishment, in connection with sliding scales, alike for skilled and unskilled work, of a minimum wage uncompensated by any corresponding maximum.

[107] This consideration affords an argument in favour of the device of the "double-jump" after a certain point has been reached, which found a place in a former scale in the South Wales coal industry and also in certain English sliding scales.

[108] Cf. Industrial Negotiations and Agreements, published for the Trade Union Congress, 1922, pp. 46 et seq.

[109] Cf. Ashley, Adjustment of Wages, pp. 56-7.

[110] Chapman, "Some Theoretical Objections to Sliding Scales," Economic Journal, 1903, p. 188.

[111] Schultze-Gaevernitz, Social Peace, p. 160.

[112] Mr. L. L. Price, in discussing these negotiations, speaks of a "profits" scale in the cotton trade as a "closer approach to the conception of profit-sharing than that made by the usual type of sliding scale" (Economic Journal, 1901, p. 244). The view appears to be erroneous, so long as the "profits" of the representative firm are taken as the index. Of course, a system which should make the wage paid by individual firms fluctuate with their own particular "profits" would be an entirely different thing.

[113] Scales based, like several post-war scales, solely on the "cost of living" index are inadequate because they ignore changes in demand. Scales of this sort were adopted in 1922 in the wool, hosiery, cable-making, paper, and several other industries (Industrial Negotiations and Agreements, Trade Union Congress, 1922, p. 22).

[114] Report on Collective Agreements [Cd. 5366,] 1910, p. 32.

[115] Report on Collective Agreements [Cd. 5366,] p. 27.

[1] That is to say, without injuring it either from the point of view of the period before the change or from the point of view of the period after the change. Cf. ante, p. 54.

[2] Cours d'économie politique, ii. pp. 306-7.

[3] Manuale di economia politica, p. 371.

[4] Cours d' économie politique, ii. p. 324.

[5] Ibid. p. 408

[6] Cf. ante, p. 96.

[7] Select Committee on the Income Tax, 1906, Evidence, p. 81.

[8] Cf. Benini, Principii di statistica metodologica, p. 810.

[9] Of course it is not suggested that the inheritance laws of all modern European countries are exactly identical. They differ considerably in detail. The French laws, for example, force a more even division of estates among children than the English laws and deny special privileges to the eldest son. It is interesting to connect this fact with the observation of Benini (Principii di statistica metodologica, p. 191), that the distribution of wealth is more even in France than it is here. (Cf. also Ely, Property and Contract, vol. i. p. 89.)

[10] Loc. cit. pp. 370-71.

[11] The Growth of Large Fortunes, p. 18.

[12] Proceedings of the Manchester Statistical Society, 1924-26, pp. 64-5. For a useful summary of the available statistics concerning income and capital distribution, cf. Carr-Saunders and Jones, Social Structure in England and Wales (1927), chapters ix. and x.

[13] Principii di statistica metodologica, pp. 836-7.

[14] Manuale di economia politica, pp. 371-2.

[15] Bowley, The Division of the Product of Industry, p. 12.

[16] Ibid. p. 11.

[17] Cf. Chiozza-Money, Riches and Poverty, p. 49.

[18] The special case of the entrepreneur's earnings is discussed in detail by Professor Edgeworth in the Quarterly Journal of Economics for February 1904; it is also touched upon in his paper on "Mathematical Theories" in the Economic Journal of December 1907.

[19] This idea is well expressed by Turgot in an elaborate figure (cf. Cassel, Nature and Necessity of Interest, p. 22). In illustration, it may be noticed that, as the rate of interest falls, instrumental goods come to be built more solidly and to be repaired and renewed more readily when need arises.

[20] The significance of this qualification is that, in a given state of the other factors, an increase in the supply of one factor up to the amount required to provide a single group-unit on the optimum scale—e.g. a sufficient number of men to lift a heavy tree or a sufficient number to run one factory of optimum size in each occupation—need not yield diminishing returns. It is not relevant to the present argument that an increase in the scale of population, by generating closer contacts and mutual stimulation of thought, may indirectly lead to an increase in the supply of capital and to improved organisation, and that, therefore, output may increase in a larger proportion than population. The law of diminishing returns is concerned with the effects of an increase in the supply of one factor of production when the supply of other factors is not increased.

[21] Professor Taussig wrote in 1906 that, whereas most money incomes in the United States have increased, "the wages of ordinary day labour and of such factory labour as is virtually unskilled seem to have remained stationary and sometimes seem even to have fallen" (Quarterly Journal of Economics, 1906, p. 521). Whether the unskilled immigrants are mainly rival or mainly co-operant with the skilled workers of America is another and more difficult question. Dr. Hourwich writes on this point: "It is only because the new immigrants have furnished the class of unskilled labour that the native workmen and older immigrants have been raised to the plane of an aristocracy of labour" (Immigration and Labour, p. 12). In the same sense Prof. Prato (Le Protectionisme ouvrier, p. 72) maintains that, in general, the low-grade immigrant takes on occupations which native-born workpeople wish to leave, and that this is true, not only of the Chinese and European immigrant into the United States, but also of the Italian and Belgian immigrant to France, Switzerland, and Germany.

[22] It is not relevant to the present argument to note, though the point may be added for completeness, that, in response to the improved demand, the co-operant factors tend to increase in quantity, but, since their supply curve is inclined positively, not to a sufficient extent to reduce their receipts to the old level.

[23] Cf. Marshall, Royal Commission on Labour, Q. 4237-8.

[24] Principles of Economics, p. 540.

[25] "The Export of Capital and the Cost of Living," Manchester Statistical Society, Feb. 1914, p. 78.

[26] The general proposition, of which the statement in the text is a special instance, is that, other things being equal, an increase in the quantity of any one factor of production will be accompanied by an increase in the absolute share of product accruing to that factor, provided that the demand for the said factor has an elasticity greater than unity. The condition on which it will be accompanied by an increase in the proportionate share of product accruing to the factor is different from this, and can be determined as follows. The supply functions of the other factors being given, the aggregate output P depends on the quantity of the variable factor, in such wise that, if x represents this quantity, P=f(x). The absolute share accruing to the variable factor is, therefore, represented by xf', and the proportionate share by xf'/f. The condition that this latter magnitude shall increase when x increases is that is positive.

Let e represent the elasticity of demand for the factor in question. Then and the above condition can be expressed, by easy substitution, in the form Thus e exceeds unity by a larger amount, the larger is the proportionate share of the product accruing, before the variation, to our variable factor. The condition set out above in symbols can be expressed in words, as Dr. Dalton has pointed out, by the statement that "the elasticity of demand is greater than the reciprocal of the relative share of all other factors taken together" (The Inequality of Incomes, p. 187).

[27] The term elasticity of demand, as employed by Marshall and in the text above, signifies proportionate change in quantity divided by proportionate change in price when the changes are very small (strictly infinitesimal). It is what Dr. Dalton calls "point elasticity" (cf. The Inequality of Incomes, pp. 192-7). Hence, in order that the argument of the text may hold good of substantial increases of supply, we must suppose that the elasticity of demand is greater or less than unity, as the case may be, not merely in respect either of the old or of the new quantity of supply, but also in respect of all the quantities intermediate between these two.

[28] Cf. Marshall, Principles of Economics, p. 235.

[29] Cf. Edgeworth, "On the Use of the Differential Calculus in Economics," Rivista di Scientia, vol. vii. pp. 90-91.

[30] Cf. Marshall, Principles of Economics, p. 672.

[31] Report of the Royal Commission on the Aged Poor, p. 72.

[32] Royal Commission on the Aged Poor, Minutes of Evidence (Q. 10,880).

[33] Hobson, The Industrial System, p. 281.

[34] Salariat et salaires, p. 421.

[35] Report, p. 344.

[36] Nature and Necessity of Interest, p. 112.

[37] Report of the Royal Commission on the Poor Laws, p. 309.

[38] La Répartition des richesses, p. 37.

[39] La Répartition des richesses, p. 440.

[40] Cf. Principles of Economics, p. 541.

[41] This statement is not incompatible with the facts (1) that the resources devoted to making the motor car itself are turned into "capital" uses, and (2) that the existence of a private motor car of given value may tend to push up wages (by drawing people into service with it away from other employment) as much as the existence of a machine employed in industry.

[42] Report on Wages Boards, p. 197. This "determination" fixed both an hour rate and a piece-work rate, compelling the latter to be paid to outworkers. The intention was that the two should be equivalent, but employers in practice found the hour, or wages, rate much the cheaper. The ex-inspectress added: "When the wages rate and the piece-work rate were nearly the same, as in the shirt and underclothing trade, the trouble did not occur, and, after ten years' working of the determination, these trades count many outworkers to-day." The choice between an out and an in-worker is affected by the fact that, when employing outworkers, the employer escapes charges for working space, light, firing, and so forth. "The savings upon factory rent, upkeep, and superintendence appear to be larger factors in the cheapness of home work than the lowness of wages" (Black, Makers of our Clothes, p. 44). Cf. also Marconcini, L' industria domesticu salariata (pp. 432-3). On the other hand, of course, economies of superintendence and, sometimes, of power are to be obtained in factory work.

[43] Report on Wages Boards, p. 179. Cf. ante, Part III. Chapter XIV. § 8.

[44] Cf. Lyttleton, Contemporary Review, February 1909.

[45] Fortnightly Review, August 1908, p. 225.

[46] Cadbury and Shann, Sweating, p. 124.

[47] Cf. Hooker, Statistical Journal, 1894, p. 635 n.

[48] Broadhead, State Regulation of Labour in New Zealand, p. 215.

[49] Bosanquet, The Strength of the People, p. 71.

[50] The Strength of the People, pp. 294-5.

[51] For examples of things made by "sweated" workers and consumed by others than wage-earners, cf. Cadbury and Shann, Sweating, p. 123.

[52] The reason why this conflict between the interests of a particular class of wage-earners and those of wage-earners as a whole, when the particular class endeavours to force up its rate of wages above the normal, is not generally recognised may well be, as Mr. H. D. Henderson suggests, that most wage movements are associated with trade cycles. In consequence of this, the wage rates of different groups generally move up and down together, and, therefore, to the casual observer, there appears to be a greater harmony of interest than there really is (Supply and Demand, p. 157).

[53] Cf. Marshall, Economics of Industry, pp. 372-3.

[54] It must be remembered, however, that, if only 500 rich men cut down their consumption of this type of article in a given proportion, the benefit to the poor will be less than half what it would have been had 1000 done so; because what one rich man voluntarily refrains from consuming another rich man, tempted by the resultant lowering of price, may be tempted to bid for. This is, pro tanto, an argument for compulsory (and, therefore, universal), as against voluntary, rationing.

[55] Cf. Part I. Chaps. IX.-XI.

[56] The analysis which follows was suggested to me by Mr. Ramsey of King's College, Cambridge.

[57] In the special case where the demand curve for labour is a straight line the net gain is equal to h(r - ½s); which is necessarily positive, provided that the rate of subsidy is less than twice the rate of contribution to unemployed workmen.

[58] Cf. Carr-Saunders and Jones, Social Structure in England and Wales, p. 158.

[59] For an illustration of this among home-working tailoresses cf. Vesselitsky, The Home Worker, p. 17.

[60] Report of the Royal Commission on the Poor Laws, Appendix, vol. xxxvi. pp. vi-vii.

[61] Cf. ante, Chapter III. § 10. Dr. Hourwick, in his book Immigration and Labour, seems to miss this point; for, having shown that immigrants into the United States do not earn less wages for equally efficient work than native Americans, he treats this conclusion as implying that they do not affect the wages of native Americans.

[62] Carver, Social Justice, p. 142.

[63] Cf. Cadbury, Experiments in Industrial Organisation, p. 17.

[64] Meakin, Model Factories and Villages, p. 27.

[65] Preface to Cadbury's Experiments in Industrial Organisation, p. xiii.

[66] Principles of Economics, p. 9.

[67] Cf. A Study in Public Finance, Part II. chapter x.

[68] Annals of the American Academy, 1895, p. 95.

[69] If the desire for income to save is decidedly more elastic than the desire for income to spend, the differential tax can be shown to be more restrictive of work than the other; in the converse case it can be shown to be less restrictive. But we have no reason to suppose that the desire for one of these uses is, from a long-period standpoint, much more or much less elastic than that for the other.

[70] Cf. ante, p. 666. The possibility that, for some people, a tax on savings might cause more savings to be made is parallel to the possibility that, for some people, a tax on work might cause more work to be done. The maximum amount that could in any circumstances be added to savings or to work is an amount sufficient to discharge the whole tax, in such wise that the taxed persons would be left with the same amount of available income as they would have had if there had been no tax.

[71] Essays in Social Justice, p. 323. Professor Fisher even writes: "The ordinary normal self-made American millionaire is rather disposed, I believe, to look on the inheritance of his millions by his children with some misgiving" (Journal of Political Economy, vol. xxiv. p. 711).

[72] A. G. Sombart, The Quintessence of Capitalism, p. 173.

[73] For a fuller discussion of the comparative effects of various forms of taxation, of. A Study in Public Finance, Part II.

[74] Economic Journal, 1891, p. 189.

[75] "Denmark and its Aged Poor," Yale Review, 1899, p. 15. The following sentence from the first report on the working of the British Unemployment Insurance Scheme is of interest in this connection: "Twenty of our Trade Unions, with an estimated membership of over 86,000 in the (compulsorily) Insured Trades, have begun to make provision for unemployment since the passing of the Act; while other Associations making such provision have much increased their membership" ([Cd. 6965], p. iv.). The help given towards insurance would thus seem to have stimulated private effort.

[76] Quoted in Appendix, vol. xvii., to the Report of the Royal Commission on the Poor Laws [Cd. 4690], p. 355.

[77] Cf. Report to the Poor Law Commission by Mr. Steel Maitland and Miss Squire, Appendix, vol. xvi. p. 5. The position of widows is, of course, especially likely to be difficult in districts where there is no established women's trade. In such districts "widows left destitute come at once for poor relief and remain throughout their widowhood on the rates." Where opportunities for home work exist, pauperism may be postponed—often at the expense of hours far longer than a proper interpretation of the minimum standard, to be stipulated for in chapter xii., would allow. (Cf. ibid. p. 182.)

[78] Report to the Poor Law Commission by Miss Williams and Mr. Jones, Appendix, vol. xvii. p. 334.

[79] Loc. cit. Par. 4. The Board's Report on the Working of the Act in 1910 showed that the amount of money actually recovered from parents was insignificant. ([Cd. 5131], p. 9.) This, however, was largely due to the facts (1) that many local Education Boards deliberately limit their provision of meals to necessitous children, and (2) that, when they do not do this, parents who can afford to pay dislike sending their children to meals where no distinction is made between payers and non-payers. (Cf. Bulkley, The Feeding of School Children, pp. 107-9.) In these circumstances not many children whose parents are capable of paying anything are likely to be affected. In respect of lunatics the conditions are different, and considerable contributions from relatives are collected. (Cf. Freeman, Economic Journal, 1911, pp. 294 et seq.) It must be admitted, however, that there are considerable practical difficulties in the way of exacting payment for a service which it is understood will be rendered whether payment is made or not. Further objection is often taken to the device of "recoverable loans," on the ground that they divert energy from industrial effort to attempts at evading payment. As Mrs. Bosanquet observes: "Many a shilling is recklessly wasted, because, if not spent, it will only go to the debt collector" (Economic Journal, 1896, p. 223).

[80] Report of the Royal Commission on the Poor Law, p. 231.

[81] Loc. cit. p. 110.

[82] Loc. cit. p. 207.

[83] Practicable Socialism, p. 237.

[84] This controversy is presented in a clear-cut form in the Report of the Departmental Committee on Old-Age Pensions [Cmd. 410], 1919. The majority of the Committee recommended that the means limit for pensions should be abolished, but the minority dissented from this recommendation.

[85] Cf. Darwin, The Racial Effects of Public Assistance, pp. 13-15.

[86] Cf. Brooks's Labour's Challenge to the Social Order, p. 228 et seq.

[87] Report of the Poor Law Commission of 1832, p. 161.

[88] Ibid. p. 162.

[89] Report of the Committee on Distress from Want of Employment, quoted by Beveridge, Unemployment, p. 153.

[90] Cf. Dawson, The Vagrancy Problem, p. 136.

[91] Ibid. p. 179.

[92] Ibid. p. 193.

[93] Report of the Departmental Committee on Vagrancy, vol. i. p. 59.

[1] Knoop, Principles of Municipal Trading, p. 266.

[2] Ibid. p. 213.

[3] Knoop, Principles of Municipal Trading, p. 266.

[4] Cf. ante, Part IV. Chapter V. § 7.

[5] Report of the Royal Commission on the Poor Laws, Appendix, vol. xxxii. p. 17.

[6] It should be noted that, if the transference is very large, the resultant shortage of material capital may cause the rate of interest to increase appreciably; and that then the advantage of investment in the capacities of the poor will have to be balanced against the advantage of investment in machines yielding this increased rate.

[7] On the continent of Europe, "the Farm Colonies, as distinguished from penal workhouses, do not, in general, receive the genuine unemployed, i.e. those who are out of work against their will. The great majority of the frequenters are the shiftless loafers, who, in the severer seasons of the year or in times of special distress, seek the shelter they offer rather than expose themselves to continued want or run the risk of entering the penal workhouse" (Bulletin of the United States Bureau of Labour, 1908, No. 76, p. 788).

[8] Cf. Webb, English Local Government, vol. iv. p. 692.

[9] Cf. Report on The Transference of Functions of Poor Law Authorities [Cd. 8917], p. 26.

[10] Royal Commission on the Poor Laws, Minority Report, p. 867.

[11] Journal of the Royal Statistical Society, June 1913, p. 692.

[12] Life in an English Village, p. 287.

[13] Has Poverty diminished! pp. 24-5.

[14] Royal Commission on the Poor Laws, Report, p. 620.

[15] Ibid. p. 187.

[16] Cf. Bulkley, The Feeding of School Children, p. 179.

[17] Royal Commission on the Poor Laws, Appendix, vol. xx. pp. 23-7.

[18] Royal Commission on the Poor Laws, Report, p. 188.

[19] Marshall, Principles of Economics, p. 213. Furthermore, it should be noticed that such a policy will react to the advantage even of those members of the manual working class who are not directly touched by the improved educational opportunities; for it will both increase the demand for their services, by increasing the number of persons capable of acting as business managers, and also diminish the supply of their services by withdrawing these men from among them.

[20] [Cd. 5131], p. 5.

[21] "Physical Degeneration and the Poverty Line," Contemporary Review, Jan. 1904, p. 72.

[22] Cf. Clapham, Cambridge Modern History, vol. x. p. 753.

[23] "The Backward Art of Spending Money," American Economic Review, No. 2, p. 274.

[24] It may possibly be objected that of £100 invested in industry, £50 or more goes as wages, and, therefore, is also invested in the poor. This is a misconception. When £100 is invested in industry, £100 worth of labour and tools is devoted to making machinery: when it is invested in the persons of poor people, £100 worth of labour and tools is devoted to making consumable goods for their use.

[25] Royal Commission on the Poor Laws, Majority Report, p. 102.

[26] Ibid. p. 267.

[27] Royal Commission on the Poor Laws, Minority Report, p. 750.

[28] Practicable Socialism, p. 104.

[29] Cf. Mr. Snowden's Report of the Local Government Board on Guilds of Help [Cd. 5664].

[30] The Measurement of Social Phenomena, p. 173.

[31] Cf. Henderson, Industrial Insurance in the United States, p. 301.

[32] Report, p. 15.

[33] It is sometimes suggested that those very improvements in the capacity of labour, which have been discussed in previous parts of this book, are calculated to push some men below the minimum standard. It is true, as a point of analysis, that increased capacity of labour is, in effect, equivalent to an addition to its supply, and, therefore, involves a slight reduction in the real wage of a labour unit of given quality. In view, however, of the elastic character of the demand for labour in general, the number of the unimproved men whom this change would push over the line of self-support would almost certainly be very small.

[34] This is the term employed by the Majority Commissioners of the 1909 Report on the Poor Laws.

[35] Cf. Bowley, The Division of the Product of Industry, pp. 20 et seq.

[36] The International Labour Conference of 1919, in framing its convention on Women's Employment, aimed at a high standard. On each separate provision of the Convention it fell behind the practice of some countries, but the existing law of no country covered the whole requirement of the Convention (G. Hetherington, International Labour Legislation, p. 90).

[37] For a summary of a number of laws on this matter, cf. Grunzel, Economic Protectionism, pp. 281 et seq.

[38] Cf. ante, pp. 161-2, footnote.

[39] Cf. Marshall, Industry and Trude, p. 255.

[40] Bowley, Elements of Statistics, p. 305.

[41] This circumstance, of course, permits the release, partly for immediate consumption and partly for investment, of resources which must otherwise have been stored. For example, the combination of the community's gold reserves in a central bank lowers the amount of aggregate gold reserve necessary, increases the capital available for investment, and pro tanto lowers the rate of interest. (Cf. H. Y. Brown, Quarterly Journal of Economics, 1910, pp. 743 et seq.)

[42] Industry and Trade, p. 256.

[43] The Nature and Necessity of Interest, p. 126.

[44] Inglis, Report of the Board of Trade Railway Conference, 1909, p. 33.

[45] Iles, Inventors at Work, p. 483.

[46] Principles of Economics, pp. 109 et seq.

[47] Professor Moore, in his Economic Cycles (chapters iv. and v.), makes calculations of the "elasticity" of demand for certain commodities without resort to the allowances stipulated for in the text. But, as he himself fully recognises, the elasticity, which his method enables him to measure, is not the same thing as, and is not, in general, equal to, the elasticity of demand as defined by Marshall and employed here. Marshall's elasticity, if known, would make it possible to predict how far the introduction of a new cause modifying supply in a given manner would affect prices; Professor Moore's to predict with what price-changes changes in supply coming about naturally, in company with such various other changes as have hitherto been found to accompany them, are likely to be associated. That this distinction is of great practical importance is shown by the fact that, whereas the elasticity of the demand for pig-iron, in Marshall's sense, is, of course, negative—that is to say, an increase in supply involves a fall in price—the elasticity in Professor Moore's sense, as calculated from his statistics, is positive. The reason for this is that the principal changes in the price of pig-iron that have in fact occurred are mainly caused by expansions of demand (general uplifts in the demand schedule), and not by changes in supply taking place while the demand schedule is unaltered. In certain conditions it might be possible to derive Marshall's elasticity from Professor Moore's elasticity, provided that the reactions exercised by supply changes upon prices could be presumed to take place very rapidly. Apart from this presumption derivation would be impossible, however ample the statistical material.

[48] Economic Journal, 1914, pp. 212 et seq.

[49] The direct method and any possible indirect method are seriously hampered by the fact that the elasticity of demand for a thing may be different in respect of different amounts. Thus suppose we start with a consumption A at a price P: that the price rises by p per cent, and that this rise is the direct and sole cause of a fall in consumption of a per cent. We cannot infer that the elasticity of demand either for consumption A or for consumption is equal to unless p is small—strictly unless it is infinitesimal. If p is not small, some assumption as to the relation of neighbouring elasticities must be made before any inference can be drawn. One possible assumption is that the demand curve is a straight line. On this assumption the elasticity of demand in respect of consumption A will be : and in respect of consumption it will be . Another possible assumption is that the elasticity of demand is constant for all amounts of consumption from A to . On this assumption it can be proved, as Dr. H. Dalton has pointed out to me, that the said elasticity is not but This must lie between and : and is probably not far from

[50] Strictly, of course, such a change must involve some alteration in the marginal desiredness of money, unless the demand for the commodity in question has an elasticity equal to unity. If the elasticity is anything other than this, a change in the consumption of the commodity will be accompanied by a transference of money from expenditure upon it to expenditure upon other things, or vice versa. This must affect the marginal desiredness of money spent on these things, and its marginal desiredness, if affected in one field, is, since it must be the same in all, affected in all.

[51] Professor Vinci, in his very interesting monograph L' elasticità dei consumi, suggests that the method described above can be extended to yield an absolute measure of elasticity by reference to the distinction between nominal and real prices. The money price paid by the higher income group is the same as that paid by the lower income group. But the real price is, he holds, less than this, in the proportion in which the income of the higher income group exceeds that of the lower. Thus, if the higher income group has 10 per cent more income, an equal money price paid by it implies a real price 10/11ths as great; and the elasticity of demand is obtained by dividing a virtual price difference of 1/11th into whatever fraction represents the associated consumption difference (loc. cit. p. 22). This procedure is, however, illegitimate, because, on the assumptions taken, the virtual price of all commodities to the higher income group is 10/11ths of what it is to the lower income group. Consequently, the difference in the consumption of any particular commodity is not due solely to the difference in price of that commodity, and cannot, therefore, in general, be inserted in the formula for elasticity of demand. Professor Vinci has, in fact, tacitly assumed that the marginal desiredness of money is equal for the two groups—an assumption which would only be warranted if the demand of both for the sum of commodities other than the particular one under investigation had an elasticity equal to unity.

[52] Cf. my article "A Method of Determining the Numerical Value of Elasticities of Demand," Economic Journal of December 1910.

[53] Cf. ante, Part II. Ch. XI.

[54] Marshall's statements about his "representative firm" show that this is conceived as an "equilibrium firm." But it is also something more. It is a firm of, in some sense, average size. Marshall pictures it as a "typical" firm, built on a scale to which actual firms tend to approximate; for some purposes he suggests that it might be well to picture to ourselves several different typical firms, one, for example, in the company form, another, probably smaller, in the private business form. That this conception is appropriate to actual conditions is well shown by the studies of the sizes of a number of actual businesses carried out in 1914 by Sir Sydney Chapman and Mr. Ashton. They conclude: "Generally speaking, there would seem to exist in industries, or branches of industries, of adequate size, under given sets of conditions, a typical or representative magnitude to which businesses tend to grow, typical proportions between their parts and typical constitutions.... As there is a normal size and form for a man, so, but less markedly, are there normal sizes and forms of businesses." (The sizes of businesses mainly in the textile industry. Statistical Journal, 1914, p. 512.) This is not surprising. For, if we so far abstract from reality as to suppose that there are large numbers of people of each grade of managing ability, each industry will tend to call to its firms men of that grade whose "comparative efficiency" is greatest there. If y be the output of the industry, x the output of the typical firm, and F(x,y) the total cost to that firm of its output, F will be a definite function determined by technical conditions, and for any assigned value of y, x will be given by the equation For my more limited purpose, however, it is not necessary to postulate that there is any representative or typical size of firms. Firms might be of all varieties of size, not concentrated about any norm. All that is required is that one firm is—or, rather, that the conditions are such as to make it possible for one firm to be—an "equilibrium firm" in the sense defined above.

[55] The argument here would have a slightly different form if marginal additive cost were the relevant form of marginal cost, but the result would be the same. Cf. post, footnote (2) to § 14.

[56] It will be noticed that neither the preceding argument nor the condition set out in § 3, that the tendency of the various non-equilibrium firms to expand and to contract must balance one another, necessarily implies that the supply price is equal to the average cost of the industry as a whole.

[57] We could, of course, if we wished, draw more complicated figures, in which the curves should reverse their direction of movement more than once, but no new principle would be brought to light by this proceeding.

[58] It does not forbid it if the firm's supply schedule is of the type depicted in Fig. 3 and if OM in the figure constitutes a large proportion of the total output which the market is capable of absorbing at a price PM; for in those conditions the one firm may make an abnormal profit without calling new competitors into the field.

[59] This matter is best elucidated by means of a diagram. Let DD' be the demand curve, SSm the curve of marginal costs, and SSa the curve of average costs of a one-firm industry. Let OM units be produced and sold at a price PM, where P is the point of intersection between DD' and SSa. If the industry were to increase its output beyond OM, say to ON, the extra units would cost less than PM per unit to produce. But, nevertheless, on the assumption that all units are sold at the same price, ON units could not be sold at a less price than QN without involving the industry in a loss. Since, however, the portion of DD' that is to the right of P necessarily lies below SSa, it

is impossible for an output ON to be sold at a price as high as QN. Hence, if the industry expands its output beyond OM, it will make a loss; and, therefore, it has no tendency to expand. When the curves SSm and SSa represent the circumstances of one equilibrium firm among many firms, the position is quite different. It is not now proper to draw a demand curve of the form of DD'. The price in the market would be absolutely unaltered by an expansion on the part of the equilibrium firm if its expansion were balanced by the corresponding contraction in other firms, and approximately unaltered—the equilibrium firm being supposed small relatively to the industry as a whole—if the output of other firms remained unchanged. Therefore the equilibrium firm could expand to ON and still sell at approximately the old price PM. Thus it could sell an enlarged output at more than the average cost of that output, and so make a gain. Hence, for one firm among many others, a state of things in which the supply price of the industry is equal to the average cost of the equilibrium firm, but greater than its marginal cost, is not a state of equilibrium

[60] It should be noted that, when, in one-firm industries, actual investment differs from ideal investment, the grounds for this divergence cannot be translated into terms of a difference between marginal social and marginal private net products. Since there is only one firm these two net products necessarily coincide. The ground of divergence, when such exists, is that, owing to the absence of competition, marginal private (which is here equal to marginal social) net product is not equal to average net product. If the one-firm industry is making normal profits, the value of the average net product is equal to the value of the marginal social net product in the imaginary central industry of Part II. Ch. XI. § 1: and, therefore, the value of the marginal social net product in the one-firm industry is not equal to that value.

[61] Cf. Part II. Ch. XI. § 13.

[62] In conditions such that a simple monopoly would sell in market A only, while a discriminating monopoly would sell in B also, it can easily be shown that the introduction of discrimination will affect consumption and price in A as follows. Under constant supply price both will remain unchanged; under increasing supply price consumption will be diminished and price increased; under decreasing supply price consumption will be increased and price diminished. These considerations are of practical importance to a government considering whether native cartels should be allowed to sell abroad at less than the home price.