{"1": {"fulltext": "", "height": "3530", "width": "2180", "jp2-path": "economicsofdistr01hobs_0001.jp2"}, "2": {"fulltext": "Class _i2Jlii/^\\nBook L-\\nGoipglitlN^\\nCOPflRlGHT DEPOSIT.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0002.jp2"}, "3": {"fulltext": "", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0003.jp2"}, "4": {"fulltext": "", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0004.jp2"}, "5": {"fulltext": "THE CITIZEN S LIBRARY\\nOF\\nECONOMICS, POLITICS, AND\\nSOCIOLOGY\\nEDITED BY\\nRICHARD T. ELY, Ph.D., LLD.\\nDIRECTOR OF THE SCHOOL OF ECONOMICS,\\nPOLITICAL SCIENCE, AND HISTORY,\\nUNIVERSITY OF WISCONSIN\\nTHE ECONOMICS OF DISTRIBUTION", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0005.jp2"}, "6": {"fulltext": ";7^2^^^", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0006.jp2"}, "7": {"fulltext": "THE CITIZEN S LIBRARY\\nThe\\nEconomics of Distribution\\nBY\\nJOHN A. HOBSON\\nAUTHOR OF THE EVOLUTION OF MODERN CAPITALISM\\nJOHN RUSKIN, SOCIAL REFORMERS, ETC.\\nTHE MACMILLAN COMPANY\\nLONDON MACMILLAN CO., Ltd.\\n1900\\nAll rights reserved", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0007.jp2"}, "8": {"fulltext": ":OPIES RECEiVf\\n/4B77./\\nttbrAry of C@Bigrdi%\\nQffHii of $ii\u00c2\u00ab\\nMAR 9 61900\\n\u00e2\u0096\u00a0jS9g!*tQP of Go^yplg f%\\n^APR4-ier\\nCOPTEI HT, 1900,\\nBy the MACMILLAN COMPANY,\\nHRST COPY\\nNotfajooti ^regg\\nJ. S. CuBhing Co. Berwick Smith\\nNorwood Mass. U.S.A.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0008.jp2"}, "9": {"fulltext": "PREFACE.\\nThis work endeavours to construct an intel-\\nligible, self-consistent theory of Distribution by\\nmeans of an analysis of those processes of bar-\\ngaining through which economic distribution is\\nactually conducted, the results of industrial co-\\noperation being apportioned to the owners of the\\nfactors of production in the several stages of\\nproduction.\\nThe chief difficulty lies in coordinating the\\ndifferent factors of production, so as to bring the\\npayments made respectively for the use of land,\\nlabour, and capital under a common law of price,\\nand in showing that the same economic forces\\nwhich determine the market and normal prices\\nof commodities are applicable to the sale of all\\nthese uses of the factors of production.\\nThe extension to all these cases of the termi-\\nnology and modes of measurement hitherto con-\\nfined to land, or extended tentatively and by\\nanalogy to certain other factors, involves a com-\\nplete restatement of some of the problems of\\nwages and interest. But this unification of the\\ndifferent processes of economic payment has long", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0009.jp2"}, "10": {"fulltext": "vi PREFACE.\\nbeen felt to be necessary to the construction of\\na satisfactory theory of distribution, and various\\napproaches in this direction have been made.\\nThis work claims to go farther and to reach a\\ncommon law of price applicable to every sort of\\nsale.\\nSome of the reasoning is difficult because it\\ninvolves a necessary abandonment of commonly\\naccepted terminology and the establishment of a\\nnew system of economic notation. If, however,\\nthe reasoning is valid, it establishes certain im-\\nportant theoretic conclusions, some of which are\\nfraught with large implications in the direction\\nof progressive politics.\\nIn particular, it claims to prove that all pro-\\ncesses of bargaining and competition, by which\\nprices are attained and the distribution of wealth\\nachieved, are affected by certain elements of force\\nwhich assign forced gains and other elements\\nof economic rent to the buyers or the sellers.\\nThere is thus established the existence of a large\\nfund, partaking of the nature of those monopoly\\nand differential rents, long ago recognised in the\\ncase of land, which furnish no stimulus to volun-\\ntary industrial energy, and which can be taken\\nfor public service by taxation without injury to\\nindustry.\\nMuch of the material of this work was given\\nin the form of lectures to students of the London\\nSchool of Economics and Political Science in 1897,", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0010.jp2"}, "11": {"fulltext": "PREFACE. vii\\nand parts of several chapters have appeared in the\\nHarvard Quarterly Journal of Economics. Since\\nreceiving the first proofs of this book, a little\\nvolume has come into my hands, entitled The\\nTheory of Wages, by Mr. H. M. Thompson,\\nwhich works out independently some of the main\\npoints of my criticism of current theories, in par-\\nticular of the fundamentally erroneous doctrine\\nthat Rent does not enter into the Expenses of\\nProduction.\\nJOHN A. HOBSON.", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0011.jp2"}, "12": {"fulltext": "", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0012.jp2"}, "13": {"fulltext": "CONTENTS.\\nOHAPTBS PAOB\\nI. The Determination of a Market-price 1\\nII. Producer s and Consumer s Rents 41\\nIII. The Determination of Long-period Prices and\\nof Value 55\\nIV. The Law of Rent as the Basis of Coordination\\nof the Factors of Production .113\\nV. The Grading of Labour and Capital. Marginal\\nand Differential Payments 160\\nVI. The Coordination of the Factors of Production.\\nEffects on the Theory of Price and Distri-\\nbution 193\\nVn. Bargains for the Sale of Labour-power 218\\nYin. Bargains for the Use of Capital .227\\nIX. Bohm-Bawerk s Positive Theory of Caj ital 266\\nX. The Theory of Surplus Value Its Influence\\nupon Distribution 295\\nix", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0013.jp2"}, "14": {"fulltext": "", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0014.jp2"}, "15": {"fulltext": "THE ECONOMICS OF DISTEIBUTION.\\nCHAPTER I.\\nTHE DETERMINATION OP A MARKET-PRICE.\\n1. I am unaware of any rule of justice appli-\\ncable to the problem of distributing the produce of\\nindustry, wrote Professor J. E. Cairnes, and it is\\ncommon to find in modern economic treatises gen-\\neral expressions of dissatisfaction with existing\\nmethods of apportioning wealth among those who\\nhave contributed to its production. But there is\\nlittle agreement as to the nature of the defects in\\npresent modes of distribution, nor does the analysis\\nof economic processes commonly adopted by those\\nwho indulge in these expressions of dissatisfaction\\nfully justify any such general condemnation. The\\neconomic power of landowners, the establishment\\nof trade monopolies or combinations, the weakness\\nof poorer classes of labourers in bargaining with\\nemployers, are commonly regarded as defects of\\nthe existing industrial order. But the recognition\\nof these defects is quite consistent with a convic-\\ntion that the general and normal tendency of com-\\npetitive industry makes for a fair and satisfactory", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0015.jp2"}, "16": {"fulltext": "2 TRE ECONOMICS OF DISTRIBUTION.\\ndistribution of the fruits of industry. For the\\nspecific defects named above are seen to be closely\\nassociated with restraints of competition, and may\\nplausibly be regarded as exceptions which by no\\nmeans justify a general condemnation of the justice\\nor utility of a system of distribution based upon\\nfreedom of competition.\\n2. In order to test the character of distri-\\nbution fairly, we must study it under normal\\nnot under exceptional circumstances, and in its\\nconstituent acts. Distribution is composed of, or\\nachieved by, transactions which, for lack of any\\nbetter term, we call bargains. Much investiga-\\ntion has taken place of certain classes of bargains,\\nparticularly in reference to sales of the use of the\\nfactors of production, and special laws of rent,\\nwages, interest, have been founded upon these\\nstudies. The general effect of these studies\\namong earlier economists was to break up the\\nunity of industry: first, by suggesting that bar-\\ngains for the use of land, of capital, and of labour-\\npower were subject to radically different laws;\\nsecondly, by failure to relate these laws of the\\nvalue or the price of the factors of production to\\nthe laws which were found to determine the price\\nof the commodities which they contributed to\\nproduce. More recent economic writers have\\nmade considerable advances toward the integra-\\ntion or unification of a theory of Distribution, by\\nrelating the theories of determining the price of", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0016.jp2"}, "17": {"fulltext": "DETERMINATION OF A MARKET-PRICE. 3\\nthe several factors through an extension of the\\nlaw of differential rents, and by a scientific formu-\\nlation of a theory of value which is applicable to\\nthe determination of all prices, alike of uses of\\nfactors and of commodities.\\nBut the completion of this work of unifying\\nthe theory of Distribution has been delayed by a\\nrefusal of economists to investigate sufficiently the\\nnature of the bargain per se, so as to find what is\\ncommon to its different species. So far as Eng-\\nland is concerned, this refusal is due to a visible\\nreluctance among students to engage upon purely\\ndeductive or speculative problems, except within\\na certain narrow field of mathematical analysis.\\nThe dominance of the historical spirit on the one\\nhand, and the rapid advance of Specialisation in\\neconomic study on the other, have unduly drawn\\nattention from the root-problems of deductive\\neconomics, which are too often assumed to have\\nbeen solved, or not to be worth the trouble of solu-\\ntion. To these influences I chiefly attribute the\\nsmall amount of intellectual energy devoted to the\\ninvestigation of the process of bargaining which\\nlies at the base of the theory of Distribution.\\nSuch study requires the moderate use of a method\\nwhich is peculiarly disfavoured by English econo-\\nmists of the present day, and is stigmatised as\\nCrusoe economics. This recent revolt against\\nspeculations, which were barren or illusive because\\nthey commonly proceeded from false premises, has", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0017.jp2"}, "18": {"fulltext": "4 THE ECONOMICS OF DISTBIBUTION.\\ngone too far. Such speculative analysis, with all\\nits dangers, is indispensable to the social sciences.\\nThe conditions of inductive reasoning from experi-\\nments, which exist in many branches of physical\\nscience, are here notoriously lacking, and to sup-\\nply this defect a process of fictitious experiment\\nis substituted, supposititious cases being framed\\nwhere unessential circumstances are eliminated, so\\nas to enable us to see more clearly the working of\\ncertain simple forces.\\nTo study problems of price or value, by plung-\\ning into the full intricacy of actual business, is not\\nreally a practical but a most unpractical method.\\nTo go back to a thoroughly uneconomic condition\\nis usually unprofitable but to take, first, cases\\ntrue to the essential facts of life, though contained\\nin a simpler setting of circumstances than that in\\nwhich they are actually found, and afterward to\\nintroduce the excluded circumstances gradually,\\nin order to see what difference is wrought, such\\nsubstitute for the experimental method of the\\nphysical sciences is both defensible and highly\\nprofitable as a mode of gradual approach toward\\na real issue. This method I propose to adopt in\\nopening up the nature of a bargain.\\n3. Bargains are found commonly in clusters at\\na market-price, being acts of sale or exchange at\\nthis common rate. It is therefore first essential\\nto understand how this common price-point is\\ndetermined.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0018.jp2"}, "19": {"fulltext": "DETERMINATION OF A MARKET-PRICE. 5\\nIf A wishes to sell a horse and B is the only-\\nbuyer, it is evident that, if the highest price B\\nis willing to give does not reach the lowest point\\nA is willing to take, there can be no price and no\\nsale.\\nA asks X20 and fixes reserve at \u00c2\u00a315.\\nB offers \u00c2\u00a38 and fixes reserve at \u00c2\u00a3\\\\2,\\nA s offers, 20 19 18 17 16 15\\nB s offers, 12 11 10 9 8\\nNext suppose A willing to take ^15, while B\\nis willing to give X18. If a sale takes place, the\\nprice will obviously lie in the common ground be-\\ntween c\u00c2\u00a318 and X15. But at what point and how\\nis the point reached? Professor Hadley assumes\\nthat a point will be reached and thinks it is deter-\\nmined by relative skill in bargaining.\\nA, 20 19 18 17 16 15\\nB, 18 17 16 15 14 13 12 11 10 9 8\\nBut this attainment of a price by skill of bar-\\ngaining implies ignorance of each other s mind\\nin the case of A and B, or either. If A knows\\nor thinks that B will go to \u00c2\u00a318 and B does not\\nknow that A will sell at \u00c2\u00a315, A will stand firm\\nat .\u00c2\u00a318 and get that price if, per contra^ B knows\\nthat A will sell at \u00c2\u00a315 and A does not know that\\n1 Hadley s Economics^ p. 73.", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0019.jp2"}, "20": {"fulltext": "6 THE ECONOMICS OF BISTBIBUTION.\\nB will go to \u00c2\u00a318, B gets his horse at \u00c2\u00a315. If\\nneither knows but each suspects the other will go\\nfurther, bluff is the determinant; the bidding\\nproceeds until either A or B believes that any\\nfurther demand will outstep the limit set by the\\nother in his mind and will lose him the bargain.\\nThe determinant here is superior cunning, or, as\\nHadley says, skill in bargaining. Or it may\\nbe that while A is willing to sell at \u00c2\u00a315, he may\\nknow or suspect that it is more important for B\\nto obtain the horse than for him to sell, in which\\ncase he is in the position to extort \u00c2\u00a318.\\nSo far we have no element of competition the\\nprocess by which a price is reached, if it is reached,\\nis one of bargaining from beginning to end.\\nNow introduce the competitive element upon\\none side of the transaction. A, the happy owner\\nof the horse, which he will sell for \u00c2\u00a315 or as much\\nmore as he can get, is faced by B and C, who both\\nwant the horse and are furnished with effective\\ndemand in the shape of cash. Now B and C\\neither set the same limit-price upon A s horse, or\\nthey set a different limit-price. If it is equally\\nimportant to both to get the horse, and they are\\npossessed of equal pecuniary resources, they may\\nconceivably be both willing to bid up to \u00c2\u00a318 for\\nthe horse. In such a case it is a matter of absolute\\nindifference to A whether, after making B and C\\nbid against each other up to \u00c2\u00a318, he sells to B or\\nto C. Indeed, the casuist would rightly argue", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0020.jp2"}, "21": {"fulltext": "DETEBMINATION OF A MARKET-PRICE. 1\\nthat, since he could not sell to both, and there\\nwas no more reason why he should sell to one\\nrather than to the other, he could not sell at all\\nbut would stand like the Ass of the Fable, who\\nstarved to death as he stood at an equal distance\\nfrom two equally attractive bundles of hay. But\\nelbowing aside our casuist and allowing A to effect\\na sale at X18 to either B or C, guided by some\\npersonal preference or the prospects of future\\nbusiness with the respective parties, it is plain\\nthat the competition between B and C has simply\\nplaced A in the same position of bargaining supe-\\nriority as he would occupy in dealing with B alone,\\non the assumption that he knew the limit-price B\\nhad set himself, while B did not know his limit-\\nprice. The actual price reached would assign to\\nA the whole gain of the bargain, less the mini-\\nmum required to compensate B or C for the\\ntrouble of bargaining.\\nBut the chance of B and C fixing the same price-\\nlimit and adhering to it with equal persistency is\\ninfinitely small. In the actual business world we\\nmay take it that the two competitors fix a different\\nprice-limit,\\nA, 20 19 18 17 16 15\\nB, 19 18 17 16 15 M\\nC, 18 17 16 15 14\\nB s limit is .\u00c2\u00a319, and C will not go beyond .\u00c2\u00a318.\\nHere it will be evident that competition does not", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0021.jp2"}, "22": {"fulltext": "8 THE ECONOMICS OF DISTRIBUTION.\\nfix the price-point, but only a lower limit of price.\\nThe price actually reached cannot be less than X18,\\nbecause B and C will bid against each other up to\\nthat point. It may be anywhere between \u00c2\u00a318 and\\n\u00c2\u00a319 and the actual point will be determined, not\\nby competition, but by those same forces of skill\\nand force in bargaining which operated in the\\nearlier case.\\n4. Now arises the question Is the method of\\ndetermining a price essentially different when we\\nplace upon both sides of the transaction a number\\nof genuine competitors, in other words, when we\\ninstitute a free market\\nWhat is the determination of a market-price?\\nIt is curious to observe how the text-books of\\nEnglish economists have, almost without excep-\\ntion, shirked or slighted this practical question,\\nhurrying the reader to the more abstract con-\\nsideration of a normal price, and contented, as\\nwas Mill, to explain any particular divergence of\\nmarket-price from normal price by vague refer-\\nence to temporary fluctuations in supply and\\ndemand, which kept market-prices oscillating\\nround a normal price, giving the advantage now\\nto sellers, now to buyers.^\\nIt has generally been considered a satisfactory\\naccount to say that the competition between own-\\ners of supply on the one hand and exercisers\\n1 J. S. Mill, Principles of Political Economy, Bk. Ill,\\nCh. II, 4.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0022.jp2"}, "23": {"fulltext": "DETEBMINATION OF A MABKET-PRICE. 9\\nof demand on the other hand will equalise sup-\\nply and demand at some point of price. This is\\nMill s contribution toward the theory of a market-\\nprice,^ and it may be said to be generally received\\nin English economic text-books as a sufficient\\ndescription of a market-price. Professor Mar-\\nshall, in discussing the price of the corn market,\\nfinds it to be such as would exactly equate sup-\\nply and demand. 2 Professor Hadley, in his\\nrecent book, is content to say that the market-\\nprice of an article under the modern commercial\\nsystem is the price at which the demand is equal\\nto the supply.\\nNow such a statement is doubly unsatisfactory.\\nIt neither defines a market-price nor explains how\\na market-price is actually reached. It furnishes\\nno real answer to the question of the celebrated\\nOxford Professor who was reported to stop his\\nfriends in the street in order to ask them why a\\nsilk hat cost 20s. The text-book answer to this\\nquestion consists in showing that the price of a\\nsilk hat cannot be 21s., because in that case sup-\\nply would be in excess of demand, there would be\\ntoo many hats and too few people to buy them,\\nand the competition of sellers would reduce prices;\\nconversely, the price could not be 19s., therefore\\n20s. is presented as a point of convergence be-\\ntween two opposing prices which reach at that\\n1 Cf. Dissertations and Discussions, Vol. IV Thornton\\n^Principles (2d ed., p. 392).", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0023.jp2"}, "24": {"fulltext": "10 THE ECONOMICS OF DISTRIBUTION.\\npoint a temporary equilibrium. The supply of\\nhats was equal to the demand at 20s.\\nThis statement that a market-price is one that\\nequalises supply and demand explains nothing.\\nWhat we want to know is why this equilibrium\\noccurs at 20s. English economists have com-\\nmonly shirked the direct significance of this ques-\\ntion, which requires an investigation of the actual\\nprocess of equilibration in a market, and have\\neither betaken themselves to an examination of\\nthe costs or utilities which lie behind demand\\nand supply, or to the logomachy regarding the\\nmeaning of these terms themselves. It is indeed\\ntoo true that some economists have so used the\\nterms demand and supply as to beg the ques-\\ntion of an equilibration. We desire, says\\nCairnes, to know the circumstances which deter-\\nmine price; and we are told that the selling price\\nis always such that the quantity of a commodity\\npurchased in a given market is equal to the quan-\\ntity sold in that market.\\n1 Leading Principles, p. 113. Cairnes, however, is wrong in\\nimputing this fault of reasoning to J. S. Mill, though the latter,\\nin the passages in which he expressly defines demand, is ill-\\nadvised in his language. In the formal definition (Bk. Ill,\\nCh, II, par. 3) he identifies demand with quantity demanded.\\nUnfortunately the expression might mean quantity bought,\\nor it might mean quantity which buyers would be willing and\\nable to buy at a given price. In a second passage (Bk. Ill,\\nCh. XVIII, par. 2) demand is held to mean the quantity of\\nit (commodities) which can find a purchaser, an expression\\ninvolved in the same ambiguity, for it might be held that only", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0024.jp2"}, "25": {"fulltext": "DETEBMINATION OF A MARKET-PRICE. 11\\nWhere demand is equivalent to quantity de-\\nmanded in the sense of quantity bought, and sup-\\nply to quantity supplied or sold, it is evident that\\nthe boasted Law of Supply and Demand becomes\\nnothing else than an identical proposition.\\nBut while Cairnes was right in insisting upon\\nthe need of an exact explanation of the process by\\nwhich supply and demand are equilibrated in a\\nprice, he was himself unable to throw any further\\nlight upon the process than to suggest that the\\nfinal result depended upon higgling of the\\nmarket.\\n5. The closest formal inquiry into the opera-\\ntion of two-sided competition in a market is that\\nof Bohm-Bawerk. I propose here to take his\\nillustration of the market and to present his rea-\\nsoning in what I think is a simpler form than that\\nfound in his book.\\nA, B, C, D, E, F, G, H, are sellers of horses.\\nAll the horses are supposed to be of the same\\nworth, and all the sellers to have an equal know-\\nledge of the market. They have, however, mini-\\nmum or reserve prices, which vary from XIO in\\nthe case of A, to c\u00c2\u00a326 in the case of H.\\nthe quantity actually sold can find a purchaser, or it might\\ninclude whatever quantity could be sold at a price, assuming it\\nto be offered at that price. Mill s context and general treat-\\nment of a market-price, however, makes it pretty clear that he\\ndid not mean by quantity demanded quantity actually sold,\\nbut quantity which buyers were willing to buy if they can find\\nsellers willing and able to sell at a price.", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0025.jp2"}, "26": {"fulltext": "12\\nTHE ECONOMICS OF DISTRIBUTION,\\nI, J, K, L, M, N, O, P, Q, R, are buyers in the\\nmarket, with maximum prices which vary from\\nX15 in the case of I to \u00c2\u00a330 in the case of R.\\nSellers. Price-limits.\\nHGFEDOB A\\n30\\n26\\n25\\n211\\n20\\n17\\n15\\n11\\n28\\n26\\n22\\n.21.\\n20\\n17\\n18\\n15\\n10\\nIJKLMNOPQE\\nBuyers. Price-limits.\\nLet bidding open at ^10. At this point only 1\\nwill sell 10 would buy, and since none will let\\nthe other have a bargain, they will overbid. At\\nXll there are 2 sellers, but the competition of 10\\nbuyers will not allow a sale at that point, and bids\\nstill rise at ^15 there are 3 sellers, but the other\\n7 will not allow 3 of their number to buy horses\\nat X15, that sum being less than they would\\nconsent to give. At ^15 10s. one of the buyers\\nhas dropped out, his limit-price having been ex-", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0026.jp2"}, "27": {"fulltext": "DETERMINATION OF A MARKET-PRICE. 13\\nceeded, but there are still 9 buyers against 3 sell-\\ners these 3 sellers could not fix a bargain with 3\\nof the buyers because, as they were settling it, the\\nother 6 buyers, finding that they would be left\\nin the cold, would offer better terms and upset\\nthe proposed bargains. At ^17 10s. another\\nseller enters in, and another buyer has dropped\\nout, but there are still 8 buyers against 4 sellers,\\nand no bargain can be struck. After c\u00c2\u00a320 is\\npassed, another seller will have entered, and an-\\nother buyer have fallen out, leaving 5 sellers faced\\nby 6 buyers. This state continues up to \u00c2\u00a321. A\\nsale cannot take place, because the would-be ex-\\ncluded buyer, the odd man, will fasten on to any\\nof the 5 possible sales and force up the price. If\\nc\u00c2\u00a321 is passed, however, this inconvenient odd man\\ndrops out, leaving 5 sellers and 5 buyers. Each\\nman can make his bargain at \u00c2\u00a321 Is., for 5 are\\nwilling to sell, 5 to buy, at that price. But\\nthough 5 would sell at .\u00c2\u00a321 Is., they would rather\\nget more if they can they can get more, for all\\n5 buyers would sooner pay up to \u00c2\u00a322 than fail to\\nbuy a horse. But if the sellers put up the price\\nabove \u00c2\u00a321 10s., a 6th seller would enter the field,\\nand there would be 6 willing sellers against 5 will-\\ning buyers a state of things which would force\\nthe price down below \u00c2\u00a321 10s.\\nSo whereas at any point just over \u00c2\u00a321 10s.\\nthere would be 6 sellers and 5 buyers, at any point\\njust under \u00c2\u00a321 there would be 6 buyers and 5", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0027.jp2"}, "28": {"fulltext": "14 THE ECONOMICS OF DISTRIBUTION.\\nsellers. In neither of these conditions is a price\\npossible. On the other hand, at any point between\\n\u00c2\u00a321 10s. and \u00c2\u00a321 there are 5 sellers and 5 buy-\\ners, and 5 sales can be made satisfactory to each\\nparty. In other words, supply and demand are\\nequalised between X21 10s. and \u00c2\u00a321.\\nCompetition of buyers on the one hand and\\nsellers on the other hand has thus fixed rigid\\nlimits for a market-price.\\nBut to fix limits for a price is not to fix a price,\\nand curiously enough Bohm-Bawerk leaves his\\nanalysis at this interesting point. The bargain is\\nmade possible at any point between the valuation\\nof the most capable of the excluded buyers, M,\\nas lower margin, and the most capable of the\\nexcluded sellers, F, as upper margin but there is\\nnothing in this analysis to show where it will lie\\nbetween these margins. Indeed, we may say that\\nif this were the whole process, no price could be\\nfixed at all and no sale would be possible, at any\\nrate by economic settlement. The unerring logic\\nof competing self-interest which has found the\\nprice-limits will not find the price-point between\\nthose limits. The competition which was so effec-\\ntive when 6 sellers faced 5 buyers, or 5 buyers\\n6 sellers, seems to collapse when 5 buyers face\\n5 sellers, and there is no odd man to throw his\\nweight on to an impending bargain. As far as\\nBohm-Bawerk s analysis is carried, there is no\\nmore reason for the market-price being fixed at", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0028.jp2"}, "29": {"fulltext": "DETEBMINATION OF A MARKET-PRICE. 15\\none point between the limits rather than at any\\nother point. Indeed, we appear to be landed in\\nthe same serious logical difficulty which encoun-\\ntered us before. The 5 sellers would like to get\\na price as near as possible to \u00c2\u00a321 10s., the 5\\nbuyers a price as near as possible to \u00c2\u00a321: here\\nwe have a real discrepancy of interest between\\nthe parties and no machinery of competition to\\nsettle it.\\nWe must plainly recognise that if the sellers\\nand the buyers in this case were really acquainted,\\nnot merely with the outward condition of the\\nmarket but with the subjective valuations which\\neach of them puts upon the act of sale, no sale\\ncould be possible by economic means. If the\\nsellers can fix the price near the upper margin,\\nthe advantage of one of the buyers is reduced to\\na minimum, and the whole body of sellers get the\\nbest of the bargain if the buyers can force the\\nprice to near the lower margin, one seller has his\\nadvantage reduced to a minimum, and the buyers\\nget the best of the bargain. Why should either\\nparty give way There is no economic method\\nof reaching a price-point here it would be neces-\\nsary either to agree to split the difference or to\\ntoss-up, neither of which can be reckoned an\\neconomic settlement. This, we may take it, is\\nnot what would really happen, for the subjective\\nvaluations of the various buyers and sellers will\\nnot be known to one another. Although, in his", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0029.jp2"}, "30": {"fulltext": "16 THE ECONOMICS OF DISTRIBUTION.\\nelaborate analysis of two-sided competition, Bohm-\\nBawerk does not even indicate how the price-\\npoint is reached, he has hinted in an earlier\\ntreatment of one-sided competition which ex-\\nhibits the same difficulty that the price-point will\\ndepend upon skilful bargaining. In other\\nwords, the work of competition is not to find a\\nprice, and there is no such thing as a competi-\\ntion price competition stakes off a ring, within\\nwhich bargainers fight it out by force and craft.\\nTaking our present instance, it seems essential to\\nthe fixing of a price that one of the bargainers\\nshould deceive the other as to the real facts of\\nthe case (i.e. as to his subjective valuation), lead-\\ning the other to suppose that he will not give way\\nany further. For instance, one of the sellers will\\nconceal the fact that he would be willing to sell at\\n^21, and will hold out for J 21 9s.; one of the\\nbuyers believing him, and fearing to be left out\\nin the cold, will show his willingness to accept\\nthus the bargaining at any price below \u00c2\u00a321 9s.\\nwill once more partake of competition, since only\\n4 sellers face 5 buyers, and the equation of buyers\\nand sellers is thus falsely placed at \u00c2\u00a321 9s. By\\nsuch fraud or force of superior bargaining the\\nprice-limits are drawn together so closely as to\\napproximate toward a money-point, and the stand-\\ning out of one of the 5 sellers may fix the\\nprice for all 5 sales at \u00c2\u00a321 9s. Some such\\n1 Positive Theory of Capital, p. 200.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0030.jp2"}, "31": {"fulltext": "DETERMINATION OF A MAREET-PEICE. 17\\npractice of fraud or force seems necessary to\\nachieve a price-point.\\nNow, turning to those who have taken part in\\nthe process of determining a market-price, we\\ncan assign a different part to several groups.\\n(a) First come the ineffectual buyers and\\nsellers whose limits have been too high and too\\nlow for them to take part in an actual sale. In\\nthis group fall G and H among sellers, I, J, K, and\\nL among buyers. The desires and actions of these\\npersons have had no influence whatever on the\\nmarket or the price their absence would not\\nhave caused any difference.\\n(5) Next come the effectual buyers and sellers,\\nwhose subjective limits lie above and below the\\nlimits within which a price-point is fixed, and\\nwho, though they take part in the bidding of the\\nmarket, have no direct influence upon the price.\\nThese are A, B, C, D, among sellers, O, P, Q, R,\\namong buyers.\\n(c) Thirdly come those members of the market\\nwhose subjective valuation fixes the possible limits\\nwithin which 5 sellers would be willing to sell and\\n5 buyers to buy. Bohm-Bawerk holds that this\\ngroup should comprise E and F among sellers, M\\nand N among buyers, for he holds that the action\\nof these two pairs fixes the upper and lower limits.\\nThe upper limit is constituted by the valuation\\nof the last buyer who actually exchanges (the\\nlast buyer) and that of the most capable seller", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0031.jp2"}, "32": {"fulltext": "18 THE ECONOMICS OF DISTRIBUTION.\\nexcluded (the first excluded seller), and the\\nlower limit by the valuation of the least capable\\nseller who actually effects a sale (the last seller)\\nand that of the most capable buyer excluded (the\\nfirst excluded buyer). So we get, he says, the\\nvery simple formula, The market-price is limited\\nand determined by the subjective valuation of the\\ntwo marginal pairs.\\nAccording to this, the upper limit is fixed by\\nthe valuation of F, the first excluded seller, and\\nN, the last actual buyer the lower limit by the\\nvaluations of M, the first excluded buyer, and E,\\nthe last actual seller. But N s exact valuation,\\n.\u00c2\u00a322, neither fixes nor helps to fix the upper limit,\\nfor if his valuation, instead of X22, had been\\n\u00c2\u00a321 lis., it would have made no difference.\\nSimilarly, E s valuation at \u00c2\u00a320 does not help to\\nfix the lower limit, for if, instead of being X20,\\nit had been \u00c2\u00a320 19s., it would have made no\\ndifference.\\nIt seems therefore that the valuation of N and\\nE had no direct influence upon the limits which\\nare determined directly and exclusively by the\\nvaluations of M and F.\\n(c?) Lastly, within the price-limits we have the\\naction of one of the effective competitors in assum-\\ning the attitude which draws the price to a point.\\nThere is, of course, nothing to inform us which one\\nadopts this attitude. We will assume that it is\\n1 Z.c, p. 209.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0032.jp2"}, "33": {"fulltext": "DETERMINATION OF A MARKET-PRICE. 19\\nE, the last actual seller, whose limit-price is \u00c2\u00a320,\\nand who perhaps may be considered the stiffest\\nbargainer and the most likely to hold out for a\\nprice just below \u00c2\u00a321 10s., which after all will\\ngive him a less subjective gain than will fall to\\nany of the other sellers whose limit valuation is\\nlower. Or else we may suppose that N, whose\\nsubjective gain is smallest among the buyers,\\nmakes the successful stand, and, cajoling the sell-\\ners into thinking he will not buy at a price much\\nover X21, fixes the price just above that point.\\n6. Our analysis, if correct, yields information\\nupon two important matters first, as to the\\nmethod of determining a price or exchange-rate\\nin a market second, as to the distribution of\\ngain arising from a series of bargains at a market-\\nprice.\\nAs to the method of determining a price, it\\nproves (a) that competition does not fix a price,\\nbut only the approaches to a price (5) that\\nwithin the limits a price-point is fixed by the\\nsuperior bargaining power of a single buyer or\\nseller.\\nAs to the distribution of advantage arising from\\nthe series of sales at a market-price^ that is seen\\nto depend, first, on the superior force or cunning\\n(bargaining power) of one of the buyers or\\nsellers second, on the differential valuation of\\nthe several buyers and sellers as measured from\\nthis price-point.", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0033.jp2"}, "34": {"fulltext": "20 THE ECONOMICS OF BISTBIBUTION.\\nAccording to the conditions of this market, a\\nfar larger aggregate gain is obtained by the sellers,\\nbecause the market-price, whether fixed near \u00c2\u00a321\\nor near \u00c2\u00a321 10s., widely exceeds the supposed\\nlimits of several sellers. At c\u00c2\u00a321 price, the\\naggregate gain of the buyers stands at \u00c2\u00a325,\\nwhereas the gain of sellers stands at .\u00c2\u00a332. If\\nX21 10\u00c2\u00ab. is the price, the buyers gain falls to\\n\u00c2\u00a322 10s., and the sellers rises to \u00c2\u00a334 10s.\\nNo provision evidently exists, in the process of\\ndetermining a price, for an equal or fair divi-\\nsion of the advantage of exchange. In no case\\nwhere a sale takes place at the market-price will\\nthe advantage to the two parties effecting the sale\\nbe equal. In every sale there must be some ad-\\nvantage to both parties, but it will not be equal.\\nIf the price stands at just under \u00c2\u00a321 10s., N, the\\nlast effective buyer, will gain just over 10s. while\\nE, the last effective seller, will gain a little less\\nthan \u00c2\u00a31 10s. Whatever be the actual arrange-\\nment which couples the respective buyers and\\nsellers making the 5 sales, no one of these 5 sales\\nwill give an equal gain to the two parties, though\\nto both parties in each case there must be some\\ngain.\\n7. The net result of the investigation is to show\\nthat the gain which accrues to buyers and sellers\\nin a market consists of two elements. First\\nthere is the difference between the higher and the\\nlower limit of price, representing, in the case taken", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0034.jp2"}, "35": {"fulltext": "DETERMINATION OF A MABKET-PBICE. 21\\nabove, nearly ^1 in each transaction. This is\\ndistributed according to the force or skill of the\\nstrongest among the buyers or sellers. It is not\\neasy to decide how this gain may be most conven-\\niently described. Regarded from the standpoint\\nof origin it ranks as a forced gain in so far\\nas it denotes an advantage common to the whole\\nbody of buyers or sellers in the market, as distinct\\nfrom the particular gains which accrue from dif-\\nferences of individual valuation, it may be spoken\\nof as a specific gain. It will be necessary to\\nuse both these terms in describing it.\\nThe sellers and buyers, whose valuations lie\\nbeyond the limits within which the price is fixed,\\ntake in addition to the portion of this specific\\ngain which may or may not fall to them, a differ-\\nential gain which represents the difference between\\ntheir individual valuation and the upper or the\\nlower limit, according as they are buyer and seller.\\nFor instance, on the assumption that the market-\\nprice was fixed at \u00c2\u00a321 9s., A would obtain a gain\\nof 9s., representing the forced or specific\\nelement as measured from the lower limit of X21,\\nand a gain of I epresenting the difference\\nbetween \u00c2\u00a310, the least sum at which he would\\nhave sold, and j621, the lowest price which ordi-\\nnary competition rendered possible.\\nEconomic literature has, of course, made us very\\nfamiliar with the idea of differential gains, classed\\ncommonly as producers and consumers rents, but", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0035.jp2"}, "36": {"fulltext": "22 THE ECONOMICS OF DISTRIBUTION.\\nthe existence and nature of the other element,\\nviz. forced gain, which clearly emerges from the\\nanalysis of market-price, has not received the\\nattention it deserves.\\nIt may be said to represent the failure of com-\\npetition, alike in theory and in practice, to fix a\\nprice. If the competition between buyers and\\nsellers were able to determine a price-point, the\\nweakest buyer and seller would alike gain a\\nminimum advantage from the sale, and there\\nmight be said to be a tendency toward an equal\\ndistribution of the differential gains of the bargain\\nfor the other parties. But the fair field of com-\\npetition is seen to be incapable of reaching a\\nmarket-price, and gives way in the last resort to\\nthat same arbiter of fraud or force that is seen to\\nfix a price when a single buyer is bargaining with\\na single seller.\\n8. In other words, if the example taken above\\nis a sound one, force is the ultimate determinant\\nof a market-price.\\nBut is the example sound\\nProceeding along our sliding-scale of instances\\nfrom a primitive bargain, have we yet reached the\\ntrue conditions of a modern market, and is the\\nmarket-price really determined in the manner\\nabove described\\nIt is evident that the example does not corre-\\nspond to any actual or possible horse-market.\\nIt assumes that 8 horse-dealers are each offering", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0036.jp2"}, "37": {"fulltext": "DETEBMINATION OF A MARKET-PBICE. 23\\nfor sale a horse which they all believe, and which\\nall of the prospective buyers believe, to be of ex-\\nactly equal quality, and that, this being so, the\\ndealers yet differ so widely in their limit-price\\nthat while one is only willing to sell at X26, an-\\nother will sell a horse he knows to be of equal\\nworth at so low a sum as \u00c2\u00a310. An actual horse-\\nmarket will offer a supply of horses, no two of\\nwhich are estimated at the same worth by buyers\\nor by sellers, and there will not be any close agree-\\nment as to that worth by any two of those taking\\npart in the market neither will the actual condi-\\ntions of bargaining be such that each knows what\\noffers the others are making, unless the sale is of\\nthe nature of an auction, which really removes the\\ncase from a two-sided competition and places it\\namong the one-sided competitions.\\nAn actual horse-market, in which the several\\nbuyers and sellers bargained with one another,\\nwould not in fact result in the attainment of an\\nexact market-price for a given quality of horse\\nthe prices actually paid not merely would fail to\\ndistribute equally the subjective gains of the bar-\\ngains, but there would not be the objective equal-\\nity afforded by our theoretic instance of equal\\nmoney prices for equal value. The individual\\ncraft of bargaining, the acts of concealment and\\nof bluff, would, in fact, play a larger part than in\\nour case. Taking the aggregate gains of a series\\nof bargains in such a market, the differential ele-", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0037.jp2"}, "38": {"fulltext": "24 THE ECONOMICS OF DISTRIBUTION,\\nment would be much smaller than in the theoretic\\ncase, and the forced gain much larger.\\nBohm-Bawerk makes his differential gains de-\\npendent upon subjective valuations. In the case\\nof horse-markets this is specious, at any rate, so\\nfar as buyers are concerned. But in ordinary\\ntrade markets, where the buyers buy to sell again,\\nan objective basis of differential gains must exist.\\nA can only value the same goods at 20% more\\nthan B, because he enjoys some trading or manu-\\nfacturing advantage (objective) which enables\\nhim to put what he has bought to a larger pro-\\nductive use.\\nBut these practical considerations do not appear\\nto me to invalidate the general correctness or to\\ndestroy the serviceable results of the analysis.\\nOur example has legitimately excluded minor con-\\nflicting circumstances all the material facts have\\nbeen set in a clearer atmosphere, which enables us\\nrightly to detect the real nature of the bargaining\\nprocess.\\n9. But there is one circumstance in the se-\\nlected example which it is important to discuss.\\nA horse-dealer must sell a whole horse at a time,\\nand the buyer cannot buy less than a whole horse.\\nIn other words, the separate units of supply are\\ndumped down into the market within distinct and\\nfairly wide intervals of valuation between the sev-\\neral units. The last horse that is sold differs from\\nthe first horse that is not sold by a definite consid-", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0038.jp2"}, "39": {"fulltext": "BETEBMINATION OF A MARKET-PRICE. 25\\nerable sum, no less than 30s. Now if, instead of 8\\nhorses valued at different intervals between ,\u00c2\u00a310\\nand c\u00c2\u00a326, we had an infinite number of horses, it\\nwill be admitted that the competition (which I\\nfear, however, would take an eternal time to com-\\npass) would bring the upper and the lower limit\\nto a meeting-point (i.e. the interval between them\\nwould be infinitely small). In that case the mar-\\nginal pair would make their bargain upon equal\\nterms without any element of forced gain enter-\\ning the market-price.\\nNow this supposition that in a finite market\\nthere may be, not 8 or 80, but practically an infi-\\nnite number of units of supply, valued at extremely\\nminute intervals of difference, is not a pure work of\\nthe imagination, but is approximated to in certain\\nmarkets. There is no possible interval between 1\\nhorse and 2 horses in a supply of horses, but there is\\nan indefinite number of possible intervals between\\n1 pound and 2 pounds of gold in a supply of gold.\\nIn the case of goods which are infinitely divisible,\\nwe might regard the supply in a market at any\\ngiven time as consisting of an infinite number of\\n1 Jevons, in his Theory of Political Economy (Ch. IV),\\nplainly enforces the truth that the theory of competition, as\\ndeterminant of price-point, rests upon the supposition of in-\\nfinite divisibility of supply (cf. p. 108). In fact, the whole\\nmathematical treatment rests upon the same supposition, and\\nthe fact that supply is not, in any case, infinitely divisible,\\nimpairs the practical service of the whole mathematical treat-\\nment.", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0039.jp2"}, "40": {"fulltext": "26 THE ECONOMICS OF DISTRIBUTION.\\nunits whose valuation in the minds of the sellers\\ngrades down by imperceptible intervals from the\\nhighest to the lowest limit-price. Such goods are\\ngold or corn or cotton.\\nThe importance of this is that, by taking our\\nexample of a market from such classes of goods,\\nwe seem to reach a market-price by pure competi-\\ntion of buyers and sellers. Look, for instance, at\\nthe local corn-market which Marshall uses to illus-\\ntrate the determination of a market-price. Here\\nwe have a number of farmers, each (say) with 100\\nquarters of wheat to sell, and a number of corn-\\nfactors, who are buyers in this market. At a\\nprice of 36s. all the farmers would be willing to\\nsell all their stock, but few, if any, buyers could\\nbe found at such a price if 35s. was a possible\\nprice, most farmers would sell all they had but a\\nfew would hold back part of their wheat, thinking\\nto sell at a future market for 36s. Each lower\\nprice would, of course, reduce the effective supply\\nand increase the effective demand the price actu-\\nally reached, say 27s., secures the so-called equilib-\\nrium of supply and demand, i.e. sellers are willing\\nto sell (say) two-thirds of their wheat at 27s., and\\nbuyers will buy that same amount at 27s.\\nNow such a market differs in two respects from\\nour horse-market. First, as to the units of supply\\nand demand. In a horse-market less than 1\\nhorse cannot be bought or sold 1 horse is thus\\na minimum unit of supply a dealer with 10", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0040.jp2"}, "41": {"fulltext": "DETERMINATION OF A MAEKET-PEICE. 27\\nhorses cannot offer to supply more than 10 alter-\\nnative quantities. But a farmer with 100 quarters\\nof wheat is owner of a much more elastic and divis-\\nible supply; though for purposes of rough reckon-\\ning he may divide his stock by tens of quarters and\\nreckon it worth his while to sell 100 at 36s., 90\\nat 34s., and so on, there is nothing to prevent him\\ncalculating more minutely in theory, at any rate,\\nhe would be willing to sell 79 quarters at a slightly\\nlower rate than he would take for 80, in a rising\\nmarket. At any rate, it is easy to see that there\\nis a far greater elasticity in supply and in demand\\nin a corn-market than in a horse-market, a far\\ngreater variety of possible prices with a f:ir nar-\\nrower interval between them. This signifies a far\\ncloser and more effective competition between\\nbuyers on the one hand and sellers on the other,\\nthe result being that the limits between which\\nordinary competition breaks down are much nar-\\nrower.\\nThe second point of difference is even more\\nimportant. It consists in the fact that a local corn-\\nmarket is in far closer touch with a wide world-\\nmarket than is the local horse-market. Where\\ncommodities are in wide and general demand,\\nvaluable in proportion to their bulk and weight,\\nso durable that they can be carried far without\\nrisk or waste, they are the subjects of a world-\\nmarket. This means that wherever they are sold\\n^the price attained at any day in any local market", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0041.jp2"}, "42": {"fulltext": "28 THE ECONOMICS OF DISTBIBUTION.\\nis not determined wholly or chiefly by the present\\nlocal supply and demand, but by the general sup-\\nply and demand the world over. Not merely the\\n1000 quarters owned by the sellers, or the c\u00c2\u00a31500\\nor so of purchasing power owned by the buyers,\\ncompete and find an equilibrium both sellers\\nand buyers are also influenced, in the quantity\\nthey offer or buy at the several prices, by the\\nquotations from the wider market upon which the\\ntotal, not merely of existing but of prospective,\\nsupply and demand of wheat is operating.\\nSo in a local corn-market the possible limits of\\ncompetition are circumscribed by conditions im-\\nposed from the national market, or those great\\ncentres where national economic forces are most\\nfully operative while the national market is in\\nits turn kept within tolerably small limits of\\nfluctuation by the international market which\\ntakes close account both of the present and the\\nprobable future stock of wheat and the demands\\nfor the same.\\n10. Every local market, even for highly perish-\\nable and cheap bulky commodities, is of course to\\nsome extent affected by wider market-areas, and to\\nsome extent by the general supply and demand\\nof similar commodities. But, in respect of many\\ncommodities, this outside contact is so slight and\\nslow that prices are chiefly the resultant of local\\nforces of suppl}^ and demand. Common bricks\\nor plums, for instance, will have a large number", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0042.jp2"}, "43": {"fulltext": "DETERMINATION OF A MARKET-PRICE. 29\\nof little market-areas, the prices of which may-\\nvary widely. In the small local markets sellers\\nof bricks or plums have little power of withhold-\\ning their supply or disposing of their goods else-\\nwhere, while buyers are similarly restricted in\\ntheir demand hence the pressure of local or\\ntemporary circumstances, favouring either buyers\\nor sellers, will play a larger part in determining\\na market-price, genuine competition will tend to\\nbreak down at any earlier point, and force or\\nsuperiority in bargaining-power will be a more\\nimportant factor. On the other hand, in the\\nmarket for gold, or even for cotton, wool, or\\nwheat, under normal conditions, buyers and sell-\\ners in a local market are less under pressure to sell\\nhere and now, to buy here and now the whole\\nworld-supply, present and prospective, is taking\\npart in the competition as it affects each local\\nmarket, and the local market-price reflects the\\ngreater delicacy and complexity of the world-\\nmarket. What this signifies is that in commodi-\\nties belonging to a world-market, free competition\\nmay be said to determine the price, because the\\nnumber of actually or potentially competing units\\nis so numerous that little scope remains for that\\nforce or craft of special bargaining which plays\\na considerable part in the small local market.\\nIn fact, where the local market is in such close\\nand constant organic relation to the world-market,\\nthe price attained in any part tends to be not", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0043.jp2"}, "44": {"fulltext": "30 THE ECONOMICS OF DISTRIBUTION.\\nmerely a market-price, but a normal price, that is\\nto say, a price which will average the economic\\nconditions of supply and demand over the whole\\npresent market, and, by discounting probable\\nchanges in future supply and demand, will simi-\\nlarly average the series of temporal prices.\\nFor instance, in the market for gold or for lead-\\ning securities of any kind, if the competition of\\nbuyers and sellers worked freely and were not\\nconstantly checked and falsified by the manipula-\\ntion of rings of speculators, market-prices would\\ntend to become average or short normal prices.\\nThe same is true of all goods for which there is a\\nworld-market. The competition here is between a\\nvast number of competing buyers and sellers, whose\\nunits of supply and demand represent an indefinitely\\nlarge variety of different equilibriums under such\\ncircumstances competition would do its work so\\nwell that any local group of buyers and sellers\\nwould find there remained very little for the\\nhiggling of the market to achieve.\\n11. When we have one of these wide highly\\norganised markets, maintaining a genuine compe-\\ntition between very large numbers of buyers and\\nsellers dealing with large quantities of divisible\\ngoods, the competition of buyers and sellers brings\\nthe price-limits so near together as to appear to\\nestablish a price-point. In theory, the case of the\\nhorse-market still applies, and a bargain under\\nconditions of duress fixes the price-point here as", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0044.jp2"}, "45": {"fulltext": "BETEBMINATION OF A MARKET-PBICE. 31\\nelsewhere; but the influence is so slight that it\\nmay be practically ignored.\\nMoreover, in the cotton or the wheat market\\nnot only is this element virtually eliminated, but\\nthe differential gains of various buyers and\\nsellers are reduced to much smaller dimensions\\nthan in the local horse-market. The markets\\nwhich are in this highly organised state are gen-\\nerally those in which buyers and sellers are among\\nthemselves fairly on a level sellers are producing\\nunder such equality of conditions that the supply\\nsold at a given price yields a fairly equal profit to\\nthe different sellers while buyers, as in the cotton\\nor corn market, are buying not for use, but to sell\\nagain in some form or other under conditions\\nwhich tend to equalise the subjective gains made\\non their bargains. The different buyers and\\nsellers of raw cotton at Liverpool, at a given price,\\nmay be held to have made a subjective gain which\\nwill not differ widely in different cases, unless\\nwhere the seller acts under some special pressure\\nof financial circumstances.\\n12. Whenever a market contains a consider-\\nable number of buyers and sellers, fairly equal\\nin economic resources and in knowledge of com-\\nmodities where sellers obtain their supply under\\nfairly equal conditions of trade or manufacture\\nwhere buyers are buying to sell again, not to con-\\nsume where the articles bought and sold belong\\nto a Avide market, are minutely divisible in quan-", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0045.jp2"}, "46": {"fulltext": "32 THE ECONOMICS OF BISTBIBUTION\\ntity and durable in nature, these conditions\\nmay be held practically to eliminate force from\\na market-price and to make it the result of com-\\npetition alone.\\nBut these conditions are notoriously absent in\\nthe great majority of cases. Take a rapid sur-\\nvey of the whole range of bargaining, examining\\nthe various classes of goods as they exchange\\nhands in the different processes of production in\\nhow many cases are the above-named conditions\\npresent\\nTake, first, the great extractive industries; con-\\nsider the bargains made by farmers, miners, fish-\\nermen, etc., with the merchants who buy their\\nproduce or the railways that carry it; the con-\\nstant attempts of shippers, importers, and produce-\\nexchange speculators to corner supply and to\\noperate in prices the advantages which supe-\\nrior sources of supply, patents or secret methods\\nof production, combinations to restrict output or\\nregulate prices have in most organised manufac-\\ntures the oscillation of local corners and cut-\\nthroat competition in most branches of retail\\ntrade, these and similar causes render the con-\\nditions of free and fluid competition inoperative\\nover the vast majority of the processes in the sale\\nof goods. Again, if we turn to the bargains for\\nthe sale or hire of land, the conditions are notori-\\nously absent. When we investigate the condi-\\ntions under which bargains for the use of capital", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0046.jp2"}, "47": {"fulltext": "BETEEMINATION OF A MABKET-PRICE. 33\\ntake place, we shall perceive how narrow are the\\nlimits of the free field of investment where bor-\\nrowers and lenders meet on equal terms. As to\\nthat huge class of bargains which take place at\\nevery spot in the industrial field for the sale of\\nlabour-power, in hardly any cases can we find the\\nconditions of equal bargaining present, even where\\nprofessional skill or other highly placed labour-\\npower is the object of sale. Outside the ordinary\\nrange of industry, in cases where bargaining is\\nbetween author and publisher, between mistress\\nand domestic servant, between teacher and parent,\\nhotel-keeper and guest, the competition is so slight\\nand indirect, the knowledge of the two parties so\\nimperfect, that an equal bargain is never struck\\nexcept by chance.\\nIt appears then that but a very small propor-\\ntion of bargains can be referred to an open-faced,\\ntwo-sided competition in a market where outside\\nprices are so directly operative as to equalise the\\ngain for the individuals who take part as buyers\\nor sellers in the market.\\n13. This brief investigation of the economic\\nconditions of a market-price warrants the follow-\\ning conclusions\\n(1) Every economic buyer and seller in a mar-\\nket (i.e. every one guided by self-interest who\\nknows what he is doing) makes some gain from\\nhis bargain. The notion supported by thinkers of\\nsuch diverse character as Bacon and Ruskin, that", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0047.jp2"}, "48": {"fulltext": "34 THE ECONOMICS OF DISTRIBUTION.\\nin a trading bargain what one man gains another\\nloses, receives no warrant from our analysis. It\\nmust, however, be admitted that in every series of\\nbargains at a market-price, one of the buyers or\\nsellers will make his bargain on such terms as will\\nsecure to him a bare minimum gain.\\n(2) There is nothing in the economic nature of\\na Market to secure equality of gain for any two\\nbargainers.\\n(3) The amount of gain which comes to each\\nwill depend on three conditions (i) the superior\\nstrength or skill of one final bargainer (ii) the\\nability of competition between buyers and sellers\\nto fix the limits within which this strength or skill\\nmay operate (iii) the difference between the re-\\nserve-price of each buyer and seller and the actual\\nprice attained.\\n(4) Where the market-area is of wide space\\nand time, differential estimates and power of bar-\\ngaining will be of relatively small importance\\nwhere the market-area is narrow, they will be of\\nrelatively large importance.\\nAPPENDIX TO CHAPTEE I.\\nThe Relative Strength of Buyer and Seller.\\nThe analysis of the process of bargaining shows that\\nsometimes the buyers, sometimes the sellers, are in\\nthe stronger position and are able to get the better", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0048.jp2"}, "49": {"fulltext": "APPENDIX TO CHAPTEB I. 35\\nof the bargain. No law of direct and general applica-\\ntion assigning this superiority of bargaining power is\\ndiscernible, but certain conditions are found to attach\\nto specific markets, which evidently make in favour\\nof one or other of the two parties. Setting aside for\\nseparate and fuller treatment the markets for the sale\\nof the use of land, capital, and labour, and confining\\nourselves here to markets of commodities, we find the\\nrelative strength of buyers or sellers often associated\\ndirectly with (a) the greater or less urgency of the\\nneed to buy or sell, (b) the greater or less strength or\\nskill in the art of bargaining.\\nWhere the buyer does not buy for personal consump-\\ntion, he is generally held to have an advantage in the\\nprocess of bargain or exchange, partly because he is\\nthe holder of money the least specialised com-\\nmodity pitted against the holder of some specialised\\ncommodity, partly because the urgency of a trade-\\nuse is less than the urgency of a personal need. But\\nwhere the buyer is a direct consumer, this advantage\\nis often more than offset by the present pressure of\\npersonal needs which obliges him to buy now from some\\none who is not obliged to sell now. So, for example,\\nthe venders of refreshments or books in a railway\\nstation enjoy a distinct advantage in bargaining.\\nThe general rule, however, assigns superiority to the\\nownership of money, which for many commercial\\npurposes is more desirable than a nominally equiva-\\nlent value in specialised wares. It seems strange\\nthat the advantage of the extra stability of value and\\nexchangeability attached to money should not be\\nfully discounted in actual prices; but it is found in", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0049.jp2"}, "50": {"fulltext": "36 THE ECONOMICS OF JDISTBIBUTIOJST.\\npractice that any owner of goods for sale who names\\ntheir value would rather have the money. If,\\nhowever, the consumer who cannot delay consumption\\nis liable to the disadvantage attending a forced pur-\\nchase, the producer under modern commercial condi-\\ntions is often subject to the inconvenience of a forced\\nsale, either because his expenses of production are\\nincurred on credit (i.e. he needs money to pay for\\nraw material bought with bills, to pay interest on\\nborrowed capital or mortgage, or to pay wages or\\nother current business expenses), or else because the\\ngoods he has to sell spoil or lose value by being kept.\\nA striking example of a class of producers subject\\nto the conjoined force of these disadvantages is the\\nagriculturist, but all sellers of quickly perishable\\ngoods are liable to this handicap.\\nIf the owners of money be held to have an advan-\\ntage as compared with owners of goods for sale, the\\nsellers of raw materials which are needed for many\\ndifferent industrial uses, and of other less specialised\\ncommodities, will seem to have an advantage in sell-\\ning to various groups of buyers who, because they\\nbelong to different trades, will not act closely together.\\nThe seller of timber, wool, or iron (other things equal)\\nseems to hold a stronger position than the buyer. It\\nis, however, possibly incorrect to attribute the greater\\ndesirability of holding money over holding goods to\\nthe general command over commodities attaching to\\nthe latter. Eor if there were a ready and perfectly\\nreliable demand for goods, their possessors, though\\none step further removed from the ownership of any\\nother class of commodities than the possessors of", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0050.jp2"}, "51": {"fulltext": "APPENDIX TO CHAPTER I. 37\\nmoney, would have a compensation for this remote-\\nness by owning something of more direct service in\\nconsumption. If the owner of corn or wool or leather\\ncould rely upon the speedy sale of his goods at a\\ncalculable price, his command over commodities in\\ngeneral would not really be weaker than that of the\\nowner of money, but only a little slower in its opera-\\ntion. In that case the buyer who offered money\\ncould not be deemed to be to any appreciable extent\\nthe stronger bargainer. It is therefore the uncertainty\\nof finding a purchaser at a calculable price which\\nmust be accounted the weakness of the seller as com-\\npared with the buyer. This weakness is plainly\\nenhanced by certain tendencies of machine-produc-\\ntion and machine-transport, which seem to keep many\\nmarkets in a constant or a frequently recurring condi-\\ntion of congestion the eagerness of sellers to find pur-\\nchasers is attested both by the extraordinary energy\\nin pushing and advertising goods and by the cutting\\nof the marginal profits upon each sale to a minimum.\\nThe wide prevalence of these conditions is irrefutable\\nproof of an admitted weakness in bargaining on the\\npart of owners of goods as compared with owners\\nof money.^ This superiority, perhaps normal over a\\n1 It is curious that Mr. and Mrs. Webb, who, in the chapter\\non The Higgling of the Market of their Industrial Democ-\\nracy, emphasise and illustrate so powerfully the superior posi-\\ntion of the buyer at each link in the chain of bargaining,\\nfail to perceive that no other economic explanation of this fact\\nis possible than that a general excess of producing power exists\\nbeyond what is required to supply the current demands of con-\\nsumers. If it is a fact that at each link in the chain of bar-\\ngainings the superiority in freedom is so overwhelmingly on", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0051.jp2"}, "52": {"fulltext": "38 THE ECONOMICS OF BISTEIBUTION.\\nlarge field of industry, may be modified by the nature\\nof the money-offer of buyers. Where credit is freely\\ngiven, the buyer loses part of his advantage as owner\\nof money a fact which may be otherwise expressed\\nby saying that a buyer will bid higher when he need\\nnot pay ready money.\\nThe mode of bargaining or the conditions under\\nwhich bargains are made have much to do with the\\nsuccess of buying and selling. It may be broadly\\nstated that makers are at a disadvantage in bargain-\\ning with traders, in so far as the art of bargaining\\nforms a larger part of the trader s activity, so that he\\nmust be deemed more highly specialised in dealing.\\nWhere the productive processes are conducted under\\nconditions which remove the producers from wide com-\\nmercial training, and especially where, as in farming,\\nthey are not themselves large buyers of raw material,\\netc., the merchants or dealers who buy their produce\\nhave a clear advantage. Purchasers of retail goods are\\nin this respect at a disadvantage in comparison with the\\nsellers. They are less effective bargainers in so much\\nas they must be regarded as amateurs bargaining\\nwith specialists for any particular class of goods they\\nrequire for consumption. Again, the conditions under\\nwhich the retail market is commonly conducted tend\\nthe side of the buyer that the seller feels only constraint if\\nit is highly significant that it is always the seller who bribes,\\nnever the buyer (Vol. II, p. 676), this can only signify a con-\\nstant tendency for the effective supply of markets to exceed the\\neffective demand, only another way of stating the fact of an\\nexcess of producing power. It is significant that Mr. and Mrs.\\nWebb have no economic explanation to offer of the curious\\nphenomenon they note.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0052.jp2"}, "53": {"fulltext": "APPENDIX TO CHAPTER I. 39\\nto secure this advantage to the retailer. As Cairnes\\npoints out In the wholesale market the sellers and\\npurchasers meet together in the same place, affording\\nthus to each other reciprocally the opportunity of\\ncomparing directly and at once the terms on which\\nthey are severally disposed to trade. In retail deal-\\ning it is otherwise. In each place of sale there is but\\none seller and though it is possible to compare his\\nterms with the prices demanded elsewhere by others,\\nthis cannot always be done on the moment, and may\\ninvolve much inconvenience and delay. Leading\\nPrinciples, p. 112.)\\nOne of the peculiar advantages of the large over\\nthe small business in manufacture is that the scale\\nupon which the large business is conducted enables\\nit to employ skilled specialists in buying and in\\nselling.\\nThese are differences in the economic strength or the\\nskill of bargaining. One further point bearing upon\\nthe process of bargaining deserves mention, viz. the\\nrelative disadvantage of the party who names a price.\\nIn retail shops the habit of ticketing goods, of using\\nprice-lists, or even of naming a price upon request,\\ngives to the buyer a certain advantage, the nature of\\nwhich is apparent from our analysis of the horse-\\nmarket. The bargainer who at the outset names a\\nprice gives some indication of his subjective valua-\\ntion the buyer might be willing, if necessary, to pay\\na higher price than that named, if both parties were\\nequally ignorant of the estimate they set respectively\\nupon the bargain. In open bargaining it is a clearly\\nrecognised point of skill to get the other party to", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0053.jp2"}, "54": {"fulltext": "40 THE ECONOMICS OF DISTEIBUTIOJSf.\\nname a price, even though, that price has little or\\nno chance of being satisfactory to both parties.\\nFinally, it must be remembered that, where the\\nconditions of a perfect market exist, in the sense that\\nall buyers have the same valuation and all sellers\\nlikewise, while the knowledge of the arts of bargain-\\ning and other special advantages are equally divided,\\nthe issue is determined by numbers. In such a case\\none side (that with the shorter number of competitors)\\nwill get the full gain of the bargain, the price being\\ndetermined at or close to the higher or the lower limit.\\nA reference to the case of the horse-market set forth\\nin the text will make this evident. Change the con-\\nditions of this market so as to present 10 willing\\nsellers at a minimum price of \u00c2\u00a320 a horse and 9\\nwilling buyers who would consent, if necessary, to pay\\n\u00c2\u00a321, the price will be at or just above \u00c2\u00a320, because\\nthe tenth seller, afraid of failing to effect a sale, will,\\nby competition, beat down the price to that point.\\nThis consideration means that under existing indus-\\ntrial conditions, where there are generally more will-\\ning sellers at a price than willing buyers, the latter\\nenjoy a normal advantage.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0054.jp2"}, "55": {"fulltext": "CHAPTER II.\\nPRODUCER S AND CONSUMER S RENTS.\\n1. Before proceeding further with the analy-\\nsis of market-price and the element of forced gain\\ncontained in it, it is desirable to clear some mis-\\napprehension which attaches to the differential\\ngains which play so prominent a part in the analy-\\nsis. Differential rents have received much atten-\\ntion from economists in their investigation of the\\nrelations of producers and consumers. Now these\\nproducer s and consumer s rents, as they are called,\\nhave been a source of grave misapprehension, by\\nreason of the mode of measuring them, which has\\nbeen generally adopted. The nature of this error\\nwill be best understood by examining concrete\\nexamples.\\nTake the instance of the passengers who pur-\\nchase tickets for 32s. Sd. to go from London to\\nEdinburgh by a particular train. Here we have\\na number of buyers who pay the same price for\\ntheir tickets, but who, presumably, will differ\\nwidely in the importance which they assign to the\\npurchase of a ticket. A is reluctantly leaving\\nbusiness at an awkward time in order to visit his\\n41", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0055.jp2"}, "56": {"fulltext": "42 THE ECONOMICS OF DISTBIBUTIOJSf.\\nrelatives, and we may assume that if the price of\\na ticket were any higher than 32s. 8c?., he would\\nrefuse to go. He ranks as the marginal buyer,\\nwhose differential gain or rent is nil. Turning to\\nthe other extreme we find B, who will make a\\nbusiness profit of XIOOO if he can put in an ap-\\npearance at Edinburgh within a certain number of\\nhours. B would pay for a ticket any sum short of\\nthe whole difference between 32s. Sd. and \u00c2\u00a31000,\\nif he had no option. His differential gain, there-\\nfore, appears to stand at (say) .\u00c2\u00a3998. This is the\\ncommon mode of measuring producer s and con-\\nsumer s rents. Yet it is plainly fallacious. For\\nB s supposed gain of \u00c2\u00a3998 upon his transaction\\nwith the railway is derived truly, not from that\\ntransaction, but from a certain business advantage\\nhe obtains in a business bargain in Edinburgh.\\nThis sum will evidently appear as a differential\\nor a specific gain in the market to which the lat-\\nter transaction belongs, and if the purchase of a\\nticket to Edinburgh stands as a separate action, the\\nsame gain will be counted twice. This is clearly\\ninadmissible. The fallacy consists in a false inde-\\npendence assigned to the purchase of the ticket.\\nThis purchase is in reality one of a number of\\nacts complementary, or, in this case, subsidiary, to\\nthe business transaction from which the gain\\nof \u00c2\u00a3998 emerges. In order to reach Edinburgh\\nin time, he may be obliged to send a telegraph, to\\ntake a cab, and to make sundry other small out-", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0056.jp2"}, "57": {"fulltext": "PEOBUCEB S AND CONSUMER S BENTS, 43\\nlays; each of these may be a necessary means to\\nhis end, in which case, according to the accepted\\nmode of estimating differential gains, the \u00c2\u00a3998\\nwill be counted over again many times. Evi-\\ndently this method of detaching each transaction\\nis illicit. A number of related actions must be\\ntaken to form an organic group, and the true dif-\\nferential gain will be the net differential gain\\nupon the group. The business custom which\\nwould reckon the price of the ticket and other\\nincidental outlays as expenses, to be deducted\\nfrom the gain of the transaction toward which\\nthey were contributory means, is clearly the logi-\\ncal mode of procedure. Where expenses may be\\nincurred, partly on their own account, because\\nthey contribute some direct satisfaction to the\\nspender, and partly as a means to secure some\\nulterior gain, it may be difficult or even impossi-\\nble to make a true assignment of differential gains.\\nA business man s expenditure during a given time\\nmay not easily break up into separate groups cen-\\ntring round some distinct business deal even\\nwhere a large number of transactions are clearly\\nrecognised as incidental, the main deals, from\\nwhich the gains directly proceed, may be\\nclosely connected or mutually dependent.\\nBut, however difficult it may be in practice to find\\nthe true group-unity in a number of dealings, the-\\nory requires that we reckon differential gains upon\\nthe group, and not upon a falsely isolated item.", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0057.jp2"}, "58": {"fulltext": "44 THE ECONOMICS OF DISTBIBUTION.\\nThe fallaciousness of the separatist treatment\\nis still more glaring when we take the common\\ninstance of the differential gain attributed to the\\npurchaser of some necessary of life. Each time\\na man buys his necessary supply of food or cloth-\\ning, he can appear to make a differential gain\\nmeasured by the difference between the price he\\npays and the price he would be willing and able\\nto pay if he were compelled to do so. All that\\na man hath will he give for his life, so that the\\ndifference between the price actually paid and the\\ntotal possessions of the purchaser will rank as\\ndifferential gain on each occasion when a necessary\\nis bought.\\n2. These reflections seem to require impor-\\ntant modifications to be made in the treatment of\\nproducer s and consumer s rents. The common\\npresentation of consumer s rents assigns to the\\nconsumer a rent upon that portion of his income\\nspent as necessaries, which is infinitely great\\nwhen measured in utility, and which, when meas-\\nured in money, is equal to the whole of the re-\\nmainder of his income which he would have con-\\nsented to add to the price actually paid for neces-\\nsaries, had he been compelled to do so. So, if we\\nsuppose a case of a man spending an income of\\n.\u00c2\u00a3400 a year, the first \u00c2\u00a3100 going for necessaries,\\nthe second for conveniences, the third for com-\\nforts, the fourth for luxuries (taking the conven-\\nient distinction usually made), the consumer s", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0058.jp2"}, "59": {"fulltext": "pboduceb s and consumer s rents. 45\\nrent obtained on the outlay of the first \u00c2\u00a3100\\nwould be X300, upon the second \u00c2\u00a3200, and\\nupon the third \u00c2\u00a3100, while the last can yield no\\nconsumer s rent, for he had no reserve out of\\nwhich he could have paid a higher price for the\\nluxuries he bought. Such analysis yields a con-\\nsumer s rent of \u00c2\u00a3600 out of a total expenditure\\nof \u00c2\u00a3400. Taking a nicer discrimination in the\\nrelative subjective valuations of different portions\\nof each group of goods, we should, of course, obtain\\na more complex measurement (all luxuries, for\\ninstance, except the least valued, yielding some\\nrent) but the rough estimate will serve to illus-\\ntrate our point, which is this If the man be sup-\\nposed, at any given time when he is making a\\npurchase, to have at his command his whole in-\\ncome of \u00c2\u00a3400, on each separate occasion when he\\nbuys a weekly store of necessaries he will appear\\nto make a consumer s rent, measured by the dif-\\nference between what he pays and \u00c2\u00a3400, and the\\nnet rent during the year will depend upon the\\nnumber of times he buys necessaries. The same\\nwill hold of his other non-necessary purchases.\\nOr again, if this man has \u00c2\u00a3100 saved in the bank,\\nthis \u00c2\u00a3100 will rank as rent every time he makes\\na purchase of necessaries, for he would and could\\npay it in addition to the price he actually pays,\\nrather than go without a necessary. This also\\nwill hold of his other purchases, of conven-\\niences, etc., for he would consent to pay a por-", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0059.jp2"}, "60": {"fulltext": "46 THE ECONOMICS OF DISTRIBUTION.\\ntion at least of his saved XlOO rather than fail\\nto get them.\\nIt is evident from this that the assignment of a\\nconsumer s rent upon a particular purchase is il-\\nlicit. A consumer s rent can be rightly reckoned\\nonly by considering the totality of purchases over\\na given period and the totality of the current in-\\ncome during such period. When, therefore, Pro-\\nfessor Marshall says,^ The excess of the price\\nwhich he would be willing to pay rather than go\\nwithout it, over that which he actually does pay,\\nis the economic measure of this surplus pleasure,\\nand may be called consumer s rent, his defini-\\ntion is doubly fallacious. In the first place, the\\nmere willingness to pay cannot be a source of con-\\nsumer s rent, nor indeed does Professor Marshall\\nintend that it shall be so understood. The will-\\ningness to pay must be backed by the power to\\npay. But this power to pay, as we have shown,\\ncannot be rightly reckoned upon the single pur-\\nchase. In order to measure it, we need to take a\\nrelated group of purchases, and if we are dealing\\nwith rent derived from the expenditure of an in-\\ncome supposed to cover a period of time, the\\ngroup must consist of the whole number of pur-\\nchases within that time.^\\n1 Principles, Bk. Ill, Ch. VI, 1.\\n2 Professor Nicholson {Principles of Political Economy^\\nVol. I, p. 58) effectively discloses the illusory nature of the\\nattempt to measure total utility by price.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0060.jp2"}, "61": {"fulltext": "produceb s and consumer s rents. 47\\n3. It may, indeed, be questioned whether this\\nmode of reckoning, thus logically forced upon us,\\ndoes not invalidate the utility of consumer s rent\\naltogether. For if we suppose that either the\\nwhole of the year s purchases are made at a single\\ntime with the whole of the year s income, or that\\n(5) each piece of income as soon as it is received\\nis laid out in a purchase, it will appear that no\\nconsumer s rent emerges, either upon the total-\\nity of purchases in the one case (a), or upon any\\nindividual purchase in the other case (5) for in\\nneither case is there any residue of money in the\\nhands of the purchaser which he could and would\\nhave paid rather than fail to get what he buys.\\nIf I spend my income literally as fast as I receive\\nit, no consumer s rent emerges. It is only the\\nspare cash in my purse after I have made a pur-\\nchase, all or part of which constitutes consumer s\\nrent if my income were doled out to me for each\\nspecific purchase, though my income over a period\\nof time were just as large, no consumer s rent\\ncould appear.\\nOne qualification to this conclusion seems to be\\nrequired. If I do not spend, but save, a portion\\nof my income, that saving rightly appears as\\nconsumer s rent, even when the totality of pur-\\nchases is set against the total income for I would\\nhave sacrificed the whole of this saving rather\\nthan have dispensed with a necessary, and some of\\nit rather than go without a convenience.", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0061.jp2"}, "62": {"fulltext": "48 THE ECONOMICS OF BISTBIBUTION.\\nI suggest, therefore, that savings may be the\\nonly legitimate consumer s rent, when we take\\nan organically related group of purchases meas-\\nured over a period of time and compare them\\nwith the income received during that time.\\nIt may, indeed, be arguable that the term con-\\nsumer s rent should continue to be applied to\\nthe X300 which our man would have consented to\\nspend upon necessaries, had he been obliged to do\\nso but there seems little advantage in this appli-\\ncation of the term. Our first rude reckoning of\\nconsumer s rent upon the supposition that the\\nfirst XI 00 of an income of c\u00c2\u00a3400 was spent on\\nnecessaries, the second \u00c2\u00a3100 on conveniences,\\nthe third on comforts, and the fourth on luxuries\\nwould, we found, yield a total rent of \u00c2\u00a3600,\\n\u00c2\u00a3300 on the first, \u00c2\u00a3200 on the second, and \u00c2\u00a3100\\non the third division. But this reckoning must\\nalso be discarded, for it is evidently just as il-\\nlogical to make an artificial severance of expen-\\nditure into four groups, and to treat the whole\\nincome as if available for each group, as it woul^\\nbe to take the whole \u00c2\u00a3400 into account whenever\\na single purchase of a necessary or a convenience\\nwas taking place.\\nIf it is still held convenient to retain the cate-\\ngory of consumer s rent, it must be understood\\nthat, in the instance we have taken, the total con-\\nsumer s rent on purchases during the year will\\nonly amount to the \u00c2\u00a3300 spent on other things", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0062.jp2"}, "63": {"fulltext": "PROBUCEB S AND CONSUMElCs BENTS. 49\\nthan necessaries. Thus conceived, consumer s\\nrent will be measured, not on the individual\\ntransaction, but upon total expenditure over a\\nperiod of time, and will be equivalent to that\\nportion of the income which is either spent on\\nother things than necessaries, or is saved.\\n4. Now let us turn to producer s rent. The\\nexcess of price actually obtained over the price\\nwhich the seller would have consented to take\\nforms producer s rent. Differential advantages\\nfor production may be said to be the origin of\\nthese rents in competitive trade. Let us suppose\\nthat among cycles competing for sale at \u00c2\u00a318, the\\nmost expensively produced cost .\u00c2\u00a315 to make,\\nwhile some others made by makers enjoying\\nsuperior economies of production may be pro-\\nduced at \u00c2\u00a312 in this case \u00c2\u00a33 ranks as producer s\\n1 This conclusion may be illustrated by a more detailed\\nexamination of the illustration of consumer s rent Marshall\\ntakes (Bk, III, Ch. VI). He takes the case of a man who\\nbuys 7 tons of coal at \u00c2\u00a31 per ton. This man would have paid\\n\u00c2\u00a310 rather than fail to get one ton, \u00c2\u00a37 rather than fail to get\\na second ton, \u00c2\u00a35 for a third ton, \u00c2\u00a33 for a fourth, \u00c2\u00a32 for a\\nfifth, 30s. for a sixth. Since he only pays \u00c2\u00a31 for each ton, his\\nconsumer s rent on the 7 tons amounts to \u00c2\u00a322^. Now, though\\nnone of this cost can rank as a necessary (for in that case\\nhe would have been willing to pay the whole \u00c2\u00a37 \u00c2\u00a322|^ for the\\nfirst ton), it ranks as a prime convenience of life. When, there-\\nfore, we say that this man would have willingly paid \u00c2\u00a322^\\nmore in order to get the coal, we mean that he would have\\nsacrificed the other comforts or luxuries upon which he has\\nalready spent \u00c2\u00a322 J (or the \u00c2\u00a322 J savings, if he has saved it).\\nBut if, instead of coal, we took bread or any necessary, it is", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0063.jp2"}, "64": {"fulltext": "50 THE ECONOMICS OF DISTBIBUTION.\\nrent. At first sight this rent seems to be calcu-\\nlable upon a single act of sale, but it is not really\\nso. For this maker can produce at ,\u00c2\u00a312 not the\\nparticular cycle which is sold for ^18, but this\\ncycle in conjunction with a large number of\\nothers. It is only produceable at \u00c2\u00a312 as one\\nunit in a large output. Thus the consumer s\\nrent of \u00c2\u00a33 is based upon an assumption involv-\\ning a large number of other sales. JExpenses\\nof production cannot be taken as any definite\\namount in reference to a single sale, just as util-\\nity of consumption reckoned in money cannot be\\ntaken as a definite amount in reference to the pur-\\nchase of a single consumable.\\nThe true basis of calculation for producer s\\nrent will be the total output of a particular busi-\\nness over a period of time, as in the case of the\\neasy to see that this same \u00c2\u00a322J, plus all the part of his income\\nspent on conveniences, comforts, and luxuries, will figure as\\nconsumer s rent upon the purchase of bread. Let him have\\nan income of \u00c2\u00a31000 a year, \u00c2\u00a340 of which is spent on necessary\\nfood, the rest of the \u00c2\u00a3960 will appear as consumer s rent upon\\npurchases of food, for he would have paid it all rather than fail\\nto get the food. This same sum, or part of it, cannot rightly\\nhe reckoned over again as more consumer s rent upon coal\\nand other commodities which the consumer appears to value\\nat a higher price than he gives.\\nThe total consumer s rent cannot exceed \u00c2\u00a3960, and would,\\nin fact, appear to correspond to that portion of his income spent\\nupon non-necessaries, including any savings he might make.\\nMarshall s mode of reckoning would enable the same money\\nincome to count over and over again, as often as a purchase\\nwas made.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0064.jp2"}, "65": {"fulltext": "pbobuceb s and consumer s bents. 51\\nconsumer s expenditure of income. So the net\\nprofit on a given business over a month or a\\nyear may be legitimately taken as the basis of\\nmeasurement for a producer s rent.\\nThe term net profit is proverbially ambiguous.\\nThe producer s rent, however, may be taken to\\nbe any excess of profit that may accrue in a busi-\\nness during a given period over and above the\\nminimum profit required to induce the continued\\napplication of industrial power. This excessive\\nprofit doubtless emerges in each act of sale; but\\nit cannot be rightly calculated on the separate\\nsales, since the expenses of production of one\\narticle are organically related to those of other\\narticles. The true producer s rent thus repre-\\nsents the money value of a differential economy\\nof production, as compared with the economy of\\nthe least effective producer competing in the\\nmarket, and is estimated upon the total business\\nover a period of time. The true consumer s rent\\nrepresents a differential economy of consumption,\\nexpressed in the money value of that portion of\\nconsumption and saving which takes place during\\na given period, over and above the necessary mar-\\ngin of subsistence. Thus we place the two rents\\nin line with one another the producer s rent\\nmeasured from a marginal expense of production\\n(i.e. the smallest sum necessary to recoup the costs\\nof production of the portion of supply produced\\nunder the least favourable circumstances) the", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0065.jp2"}, "66": {"fulltext": "62 THE ECONOMICS OF DISTBIBUTIOJST.\\nconsumer s rent measured from a marginal ex-\\npense of consumption (the smallest sum neces-\\nsary to maintain the consumer s life under the\\nleast favourable circumstances).\\n5, Consumer s rent is sometimes stated in\\ndirect relation to reductions of price of a com-\\nmodity. For instance, a fall in the marginal\\nexpenses of producing cotton goods represented\\nin a fall of prices is described as yielding a con-\\nsumer s rent. This treatment, however, involves\\nan assumption of the stability of money income of\\nconsumers which is not legitimate. It may be that\\na fall in price of commodities is also an economic\\ncause of a fall of income to a class of consumers\\nin that case the fall of price does not yield to mem-\\nbers of this class a true consumer s rent, for the\\nmargin for purchases outside of necessaries is not\\nincreased. Though it may be true that a fall of\\nmoney prices does commonly increase the purchas-\\ning power of consumers and so raise their con-\\nsumer s rent, the fixity of money income is not\\nrightly assumed in a community where incomes\\nare ultimately paid out of the prices received for\\nsale of commodities.\\n6. This consideration of producer s and con-\\nsumer s rents shows a tendency on the part of\\ndifferential rents of buyers and sellers in a mar-\\nket to assume an exaggerated size by reason of an\\nassumption of independence and isolation of a\\nsmall local or temporal group of transactions.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0066.jp2"}, "67": {"fulltext": "producer s and consumer s rents. 53\\nThe criticism of consumer s rent may at first\\nsight appear inapplicable to the differential gains\\nof buyers who buy not for consumption or\\ndirect personal enjoyment, but in order to sell\\nagain or to use as a means of production. But\\nwhen buyers are manufacturers who buy raw\\nmaterials of manufacture, or are retailers, their\\ndifferential gains may either be accounted anal-\\nogous to consumer s rents, consumers utility\\nbeing imputed to the various production-goods\\nwhich are required in the different stages of\\nproduction, in accordance with the analysis of\\nWieser and the Austrian School, or they may\\nbe taken as a source of future producer s rents\\nin the manufactory or the retail business to which\\nthe buyer devotes the goods he buys. The latter\\nis perhaps the more convenient mode of reckoning.\\nWhere the buyers are manufacturers purchasing\\ntheir materials of manufacture, any differential\\ngain they make will be represented by a differen-\\ntial gain which the lower expense of production\\nin their business will enable them to obtain from\\nthe sale of the manufactured goods into which\\nthese materials shall pass.\\nSince the residual element of forced or specific\\ngain in a market-price is dependent on and\\nmeasured from the differential valuations of the\\nlimiting buyer and seller, the character of quan-\\ntitative exactitude imputed to it in the illustra-\\ntion of a market, borrowed from Bohm-Bawerk,", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0067.jp2"}, "68": {"fulltext": "54 THE ECONOMICS OF DISTRIBUTION.\\nwill be subject to a similar process of qualifi-\\ncation.\\nIn fine, the group of transactions taken to con-\\nstitute a market at a given place and time has had\\nascribed to it an independence which is unreal,\\nwith the result that a false definiteness appears in\\nthe gains which the different parties are assumed\\nto make from their transaction.\\nBut the recognition of this truth does not im-\\npair the fundamental validity of the analysis of a\\nmarket. The two elements of differential and\\nspecific gain which this analysis discovered in the\\nmarket are really there, though the actual condi-\\ntions of a market prevent them from being subject\\nto the precise measurement ascribed to them in\\nour falsely isolated instance.\\nv^^", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0068.jp2"}, "69": {"fulltext": "CHAPTER III.\\nTHE DETERMINATION OF LONG-PERIOD PRICES\\nAND OF VALUE.\\nPart I.\\n1. It has appeared that the process by which\\na market-price is reached makes no provision for\\nthe equal distribution of the advantage of a bar-\\ngain in the case of any of the pairs which effect a\\nsale in the market. It is equally clear that the\\namount of gain which accrues to each party re-\\nspectively in a number of bargains at a market-\\nprice will be determined by certain forces which\\nlie outside and beyond the machinery of compe-\\ntition and bargaining in the market, and which\\nassign to the body of buyers and the body of sell-\\ners the economic power which is represented in\\nthe actual gain each gets from the transaction.\\nIf, putting the matter in general terms, we say\\nthat the relation of supply to demand determines\\nthe market-price, we are driven for further ex-\\nplanation to examine the forces which give power\\nto supply and to demand.\\nFirst, a word further as to normal price. It is\\nsometimes suggested that though a market-price\\n65", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0069.jp2"}, "70": {"fulltext": "56 THE ECONOMICS OF DISTRIBUTION.\\nmay, by virtue of passing or local circumstances,\\nlean in favour either of buyers or sellers, there\\nexists something called a normal price, round\\nwhich market-prices oscillate, which averages the\\nfluctuations of market-prices over a period of\\ntime, and which in the long run divides equally\\nthe advantage among buyers and sellers. Now\\nthis term normal price has its uses. But it must\\nbe kept in mind that a normal price is nothing\\nbut an average of market-prices, itself varying\\naccording to the number of different market-\\nprices it averages. The notion, therefore, that in\\na normal price the inequality of competing or\\nbargaining power between buyers and sellers will\\nbe eliminated, and that the normal price repre-\\nsents absolutely free competition, is utterly chi-\\nmerical. The identification of the normal or aver-\\nage price with what theoretic economists some-\\ntimes still call a natural price, whereby exchanges\\ntake place with absolute reference to cost of pro-\\nduction or some other standard of value, has no\\nvalidity. For we have no reason to assume that\\na normal price, which represents market-prices of\\nwheat or horses over a period of a year or two\\nyears, is a price which, if it were constant through\\nthat period, would divide equally among buyers\\nand sellers the total gain of the transactions. If\\nthe advantage which one party may possess in a\\nmarket were simply due to chance (to some sud-\\nden or unaccountable facts), and there were an", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0070.jp2"}, "71": {"fulltext": "LONG-PEBIOD PBICES AND VALUE. 57\\nequal probability of this chance favouring one\\nside or the other, on that supposition an average\\nor- normal price would be one which eliminated\\nthe advantage in a market. But how, if the su-\\nperiority of competition belongs to one side or the\\nother, not merely in a single market-price, but\\nover the whole series; if one side ha s an advan-\\ntage on the average Evidently the normal\\nprice will not eliminate, but will reflect that ad-\\nvantage, and a normal price will in no sense be a\\nnatural, or a free competition, price. If one of\\nthe two sets of bargainers enjoys a constant ad-\\nvantage in the power to manipulate a profit by\\npassing circumstances, or a power resting on some\\nsuperior source of supply, it follows that a nor-\\nmal price which merely averages actual market-\\nprices will include an element of inequality.\\nAverage the dealings of small money lenders with\\ntheir clients over a term of years; you obtain a\\nnormal price of such loans, but that price reflects\\na normal advantage possessed by such money lend-\\ners. For certain purposes, theorists are doubt-\\nless at liberty to ignore these normal advantages\\nand to consider industry under a condition of ab-\\nsolutely free competition of capital and labour.\\nBut much intellectual harm has resulted from\\neconomists leaving the consideration of an actual\\nmarket-price, and hastening to the consideration\\nof a normal price, which in one breath they re-\\ngard as an average, in another as a natural,", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0071.jp2"}, "72": {"fulltext": "58 THE ECONOMICS OF DISTRIBUTION.\\nprice expressing the relation of commodities under\\npurely ideal conditions.\\n2. The laws of distribution which underlie\\nthe bargain are best studied as they govern the\\nforces operating in the market. Some of those\\nvery factors, which it is believed a normal price\\neliminates, are essential to the study.\\nLet us, then, return to our market-price. We\\nhave seen how it is actually determined in the\\nmarket, given certain buyers and sellers with\\ntheir valuations but we want further to know\\nwhat outside economic forces determine such and\\nsuch buyers and sellers to enter the market and\\nbargain at such valuations.\\nNow these deeper economic forces, which govern\\nmarket-prices, are best examined as they are oper-\\native in a change of price.\\nWhat is the cause of a price-change The\\nquestion sounds a simple one, and economists\\ngenerally agree in the terms of their answer. A\\nprice-change is directly motived by a shift in the\\n.quantitative relation between supply and demand\\nat the previous price. But what is here suggested\\nby supply and demand The supply which\\nthus operates in price-change evidently does not\\nmean the total stock of goods in existence, but the\\nq uantity which sellers are willing and able to sell\\nat the former price. Similarly with demand. If\\nwe are to place it in true relation with this supply,\\ndemand must mean either the quantity of goods", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0072.jp2"}, "73": {"fulltext": "LONG-PEBIOD P BICES AND VALUE. 59\\nwhich buyers are willing and able to buy at the\\nformer price, or the quantity of money buyers are\\nable and willing to pay for goods at the former\\nprice. If, however, taking these meanings of the\\nterms, we turn to the mechanism of the market,\\nwe find them defective in that they furnish\\na merely statical setting to a dynamic problem.\\nSupply and demand thus conceived are stationary\\namounts. Now, price-change is a process, and in\\norder to understand this process, what we have to\\nestimate is the rate at which the stock of goods is\\nincreased and depleted a flow and not a fund.\\nBut, if we conceive supply and demand as quan-\\ntities of goods (or money) regarded at a particu-\\nlar time, we conceive them as funds. In order\\nto study price-change properly, we must express\\nsupply and demand as flows, i.e. measure them\\nas processes taking place in time. Consistently\\nwith this purpose, supply may mean the total stock\\noffered for sale at a price during any given time,\\nand demand may mean quantity of purchases at\\na price within a given time, or quantity of money\\nexpended at a price within a given time. But it\\nwill be more convenient to define the terms more\\nnarrowly, confining supply to the rate of increase\\nof stock; demand to the rate of withdrawal from\\nstock (or the rate of payment of money in with-\\ndrawing from stock). Thus alone do we rightly\\ncome to regard supply and demand as processes\\nor flows, and the supply and demand with", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0073.jp2"}, "74": {"fulltext": "4\\n60 THE ECONOMICS OF DISTRIBUTION,\\nwhich we concern ourselves will be equivalent\\nto the rate of production and of consumption.\\nWhere goods flow out of a stock at the same pace\\nas they flow in, the price remains firm, and de-\\nmand and supply will be said to be equilibrated\\nwhere the inflow is faster than the outflow, prices\\nfall, and supply will be said to exceed demand\\nwhere the outflow is faster, prices rise and de-\\nmand exceeds supply. This setting regards de-\\nmand primarily as a rate of outflow of goods.\\nBut if we regard demand as a power exercised by\\nthe purchaser, it signifies and is measured by an\\ninflow of money. The quantitative relation of\\nsupply and demand may be expressed in either\\nmeasure of demand. But in dealing with the\\nmechanism of exchange, it is best to regard\\ndemand as an action proceeding from the buyer\\nand to measure it in the terms of purchasing\\npower.\\nAny increase or decrease of money, expended\\nupon goods at a given price within a given time,\\nimplies a corresponding increase or decrease in\\nquantity of goods bought, so that no error will\\narise from substituting the money-measure for the\\ngoods-measure of demand, and regarding it as an\\n1 The term consumption is here used in the loose business\\nsense, in which, for instance, it is said, cotton-yarn or iron is\\nconsumed when it is utilised in manufacturing processes. In\\nstrict statements of economic theory, it is desirable to confine\\nconsumption to the use of retail goods by so-called consumers.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0074.jp2"}, "75": {"fulltext": "LONG-PERIOD PRICES AND VALUE. 61\\ninflow of money from the purchaser instead of an\\noutflow of goods from the seller.\\nKeeping clearly in mind this conception of\\nsupply and demand as a rate of flow, it is hardly\\npossible to misstate the law of price-change.\\nSo long as a body of sellers in a market, main-\\ntaining the same stock of goods, can sell those\\ngoods at the same pace at which they have sold\\nthem hitherto, they will not lower and cannot\\nraise the price. If they lower the price, this act\\nmeans either a fall off in the pace at which buyers\\nask for goods, or it means that they have increased\\ntheir stock, and in order to make sales correspond\\nwith this increased rate of supply, they must\\nstimulate demand by lowering prices if they\\nraise their price, it means either a reduction of\\nsupply in face of a constant or an increasing\\ndemand, or it means a growth of the rate at\\nwhich purchases are made from a constant or\\ndecreasing supply.\\nThus there are two immediate causes of a rise\\nof price, viz. a relative decrease of supply or\\na relative increase of demand two causes of a\\nfall of a price, a relative increase of supply or\\na relative decrease of demand.\\n3. This somewhat pedantic formulation of the\\nlaw of price-change is rendered necessary by the\\nfact that in working out special problems, economic\\nthinkers not infrequently ignore the law and\\nadduce distant forces as causes of a change of", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0075.jp2"}, "76": {"fulltext": "62 THE ECONOMICS OF DISTRIBUTION.\\nprice, without showing how they operate in alter-\\ning the quantitative relation between the flow of\\nsupply and of demand. I might illustrate from\\nevery page of the elaborate controversies upon\\nmoney. Generations of economists have argued\\nthe influence of quantity of gold or of money\\nupon prices, without recognising that they are\\nunder any obligation to show how an increase or\\na decrease of money will affect the rate of supply\\nor the rate of demand for commodities this final\\nlink required to connect quantity of money with\\nprice-change is almost always either jumped or\\nignored, the real issue being begged in some more\\nor less ingenious manner. Persons who so confi-\\ndently affirm that an increased quantity of gold or\\nother money would of necessity raise price, are\\nrequired to show that this increase of money\\nnecessarily means an increased rate of purchase\\nof commodities, or a decrease in the supply of\\ncommodities this they seldom or never attempt\\nto do.\\nOf course there are numerous forces (and mone-\\ntary ones among them) which can be rightly spoken\\nof as causing changes of price, but they all act\\nthrough, and can be tested by, their influence upon\\nrate of demand or supply.\\n4. Turning then to our issue, price-change,\\nwe see sellers and buyers as repositories of supply\\nand demand.\\nWhatever force proceeding from either side dis-", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0076.jp2"}, "77": {"fulltext": "LONG-PERIOD PRICES AND VALUE. 63\\nturbs the existing balance of supply and demand\\naffects price. It also affects value. Nearly the\\nwhole of the trouble about value has arisen from\\nseparating unduly the consideration of value from\\nthat of price. Once keep clearly in mind the\\nfundamental truth that price is value expressed\\nin terms of money, it will then appear that the\\nmost profitable way of studying the nature of\\nvalue is to study the forces which cause price-\\nchange. The notion that value is some inherent\\nand abiding property of wealth, which escapes at\\nany rate the minor fluctuations of market-changes,\\nhas no validity whatever.\\nOnce expel from the mind the idea that value\\n1 Still more fallacious is the signification which so hard-\\nheaded a thinker as Professor Hadley adopts, identifying value\\nwith a proper and legitimate price as distinct from an unfair\\nand illegitimate one.\\nThe price of an article or service, he says, in the ordi-\\nnary commercial sense, is the amount of money which is paid,\\nasked, or offered for it. The value of an article or service is\\nthe amount of money which may properly be paid, asked, or\\noffered for it. Hadley s Economics, p. 92.\\nNow this involves a double-barrelled error. First, whatever\\nvalue is, it is not an amount of money, though it may be\\nmeasured by an amount of money. Secondly, the idea that it\\nis a proper or legitimate price involves, as indeed Hadley\\nadmits, a reference to some ethical standard which he does not\\nattempt to establish. There is no justification whatever for\\nassigning to value (exchange -value) any more permanency\\nthan attaches to price. The value of any stock of goods (the\\nquantity of other goods they will exchange for) will vary with\\neverything that affects the market-price.", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0077.jp2"}, "78": {"fulltext": "64 THE ECONOMICS OF BI8TBIBUTI0N.\\nis an inherent quality or enjoys any more perma-\\nnency than does market-price, and it becomes\\nevident that the study of price-change is the\\nsurest approach to the true understanding of\\nvalue.\\n5. The one-sided theorists who have made\\nvalue dependent either solely upon cost of\\nproduction or upon utility, commit a similar\\nerror. Though they formally describe value as\\na relation between commodities, they realise it as\\na property attaching to commodities. Those who\\nattribute to cost of production the cause or deter-\\nmination of value, realise goods as possessing value\\nin the shape of the productive power of labour and\\ncapital which has been used in making them, and\\nare thus driven to deny the direct influence on\\nvalue of causes which do not operate through\\ncost of production. The Utility School similarly\\ncomes to regard and speak of value as a property\\nor force stored in goods, by reason either of the\\ndirect satisfaction they can afford, or because of\\ntheir contribution toward the production of goods\\nwhich give a certain quantity of satisfaction, only\\nadmitting causes from the cost side in so far as\\nthey are seen to operate upon utility.\\nConsidered in a broad, historical light, the two\\nopposed theories of value are of great interest.\\n1 Bohm-Bawerk, who insists on distinguishing value and\\nprice as conceptions, admits that the laws of these two\\ncoincide. {Positive Theory of Capital, p. 132.)", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0078.jp2"}, "79": {"fulltext": "LONG-PEEIOB PRICES AND VALUE. 65\\nEconomics, after it left the liberal hands of Adam\\nSmith, was moulded into the structure of a sci-\\nence of commerce by the classical economists with\\nRicardo at their head. The characteristic note of\\nthis school was to regard the production of com-\\nmercial wealth as the end or final cause of industry:\\nto this intent they twisted the whole terminology\\nof political economy. Consumption itself was\\njustified as a means to an end the furtherance\\nof production. 1 Not merely was the theory of\\nConsumption or Human Satisfaction left wholly\\nundeveloped by this school, but it was equally\\ngermane to their conception of the science to\\nignore utility and to consider cost of production\\nas the cause of value. This is essentially the com-\\nmercial point of view. The commercial man has\\nno direct concern with the utility of his goods\\nthat is the purchaser s lookout (^caveat emptor!)\\nhis chief business is to look after the cost of pro-\\nduction and the sale. The treatment of labour as\\na mere commodity one cost of production\\nbelongs to the same attitude. On the other hand,\\nJevons and his fellow- thinkers in England, Austria,\\nand America assign utility as cause or determi-\\nnant of value, because they have abandoned the\\ncommercial standard and substituted a human\\nstandard. Economic activities are regarded as\\n1 The free trade theory did, indeed, formally recognise the\\nsupremacy of the interests of the consumer, but it never affected\\nthe main structure or the terminology of political economy.", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0079.jp2"}, "80": {"fulltext": "66 THE ECONOMICS OF DISTRIBUTION.\\ncontributing, not to business, but to satisfac-\\ntion: the end is no longer production, but con-\\nsumption. So, just as it was natural for the\\ncommercial economist to look upon costs as\\na force generated in various processes of produc-\\ntion, accumulating and vested in goods as making\\nthem valuable, so it was natural for those who\\nlook down the line of industrial processes from the\\nother end, from consumption, to take the con-\\nsumer s test of the valuable utility to refer\\nit back as a property potentially existing in differ-\\nent classes of commercial goods which are on\\ntheir way to blossom into really useful goods\\nwhen they reach the consumer.\\nStand at one end of the stream of industry, you\\nsee goods gathering cost as they pass from process\\nto process in production, and then cost appears\\nto be the value which is growing stand at the\\nother end, value seems only to emerge from the\\ncontributions which productive processes make\\ntoward the supply of consumables, and to con-\\nsist of nothing else than this utility of consum-\\nables reflected back upon the earlier processes a\\npotentiality of satisfaction.\\nNow both these views of value are due to an\\nalmost materialistic conception of value as a\\nproperty or force stored in material forms of\\nwealth and transmitted from one end or other\\nof the chain of industry. By an unwise depar-\\nture from the actual operations of the market, they", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0080.jp2"}, "81": {"fulltext": "LONG-PERIOD PRICES AND VALUE. 67\\nhave developed an abstraction as unreal as the\\noddity and quiddity of the mediaeval school-\\nmen. Like the latter, too, they have developed a\\ndogmatism in the assumption of their theory,\\nwhich would be ridiculous if it were not so in-\\njurious. Of course all holders of a cost theory\\nof value admit that valuable things must be use-\\nful, but this utility is only a condition, while cost\\nis the efficient cause utility men allow that\\ncost affects the value of all freely produced goods,\\nbut they maintain cost is the condition, utility the\\nefficient cause.\\n6. Now if, leaving abstractions, we turn to\\nshifts of actual prices and recognise that with\\n1 Admitting, as Bohm-Bawerk does, that for the emergence\\nof vahie there must be scarcity as well as utility, not absolute\\nscarcity, but scarcity relative to the demand for the particular\\nclass of goods, it is hard to understand why he should refuse\\nto scarcity (and through scarcity to cost) an independent in-\\nfluence as a direct determinant of value. He does not really\\ndispose of this independent influence by making economic\\nscarcity relative to the demand for while change of demand\\nmay undoubtedly affect the relative scarcity, changes pro-\\nduced by natural causes or human arts, stimulated by no change\\nof demand, may also affect this relative scarcity. It is diiflcult\\nto comprehend why a change in the value of a stock of wheat,\\ndue to a favourable season or a new railway, should be attrib-\\nuted to demand, which has either not changed, or the change\\nof which has been clearly consequent upon an enlargement of\\nsupply. Yet if scarcity thus affected may be legitimately\\nregarded as a true determinant of change of value, why may\\nnot scarcity and the cost factor behind it rank as a true\\ndeterminant of value (Positive Theory, Bk. Ill, Ch. II,\\np. 135.)", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0081.jp2"}, "82": {"fulltext": "68 THE ECONOMICS OF BISTBIBUTION.\\neach price-change the value of a stock of goods\\nis changing, we perceive that value is affected,\\nand directly affected, by forces proceeding from\\neither side, and that this distinction between\\ncauses and conditions of value has no ultimate\\nvalidity.\\nOnly by turning to the actual play of economic\\nforces in a market can we perceive the or-\\nganic relation between cost and utility operating\\nthrough supply and demand, which is required\\nto establish the truth that value is determined by\\nthe interaction of the tv/o. It is the most ser-\\nviceable achievement of Professor Marshall to\\nhave clearly established the equality and the in-\\nterdependence of cost and utility as the deter-\\nminants of value. This he did by working out\\nthrough supply curves and demand curves the\\nlaws of the regulation of prices. With the theory\\nof value as distinct from that of prices he has\\ndealt very briefly, but his brief treatment con-\\ntains a refutation of the Jevonian theory of final\\nutility as crushing as even Mr. Hyndman could\\ndesire. With characteristic academic modesty\\nProfessor Marshall has placed this criticism of\\nJevons in a small print note, the very title of\\nwhich is but a slight indication of its matter. It\\nis called a Note on Ricardo s Theory of Value\\nbut though it contains an exposure of the insuffi-\\nciency of the cost theory, its chief importance\\nconsists in its brief and absolutely conclusive ref-", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0082.jp2"}, "83": {"fulltext": "LONG-PEBIOB PRICES AND VALUE. 69\\nutation of the syllogism into which Jevons some-\\nwhat rashly cast his doctrine of value. The fact\\nthat many students of economics still speak of\\nthemselves as Jevonians in their interpretation\\nof value, I can only explain by supposing that\\n.Professor Marshall s note has escaped their atten-\\ntion. As Professor Marshall points out, Jevons,\\nwith the ingenuousness of the professional logi-\\ncian, provides his own refutation. His theory\\nthat the value of a supply of goods is determined\\nby the final utility, i.e. the utility which attaches\\nto the least serviceable portion of the supply which\\nis already consumed, he sums up in the following\\nsyllogism\\nCost of production determines supply,\\nSupply determines final degree of utility,\\nFinal degree of utility determines value.\\nNow, setting on one side the careless and inac-\\ncurate statement that cost of production deter-\\nmines supply, whereas final cost is the immediate\\ndeterminant, this syllogism, as Marshall points out,\\nreally gives away the most distinctive feature in\\nJevons s treatment. Jevons wishes to insist that\\nfinal utility, not final cost, is the real controlling\\nforce. But his syllogism, though alleging that\\nvalue is directly dependent on final utility, shows\\nthat final utility is controlled by final cost, so that\\nthe latter is made, after all, the master.\\n1 Principles (2 ed.), Bk. IV, Ch. XV.", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0083.jp2"}, "84": {"fulltext": "70 THE ECONOMICS OF DISTRIBUTION.\\nThe whole statement, as Marshall shows, can\\nbe utterly upset by inverting Jevons s syllogism\\nand substituting the following, which is rather\\nless untrue\\nUtility determines the amount that has to be supplied,\\nThe amount that has to be supplied determines cost of\\nproduction,\\nCost of production determines value.\\nThe fallacy of attributing the determination of\\nvalue (or price) to final cost or to final utility is\\none and the same. Final utility cannot be the\\n^ultimate determinant of value, because final utility\\nwill depend upon how much is bought, and how\\nmuch is bought will depend upon the quantity\\nthat is offered at different prices, and this in its\\nturn depends upon final cost. So, conversely,\\nfinal cost cannot determine value, because the\\ncost of producing the last portion of supply will\\ndepend largely upon how much is produced, and\\nthat will depend on the effective demand at dif-\\nferent prices, or, ultimately, on the final utility\\nattending different quantities of consumption.\\nProfessor Marshall has summed up the matter\\nwith perfect accuracy by comparing the two in\\ntheir action to the blades of a pair of scissors.\\nWhen one blade is held still, and the cutting is\\neffected by moving the other, we may say with\\ncareless brevity that the cutting is done by the\\nsecond but the statement is not one to be made\\nformally and defended deliberately.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0084.jp2"}, "85": {"fulltext": "LONG-PERIOD PRICES AND VALUE. 71\\nThe fact is, that both sides commonly imported\\na particular concept into value which begged the\\nquestion. The commercial economist saw that\\ngoods fetched a high price because they were dif-\\nficult to get hold of (scarce) or costly to make\\nthe humane-minded economist found the common\\nmeaning of value more akin to utility. The same\\ntransaction is often regarded in common life\\nby two parties with the same difference of view.\\nTake the case of the cab-runner, who demands a\\nshilling for carrying your box into the house. He\\nvalues his action at a shilling, looking at it from\\nthe cost side he has run two miles against a horse,\\nwith the risk of being refused the job after doing\\nall this work a shilling is not an outrageous\\ncharge for his effort and his risk. On the other\\nhand, you would almost as soon as not take the\\nexercise of carrying your own box up the steps, so\\nthe actual good you get from the cab-runner is\\nvery small indeed. Or, again, take the case of Mr.\\nBeecham, who sells us pills which he perhaps\\ncorrectly observes are worth a guinea a box to\\nus, and yet, with a rare spirit of self-denial, con-\\nsents to take Is. lOd.y regulating the price rather\\nby consideration of the cost to him than the utility\\nconferred on us.\\nThe confusion which has thus attached to value\\narises almost inevitably when a popular abstrac-\\ntion is taken into scientific terminology.\\nS 7. Another curious instance of the inveterate", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0085.jp2"}, "86": {"fulltext": "72 THE ECONOMICS OF DISTBIBUTION.\\none-sidedness of the adherents of final utility in\\nrecent times is furnished by the use which Bohm-\\nBawerk and others of his school have made of the\\nterm subjective value in seeking to identify it\\nwith the old use value. It is important, writes\\nBohm-Bawerk,i that we give right names to\\nthose things which tradition has handed down to\\nus under the inadequate designation of use value\\nand exchange value. The two groups of phe-\\nnomena, to both of which popular usage has\\ngiven the ambiguous name value, we shall dis-\\ntinguish as value in the subjective and value\\nin the objective sense. Value in the subjective\\nsense is the importance which a good, or a complex\\nof goods, possesses with regard to the well-being\\nof a subject. And this well-being he proceeds\\nto identify with the satisfaction of a want. Now\\nby thus identifying subjective with use value he\\nhas begged a most important issue. I may put\\nthe matter in the form of a question and ask. Why\\nshould not the term subjective value be applied\\nto the whole subjective or human facts which lie\\nbehind objective or exchange value facts which\\nrelate not only to the utility of the good possess-\\ning the exchange value, but to its cost as well?\\nThe forces which directly operate in determining\\nobjective value proceed both from costs and from\\nutility. Why, then, should the term subjective\\nvalue reflect only the subjective aspects of those\\n1 Positive Theory of Capital, Bk. Ill, Cli. I.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0086.jp2"}, "87": {"fulltext": "LONG-PERIOD PBICES AND VALUE. 73\\nwhich proceed from utility The well-being of\\na subject is just as much concerned with mini-\\nmising costs as in maximising utility. Subjective\\nvalue, if it is to have any proper or intelligible cor-\\nrespondence to objective value, should express\\nthe relation of subjective cost to subjective utility.\\nIt is perhaps not curious that Bohm-Bawerk\\nshould proceed to mate this error by giving also\\nthe same one-sided interpretation to objective\\nvalue by which he says is meant the power or\\ncapacity of a good to procure some one objective\\nresult. In this sense there are as many kinds of\\nvalue as there are external results with which\\nman may be connected. There is a nutritive\\nvalue of food, a heating value of wood and coal,\\na fertilising value of manures, a blasting value of\\nexplosives, and so on. Now there is, perhaps,\\nno sufficient reason wh}^ Bohm-Bawerk should not\\napply the term objective value to these objec-\\ntive utilities. But when he seeks to identify it,\\nas he does in the paragraph just quoted, with\\nexchange value, I can only say that he is depart-\\ning from the meaning consistently and universally\\naccorded to that term by past economists.\\nThe fact is that in his preliminary process of\\ndefining objective and subjective value he has\\nidentified them with objective and subjective\\nutility, denying the validity of all cost consid-\\nerations. This, occurring as it does in the opening\\n1 p. 131.", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0087.jp2"}, "88": {"fulltext": "74 THE ECONOMICS OF DISTBIBUTIOJSf.\\npages of a treatment of value, is sheer petitio\\nprincipii.^^\\n8. But, though in the specific problem of direct\\ndetermination of value final or marginal utility\\nexercises no power, the like of which is not exer-\\ncised by final or marginal cost, there is a sense in\\nwhich a superior control may be claimed for utility\\nas causa causans.^^ Were economics expanded\\ninto a broader science, which should take cogni-\\nzance of all forms of vital wealth, the economic\\nantimony of production and consumption would be\\nmerged in the deeper unity to which biology and\\nethics testify, when they insist that work, or pro-\\nduction, can be as genuine and vital a source of\\nsatisfaction as consumption itself. From such a\\nstandpoint Bohm-Bawerk s insistence, that the\\ncausal connection runs in an unbroken chain\\nfrom value and price of products to value and\\nprice of costs, appears defective, for we perceive\\nutility or other vital satisfaction emerg-\\ning directly from processes of production in the\\nfiner arts and handicrafts.\\nA really philosophical analysis from the physio-\\nlogical or the psychological standpoint would\\nseem to bring together into such close organic\\nrelation the processes of productive and con-\\nsumptive work and enjoyment, that neither in\\nthe purely biological nor in the conscious realms\\ncould they be severed or priority of importance\\naccorded to one of them.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0088.jp2"}, "89": {"fulltext": "LONG-PERIOD PBICES AND VALUE. 75\\nBut taking economics within the limits generally\\nassigned to it, the Utility Schools are entitled to\\nignore these considerations, and to insist that the\\ntheory of value is not concerned with the ultimate\\nrationale of function and fruition, effort and\\nsatisfaction, but only with such pains of produc-\\ntion and pleasures of consumption as actually\\nfigure in present human estimates of value. So,\\nany labour, which is itself a joy, and is recognised\\nas such, involves no economic cost, and such\\ngoods as it produced would, unless the labour\\nwere hampered by scarcity of material, possess\\nno value, but would be free goods. The\\nutility theorist rightly urges that, since economic\\ncosts are ex-hypothesi painful, they cannot\\nbe regarded as undergone for their own sake, but\\nonly as means to the end of attaining some utility.\\nThus the conscious motive force which directs\\nthe volume of productive force emanates from the\\ndemand of consumers, and utility of consump-\\ntive goods becomes the ultimate cause why value\\nattaches to any stock of productive goods.\\nWe may even affirm that from utility, through\\ndemand, proceed the very forces which direct and\\nevoke costs, drawing industrial energy into the\\nright channels and stimulating those very im-\\nprovements in organisation and the industrial\\narts which subsequently appear as chief causes of\\nchanges of value from the cost side.\\nBut though utility thus figures as the final cause", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0089.jp2"}, "90": {"fulltext": "76 THE ECONOMICS OF DISTRIBUTION.\\nof value, it is not rightly taken as the sole efficient\\ncause or as the sole determinant of quantity of value\\nattaching to a stock of goods. The distinction\\nhere made is not a barren one. The economic\\nproblem of value is one in which we are rightly\\nconcerned, not with final, but with efficient, causes,\\nand the mistake of the Utility School is that they\\nsubstitute the former treatment for the latter.\\nAs a direct, independent, efficient cause of the\\nvalue of a given stock of goods, cost ranks on a\\nlevel with utility. The attribution of final cau-\\nsality to utility has no serviceable bearing on the\\nproblem of determination of values and prices.\\nBohm-Bawerk sometimes seems to feel this, and is\\ndriven to claim for utility a superior power, not\\nonly as final, but as efficient, cause, insisting, for\\ninstance, that value runs from iron goods to iron,\\nand not conversely. Now the iron goods ap-\\npear to impose value upon iron and to determine\\nthe how much of the value, only so long as we\\nignore the influence of costs (through scarcity of\\nsupply) upon the iron goods. When, however,\\nthat influence is taken into consideration, the\\nvalue of the supposed sole determinant is seen\\nto be itself determined partly from the cost\\nside. In other words, the flow of accumulating\\ncosts drawn from the iron and coal is perceived\\nto be just as much an efficient cause of the value\\nof the iron goods as the utility of the latter is of\\nthe value of the iron. So that even were we to", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0090.jp2"}, "91": {"fulltext": "LONG-PERIOD PBICES AND VALUE. 77\\nadmit that the value of iron was imputed from the\\nvalue of the iron goods, cost is not banished as an\\nefficient cause of the value of iron. The somewhat\\nintricate and complex reasoning by which Bohm-\\nBawerk has sought to get rid of costs as direct and\\nseparate influences on value of productive goods,\\nreceives more detailed consideration in an appendix\\nto this chapter. The breakdown of the attempt\\nto repudiate the separate efficient causal influ-\\nences of costs in determining the value of con-\\nsumptive goods and productive goods is there\\nmade manifest.\\n9. A brief summary of the actual relations\\nwhich subsist between costs and utility and be-\\ntween the value of productive and consumptive\\ngoods will take the following shape\\nTaking industry as a going concern, and\\nbearing in mind the present condition of the in-\\ndustrial arts in the several processes, we shall find\\nthat a definite quantitative relation exists between\\nthe amount of value of the productive goods and\\ninstruments at the several stages, and the amount\\nof value of the consumptive goods which issue\\nfrom them. If we consider, as we reasonably\\nmay, consumptive goods as the conscious goal\\nof industry, it will appear that productive goods\\nreceive their value as means to an end, and that\\nthe amount of this value is dependent upon the\\namount of value of the consumptive goods. If,\\nthen, the value of these consumptive goods could", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0091.jp2"}, "92": {"fulltext": "78 THE ECONOMICS OF DISTRIBUTION.\\nbe rightly considered to be determined by their\\nfinal utility, this latter would be placed in the posi-\\ntion of the true determinant of all values. But\\neven Bohm-Bawerk, when confronted with the\\nquestion, admits that the final utility of consump-\\ntive goods is itself determined by the relations be-\\ntween wants and provision. Now behind pro-\\nvision or supply stands the force of costs.\\nSo that where the value of consumptive goods seems\\nto determine the value of productive goods, it is\\nnot more because the final utility of consumptive\\ngoods determines that of productive goods than\\nbecause the final costs of productive goods have\\nalready determined the costs of the consumptive\\ngoods, and so helped to determine the very value\\nwhich appears to be reflected back. If we choose\\nto disregard the suction exercised by demand\\nfor consumptive goods and to follow the mere\\nflow of the industrial stream from the early\\nprocesses onward toward consumptive goods, it\\nseems equally plausible to represent the value of\\nproductive goods as determining that of con-\\nsumptive goods.\\nIn fact, the flow of the accumulative force of\\nutilities and costs is in opposite directions. So\\nfar, then, as the actual determination of the value\\nof a stock of productive goods is concerned, we\\nmust insist that there are two sets of efficient\\ncauses, those operating through final utility,\\nderived from and dependent on the final utility", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0092.jp2"}, "93": {"fulltext": "LONG-PERIOD PBICES AND VALUE. 79\\nof consumptive goods, and those operating through\\nfinal costs (except where natural scarcity takes\\nthe place of costs).\\n10. While, therefore, in a scientific physiology\\nof industry, final utility is of supreme significance\\nas indicative of the true source of industrial life,\\nthe motor power which flows from the effective\\ndemand of consumers of commodities, and which by\\nthe pressure of its final or marginal activity\\ndirects and attracts the requisite productive pow-\\ners in every channel of industry, it cannot rightly\\ntake the place which is claimed for it in the spe-\\ncific problem of the determination of the value of\\nany stock of useful goods at any point of the\\nindustrial stream. Our setting of the problem\\nof price-change and of value, concerned as it is\\nwith efficient causes must, therefore, hold the\\nbalance equal between final utility and final cost.\\nTo achieve such a task careful terminology is\\nessential, and, in order to clear our mind as much\\nas possible from controversial misconceptions, I pro-\\npose, first, to substitute for the term value a gen-\\nerally admitted equivalent, which the discussions\\nof the Austrian School have brought to the front.\\nThe value of a supply or of an article of supply\\nmeans the economic importance attaching to\\nit. There are two advantages in substituting\\nthe term importance for value. In the first\\n1 Menger is, I think, the first to identify value with im-\\nportance, in a distinct definition of the term.", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0093.jp2"}, "94": {"fulltext": "80 THE ECONOMICS OF DISTBIBUTION.\\nplace, it is prima facie impartial, so far as a\\ntheory of value is concerned, whereas the term\\nvalue, from common association, leans toward\\nutility. Secondly, it gets rid of the notion of\\nvalue as a quality or property of goods, and\\ngives emphasis to the true notion of it as an aspect\\nor relation. This impartiality, indeed, is not quite\\nabsolute, for we find Austrian economists, in\\ntheir adoption of the term, already imputing into\\nit a bias toward utility as the source of impor-\\ntance.\\nIf, however, taking the following table of ter-\\nminology, we approach the central conception of\\neconomic importance in relation to the concrete\\nproblem of determination of price, the equilibra-\\ntion of prices from the cost and the utility sides\\nwill be established beyond all controversy.\\nDie Bedeutung, welclie concrete Giiter oder Giiterquanti-\\ntaten fiir uns dadurcli erlangen, dass wir in der Befriedigung\\nunserer Bediirfnisse von der Verf iigung iiber dieselben anhangig\\nzu sein uns bewusst sind. (Grundzllge, p. 78.)\\nThis is paraphrased by Professor Smart as follows, Value\\nis the importance which a good acquires as the recognised con-\\ndition of something that makes for the well-being of a subject,\\nand would not be obtainable without the good. (Introduction\\nto the Theory of Vahie, p. 14.)\\n1 Bohui-Bawerk, for example, proposes to define value un-\\nambiguously and exactly, as That importance which goods\\nor complexes of goods acquire, as the recognised condition of a\\nutility which makes for the well-being of a subject, and would\\nnot be obtained without them. {Positive Theoi y, Bk. Ill,\\nCh. II.)", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0094.jp2"}, "95": {"fulltext": "O -i\\nLONG-PERIOD PRICES AND VALUE. 81\\ng The importance or value attaching\\nI* to a stock of goods changes directly\\ng I with any change in the relative rate of\\n5p bo supply and demand. But supply and\\ndemand, in order to be economic forces,\\nin order to affect importance, must be\\nW U^ Hh governed by certain forces behind themo\\no A supply infinite or indefinitely large\\nt= S.g has no economic significance. Com-\\nwq parative scarcity is the governor of\\n4 supply. Similarly, demand receives\\ng I its economic significance and power\\nw g from effective desire (a willingness and\\ng ability to give something in order to\\n2 ^jh^ 8 Just as there is no economic\\nir* i~\\nO c3\\ng ph t supply of free goods because there\\ng I exists no scarcity, so there is no eco-\\n5 ph nomic demand for them, because there\\nck\\nw j^ is no willingness to give something to\\nf^ i, get them. Effective desire is in effect\\ng a scarcity on the demand side.\\nM oQ Scarcity of supply itself is condi-\\n4^^ tioned: sometimes bv a restriction,\\no 2 which may be natural, as in the case\\nI o\\nc\u00c2\u00ab S of certain kinds of land or the product\\nt\u00c2\u00a7 1 J circumstances, as the scarcity of food\\nin a siege, or the scarcity due to an\\n.2 organised corner or syndicate. The\\no\u00c2\u00a7 scarcity of old masters etc., may\\n_\u00c2\u00a7 2 also be regarded as natural.", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0095.jp2"}, "96": {"fulltext": "82 THE ECONOMICS OF DISTBIBUTION.\\nIn most goods, however, scarcity is due to the\\nfact that human costs must be incurred to pro-\\nduce a supply. How far the fact that human\\neffort is required to produce goods will make\\nthem scarce, depends very largely upon the rela-\\ntion of human effort to natural sources of supply.\\nWhere there is some natural limit of good or easily\\naccessible material, more human effort must be\\nexpended in each increase of supply.\\nHere scarcit}^ is apt to assert itself and forces\\nrising importance to press from the cost side.\\nWhere there is abundant access to natural sources\\nof supply, less human effort may be expended in\\neach increase of supply. Here the pressure of\\nscarcity is abated, and the forces operating on\\nsupply make for a reduced value or importance\\nin each article. Here we have the familiar Laws\\nof Increasing and Diminishing Returns.\\nTurning to the demand side, we see a similar\\nmechanism of economic forces. Effective desire\\nregulates demand in the same way in which scar-\\ncity regulates supply. Effective desire means\\ndesire backed by purchasing power; it is the pro-\\nduct of two factors, a, human utility, or, more\\nstrictly speaking, the craving for satisfaction\\narising from utility, and /S, purchasing power.\\nHuman utility has to demand the same relation\\nthat human cost has to supply. The economic\\nforces which operate on cost are the arts of pro-\\nduction. The practice of the arts of production,", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0096.jp2"}, "97": {"fulltext": "LONG-PEEIOD PRICES AND VALUE. 83\\notherwise efficiency of production, will depend in\\npart upon scientific considerations, the amount\\nof knowledge of the industrial arts, partly upon\\nthe character or quality of the men who exercise\\nthese arts, their individual and their collective\\npower to avail themselves of the knowledge of the\\narts. Given the same absolute knowledge of\\nnatural forces in relation to matter and of the\\nmodes of working, differences of physique, race,\\nclimate, social and political institutions, and a\\nvariety of other influences will affect the actual\\ncost of producing a given quantity of wealth.\\nAgain, the effectiveness of the practice of indus-\\ntrial arts, as we have seen, is always qualified by\\nthe limits imposed by nature upon the supply of\\nmatter and natural energy.\\nClosely analogous in working are the forces\\nwhich play upon demand. As the arts of pro-\\nduction stand behind cost, so the arts of con-\\nsumption stand behind utility or satisfaction.\\nAny given stock of valuable goods will of course\\ndepend, for the real satisfaction they afford, upon\\nthe degree of development of the tastes of the\\nconsumer and the habits of consumption he has\\nformed. There is a skill of consumption which\\nrests upon physical laws relating partly to the\\nconstituents of consumable goods, partly to the\\nnature of the consumer, and which consists in a\\nright and delicate harmony or adjustment of power\\nin securing different kinds and quantities of con-", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0097.jp2"}, "98": {"fulltext": "84 THE ECONOMICS OF DISTRIBUTION.\\nsumption, just as the skill of production consists\\nin the delicate manipulation by human and natural\\nenergy of variously adjusted quantities of raw\\nmaterial. As human cost or effort is null and\\nvoid in its contribution to supply, except so far\\nas it has access to natural sources, similarly\\nhuman utility or satisfaction is void unless it\\ncan find its means of expression in purchasing\\npower. This latter condition makes desire an\\neconomically effective force, just as limitation of\\nnatural suppl}^ makes productive effort effective.\\nRemove the limits of matter and of natural\\nforces, and the cost of producing any stock of\\ngoods may shrink to an indefinitely small amount.\\nSimilarly assume an infinite amount of available\\nincome or purchasing power, and the smallest\\namount of desire will express itself in an indefi-\\nnitely large demand.\\n11. The use I claim for this table is not merely\\nthat it suggests a settlement of disputed termi-\\nnology, but primarily and chiefly because it forces\\na recognition of the organic relation between cost\\n1 This assignment of a subjective basis of value does not\\nconflict with or impair the objective signification which identi-\\nfies value with the quantity of other goods for which a good\\nwill exchange. If we prefer, we may accept the distinction\\nmade by Wieser of objective exchange -value and subjective\\nexchange-value, understanding by the former the quantity of\\nother goods for which it exchanges, by the latter the importance\\nassigned to it by considerations of scarcity and utility. The\\nrelation between the two is, that the subjective importance is", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0098.jp2"}, "99": {"fulltext": "LONG-PEBIOD PRICES AND VALUE. 85\\nand utility, and the strictly equal or analogous\\npart each bears in determining value.\\nIt convinces us that there are forces constantly\\npassing from both sides to affect the value or im-\\nportance of a stock of goods.\\nIt rejects the compromise sometimes suggested,\\nwhereby the value of some kinds of goods is said\\nto be determined by cost, the value of others by\\nutility.\\nThere are doubtless certain goods which may be\\nclassified in such a way as to show an absolute\\nscarcity or limit of supply, with regard to which\\nall changes of value will appear to be the product\\nof forces from the side of demand. Pictures of\\nold masters, food in a siege, are familiar exam-\\nples. Here human costs appear to exercise no\\ndirect influence in determining value, which is\\nfixed by the relations between absolute scarcity\\nand effective desire, and, since the latter is the\\nonly changing factor, it may be said to be the sole\\ndirect regulator of the value of such goods at an}^\\ngiven time. It might perhaps be urged that even\\nin these cases cost, though reduced to a mini-\\nmum, is not absolutely excluded as an influence\\nmeasured by the objective exchange-value, which is expressed\\neither in terms of other goods, or more conveniently in terms\\nof money as price. It is, however, more accurate to say that\\nthe quantity of goods for which a good will exchange, consti-\\ntutes not its value, but the measure of its value, though that\\nmeasure is itself commonly referred to an accepted standard of\\nmoney.", "height": "3545", "width": "2176", "jp2-path": "economicsofdistr01hobs_0099.jp2"}, "100": {"fulltext": "86 THE ECONOMICS OF BISTBIBUTION.\\non value. Supply-markets are not absolutely\\nseparate one from another, for the demands which\\ncause them to be classified are not kept in water-\\ntight compartments. It might, then, be urged that\\nthere is neither a supply nor a demand for old\\nmasters which is entirely separate from the supply\\nand demand of other pictures, or of art goods in a\\nwide sense. To take a concrete example, copies\\nof old masters or spurious old masters must cer-\\ntainly be held to cater to the same tastes as the\\nlimited supply of genuine pictures, and may there-\\nfore rank as an increase of supply, which will\\nmoderate the absoluteness of the scarcity. Since\\ncosts will operate upon this portion of supply,\\nas in other freely produced commodities, the\\ninfluence of these costs will presumably have\\nsome effect upon the value of old masters.\\nSimilarly, the effective supply of food in a be-\\nsieged city is not an entirely inelastic quantity;\\nthe amount of it which figures as supply on any\\ngiven day will depend upon the economy with\\nwhich individuals have used the stocks in their\\npossession, and the high human cost of keeping\\nfood for a later period of the siege will have some\\ninfluence as a determinant of its value. It is\\nscarcely possible to eliminate altogether the in-\\nfluence of cost upon value save by recourse to\\nsome impossible hypothesis.\\nIn both these instances, it may be rightly\\nclaimed by those who emphasise utility as the", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0100.jp2"}, "101": {"fulltext": "LONG-PERIOD PRICES AND VALUE. 87\\nfinal cause of value, that human desires, operating\\nthrough demand, are the real forces which evoke\\nthe costs that are necessary to break down the\\nabsoluteness of monopoly by enlarging the effective\\nsupply. But this admission of an ultimate causal-\\nity assignable to human desires ought not, as we\\nhave shown, to affect the economic setting of the\\ncases. The influence of human costs and natural\\nscarcity cannot be eliminated as direct efficient\\ncauses of price and value, even by reference to\\nextreme and almost extra-economic instances.\\nBut even if it be admitted that human costs in\\nsuch cases have no influence on supply, and so on\\nvalue, the power of supply as a determinant of\\nvalue is still represented by scarcity. Whether\\nwe are dealing with a natural or an artificial\\nscarcity, it is never absolute and constant; the\\nmaterial of every supply is continually perishing\\nor receiving accessions, so that, though the pres-\\nsure of demand appears to be the sole source of\\nchanges of value and of price, there is always\\nsome slight vital influence proceeding from the\\nsupply side. Though one of the blades appears\\nto do all the cutting, to adopt Marshall s illustra-\\ntion, and the other to stand still, if we look closely\\nenough, we shall see that the latter nevertheless\\nmoves. Scarcity is never a mere statical condi-\\ntion of value, but always exerts an active force.\\nNeither can we take the other side and conclude\\nwith Mill that the value of freely produced goods", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0101.jp2"}, "102": {"fulltext": "88 THE ECONOMICS OF DISTRIBUTION.\\nis derived from and determined by cost. For pur-\\nposes of commercial convenience it may be better\\nto compare the values of most free goods by refer-\\nence to relative costs or expenses; for whatever\\nforces operate from the demand side will be re-\\nflected in normal costs, just as the forces from the\\ncost side will be reflected in utility. But the\\nselection of costs for the more convenient measure\\nof values and price-changes must not be under-\\nstood to imply that either theoretically or prac-\\ntically the forces operating through cost are more\\nimportant than those operating through utility.^\\nProfessor Marshall, indeed, suggests that we\\nmay say that, as a general rule, the shorter the\\n1 The folly of recognising two Laws of Value one where\\nSupply is limited, another where it is capable of increase is\\nwell exhibited in the controversy which Bohm-Bawerk has car-\\nried on with Professor Dietzel, in the pages of Conrad s Jahr-\\nbiicher fur National- Oekonomie, during 1890-1892. Though\\nDietzel had several times plainly formulated the true theory\\nwhich assigns the determination of value neither to cost nor to\\nutility, but to the relations between scarcity and utility (cost\\nbeing one source of scarcity), he weakly abandoned to the\\nMarginal Utility School the class of limited goods, admitting\\ntheir value to be determined by marginal utility alone, whereas\\nhe ought to have stoutly maintained that though no cost\\nentered here as cause, scarcity, otherwise determined, played\\nthe same part as a determining factor as in the case of freely\\nproduced goods. The fact that, in the one case, the scarcity\\nis rigid, in the other, flexible (by the application of new costs),\\nhas no effect upon the universality of the Law of Value, though\\nfor practical purposes of measuring change of value and of\\nprice, it throws the stress upon the utility side of the equation.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0102.jp2"}, "103": {"fulltext": "LONG-PERIOD PRICES AND VALUE, 89\\nperiod which we are considering, the greater must\\nbe the share of our attention which is given to the\\ninfluence of demand on value and the longer the\\nperiod, the more important will be the influence\\nof cost of production on value.\\nBut even this distinction, sound as it is for prac-\\ntical purposes, must be rejected if it implies that\\nultimately cost is the more important regulator or\\ndeterminant of value. The operation of a change\\nof taste, the growth of a new habit into a standard\\nof comfort, will exercise as strong and as abiding\\nan effect on the value of a class of goods as any\\nchange which takes place in the method of pro-\\nducing these goods.\\nIt may be the case that a larger number and\\nvariety of more enduring forces operate upon\\nvalue from changes in the arts and conditions of\\nproduction than from the side of consumption,\\nbut it is not easy to establish the fact. There\\nare of course certain classes of goods the value of\\nwhich is more frequently and more largely affected\\nby forces which come from one side or the other.\\nWe may say that the value of wheat is more in-\\nfluenced from the supply side, but the value of\\nfashionable dress-goods is influenced chiefly from\\nthe demand side; and in the practical considera-\\ntions of market-price and bargaining these facts\\nmust receive due weight; the study of the relative\\nimportance of these different forces as they operate\\nEcon. oflnd., p. 223.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0103.jp2"}, "104": {"fulltext": "90 THE ECONOMICS OF DISTRIBUTION.\\non market-price is the most delicate, the most\\ndifficult, and the most practically important work\\nof the modern profit-seeker.\\nTaking the wider theoretic view, however, an\\nabsolute equality in the relation of cost and\\nutility toward value must be posited.\\n12. The most curious feature in the recent\\nhistory of economic theory is that Jevons, who\\nperversely insisted in trying to upset the cost\\ntheory of Value by plunging into an opposite\\nfalsehood of extremes, is also the English writer\\nwho more than any other has laid the true sub-\\njective foundation of a correct analysis of value.\\nIn his chapter on Theory of Labour he works\\nout a theory of the relation between cost and\\nutility for the individual which is irrefutable.\\nHe shows exactly how a worker, engaged in sup-\\nplying himself with commodities by his own efforts,\\nwill accurately balance the pain or disutility of\\nproduction against the pleasure or utility of con-\\nsumption that the number of hours he works, the\\nintensity he imparts to his effort, the distribution\\nof working energy over different kinds of work, will\\nbe carefully balanced against the different amounts\\nof satisfaction derived from consuming different\\nquantities of goods produced by the day s labour.\\nIt is, indeed, conclusively shown that the eco-\\nnomic value of the day s product is similarly and\\nequally affected by the disutility or cost of pro-\\nduction and the utility or satisfaction of consump-", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0104.jp2"}, "105": {"fulltext": "long-p\u00c2\u00a3:miod peices and value. 91\\ntion; to such a man it will be a matter of equal\\nconsideration whether he increases his day s effort\\nby one unit or reduces his day s satisfaction by\\none unit.\\nHis analysis of disutility or cost is similar to\\nhis analysis of utility or consumption. He offers\\na complete setting of the individual economy; in\\nreality he lays down the true theory of Value,\\nwhich he misrepresents elsewhere. The objec-\\ntion may perhaps be raised that the theory of\\nValue cannot be given in terms of the individual\\neconomy, because no act of exchange takes place.\\nBut the individual problem contains all the essen-\\ntial factors if we like, we may treat the case as\\none of exchange worked out between the two sides\\nor selves, the idle self, which shirks effort, the\\ngreedy self, which seeks satisfaction. The mode\\nof balance will be similar, though more accurate,\\nthan that established in an exchange of commodi-\\nties between two bargainers. The strange thing\\nis that Jevons does not apply this theory of Ex-\\nchange in the individual to society. His formal\\ntheory of the Individual Economy establishes two\\nmost important truths (1) the equal importance\\nand the continuous organic interaction between\\nfinal cost and final utility; (2) the essentially\\nsubjective nature of the problem of exchange.^\\n1 His analysis, p, 189, of his Theory of Political Economy, lays\\nthe foundation of the subjective treatment of cost and utility,\\nwhich Austrian and American economists have built upon.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0105.jp2"}, "106": {"fulltext": "92 THE ECONOMICS OF DISTRIBUTION.\\nYet Jevons, in his Theory of Exchange,\\nignores the influences which emanate from cost, or\\ncounts them as indirect agents operating through\\nfinal utility. His treatment of disutility in\\nthis part of his work refers, not to cost, but to\\ndamage or pain incidental to certain classes of\\nconsumption.\\nIn his final chapter, one imperfect glimpse of\\nthe true problem emerges, where Jevons affirms,\\nThe problem of economics may, as it seems to\\nme, be stated thus: Given, a certain population\\nwith various needs and powers of production, in\\npossession of certain lands and other sources of\\nmaterial; required, the mode of employing this\\nlabour, which will maximise the utility of the\\nproduce. If Jevons had added the words, and\\nminimise the disutility of producing them, his\\nstatement would have been complete. But in fact\\nhis work, as the work of all those who attach\\nthemselves to utility as the special measure and\\ndeterminant of value, is one-sided and defective.\\nThe perception that cost and utility, resolved\\ninto their subjective elements of effort and satis-\\nfaction, are essentially, organically, related in\\nthe individual economy, must be followed by the\\nplain admission of a similar relation in the social\\neconomy which expresses itself in social value\\nand in price. And a scientific statement of value\\nmust assign a similar relation to the forces affect-\\ning value from both sides.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0106.jp2"}, "107": {"fulltext": "LONG-PEBIOD PBICES AND VALUE, 93\\nPart II.\\n13. This wide excursion into the theory of\\nValue may seem to some to have a too remote\\nbearing upon the more definite problem of price-\\npoint and price-change. But this is not really\\nthe case. Until the precise equality of final cost\\nand final utility as determinants of value is estab-\\nlished, we cannot fully appreciate the process of\\ncompetition and bargaining which results in a\\nprice.\\nI began by pointing out the fact that behind\\nthe supply, which figured in any market, there\\nwere a number of forces relating to scarcity and\\ncost of production in the wider market, which\\ndetermined the quantity available at the different\\nprices. The same forces bring it about that some\\nportions of the market supply are produced more\\ncheaply than other parts. The owners of the more\\ncheaply produced goods would consent, if neces-\\nsary, to sell them at a lower price than the owners\\nof the more expensive portion of supply would\\nconsent to take. In other words, the difference\\nof price-limit, which we saw the different sellers\\nput upon their goods, arises from differences in the\\ncost or expense of producing them. If the supply\\nis thus graded according to the cost of its different\\nparts, the price which is eventually reached will,\\nit is maintained, be such as only just to cover the", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0107.jp2"}, "108": {"fulltext": "94 THE ECONOMICS OF BISTBIBUTION.\\nexpenses of the most expensive portion. Those\\nwho l2ij stress upon this side say that the price is\\ndetermined by the expense of producing this last\\npart, or the marginal expenses of production.\\nSimilarly, the different valuation which was im-\\nputed to the buyers is attributed to the superior\\neffective desire which some exhibit as compared\\nwith others. The attainment of the horse or the\\nquarter of wheat will either satisfy a stronger de-\\nsire in some than in others, or an equally strong\\ndesire backed by a fuller purse. Those who lean\\nupon this side say that utility (effective desire)\\nof the last portion that is bought determines the\\nvalue of the whole supply.\\n14. Now let us turn to our diagram of market-\\nprice and ascertain how marginal cost and mar-\\nginal utility actually express themselves. We\\nshall find that they can be identified with the\\nfinal pair before whose valuation competition of\\nbuyers and sellers gives way, leaving the price-\\npoint to be determined by the bargaining of the\\ntwo.\\nThe competition and higgling was seen to\\nresult in five acts of sale, in which A, B, C, D, E,\\nwere the sellers and N, O, P, Q, R, the buyers,\\nat a price which was finally determined by the\\nhiggling of a single pair within limits imposed\\nby competition. The final pair, whose action\\ndetermined the price-limits, and eventually the\\n1 Ch. I, pp. 11-19.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0108.jp2"}, "109": {"fulltext": "LONG-PERIOD PRICES AND VALUE.\\n95\\nprice, were seen to be F, with a limit-price of sale\\namounting to X21 10s., and M, with a limit-price of\\npurchase amounting to \u00c2\u00a321, F is the one among\\nactual sellers whose limit-price is highest. He\\ncannot afford to sell at less than \u00c2\u00a321 10s. Why?\\nBecause he reckons that price will only just cover\\nSellers. Price-limits.\\nHGFEDCB A\\n30\\n26\\n25\\n21 J\\n20\\n17\\n15\\n11\\n28\\n26\\n24\\n22\\n.21.\\n20\\n17\\n18\\n15\\n10\\nJKLMNOPQE\\nBuyers. Price-limits.\\nhis cost of production, or, more strictly speaking,\\nwill only give him the minimum gain required\\nfrom a single sale. In other words, F represents\\nthe most expensive portion of possible supply,\\nfinal or marginal cost. R is the actual buyer", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0109.jp2"}, "110": {"fulltext": "96 THE ECONOMICS OF DISTRIBUTION.\\nwhose limit-price is highest; he will pay more\\nthan any other buyer, because he wants a unit of\\nsupply most, or because he has more money at\\nhis disposal, so as to make his effective desire\\nthe greatest. In other words, R is the person\\nwho imputes the highest utility, and M is the\\nrepresentative of final or marginal utility. The\\ndifferential advantages obtained by A, B, C, D, E\\namong the sellers, and N, O, P, Q, R among the\\nbuyers, will thus be found to correspond to real\\ndifferences of cost (expenses) of production on\\nthe one hand and utility on the other hand. If,\\nwithout making any other change, we transfer our\\nillustration from a horse-market to a market of\\nsome manufactured wares, it will easily appear that\\nthe larger gain which D, C, B, and A make as\\ncompared with E upon each sale effected signifies\\nand rests upon the special advantages possessed\\nby each in economy of manufacture. Similarly,\\nit will be recognised that the special gains made\\nby O, P, Q, R, in their capacity of purchasers, as\\ncompared with M, is based upon special amounts\\nof utility attributed by them to the same goods for\\ntrade or for consumption.\\nOn each side, among the buyers or the sellers,\\nthe differential gain or rent is to be measured\\nfrom the position of a member of the final pair\\nrepresenting marginal cost or marginal utility.\\nIn our diagram the dotted line which connects F\\nwith M enables us to see at a glance the relative", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0110.jp2"}, "111": {"fulltext": "LONG-PERIOD PRICES AND VALUE. 97\\nsize of these differential gains, which include\\nthose portions of A, B, C, D, on the sellers side,\\nwhich fall below the price line; and those portions\\nof N, O, P, Q, on the buyers side, which rise\\nabove that line.\\nA certain awkwardness in the setting forth of\\nthis analysis arises from the fact that F and M,\\nthe final or determinant pair representing mar-\\nginal cost and utility respectively, do not figure\\nin the actual sales effected, but are excluded mar-\\ngins. This is due to the fact that our example\\nhas placed for convenience certain definite inter-\\nvals between two valuations of buyers and sellers\\nrespectively. Under conditions of perfect compe-\\ntition the intervals will be infinitely small, and\\nE and N, the extremes of actual supply and\\ndemand, would be legitimately taken to represent\\nmarginal cost and marginal utility. But for pres-\\nent purposes these margins must be understood to\\nlie just outside the actual supply and demand.\\nWe may summarise the bearing of this analysis\\nupon the theory of Value and Price in the fol-\\nlowing words: Granting the assumption of the\\nmathematical economist that the supply and de-\\nmand of a market are infinitely divisible, the\\nmarginal or final pair, whose transaction directly\\ndetermines price, earn, both of them, an infinitely\\nsmall gain. In such a case either marginal cost\\nor marginal utility may be taken with equal cor-\\nrectness to measure or determine price and value.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0111.jp2"}, "112": {"fulltext": "98 THE ECONOMICS OF DISTRIBUTION.\\nIf the various contributors to supply and demand\\nare likewise supposed to enjoy precisely similar\\nadvantages of production and to be subject to pre-\\ncisely equal pressure of needs, no differential gains\\nwould emerge, and the market-price would dis-\\ntribute the gain, which would be, however, in-\\nfinitely small on each transaction, with exact\\nequality among all who took part. The actual\\ncircumstances of a real market are found to be\\nvery different from this. Whether we take a\\nshort or a long period, a market or a normal\\nprice, we find that neither marginal cost nor\\nmarginal utility exactly determines price or\\nvalue as an independent cause, though in any\\ngiven market one or the other will furnish a true\\nmeasure of price or value. In the transaction\\nof the marginal pair which determines price and\\nvalue an element of forced gain always emerges,\\nsmaller where the market is large and free, larger\\nwhere it is small and restricted. The variation\\nof the economic resources of the different buyers\\nand sellers increases the inequality of distribution\\neffected by sales at a common price, by adding to\\nthis forced gain a differential gain.^\\n1 The notion that cost is a more serviceable measure of\\nvalue, even if it ranks equally with utility as a cause of value,\\nbased upon the belief that different costs can more easily be\\nreduced to and expressed in some common term, such as\\nlabour -pov^er or labour-time, has no warrant. Labour-\\ntime, ignoring kinds and intensities and other conditions of the\\ngiving out of labour-power, is no more a measure of cost than", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0112.jp2"}, "113": {"fulltext": "FIB ST APPENDIX TO CHAPTER III. 99\\nFIEST APPENDIX TO CHAPTER III.\\nThe Subjective Basis of Value.\\nIn order to mark the essentially subjective nature\\nof the theory of Value, it is desirable to distinguish\\nmore definitely subjective cost and utility from ob-\\njective cost and utility.\\nSubjective cost must be taken to consist of the act-\\nual effort of workers measured in terms of disagree-\\nable feeling and regarded as a quantity, i.e. disutility\\nin work, as estimated by the individual consciousness\\nof the worker. Objective cost must be taken to mean\\nthe productive energy which attaches to this effort,\\nreferred for measurement to some objective standard,\\ni.e. hours, foot-tons, etc.\\nSubjective utility will represent the pleasurable\\nfeeling got out of consumption by the consumer, re-\\ngarded as a quantity, i.e. the quantity of pleasure got\\nfrom eating a loaf, or burning coals for warmth. Ob-\\njective utility will measure the services of consumable\\ngoods by some objective standard, i.e. the power of\\nabstract satisfaction is a measure of utility; and the fact\\nthat the former is more usually, and, for certain purposes, con-\\nveniently, measured by the clock than the latter, gives it no prac-\\ntical advantage as a sound and accurate measure of value. It\\nis curious to find so keen a writer as Dietzel resorting to this\\ncrudest fallacy of the Marxian analysis, in his criticisms of the\\nmarginal utility theory (Jahrbiicher fur National- OeJwnomie,\\nB. XX, SS, 587-8), and concluding that, Whether I reckon by\\ncost-value or use-value, the result is the same. But I reckon\\nmore simply and more accurately by cost-value than by use-\\nvalue.\\nt f \u00c2\u00abf Q,", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0113.jp2"}, "114": {"fulltext": "100 THE ECONOMICS OF DISTBIBUTION.\\nsustaining life, or f urnisliing physical power contained\\nin a bushel of wheat, the actual heating-power in a\\nhundred- weight of coal.\\nThe distinction is of supreme importance in the art\\nof economics. For while the subjective cost and util-\\nity which attach to the production and consumption\\nof wealth are evidently the true measure of economic\\nprosperity and adversity, as interpreted by the present\\nconscious estimates alike of individuals, classes, or\\nsocieties, it is equally evident that the operations of\\nthe actual industrial world, as expressed by many val-\\nuations, have direct reference only to objective cost\\nand objective utility.\\nNow it will easily appear that a given quantity of\\nobjective cost may be related to indefinitely divergent\\nquantities of subjective cost, according as it is distrib-\\nuted. A given quantity of labour-power will imply a\\nquantity of painful effort which varies (1) With the\\nnature and conditions of the work, e.g, according as it\\nis monotonous, taxing continuously the same muscles\\nor nerves, or varied, according as it implies danger\\nof disease or accident from the conditions under which\\nit is carried on. (2) With the mode of its apportion-\\nment among the workers, e.g. according as it falls\\nupon strong men or upon weaker women and children,\\naccording as it is given out in a long or short day s\\nwork, etc.\\nA corresponding analysis of utility will show that\\na given quantity of objective utility will vary indefi-\\nnitely when reduced to terms of subjective utility ac-\\ncording to (1) the nature and conditions of consumption\\nto which the objective utilities lend themselves, i.e.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0114.jp2"}, "115": {"fulltext": "FIRST APPENDIX TO CHAPTER III. 101\\nthe capacities and methods of enjoyment possessed by\\nthe actual consumers (2) according to their distribu-\\ntion among the consuming public, i.e. food will vary in\\nsubjective utility from infinity to zero, according as it\\npasses into the possession of a starving person or a\\nfully-fed one.\\nIn this analysis, be it observed, no departure is\\nmade from the commonly accepted economic standard.\\nThe appeal is not to any such ethical or vital standard\\nof values, as Ruskin seeks to substitute for market\\nvaluations. The present estimate is based strictly\\nupon what is, not upon what ought to be; the\\nexisting conscious valuations of desirable and undesir-\\nable, on the part of workers and consumers, are taken\\nas the standard.\\nReferred to our theory of Value or Importance the\\nterms will take the following setting\\nStibjective Objecti ve Objective Subjectiioe\\nCost. Cost. tftility. Utility.\\nMeasured Measured Measured Measured\\nin units ofv in hours, v Importance yin power of ,in units of\\nundesira- \\\\foot-tons, or sustaining ^desirabil-\\nbility of ef-^ or other value ^vital en- ^ity by con-\\nfort measures ergy, or fur- sumers\\nof output nishing me-\\nchanical\\nforce, i.e.\\nnitrogenous\\nunits or de-\\ngrees of\\ntemperature\\nProfessor Smart suggests a serviceable illustration\\nfrom the production and consumption of a given quan-\\ntity of coal.\\n1 Value^ p. 6.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0115.jp2"}, "116": {"fulltext": "102 THE ECONOMICS OF DISTRIBUTION.\\nSubjective Objective Objective Subjective\\nCost. Cost. Utilii/y, Utility.\\nPainful ef-\\\\ Hours v Supply /tt^\u00e2\u0080\u009e+:\u00e2\u0080\u009e\u00e2\u0080\u009e /Satisfaction\\nfort of y work in of fr^e^\\nminers raising coal coal the heat\\nThe efficacy and f ruitf ulness of this distinction of\\nsubjective and objective value may be illustrated by\\nshowing how it clearly explains one difficulty which\\nbesets the ordinary commercial view of value. Take\\na Supply of commodities the first portion that is sold\\ngoes to satisfy the strongest desires of consumers, the\\nnext portion a somewhat weaker desire, and so on\\nuntil the last portion that is sold satisfies the weakest\\ndesire, or, using the ordinary language, has the small-\\nest utility attached to it. Yet all portions have the\\nsame price and the same value. Those who insist on\\ntaking utility as the essence of value find it difficult\\nto explain how, with a diminishing utility attached to\\nthe successive portions sold, the value and price of the\\npart which serves the fullest use are as great as that\\nwhich supplies a necessary of life.\\nBut our tabulation, which makes value impor-\\ntance, shows that the importance attaching to all por-\\ntions of supply that are sold is equal. For as the\\nsubjective utility furnished by consumption of the\\nlater units of supply diminishes, the subjective cost\\nof producing these has increased. The first unit of\\nconsumption which satisfies the strongest-felt need is\\nrightly considered as taking off that portion of supply\\nwhich would be produced if no other were produced,\\nbecause it can be produced most easily. Each later\\nportion taken from supply satisfies a weaker need,\\nbut is produced at a greater cost, and since cost plays", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0116.jp2"}, "117": {"fulltext": "FIRST APPENDIX TO CHAPTER III. 103\\nthe same direct part in assigning importance or value\\nto an article as does utility, there is no diminution\\nof value by a reduction of utility accompanied by a\\ncorresponding rise of cost. The last portion of sup-\\nply with the least subjective utility has the highest\\nsubjective cost.\\nThis has been illustrated by pointing out that the\\nlast bottle of wine at the millionnaire s feast, which\\nfurnishes the smallest satisfaction to the drinkers, is\\nthe bottle, the products of which represents the last\\nhour s labour of the hardest-worked producer, i.e. has\\nthe highest subjective cost attached to it.\\nThus it can be simply shown how it is that each\\nseparate unit of supply, though it has a different cost\\nand a different utility from any other unit, has the\\nsame value or importance.\\nProfessor Scott, of the University of Wisconsin, in\\na letter which discusses the relative importance of the\\ninfluence of human costs and human utilities on\\nvalue, makes the following interesting and pertinent\\nremarks concerning the density and elasticity of the\\nmedium through which human costs produce their\\neffect on value. Under modern conditions of pro-\\nduction there is a long road between human sacrifices\\nand changes in the supply of goods. The people who\\nfurnish these sacrifices are, for the most part, labourers,\\nand not infrequently a change of supply, which may\\nmean greater sacrifice for them, may not mean greater\\ncosts for the man whose acts are directly responsible\\nfor changes in supply. Human costs may, therefore,\\nchange without producing any change in supply or\\nvalue. This failure of human costs to register their", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0117.jp2"}, "118": {"fulltext": "104 THE ECONOMICS OF DISTBIBUTION,\\nchanges accurately in expenses of production, and so\\nto operate through supply on value, is of practical im-\\nportance, and when in a later chapter I discuss the\\nspecial conditions of the labour-market, the reasons\\nfor this failure will be evident.\\nSECOND APPENDIX TO CHAPTER III.\\nBohm-BawerW s General Theory of Value.\\nThe elaborate attempt made by Bohm-Bawerk in\\nhis important work, The Positive Theory of Capi-\\ntal, to derive all value from the utility of final or\\nconsumptive goods, and to refute the cost theory of\\nValue by showing the ultimate dependence of costs\\nupon utility, deserves separate consideration. The\\nkeen, and sometimes brilliant, analysis by which he\\nhas traced the flow of utility from consumptive goods\\nthrough the veins of industry in all the productive\\nprocesses, and has thus impressed upon his readers the\\norganic unity of the entire industrial system, has in-\\nduced many to accept his interpretation of causality\\nin value as a sound and conclusive result of close\\nreasoning.\\nLet us, however, test Bohm-Bawerk s steps, starting\\nfrom his identification of value with economic\\nimportance, adopting, as far as possible, his own\\nstatement of his case.\\nIn the mere identification of value with impor-\\ntance there is nothing to indicate whether or how\\nfar the importance of a good is derived from, and\\ndepends upon, the costs of making it or the satisfaction", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0118.jp2"}, "119": {"fulltext": "SECOND APPENDIX TO CHAPTER IIL 105\\nof consuming it. But no sooner has Bohm-Bawerk\\nadopted importance as a synonym of value than he\\nproceeds to bias it toward utility. When we read\\n(p. 138) that, If the value of a good is its importance\\nto human well-being, and if this importance means\\nthat some portion of our well-being is dependent on\\nour having the good, it is clear that the amount of the\\ngoods value must be determined by the amount of\\nwell-being which depends on if These words make\\nit evident that importance is already conceived as\\na quality of goods -which comes to the possessor, and\\nthat well-being is regarded purely as an effluence\\nof consumption. So when the question is once more\\nfairly put on the following page (139), What is the\\ngain to our well-being that in any given circumstances\\ndepends upon a good, the answer already imported\\ninto the question is Utility. This, indeed, he openly\\navows, declaring that the measure of the utility\\nwhich depends on a good is, actually and everywhere,\\nthe measure of value for that good. We have then\\nat once and plainly identified utility with impor-\\ntance.\\nHe next proceeds (p. 140) to identify this well-\\nbeing or utility with the satisfaction of a want,\\nand to insist that the amount of this well-being\\nderived from a good is found in the answer to two\\nquestions, First, ichich, among two or more wants,\\ndepends on it? and, second, what is the urgency of\\nthe dependent want or of its satisfaction (p. 140).\\nIt might be thought that his own use of the word\\nurgency (which, though called in to explain, only\\nrepeats the notion originally conveyed by impor-", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0119.jp2"}, "120": {"fulltext": "106 THE ECONOMICS OF DISTBIBXJTION\\ntance might have bade Bohm-Bawerk pause and\\nreflect whether the urgency of obtaining a particu-\\nlar good might not depend upon the cost of obtaining\\nan alternative good as much as upon the intensity of\\nthe desire of the consumer. But by this time the\\nimportance of a good has exclusive reference in\\nBohm-Bawerk s eyes to the satisfaction in consump-\\ntion and he proceeds to a careful and highly service-\\nable analysis of the kinds of wants, on the one hand,\\nand the degrees of wants on the other. Then upon\\nthis basis he develops and illustrates the theory of\\nMarginal Utility in relation to different kinds and\\nquantities of consumables.\\nThen, strangely enough, after utility has already\\nbeen identified with value and importance, and mar-\\nginal utility has already been taken as criterion, the\\nwhole issue is once more thrown into the melting-pot\\nby starting the question, What determines marginal\\nutility It now appears (for a little while) that\\nthe importance (or value) of goods is not, as was\\njust affirmed, identical with their utility in consump-\\ntion. On the contrary. Chapter VI opens with a sane\\nstatement of the Law of Value which, though loosely\\nworded, is essentially correct.\\nUsefulness and scarcity are the ultimate deter-\\nminants of the value of goods. Now, not only is\\nscarcity thus fetched up from the supply side of the\\nequation as a determinant of value separate from\\nutility, but it is made the determinant of marginal\\nutility itself, for it is the scarcity that decides to\\nwhat point the marginal utility actually does rise in\\nthe concrete case (p. 160).", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0120.jp2"}, "121": {"fulltext": "SECOND APPENDIX TO CHAPTER III. 107\\nNow, since concrete cases are precisely those to\\nwhich the theory of vahie must apply, Bohin-Bawerk\\nis surely affected by a suicidal mania in placing\\nmarginal utility at the mercy of scarcity. For\\nscarcity depends, so far, at any rate, as most goods\\nare concerned, upon marginal costs of production, and\\nit therefore appears that marginal costs will in these\\ncases determine final utility. Here we perceive that\\nBohm-Bawerk has made an abandonment of his posi-\\ntion very similar to that which Jevons, by the show-\\ning of Marshall, had made before him. Nor is this a\\nmomentary lapsus calami, for the writer proceeds to\\ndevelop a theory which, though it no longer maintains\\nscarcity in the dominant position just accorded it,\\nequally repudiates the dominance of marginal utility\\nfor the time being. We are now told that the height\\nof marginal utility is determined by the relations of\\nwants and provisions (p. 160).^\\nBut though Bohm-Bawerk goes so far in a footnote\\nas to make a perfectly straight declaration of a sound\\ntheory of Value in affirming that the relation of\\nwants and provisions is the ultimate universal deter-\\n1 Classical economists, as Dietzel remarks, have some\\nground for dissatisfaction at having served up to them, at the\\nend of a long process of investigation, a Law of Marginal\\nUtility which turns out after all to be the familiar Law of\\nSupply and Demand. The value of a good depends upon\\nthe amount of its marginal utility the latter upon the re-\\nlation of needs and provision, says Bohm the others, with\\ntheir formula that price depends upon the relation of demand\\n(want) and supply (provision), come to the same result.\\n{Jahrbiicher fur National- Okonomie^ Neue Folge, Bd. XX,\\nS. 570.)", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0121.jp2"}, "122": {"fulltext": "108 THE ECONOMICS OF DISTRIBUTION,\\nminant of the value of goods (p. 160), he gives no\\nanalysis of the ideas of scarcity^ and provision\\nto which he has given such a commanding place, and\\ntraces no connection between them and costs. On\\nthe contrary, in the following chapters, VII, VIII,\\nand IX, he returns to his application of the theory of\\nDetermination of Value by Marginal Utility, just as if\\nhe had never interrupted or abandoned it. It is not\\nuntil Chapter X that he confronts the real issue of\\ncosts. It soon becomes evident that he is destined\\nto adopt the same question-begging method as that\\nby which importance was originally identified with\\nutility. The value of productive goods is what\\nwe have really to investigate, for the costs which,\\naccording to cost-theorists, dominate value, are ex-\\npressed and contained in productive goods. Now,\\ninstead of proving that the value of productive\\ngoods, like that of consumptive goods, is derived from\\nutility, Bohm-Bawerk simply asserts it as self-evi-\\ndent. On the lines of our conception of value it\\nmust be self-evident that a productive good, like any\\nother good, can only obtain value for us through our\\nrecognition that on its possession or non-possession\\ndepends our gain or loss of some one utility, of some\\none satisfaction of want. And it is equally self-\\nevident that its value will be high when the dependent\\nsatisfaction is important, and low when it is unimpor-\\ntant. The only difference is, that, in the case of goods\\nfor immediate consumption, the good and the satisfac-\\ntion stand beside each other in a direct causal relation,\\nwhile, in the case of productive goods, there is inter-\\nposed between them and the satisfaction finally", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0122.jp2"}, "123": {"fulltext": "SECOND APPENDIX TO CRAPTEB IIL 109\\ndependent on them a more or less lengthy series\\nof intermediate members, their successive products\\n(p. 181).\\nAVe have, then, elaborate illustrations of the way in\\nwhich the utility of consumptive goods is reflected\\nback upon the productive goods and constitutes their\\nvalue. The value of each group has its immediate\\nmeasure in the value of its product, the succeeding\\ngroup (p. 182). So from stage to stage the name of\\nthe determining element changes, but under the differ-\\nent names it is always the same thing that acts\\nthe marginal utility of the final product (p. 183).\\nWe have now a perfectly smooth and intelligible\\ntheory in which all claims of costs to determine\\nvalue disappears (though later on it will be revived for\\na particular case of value). In Bohm-Bawerk s own\\nwords we may piece together and thus condense the\\nargument. Costs are nothing else than the complex\\nof those productive goods which have value the lar\\nhour, concrete capital, uses of wealth, and so on, which\\nmust be expended in the making of a product (p. 183).\\nThe amount of this, their (referring to means of pro-\\nduction, and so to costs) common value, is regulated\\nfor all, in the last resort, by the amount of the mar-\\nginal utility of their finished product (p. 182). To\\nput it generally the value of the productive unit ad-\\njusts itself to the marginal utility and value of that\\nproduct which possesses the least marginal utility\\namong all the products for whose production the unit\\nmight, economically, have been employed (p. 186).\\nHere is a perfectly consistent statement of the doc-\\ntrine of marginal utility as the final determinant of", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0123.jp2"}, "124": {"fulltext": "110 THE ECONOMICS OF DISTRIBUTION\\nvalue of all productive goods. But what has become\\nof scarcity and the dominant place once assigned\\nto it, and where has the interrelation of wants and\\nprovisions disiappeared\\nTo get rid of costs by merging them in pro-\\nductive goods, and then to declare that it is self-\\nevident that the value of productive goods depends\\nupon the marginal utility of the consumptive goods\\nthey are designed to make, is one of the most curiously\\nbold iMitiones principii which I have met in the annals\\nof illogic. The judiciously minded reader will, at\\nany rate, insist upon recalling Bohm-Bawerk to the\\nscarcity and the provision which he has ad-\\nmitted to be determinants of that marginal utility of\\nconsumptive goods which he now seeks to make the\\nbe-all and end-all of economic activities.\\nIf his argument in the chapter entitled What De-\\ntermines Marginal Utility is intended to stand, we\\nmust insist on taking up the assertion there made that\\nit is the scarcity that decides to what point the\\nmarginal utility actually does rise in the concrete\\ncase, and the allied, though inconsistent, admission\\nthat the height of marginal utility is determined by\\nthe relations of wants and provisions, and we must\\npress for an examination of the bearing of costs\\nupon scarcity and provision. If scarcity is a direct\\niDietzel pertinently remarks that had the marginal-value\\ntheorists given their consideration to the power of production,\\ninstead of to that of the possession of a supply, they could not\\nhave so falsified the necessary relation between the value of the\\nproduct and the value of productive or cost goods. (Jahr-\\nbucherfiir National- Oeko7wmie, N. F. Bd. XX, S. 580.)", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0124.jp2"}, "125": {"fulltext": "SECOND APPENDIX TO CHAPTER III. Ill\\ndeterminant of marginal utility, and so of value in\\nconsumptive goods, it must likewise be a determinant\\nof the value of productive goods, not merely the scar-\\ncity of the consumptive goods reflected back, but the\\nparticular scarcity of each supply of productive goods.\\nFor it can hardly be suggested that scarcity of fire-\\nirons affects the value of iron ore, but that scarcity of\\niron ore itself does not affect its value. If the rela-\\ntion of wants and provisions, or in current economic\\nlanguage, demand and supply, govern marginal util-\\nity and value in consumptive goods, as Bohm-Bawerk\\ndeclares them to do, surely it is unreasonable to say\\nthat the relation of these same forces does not govern\\nthe value of productive goods. It would be an idle\\ninconsistency to affirm that the value of consumptive\\ngoods is determined, not by marginal utility, but by\\nthe relations of wants and provisions, but that the\\nvalue of all intermediate goods is determined by the\\nmarginal utility of consumptive goods. This position\\nBohm-Bawerk does not, indeed, directly assume, but by\\nwords from his own pen he can be driven into it.\\nThe entire trouble arises from his refusal to analyse\\nscarcity when he has declared that it determines\\nmarginal utility in the concrete case. Had he\\ndone so, he could hardly have failed to admit that\\ncosts are the direct determinants of scarcity in\\nmost classes of goods. In the first pages of Chapter\\nX a partial restoration of costs as a regulator\\nof value takes place. But even here, where the law of\\ncosts is admitted, costs are not the final, but only\\nthe intermediate, cause of value. In the last resort\\nthey do not give it to their products, but receive it", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0125.jp2"}, "126": {"fulltext": "112 THE ECONOMICS OF DISTRIBUTION.\\nfrom tliem (p. 189). The example adduced to make\\nthis perfectly clear is perhaps the most convincing\\nevidence of the petitio principii, with which I charge\\nBohm-Bawerk in his initial dogmatic identification\\nof importance with utility. That Tokay is\\nnot valuable because there are Tokay vineyards, but\\nthat the Tokay vineyards are valuable because Tokay\\nhas a high value, no one will be inclined to deny,\\nany more than that the value of a quicksilver mine\\ndepends on the value of quicksilver, the wheat field\\non the value of wheat, the brick kiln on that of bricks,\\nand not the reverse (p. 189). On the contrary, this\\nis precisely what the major number of thoughtful\\neconomists have always denied while admitting that\\nthe utility of Tokay vineyards depends upon the\\nutility of Tokay, they refuse to make the assumption\\nthat value is identical with utility, and are inclined to\\ninsist that the high value of Tokay is itself, in\\npart, determined by the limited quantity of Tokay\\nvineyards. This, Bohm-Bawerk has admitted when\\n(p. 160) he makes marginal utility depend on scar-\\ncity. What natural scarcity does in the case of\\nTokay vineyards, costs do in the case of freely\\nproduced goods. Bohm-Bawerk is right in declaring\\ncosts are not the final, but only the intermediate,\\ncause of value. But the economic problems of value\\nare concerned with intermediate or efiicient, and not\\nwith final, causes. We may yield to Bohm-Bawerk\\nthe final causality of utility all along the line, but in-\\nsist that the relations between cost (or scarcity) and\\nutility are what economists should regard as causes\\nof value.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0126.jp2"}, "127": {"fulltext": "CHAPTER IV.\\nTHE LAW OF RENT AS THE BASIS OF COORDINA-\\nTION OF THE FACTORS OF PRODUCTION.\\nPart I.\\n1. In discovering the method by which a price\\nof goods is determined, we have practically learnt\\nhow a ratio of exchange is established between\\none class of goods and any other class. For the\\nsale of goods for money is admittedly not more\\nthan half a transaction when the money that is\\nreceived has been expended in an act of purchase,\\nthe transaction is complete; goods have been ex-\\nchanged for goods.\\nBut in order to understand more fully the\\nnature of this bargain, we must regard any two\\ncommodities which have been exchanged as com-\\nplexes of the various quantities of factors of pro-\\nduction that have entered into them in the various\\nproductive processes.\\nA bargain for the sale or the exchange of finished\\ncommodities will depend, so far as supply-forces\\nare concerned, upon the conditions of a number\\nof preceding, underlying bargains for the use of\\n113", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0127.jp2"}, "128": {"fulltext": "114 THE ECONOMICS OF DISTRIBUTION.\\ndifferent kinds and quantities of land, capital, and\\nlabour power. How far does our analysis of\\nmarket-price (and value) of commodities apply-\\nalso to the transactions for purchase of the use of\\nthese factors?\\nThe market-price of commodities contained,\\nover and above the measure of marginal cost or\\nmarginal utility, a residuum of forced gain, and\\nalso allowed a series of differential gain^ to accrile\\nto the stronger buyers and sellers, measured from\\nthe position of the marginal buyer and seller.\\n2. Do the same conditions hold for the pur-\\nchase of the use of the factors of production If\\nwe regard the hiring of factors of production as\\nequivalent to the sale of their use, we are con-\\nfronted with the investigation of the market for\\nthe sale of the use of various supplies of land,\\nlabour, and capital.\\nNow these markets differ in one radical respect\\nfrom a market for commodities, in the mode of\\nmeasuring the supply. In our setting of the\\nhorse-market, and any other market for goods, a\\nsupply was reckoned for purposes of bargain as\\nconsisting of a number of units of equal quantity\\nand quality. Where the wheat or wool in a\\nmarket consists of different qualities or kinds, it\\nwill, in theory and usually in practice, rank as a\\nnumber of separate supplies subject to separate\\nbargaining. Our differential gains in such a\\nmarket measured the different valuations set by", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0128.jp2"}, "129": {"fulltext": "THE LAW OF BENT. 115\\nbuyers or sellers upon goods which were held to\\nbe identical in size and quality. Now in a market\\nfor the sale of the use of labour and land no for-\\nmal reduction to equal sized units takes place.\\nThough the real object of sale is a quantity of\\nproductive power vested in land or labourers,\\nwhat is nominally bought and sold is the use of\\nso many acres, or so many labourers, containing\\neach of them an indefinitely larger or smaller\\nquantity of productive power. But while the\\nbargainers express themselves in terms of acres\\nand labourers, the real object of their bargain is\\nthe use of land-power and labour-power, and they\\nare continually engaged in reducing acres and\\nlabourers to units of productive power when they\\nbuy and sell. The maintenance of this awkward\\nmode of measuring land and labour, and the\\nnecessity of finding some standard of reference in\\norder to ascertain the quantity of productive power\\ncontained in an acre or a labourer, has given rise\\nto a grading of these factors of production which\\nhas played a large part in economic theory. In\\nparticular, it has given rise to the habit of taking\\nthe least productive land and labour as a standard\\nof reference, and reckoning the productivity of\\nbetter land and labour by comparison with this.\\nThus the better land and labour in a supply is\\nheld to obtain a differential gain or rent which\\nmeasures the excess of its productive power over\\nthe worst land or labour. If an acre of the worst", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0129.jp2"}, "130": {"fulltext": "116 THE ECONOMICS OF DISTRIBUTION.\\nland in use contains 4 units of land-use, then an\\nacre of better land containing 8 units has a differ-\\nential rent of 4 units imputed to it. Now it is\\nimportant to observe that these differential rents\\nare in no sense equivalent to the differential gains\\nwhich arose in a market of goods. The latter\\nrepresent the different valuations put by different\\nbuyers and sellers upon similar objective quanti-\\nties, the former represent valuations of different\\nobjective quantities. In order to place the sale\\nof factors of production upon the same level with\\nmarkets for the sale of goods, it will be necessary\\nto eliminate these objective differences which rest\\nupon customary modes of measuring the reposi-\\ntories of productive power.\\nBat since economic theory has felt obliged to\\nadopt for many purposes the conventional modes\\nof measuring productive power, and has derived\\nthence certain laws which play an important part\\nin the theory of distribution, it is necessary to\\naccept provisionally the current custom of measur-\\ning land by its acreage per annum, labour by the\\nlabourer per hour or week, and capital by its\\nmoney value, in ^100, until we have discovered\\na method of common measurement of the factors\\nwhich any satisfactory theory of distribution re-\\nquires.\\nThe general tendency of economic science, es-\\npecially in England, has been to assimilate the\\ntheory of the sale of capital-use and labour-power", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0130.jp2"}, "131": {"fulltext": "THE LAW OF RENT. 117\\nto that of the sale of goods, but to mark off the\\nsale of land-use as subject to quite other economic\\nlaws.\\nI propose to bring the sale of the factors of pro-\\nduction under the general laws of value and of\\nprice as disclosed by the investigation of bargain-\\ning for commodities.\\nFor this purpose it is necessary (1) to coordinate\\nthe three factors with respect to the conditions\\nwhich regulate their price (2) to show that their\\nsales are in essence identical, as economic pro-\\ncesses, with the sale of commodities.\\nIt is most convenient to approach the first of\\nthese tasks by examining the validity of the claim\\nto assign a separate law to the determination of\\nthe rent of land.\\nThe separatist doctrine may be thus summarised.\\nRicardo s fundamental assumption, upon which it\\nstill rests, is that the use of land is the use of\\ncertain inherent and indestructible properties of\\nthe soil, certain fixed supplies of land of given\\nfertility and position; that the efforts of man\\ncannot increase or diminish these supplies. So,\\nwhereas the price of the use of capital and of\\nlabour may be determined by processes of compe-\\ntition and higgling based upon the will of indi-\\nvidual bargainers to increase or reduce the effective\\nsupply, the price of land-use will be determined\\ndirectly by circumstances not relating to land but\\nto the efficiency of capital and labour in those in-", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0131.jp2"}, "132": {"fulltext": "118 THE ECONOMICS OF DISTBIBUTION,\\ndus tries into which land-use enters. That is to\\nsay, rent is a surplus, land taking in payment\\nfor its use whatever residue is left after human\\nefforts and sacrifices are remunerated at a com-\\npetitive price.\\n3. Now, since the determination of price is\\nour objective, it will be most profitable to test the\\nvalidity of this separate treatment of land by\\nexamining the arguments which are adduced to\\nsupport the doctrine that rent of land forms no\\nelement in prices, does not enter into price,\\nand does not help to determine prices.\\nTwo lines of argument have been used to sup-\\nport this conclusion: the first has reference to\\nextensive cultivation with a margin represented\\nby the worst pieces of land in use the second to\\nintensive cultivation with a margin represented\\nby the worst productive power in use, contained\\nin a particular piece of land.\\nThese two arguments are often adduced as con-\\ntributory to the same result and as consistent with\\none another. This, I propose to show, is not the\\ncase.\\nThe first argument is that with which we are\\nfamiliarised by Ricardo s presentation in Chapter\\nII of his Political Economy. We are to\\nsuppose different quantities of land taken suc-\\ncessively into cultivation to contribute to a single\\nsupply: the marginal land in use at anytime\\nwill pay no rent the produce raised on this mar-", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0132.jp2"}, "133": {"fulltext": "THE LAW OF BENT, 119\\nginal land with the largest expenditure of labour\\nand capital per unit of produce will be the regu-\\nlator of the price of the whole supply. Since no\\nportion of the value of the produce of this marginal\\nland is taken for rent, rent is not a component\\npart of the price of commodities. Ricardo leaves\\nit to be inferred that since the worst quantities of\\nlabour and capital engaged in production pay some\\nwage and interest to their owners, wage and in-\\nterest must always be component parts of the price\\nof commodities.\\nNow this reasoning, so far as it relates to dif-\\nferential rents, measuring the superiority of par-\\nticular lands over the margin, is, of course,\\nirrefutable. But its assumption that a margin of\\ncultivation is composed necessarily of no-rent\\nland, has been exposed, by Adam Smith in antici-\\npation and by numerous writers since Ricardo.\\nIt is quite unnecessary to have recourse to the\\nhistorical arguments which Carey and others have\\nused to show that the extension of the margin of\\ncultivation is not necessarily, or in point of fact,\\nfrom better land to worse. These arguments are\\nfaulty in that they ignore the part which position\\nfor market takes in determining the goodness or\\nbadness of land.\\nThe assumption that the extensive margin is\\nnecessarily a no-rent margin arises from a falla-\\ncious simplicity in the abstract setting given by\\nRicardo to his problem. If all land is considered", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0133.jp2"}, "134": {"fulltext": "120 THE ECONOMICS OF DISTRIBUTION.\\nas contributing to a single supply, e.g. wheat, and\\nif this supply contains more land than is required,\\nsome of which is slightly inferior to the worst\\nland in use, the margin will be no-rent land.\\nBut neither of these assumptions is absolutely\\nwarrantable.\\nSuppose that an increase in the population and\\nthe demand for wheat brings into cultivation all\\nthe land available, the worst land in use may or\\nmust pay an actual rent. This will not be a\\ndifferential rent, but a forced or scarcity rent\\nlimited in its rise only by the pressure of the need\\nfor land, and representing the power of the stronger\\nbargainer in the final pair that determines the\\nmarket-price.^ Such forced rent would evidently\\nbe reckoned as an expense incidental to all por-\\ntions of the wheat supply, and would enter into\\nthe prices. But this may be held to lie outside\\nof practical economics for a country in open com-\\nmercial relations with the world supply of land.\\nWhat really invalidates the Ricardian treatment\\nis the fact that most land in use has several al-\\nternative uses or can contribute toward several\\ndifferent supplies.\\nThough the worst grazing land may pay no\\n1 The adjective monopoly has been often applied to such\\nscarcity rent by economists but, though bearing some analogy\\nto a monopoly or one-man market by reason of the dicta-\\ntorial power held by the marginal owners, this marginal rent\\nis best described as a scarcity rent or forced gain.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0134.jp2"}, "135": {"fulltext": "THE LAW OF BENT. 121\\nrent, the worst wheat land might be better for\\ngrazing than the worst grazing land, in which\\ncase it can only be obtained for growing wheat by\\npaying a little more than its differential rent for\\ngrazing purposes; this rent for the worst wheat\\nland will be a positive rent, and will enter into\\nwheat prices again, the worst market-garden land\\ncompeting for a given market may be tolerably\\ngood wheat land, and, if so, the rent which it could\\nget for wheat forms a marginal rent for market-\\ngarden land. So as we ascend to the higher and\\nmore special uses of land, we find that the differ-\\nential rents must be measured, not from a no-rent\\nmargin, but from a minimum specific rent of a\\nhigher and higher order, until we get to city\\nground, which is measured from a minimum which\\nmust exceed the rent which that land could obtain\\nfor the best agricultural use to which it could be\\nput.\\nThe accompanying figure will serve for illus-\\ntration. Suppose the city A to lie in the middle\\nof a fertile plain surrounded by belts of land de-\\nvoted to different uses. The outermost belt, E,\\nis rough pasture, improving in quality and posi-\\ntion as it approaches D, so that whereas the\\npasturage at the outer belt of E pays no rent, a\\ngradually rising differential rent emerges as we\\napproach the circle D. Similarly, let us suppose\\nthe belt of laud between D and C to be engaged\\nin growing cereals, the Vv^ortst cereal land being at", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0135.jp2"}, "136": {"fulltext": "122 THE ECONOMICS OF DISTRIBUTION.\\nD, and the land as we approach C gradually im-\\nproving for cereal use. If the worst cereal land\\nat D would be of equal value for grazing to the\\ngrazing land midway between D and E, it will be\\nrented for cereal use at a rent which is equivalent\\nto or slightly higher than the differential grazing\\nrent paid by the land midway between D and E.\\nThus the marginal land for cereals will be found\\npaying a positive rent, and the differential rents\\nfor cereals will be superimposed upon that mar-\\nginal rent. Again, as we come nearer to the city,\\ncrossing the circle C, we come to a belt of land\\nutilised for market gardens, improving in quality\\nand position as we near the circumference B. If\\nthe worst of this market-garden land in C is capa-\\nble of being cereal land of middling quality, the\\nmarginal market-garden land will pay a rent\\nequivalent to the marginal cereal rent and the\\ndifferential cereal rent for middling quality of", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0136.jp2"}, "137": {"fulltext": "THE LAW OF BENT. 123\\ncereal land. In the same way it will appear that\\nthe worst land of the next belt, B, devoted to\\nsuburban uses, will pay a still higher marginal\\nrent, based upon the fact that the worst suburban\\nland at B may be capable of drawing a high dif-\\nferential rent for market-garden purposes. When\\nwe finally reach A, the city itself, the worst ground\\nmay draw a ground rent higher than that drawn\\nby the margin of suburban land.^\\nFor the sake of simplicity I have assumed that\\nthe marginal rent is directly and exactly deter-\\nmined by the alternative use of the worst land in\\ncultivation for each use. But this, of course, is\\nnot necessarily the case. It is not necessary that\\nthe worst land should have an alternative use it\\nmay be some better land, enjoying a differential\\nas well as a marginal rent, which occupies that\\n1 This argument which makes marginal rents hinge upon\\nalternative uses of land may appear to lean unduly toward\\nthe doctrine that marginal utility determines values. But\\nthough the marginal utility theory can neatly illustrate the\\nvariation of values connected with different uses, natural varia-\\ntions in their bearing upon scarcity of supply can afford a\\nsimilar illustration from the other side. The existence of\\nalternative uses v/ith different values may be explained\\neither by the different chemical and other qualities of the soil\\n(the intensity of various wants being given) or by the growth\\nand intensity of different human wants (the differences in quali-\\nties of soil being assumed) The true explanation makes the\\nvalue of alternative uses directly dependent on the relation\\nbetween natural qualities of soil and human wants. Here, as\\nelsewhere, marginal utility may be regarded as the final\\ncause of value, but not as the sole efficient cause.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0137.jp2"}, "138": {"fulltext": "124 THE ECONOMICS OF DISTRIBUTION.\\nposition. The worst wheat land might obtain a\\nmarginal rent of 20s. per acre superior qualities\\nof wheat land might take higher rents rising to\\n40s. Suppose that some of the land rented at\\n30s. had another use which would yield a rent of\\n29s. it is evidently this land which fixes the mar-\\nginal rent; it must receive 30s. in order to induce\\nit to contribute to the wheat supply, and the 20s.\\ntaken by the worst land measures its inferiority\\nof wheat-growing power as compared with the 30s.\\nland. It is possible that the 20s. land might con-\\ntinue to grow wheat, however little rent was paid\\nits rent is directly determined by the cost of keep-\\ning in the supply of wheat land the superior land\\nat 30s. In such a case it will be the 30s. land and\\nnot the 20s. land which is the direct determinant\\nof price for the supply side in the market for sale\\nof wheat-growing power. The Ricardian analysis\\nhas, in fact, laid undue stress upon the worst land\\ncontributing to supply, the so-called margin of\\ncultivation. It is important to understand that\\nthis margin has no particular significance except\\nas furnishing a convenient measure for the ready\\nreckoning of differential rents; it has no deter-\\nminant importance. It is the land with an alter-\\nnative use, which may or may not be the marginal\\nland, that not only determines price from the supply\\nside, but determines the whereabouts of the margin.\\nThis can easily be shown by a closer examination\\nof the illustration just taken. It is admitted that", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0138.jp2"}, "139": {"fulltext": "THE LAW OF RENT, 125\\nwhat is really sold in the bargaining between land-\\nowners and cultivators for the use of wheat land\\nis units of wheat-growing power. The fact that\\nthe nominal subject of bargain is acres of different\\nkinds of wheat land must not blind us to this\\nunder-truth. Suppose now that the price per unit\\nof wheat-growing power, as determined in a market\\nset forth after the manner of our horse-market,\\nturned out to be 5s. per unit. This price, we will\\nfurther suppose, is determined by the owner of the\\n30s. land, which yields 6 units per acre of this\\nwheat-producing power, and which, by the posses-\\nsion of an alternative use at a price just below 30s.,\\nhas assumed the position of seller in the final\\npair. The price 5s. has been determined on the\\nsupply side by the fact that it is required to induce\\nthis particular land to contribute toward the sup-\\nply of wheat land. Now what about the 20s. land,\\nthe worst wheat land in occupation, the margin\\nof cultivation, which ex-hypothesi only yields 4\\nunits of wheat-power per acre It is quite legiti-\\nmate to suppose that the owner of this land, hav-\\ning no available alternative use at any price\\napproaching 20s., might have been willing to con-\\ntribute to supply even if the price per unit had\\nbeen fixed at 4s., and the rent per acre consequently\\nhad been at 16s. instead of 20s. In such a case it\\nwill be evident that it is the owner of the 30s. land\\nwho, in fixing for the supply side the price per\\nunit at 5s. determines the amount of rent per acre", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0139.jp2"}, "140": {"fulltext": "126 THE ECONOMICS OF DISTRIBUTION,\\nof the land at the margin of cultivation. In deal-\\ning with the price of land-use, as of any other kind\\nof goods, it is to the strongest bargainer that we\\nmust look for the direct and final determination\\nof a price, and the differential gain of the others\\nshould rightly be measured from him. It is only\\nthe conventional modes of selling and regarding\\nthe sales of uses of factors of production that\\nobliges us to depart from this rule, and in the\\ncase of land makes it convenient to measure dif-\\nferential rents from the worst land in cultivation\\nwhich contributes to the market.\\nBut though the differential rents thus calcu-\\nlated, not from the subjective valuation of the\\nfinal pair of bargainers, but from the margin\\nof cultivation, are not equivalent in amount to\\nthe differential gains reckoned according to our\\nmarket for sale of ordinary commodities, their\\neconomic nature is not essentially different, for\\nthey are determined in the same way. In so far\\nas the price of uses of factors of production is\\nreached by competition and bargaining (and this\\nis our hypothesis throughout), the mode of deter-\\nmining rent, interest, and wages will be essen-\\ntially the same as that of determining the price\\nof horses or wheat, and in order to understand the\\ntheory of Distribution we must, while accepting\\nfor convenience the different grading which charac-\\nterises the former, penetrate to the essential units\\nbeneath. In land, we must recognise that rent or", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0140.jp2"}, "141": {"fulltext": "THE LAW OF BENT, 127\\nprice of land-use is determined, just like the price\\nof commodities, by the relative economic strength\\nof buyers and sellers bargaining for a given quan-\\ntity of land-use and not for a given sized piece of\\nland, though the language of these proceedings has\\nreference to the latter. The subjective valuations\\nof a single owner and a single tenant (the final\\npair) fix the limits for the price of a unit of this\\nland-power, the stronger of the two fixing the\\nprice-point. This done, the rent per acre is deter-\\nmined by the net yield of land-power in each grade\\nof land. If the higgling of the market fixes the\\nprice of a unit at 20s., the best land available for\\nthat supply may yield 2 units of power per acre,\\nin which case the rent per acre is 40s., the worst\\nland only an unit with a rent of 10s. per acre.^\\nThus it appears that the determining increment\\n1 The treatment of rent as purchase money of so much land-\\npower or use of land will only be fully justified when the full\\ntheory of coordination of the factors in production is grasped.\\nOne surface objection, however, may be removed here. In\\nspeaking of rent as the price of quantities of land-power, it\\nmay appear as if I had committed myself to the view that all\\nland with some quantity of productive power could command a\\nprice. To avert the appearance of this error I have used the\\nterm net yield of land-power to indicate the power which\\ncould command a price. Unless the value of the productivity\\nof a piece of land exceeds the expense of working it, there is\\nno net yield of land-power, and, therefore, no price for such\\npower. The term net yield of land-power represents in the\\nuse of land what emerges in the case of a machine or other piece\\nof concrete capital after expense of working is defrayed.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0141.jp2"}, "142": {"fulltext": "128 THE ECONOMICS OF DISTRIBUTION.\\nof supply is not necessarily identical with the\\nworst land contributing to that supply, commonly\\nknown as the margin of cultivation. If the slack-\\nness of demand for wheat land causes a fall of\\nrent, it is not necessarily the 20s. land which passes\\nout of cultivation; it may be the 30s., if the latter\\nhas an alternative remunerative use and the former\\nhas not.\\nThe actual determination of rent by this method\\nis, of course, complicated by the fact that as a rule\\nnot merely one part of the land supply, but many\\nparts, have alternative uses to which they would\\nsuccumb, were the price for one use to fall below\\na certain figure. But it is reasonable for us to\\nassume that the price per unit of land-use is always\\ndetermined by the common position of one part of\\nsupply, which at that price is just induced to con-\\ntribute toward that supply in preference to some\\nothers the fact that at a different price per unit\\nsome other land would occupy this position need\\nnot concern us.\\nNow since it is convenient to retain the term\\nmargin of occupation or employment to describe\\nthe worst or least efficient part of supply, some\\nother term is needed to mark that part which\\noccupies the determinant place in any given\\nmarket. I propose to speak of this portion as\\nthe determining portion of supply, and of its\\nowner as the determining owner. The worst\\nland in cultivation for a particular supply will be", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0142.jp2"}, "143": {"fulltext": "TBE LAW OF BENT, 129\\ndescribed, in accordance with usage, as mar-\\nginal land, and its rent as marginal rent.\\nDifferential rents will be the rents obtained\\nby lands of superior productivity contributing\\nto this supply, and will be measured from the\\nmargin.\\nIt will, however, be useful sometimes to sub-\\nstitute the terms specific and individual for\\nmarginal and differential, or to conjoin these\\nadjectives in order to emphasise certain aspects of\\nour application of the Law of Rent.\\nOne further distinction requires to be made.\\nWhether the determinant portion of supply of\\nland be the worst land or not makes no difference\\nthe price of land-power, and so the rent of different\\nqualities of land, appears to be directly determined\\nby the fact that some of the land has an alternative\\nuse, and that it may refuse to contribute to the\\nsupply unless a certain price is paid. But though\\nthe alternative price that can be got for some other\\nuse determines a lower limit of marginal rent,\\nthere is nothing to prevent the marginal rent\\nrising higher than this. If the 30s. land has an\\nalternative use, it is possible that use might yield\\nonly 25s. now, though the owner of that land\\nwould consent to take 26s. rent, he may be able to\\nget 30s., because there is, for the time, an absolute\\nscarcity of land available for this supply. In a\\nword, he may be able, as the final seller, to take\\na forced gain of t)s., which corresponds precisely", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0143.jp2"}, "144": {"fulltext": "130 THE ECONOMICS OF DISTRIBUTION.\\nto the forced gain in the price of the horse in\\nour analysis of a market for commodities.\\nIn such a case it might be best to distinguish\\nthis 5s. from the other 25s., and to class it as a\\nthird form of rent. Thus, if we took the highest\\nrented land at 40s., we should describe 25s. as mar-\\nginal rent, 5s. as forced or scarcity rent, and 15s.\\nas a differential rent measuring the superior pro-\\nductivity of this land over the land at the margin\\nof employment for this use. This would signify\\nthat 25s. was the price necessary to make this\\nland abandon some alternative use and enter this\\nparticular supply; that its economic force as a\\nbargainer, within the market of this use, enabled\\nit to exact 5s. more, and that 15s. measured its\\nsuperiority over the absolutely worst land con-\\ntributing to this supply.\\nThough the actual distribution of land-uses in\\na country will never be so regular as that repre-\\nsented in our illustration, the latter approaches far\\nnearer to the actual facts than does the Ricardian\\nhypothesis, and compels us to perceive that for\\nmany, if not most, purposes land at the margin\\nof cultivation will pay a positive rent.\\nThe argument from extensive cultivation, though\\nquite -valid for showing that differential rents do\\nnot enter price, lets into price any rents which are\\npaid for the use of marginal land contributing to\\nany supply. Land may be graded according to its\\neconomic uses; the differential rents will be ex-", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0146.jp2"}, "145": {"fulltext": "THE LAW OF RENT. 131\\neluded; the positive marginal rents will be in-\\ncluded in the market (and even in normal) prices.\\n4. Yet, though Adam Smith, in dealing with\\nwine lands and other cases of limited supplies of\\nland, J. S. Mill, in the formulation of the Laws of\\nValue, Jevons, and other modern economists have\\nexplicitly affirmed that scarcity prices of land all\\nenter into prices. Professor Marshall and not a few\\nthinkers reject this view.\\nIt is of the utmost importance to understand\\nthe grounds upon which this rejection is based.\\nJevons admits that a marginal rent enters into\\nexpenses of production, If land which has been\\nyielding \u00c2\u00a32 per acre rent, as pasture, be ploughed\\nup and used for raising wheat, must not the \u00c2\u00a32\\nper acre be debited against the expenses of pro-\\nduction of wheat? Marshall, in commenting\\nupon this passage, urges that there is no con-\\nnection between the particular sum of X2 and the\\nexpenses of production of that wheat which only\\njust pays its way. That is to say, though the\\n1 Preface, 2d ed., Theory of Political Economy.\\n2 Book V, Ch. VIII, par. 6 (note). There is, however, a\\ncurious passage in the sections immediately preceding this, in\\nwhich Marshall himself seems to admit that a marginal rent\\ndoes affect price. One of the chief conditions affecting the nor-\\nmal value of oats will be the amount of land which is capable\\nof growing oats, but for which there is so great a demand for\\nother purposes that it affords a higher rent, when used for them,\\nthan when used for growing oats. For the expenses of produc-\\ntion of those oats tohich only just pay their way are greater than\\nthey ivould be, were it not that much of the land which would", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0147.jp2"}, "146": {"fulltext": "132 THE ECONOMICS OF DISTRIBUTION,\\nworst land contributing to the wheat supply pays\\na rent of \u00c2\u00a32 per acre, no portion of that rent enters\\ninto price. This rejection of marginal rent from\\nprice is achieved by turning from the extensive\\nto the intensive margin of cultivation.\\nUpon this mode of reasoning those economists\\nrely who assert that in no case does rent enter into\\nprice, and who extend the principle from agricul-\\ntural rent to all other rents. The argument, first\\nplainly formulated by James Mill, briefly and\\noccasionally used by Ricardo, runs as follows:\\nreturn the largest crops of oats to the smallest outlay is diverted\\nto growing other crops that will enable it to pay a higher rent\\nthan oats would afford; and therefore the rent that land on\\nwhich oats could be grown can be made to pay for other pur-\\nposes, though it does not enter into the expenses of production\\nand the normal value of oats, yet does indirectly affect them.\\n(Bk. V, Ch. VIII, par. 5.)\\nMarshall does not explain how it indirectly affects them.\\nThe passage seems to admit that the positive marginal rent of\\noat land, arising from alternative uses, will raise the price of\\noats, somehow, without entering into the marginal expenses\\nof production, although this is inconsistent with the opening\\nwords of the same paragraph, where it is said that the\\nexpenses of production of those oats which only just pay their\\nway are greater than they would be if marginal oat lands\\ncould be got at no-rent. The fact is that Marshall is quite\\nwrong from his standpoint in admitting that the expenses of\\nproduction of those oats, which only just pay their way, are\\ngreater than they would be, etc. The application of the\\ndose principle to an intensive margin of cultivation, upon\\nwhich he relies through his main argument, will oblige him to\\nignore altogether the positive rent which must be paid for the\\nextensive margin of oat land.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0148.jp2"}, "147": {"fulltext": "THE LAW OF BENT. 133\\nTake a given piece of land, apply to it doses\\nof capital and labour remunerated at tlie ordinary\\nrates of interest and wages. The produce raised\\nby the earlier applications of capital and labour\\nwill leave a residue, after the fixed payments of\\ninterest and wages, which will figure as rent.\\nThe economic tillers of the soil will increase the\\nnumber of these doses of capital and labour\\nuntil the last dose yields just enough to pay in-\\nterest and wages, leaving nothing for rent. Since\\nno part of the produce obtained by the application\\nof the last dose can be reckoned as rent, while\\nthe expense of raising this last part of the produce\\nmeasures the price of the whole supply, it follows\\nthat rent does not enter into the price.\\nEconomists have often evinced some hesitation\\nin applying the doctrine that rent does not enter\\ninto prices to manufactured goods but Professor\\nMarshall has clearly shown that a fair expansion\\nof the older argument requires us to hold that\\nground rent does not enter into the expenses of\\nmanufacture.\\nNow the most curious feature of this illustration\\nis that it can be similarly applied to show that\\ninterest and wages do not enter into price.\\nInstead of taking a given quantity of land and\\napplying additional doses of capital and labour,\\nlet us take a given quantity of capital and apply\\nadditional doses of labour, neglecting for the\\n^Principles of Economics, 2d ed., p. 462.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0149.jp2"}, "148": {"fulltext": "134 THE ECONOMICS OF BISTBIBUTION.\\npresent the consideration of land. Let our piece of\\ncapital be the premises, stock, good-will, etc., of\\na shop. Apply to this capital additional doses\\nof labour in the shape of shop assistants. The\\nassistants first engaged will earn not merely their\\nwages but a considerable surplus, which will go\\nas interest and profit to the owner of the business.\\nAssuming there is plenty of labour available, the\\nshopkeeper will go on increasing the number of\\nhis shop assistants as long as the last-engaged\\nproduces more value than is represented in his\\nwages. At last he will come to a marginal\\nassistant, who only just produces the value of\\nhis wages. Now the shop goods into which this\\nmarginal assistant puts his work pay no interest\\nor profit but they are sold for the same price as\\nthe other shop goods, and being produced under\\nthe least favourable circumstances, i.e. at the mar-\\ngin of labour, must be considered to measure the\\nprice. Since no portion of the value added to\\nthese goods in the retail process can figure as in-\\nterest, so interest on shop capital is no component\\npart of the price. Or, again, take the machinery,\\nstock, good-will, etc., which constitute the capital\\nof a given factory. Here, too, after a certain point\\nin the application of labour is reached, the same\\nlaw of diminishing return is found to apply each\\nhand beyond a certain number yields a less and\\nless surplus of value over and above his wages,\\nuntil a hand is reached whom it is just worth", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0150.jp2"}, "149": {"fulltext": "THE LAW OF RENT. 135\\nwhile to engage because the value of his work just\\ncovers his wages. The goods made by this\\nlast hand evidently pay no interest or profit, and\\nas they are precisely analogous to the grain pro-\\nduced by the application of the last dose of capital\\nand labour to a given piece of land, they govern\\nprice, and therefore interest does not enter into\\nthe price of manufactured goods.\\nMarshall, indeed, in one passage, applies the\\ndose illustration to show that one of the shep-\\nherds employed upon a large sheep farm is to be\\nregarded as a marginal shepherd, whose produc-\\ntivity only just earns his wages. But curiously\\nenough he fails to recognise that he has proved\\nthe expenses of raising sheep to be determined\\nby this man s wages, and that interest or profit\\nof farm capital does not enter into the price of\\nsheep.\\nFinally, we can take a fixed quantity of labour-\\npower and apply to it successive doses of capital\\nor land. First take the energy and skill of a\\nsingle business man who borrows doses of capital\\nfor a commercial enterprise. The last dose he\\nborrows only yields to. him a minimum or nominal\\n1 1 may here state that I use interest for the return made for\\nuse of concrete forms of capital and not merely for capital val-\\nued in money. When necessary, I distinguish the two as\\nreal and money interest. Thus alone can one evade\\nthe Protean term profit.\\n2 Principles, 2d ed., Vol. I, p. 567.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0151.jp2"}, "150": {"fulltext": "136 THE ECONOMICS OF DISTRIBUTION.\\nreturn after paying its necessary interest, i.e, he\\ncannot profitably utilise any more. It therefore\\nappears that the last increment of the goods he\\nhandles in his business yields no earnings of\\nmanagement. Therefore earnings of management\\nform no element in expenses of production or of\\nprice.\\nOr take the case of an agriculturist in a country\\nwhere there is plenty of available land of a given\\nquality at a fixed or customary rent. The produce\\nraised by such a man upon the few acres he first\\nrents may yield him, after paying the stipulated\\nrent, a large surplus which he will take as wages.\\nLet this labourer increase the acreage he rents;\\nbeyond a certain point he will find that the pro-\\nportion of the produce obtained by each successive\\napplication of more land, which is left for wages,\\nbecomes less and less, until he reaches an applica-\\ntion which, after paying rent, does not increase\\nthe net surplus which he takes as wages. In other\\nwords, the produce obtained by this marginal\\napplication of land to labour pays no wage.\\nSince this marginal produce measures and indi-\\ncates the price of the whole supply, wages do not\\nenter into that price. Now in respect to the\\nsupply-price of agricultural produce in any given\\nmarket, it is held that rent does not enter into\\nprice because a portion of that supply is obtained\\nunder conditions which preclude any part of it\\nfrom counting as rent. So it must be held that", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0152.jp2"}, "151": {"fulltext": "THE LAW OF BENT, 137\\nwages do not enter into the price because another\\nportion of that supply may, as we have seen, have\\nbeen obtained under conditions which forbid any\\nof it from contributing to wages, while interest\\ndoes not enter into price because a third portion\\nis raised under conditions which require that it\\nall go for rent and wages and none of it for\\ninterest. We have only to suppose three pro-\\nducers the first of whom has a fixed quantity of\\nland, and keeps adding fresh doses of capital and\\nlabour; the second with a fixed quantity of capital,\\nwhich he spreads over increasing quantities of\\nland and labour; and the third with a fixed quan-\\ntity of labour, to which he applies ever increasing\\nquantities of land and capital to arrive at the\\nconclusion that neither rent, interest, nor wages\\nis a component part of price.\\nTo this reductio ad ahsurdum we are inevitably\\nbrought by following out the line of argument\\nusually adduced to show that rent does not enter\\ninto price.\\n5. This line of reasoning, however, though\\nit compels the admission of a fundamental error\\nin the dose illustration as applied to intensive\\ncultivation, does not explain the nature of that\\nerror. The truth is that a certain harmony of\\ncombination of factors of production exists for\\nvarious productive purposes. In a given case, a\\ncertain proportion of the three factors of produc-\\ntion is most productive. If, however, there is a", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0153.jp2"}, "152": {"fulltext": "138 THE ECONOMICS OF DISTRIBUTION.\\nshort supply of one of them at the former quality\\nand price, a more than proportionate increase of\\none or both of the others may be substituted, in-\\nvolving, of course, an increased cost per unit of\\nthe increment of supply.\\nSo when the final dose of capital and labour on\\na given piece of wheat land achieves a product\\nwhich yields no rent, it means that with the same\\nquantity of land-use as sufficed for a smaller\\nproduct, a larger quantity of capital and labour-\\nuse has been combined; that as no more land-use\\nwas employed, none was paid for.\\nOr, if it seems more reasonable, we may consider\\na piece of land as containing various land-powers,\\nsome high, some low some powers so low that\\nthey require so large a proportion of capital and\\nlabour to utilise them that they only just pay to\\nwork. These low natural powers yield no net\\neconomic powers of production.\\nNow take the case where a portion of the final\\nincrement of a supply of wheat is raised on the\\nextensive margin at a positive rent of 2 units, and\\na portion upon the intensive margin where it is\\nheld to pay no rent. It is evident that the cost\\nof production is the same in each case, though rent\\nforms 2 units of cost (out of say 10) in one case\\nand none in the other. Where the intensive mar-\\ngin is taken, 2 more units of cost of use of capital\\nand labour are found. The man who chooses be-\\ntween paying for worse land-use or for more", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0154.jp2"}, "153": {"fulltext": "THE LAW OF BENT. 139\\ncapital- and labour-use exercises a choice between\\nthe factors of production which implies their\\ninterchangeability. Either land-power or capital-\\nand labour-power may do the extra Avork required\\nto raise the last increment if the former is pre-\\nferred, rent is paid; if the latter, rent is not paid,\\nbut more profit and wage. This interchangeability\\nis a fact of prime importance in understanding the\\ntheory of distribution.\\nIf, because land-use can be replaced by capital-\\nuse, we choose to say that rent does not enter\\nmoney-cost of production, we are, strictly speak-\\ning, justified in doing so. But by a similar argu-\\nment it is possible to show that interest and wages\\nneed not enter money-cost of production.\\nThe last increment of cotton cloth in the supply\\nmay be the produce of the worst loom in the worst-\\nequipped mill (i.e. raised on the extensive margin\\nof capital), or it may be the produce of a good\\nloom in a good mill working overtime: in the\\nformer case it is partly produced by capital-use,\\nwhich may be paid by interest; in the latter case\\nthere is no extra call on capital. (Or taking tlie\\nanalogy of lower un-paid powers of land, we may\\nsay that lower power of capital entered in unpaid.)\\nIn the former case, the final increment of cotton\\ncloth yields an interest; in the latter case, it only\\njust pays overtime wages; by taking the latter\\ncase, we prove that interest forms no element in\\nthe price of cotton cloth. But it must be observed", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0155.jp2"}, "154": {"fulltext": "140 THE ECONOMICS OF DISTRIBUTION.\\nthat the money-cost and the price of the final\\nincrement of the cotton cloth will be the same,\\nwhether it is said to include profit or not.\\n6. We have shown how rent need not enter\\nmoney-cost of production and price of wheat\\nwhere the final increment is produced on the in-\\ntensive margin. By a similar application of the\\nLaw of Substitution it can be shown that wage\\nmay or may not enter into the price of this same\\nfinal increment of wheat. Suppose it is raised by\\na tenant-farmer as part of the result of an extra\\nlast hoeing and ploughing on his land, it pays\\nextra wages but no rent; if, however, instead of\\nthis extra hoeing and ploughing the farmer decided\\nto hire one more acre of the same quality of land\\nand spread the same amount of labour-power over\\nthe larger area, the product of this last acre pays\\nits rent but no wage.\\nOr, again, take the case of a 4-loom weaver who\\ndecides it is just worth his while to undertake\\na 5th loom; the product of the 5th loom, after\\npaying a profit and a compensation for extra wear\\nand tear to the weaver, yields him no true increase\\nof wage. The real wage, or net advantage, which\\nhe obtains by working 5 looms only exceeds by\\na nominal amount the net advantage of working\\n4 looms.\\n1 The assumption here is that the weaver is on time wages.\\nThe rarity of such an occurrence need not he taken to invali-\\ndate the illustration.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0156.jp2"}, "155": {"fulltext": "THE LAW OF RENT. 141\\nThe labour of working the 5th loom or the last\\nacre of land is certainly remunerated by wages,\\nand at the same rate as the other looms or other\\nacres. Why, then, does it appear from the dos-\\ning illustration that the product of the lai-st loom\\nor last acre pays no wage\\nOnly two replies are possible. First, it is pos-\\nsible to suppose that the weaver s capacity was\\nunderrated, and that he had been put to 4 looms\\nwhen his normal energy was equal to 5 looms.\\nNow it is evident that if a 5-loom weaver is\\nset to work 4 looms, there is an absolute waste\\nof labour-power; if the mistake is discovered, and\\nthe waste stopped by adding a 5th loom, the\\nweaver, assuming he were on time wages, might\\nreceive no additional wage. Similarly, we may\\nsuppose that the farmer underestimates the number\\nof acres upon which he may most profitably spread\\nhis labour-power; discovering his mistake, he may\\nadd the extra acre which seems just to pay its rent\\nand leave nothing for his wage.\\nNow the sophistry of these examples is patent.\\nIf an employer hires a worker and misapplies his\\nworking power, he must pay as much as if he had\\nproperly applied it; if a farmer does not under-\\nstand the economy of his labour-power, he may\\nexpend upon a smaller area the same quantity of\\npower which he ought to have bestowed upon a\\nlarger area. If a tenant hires a piece of land and\\nputs 5 doses of capital upon it when he ought to", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0157.jp2"}, "156": {"fulltext": "142 THE ECONOMICS OF DISTRIBUTION.\\nhave put 6, he pays a rent based upon the suppo-\\nsition that he will make a full economic use of the\\nland, i.e. that he will put 6 doses on it. If, dis-\\ncovering his error, he afterward adds the sixth\\ndose, he only appears to pay no rent out of its\\nproduce, because he has all the time been paying\\na rent based upon the supposition that he was\\nworking his land with 6 doses.\\nThe conclusion is a peculiarly simple one. If\\nwe make an uneconomical use of a factor of pro-\\nduction, we must pay the same price for it as if\\nwe made an economical use of it.\\nSome of the dosing illustrations are thus\\nvitiated by treating the owner of a factor of pro-\\nduction as if he were not an economic man,\\nwhereas the just application of a principle, like\\nthe Law of Diminishing Returns, does not permit\\nsuch an assumption to be made.^\\n7. But the dosing illustration is vitiated\\nby a more fundamental flaw. By assuming the\\nseparate action of each dose, it ignores the organic\\nrelation of parts in industry. It is not necessary\\nto suppose that the 5th loom was added to the\\n1 If I rent a piece of land in Piccadilly, in which all houses\\nare 3 or 4 stories, the rent I shall pay will take into considera-\\ntion the capacity of the ground for building a 3- or 4-story\\nhouse. If I choose to put a 1 -story house upon the ground, the\\nrent I pay will be the same as if I had more fully utilised the\\nsite. If afterward I add stories, it will seem that I pay no rent\\nfor this extra accommodation, but in reality I have been paying\\nit all the time.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0158.jp2"}, "157": {"fulltext": "THE LAW OF RENT. 143\\nweaver because it was found out that he had been\\npaid as a 5-loom weaver while he had been work-\\ning at 4 looms. We may suppose that he is in\\nfull knowledge of the facts and has a full exercise\\nof choice as a consequence, he estimates that it\\njust pays him to work 5 looms instead of 4. Now\\nwhy will it appear that, whereas the weaver, when\\nworking 4 looms, made a net wage on each of them,\\nhe makes a merely nominal wage on the 5th loom\\nThe 5th loom, after it is added, is found to be\\njust as productive as any of the other 4 looms.\\nThe answer is plain. The 5th loom only just\\npays because its addition has injured his work\\nwith the other 4 looms he must work 5 looms at\\nslower speed than he worked 4, stoppages will be\\nmore frequent, more time must be spent on tun-\\ning, cleaning, etc. If he gives out the same work-\\ning energy to 5 looms as formerly he gave to 4\\n(which supposition is involved in our hypothesis\\nthat to a fixed quantity of labour-power is added\\na fresh increment of capital), the effort of adding\\nthe last loom can only be estimated by taking\\naccount of its influence upon the productivity of\\nthe other 4 looms.\\nSo, reverting to our illustration of a fixed quan-\\ntity of shop-capital which for its most profitable\\nworking requires 10 shop-assistants. The tenth\\nshopman, whichever he may be, appears only just\\nto produce enough to pay his wages, because it is\\nevident that it would not pay to put in an eleventh", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0159.jp2"}, "158": {"fulltext": "144 THE ECONOMICS OF DISTEIBUTION.\\nshopman. But the productivity of this last unit\\nof labour cannot be rightly separated from the pro-\\nductivity of the other units, as is supposed when a\\nparticular additional increment of product is at-\\ntributed to his presence. The service of this final\\nunit of shop-labour largely consists in enabling\\nthe shop to be better ordered, and a better division\\nof labour to be adopted; in other words, it helps\\nto raise the general efficiency of all the labour\\nemployed.\\nThe same is true, though within narrower\\nlimits, of the effect of the last dose of capital\\napplied to a given piece of land; its effect is not\\na separate one, but partly consists in the greater\\nefficiency imparted to earlier units. Suppose the\\nlast unit of capital to be represented by improved\\nfencing or drainage this has evidently an impor-\\ntant influence in increasing the efficiency of the\\nearlier units of capital.\\nThere is a false separatism in the dosing\\nillustration which ignores the organic unity in a\\nbusiness. No light is thrown either upon the\\ntheory or the practice of industry by treating one\\nFactor of Production as a constant quantity and\\ntwo as variables.\\n8. Thus we perceive that the fallacy of the\\ndosing illustration consists in assigning a\\nparticular amount of productivity, and therefore\\nof product, to a particular dose. Professor\\nMarshall, in treating the marginal dose of labour", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0160.jp2"}, "159": {"fulltext": "THE LAW OF BENT. 145\\nin agriculture (^e.g. the last hoeing applied to a\\nfield), admits that the return to that last dose\\ncannot be separated from the others, but he adds\\nwe ascribe to it all that part of the produce which\\nwe believe would not have been produced if the\\nfarmer had decided against the extra hoeing.\\n(Bk. IV, Ch. Ill, par. 2.)\\nHere we probe the heart of the dosing fallacy.\\nIt is claimed that the product of the last dose of\\nlabour is to be measured by the reduction in the\\naggregate product of the farm which would have\\nattended the refusal to apply this last dose of\\nlabour. Now this is not justifiable. The with-\\ndrawal or refusal to apply this last dose of labour\\nwould have meant a diminished productivity, not\\nonly of the other units of labour, but of the units\\nof capital and of land, and part of the result of\\nthis diminished productivity of other units is\\nwrongly attributed to the last unit of labour.\\nFor let us see how this mode of measuring the\\nproductivity of the last increment applies. Let us\\nsuppose that a farm business is composed of 4 doses\\nof labour, 6 doses of land, 3 doses of capital, this\\nbeing the combination of the factors which is eco-\\nnomically advantageous. Now in order to measure\\nthe productivity of the last dose of labour, let us\\nremove it. The diminution of the total product\\nmay be 8%. This 8%, according to Marshall s\\nmethod, we ascribe to the last dose of labour. If\\nnow, restoring this dose of labour, we withdrew", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0161.jp2"}, "160": {"fulltext": "146 THE ECONOMICS OF DISTRIBUTION.\\nthe last dose of capital, the reduction of product\\nmight be 10%. This 10% is regarded as the\\nproduct of the last dose of capital. Similarly, the\\nwithdrawal of the last dose of land might seem to\\nreduce the product by 10%. What would be the\\neffect of a simultaneous withdrawal of the last\\ndose of each factor? According to Marshall s\\nmethod, clearly 28%. But is this correct? Is it\\nnot likely that this simultaneous withdrawal might\\nreduce the product not by 28%, but by (say) 18%\\nAccording to Marshall, the whole of the 8% which\\ndisappears on the withdrawal of the last dose of\\nlabour is to be regarded as the product of that\\ndose. But part of that 8% will consist in the re-\\nduced productivity, not only of the other labour-\\ndoses, but of the doses of capital and land. The\\nwithdrawal of the last dose of labour may well be\\nsupposed to reduce in particular the utility of the\\nlast dose both of capital and of land, which factors\\nare now in excess. Similarly, the withdrawal of\\nthe last dose of capital will affect the productivity\\nof the last dose of labour and of land. The with-\\ndrawal of a dose of land will act in the same way\\nupon the last doses of labour and capital. We\\nshould thus find that the simultaneous withdrawal\\nof the last dose of the three factors would be con-\\nsiderably less than the 28% which Marshall s mode\\nof measurement requires. For the withdrawal of\\nthe last labour-dose involves a nullification of a\\npart of the productivity of the last unit of capital", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0162.jp2"}, "161": {"fulltext": "THE LAW OF BENT. 147\\nand of land, and a part of the result thus attributed\\nto labour is due to the diminished productivity of\\nthe other factors. Put the same experiment upon\\nits broadest footing, and the overlapping fallacy\\nbecomes obvious. Take the labour, capital, and\\nland as consisting of a single dose of each; now\\nwithdraw the dose of labour, and the whole service\\nof capital and land disappears. Is the destruction\\nof the whole product a right measure of the\\nseparate productivity of the labour-dose alone?\\nObviously not for if the dose of capital had been\\nwithdrawn instead, or the dose of land, the same\\neffect would have ensued.\\n9. Causation may indeed be proved by what\\nis called in logical text-books the Method of\\nDifference, but the composition of causes pre-\\nvents quantitative effect from being proved in\\nthis manner. The dose illustration is nothing\\nelse than a slightly more intricate example of the\\nfallacy which confuses mechanical composition\\nwith organic cooperation. Where it is essential\\nto productivity that land, capital, and labour\\nshall all cooperate, it is impossible to assign to\\nany one of them a product based on the supposi-\\ntion of a separate productivity. Simila.rly, where\\nthere exists a necessary organic quantitative rela-\\ntion between the factors, no separate product can\\nbe put down to any single dose of each.\\nThe root-fallacy of the dose illustration con-\\nsists, then, in a false separation which ignores the", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0163.jp2"}, "162": {"fulltext": "148 THE ECONOMICS OF DISTRIBUTION.\\norganic nature of production and the Law of Sub-\\nstitution. The real determinant of price of a\\nsupply from the cost side will be found to\\nreside in the comparative advantage of employing\\nvarious combinations of the factors of production.\\nIn considering how a new increment of wheat\\nsupply, evoked by rising prices, will be produced,\\nnothing is learnt by supposing it to be raised by\\napplying a new unit of capital and labour to wheat\\nland already in use. The real problem for con-\\nsideration will be, What changed proportion of\\nthe several factors will most easily turn out the\\nincreased supply? Should more labour be ap-\\nplied to the same land, or should more land be\\nworked by the same labour, or should more capital\\nbe added, or what should be the conjunction of\\nadditional factors?\\nThe net result of this argument is that the\\napplication of the Law of Rent to the intensive\\ncultivation of a single factor must be rejected as\\nfallacious.\\nThe chief use of the dose illustration has\\nbeen to support the theory that rent of land\\ndiffers radically from all payments for uses of\\nother requisites, in that it is a surplus which,\\nbeing measured from a no-rent margin, does not\\nform an element of price. Whereas it appeared\\nthat land at the extensive margin of cultivation\\nfor all higher uses paid a positive rent, it was\\nsought to exclude this rent from price by arguing", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0164.jp2"}, "163": {"fulltext": "THE LAW OF BENT. 149\\nthat a portion of the supply might be raised upon\\nan intensive margin, where no rent was paid even\\nfor supplies toward which no-rent land did not\\ncontribute.\\n10. The complete breakdown of this intensive\\nmargin throws us back once more upon the exten-\\nsive margin for the sole legitimate application of\\nthe Law of Rent.\\nWe have already recognised what qualification\\nof this, law is necessary. While the generally\\naccepted statement of the law holds good in the\\ncase of the lowest or least remunerative use of\\nland where the margin of cultivation pays no rent,\\nit must be qualified in the case of land put to\\nhigher uses by the recognition of a series of higher\\nmargins of cultivation where a positive rent is\\npaid for the worst land in use. The differential\\nrents for each particular piece of land will be\\nmeasured from the no-rent margin only in the case\\nof lands competing for the lowest use; the dif-\\nferential rents of lands for higher uses will be\\nmeasured from a specific margin which pays a\\nrent. While these differential rents will form no\\nelement in prices, the marginal rents will enter\\nas an expense of production that is common to the\\nwhole supply. If the marginal hop land in use\\npays a rent of X2 an acre, a portion of that sum\\nwill be represented in the price of each pocket of\\nhops.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0165.jp2"}, "164": {"fulltext": "150 THE ECONOMICS OF DISTRIBUTION,\\nPart II.\\n1. While there has been a growing tendency\\namong recent economists to extend the term\\nrent and the application of the Law of Rent\\nto capital and to labour, as a rule this has been\\ndone tentatively, rather by way of analogy than\\nas a recognition of the application of a common\\nlaw.\\nA true coordination of the factors of production\\nwhich shall enable us to bring them all alike, in\\nrespect to the sale of their uses, under the general\\nlaws of price which are operative in the markets\\nof commodities, requires that we first show how\\nthe law of rent in its extensive application is valid\\nfor each factor.\\nThe difficulties which confront us in this work\\nchiefly arise from the adoption in economic treat-\\nment of a terminology which expresses loose popu-\\nlar modes of regarding land, labour, and capital,\\nand are mainly two.\\n2. The first difficulty arises from a radical\\ndifference in the common mode of represent-\\ning capital on the one hand, labour and land\\non the other. Whereas the two latter are re-\\ngarded in their concrete forms, the land in its\\nacres, the labour-power in its daily or weekly out-\\nput of energy, we commonly regard capital not in", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0166.jp2"}, "165": {"fulltext": "THE LAW OF BENT. 151\\nthe concrete shapes of plant, raw material, and\\ngoods, which are its serviceable forms for indus-\\ntry, but in its money value of so many \u00c2\u00a3100 s.\\nWhereas the payment to land and labour is pay-\\nment for the use of the concrete forms, payment\\nfor capital is payment for the use of so much of\\nthis abstract force measured by XlOO s.\\nNow it is evident that no common law of price\\nor value can be applied to the use of the three\\nfactors, unless we place them upon a common foot-\\ning. Either we must measure land and labour\\nby their abstract or money measurement, capital-\\nising them and regarding rent and wages as\\npayment for the use of so many XlOO s of this\\nland-capital or labour-capital, or else when we\\nspeak of capital, we must speak of the concrete\\nforms, of goods, plant, etc., which are used in\\nindustry. The actuality of a science of industry\\nas distinguished from a science of finance requires,\\nus to take the latter course, and to treat capital\\nas consisting not in money but in concrete forms\\nof wealth serviceable in production.\\nThe payment for the use of this concrete capital\\nis interest. Since this latter term is by usage\\nclosely confined to the price, not of concrete capi-\\ntal but of money capital, I should have preferred\\nto adopt some other term. But none other is\\navailable excepting the still more slippery term\\nprofit. I propose, therefore, to use the term\\ninterest for the payment of the use of concrete", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0167.jp2"}, "166": {"fulltext": "152 THE ECONOMICS OF DISTBIBUTIOlSf.\\ncapital, distinguishing it where necessary from\\nfinancial interest by appending the term real\\nto the former, money to the latter.\\nIt is, of course, evident that no coordination of\\ncapital with land by application of a law of rent\\nis possible where capital takes the fluid form of\\nmoney. For no rents, either specific or individ-\\nual, could emerge from such uses of capital. It\\nis, of course, incorrect to say that XlOO of capital\\nin one employment earns 21% interest and another\\n.\u00c2\u00a3100, elsewhere employed, 5%. The extra 21% in\\nwhat seems the better investment will either not\\nbe interest at all, but compensation for special\\nrisks, or it will by its very existence raise the\\ncapital from \u00c2\u00a3100 to \u00c2\u00a3200. For under present\\ncircumstances \u00c2\u00a3100 of capital simply means so\\nmuch capital as will bring \u00c2\u00a32. 10s. interest per\\nannum to its owner. A proper business valuation\\nof all capital is a valuation based upon the rate of\\ninterest. Ux hypothesis therefore, there can be\\nonly one true rate of interest for all this fluid\\nabstract capital. Business habits often persist in\\nspeaking of capital as \u00c2\u00a3100, when the increased\\nannual value of the concrete forms represented has\\nraised it to \u00c2\u00a3200, so that one \u00c2\u00a3100 share may be\\nspoken of as paying 5%, but the market or selling\\nvalue of course would be \u00c2\u00a3200 and the true interest\\nstill 21%.\\nNo relation is possible between this capital and\\nour other factors of production. We must deal", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0168.jp2"}, "167": {"fulltext": "THE LAW OF BENT. 153\\nwith the concrete forms which are thus valued.\\nWhat is paid for their use is real interest.\\n3. When we have placed the factors of pro-\\nduction upon the common concrete basis and agreed\\nupon a term to describe the payment of the use of\\nconcrete capital, we are confronted with another\\ndifficulty. In measuring the value of land, a\\nmargin of cultivation is found to be of essential\\nimportance, and our examination of the law of\\nrent has clearly indicated the need of substituting\\na joint-margin, composed of all the factors, for a\\nmargin of land only. But can we legitimately\\nextend the conception of a margin of employment\\nto capital and labour The initial difficulty takes\\nthis form. The worst land in cultivation for the\\nlowest use (say grazing land) pays no rent; can\\nwe say that the worst placed capital will yield no\\nprofit and the worst labour in employment obtain\\nno wage\\nFirst, as to capital, whether it be true or not\\nthat the prospect of obtaining interest is a neces-\\nsary motive to induce the creation of capital, it\\nmay distinctly be affirmed that interest is not\\nnecessary to secure the economic maintenance of\\nforms of capital which have been brought into\\nexistence. What is needed for the continuous\\nexistence of forms of capital is a provision against\\nwear and tear or depreciation; this charge upon\\ngross profits is not interest, but is a deduction\\nprior to payment of any interest. A business pay-", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0169.jp2"}, "168": {"fulltext": "154 THE ECONOMICS OF BISTBIBUTION.\\ning the minimum or merely nominal interest on\\nits invested capital must, if it is properly con-\\nducted, have made provision for the maintenance\\nof its plant and other forms of capital. Though\\nsome positive interest may be necessary to bring\\ninto use new forms of capital, it is not required\\nto maintain old forms. This Walker has rightly\\nrecognised by insisting that the idea of no-rent\\nland must be extended to no-profit businesses, and\\nthat the profits of better businesses may be meas-\\nured from this margin, as the rents of land are\\nmeasured from a no-rent margin.\\nIndeed, the more closely we look at the real\\nsupply of land and capital, the more artificial and\\nthe more unjustifiable appears the abrupt distinc-\\ntion made by earlier economic theories. Mere\\nland does not figure in supply. Land in its\\nnatural state prairie land is not really a\\nfactor of production. Its so-called inherent\\nand indestructible properties have no value until\\nthe land is cleared and broken in, until some ex-\\npenditure of labour is made upon it. In this\\nsense there is a cost of producing a supply of land\\nroughly corresponding to the cost of producing\\ncapital.^ Again, just as the continued existence\\nof capital is secured by a constant provision\\n1 Professor S. N. Patten lias shown {Premises of Political\\nEconomy) how this cost of production of land impairs the\\nexactitude of the measurement of rent, because the laws\\nwhich regulate the bringing of new lands into cultivation, and", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0170.jp2"}, "169": {"fulltext": "THE LAW OF RENT. 155\\nagainst depreciation, so the powers of land for\\nmost purposes are not indestructible, but demand\\na constant outlay. The abstraction of an eco-\\nnomic land for which economic rent is paid is on\\nthe whole a singularly futile and confusing one.\\nThe worst capital and the worst land in economic\\nuse alike require a provision against wear and tear\\nwhich is neither interest nor rent, while the in-\\nterest and rent paid for their use is a merely\\nnominal amount.\\n4. Now the case of labour seems different,\\nbut the difference arises merely from the adoption\\nof inconsistent terminology. Whereas the fund\\nfor keeping forms of land and capital in existence\\nis not termed rent or profit, the fund for keeping\\nin economic existence repositories of labour-power\\nis included under wages. Thus it comes to\\npass that while the margin of land is no-rent land,\\nthe margin of capital no-interest capital, the mar-\\ngin of labour is (say) 15s. labour.\\nIn order to clear the problem of price in distri-\\nbution, it is essential to remove this anomaly.\\nThis 15s. wage does not in any sense correspond\\nto interest or to rent. It is simply a wear-and-\\ntear fund of labour, the expenditure necessary to\\nreplace the labour-power given out in a day s work,\\nthose according to which land will be withdrawn from cultiva-\\ntion, are very different, affording a large margin within which\\nthe price of produce may vary without a change in the quantity\\nproduced.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0171.jp2"}, "170": {"fulltext": "156 THE ECONOMICS OF DISTRIBUTION,\\nand to maintain the labouring population at their\\npresent numbers and at their present efficiency.\\nThe logical coordination of factors of production\\nrequires that this wear-and-tear or depreciation\\nfund shall be distinguished from the additional\\npayment which most labourers receive. It is\\nwages above 15s. that correspond to positive rent\\nor interest. If the term wage could be applied\\nexclusively to the fund of maintenance, and some\\nother term, such as rent of labour, could be\\nused to describe the higher payments, the coor-\\ndination would be complete.\\nWe should then be able to apply with a fairly\\nclose degree of accuracy to all three the general\\nstatements which have been often reserved for\\nland.\\n5. The fact that while land may be in exist-\\nence unutilised below the limit of cultivation,\\nno forms of capital continuously exist below the\\nno-profit limit, and no labour-power can be assumed\\nto exist below the bare subsistence limit, does not\\nin the least impair the setting. For just as land\\nbelow the margin has only a potential economic\\nexistence, and can only be brought into supply by\\nprices which give a positive rent to marginal land\\n(lowering the margin of cultivation), so there\\nmust be deemed to be a potential fund of capital\\nwhich will become actual, provided marginal capi-\\ntal receives a positive interest, while any rise of\\npayment to the marginal ISs. labour will increase", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0172.jp2"}, "171": {"fulltext": "THE LAW OF BENT. 157\\nthe supply of labour-power, either by raising the\\npopulation rate or by improving the efficiency of\\nlabour, or by both.\\nThe causes which raise and lower the margin in\\nall three cases will be similar in operation. The\\ninvestigation of these causes, however, lies beyond\\nour present inquiry. What payments for use\\nof land, capital, labour, enter as elements into\\nmarket-price of goods was our leading question.\\nThe coordination of land, capital, and labour\\nleads us to conclude that just as rent of land\\nneed not form an element of cost or price in agri-\\ncultural produce, some of which is raised on no-\\nrent land, so interest need not figure in the cost\\nor price of manufactured goods, some of which are\\nproduced by no-interest businesses, while similarly\\nno cost of labour above the 15s. depreciation fund\\nneed enter into the price of commodities partly\\nproduced by marginal labourers.\\nThe same reasoning which shows that differen-\\ntial rents of land need not enter price shows also\\nthat differential payments for capital and labour\\nneed not enter price.\\n6. Can a market-price then be composed of\\nthese depreciation or maintenance costs, without\\nany element of positive rent or interest?\\nIt might be the case. If a part of the supply\\nof wheat in a market was raised upon no-rent land\\nby farmers who obtained no interest for their capi-\\ntal and paid the minimum subsistence wage to", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0173.jp2"}, "172": {"fulltext": "158 THE ECONOMICS OF DISTRIBUTION.\\ntheir labourers, such wheat raised under the great-\\nest economic difficulty might regulate the market-\\nprice.^\\nBut normally the last and most expensive por-\\ntion of supply which rules the supply-price will\\nnot be produced under conditions which exclude\\nall rent and all profit. Where a number of farmers\\nworking under widely different conditions, some\\nin old, some in new countries, are contributing to\\nthe same wheat supply, it is more likely that the\\nlast portion of supply will be produced, partly on\\nno-rent land, but paying an interest on capital and\\nperhaps a wage far above 15s., partly by tenant-\\nfarmers paying rent but earning no interest on\\ninvested capital, partly by peasants paying rent\\nor mortgage interest, but living on a bare sub-\\nsistence wage. That is to say, the Law of Sub-\\nstitution has always to be taken into account.\\nThe possibility of this choice or substitution of\\nmethod shows the futility of arguments based on\\nthe single Ricardian application of the Law of\\nRent. If the history of the most expensive por-\\ntion of a wheat supply could be closely traced, it\\nmight well be found that some quarters of it were\\nraised on no-rent land, others on no-profit capital,\\nothers on subsistence wages but that an average\\n1 This assumes that the marginal buyer is stronger than the\\nmarginal seller in the wheat market, and that therefore the\\nprice is pressed down to the lower limit so as to include no\\nelement of forced gain.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0174.jp2"}, "173": {"fulltext": "THE LAW OF RENT. 159\\nquarter of this most expensive portion contained\\nsome element of rent or interest or higher wage,\\nor all three.\\nIn other words, the Law of Substitution requires\\nthat in measurement of price we should substitute\\nfor the margin of cultivation of land a composite\\nmargin of employment of land, capital, and labour,\\nat which is paid not necessarily the minimum\\nrent, interest, and wage, but the lowest average\\ncombination of the three. Supply-price will be\\ncomposed (under absolutely free competition) of\\nthese marginal expenses.\\nDifferential expenses of production above this\\ncomposite limit, whether they be rent, interest, or\\nwages, will not enter into the market-price of the\\nsupply.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0175.jp2"}, "174": {"fulltext": "CHAPTER V.\\nTHE GRADING OF LABOUR AND CAPITAL. MARGI-\\nNAL AND DIFFERENTIAL PAYMENTS.\\nPart I.\\n1. Having indicated the changes in economic\\nconceptions and terminology requisite to enable\\nns to establish the general coordination of the\\nthree factors of production and the application\\nin each case of the idea of a measurement of price\\nfrom a no-pay margin of cultivation or employ-\\nment, we may proceed to investigate with more\\nparticularity how far the marginal and differential\\ngrading admitted in the case of land is applicable\\nto the other requisites, and how far the laws\\nwhich govern the increase in supply of land for\\nvarious markets operate in analogous fashion upon\\nthe supply of labour and capital.\\nFirst, let us take labour. How far can we\\napply to labour the system of grading which we\\nhave employed in the case of land?\\nThe tendency of earlier economists, motived by\\ntheoretic considerations, was to impute too much\\nfluidity to labour, too much choice of occupation\\nto individual labourers, and (as an oft-quoted\\n160", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0176.jp2"}, "175": {"fulltext": "GRADING OF LABOUR AND CAPITAL. 161\\npassage of Adam Smith illustrates) to make in-\\nsufficient allowance for differences of natural\\naptitude between man and man. The early theo-\\nrists spoke too much of the labour-market, as\\nif to all intents and purposes it were one market,\\nas if each new-grown labourer had the whole field\\nof e nployment open to his choice, as if the removal\\nof certain legal barriers, such as the Law of Settle-\\nment or gild regulations, would enable labour,\\nalready specialised in some occupation, to leave\\nthat occupation easily and freely and seek another,\\nwhere the wages or net advantages were higher.\\nThey failed to give adequate recognition to the\\nfact that there exists not one but many labour-\\nmarkets, marked off from one another not merely\\nand not chiefly by locality, but by many racial,\\neducational, industrial, and social demarcations.\\nBetween many of these labour-markets, even in\\nEngland to-day, the passage is so narrow and so\\nslow that there can hardly be said to exist an\\neffective tendency to equalise the net advantages\\nof the various employments. The wide differences\\nof class wages, and even of local wages, for similar\\nwork, is ample testimony to this truth.\\nHow far the causes which prevent the forces\\nmaking for equalisation of the net advantages of\\nlabour from being fully operative are to be spoken\\nof as natural, in the same sense that the laws\\nwhich determine the contribution of land to dif-\\nferent supplies are natural, we need not here dis-", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0177.jp2"}, "176": {"fulltext": "162 THE ECONOMICS OF DISTRIBUTION.\\nCUSS. What does concern us is the fact that, as a\\ngiven kind of land in a given position is, partly\\nfrom natural, partly from social-economic causes,\\nconfined to contributing toward a particular sup-\\nply, so a given kind of labourer is by natural and\\nsocial-economic circumstances similarly limited\\nin the application of his labour-power. It may be\\nand is easier to alter some of the circumstances\\nwhich determine the application of labour than in\\nthe case of land, though agricultural science and\\nmachinery of transport have done much to impart\\ngreater adaptability to land. But though the free-\\ndom and adaptability of labour be greater than of\\nland, if we take the existing supply of labour it\\nmust be regarded as subject, though in a weaker\\ndegree, to a gradation similar to that which we\\ntrace in land.\\n2. As we have land which is good for nothing\\nbut rough grazing, the worst of which yields a\\nmerely nominal rent, so we have a mass of low-\\nskilled, low-untrained labour, which earns in its\\nworst sorts a wage of bare physical subsistence.\\nIn fact, the lowest wage is less than a bare sub-\\nsistence wage, if by the subsistence of the indi-\\nvidual we mean his maintenance during the full\\nspan of his natural life, or even through the whole\\nterm of his effective working life. Slave-labour,\\nunder an intelligent profit-monger, may require\\nprovision to be made for a full working life, though\\neven under slavery it may sometimes pay to use", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0178.jp2"}, "177": {"fulltext": "GRADING OF LABOUR AND CAPITAL. 163\\nup a slave by intense toil during a shorter period.\\nAn effective system of poor law, which guaranteed\\nan adequate support to able-bodied labour out of\\nemployment, upon terms not degrading to the\\napplicants, might, by offering an alternative to\\nordinary wage-labour, secure economic conditions\\nwhich would raise the minimum wage of low-\\nskilled labour to a level of life subsistence. The\\nactual minimum wage under normal modern in-\\ndustrial conditions must be taken to be such a\\nAvage as enables a worker to go on working until\\nhe has provided through his family a substitute.\\nOf course if there is an increasing demand for\\nlabour expected in the future, the minimum wage\\nmust be such as to evoke more than one substitute,\\ni,e, to call for an increase of working population\\nin this lowest grade.\\nThis dependence of growth of working popu-\\nlation upon wages is, of course, modified by the\\noperation of poor laws, private charity, and pub-\\nlic support of various kinds. It will therefore be\\nthe case that population may grow at a somewhat\\nfaster rate than would be brought about by the\\nplay of wage-forces alone.\\n1 Early economists overstated the directness and the exacti-\\ntude of the influence of purely economic forces (wages) upon\\nthe supply of labour. The tendency at present is to under-\\nestimate it. In particular it has been pointed out that a higher\\nstandard of wages in a country like England does not cause a\\ncorresponding growth of the labouring population. On this\\npoint three things may be said. First, it is often forgotten that", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0179.jp2"}, "178": {"fulltext": "164 THE ECONOMICS OF BI8TBIBUTI0N.\\nI have spoken of a certain minimum wage as\\nanalogous to a depreciation or wear-and-tear fund\\nof capital. This sum, varying somewhat, of\\ncourse, with the various kinds of labour, as the\\ndepreciation fund varies for different forms of\\ncapital, I estimated at 15s. In a progressive in-\\ndustrial community, where an increase of labouring\\npopulation with a sufficient margin of unemployed\\nto be utilised in periods of booming trade was re-\\nquired, the minimum wage, or cost of subsistence,\\nmust of course be more than this 15s. required to\\nkeep a stable population in that grade and this\\nadditional wage (say 3s.) required to raise the\\npopulation must be regarded as analogous to a\\nminimum interest required to call forth additional\\ncapital.\\n3. If, then, in a community the lowest grade\\nof labour was paid 18s. for its least efficient mem-\\nbers, we should find rising above this grade various\\none important effect of a higher standard of comfort is that a\\nlarger proportion of children grow to maturity. Secondly, with\\na higher standard of comfort, the effective supply of labour is\\nincreased, not only by the number of labourers, but also by\\nthe quantity of labour-power each labourer represents, i.e. the\\naverage working life is longer, and is capable of yielding in a\\ngiven time a larger quantity of efficient labour-power. Lastly,\\nthe check which forethought and preventive methods have\\nplaced upon the growth of population in the more intelligent\\nclasses plays yet a very small part in the labour-markets of the\\nworld.\\nIt is still true that rising wages evoke an increased supply of\\nlabour-power.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0180.jp2"}, "179": {"fulltext": "GRADING OF LABOUR AND CAPITAL. 165\\nother grades paid upon higher scales. Speaking\\ngenerally, we should be able to classify the workers\\nby a sort of stratification beginning with the low-\\nskilled worker at the bottom, proceeding through\\nseveral strata of factory hands, the building trades,\\nskilled mechanics, into the salaried, professional,\\nand managing classes. The rate of payment will\\nbe higher, as we rise, for the least efficient labour\\nactually employed at the various levels. In other\\nwords, we should find a number of class minimum\\nwages analogous to the different specific marginal\\nrents which mark off the margin of pasture land,\\nwheat land, hop land, city lands, etc. This strati-\\nfication of labour is now commonly admitted,\\nthough to some economic thinkers it seemed novel\\nwhen Cairnes gave his vigorous indorsement to\\nthe idea. What we find in effect is, not a whole\\npopulation competing indiscriminately for all oc-\\ncupations, but a series of industrial layers super-\\nimposed on one another, within each of which the\\nvarious candidates for employment possess a real\\nand effective power of selection, while those occu-\\npying the several strata are, for all purposes of\\neffective competition, practically isolated from\\neach other. 1 It is not necessary to insist too\\nstrictly upon this practical isolation. Indi-\\nviduals can pass from one stratum to another;\\nnew labour has some considerable choice. It is\\nsufficient to recognise that at any given time we\\n1 The Slave Power, p. 73.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0181.jp2"}, "180": {"fulltext": "166 TRE ECONOMICS OF BI8TBIBUTI0N,\\ndo find a gradation of labour with different rates\\nof wage for the least efficient members of each\\ngrade. Again, within each group will be found\\na number of different qualities of labour earning\\ndifferent rates of remuneration. These, too, we\\nmay measure from the position of the determinant\\nlabourer of each class.\\nThe same correction of the position assigned to\\nthe marginal labourer is required as in the case\\nof marginal cultivation of land. In the labour-\\nmarket what is really sold is not labour-time, but\\nunits of labour-power; the determinant labourer,\\ntherefore, need not be the least efficient labourer,\\nbut may be a superior labourer, who is determi-\\nnant in the sense that he is only just induced by\\nthe class wage paid to contribute to supply. The\\nleast efficient labourer might have no alternative\\nemployment, and might be willing, therefore, to\\naccept a lower wage, if he were obliged; but a\\nsuperior labourer of the class might have an alter-\\nnative employment so that the wage must be such\\nas to induce him to apply his labour-power to this\\nuse. It is the economic position of this deter-\\nminant labourer which from the cost side helps to\\ndetermine the value of a unit of labour-power and\\nso to fix not merely the wage he himself receives,\\nbut also the wage of the various other labourers\\nin his labour-market, whose actual wages depend\\nupon the number of units of this labour-power\\nthey can give out. Thus the efficiency of the", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0182.jp2"}, "181": {"fulltext": "GRADING OF LABOUR AND CAPITAL. 167\\nleast efficient labourer in the class has no direct\\ndetermining power over the class wages, as is\\nsometimes suggested; it is the economic power of\\nthe determinant labourer which fixes the pay\\nof the least efficient labourer.\\nThe system of piece wages makes this easily in-\\ntelligible. The least efficient worker in a trade\\nmay be earning by piece wages 20s. a week; this\\nmay be regarded as a marginal wage in this class\\nof labour, differential wages of superior individual\\nskill rising above it. The determinant labourer\\nmay be a superior worker earning 30s., 10s. being\\na wage of individual ability within the class.\\nThis labourer must receive 30s. in order that he\\nmay do this kind of work in preference to some\\nother. He is the final seller in this labour-market,\\nwhose action determines on the selling side the\\nprice for the whole market.\\nBut though this 30s. labourer may be accounted\\nthe determinant labourer, it does not follow that\\nthe whole of the 30s. is necessary to divert him\\nfrom his alternative employment. Just as in our\\ngrading of land we found that in addition to the\\nmarginal and differential rents there might be a\\nrent of sheer scarcity, where demand pressed\\nupon a short supply, so here it might be that the\\nalternative employment open to the determinant\\nlabourer would yield him a wage of only 27s. but\\nalthough any wage above 27s. would secure his\\ncontribution to the supply of labour under inves-", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0183.jp2"}, "182": {"fulltext": "168 THE ECONOMICS OF DISTBIBUTION,\\ntigation, he is able in his capacity of determinant\\nseller to exact 30s., including a scarcity wage of\\n3s., which last sum corresponds to the forced gain\\nthat accrued to the stronger member of the final\\npair of bargainers in our horse-market.\\nThe term rent of ability, frequently applied\\nto the higher wages earned by a more competent\\nworker, shows that the analogy of classification of\\nland and labour has made some considerable way.\\nThe margin in both cases is not rigid, but is con-\\ntinually shifting, faster, no doubt, in labour than\\nin land, but the same economic terminology ap-\\nplies.\\n4. Moreover, the price of labour is seen to\\nenter into the price of commodities upon precisely\\nsimilar terms to the rent of land, when we exclude\\nthe bare subsistence wage, as we exclude the\\ndepreciation fund for land and capital. The 15s.\\nsubsistence should rightly be regarded as a first\\nmortgage upon the product, along with the corre-\\nsponding provision of maintenance for capital and\\nland.\\nBeyond that necessary provision no element of\\ntrue wage (or labour profit) enters into the price\\nof the product of the lowest labour. But the\\nminimum wage of a Lancashire weaver (say 21s.)\\nwill yield a marginal rent measured from 15s.,\\namounting to 6s. This marginal or class wage\\nwill enter into price. If a mason s minimum wage\\nbe 30s., the excess of this sum over 15s. will simi-", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0184.jp2"}, "183": {"fulltext": "PAYMENTS. 169\\nlarly enter into price. But the individual wage\\nearned by a more skilful weaver or mason will\\nform no element in expenses of production, and\\nwill not enter into price. Modern economists\\noften admit that only the wage of the least efficient\\nlabour counts in price of the product, but not clearly\\nrecognising the difference between the determi-\\nnant labourer and the marginal labourer, they\\nare often disposed to impute to the latter a determi-\\nnant influence which really belongs to the former.\\nAll that we have to add is that there are a num-\\nber of different marginal labourers for different\\nlabour-markets. There are marginal rents of\\nlabour (sometimes containing also a rent of scarc-\\nity) which are represented in price, and there\\nare differential rents which are not represented.\\nPart II.\\n5. How far may capital be submitted to a\\nsimilar process of marginal and differential grad-\\ning How far can we distinguish different classes\\nof capital more or less profitable, and individual\\ndifferences within a class\\nHow far does the alleged fluidity of capital,\\nmaking for a single supply and a common level of\\nremuneration for its services, impugn this theory\\nof stratification\\nWe have seen that this belief in an equality of", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0185.jp2"}, "184": {"fulltext": "170 THE ECONOMICS OF DISTRIBUTION.\\nremuneration for capital arises partly from the fact\\nthat capital is commonly reduced to terms of its\\nmoney- value a process which assumes equality\\nof remuneration as its starting-point. When we\\nturn to the actual forms of concrete capital, we\\ncertainly find wide variation of remuneration.\\nBut can we regard these differences as analogous\\nto the specific and differential rents or earnings of\\nland and labour It has been necessary to select\\nthe term interest to describe the remuneration\\nof capital, but capital cannot earn interest of itself\\nor even in conjunction with land and labour.\\nCapital, in order to function in industry, must be\\nhandled by a business man, and it is always pos-\\nsible to claim that a part at least of the net gain,\\nafter all other deductions commonly named, is due\\nto skill or economy of handling. The extra gain\\nwhich comes from handling a large quantity of\\ncapital, as compared with a small quantity, even\\nthough this handling requires no more skill or\\neffort, is commonly assigned, not as payment for\\nuse of capital, but as wages of management.\\nBut though in practice it is extremely difficult,\\nperhaps impossible, to sever this interest, or pure\\n1 This claim is, of course, not confined to the remuneration\\nof capital the productiveness of land and labour is also\\ndependent upon skilful handling, and it is possible to claim\\nas true earnings of management part of the results of in-\\ncreased productiveness of land and labour. In the case of\\nlabour, Mr, Mallock has pressed this claim, asserting that high\\nwages really include earnings of management.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0186.jp2"}, "185": {"fulltext": "PAYMENTS. 171\\npayment for use of capital, from other elements,\\nan orderly scheme of economic theory requires us\\nto do so. Now my suggestion is that if this sever-\\nance were made, interest would certainly be shown\\nnot to be equal for the use of all equal- quantities\\nof capital. The different concrete shapes, which\\nequal quantities of saving take, will most likely\\ndiffer as widely in the profits they obtain for their\\nowners, as one 10-acre field differs in rent from\\nanother 10-acre field, or one labourer differs from\\nanother labourer in wages.\\nThere is no force in operation which would\\nguarantee that the saving which went into a\\nsteam-engine would earn for its owner an in-\\nterest identical in size with that for the same\\nquantity of saving which went into a shop-build-\\ning, or that one railway carriage is as remunerative\\nas another railway carriage of equal quality.\\nIn other words, some employments of capital\\nare more remunerative than others, and, within a\\ngiven employment, some pieces of capital are more\\nremunerative than others.\\nIf these differences were due to the difference\\nof skill with which they were handled, they must\\nof course not be reckoned as differences of interest\\nin our sense.\\nBut if there exist certain conditions which pre-\\nvent absolute fluidity of investment, which limit\\nand mark off certain fields of investment for cer-\\ntain owners of capital, and which give within a", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0187.jp2"}, "186": {"fulltext": "172 THE ECONOMICS OF DISTBIBUTION,\\nfield of investment special advantages to some\\nowners as compared to others, it will seem legiti-\\nmate to grade capital, as we grade land and labour,\\ninto a number of practically non-competing groups\\nwith differential gains within each group.\\n6. If it were open to all savers to have full,\\nequal knowledge of every field of investment, and\\nto have equal access to all fields, real interest, like\\nmoney interest, would be uniform. But is this\\nthe case?\\nGeneral Walker has explicitly denied the alle-\\ngation that different classes of investment differ\\nin the rates of profit they yield, and even suggests\\nthat the differences of interests derived from\\ndifferent pieces of capital in the same class are not\\ntrue interest.\\nThat different bodies of capital do, in fact,\\nyield different rates of interest is too evident to\\nrequire proof; but this is due to many causes,\\nwhich are irrespective of the nature of the capital\\nitself.\\nGeneral Walker enumerates three chief causes\\nfor these differing rates of remuneration; (a) Dif-\\nference in risk; (yS) miscalculation on the one\\nhand, or fortunate speculation on the other;\\n(7) disguised rent, disguised profits, or commer-\\ncial good-will.\\nNow, in the first place, it may be observed that\\na and /3 are not different causes, but two ways of\\n1 Quarterly Journal of Economics^ July, 1891.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0188.jp2"}, "187": {"fulltext": "PAYMENTS. 173\\nlooking at the same cause. A risky invest-\\nment is nothing else than an investment prone to\\nmiscalculation, or in which success is in large\\nmeasure the result of fortunate speculation a is\\nthe objective, yS the subjective, view of the same\\nfactor.\\nBut does this fact meet the allegation that\\ndifferent classes of investment differ in remunera-\\ntiveness? Not at all. It only helps to explain\\nwhy, within the same class of investment, the rate\\nof interest upon some pieces of capital is higher\\nthan for others. The allegation that the nature\\nof the capital has something to do with determin-\\ning the rate of interest means, of course, that in\\ncertain employments of capital there is a higher\\naverage rate of interest than in others. It is cer-\\ntainly strange that General Walker should have\\nfailed to perceive that while his last cause (7)\\nrefers to classes of investment, (a) and (/3) refer\\nonly to individual investments within a class.\\nTurning to (7) it will be at once admitted that\\ndisguised rent is a vera causa in determining what\\nseems to be the higher interest for certain classes\\nof investment. There are several ways in which\\nrent is liable to figure as interest.\\nCertain classes of business yield a higher rate\\nof interest because the capital invested in them is\\nprotected from free and effective competition by\\nassociation with monopoly of land. Land-values\\nand capital-values are not always clearly distin-", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0189.jp2"}, "188": {"fulltext": "174 THE ECONOMICS OF DISTRIBUTION.\\nguisliable. If the term capital is confined to\\nits only logical use, to express production-goods\\nand plant, we shall see that those engaged in the\\nearly steps of converting the raw material of the\\nsoil into early forms of capital are, in part land-\\nowners, in part capitalists. The businesses of ex-\\ntracting ore, of raising cattle, and the whole\\nindustry of agriculture are businesses in which\\nland-values are not easily distinguishable from\\ncapital-values or rent from interest. Even where\\nthese operations are conducted on rented lands,\\nthe custom of leasing does not enable us to clearly\\nor precisely determine whether in a given year\\nsome profit has not been returned as economic\\nrent and vice versa.\\nWhere the owners of a business are also the\\nowners of ground upon which it is conducted, a\\ngrowing element of land-value will often show\\nitself as a rise in interest. No consideration of\\nthe value of surrounding land can wholly guard\\nagainst this confusion. If this is the case in\\nordinary businesses, where the use of land is for\\nmachinery and other plant, warehouses, etc., much\\nmore is it the case where the elements of the soil\\nor spatial qualities play a direct part in the busi-\\nness. Such a case is that of breweries. The\\ninterest paid on capital engaged in gas or water-\\nworks, or tramcars, is complicated, as we shall see\\npresently, by another monopoly influence; but it\\nis rarely possible to separate, in the dividends", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0190.jp2"}, "189": {"fulltext": "PAYMENTS. 175\\npaid to shareholders, the elements of economic\\nrent and interest. Most important is the part\\nplaced by land limitation in transport industries.\\nProfessor Marshall is of opinion that the domi-\\nnant economic fact of our age is the development,\\nnot of the manufacturing, but of the transport\\nindustries. Now the transport industries, so\\nfar as they are left in private hands, require a\\nmonopoly of earth surface. Between o^nj two\\npoints of population there is only one shortest\\nway. Whether it be a railroad, a telegraph road,\\nor a tram line, the most advantageous route can\\nonly be in the possession of one company at the\\nsame time. Most transport companies obtain a\\nmore or less permanent possession of the most\\nadvantageous route, supporting this natural mo-\\nnopoly, in many cases, by a state privilege pro-\\ntecting them against competition, even beyond the\\nlimits of their natural monopoly. Here, again,\\nit is impossible to say how far the higher rate of\\ninterest paid by a successful railway or tramcar\\ncompany is really an economic rent of land, and\\nbow far land monopoly has assisted certain other\\nmonopoly powers inherent in certain uses of\\ncapital.\\nIf it be the case that more and more capital and\\nlabour will be engaged in distributive than in\\nextractive or manufacturing processes, the impor-\\ntance of this close alliance of land ownership with\\n1 Principles of Economics, 2d ed. p. 724.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0191.jp2"}, "190": {"fulltext": "176 THE ECONOMICS OF BISTBIBUTION.\\ncapitalism is a growing one. Where the effect\\nof land ownership is to restrict the competition of\\ncapital in any given employment, it may fairly be\\nurged that any abnormal interest due to the re-\\nstricted competition or the power of capital is\\nultimately traceable to land-power. But inasmuch\\nas this specific rent appears as interest and\\ncannot conveniently be separated from genuine\\ninterest, it is rightly regarded as an element in\\nthe specific differences of forms of investment.\\nBy disguised profits, General Walker may\\nmean one of two things. It may signify the\\nhigher interest paid upon certain capital owing to\\nsuperior skill of management. In this case rent\\nof ability figures as interest. The skill of an\\nable manager who is paid by a fixed salary may\\nfor a time secure higher dividends for the share-\\nholder, just as the mismanagement of an incom-\\npetent manager may lower the dividends. But,\\nunless it can be shown that a particular class of\\nbusiness, by its very nature, presents special\\nattractions to managing ability, this form of dis-\\nguised profit is an individual affair and cannot be\\nplaced on the same footing with disguised rent\\nas an explanation of specific differences in re-\\nmunerativeness of capital.\\nBut the term disguised profits may cover\\na real form of class gain. Certain classes of\\ninvestment are, in fact, restricted to capital in\\nthe possession of men who enjoy certain class", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0192.jp2"}, "191": {"fulltext": "PAYMENTS. 177\\nadvantages of position, education, or trade con-\\nnection. It is admittedly difficult for a poor\\nman who has saved a little money to find a\\nsafe or remunerative investment. The spread\\nof education and improved methods of coopera-\\ntion may effect some change, but it is at pres-\\nent true that capital invested by persons of means,\\nposition, and intelligence is, on the average,\\nmore remunerative than the capital invested by the\\npoorer and more ignorant. The restricted access\\nto knowledge and skill, where the use of capital\\nrequires special skill, secures for certain classes a\\npractical monopoly of certain forms of investment.\\nLawyers and bankers, it is generally held, possess\\ncertain opportunities of profitable investment not\\nopen to ordinary persons.\\nAny higher rate of interest secured by capital\\ninvested under these conditions may, of course,\\nbe regarded as a marginal rent due to special\\nadvantages of education or opportunities, and, as\\nsuch, classed under the head of profit rather than\\nof interest. The vagueness still attaching to the\\nword profit as an economic term favours this\\ninterpretation. But if, on the other hand, we\\nregard limitation of investment as a quality attach-\\ning to capital, the marginal rent of such form\\nof capital may not unfairly be claimed as a rent\\nof capital.\\nWhile the restricted access to land or oppor-\\ntunity serves to explain the higher rate of real in-", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0193.jp2"}, "192": {"fulltext": "178 THE ECONOMICS OF DISTRIBUTION.\\nterest for capital in certain forms of investment,\\nthere are other causes, political, social, and eco-\\nnomic, which endow certain forms of capital with\\na remunerativeness which is rightly regarded as\\nattaching to the nature of the species of invest-\\nment.\\nFirst: privileges conferred or restrictions im-\\nposed by national or local authority limit the\\nfreedom of competition in certain employment of\\ncapital, i.e. endow certain capital with a power\\nof monopoly.\\nSometimes a charter gives to a particular body\\nof capitalists an absolute monopoly, with or with-\\nout restrictions as to maximum price of the\\ncommodity they provide. No direct competition\\ntouches the monopoly of gas or waterworks estab-\\nlished in a town and secured by charter for a given\\nbody of capitalists. In addition to the maximum\\nprice and to a maximum rate of interest, some-\\ntimes imposed but commonly evaded by watering\\nthe stock or other devices, there are two economic\\nlimitations to such monopolies. The first is that\\nfurnished by the Law of Substitution, the ability\\nof the consumer to dispense with the article of\\nmonopoly and to use some other article in its stead.\\nIf the price of gas were raised beyond a certain\\npoint, the enlarged use of electricity, of oil, can-\\ndles, or other illuminants would check the rise.\\nHence the monopoly of a water company is a\\nstronger one; for it would be more difficult to", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0194.jp2"}, "193": {"fulltext": "PAYMENTS. 179\\nobtain another supply or to substitute some other\\ncommodity than in the case of gas.\\nThe second limit depends upon the complex\\nrelations existing between supply-price and de-\\nmand in the particular case. Every rise in the\\nprice of gas above the competitive price of two\\nrival companies would bring a certain shrinkage\\nof demand. Hence it arises that the highest price\\ndoes not necessarily yield the largest net profit.\\nGenerally, it may be stated that the most profit-\\nable price is high in proportion as the article of\\nmonopoly is indispensable.\\nSince neither of these qualifying conditions of\\nmonopoly is of the nature of that competition\\nwhich tends to reduce to a common level ordinary\\nclasses of investment, we have clearly a specific\\ninterest which enables us to grade these protected\\nclasses of investment according to the various\\ndegrees of monopoly pressure which they possess.\\nThe power vested in owners of valuable patents,\\nand even in those who, without legal protection,\\nhave exclusive control of any market or of the sale\\nof any class of goods, is of a similar economic\\ncharacter, and enables the capital invested in such\\nbusinesses to get a specific interest.\\nProtective tariffs, or bounties, in so far as they\\nsucceed in restricting or limiting freedom of com-\\npetition in certain employments of capital, help\\nto maintain a special rate of interest in those\\nbusinesses in which new capital cannot easily", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0195.jp2"}, "194": {"fulltext": "180 THE ECONOMICS OF BISTBIBUTION.\\nenter so as to share the advantage of the state-\\ngranted monopoly. The only economic reason\\nwhich can induce any class of manufacturers to\\nseek protection for the goods they make, is the\\ndesire to reap the marginal interest of capital\\nwhich this protection secures.\\nBut the most important cause of marginal rents\\n(specific interests) of capital resides in the nature\\nof capital itself as a factor of production in cer-\\ntain classes of business, independently of all\\nsocial or political privileges or restrictions.\\nIn whatever branches of industry the economic\\nLaw of Increasing Returns prevails, that is to say,\\nwhere capital and labour are most advantageously\\nemployed in large quantities, the capital invested\\nmay obtain a special rate of interest. It is un-\\nnecessary to enumerate the particular economies\\nwhich in most manufacturing and mercantile busi-\\nnesses give a net economic advantage to the big\\ncapital. But it should be kept in mind that these\\neconomies do not of themselves furnish any guar-\\nantee of a higher rate of interest. They operate\\nindirectly, by reducing the number of competitors\\nand abating the pressure of competition. If the\\ncompetition between the smaller number of large\\ncapitals was as keen and constant as between the\\nlarger number of small capitals invested in other\\nbusinesses, the advantage in higher interest which\\nthese economies might seem to justify would\\nentirely disappear. But the size of the capitals", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0196.jp2"}, "195": {"fulltext": "PAYMENTS. 181\\nengaged prevents the competition from being so\\nkeen and so constant. At certain periods, it is\\ntrue, competition may be as effective between two\\nor three competitors as between two or three\\nthousand. But where the competition is between\\nfew, it is, on the average, less persistently effec-\\ntive. The different competitors exercise each a\\ncertain practical monopoly over certain districts\\nor in certain lines of goods. Even where the com-\\npetition with a big competitor is keen, its keen-\\nness is abated when prices are driven down so low\\nas to yield only a common rate of interest. Above\\nall, the opportunities of suspending competition,\\nor of forming agreements for maintaining prices,\\nlimiting supply, or keeping down wages, are\\nvastly greater in a trade given over to a few large\\ncapitals than where there are many small compet-\\ning capitals. The advantage given to capital in\\ncontrolling the price of labour in employments\\nmost subject to the Law of Increasing Returns,\\nwhere a small number of large capitals is con-\\nstantly narrowing to the apex of a Trust, is most\\nsignificant. Certain disadvantages common to\\nmost forms of labour in bargaining with capital\\nare greatly enhanced where the competition of\\ncapitals is restricted to a few large masters.\\nLabour, writes Professor Marshall, is often\\nsold under special disadvantages, arising from the\\nclosely connected group of facts, that labour-power\\nis perishable, that the sellers of it are commonly", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0197.jp2"}, "196": {"fulltext": "182 THE ECONOMICS OF JDISTBIBUTION\\npoor and have no reserve fund, and that they can-\\nnot easily withhold it from the market. A posi-\\ntion of vantage in bargaining with labour is one\\nof the chief economic advantages in those indus-\\ntries where the action of the Law of Increasing\\nReturns has thrown the business into the hands\\nof a few large firms.\\nThe net economic advantages which large capi-\\ntals enjoy in industries where the Law of Increas-\\ning Returns is more powerfully operative than the\\nLaw of Diminishing Returns, secure to those capi-\\ntals a position of limited monopoly, i.e. a monopoly\\nlimited by the consideration that a very high price\\nwould bring new competitors into the market.\\nThe gain which this limited monopoly secures is\\na specific marginal interest. Industries where\\nthe monopoly is very limited draw a small specific\\ni,nterest; industries where the monopoly is of a\\nprime necessary of life, a substitute for which\\ncannot easily be found, where a supply from a\\nmore distant market cannot easily be procured,\\nwhere new captial cannot easily be applied to the\\nindustry, and where a considerable reduction of\\nconsumption is impossible, are in a position to\\nderive a very high marginal interest. The Law\\nof Increasing Returns forms the basis of economic\\ngrading of capital, just as the Law of Diminishing\\nReturns forms the basis of grading in land-values.\\nAccording to the varying pressure of this law in\\n1 Principles of Economics^ Vol. I, p, 600 (2d ed.).", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0198.jp2"}, "197": {"fulltext": "PAYMENTS. 183\\ndifferent industries, the capital engaged therein\\nenjoys a greater or less degree of monopoly power\\nand draws a greater or less specific interest, in\\naddition to the minimum interest socially required\\nto induce the saving of capital. Where the\\neconomies of large-scale production are biggest,\\nthe tendency is to bring about an absolute or\\nlimited suspension of competition among hitherto\\ncompeting capitals and to secure the saving of\\nfriction which attends the establishment of a\\nring or trust, where the present action of com-\\npetition is reduced to a minimum.\\nThe monopoly of a strong trust differs only in\\ndegree, and not in kind, from the monopoly held,\\nin different proportions, by all large forms of capi-\\ntal protected against the competition of smaller\\nintruders by the advantage conferred by the opera-\\ntion of the Law of Increasing Returns. Of course\\nthere are doubtless industries where this Law of\\nIncreasing Returns ceases to be operative beyond\\na certain point, or more strictly speaking, where\\na decline in efficiency of management in a business\\nof ever growing magnitude would outweigh the\\neconomies of a larger capital.\\nBut it is safe to say that in any industry within\\nthe limits of the dominant operation of this Law\\n1 Professor Marshall, who has worked out the operation of\\nthe Law of Increasing Returns and its limitations, considers its\\noperation from the standpoint of individual firms, not of classes\\nof investment. Bk. V, Ch. XI.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0199.jp2"}, "198": {"fulltext": "184 THE ECONOMICS OF DISTRIBUTION.\\nof Increasing Returns, there is an element of eco-\\nnomic monopoly yielding a specific marginal rent.\\nWe are now able to recognise that, in economic\\ntheory at any rate, pieces of capital may be graded,\\njust as pieces of land may be graded, according to\\ntheir capacity of contributing to various supplies.\\nThere are several reasons which explain why\\nthis conclusion, which seems to follow so clearly\\nfrom the admitted operation of the Law of Increas-\\ning Returns, should have so generally escaped\\nacknowledgment.\\nThe great variety in forms of capital, its superior\\nmobility as compared with land, its more rapid and\\nintricate fluctuations of value, have materially con-\\ntributed to conceal the gradation of capital. More\\nimportant still is the fact that, since capital is meas-\\nured in terms of money, actual forms of capital\\nare being continually revalued according to their\\nremunerativeness. This marginal rent of mo-\\nnopoly is constantly absorbed into the higher valu-\\nation which is given to the capital. The outside\\ninvestor of XlOO gets no more interest by purchas-\\ning a share in a business reaping a high marginal\\nrent than in a business enjoying no such rent.\\nLastly, the confused and illogical connotation\\ngiven to the term capital by most English and\\nAmerican economists has helped to obscure the\\ntruth. 1\\n1 Professor Bohm-Bawerk expresses a natural astonishment\\nthat so many English economists, differing so widely in their", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0200.jp2"}, "199": {"fulltext": "PAYMENTS. 185\\nBut, in addition to these causes which operate\\nto hide the nature of capital-values, there are\\nspecial reasons why marginal gains of capital have\\nescaped recognition among many who have clearly\\ngrasped the conception of scarcity-value in land\\nand in natural ability.\\nFirst, there is the difficulty, to which attention\\nhas been already called, of accurately distinguish-\\ning interest of capital from other special gains\\nwith which it coalesces. The interests of capital\\ndrawn by the firms of Bass or Guinness are not\\nseparable from the gains arising from certain forms\\nof land and water monopoly which form part of\\nthe business capital of these companies. It is\\nnot possible to say precisely how much of the\\nmonopoly rent which falls to Messrs. Carnegie is\\ndue to monopoly of land, how much to the legal\\nprotection of the tariff, and how much to the\\ncompetitive advantages of a large capital over a\\nsmall one in the steel rail industry. The capital\\ninvested in a chemist s shop probably yields a\\nhigher average interest than that employed in a\\ntobacconist s. It is not possible to say how much\\nof this advantage is due to the fact that it is\\ncheaper to stock a tobacconist s shop than a\\nchemist s, and that competition is, therefore,\\nkeener among the former, and how much of the\\ndefinitions of capital, should agree in the inconsistency of\\nincluding under capital consumption goods in the possession of\\nlabourers. {Positive Theory of Capital^ p. 67.)", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0201.jp2"}, "200": {"fulltext": "186 THE ECONOMICS OF DISTRIBUTION.\\nadvantage should be regarded as rent of ability or\\nas rent of a legal monopoly, because any one may\\npurchase a license to sell tobacco, while certain\\npersonal qualifications are required in a chemist.\\nThis difficulty involved in a separate estimate\\nof capital is one of the chief reasons why the\\nspecific marginal interests of capital have escaped\\nnotice, and have generally been attributed to land,\\nlegal monopoly, or natural ability, with the rents\\nof which they often coalesce.\\nAnother reason why they escape notice is that\\nthey are hidden generally by the greater promi-\\nnence of individual rents. Marginal rent is only\\nan approximately accurate term, selected for cer-\\ntain purposes of convenience. If we apply to\\ndifferent employments of capital the Law of In-\\ncreasing Returns, we see that it acts with varying\\nforce in various employments. It thus gives rise\\nto a number of marginal rents of capital. But,\\nwithin each species of employment, it also applies\\nwith varying force to various sizes of business.\\nIf any evidence were required of the existence\\nof marginal and individual interest of capital, it\\nwould be afforded by the persistent attempt which\\nis constantly made by a number of owners of small\\ncapitals to obtain these special gains by massing\\ntheir small capitals into a single large one. The\\nstarting of new joint-stock banks is strong evi-\\ndence of a belief in the inherent advantage of a\\nlarge capital over a small. One result of success-", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0202.jp2"}, "201": {"fulltext": "PAYMENTS. 187\\nful cooperation of a number of small capitals, in\\nemployments once monopolised by a few rich\\nowners of large private capitals, is, of course, to\\nintroduce that very element of keen competition,\\nthe absence of which was the basis of the monopoly\\nrent. Where cooperative small capitals can com-\\npete on equal terms with large private capitals,\\nmarginal and differential rents of capital alike\\ntend to disappear. So far, however, as it is true\\nthat a particular class of business requires a capital\\nof a given size in order that it may be conducted\\nwith an ordinary chance of success, this limitation\\nis able to secure a marginal rent for the capital\\nemployed in it with average business ability, as\\nwithin that business the advantage which a larger\\ncapital has over a smaller constitutes a basis of\\nindividual rent.\\nOne further objection to the proposed grading\\nof capital requires an answer. It will doubtless\\nbe urged that the differences upon which it is sug-\\ngested capital should be graded are not differences\\ninherent in the nature of capital, but rather differ-\\nences in the conditions of its employment. The\\nanswer is that the conditions under which any\\ngiven piece of capital are employed, the size in\\nwhich it is massed, the place it occupies in the\\nindustrial machine, belong to the nature of this\\nmaterial qua capital just as the element of relative\\nposition belongs to the nature of land-values.\\nThe value of particular forms of capital, of so", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0203.jp2"}, "202": {"fulltext": "188 THE ECONOMICS OF DISTRIBUTION.\\nmany engines, or pianos, or sovereigns, depends\\nin large measure upon where they are situated,\\nand in what quantities they are collected; accord-\\ning as they are more or less advantageously situ-\\nated in these respects, they help to earn a higher\\nor lower specific interest.\\nThe other form this same objection takes, that\\ncapital is inseparable from the guiding mind of\\nits employer, and that differences in rates of re-\\nmuneration are entirely attributable to skill or\\ngood fortune of the entrepreneur^ needs no further\\ndiscussion. It has been already admitted that an\\nelement of disguised profit is liable to figure as\\ninterest, just as it may also figure as rent of land\\nwhen a rapacious landlord rack-rents the tenant of\\na well-conducted shop. The intelligent activity\\nof man is requisite to the employment of capital\\njust as it is to the employment of land and labour-\\npower, if they are to be put to serviceable use\\nso as to yield a return in value. But the skill of\\nmanagement is no more the cause of the rents of\\ncapital which we are tracing than of the specific\\nrents of land.\\nIn reckoning capital-values just as in reckon-\\ning land-values, we are entitled to assume that\\naverage human intelligence is at work in their\\nemployment. It is important to keep this in\\nmind, for it furnishes a complete refutation to\\na view which is often held respecting the high\\nrates of interest in certain classes of investments.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0204.jp2"}, "203": {"fulltext": "PAYMENTS, 189\\nWhere successful firms obtain very high interest,\\nit is alleged that these high returns are balanced\\nby the low-interest, or the no-interest, or the\\nminus-interest, i.e. failure, of less successful firms.\\nIn kinds of employment of capital where the prizes\\nare high the blanks are more numerous.\\nNow it is only natural that the high monopoly\\nrents obtained by successful firms should tempt\\nfoolish owners of capital to engage in rash specu-\\nlation with the view of sharing these monopoly\\nrents. But, in reckoning the specific rent or the\\ntotal interest of capital employed in such an in-\\ndustry as gold-mining, we have no right to count\\nin the sums which greenhorns hand over to the\\nfloaters of bogus companies. We do not assess\\ngood agricultural land at a minus rent because\\nmany a fool has squandered his money in bad\\nfarming. The specific rent of a given class of\\nland is what it will pay in the hands of a tenant\\nof average skill so the specific rent of gold-mining\\nor any other form of investment presupposes the ap-\\nplication of ordinary business intelligence. When\\nthis is borne in mind, it will be seen that the rates\\nof interest, set down in statistical reports of the\\nconditions of railways, banking, mining, and other\\nindustries, generally conceal a portion or the whole\\nof the specific rent, by including in the capital\\nwhose interest is averaged a great deal of capital\\nnot applied under the above-named condition. If\\nwe are to exclude, as is admittedly right, the ele-", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0205.jp2"}, "204": {"fulltext": "190 THE ECONOMICS OF DISTRIBUTION.\\nment of disguised profit, due to special skill of\\nmanagement, we must also exclude the element\\nof disguised loss, due to the folly of ignorant in-\\nvestors and incompetency of management.\\n7. The greater facility of transferring forms\\nof capital from place to place, the fact that a large\\nproportion even of fixed capital can be trans-\\nferred, though at a loss, from one employment to\\nanother, the large field of choice which an average\\nsaver has for the storage of his saving power in\\nforms of capital, these and other considerations\\nperhaps impart a larger fluidity and freedom of\\ncompetition to capital than to land, or even than\\nto labour.\\nBut none the less, the idea of practically\\nnon-competing groups with differential positions\\nwithin each group seems conveniently applicable\\nto the supply of all three factors of production.\\nIn none of the three cases must we regard the\\nspecific and individual status as a rigid one there\\nis a constant shifting of marginal and differential\\nvalues. But at an}^ given time only a certain\\nquantity of land, of capital, of labour, is avail-\\nable for contribution to a class of supply: the\\nworst of this land may pay a rent, and this rent\\nwill enter into price the worst of the labour may\\nearn a class wage above the unskilled labour-\\ners, this wage will enter into price; the least\\nfavourably situated mill or mine contributing to\\nthe supply may be able to earn an interest above", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0206.jp2"}, "205": {"fulltext": "PA YMENTS. 191\\nthe minimum, this interest will enter into\\nprice.\\nThe individual superiorities enjoyed by special\\npieces of land, labour, capital, though they pro-\\ncure for their owners special rates of rent, wages,\\nand interest, will not enter into price.\\nFollowing this analysis, if we took the market-\\nprice of a supply of finished manufactured goods,\\nwe should find that price representing a complex\\nof a large variety of marginal money-costs these\\nmarginal costs would be the marginal rents of the\\nland, capital, and labour required at each stage in\\nthe different processes of production. At some\\nstages no-rent land might be used; at other stages\\nthe worst land in use would be rented; at other\\nstages no-interest businesses might be competing,\\nand profits would not figure in the costs at that\\nstage; in other processes unskilled labour at a\\nsubsistence wage might be employed, and this\\nwear and tear alone would cost.\\nIt is, however, all-essential to perceive the need\\nof a close coordination of the three factors of pro-\\nduction. Every price must contain a provision\\nagainst the wear and tear of the land, capital,\\nand labour employed at each stage of production\\n(whatever that wear-and-tear fund be called), and\\nit must contain a variety of positive costs required\\nto evoke the use of the marginal portion of the\\nland, capital, and labour required. These costs\\nmay be merely nominal, as where no-rent land.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0207.jp2"}, "206": {"fulltext": "192 THE ECONOMICS OF DISTRIBUTION.\\nno-interest capital, no-wage (15s.) labour, be\\nused; or they may be positive, where the worst\\nportion of the land, capital, or labour in use\\nrequires a positive marginal rent.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0208.jp2"}, "207": {"fulltext": "CHAPTER VI.\\nTHE COORDINATION OF THE FACTORS OP PRODUC-\\nTION. EFFECTS ON THE THEORY OP PRICE AND\\nDISTRIBUTION.\\n1. The results of our reasoning have been\\n(1) to coordinate the several factors of production\\nwith regard to the application of a Law of Rent;\\n(2) to amplify the Law of Rent by distinguishing\\na number of margins of employment with differen-\\ntial rents measured from these margins, the mar-\\nginal rents entering into price, the differential\\nrents being excluded from price (3) to substitute\\na composite margin for the land-margin in con-\\nsidering the effects of increased demand upon\\nproduction.\\nNow this restatement and expanded application\\nof the idea of rent throws important light upon\\ntwo closely related matters: (1) the composition\\nof a price as an amalgam of payments for the use\\nof various factors of production (2) the theory of\\nDistribution or of the proportion in which price is\\ndivided as income among the owners of factors of\\nproduction.\\nAn increased demand for a commodity which,\\n193", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0209.jp2"}, "208": {"fulltext": "194 THE ECONOMICS OF DISTRIBUTION.\\nby raising its price, stimulates an increased rate\\nof production, will in most cases lower the margin\\nof employment of all three factors, calling into\\neconomic use inferior qualities of land, labour,\\nand capital. The new use, not only of land,\\nbut of labour and of capital, will, considered as\\na separate unit, be more expensive to buy than\\nthe same quantity of the old use, for the same rent\\nwhich was paid before for an acre of marginal land\\nwill now be paid for an acre of land below the\\nformer margin; and, since a larger number of\\nacres will be required to furnish a given quantity\\nof productive power, the price of a unit of land-\\nuse will be greater; so, likewise, an increased\\nnumber of inferior labourers must be employed at\\nthe same wages previously paid to the marginal\\nlabourers formerly employed, in order to obtain a\\ngiven increment of labour-power, and a higher\\nprice must be paid for a given quantity of use of\\nnew forms of capital. The case of capital should\\nbe clearly understood. If there are in actual exist-\\nence unused forms of capital, plant, machinery,\\netc., somewhat inferior to those in previous use,\\nthese stand precisely in an analogous position to\\nland which lies below the margin in order to get\\nout of them a given amount of productivity of capi-\\ntal, a larger number must be employed than of the\\nsuperior forms, and the payment will be the same\\nas in the case of these latter. This can only be\\ndone by increasing the payment for the use of each", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0210.jp2"}, "209": {"fulltext": "THE FACTORS OF PRODUCTION. 195\\nmill, machine, or other concrete piece of capital,\\nwhich means a rise of price per unit of capital-\\npower and a corresponding raising of the differen-\\ntial rent or interest of the better sorts of forms\\nof capital which were formerly in use. The same\\nresult occurs if, instead of bringing into use in-\\nferior existing forms of capital, it is sought to\\nwork more fully existing forms of capital already\\nin use this is analogous to an attempt to get more\\nland-power out of a given piece of land by intenser\\ncultivation; in each case the added increment of\\nproductive power is obtained at a greater expense,\\nwhich can only be defrayed on condition that forces\\nof supply and demand have raised the price of\\na unit of productive power. Similarly, if no un-\\nused or half-used forms of capital exist, and the\\nnew use of capital now required must be supplied\\nby new savings, these new savings can only be\\nbrought into economic existence by raising the rate\\nof interest, so that the new forms of capital will\\nbe paid at a higher price for their use than the old\\nforms were previously paid.\\n2. At first sight this seems to indicate the\\nuniversal dominance of the Law of Diminishing\\nReturns over the whole field of industry. If\\nthe demand for an increased use of each factor\\ncalls into use an inferior quality of the factor,\\ninvolving an increased expense for a given quan-\\ntity of each sort of productive power, with every\\nincrease of supply the marginal cost would rise,", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0211.jp2"}, "210": {"fulltext": "196 THE JSCONOMIGS OF DISTRIBUTION.\\nand the price of the whole Biipply would bo\\nenhaiu od.\\nIndoetl, so long as a purely meohanioal character\\nis accorded to the operation of productive forces,\\nand each new unit of force is simply regarded as\\nan addition to the old units, there is no escape\\nfrom the Law oT Diminishing Returns. Wliy,\\nthen, do we say that the Law of Diminishing\\nReturns dominates agriculture and the extractive\\nindustries, and enters manufactures juul other in-\\ndustries only in proportion as raw materials and\\nproductive powers of nature are expenses of pro-\\nduction Why do we trace a Law of Licreasing\\nReturns in many industries?\\nThe explanation is this. When the margin of\\noultivatiun for land is lowered and inferior lands\\nare brought into use, tlie addition of the new in-\\ncrements of land-use lias no power to raise the\\nproductiveness of the earlier increments of land-\\nuse no doubt the same causes which have lowered\\nthe margin of cultivation have raised tlie price of\\nthe productivity of the better lands, but they have\\nnot made them absolutely more productive; the\\ndilTerent portions of land stand in no strong or-\\nganic rolati(tu, so that, what hiip]H ns to one piece\\nwill alVect the productivity of other pieces. To a\\ncertain extent it is true that the enlargement of a\\nfarm by taking on inferior outlying land might\\nenablt^ the farm to be more self-sustaining, by\\npromoting a more advantageous division of uses", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0212.jp2"}, "211": {"fulltext": "TUE FACTORS OF PRODUCTION, 197\\nin the other land, the new inferior land perhaps\\nfurnishing certain necessary accommodation which\\nwould set free a better piece of land for a more\\nprofitable use. But in every country for most\\nsorts of farming there are well-recognised limits\\nof size, and any further taking in of land beyond\\nthe economic limit will not recoup the farmer for\\nthe inferiority of the new land by any sufficient\\ngain in the arrangement of his operfitions.\\nThe economies of division of labour which often\\nattend large farming as compared with small farm-\\ning cannot of course be imputed to an increased\\nproductivity of land-use, as they are not attained\\nby a mere addition of new increments of land.\\nSince the new units of inferior land-use, ob-\\ntained by lowering the margin of cultivation, have\\nno considerable or corresponding inlluence in rais-\\ning the productivity of other productive force\\nresident in other portions of land, we obtain a\\ndiminishing return from a given (piantity of\\nlabour applied to agriculture Avhere inferior lands\\nare called into use.^\\n3. With labour it is different. Though, if\\nwe treat the new increment of labour-power as a\\nthing apart, it seems to give a diminishing return,\\nthat diminution may be more than compensated\\n1 When agriculture has become chiefly a cai)italist rather\\ntlian a hind enterprise, it may sometimes conform to a Law\\nof Increasing Returns, as possibly in some forms of bonanza\\nfarming.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0213.jp2"}, "212": {"fulltext": "198 THE ECONOMICS OF DISTRIBUTION.\\nby its influence upon the aggregate of labour-power\\nwith which it is cooperating. We have here to\\nconsider a close organic structure of industry, so\\nthat a lowering of the margin of employment of\\nlabour may be followed by such improved efficiency\\nof the whole cooperative mass of labour-power as\\nshall enable the increased aggregate of supply of\\ncommodities to be produced less expensively in\\nterms of labour-use than the former smaller\\naggregate.\\nThis is no more than to say that the Law of\\nDiminishing Returns is a law of matter, the Law\\nof Increasing Returns a law of mind. Just in\\nproportion as labour-power is low-skilled and\\nphysical, its efficiency depends less upon intelli-\\ngent cooperation and is less amenable to speciali-\\nsation. A lowering of the standard of employment\\nin navvy labour or in the labour of fruit-pickers\\nmay easily show that the industry conforms to the\\nLaw of Diminishing Returns, i.e. that the infe-\\nriority of labour at the same pay is not compensated\\nby improved division of labour or other organic\\neconomies of the particular business. It is just\\nin proportion as we rise to those grades of labour\\nin which physical power plays a relatively unim-\\nportant part, that we realise the operation of the\\nLaw of Increasing Returns.\\nIt is the inelasticity, the inorganic character of\\nthe productive powers of nature, which Ricardo\\nsignified by applying the epithets inherent and", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0214.jp2"}, "213": {"fulltext": "THE FACTORS OF PBOBUCTION. 199\\nindestructible, that explains the operation of the\\nLaw of Diminishing Returns. The productive\\npowers of man must be so ordered by intelligent\\ncooperation that the addition of factors inferior to\\nthose in former use may raise the volume of pro-\\nductive power by a total larger than that repre-\\nsented by the numerical proportion which the new\\nunits of labour-power bear to the old aggregate\\nsupply,\\n4. It is difficult to know whether we ought\\nto classify capital with land or with labour in\\nrespect of increasing or diminishing returns. An\\naddition to the stock of capital obtained by lower-\\ning the margin of employment may be represented\\nas giving an increased efficiency to the capital\\nin earlier use, by allowing more specialisation of\\ncapital. But since this increased efficiency or\\nproductivity would be inseparable from the em-\\nployment of an increased volume and division of\\nlabour-power, such increasing return would best\\nseem attributable to economy of increased labour-\\npower.\\nThe actual effect of a demand for increased\\ncapital is of course, often to introduce improved\\nforms of capital, which, so far from needing for\\ntheir utilisation an increased supply of labour-\\npower, cause a net displacement of direct em-\\nployment, taking the business as a whole. But\\nthis case is not an illustration of a lowering\\nof the margin of employment, for the new forms", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0215.jp2"}, "214": {"fulltext": "200 THE ECONOMICS OF DISTRIBUTION.\\nof capital called into use are not inferior to the\\nold; it is parallel to the opening up of a new rich\\ntract of land, which may for a time reverse the\\nnormal tendency whereby an increased demand\\ncalls inferior lands into use.\\nIf, however, this analogy does not dispose of\\nthe case of improvements in quality of capital-\\nforms, it will he necessary to refer this apparent\\napplication of a law of increasing returns for capi-\\ntal to the labour represented by the invention of\\nthe new forms taken by the increment of capital.\\nThe capitalist below the margin of employment is,\\nqua capitalist, capable of putting in the field of in-\\ndustry only the customary form of capital the in-\\nterest paid him for this cost of saving is the price\\nfor producing an increment of the old forms of\\ncapital. These new copies of the old forms of\\ncapital cannot, I think, be rightly or conveniently\\nregarded as giving such increased efficiency to\\nthe similar forms which have been functioning in\\nindustry as to afford an increasing return to the\\nincreased aggregate.\\nWhile, therefore, I claim that it is convenient\\nto attribute direct productivity to forms of land\\nand capital, an increased demand for their use,\\nwhich compels recourse to inferior or more expen-\\nsive portions, can exercise this compelling power\\nonly in conformity with the Law of Diminish-\\ning Returns, by raising the former price of each\\nunit of land-use or capital-use. This is, of course,", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0216.jp2"}, "215": {"fulltext": "THE FACTOBS OF PBODUCTION. 201\\nnot inconsistent with the general tendency of the\\nrate of profit or real interest to fall. Although\\nthere may be a growing willingness to save for a\\nlower rate of remuneration, still, if we compare\\nthe actual saving which takes shape in capital\\nwith the potential saving which might take shape,\\nwe must regard the latter as lying below the mar-\\ngin of emploj-ment, and only capable of coming\\ninto actual existence on condition of a higher rate\\nof interest than is paid for capital already in use.\\nOnly when we take the productive prices of\\nlabour-power which function at the command of\\nthe human will, do we escape the limits set by\\nthe material world upon industry. So long as we\\npersist in measuring labour-power in independent\\nunits, we fail to understand the vital law of in-\\ndustrial growth. The Law of Increasing Returns\\nis simply the law of intelligent cooperation.\\n5. This is nothing but a necessary theoretic\\npreface to the study of progressive production in\\nthe several industries.\\nWhen we have grasped the idea that a composite\\nmargin of employment must be substituted for a\\nland margin, we shall be obliged to work out in\\neach case of increased supply the problem how far\\nthis new increment of supply lowers the margin,\\nand how the lower margin is composed.\\nAt this point we perceive the identity of the\\ntheory of the Composition of Price with the\\ntheory of Distribution.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0217.jp2"}, "216": {"fulltext": "202 THE ECONOMICS OF DISTRIBUTION,\\nIn order to illustrate tlie operation of tlie Law\\nof Rent as the determinant in distribution, it will\\nbe best to take the case of an increase in the\\nproduct to be distributed. Our question then\\nwill be, What determines the proportion of the\\nincreased product which goes to the owners of the\\nthree requisites of production or, in other words,\\nreverting to our general application of the law of\\nrent, What determines the rise of marginal and\\ndifferential rents in the case of land, capital, and\\nlabour, respectively? Let us assume, for con-\\nvenience, that the increased product requires for\\nits production an additional quantity of land,\\ncapital, and labour, involving a proportionately\\nequal increase in all three factors of production,\\ne.g. a rise of 10% in the quantity of each factor\\nindustrially employed. How will this increased\\ndemand for the use of the factors of production\\naffect the proportion in which the product shall\\nbe distributed?\\nIf the demand for use of more land, capital,\\nand labour can be met by the employment of a\\nnew supply of each, lying just below the margin\\nof employment, but only nominally inferior to the\\nsupply in previous use, the prices of use of land,\\ncapital, and labour will not appreciably rise, and\\nthe new product will be divided among the three,\\nin strict accordance with the previous proportions.\\nIn that case, the fall of the margin of employment\\nand the rise in rental of each rent-paying portion", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0218.jp2"}, "217": {"fulltext": "THE FACTORS OF PRODUCTION. 203\\nof the land, capital, and labour in previous use\\nwill be very slight just sufficient to call into\\neconomic existence the required increase of sup-\\nply. But if, while there is plenty of land and\\ncapital available, of barely inferior quality to that\\non the margin of employment, an equal addition\\nto the supply of labour is not so easily procurable,\\nthe growth of demand for labour acting in relation\\nto a fixed supply will raise the price or rent of\\nlabour above the margin of employment until that\\nmargin is driven down low enough to include the\\nrequired new supply. That is to say, while in\\nthe case of land and capital a merely nominal fall\\nof the margin involving a nominal rise of rent has\\nproduced the new supply, in the case of labour a\\nconsiderable fall of the margin, attended by a con-\\nsiderable rise of rent, has been required to produce\\na corresponding increase of supply. Thus, while\\nthe rent of land and capital remain practicall} at\\nthe same level as before, the rent of labour will\\nhave risen greatly, and will absorb almost the\\nwhole of the increased product, shifting the bal-\\nance of proportion in the distribution of the aggre-\\ngate product among the industrial community.\\nThe advantageous position here accorded to\\nlabour may with equal reason be assigned to land\\nor capital. In proportion to the difficulty of sup-\\nplying each increased quantity of the several\\nrequisites of production, will be the rise in price\\nof each unit of those factors already in use. The", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0219.jp2"}, "218": {"fulltext": "204 THE ECONOMICS OF DISTRIBUTION.\\nmechanism by which this operates is very simple.\\nThe rise of price will be caused by the deficiency\\nof available supply considered in relation to an\\nincreased demand reckoned at former prices the\\nnew supply can only be brought into the same\\nquantitative relation to the new demand by the\\nmaintenance of a new price per unit of productive\\npower, the new price representing in relation to\\nthe old the greater difficulty of keeping in eco-\\nnomic use the determinant portion of supply of\\nthat factor of production.\\nThus we reach the law that the proportion of the\\naggregate product which is paid as rent of land,\\nof capital, and of labour varies with the difficulty\\nof keeping in economic use the quantity of each\\nfactor of production required to maintain the rate\\nof current production. As there is vacant land\\nbelow the margin of cultivation (i.e. yielding less\\nproductive power per acre than can be utilised at a\\ngiven amount of expenses of cultivation per acre),\\nso there is potential capital (i.e. capital containing\\npowers of productivity too low to defray working\\nexpenses at formerly current remuneration, but\\nwhich, given a sufficient motive, will become\\nactive forms of capital); and, lastly, there is va-\\ncant labour of inferior quality (i.e. a larger quan-\\ntity of which is required to furnish a given\\namount of effective labour-power). In each case,\\nthe potential or unemployed factor is called into\\neconomic use by a sufficient rise in the rent of that", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0220.jp2"}, "219": {"fulltext": "THE FACTORS OF PRODUCTION. 205\\nwhich lies above the existing margin of employ-\\nment.\\nThis theory that changes in the proportionate\\npayments to land, capital, and labour, are depend-\\nent upon the comparative ease or difficulty of in-\\ncreasing the supply of each, would seem so obvious\\na truth that it could not have failed to secure ade-\\nquate recognition. That it has failed to do so\\nmust be attributed to the extreme reluctance which\\neconomists have shown to admit the truth, that the\\nonly immediate cause of a change of price is a pre-\\nvious change in the quantitative relation of supply\\nand demand at current prices. If it were once\\nclearly recognised that a restriction of supply at\\ncurrent prices were the only possible immediate\\ncause of a rise of price, and if this were kept in\\nmind in dealing with the prices of the use of land,\\ncapital, and labour, the main difficulty in forming a\\nsatisfactory theory of distribution would disappear.\\nIt will perhaps be convenient to sum up the\\nconclusions so far reached in the following three\\npropositions\\n1. If there exists an indefinite quantity of each\\nof the factors of production just below the margin\\nof employment, of almost equal quality to that\\nupon the margin, an increase in production will\\nneither alter the proportion of distribution among\\nthe owners of the three factors nor appreciably\\nraise the differential rent of each portion of a\\nfactor above the margin.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0221.jp2"}, "220": {"fulltext": "206 THE ECONOMICS OF BISTBIBUTION.\\n2. If there is not a sufficient quantity of any of\\nthe factors of production easily available for new\\nsupply, and the difficulty of procuring each piece\\nof additional supply is equal in the case of each\\nfactor, the differential rent of each rent-paying\\npiece of land, capital, and labour will rise, but the\\nproportion of distribution of the aggregate pro-\\nduct will remain unchanged.\\n3. If there is a difference in the amount of\\ndifficulty of procuring the increased supply of the\\nthree factors, that difference will be accurately\\nmeasured by the relative rise in rent of the rent-\\npaying portion of each factor, and by a corre-\\nsponding alteration in the proportion of the\\naggregate product which falls to each, i.e. if it\\nis desirable to increase by 20% the quantity of\\neach factor of production in order to increase the\\nproduct, and it is twice as difficult to procure the\\nincreased quantity of land as of capital and labour,\\none-half of the increased product will go as rent\\nto land, one-quarter as rent to capital, one-quarter\\nas rent to labour.\\nIn applying the rule of measurement thus far,\\nwe have assumed the case where the increase of\\nproduction acts as a call for an increase in the use\\nof the three factors which is proportionately equal.\\nBut, in fact, it is of course seldom the case that\\nthe proportionate part played by the respective\\nfactors of production remains the same when\\nthere is an increase of production. It by no", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0222.jp2"}, "221": {"fulltext": "THE FACTORS OF PRODUCTION. 207\\nmeans follows that if in the old quantity of pro-\\nduction the numbers 3, 2, 5, represent the respec-\\ntive contributions of land, capital, and labour, and\\nthe production be doubled, the same proportion\\nwill hold among the contributors. The Law of\\nSubstitution is constantly operative, enabling capi-\\ntal to displace labour, economising land by in-\\ncreased use of capital or labour. We know, in\\nfact, that every increase in the aggregate product\\nwill be attended by a change in the proportion of\\nthe contribution of the three factors. Hence the\\npractical application of our rule of measurement\\nis obviously no easy task. For every change in\\nthe distribution of the aggregate product will de-\\npend on the relative strength of two forces first,\\nthe relative growth in the demand for each factor\\nsignified by the increased product second, the\\nrelative difficulty of supplying that increased de-\\nmand. The frequent use of the word relative\\nhere is itself a proof of the complex nature of the\\nproblem. Before we can say in what degree an\\nincrease of 10% in the aggregate production of a\\ncommunity will affect the proportionate distribu-\\ntion, we should have first to ascertain two facts\\n{x) the precise amount of land, capital, and labour\\n1 Bohm-Bawerk, in his treatment of The Value of Comple-\\nmentary Goods, clearly and accurately indicates the importance\\nof the Law of Subsfcitntion among the requisites of production in\\ndetermining the amount of remuneration which each of the\\nseveral factors obtains. He first shows relative indispensability\\nas the measure of economic force.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0223.jp2"}, "222": {"fulltext": "208 THE ECONOMICS OF BISTBIBUTION\\nrequired to take part in the new production and\\nthe proportion each addition bears to the quantity\\nin previous use and {y) the extent of the fall in\\nmargin of employment necessary to furnish in the\\ncase of each factor the desired increase. Now,\\neach of these two facts, x and y^ is itself a resultant\\nof various conflicting forces, and can only be as-\\ncertained by an elaborate calculation.\\nA whole group of considerations affects the pro-\\nportionate increase of each factor of production\\nrequired by each increase in the aggregate pro-\\nduction. Among them the following are most\\nprominent\\n1. Improvements in the industrial arts, and\\napplication of labour-saving machinery, (a) ena-\\nbling the same quantity of capital to suffice in\\nturning out an increased product, (5) enabling\\ncapital to take the place of labour, so that what\\nmight seem to be an equal demand for more capi-\\ntal and more labour, will act as a demand for a\\nlarge quantity of new capital and a small quantity\\nof new labour.\\n2. Social and industrial reforms, improving the\\norganisation of labour, or inducing greater care and\\neconomy in the use of material and of machinery,\\nwill, hj adding to the average effectiveness of both\\ncapital and labour, enable an increase in the aggre-\\ngate product to be achieved by a less than corre-\\nsponding increase of capital and labour. Even here\\nthe movement is not simple, but complex. E.g.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0224.jp2"}, "223": {"fulltext": "THE FACTORS OF PRODUCTION. 209\\nin the case of economy effected by cooperation or\\nprofit-sharing, so far as the economy consists in\\ngreater care of machinery and less waste of mate-\\nrial, it might operate as an equal check upon the\\nincreased quantity of both capital and labour re-\\nquired to furnish an increased product. So far\\nas it acted merely as a stimulus to greater work-\\ning activity, it would figure chiefly as economy of\\nlabour, so that an increased product might be\\nwrought by the same quantity of labour acting in\\nconjunction with an increased quantity of capital.\\n3. Every improvement of physique, morale, in-\\ntelligence, and technical skill among the workers\\nwill enable a demand for more labour-power to be\\nsatisfied by a less than corresponding increase in\\nthe number of workers.\\n4. Improvement in agricultural arts may en-\\nable a larger product to be obtained without a\\ncorresponding fall in the margin of cultivation,\\ni.e. without a correspondingly increased employ-\\nment of land.\\nThese are some of the determining forces which\\nwould require study before we could reach the\\nresultant x. Another set of forces and circum-\\nstances affect the ease or difficulty of procuring\\nincreased supplies of the respective factors of\\nproduction. Such are the following:\\n1. The effect of growing improvements in\\ncommunication, and the breaking down of inter-\\nnational barriers for trading purposes, in their", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0225.jp2"}, "224": {"fulltext": "210 THE ECONOMICS OF DISTRIBUTION.\\nrespective bearing upon (a) tlie increase of the\\neffective land supply for a given community, (6)\\nthe increased fluidity of capital, {c) the easier\\nmigration of labour.\\n2. The effect of war, political insecurity, na-\\ntional commercial restrictions, and the like, as\\naffecting {a) the available quantity of each requi-\\nsite of production, (5) the relative fluidity of each\\nfactor of production.\\n3. Effects of the growth of prudential motives,\\nincreased sense of security, and fluidity of capital,\\nas affecting the ease with which an increased de-\\nmand for capital may be supplied.\\n4. Complicated effects of rising standard of\\ncomfort, education, artificial checks on population,\\nand the like, in determining the increased supply\\nof labor at different degrees of availability.\\nIt is not too much to say that each of these\\nconsiderations opens up a large field for specula-\\ntion and involves special difficulties of its own.\\nEach of them has an importance in assisting to\\ndetermine the resultants x and y. But, unfortu-\\nnately, this is not all. x^ representing the amount\\nof land, labour, and capital required for an in-\\ncreased production of commodities, or any single\\ncommodity, is not the simple composite we have\\nassumed it to be. The land it represents is itself\\ncomposed of a great variety of land-uses entering\\ninto the different processes of production, some\\nwith differential rents measured from a no-rent", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0226.jp2"}, "225": {"fulltext": "EFFECTS. 211\\nmargin, others with differential rents measured\\nfrom positive margins. In some of these cases\\nthe increased demand for commodities will greatly\\nlower the margin, raising largely the differential\\nrents; in other cases the increased supply can be\\nafforded by a very small fall of the margin; in\\nother cases, maybe, the fall of margin may be ob-\\nviated by a change of method of production which\\nwill economise land-use by increasing uses of capi-\\ntal and labour in conformity with the Law of Sub-\\nstitution. Thus the effect of increased demand\\nfor land-use will affect differently the land-use\\nemployed in all the processes. The same will\\napply to capital and labour, various specific and\\nindividual forms of which will contribute to the\\nproduction of supply at different points. When,\\ntherefore, we consider what would be the effect\\nof an increase of supply of 10 of any com-\\nmodity in affecting the proportion of the price\\nwhich will be paid to the owners of the different\\nfactors, we are evidently faced by a very complex\\ncomputation. The determination of both x and y\\nhas to be made first separately at each point in\\nproduction. But even that will not suffice. Not\\nonly should we have to measure the relative press-\\nure with which these two forces act at each sev-\\neral point in the increase of production, in order\\nto reach the change in the proportionate distribu-\\ntion. For alas! x and y cannot be determined as\\nentirely different forces. These are not merely", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0227.jp2"}, "226": {"fulltext": "212 THE ECONOMICS OF DISTRIBUTION,\\ntwo varying forces, but varying forces wliich act\\nupon one another with a force which likewise\\nvaries. What we mean is this: it is impossible to\\nstate accurately how much new land capital and\\nlabour would be used to furnish an increased\\nproduct, unless we know already the amount of\\ndifficulty there would be in procuring that in-\\ncreased supply; for we cannot without that know-\\nledge determine how far labour-saving machinery\\nmay be introduced instead of an increased quantity\\nof labourers, nor can we determine how far the\\nincreased demand for land will operate in intenser\\nor more efficient culture of the land already above\\nthe line of occupation, instead of stimulating the\\nenclosure of hitherto unused land. On the other\\nhand, it will be evident that we cannot ascer-\\ntain exactly the amount of fall in the margin\\nof employment of the three factors of produc-\\ntion, unless we know, not merely what increased\\nproduct is required, but also to what extent\\nthis increased demand will act upon the three\\nfactors of production respectively, in fact, until\\nwe know the resultant x. As the two main\\nforces, which for convenience we regarded as\\ndistinct, are thus seen to modify one another, the\\nfull nature of the complexity of the problem of\\ndistribution begins to dawn upon us. In order\\naccurately to ascertain the disturbance in propor-\\ntionate distribution of the product between land,\\nlabour, and capital caused by an increase or de-", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0228.jp2"}, "227": {"fulltext": "EFFECTS. 213\\ncrease of production, we have in effect to measure\\nthe varying pressure of a number of industrial\\nforces (which pressure also varies in the rate of\\nits variation), each of which affects a number\\nof other forces with different degrees and varying\\nrates of attraction. We have u^ v, w^ rr, y, 2, etc.,\\nall moving at different rates, and all affecting one\\nanother to a different degree in proportion to the\\nforce of their respective motions.\\nSuch is the intricate theoretic setting of the\\nproblems which have to be worked out by the\\nmanagers of businesses and by the organisers of\\nlabour. In each trade, at each time, in each\\ncountry, the problem will be different. Indeed,\\nif we take the standpoint of nationalism in eco-\\nnomics, and ask what the effect upon the demand\\nfor the several factors for the different processes\\nin a particular country will be, arising from an\\nincreased demand for a class of commodities, we\\nhave to consider not merely the purely economic,\\nbut also the political considerations which move\\nnations in this trade competition.\\nThose whose business it is to work out the\\nprobable influence upon profits or wages of an\\nassumed increase or decrease of production in a\\nparticular trade, are compelled to consider the\\ncooperation of all these forces, so far as they are\\nascertainable. The success of a particular capi-\\ntalist enterprise or of a labour movement will\\never more largely depend upon the skill and", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0229.jp2"}, "228": {"fulltext": "214 THE ECONOMICS OF DISTRIBUTION,\\nexperience of those responsible for such compu-\\ntation.\\nWe have now discussed the changes in termi-\\nnology and in point of view requisite to coordinate\\nland, labour, and capital, so as to measure their\\ninfluence upon price and their respective strength\\nas claimants upon the general product. We have\\nseen that the conception of a margin of employ-\\nment with differential rents for more productive\\nforms is equally applicable to all three factors,\\nwhile a right regard for the Law of Substitution\\ninvolves the application of a composite margin\\nof employment in considering the effect of an\\nincreased or a decreased demand for productive\\nenergy upon the distribution of the product\\namong the owners of the factors.\\nIt has also appeared that the process of deter-\\nmining the price of a supply of land, labour, or\\ncapital is substantially the same as the process of\\ndetermining the price of a supply of commodities,\\nwhen acres, labourers, and ^lOO s of capital are\\nreduced to some standard measure of the produc-\\ntive power which, underneath the irregularities\\nof form, is the real object of sale. The price-\\npoint for the sale of a unit of land-power, capital-\\npower, labour-power, is determined by the stronger\\nof a final pair of bargainers within limits reached\\nby competition of buyers and sellers of these fac-\\ntors of production. The wide external differences\\nbetween a market for goods and a market for sale", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0230.jp2"}, "229": {"fulltext": "EFFECTS, 215\\nof the several factors, where competition is often\\nextremely slow, indirect, and incomplete, must not\\nblind us to the substantial identity of the economic\\nprocesses. When the competition is slight and\\nimperfect, the result is that the upper and lower\\nlimits of price are wider apart than in a freely\\ncompetitive market for goods, so that the eco-\\nnomic force of the stronger of the final bargainers\\nhas fuller scope. The contrast between the money-\\nmarket or the wool-market under normal condi-\\ntions, and the market for sale of land-uses in a\\ngrowing city, is no doubt a striking one but\\nthough competition lapses at a far earlier point\\nin the latter than in the former cases, the differ-\\nence is one of degree and not of kind. In both\\ncases, competition between buyers and sellers,\\nin both cases, economic force are determinants of\\nprice, though to different extents.\\nTo those who are lovers of simplicity this may\\nnot seem a very satisfactory result, but a large\\npart of the disrepute from which the science of\\neconomics suffers among practical men is due,\\nnot, as is often alleged, to an inherent distaste for\\ntheoretic treatment, but to the hasty fabrication\\nof economic laws which are so delightfully simple\\nthat an attempt is made to use them as rules\\nof thumb in the actual movements of industry.\\nThey are then found to be inapplicable, and the\\npractical man is not satisfied with the scientific\\neconomist s elaborate explanations of the difficul-", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0231.jp2"}, "230": {"fulltext": "216 THE ECONOMICS OF BI8TBIBUTI0N,\\nties involved in applying economic laws to details\\nof economic fact.\\nThese intricate considerations teach caution.\\nThey are often used to suggest inertia. Many\\nof the forces involved are quite incapable of accu-\\nrate measurement, and it may easily be shown that\\nit is impossible to predict with any degree of cer-\\ntainty the effect upon profits or employment of\\na particular industrial action involving a change\\nin demand for the several factors of production.\\nBut this does not justify inaction. Human con-\\nduct is always speculative the future never admits\\nof exact prophecy risk and faith are at all points\\nessential to progress. A reasonable man is pre-\\npared to take ordinary chances, his calculations\\nare confined to a comparatively small number of\\nfactors, and these not exactly measured; after a\\nreasonable computation of certain large issues he\\ncan often afford to ignore smaller ones. Wide\\nexperience produces a capacity of judgment which\\nis apparently intuitive, though strictly ratiocina-\\ntive in its secret working.\\nHence large industrial movements affecting the\\nproduction and the distribution of wealth are often\\nrigidly guided by a clear grasp of certain leading\\nfacts or generalisations. For example, large or-\\nganisations of labourers may be quite incapable\\nof working out all the intricate effects upon each\\ntrade, of a general policy of higher wages or shorter\\nhours but they may have a right knowledge that", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0232.jp2"}, "231": {"fulltext": "EFFECTS. 217\\nthe conditions of bargaining between labourers\\nand employers are on the average so favourable\\nto the latter as to place in their hands a large\\nsurplus of wealth, the diversion of which into\\nhigher wages or more leisure is economically fea-\\nsible. Possessing such knowledge, they will not\\nrightly be deterred from action by the real risks\\ninvolved by the pressure of other unknown or in-\\ncalculable forces upon certain sections of labourers.\\nIt is sufficient if they make good use of such know-\\nledge as they can get. Human conduct is notori-\\nously enfeebled, or even sterilised, by the growing\\nconviction of risk and uncertainty which weighs\\nupon the student who comes to realise the infinity\\nof knowledge in any department of inquiry. The\\npractical man has to decide for himself how much\\nhe may safely leave unknown, though he can never\\nknow exactly how much this is, and what risks\\nhe must be prepared to run, though the precise\\nsize and nature of these very risks must always\\nbaffle him.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0233.jp2"}, "232": {"fulltext": "CHAPTER VII.\\nBARGAINS FOR THE SALE OP LABOUR-POWER.\\n1. There are certain special considerations\\naffecting the sale of labour-power which make\\nthe sellers of that commodity normally weaker\\nthan the buyers.\\nThis normal condition of inferior strength is\\noften summed up by saying that it is more im-\\nportant or more pressing for the individual owner\\nof labour-power to effect a sale than for the em-\\nployer to effect a purchase.\\nThis is evidently and particularly the case where\\nthere exists an excess of any kind of labour-power\\nbeyond the amount required at a price which would\\nenable minimum business profits to be earned. A\\nsupply of goods or of land which, if it is placed\\nupon the market, would bring down prices to an\\nunprofitable level, can in most cases be withheld\\nfrom the market without sustaining irrepara-\\nble damage. This is not the case with labour-\\npower. It must be sold if not sold for a week,\\nnot only is the week s supply wasted, but the\\naggregate of labour-power, the labour-capital, the\\nlabourer himself, perishes. This labour-power\\n218", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0234.jp2"}, "233": {"fulltext": "THE SALE OF LABOUR-POWER. 219\\nmust be sold continuously; it must be sold in\\nsmall quantities, commonly measured by the day\\nor week finally, it must be sold to a buyer who\\nknows the necessity under which the seller stands\\nto effect a sale. In a word, the labourer is selling\\nhis labour-power under the conditions of a forced\\nsale. In a labour-market the bargain of the mar-\\nginal pair (which directly rules the price) will be\\nthat of a seller whose inability to refuse a bar-\\ngain is known all the time, to the buyer with\\nwhom he is higgling for a price. Under such\\ncircumstances the superior force of the buyer is\\nso well recognised that he is commonly able to\\navoid the necessity of higgling, and to dictate a\\ncustomary price of labour. Again, the organic\\ncontinuity of an individual s labour-power, the\\nfact that one week s energy is vitally connected\\nwith the next week s, makes his weakness in bar-\\ngaining a cumulative disadvantage. A bad sale\\nfor a number of weeks or months, a failure to\\nobtain regular and proper employment at reason-\\nable wages, brings about a deterioration of work-\\ning efficiency for the following weeks, and perhaps\\na permanent injury to physique and morale.\\nThese weaknesses of bargaining attach to labour-\\npower, as distinct from other things that are sold,\\nbecause labour-power cannot be detached from\\nthe vitality of which it is a function.\\nPutting this peculiarity in another form, we\\n1 Cf. Marshall, Principles, 2d ed., Vol. I, p. 602.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0235.jp2"}, "234": {"fulltext": "220 THE ECONOMICS OF BISTBIBUTION,\\nmay say it resides in the fact that, while the\\nworker is selling a portion of his labour-power,\\nhe is also buying the permission to live, and the\\nfuture production of his labour-power depends\\nupon the terms of this purchase. Hence, while\\nthe employer is directly concerned only with the\\npurchase of labour-power, the inevitable terms of\\nsuch a purchase give him power over other vital\\nfunctions which he does not buy, but which are\\nthrown in for nothing. What I mean is ad-\\nmirably summed up by Mrs. Webb The wage-\\nearner does not, like the shopkeeper, merely sell\\na piece of goods which is carried away it is his\\nwhole life, which, for the stated term, he places\\nat the disposal of his employer. What hours he\\nshall work, when and where he shall get his\\nmeals, the sanitary conditions of his employ-\\nment, the safety of the machinery and tempera-\\nture to which he is subjected, the fatigues or\\nstrains which he endures, the risks of accident or\\ndisease which he has to incur, all these are mat-\\nters no less important to the workman than his\\nwages. Yet about the majority of these vital\\nconditions he cannot bargain at all.\\nEven if he can bargain, he bargains at a grave\\nnormal disadvantage. Even where collective bar-\\ngaining has largely taken the place of individual\\nbargaining, the power of labourers to get adequate\\nsafeguards against the abuse of these individual\\n1 Commonwealth^ February, 1896.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0236.jp2"}, "235": {"fulltext": "THE SALE OF LABOUB-POWEB. 221\\nrisks and hardships has been small, and as they\\nare no proper part of what is offered in the sale of\\nlabour-power, no monetary compensation is appro-\\npriate and no monetary valuation possible. All\\nthat a man hath will he give for his life. The\\nnecrosis of the phosphorus match-maker, the\\nphthisis of the Belfast linen-spinner, are not part\\nof any bargain and are not paid for.\\n2. How far the process of collective bargain-\\ning improves the relative position of the sellers\\nof labour-power, so far as the price is concerned,\\nit is difficult to judge. Bearing in mind that\\ncapital is generally far more advanced in collec-\\ntive organisation than labour (each large employer\\nbringing a large number of closely welded units\\nof joint-stock capital to confront the much more\\nloosely and imperfectly welded units of labour-\\npower), it is difficult to believe that the substi-\\ntution of the labour-group for the single labourer\\ncan redress the balance of advantage on the side\\nof the employer. This involves no depreciation\\nof trade-unionism a group of labourers bargain-\\ning for a sale of labour-power over a long period\\nof time, through skilled agents, is absolutely in a\\nfar stronger case than a single labourer, higgling\\nlike an ignorant amateur. But where organisa-\\ntion of capital has made similar advances, the\\nrelative advantage of the employer may be as\\ngreat as ever. For any modern struggle between\\nequally developed organisations of manual workers", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0237.jp2"}, "236": {"fulltext": "222 THE ECONOMICS OF BISTBIBUTION.\\nand employers, so far as it is left to economic\\nmight, untempered by legal or charitable interfer-\\nence, exhibits the superior power of the employer\\nresting on the fact that the sale of labour-power\\ninvolves the purchase of the right to live; the\\npower to starve labour into submission still sur-\\nvives as the final economic arbiter. So far as\\norganisations of labourers can modify or postpone\\nthis superiority of the employer, it is not by the\\nmere substitution of collective for individual bar-\\ngains in sales of labour-power, but by amassing a\\nfund of capital so that they may no longer con-\\ntend as mere proletariat. The attempt of a trade-\\nunion with accumulated funds to fight a body of\\nemployers is a fight of capital against capital.\\n3. The ordinary process by which the wage is\\nimmediately determined is sometimes regarded as a\\nseparate disadvantage to the labourer. Whereas\\nthe employer may have before him a number of\\napplicants for employment who will closely com-\\npete and underbid one another, it does not often\\nhappen that employers meet face to face and di-\\nrectly compete to buy the services of a labourer.\\nThus it appears that the levelling tendency of\\ncompetition is less operative among the buyers\\nof labour than among the sellers. The immediate\\nposition which faces an unorganised worker ap-\\nplying for a job is one which offers hunger and\\npossible starvation as the alternative to accepting\\nthe offer of an employer; for though there may", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0238.jp2"}, "237": {"fulltext": "THE SALE OF LABOUR-POWER. 223\\nbe other employers who will each separately be\\nwilling to make an offer, he cannot rely upon\\nthis being the case, nor can he make these sev-\\neral employers bid directly against one another.\\nWhere, as is the case in many trades, the supply\\nof available labour is normally in excess of the\\ndemand at the standard wage, the economic w^eak-\\nness of the seller of labour is aggravated by this\\nmode of conducting the sale.\\nThe art of bargaining, observed Jevons,\\nmainly consists in the buyer ascertaining the\\nlowest price at which the seller is willing to part\\nwith his object, without disclosing, if possible,\\nthe highest price which he, the buyer, is will-\\ning to give. The power of reading another\\nman s thoughts is of high importance in business.\\nNow the essential economic weakness of the\\nisolated workman s position is necessarily known\\nto the employer and his foreman. The isolated\\nworkman, on the other hand, is ignorant of his\\nemployer s position. Even in the rare cases in\\nwhich the absence of a single workman is really\\ninconvenient to the capitalist employer, this is\\nunknown to any one outside the office. What is\\nmore important, the employer, knowing the state\\nof the market for his product, can form a clear\\nopinion of how much it is worth his while to give,\\nrather than go without the labour altogether, or\\nrather than postpone it for a few weeks. But the\\nisolated workman, unaided by any trade-union", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0239.jp2"}, "238": {"fulltext": "224 THE ECONOMICS OF DISTBIBUTIOJST,\\nofficial, and unable to communicate even with the\\nworkmen in other towns, is wholly, in the dark as\\nto how much he might ask.\\nThe condition of bargaining for sale of labour-\\npower which I have described, applies in its ful-\\nness to low-skilled labour. Of such labour we\\nmay say that the normal wage is one of bare\\nsubsistence, unless some alternative of squatting,\\nstealing, begging, or public charity is able to\\nqualify it. To place the marginal labourer\\nof such a class upon a footing of equal power to\\nbargain with the marginal employer who buys his\\nlabour, it would be necessary\\n(a) To guarantee him and his family a full\\nwage of economic efficiency as an alternative to\\nthe acceptance of competitive employment.\\n(5) To safeguard him in his giving out of\\nlabour-power, against conditions of work which\\ncan impair his efficiency for future work.\\nJust in so far as certain individuals and classes\\nhave practically obtained these securities, the\\nterms upon which they bargain for the sale of\\ntheir labour-power are superior to those above\\ndescribed.\\nBodies of skilled manual workers with a firm\\nhold on an important labour-market, where capi-\\ntal is in genuine competition, are often able to\\nmaintain a standard wage for the marginal labour,\\nconsiderably higher than the wage of low-skilled\\n1 Webb, Industrial Democracy^ Vol. II, p. 657.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0240.jp2"}, "239": {"fulltext": "TBE SALE OF LABOUB-POWEB. 225\\nlabour. Possessing a corner of some highly\\nserviceable skill, and perhaps some resource of\\ncapital, they can reduce considerably the advan-\\ntage which the capitalist-employer must naturally\\npossess in bargaining with a proletarian. As we\\nrise to the professions and other grades of skilled\\nmental workers, we are dealing with persons who,\\nby reason of some assistance of capital, their own\\nor others, or from legitimate confidence in some\\nalternative employment, are often able to enter\\non a bargain for sale of this skill, upon terms of\\nequal or even superior advantage with the buyer.\\nThe marginal lawyer or the marginal doctor in\\nthe West-end market is probably able at least to\\nhold his own in the slow and indirect forms of\\nbargaining which fix the price of his professional\\nskill.\\nIn each labour-market there will be many in-\\ndividuals who can take high differential rents,\\nmarking their superior value over the marginal\\nseller. These differential rents seem to become\\nboth absolutely and relatively larger as we ascend\\nto the higher grades of labour. Indeed, it would\\nbe straining the system of gradation too far to\\napply it with rigidity to the most highly remuner-\\nated forms of personal or professional service,\\nwhere what is sold is not so much advice, so\\nmuch acting or singing, but where each indi-\\nvidual more or less constitutes a market of his\\nown, drawing monopoly rents rather than the", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0241.jp2"}, "240": {"fulltext": "226 THE ECONOMICS OF BISTBIBUTION.\\ndifferential rents which arise where industrial\\nservices of a more routine or impersonal order\\nare sold.\\n4. Socialism and labour-movements in general\\nare chiefly motived by a more or less clear percep-\\ntion that bargains for the sale of labour-power\\ndiffer from other kinds of bargains in that there\\nis a considerable normal balance of economic\\nstrength on the side of the buyers. An applica-\\ntion to a labour-market of the analysis applied in\\nChapter I will show that true competition gives\\nway at a point which leaves a marginal labourer\\nface to face with a marginal employer, under con-\\nditions which enable the latter to fix the price\\nclose to the lower limit, thus assigning a forced\\ngain to each buyer of labour-power.\\nIt is the perception of this inequality which\\nplaces in the forefront of social questions the\\nrectification of methods of selling labour-power.\\nIn any given state of industrial morality, writes\\nMr. Charles Booth, the social value of competi-\\ntion is measured by its equality by the posses-\\nsion of equal powers both mental and material by\\nboth sides to a contract or a bargain. No such\\nequality exists, or can exist, until equal access to\\nall economic and intellectual opportunities is open\\nto all.\\n1 Life and Labour of the People^ Vol. IV, p. 214.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0242.jp2"}, "241": {"fulltext": "CHAPTER VIII.\\nBARGAINS FOR THE USB OP CAPITAL.\\n1. Some special mystery has been often sup-\\nposed to attach to bargains for the use of capital.\\nThis has arisen partly from people failing to\\nunderstand what was actually sold in a loan,\\nwhat it was that interest was paid to buy, and\\npartly from certain circumstances historically as-\\nsociated with lending and borrowing.\\nI have held a number of sovereigns in my\\nstrong-box for some time past, and they lie there\\nneither increasing nor diminishing in number.\\nYou come and entreat the loan of them, I let you\\nhave them, and they begin to breed and return to\\nme in a year s time with added sovereigns. How\\ncan this be?\\nMoney does not breed the wisest of men Solo-\\nmon, Aristotle, Bacon are sure of that, and they\\nare convinced that I have come by the extra\\nsovereigns wrongfully, by some process of extor-\\ntion.\\nIf I plead that you, after taking my sovereigns,\\ncirculated them in commerce, buying goods with\\nthem, taking these goods to other people and sell-\\n227", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0243.jp2"}, "242": {"fulltext": "228 THE ECONOMICS OF BISTBIBUTION.\\ning them, and that by processes of this kind you\\nobtained a considerable increase of sovereigns and\\nhad some over, even after returning my original\\nstock with increase, the above-named worthies\\nwould not be appeased. For just as I had made no\\nincrease of sovereigns by lending them to you, so\\nyou have made no rightful increase by circulating\\nthem in commerce. If I plead that you have\\nnot been a loser, then you must have used my\\nsovereigns in cheating sovereigns out of others..\\nThe process of lending money could give no\\nrightful increase, for it cost me nothing to lend\\nmy idle cash to you, and sovereigns cannot make\\nanything, but only pass from hand to hand.\\nThere was to the ancient mind no ground for\\npayment of interest upon money lent no valu-\\nable service was rendered, whatever origin you\\ngive to value there was no apparent cost and no\\napparent utility. Or if there was an obvious\\nutility, if I lent to you in your dire necessity, I\\n1 It seems, however, pretty clear that in Babylonia as in\\nChina, and probably in other ancient societies, a distinction was\\nearly made between loans for need and loans for business. This\\nreasonable distinction would easily make itself manifest even in\\nthe most primitive forms of lending. Among the primitive\\nprogressive peoples who cultivated the wild wheat of Babylo-\\nnia, we may feel sure that the primitive instincts of hospitality\\nnever sank so low, as for one man to ask another to give him\\nback with interest, the corn borrowed and eaten in a day of\\nneed. But the case is quite different as regards com to be\\nused, not for food but for seed, capable of bringing forth a hun-\\ndred fold. (Simcox, Primitive Civilisation^ Vol. I, p. 194.)", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0244.jp2"}, "243": {"fulltext": "BABGAINS FOE THE USE OF CAPITAL. 229\\nwas able to trade upon your weakness, and exact\\nterms which were cruel and inequitable. There\\nwas very little fixed capital used, and compara-\\ntively little lending for trade most loans were\\nmade by the rich to the poor to purchase for the\\nlatter current necessaries of life. Wherever in-\\nterest is especially associated with such loans, as\\nin Russia to-day, the condemnation alike of the\\ntheory and the practice of interest is quite intel-\\nligible.\\n2. But even when we come to the conditions\\nof a modern industrial community, where loans\\nare quite as often made to the rich as to the poor,\\nwhere some lenders plainly deprive themselves of\\ncertain present opportunities of satisfaction, and\\nwhere it is quite clearly seen that what is bor-\\nrowed is not really money, but plant, machinery,\\nand goods, though the necessity and even the\\nabstract justice of paying interest is generally ad-\\nmitted, there is no clear apprehension of what\\nit is that is really bought and paid for by interest.\\nThe use of capital, it has been said but\\nthat answer does not carry us far. For what is\\nthat use Capital performs a service in produc-\\ntion. Even Karl Marx allows that. But what\\nservice, and why should it be paid in interest?\\nIf the service of a piece of capital, (say) a\\nmachine, consists in helping to work up raw\\nmaterials into finished goods, as it seems, then\\nthis machine will wear itself out in a few years,", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0245.jp2"}, "244": {"fulltext": "230 THE ECONOMICS OF BISTBIBUTION.\\nor, if one prefers, it will itself be worked up or\\nconsumed in the goods it helps to produce. Put\\nit on a par with the labour that tends it, secure\\nthe machine against its wear and tear, procure for\\nit continuity of existence, by providing against\\ndepreciation. But whence comes the interest?\\nYou say it is productive, but what it has pro-\\nduced is clearly the goods which have been sold\\nhow has it produced the interest actually paid its\\nowner, who, even after the actual machine is dead,\\nand is replaced by another one, continues to re-\\nceive this interest just the same?\\n3. Just as the interest does not clearly seem\\nto correspond to any productivity, so again the\\ncost represented by its use is not so patent as in\\nthe case of labour. Earlier economists of this\\ncentury, including Ricardo, inclined to resolve the\\ncost incurred by capital into the labour of mak-\\ning the forms of capital. But this treatment of\\ncapital as accumulated labour gives no explanation\\nand no justification of interest. McCulloch s asser-\\ntion, that profits of stock are only another name\\nfor the wages of accumulated labour, is simply a\\ndenial of the validity of interest. Take the case of\\nthe earliest form of capital, which we may assume\\nto be entirely made by labour. If the labourers\\nwho made it sold it, when made, in a free market,\\nwe should be obliged to say they obtained its full\\nvalue as the wages of their labour if, on the\\nother hand, they kept possession of it, and either", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0246.jp2"}, "245": {"fulltext": "BARGAINS FOR THE USE OF CAPITAL. 231\\nused it to assist them in their labour, or loaned it\\nto others for a similar purpose, at the end of the\\nyear they would obtain an added value which was,\\nex hypothesis not payment for the original labour\\nwhich went into making it, but was what we call\\ninterest. In such a simple case it is easy to per-\\nceive that, not the labour-cost of making it, but\\nsome cost connected with the use of it either by\\nthemselves or others during the year, was the\\ncause why interest comes to them. To the some\\ncost, Senior gave the name of abstinence. These\\nmen received the extra value as a reward for their\\npostponement of their immediate gratification.\\nBut it was difficult for Senior to explain how\\nthis cost of abstinence was the efficient cause of\\nany increase of wealth, analogous to the increase\\nof wealth due to the cost of an output of labour-\\npower. How could mere abstinence, the nega-\\ntion of activity, he was asked, possibly cause\\nan increase of wealth which went as interest and\\nhe had no valid answer.\\nHow is the cost of abstinence productive It\\nis quite plain that the taker of interest need do\\nnothing but abstain that is, in fact, the only\\ncost he undergoes. This was perhaps not\\nclearly seen when most capital was owned by\\nworkers, who used it to assist their labour. But\\nwhen we turn to the normal use of capital for\\ninvestment, we see that all the owner need do to\\nearn the interest he receives is to abstain from", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0247.jp2"}, "246": {"fulltext": "232 THE ECONOMICS OF DISTBIBUTION.\\nimmediate consumption, to postpone satisfaction.\\nHow can this negative action be productive of the\\nvrealth returned as interest\\nFor the answer to this question (there is an\\nanswer), we must turn to another school of econo-\\nmists, who have, I think, unconsciously furnished\\na clew to the mystery.\\nWe have already seen the trouble caused by the\\nantagonism of two theories of Value the cost\\nand the utility theories. I have shown how,\\nby approaching value through price, we reach a\\ntrue statement of value as the resultant of forces\\noperating from both sides, the relations of cost to\\nutility. Now it is worthy of remark that although\\nthe question of capital and interest has commonly\\nbeen severed from the general theory of value and\\nsubmitted to separate investigation, the same di-\\nvergency of conflicting explanations has arisen.\\nOne set of thinkers explains interest by absti-\\nnence a cost theory another by productivity\\na utility theory.\\nIt is not curious that this conflict should arise\\nin connection with an imperfect theory of value.\\nIt is, however, of the utmost importance to recog-\\nnise that the question of interest is nothing else\\nthan a particular case of price.\\nThe Law of Price stated above applies to the\\nprice of service of capital as to all other prices.\\nThe loan market is subject to the same forces\\nwhich determine prices in other markets there", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0248.jp2"}, "247": {"fulltext": "BARGAINS FOB THE USE OF CAPITAL. 233\\nis the same competition of bargaining pairs, the\\nsame narrowing of the competitive price toward a\\npoint finally determined by the will of the stronger\\nmember of the final pair final cost and final\\nutility are represented here as in other markets\\nby the final pair.\\nThe final pair in the loan market will, as in\\nother markets, consist of the lender who, among\\nthose who conclude a loan, sets the highest valua-\\ntion upon the services he is selling, and the bor-\\nrower who, among actual borrowers, sets the lowest\\nvaluation upon the service he is buying. The\\nformer, in accordance with our general analysis\\nof value, will be the marginal saver (the person\\nincurring the largest cost, or requiring the\\nlargest inducement to abstain or wait the\\nlatter the marginal borrower (the person who\\nimputes the smallest utility to a loan).\\n4. But the root questions still await an an-\\nswer How is the cost of abstinence the cause of\\nthe utility of capital What is the utility\\nof a concrete piece of capital which yields a con-\\ntinuous interest to its owner\\nI build a house, let it to you, you pay me ^80\\na year and undertake to keep it in repair at a cost\\nof \u00c2\u00a320 a year. You are paying XlOO a year^\\nc\u00c2\u00a380 of which comes to me as rent or interest.\\nWhat does that interest and insurance buy for\\nyou Clearly the shelter and other conveniences\\nfurnished by the house. May we not say that", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0249.jp2"}, "248": {"fulltext": "234 THE ECONOMICS OF DISTRIBUTION,\\nthe house is engaged in producing a continuous\\nsupply of shelter You say the house is only\\ndead matter and cannot produce. This begs\\nthe question that conscious human effort alone\\nproduces. This again is only a question of con-\\nvenience of terminology. I suggest that it is\\nconvenient to regard both land and capital as\\nproductive factors, and their rent and interest\\nas analogous to wages. Land is not dead, but\\nyields a recurrent supply of natural forces analo-\\ngous to the recurrent supply of labour-power put\\nforth by man, and upon similar conditions, viz.\\nthat she is recouped artificially or is allowed to\\nrecoup herself for the drains to which she is sub-\\njected. Is it altogether fanciful to suggest that\\nthe repairs done to the house correspond to the\\nsubsistence wage paid to labour and to land to\\nmaintain their continuous economic existence, and\\nthat the interest paid the owner is for continuous\\nservices rendered by the natural powers of the\\nmaterials of which the house is constructed, the\\npowers to resist rain, atmospheric influences, and\\nanimal intruders? Do not these, in fact, consti-\\ntute the utility for which you pay ^100\\nThere are those who would make a mystery of\\nthe fact that capital can yield interest in perpe-\\ntuity. A house or a machine or other piece of\\ncapital is not, they say, eternally productive\\neven allowing it is productive in the way you\\nclaim, it wears out in time, and yet after it is", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0250.jp2"}, "249": {"fulltext": "BARGAINS FOR THE USE OF CAPITAL. 235\\nworn out and gone and is replaced by a different\\nhouse or machine you will continue to receive the\\ninterest just the same.\\nYet this difficulty disappears if we look more\\nclosely at our example. My interest on my house,\\nthe rent you pay me, is \u00c2\u00a380, but you value the\\nutility you get at XlOO, for you are willing not\\nonly to pay me \u00c2\u00a380, but to spend X20 a year\\nin repairs. Now this arrangement about repairs\\nis not inherent to the theory of interest. I can\\narrange that you shall pay me ^\u00c2\u00a3100 a year instead\\nof X80, and I will do the repairs myself. Now in\\neither case provision is made that my capital, my\\nhouse, is eternally productive. The X80 I receive\\nwill continue indefinitely as the payment for the\\nshelter furnished by my house this continuity or\\npreservation I furnish myself by additional labour\\nput into repairs. I may make you pay for these\\nrepairs, but none the less they are to be deemed\\nmy repairs, for the house is worth for an in-\\ndefinite time XlOO to you, and I only take\\nX80 as profit. The case is perhaps still clearer\\nif I occupy my own house, enjoying the same\\nshelter, and doing the, repairs with my own hands.\\nHere it matters little whether I speak of the house\\nas capital producing a profit of \u00c2\u00a3100 or regard\\nc\u00c2\u00a320 as my wages for current repairs.\\nContinuous external existence of capital and\\ninterest is only obtained by consenting to forego\\na portion of a higher profit which could be taken", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0251.jp2"}, "250": {"fulltext": "236 THE ECONOMICS OF DISTRIBUTION.\\nfor a limited time. This interest foregone repre-\\nsents a continual repair, and since this repair can\\n(in theory at any rate) secure eternity for the\\nform of capital, there is no reason why the price\\nof a utility which still continues should cease to\\nbe paid.^\\nOr take the case of a machine. If wear and\\ntear is provided for, as in the case of the house,\\nthe objection against perpetuity of interest, on the\\nground that the machine is worked up in a limited\\ntime into a given quantity of goods, falls to the\\nground. This machine has its continuity secured,\\nand it has a yearly productivity consisting of the\\nservice it renders by cooperating with labour,\\nwhich brings in interest to its owner. This pro-\\nductivity and interest will not, however, disappear\\nif, instead of fully providing against wear and\\ntear of this particular machine, it is allowed to\\nwear itself out and is replaced by another. For\\nit cannot matter either in the case of the house or\\nthe machine whether the .\u00c2\u00a320, which measures the\\nyearly contribution to depreciation, is put into\\nrepairs of the old structure or the gradual provi-\\nsion of a new fabric which shall take its place.\\n1 B(jlim-Bawerk begs the whole question when he asserts\\n{Capital and Interest^ p. 249) that a house rented is a store\\nof energies to be released bit by bit. Bohm-Bawerk confuses\\nthe waste of the material fabric of a form of capital with\\nthe use of which that waste is one among other conditions.\\nThat waste made good, as it is made good, the use becomes\\nperpetual.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0252.jp2"}, "251": {"fulltext": "BABGAINS FOR THE USE OF CAPITAL. 237\\nThe continuous existence of the house or the\\nmachine does not really obscure or impair our\\nunderstanding of the origin or the legitimacy of\\ninterest.\\nIf the owner hired out the machine, he could\\nget as rent or interest, say, \u00c2\u00a3100, if he made no\\nstipulation as to the wear and tear or he can\\nlet it at X80, on the understanding that it shall\\nbe kept in repair or replaced when worn out.\\nSome people let out machines (^e.g. bicycles) upon\\nthe former terms, others on the latter the former\\nyields a higher interest for a limited time, the\\nlatter a lower interest without the limit. The\\neternity of the capital is secured by what may be\\nregarded as a payment out of gross interest,\\nwhich accurately corresponds to a fund for main-\\ntenance of economic efficiency and payment of\\nrent and wages in the case of labour and of land.\\nIn order that labour may command a price for\\nits use, three conditions are admittedly essential\\nfirst, there must be objective or technical produc-\\ntivity, an actual increase of goods due to the use\\nof the labour secondly, there must be a subjec-\\ntive cost or painful expenditure of effort thirdly,\\nthere must be a subjective utility or fund of en-\\njoyment afforded by the result of the labour.\\nAll three conditions we have shown are present\\nin the case of the functioning of forms of fixed\\ncapital. A house or a machine when economi-\\ncally used gives out a continuous supply of objec-", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0253.jp2"}, "252": {"fulltext": "238 THE ECONOMICS OF DISTRIBUTION.\\ntive economic goods to which value is attached,\\nand a price affixed by consideration of the rela-\\ntion between the marginal cost of that absti-\\nnence which is essential to secure their economic\\nexistence, and that marginal utility which di-\\nrectly measures the economic importance attached\\nto them by borrowers.\\nThe case of fixed capital is thus plainly seen to\\nbe on all fours with the other factors of produc-\\ntion with regard to the conditions of value, and\\nthe determination of price.\\nThe case of loans which take shape as circulat-\\ning capital, or as commodities for present consump-\\ntion, present at first sight a somewhat different\\naspect, and have misled many economists into\\nadopting a special explanation of value and price\\nof the use of capital.\\nInstead of taking the loan of a house or a\\nmachine, let us now consider the loan of capital\\nwhich takes shape in material of manufacture,\\nfuel for generating manufacturing power, or goods\\nwhich form the stock in trade of a business. Do\\nthese conform to the same conditions as fixed\\ncapital Do they possess, as capital, continuous\\nexistence, and can objective net productivity be\\nimputed to them? At first sight one is disposed\\nto give a negative answer to both these questions.\\nCirculating capital, in the very terms of its\\nmost common definitions, ceases to exist after a\\nsingle use the raw cotton once spun is no longer", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0254.jp2"}, "253": {"fulltext": "BARGAINS FOR THE USE OF CAPITAL. 239\\nraw cotton but yarn the coal once burnt ceases to\\nfunction as coal; the shop goods once bought by a\\ncustomer now only possess economic existence as\\nconsumptive wealth. But this superficial view dis-\\nappears before a more exact conception of indus-\\ntrial order. In the case of the labourer, the mere\\nfact that the material fabric of his body is con-\\ntinuously worn out in the course of his working\\nlife, each particle of tissue being wasted and\\nreplaced by another particle, does not impair our\\nconception of the identity and the continuous\\nexistence of this fund of labour-power. In the\\ncase of a building or a machine we are ready to\\nadmit that the conservation of its identity does\\nnot depend upon the fact that all or any of its\\noriginal material structure remains intact in the\\nlong course of wear and repair every particle of\\nthe original house or machine may disappear, and\\nyet we rightly recognise the continuous existence\\nof the capital it embodies. Now there is no real\\nor essential difference in this respect between\\nfixed and circulating capital in the latter case\\nthe change of the matter which represents the\\ncapital is more rapid and more regular, that is all.\\nJust as a loan of capital, wliich takes shape as\\na machine or a house, is kept in continuous\\neconomic existence by replacement and repair of\\nwasted matter, so in the case of the capital which\\ntakes shape as coal to feed an engine or to heat a\\nhouse. In the case of the latter as of the former,", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0255.jp2"}, "254": {"fulltext": "240 THE ECONOMICS OF DISTRIBUTION,\\nthere is continuous waste (or consumption if\\nthis ambiguous term be preferred), and continu-\\nous replacement the particular matter which\\nrepresents the capital is in incessant flux.\\nThis is the true explanation of the mystery which\\nBohm-Bawerk affects to find in the attribution of\\ncontinuous use to perishable goods. It had to\\nbe discovered that a hundredweight of coal can be\\nburnt to cinders on January 1, 1888, and yet be\\nused uninterruptedly throughout the whole year,,\\nand, perhaps, for five, ten, or a hundred years to\\ncome; and what is best of all, that this lasting\\nuse can always be bought for a particular price,\\nalthough and after the coal itseK, and the right to\\nconsume it to the last atom, has been given away\\nfor another and a different price. The fiction\\nwhich Bohm-Bawerk claims to be the animating\\nprinciple of this theory is only a fiction if con-\\ntinuous existence and continuous use were claimed\\nfor the same material embodiment of a hundred-\\nweight of coal. But no such claim is preferred.\\nThe economic continuity achieved by replacement\\nshifts the capital contained in the hundred-\\nweight of coal to a second, and a third, and an in-\\ndefinite number of hundredweights of coal, which\\nare the legitimate economic representatives and\\nsuccessors of the first hundredweight and may\\nwell survive for ten or a hundred years. So long\\nas the owner of the original hundredweight of\\n1 Positive Theory, p. 287.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0256.jp2"}, "255": {"fulltext": "BARGAINS FOR THE USE OF CAPITAL. 241\\ncoal which was loaned stands out of his property,\\nhis abstention is a legitimate economic cost, which\\nforce preserves in economic existence and use a\\nhundredweight of coal or some other industrial\\nrepresentative of it.\\nThis is no fiction, but an important fact, the\\nunderstanding of which is essential to a compre-\\nhension of the working of modern industry. A\\nmanufacturer maintains his stock of raw materials\\nor of fuel in the same way in which he maintains\\nhis fixed capital, though his mode of book-keep-\\ning may suggest a difference. Out of the gross\\nreceipts from his sales he replaces the one as he\\nreplaces and repairs the other. Or take the stock\\nof a retail store which does a regular trade, the\\nsame quantity of the same kinds of wares will\\nconstantly be there. The tobacconist s furnisher\\nwho supplies on credit a small retail store, has\\nprecisely the same claim to receive continuous\\ninterest for that part of the capital wliich is in\\ncigars and pipes, as for that which takes the shape\\nof shop furniture and fixtures: the one is just as\\npermanent as the other, as cigars and pipes are\\nsold they are replaced by fresh orders just as the\\nfittings or furniture are replaced when they are\\ndamaged or worn out. The claims of objective\\ncapital to continuity of existence depends not\\nupon continuity of substance, but of economic\\nform. This continuous existence of so-called\\ncirculating capital also implies a continuous objec-", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0257.jp2"}, "256": {"fulltext": "242 THE ECONOMICS OF DISTRIBUTION.\\ntive productivity which corresponds to that which\\nwe discerned in fixed forms of capital. As a\\nmachine continuously working is continuously\\nproductive, so with the fuel which furnishes its\\nmechanical energy: when we recognise that the\\nexistence of the fuel, as capital, is not dependent\\non the permanence of any particular particles of\\ncoal, we perceive that its use is continuously pro-\\nductive of wealth, taking shape in the goods that\\nare manufactured by the machine. The same\\nmust be said of the raw materials themselves\\nwhich, by the operation of machinery, are taking\\nserviceable shapes they, too, are functioning\\nproductively in industry, and that productivity\\nis continuous so long as the supply of materials\\nwhich represents that form of circulating capital\\nis maintained.\\nLoans of commodities for which interest is paid\\nare often instanced in triumphant refutation of\\nthe alleged need of objective productivity of\\ncapital.^ A loan of corn for purposes of present\\nfood, a loan of wine drunk as soon as it is bor-\\nrowed these things may form sources of the\\npayment of continuous interest, though continuous\\nexistence and productivity cannot be imputed to\\nthem. What are we to say of such cases We\\ndo not need to evade the issue by urging, as Bohm-\\nBawerk, who raised the difficulty, enables us to\\n1 Cf. Bohm-Bawerk, Capital and Interest, pp. 214-259.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0258.jp2"}, "257": {"fulltext": "BABGAINS FOE THE USE OF CAPITAL. 243\\ndo, that such loans are not loans of capital^ and\\nthat what is paid for their use is not true interest.\\nThe fact is that, if the corn lent is used to sustain\\nproductive energy of labourers, so as to enable\\nthem to produce more corn and out of this pro-\\nduce to repay capital and interest, the case is on\\nall fours with that of capital which functions as\\nfuel or as raw material, though it may for con-\\nvenience be best to exclude consumptive goods\\nfrom ranking as economic capital the real source\\nand justification of interest is identical in the two\\ncases.\\nBut what of the loan of wine which is drunk\\nas soon as borrowed, and cannot be regarded\\nas consumed productively Whence comes\\nthe continuous interest that must be paid for this\\nloan so long as it remains an undischarged debt\\nNo continuous use and no objective productivity\\nappears here. How, then, can interest arise\\nThe answer is that, if this case be taken by itself,\\ninterest cannot arise at all, and the fact that it\\ncannot be paid is seen to rest upon the non-pro-\\nductivity of this loan. Bohm-Bawerk, who ad-\\nduces this instance to refute the supporters of use\\nand productivity as the source of interest, is really\\nhoist with his own petard, for he cannot show\\n1 Consumptive goods are not means of production; they\\nare therefore not capital and the advantages which they con-\\nfer do not proceed from any productive power they possess.\\n(^Positive Theory of Capital, p. 272.)", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0259.jp2"}, "258": {"fulltext": "244 THE ECONOMICS OF DISTRIBUTION.\\nin such a case that the interest paid for the drunk\\nwine arises from a ripening of future into present\\ngoods as his theory demands. In point of fact\\nthe instance is invalid. No true interest can be\\npaid for such a loan if money interest is paid, it\\nis derived from the productivity of some other\\nfactor of production. The case has no bearing\\nwhatever on the theory of interest. The rent of\\na piece of land must be paid even by a farmer who\\nis losing money, but we cannot on such a ground\\ndeny that productivity of nature is a necessary\\ncondition of payment of rent. If a borrower mis-\\napplies his capital, or converts it into wasteful\\nforms, he must pay that rate of interest which is\\ndetermined by the condition of its most effective\\nand productive economic use. If a piece of capital\\nis squandered, the interest must be paid out of the\\nproductivity of some other piece of capital or some\\nother factor of production. If none such is avail-\\nable, cadit qucestio, the interest cannot be paid at\\nall.\\n5. I have found it necessary to dwell at length\\nupon this matter and to illustrate from the several\\nkinds of capital, because it appears to be thought\\nby many that modern representatives of the Aus-\\ntrian School, Bohm-Bawerk in particular, have\\ndestroyed the theory which would rank interest\\nwith other payments, and have established a sepa-\\nrate origin and nature for this source of income.\\nBohm-Bawerk has, at the close of his Positive", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0260.jp2"}, "259": {"fulltext": "BARGAINS FOE THE USE OF CAPITAL. 245\\nTheory of Capital, challenged economists to\\nprove the existence of an enduring use of per-\\nishable goods, for which interest is supposed to be\\npaid.\\nI claim, here, to have met this challenge and to\\nestablish the enduring use and the enduring\\nobjective productivity of the various forms of\\ncapital as the source and the fundamental condi-\\ntion of the payment of interest. By showing the\\neconomic provision for continuous replacement of\\nthe matter in which a stock of perishable goods\\nis at any given moment embodied, I have removed\\nthe difficulty which beset most of the older theo-\\nries of dependence of interest upon productivity .2\\n1 p. 295.\\n2 Bohm-Bawerk, in dealing with the arguments by which\\nKnies defends the view that interest arises from a durable use\\nin perishable goods, attempts to turn his opponent s position by\\nargumenta ad ridiculum which utterly evade the issue. Admit-\\nting (p. 289) that in a certain point of view the individual\\ngoods replaced may be looked upon as if they were actually the\\nsame individual goods which were given away in the loan they\\nhave identically the same effect on the economical position of\\nthe lender who receives them, he affects to deny that herein\\nis any evidence of continuous use or productivity. One\\nmight, he thinks, as well use the identity of perishable goods\\nto prove that oysters will keep fresh for ten years. It is, he\\ninsists, really a question which must find its answer in con-\\nsidering the nature of the perishable good and the nature of the\\nuse. But the nature of the use is precisely what Bohm-\\nBawerk does not consider. Had he done so he would have\\nperceived that the nature of the use is such that the eco-\\nnomic consumption of a perishable form of capital replaces it", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0261.jp2"}, "260": {"fulltext": "246 THE ECONOMICS OF DISTRIBUTION.\\nInterest is paid out of an increased product\\nwhose existence requires the presence and ser-\\nvices of capital. But this increased product does\\nnot necessarily constitute interest, nor does it pro-\\nvide a measure of the value of the use of capital.\\nA new machine introduced into a trade might\\ndouble the output, but of course it by no means\\nfollows that the profit obtained by the owner of\\nthe machine corresponds to the value of half the\\nincreased output, still less to the value of the\\nwhole of the earlier output. If the machine\\nwere an absolute monopoly, its owner could\\nhold, against the encroachments of labour on\\nthe one hand and the consumer on the other\\nby another form, and in addition yields a surplus whicli is\\ndestined to figure as interest. This surplus (a net Nutzung)\\narises from that productivity of use of capital which Bohm-\\nBawerk simply denies, but the non-existence of which he fails\\nto prove. He boldly asserts (p. 291) in following up KJaies that\\nthe enjoyment of effects indirectly obtained from the con-\\nsumption of goods is not in the least a utility which we get\\nin addition to the consumption, it is just the utility we get\\nfrom the consumption, i.e. the consumption of a ton of coal\\ncannot be productive in the sense that it not only yields a value\\nenabling another ton of coal to replace it, but a surplus value\\nwhich figures as interest. Whether Knies is technically right\\nor wrong in his account of the indirect services arising from this\\nconsumption, we have seen that the economic consumption of a\\nton does yield a surplus over and above the ton which shall\\nreplace it. Without such surplus we shall presently see there\\nexists no objective fund for payment of interest which is thus\\nthrown back upon a subjective fund that is impotent to explain\\nreal interest.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0262.jp2"}, "261": {"fulltext": "BARGAINS FOR THE USE OF CAPITAL. 247\\nhand, the whole of the increased product, at a\\nvalue only lower than the value of the former\\noutput by such fall of price as he deemed desir-\\nable to allow, in order to increase the sale of\\ngoods to the point which would yield the maxi-\\nmum aggregate of net profits. But where the\\nmachine is no monopoly, the competition of other\\ncapitalists may oblige him to hand over part of\\nthe increased productivity to consumers in large\\nreductions of price, or to labour in much higher\\nwages, receiving only a minimum profit which has\\nno fixed or directly assignable relation to the in-\\ncreased productivity.\\n6. The amount of the profit or the value of\\nthis use of capital will, according to utility theo-\\nrists, be dependent, not upon the productivity of\\neach separate machine, but upon the subjective\\nutility imputed to the marginal machine, that\\nwhich is least effectively applied.\\nNeedless to say, I reject this assertion that the\\nprice and value of the use of capital is determined\\nby final utility. Utility and productivity are\\nessential conditions of interest, and interest may\\nbe rightly regarded as paid out of increased pro-\\nductivity; but the amount or proportion of the\\nadded productivity required for profit is not to\\nbe determined by confining attention to the util-\\nity of capital.^\\nBut a complete presentment of interest as a\\n1 This is Von Wieser s mistake in Natural Value.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0263.jp2"}, "262": {"fulltext": "248 THE ECONOMICS OF DISTRIBUTION.\\ncase of the general law of price requires not\\nonly that the capital shall be coordinated with\\nother factors of production in relation to utility\\nand productivity, but also in relation to cost. If\\nthe use of capital is what is sold and paid for by\\ninterest, how are we to describe the cost from\\nwhich a price proceeds helping to determine that\\nprice\\n7. No novel answer is required. Abstinence\\nstill seems to me the best term to describe the^\\nhuman effort which enables capital to be produc-\\ntive. Misunderstanding upon this theory of ab-\\nstinence as a cost arises from two sources first,\\nas to the nature of the abstinence; second, as to\\nthe economic position of those who practise it.\\nUpon the nature of abstinence early economists\\nexpressed themselves ambiguously. The absti-\\nnence which enables capital to function does not\\nconsist in the original determination which leads\\na saving person to abstain from making what he\\ncan enjoy at once, in order to make something\\nwhich cannot be at once consumed, but which is\\nof service in production. That initial act is only\\nthe beginning of the effort of abstinence. That\\neffort, or cost, must be considered to be going\\non all the time that capital is utilized the owner\\nof this capital must be conceived as exercising\\na self-restraint which enables him to resist the\\ntemptation to substitute for his capital a fund of\\npresent enjoyment. This effort, moreover, need", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0264.jp2"}, "263": {"fulltext": "BAUGAINS FOR THE USE OF CAPITAL. 249\\nnot be regarded as a purely negative action the\\neffort of self-restraint is as positive as any other\\neffort, and indeed has its psychical and physical\\nmeasurements, like the efforts which go out in\\npresent labour-power. This effort of abstinence\\nis not, indeed, to be regarded as the efficient cause\\nof the productivity of capital we cannot say in\\nso many words that abstinence is productive, but\\nthis continued effort is plainly to be regarded as\\nkeeping capital in continuous economic life. If\\nthat abstinence fail and owners demand instant\\nenjoyment, capital lapses, and its services are\\nwithdrawn. Professor Marshall, I think, does\\nwrong to compromise the view by substituting\\nwaiting for abstinence. The human sub-\\njective cost is the self-restraint implied by absti-\\nnence the self-restraint as a psychical process\\ninvolves waiting, and waiting is but the imme-\\ndiate condition which enables capital to operate\\nproductively.\\nPrecisely the same relation exists between ab-\\nstinence and the utility of capital which exists\\nbetween labour and the utility of commodities.\\nPhilosophically, abstinence is to be regarded as a\\nform of human economic cost referable to some\\ncommon denominator with labour-power, and paid\\nfor its sacrifice upon the same scale. Interest\\nfrom this point of view must be regarded as a\\nwage of abstinence. Abstinence must be regarded\\nas a form of painful effort voluntarily incurred by", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0265.jp2"}, "264": {"fulltext": "250 THE ECONOMICS OF DISTRIBUTION.\\nindividuals, paid for in interest out of a product\\nwhich owes its existence to the incurring of the\\neffort.\\nTo some this is a hard saying, which they\\nseek to deny, either by pointing to a possible\\norder of society in which individuals would not\\nbe called upon to practise abstinence, or by allu-\\nsions to the Duke of Westminster and others\\nwhose abstinence involves no effort, but consists\\nin a refusal to incur the positive discomfort of\\nincreasing their consumption after all felt wants\\nare fully satisfied.\\nBut neither of these objections is really sub-\\nstantial. The substitution of collective for indi-\\nvidual saving would not really do away with\\nabstinence or even with the painful cost of it; it\\nwould always be more pleasant, and perhaps more\\nimmediately profitable, to a society to convert an\\nundue proportion of its energy into immediately\\nconsumable goods, and so to make inadequate pro-\\nvision for the future. A rational society resisting\\nthe temptation and making due provision for\\nfuture production must be held to practise absti-\\nnence and self-sacrifice analogous to that practised\\nby the individual now. In the administration of\\nsuch a coUectivist society, no particular portion\\nof the increased wealth due to this provision\\nmight be classed as interest the need of the old\\nterminology might have passed, but the thing\\nitself, the interest, would be there.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0266.jp2"}, "265": {"fulltext": "BARGAINS FOR THE USE OF CAPITAL. 251\\nSo also, under an individualist dispensation, as\\nlong as the abstinence or postponement of gratifi-\\ncation on the part of any of those required to\\ncontribute to the supply of capital involves a sac-\\nrifice, interest must remain. If, as some suppose,\\na time might come when a sufficient number of\\nsavers might consent to abstain in order to con-\\nsume more serviceably in the future the same\\nquantity or even a less quantity of goods, interest\\nin any positive shape might indeed be abolished\\nfor if abstinence involved no painful effort, hovt^-\\never much it might be serviceable in producing\\nwealth, it would receive no pay it would be\\namong the bounties of nature which have no\\nvalue. 1\\nThe fact that the Duke of Westminster suffers\\nno painful effort in saving, of course is beside the\\npoint for all who have considered that waiting,\\nlike all other costs, must be measured from the\\nmarginal saver, and not from the saver whose\\nsaving comes easiest. A large, an unduly large,\\nproportion of saving is performed by those whose\\nabstinence involves no pain or appreciable loss of\\npresent enjoyment. Even the self-restraint of the\\nordinary well-to-do saver may not greatly reduce\\nhis current rate of enjoyment. But the total sup-\\nply of capital employed in industry certainly con-\\n1 Subjective interest even then would not disappear. For a\\ndiscussion of the question, Is objective interest necessary?\\nsee Appendix at the close of this chapter.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0267.jp2"}, "266": {"fulltext": "252 THE ECONOMICS OF BISTBIBUTION.\\ntains some portions whicli are the result of a real\\nconsiderable sacrifice of present comfort. Not\\nonly the superfluous income of the Duke of West-\\nminster, but some of the hard-won earnings of\\nJohn Smith of Oldham, are required to contribute\\nto the aggregate supply of capital. Now, while\\nthe Duke might, and probably would, consent to\\ndo his saving even if no interest was paid for its\\nuse, John Smith probably would not consent. So\\nlong as John Smith must receive 2^% in order\\nto evoke the genuine effort of abstinence, the\\nDuke must get the same payment for his formal\\nabstinence. It is economically necessary to pay\\nthe Duke at the same rate at which we pay John\\nSmith, because, in the investment market, as in\\nany other market, there can only be one price\\nfor the whole supply, that price measuring either\\nthe cost of producing that portion of supply which\\nis produced most expensively, or the utility af-\\nforded by that portion of supply. The relation\\nbetween the cost of production to John Smith, and\\nthe utility of the portion of capital which he fur-\\nnishes, determines the rate of profit. If it seems\\nunjust that the Duke of Westminster should be\\npaid for no actual effort or sacrifice incurred, we\\nmust bear in mind two facts. First, our analysis of\\nthe operation of bargaining has shown that the\\ndistribution of gain in a bargain is not based on\\nany moral principle of distributive justice. The\\ninjustice apparent in the payment of interest is", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0268.jp2"}, "267": {"fulltext": "BARGAINS FOR THE USE OF CAPITAL. 253\\nalso found in the payment of wages. A strong-\\nbodied labourer, who finds his work easy to per-\\nform, is paid as much as a weak-limbed labourer\\nwho gives out a far more painful effort in the\\nperformance of the same task. The first hour\\nof the working day, which may be nothing else\\nthan a pleasurable exercise, is paid for at the same\\nrate as the last hour, which is exhausting and\\ninjurious. So with saving, the effort of the mar-\\nginal saver, not of the other savers, is the deter-\\nminant of profit from the cost side of the equation.\\n8. But, it may be further pressed, the\\nanalogy with labour is not complete, the labourer\\nwhose labour is easiest at any rate gives out some\\npersonal exertion; but the capitalist whose sav-\\nings are only the self -accumulation of excessive in-\\ncome does nothing at all. Now this statement is\\nindisputable, but the attack it suggests is misdi-\\nrected when it is applied to impugn the principle\\nof interest. The real gravamen of the charge,\\nagainst those whose interest is unattended by any\\ncost of abstinence, has reference, not to the\\npayment of interest, but to the modes by which\\nthey have come into possession of the capital. In\\nother words, the frequent assertion that the real\\nabstinence is of the worker and not of the capi-\\ntalist, does not meet the point at issue. Sup-\\nposing it be true that the capitalist steals from the\\nworker a portion of the product and uses it for\\ncapital, receiving interest for its use, a true bill of", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0269.jp2"}, "268": {"fulltext": "254 THE ECONOMICS OF DISTRIBUTION.\\nindictment against him would rest, not upon the\\nwrongful receipt of interest, but upon the prior\\nact of stealing the product of labour. If the in-\\njustice of paying interest to those who have earned\\nit by no effort be admitted, that injustice has no\\nspecial reference to bargains for the use of capital,\\nbut must be located chiefly in prior bargains for\\nthe sale of labour-power, or in other bargains\\nwhere the capitalist enjoys a superior power of\\nbargaining. Those who hold that capitalist em-\\nployers forcibly extort from their workers a sur-\\nplus value, weaken their case when they enter a\\nspecific attack against the payment of interest for\\nthis surplus value after it has taken the form of\\ncapital.\\nThe economic necessity of interest and the law\\nof its payment is not really affected by the fact\\nthat some of the capital for which interest is\\nreceived may have come wrongfully into posses-\\nsion of its owners.\\n9. I claim by this argument to have shown\\nthat the price of the use of capital, called interest,\\nis determined in the same way as the price of a\\ncommodity in a market, i.e. by the establishment\\nof a relation between two bargainers, one repre-\\nsenting final or marginal cost, the other final or\\nmarginal utility. Abstinence and productivity\\nmust be admitted each to contribute toward de-\\ntermining the economic importance attached to\\nthe use of a piece of capital.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0270.jp2"}, "269": {"fulltext": "BABGAiyS FOR THE USE OF CAPITAL. 200\\n10. According to this treatment, interest, the\\nprice of capital-use, is determined like every other\\nmarket-jjrice. There are, however, certain rea-\\nsons, other than those already named, which have\\nhelped to remove the consideration of interest\\nfrom the general treatment of prices, and to apply\\nto its determination special laws and sjjecial ter-\\nminology. Both economists and moralists have\\ntreated interest as a payment distinct in kind from\\nother payments. And it mnst be admitted that\\ncertain conditions which apply to capital seem to\\nsever it naturallv from other articles, the use of\\nwhich is bought and sold.\\nIn the first place, until quite recent times in all\\ncountries, and even now in all save the most de-\\nveloped countries, most loans of capital were not\\nfor industrial purposes, but for consumption or\\nfor some pressing temporary emergency. The\\nconditions of such loans have generally been far\\nremoved from market competition of the kind\\nwith which we have been dealing. The necrotia-\\ntions of the money-lender with his client give to\\nthe element of force or monopoly power a far\\nlarger place than is commonly accorded in bargain-\\ning. The practice of usury has thus been strongly\\ndissociated from ordinarv dealincrs. and still vields,\\neven in advanced industrial communities, the most\\nstriking instances of forced gains in the deter-\\nmination of a price. The lender has, from the\\nvery nature of the case, so powerful an advantage", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0271.jp2"}, "270": {"fulltext": "256 THE ECONOMICS OF DISTRIBUTION.\\nover the borrower, that both economics and ethics\\nhave been habituated to treat such bargains as a\\nthing apart. But though the balance is commonly\\nso ill-adjusted for these bargains, they are not\\nintrinsically different from other bargains where\\ncompetition among sellers is closely restricted.\\nAgain, when we turn to industrial capital, we\\nfind that in most countries the great bulk of this\\ncapital is used by its owners, and its profit is not\\nreckoned apart from the wages or the earnings of\\nmanagement of a worker or an employer. The\\nproportion of savings which have been used for\\ninvestment outside the business of the owner has\\nbeen quite small until recent times, and many such\\ninvestments are determined by other than purely\\ncompetitive conditions.\\nThus the conception of a fluid-market for the\\ninvestment of money in which two-sided competi-\\ntion exists, and where the lender cannot be deemed\\nto have any natural advantage over the borrower,\\nis of quite modern growth, and has not yet dis-\\nplaced the conception of capital and interest asso-\\nciated with the old order of things.\\nBut in so far as the use of capital is the object\\nof a sale, whether on the older terms of usury or\\nin modern investments, the price is determined,\\nlike the price of commodities, by the bargainers,\\nwho represent final cost and final utility the\\nsupply of the use of a particular form of capital is\\nsubject to the same laws determining its increase", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0272.jp2"}, "271": {"fulltext": "APPENDIX TO CHAPTER VIII. 257\\nor decrease as the supply of land, or of labour, or\\nof goods.\\nAPPENDIX TO CHAPTEE VIII.\\nIs Objective Interest Necessary\\nThere are those who think that even at the present\\ntime objective interest is unnecessary as a stimulus to\\nsaving, or, in other words, that there is no economic\\ncost in saving which requires a reward represented by\\nan objective increase in the quantity of goods returned\\nby the borrower. According to these thinkers, inter-\\nest is maintained by the option which an investor has\\nof buying land and drawing rent (H. George), or by\\nthe further option of getting hold of a limited and\\nlegalised monopoly, money, and extorting usury for\\nits loan (M. Fliirscheim). If land and money were\\nremoved from the field of investment, interest, they\\nmaintain, would disappear. Those who hold this view\\nseem to me to weaken their case by limiting to land-\\nowning and money-lending the forms of investment\\nwhich support a positive interest. All other industries\\nwhich, by reason of the enjoyment of legal protection,\\ndependence upon land-use, or restricted competition,\\ndue to purely economic forces, are enabled to tax the\\nconsuming public, will, in as far as they are open to\\ninvestment, stand in the same position to support in-\\nterest as land and money. But if these forms of\\nprotected industry were withdrawn from the field of\\nprivate investment, would interest disappear, or, in\\nother words, would the marginal saver lend without a\\nlarger return", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0273.jp2"}, "272": {"fulltext": "258 THE ECONOMICS OF DISTRIBUTION.\\nISTo direct or general answer can be given. Tlie\\nquestion of the influence of reduced interest on saving\\nis often discussed as if tlie motives of the saver were\\nthe only determinant. This is not so. The relation\\nof the motives of the saver to the amount of savings\\nsocially required is the problem. It is a particular\\ncase of value/ involving, as does every other case,\\nconsideration of the relation of marginal cost to mar-\\nginal utility.\\nSaving is due (1) partly to the self-accumulation of\\nsurplus incomes not needed to satisfy any demand iox,\\ncurrent satisfaction. A fall of interest, even to zero,\\nor below, might not appreciably affect this saving;\\n(2) partly to a desire to provide against old age, or\\nother infirmities, or to support a family. Saving\\nfor such purposes is probably stimulated by a fall\\nof interest. If it is intended to expend the capi-\\ntal sum of the savings for these purposes, the rate\\nof interest will not have an important^ influence as\\nmotive, but so far as it operates, a high rate will check\\nsaving by enabling a somewhat smaller amount of sav-\\ning, accumulating at interest, to achieve the desired\\nresult. If, on the other hand, it is intended to make\\nprovision, not by expending the capital, but by using\\nthe income from that capital, a low rate of interest is\\nlikely to evoke more saving because a larger capital\\nwill be required to yield the necessary income.\\nAgainst this, however, must be set the consideration\\nthat, if interest is so low that the task of accumulating\\nby saving suf cient capital to furnish it becomes too\\ndifficult, or quite impossible, such saving will not be\\nundertaken. But when we remember how much saving", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0274.jp2"}, "273": {"fulltext": "APPENDIX TO CHAPTER VIII. 259\\nis often done in primitive industrial societies for these\\npurposes, and how much more would be done if politi-\\ncal and social conditions were such as to protect these\\nsavings effectively, we shall be inclined to conclude\\nthat a fall of interest is more likely to increase than\\nto reduce the aggregate of savings for purposes of\\ndefinite future expenditure.\\n(3) Savings are made by men of substance engaged\\nin industry, in order to extend their business, or gener-\\nally to improve their financial position. In such cases\\nit is reasonable to hold that a high rate of interest will\\nstimulate saving. For, in the first place, the interest\\nupon capital, already in existence, must be regarded\\nas the portion of income out of which the largest pro-\\nportion of savings can be most easily made. Where\\ninterest is high, the proportion of the general income,\\nwhich admits easily of saving, will be large. In spite\\nof the maxim lightly earned, lightly spent, it is\\nreasonable to expect that a rise in the aggregate of\\ninterest, or of any portion of income not earned by\\ndirect labour, will be attended by an increase of sav-\\ning. When a temporary rise of interest takes place\\nduring some industrial boom, most careful business\\nmen will try to reap a golden harvest while they\\ncan, by using their abnormally high profits to extend\\ntheir businesses. A temporary, and even a normal and\\ngradual, fall of interest will reduce this sort of\\nsaving.\\nMost economists,^ admitting the contrariety of mo-\\n1 This was not true of early economists, cf. Webb, Indus-\\ntrial Democracy^ Vol. II, p. 622, etc. Mr. and Mrs. Webb,\\nhowever, are wrong in their interpretation of the view of Senior", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0275.jp2"}, "274": {"fulltext": "260 THE ECONOMICS OF DI8TBIBUTI0N,\\ntives, incline to the belief tliat on tlie whole a fall of\\ninterest checks saving. But is this true\\nIf the Duke of Westminster, who saves because he\\nhas a superfluous income, would save no less if interest\\nfell, while John Smith of Oldham, who saves in order\\nto provide against a rainy day, might save more, is\\nit certain that those who save with the more general\\nobject of making money would so far reduce their\\nsavings as to bring down the aggregate savings of a\\ncommunity below what was needed to furnish the\\nindustrial capital required to maintain current con-\\nsumption, and to provide against increased consump-\\ntion in the future\\nIs it not possible that the automatic saving of sur-\\nplus elements of income, and such other saving as\\nwas stimulated by a fall of interest, would suffice to\\nfurnish the socially necessary capital in other words,\\nthat the marginal saver might consent to save without\\npositive interest? It is at least conceivable. Much\\nwould depend upon (a) the absolute amount of income,\\n(6) the distribution of wealth, (c) the condition of the\\nindustrial arts, and (d) the nature of consumption.\\n(a) Where the income of the community is large, a\\nrelatively large portion of this income may be taken\\nto be applicable to the satisfaction of weaker or less\\nurgent current desires. This portion of the income\\nof an individual or a class may, it is generally ad-\\nmitted, be saved at a low rate of interest. It is not\\nso readily admitted that it may be saved at zero or\\nminus interest. Professor Marshall writes as if some\\nand McCulloch. (Cf. N. Senior, Pol. Econ. 5th ed., p. 140,\\nand McCulloch, Fol. Econ., Pt. I, Ch. II, 3.)", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0276.jp2"}, "275": {"fulltext": "APPENDIX TO CHAPTER VIII. 261\\nobjective interest were essential because the future\\npleasure to be got in return for giving up a present\\none could not be expected to be greater than it^ but\\nrather to be less (IV, Ch. VII, par. 8). But this\\nis by no means true in cases where the present pleas-\\nure given up is a little-valued luxury, and the future\\npleasure placed in its stead is a necessary or an\\nimportant comfort. Professor Marshall here does not\\nexhibit the essentially subjective character of the\\nproblem. A person who has just eaten a loaf will\\nconsent to postpone the consumption of a second loaf\\nwhich he has in his possession, on condition that a\\nloaf or even less is given back to him at a future time\\nwhen he has no bread. For although the utility as a\\nfuture one is discounted, the satisfaction of the future\\nconsumption of a necessary, when discounted, will be\\ngreater than the present satisfaction of consuming a\\nsuperfluity. This is why, even in uneducated com-\\nmunities, money and treasure are laid up in a stock-\\ning. If a man found that he had ten years to live,\\nand that his income, \u00c2\u00a31000 for the first year, would\\nbe \u00c2\u00a3900 for the second, \u00c2\u00a3800 for the third, and so\\non, he would, assuming his capacity of enjoyment and\\nhis tastes to be steady, save at zero interest some of\\nhis higher income in the earlier years when it would\\nhave been spent in luxuries, in order to spend it in\\ncomforts during the later years. He would not abso-\\nlutely equalise his expenditure over the period, for\\nsuch a course would imply that he did not discount\\nfuture pleasures. The truth is, that, though he values\\na present comfort higher than a similar future com-\\nfort, he values a future comfort higher than a present", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0277.jp2"}, "276": {"fulltext": "262 THE ECONOMICS OF DISTBIBUTION.\\nluxury. It is evident from such a case that not merely\\na zero but a negative objective interest is possible,\\nbecause it is consistent with a positive interest which\\nforms the human motive of saving.\\n(b) The amount and the proportion of a community s\\nincome which would be saved from such a motive at\\nzero interest or less would probably depend upon the\\ndistribution of wealth, though it is not easy to assign\\nany general law for the influence of distribution upon\\nsaving. At first sight, it would appear as if inequality\\nfavoured saving, since it would set a larger total incom\u00c2\u00a9\\nfree for the purchase of superfluities or such luxuries\\nas had but a small hold upon the desires of consumers\\nin other words, a larger proportion of the income of\\nthe rich might transcend their standard of comfort\\nand accumulate as savings. But further reflection\\nmakes this position doubtful; for though the exist-\\nence of a rich class may thus lead to the saving which\\nconsists in self-accumulation of superfluous income,\\nequality of income would seem to favour deliberate\\nsaving for old age and other emergencies. For in so\\nfar as large incomes are drawn from the rent of land\\nor profits on investments, such incomes do not lapse\\nwith old age or personal inability, and there is little\\nneed for such a man to provide against special emer-\\ngencies. On the other hand, in a working community,\\nwhere an approximate equality of incomes existed, the\\nlargest proportion of the people would be both enabled\\nand inclined to save. For the maintenance of a sound\\nstandard of comfort for themselves throughout life\\nand for their family will involve an abstinence from\\npresent luxuries for the sake of future necessaries or", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0278.jp2"}, "277": {"fulltext": "APPENDIX TO CHAPTEB VIIL 263\\nprime comforts that kind of saving which, as we\\nhave seen, least requires an objective interest.\\nThe total subjective interest of saving is greater\\nwhen the saving is applied to the future provision of\\nnecessaries, smallest when it is applied to the future\\nprovision of luxuries. Therefore the aggregate sub-\\njective interest attending a given amount of saving\\nwould be greater where a larger proportion of it was\\ndone by poorer persons than where a smaller propor-\\ntion was theirs. Thus it would appear that motived\\nsaving should be larger where distribution was more\\nequal. How far this would be offset by the larger\\nunmotived saving of a wealthy class is of course\\ndoubtful.\\n(c) Whether the quantity of saving which can be\\ninduced without objective interest will suffice must,\\nhowever, largely depend upon the character of the\\nindustry that is practised, or, in other words, upon\\nthe relative importance of capital as compared with\\nthe other factors of production. In a simple commu-\\nnity, where abundant material wealth might be drawn\\nby simple processes from rich natural resources, the\\nrequisite amount of capital might be evoked without\\ninterest whereas in a country with highly developed\\nmachine-production, the same quantity of wealth might\\nrequire a much larger capital, some part of which would\\nnot be brought into economic existence without objec-\\ntive interest.\\n(d) The importance of capital as compared with other\\nfactors is not, however, merely a question of the devel-\\nopment of the productive arts, though it is sometimes\\nassumed that as civilisation advances, capitalism and", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0279.jp2"}, "278": {"fulltext": "264 THE ECONOMICS OF BISTBIBUTION.\\nmacliine-productioii must occupy a part of ever grow-\\ning prominence. Much will depend upon the char-\\nacter of a progressive nation as expressed in modes\\nof consumption. A nation, which is dominated by a\\nconstant craving for increased quantities of certain\\ncommon forms of material goods, will indeed assign\\nan ever increasing relative importance to machine-\\nprocesses and will exercise a correspondingly in-\\ncreased demand for saving to be stored in material\\nforms of capital. A nation, on the other hand, whose\\nconsumption, beyond a certain standard of common,\\nmaterial consumption, grows more qualitative and\\ndemands the satisfaction of the taste and special\\nneeds of its individual members, while it employs an\\never larger proportion of its income in demand for\\nintellectual goods, personal services, and other non-\\nmaterial forms of wealth, may assign a place of rela-\\ntively diminishing importance to material capital, so\\nthat the requisite saving might be done by those who\\ndo not require the incentive of objective interest.\\nThe problem is a highly speculative one, and no\\nadequate data exist for attempting a solution, but the\\nconsiderations above stated entitle us to question the\\ngenerally accepted view that the marginal saving\\nalways requires the stimulus of objective interest.\\nIn a truly progressive society, where growing fore-\\nsight and precaution reduce the discount of future\\nutilities, where increased equalisation of incomes en-\\nables a larger proportion of members to lay aside for\\ndefinite future uses, and where a coordinate improve-\\nment in the arts of production and consumption enables\\nthe production of routine material goods to be more", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0280.jp2"}, "279": {"fulltext": "APPENDIX TO CHAPTEB VIII, 265\\neasily achieved, and consequently a larger proportion\\nof purchasing power to be directed to the demand for\\nconsumables which lie outside of capitalist industry,\\nit is quite conceivable, perhaps even probable, that\\nthe requisite amount of saving could be induced by\\nthe stimulus of subjective interest alone.\\nThe question whether private saving can be evoked\\nin sufficient quantity without objective interest has\\ntoo often been discussed with exclusive attention to\\nthe cost side, the motives which actuate savers\\nthe influences operative upon demand are often ig-\\nnored. But the economic importance or value of the\\nmarginal capital will be equally affected by forces\\nproceeding from both sides, as is the case in any\\nother market.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0281.jp2"}, "280": {"fulltext": "CHAPTER IX.\\nb6hM-BA WEEK S POSITIVE THEORY OF CAPITAL.\\n1. The coordination of capital with nature\\nand labour as a factor of production, and of inter-\\nest with rent and wages as a price of a use of a\\nfactor of production, differs so widely from a\\nrecent theory of interest which has gained much\\nacceptance among economists, that it seems only\\nfair that I should make a formal investigation of\\nthat theory and set forth the grounds for denying\\nits validity.\\nMy rejection of the one-sided interpretation of\\nthe general phenomena of value and price pressed\\nby disciples of the marginal utility school,\\nwould necessarily involve a rejection of a theory\\nof interest which claims to be an application of\\nthat same theory of value. The Positive Theory\\nof Capital, however, if it were merely an appli-\\ncation of the marginal utility theory of value\\nto capital, treated as a productive factor along\\nwith nature and labour, would require no separate\\nconsideration its strength and weakness would\\nbe merely those of the general theory.\\n266", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0282.jp2"}, "281": {"fulltext": "POSITIVE THEORY OF CAPITAL. 267\\nBut tlie theory most closely associated with the\\nname of Bohm-Bawerk, by refusing at the outset\\nthe position of a productive agent to capital, in-\\nvolves an application of marginal utility which\\ndiffers widely in its results from its application\\nin the case of labour and nature. The sub-\\njective elements in determination of value and\\nprice will be found to be accorded a part essen-\\ntially different from and more important than\\nthat accorded them in other cases of value and\\nprice.\\n2. It will be best to begin by a short presen-\\ntation of the cases by which Bohm-Bawerk un-\\nfolds his theory in his work, the Positive Theory\\nof Capital.\\nThe simplest case is that of A, the owner of\\n\u00c2\u00a3100, who, instead of using it now to buy con-\\nsumption goods, lends it to B, with the view of\\nreceiving it again in a year s time and then using\\nit to buy consumption goods. \u00c2\u00a3100 regarded in\\nterms of present consumption goods is more highly\\nesteemed than XlOO in terms of consumption goods\\na year hence. Look at XlOO worth of goods a\\nyear off they look smaller. They look perhaps\\nonly as large as \u00c2\u00a396 worth of present goods.\\nYet as the year passes to its close this quantity of\\nutility esteemed at \u00c2\u00a396 rises to the full \u00c2\u00a3100.\\nThus the lapse of time, bringing future into\\npresent goods, appears as a natural source of in-\\nterest, estimated in this case at nearly X4. In-", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0283.jp2"}, "282": {"fulltext": "268 THE ECONOMICS OF JDISTBIBUTION.\\nterest arises because XlOO in our hands now is\\nnot the same as \u00c2\u00a3100 regarded a year hence.\\nSo again the owner of a house or other durable\\nform of capital possesses a sum of future uses\\ndiscounted according to their futurity (XII)\\nProductive goods (^i.e. raw material of manufac-\\nture, machinery, land) are endowed at the begin-\\nning of the year with a value imputed from the\\nutility of the consumption goods they are going\\nto make but since these goods are not existing\\nat the beginning of the year, their value is dis-*\\ncounted in our estimate of the machinery, etc.\\nDuring the year future goods ripen into pres-\\nent goods, and their increased value recoups the\\noriginal expenditure on capital and yields an\\ninterest.\\nTake the case of a machine thus endowed with\\na six years life. At the opening of the first year,\\nthe first year s utility is reckoned at 100. But\\nthe total utility of the machine does not stand at\\n600, because its utility for the subsequent years\\nis estimated lower than for the first year. Let\\nthe discount for the second year be 5% on the\\nestimate of the first year, and let the same rate\\nof discount be applicable to each following year.\\nThen the total utility viewed from the beginning\\nof the first year will be 100 95.23 H- 90. 70\\n86.38 82.2T 4- 78.35 532.93.\\nAt the beginning of the second year, each year s\\nvaluation according to the first year s estimate", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0284.jp2"}, "283": {"fulltext": "POSITIVE THEORY OF CAPITAL. 269\\nwill have moved one step forward the second\\nyear upon last year s estimate, which was worth\\n95.23, has now become the first year and is worth\\n100 similarly with each succeeding year.\\nThe total utility at the beginning of the second\\nyear will therefore be 100 95.22 90.70 86.38\\n82.27=454.58. In other words, the valuation\\nof the sixth year is knocked out, there being now\\nno sixth year. At the beginning of the third\\nyear a similar forward movement of each year s\\nvalue takes place, the former fifth year having\\ndisappeared. The total utility is now 100 95.22\\n90.70 86.3 372.31. Similarly in the three\\nsucceeding years, wliile he enjoys a current utility\\nof 100, the estimate of the total utility of the\\nmachine is reduced by a less amount.\\nIn other words, during the first year he has\\nrealised a service worth 100, but taking stock at\\nthe end finds he has lost only 78.35, because the\\nvalue represented by all the remaining years has\\nadvanced.\\nAt the beginning of the fifth year he has left\\n100 95.23, during the year he gets a service\\nworth 100, but at the, end finds he still possesses\\n100, and so has only lost 95.23.\\nFor simplicity, a definite life has been here\\nassigned to the machine, and so the amount of\\nwhat may be called gross interest is different\\nin the different years. If, however, a perpetuity\\nof life be secured for the machine, by means of a", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0285.jp2"}, "284": {"fulltext": "270 THE ECONOMICS OF DISTRIBUTION.\\nfund for depreciation, it will easily appear that,\\nwhile the sum of the series of valuations now\\nreaches infinity, the net interest for each year will\\nbe the same.\\nIn Bohm-Bawerk s words, The cause of net\\ninterest is an increase of value of the future\\nservices, which were previously of less value, but\\nduring the period of the goods use have pressed\\nforward into or toward the present.\\n3. This brief statement embodies the essenc\u00c2\u00a7\\nof Bohm-Bawerk s teaching set forth at length in\\nhis work, the Positive Theory of Capital. His\\nchief points of divergence from the treatment\\ngiven in the last chapter may be stated in three\\npropositions, which I will first explain and after-\\nward discuss.\\n1. Interest is not the price of the use of capital,\\nbut the price of the purchase of present goods in\\nterms of future goods. The underlying fact is\\nthis, that present goods are, as a rule, worth\\nmore than future goods of like kind and number\\nbecause, other things equal, present satisfaction is\\nvalued higher than future satisfaction. A man\\nwho has not present goods may buy them from\\nanother man who has them, but he must pay for\\nthem in a larger quantity of future goods. If the\\nloan is of money, the borrower will purchase the\\n1 Positive Theory of Capital, p. 346.\\n2 pp. 285, 286. Introduction, p. xx.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0286.jp2"}, "285": {"fulltext": "POSITIVE THEORY OF CAPITAL. 271\\nmoney which he receives now by a larger sum of\\nmoney which he gives later. He must thus pay\\nan agio or prsemium, and this agio is interest.\\nInterest then comes in the most direct way, from\\nthe difference in value between present and future\\ngoods. What is sold, i.e. present goods, forms\\nthe subject of a single act of purchase, though the\\nfuture goods paid for it are usually paid in instal-\\nments at regular intervals over a term of time.\\nThe annual interest, together with the principal\\nrepaid at the end of the term of borrowing, forms\\nthe single price of the present goods.\\n2. Bohm-Bawerk denies that the objective or\\ntechnical productivity of capital is essential\\nto the emergence of interest: the subjective\\nproductivity which consists in the ripening of\\nfuture into present goods is deemed sufficient to\\nprovide a fund for the payment of interest.\\nIn the elaboration of his Positive Theory,\\nBohm-Bawerk has given so much space and skill\\nto proving and illustrating the nature of the\\ntechnical productivity of capitalism that it is\\nlikely that many of his readers do not clearly\\nunderstand that his technical productivity is not\\nessential to his theory of interest. The most\\nserviceable portion of his work consists in the\\nanalysis and explanation of the processes of\\nroundabout production with the object of prov-\\ning the technical productivity of these processes.\\n1 p. 281.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0287.jp2"}, "286": {"fulltext": "272 THE ECONOMICS OF DISTRIBUTION.\\nThis objective productivity the increased quan-\\ntity of forms of wealth due to roundabout\\nmethods is both an incentive and a reward of\\nsaving. It is one reason for postponing present\\nconsumption that you are thereby enabled to have\\nmore goods to consume in the future.\\nBut from the examples we have given above,\\nand from the express statements of Bohm-Bawerk\\nhimself, it is made manifest that interest does not\\ndepend upon or require such objective produc-^\\ntivity. The one essential feature, according to\\nhis teaching, is the undervaluation of future as\\ncompared with present goods. Objective or tech-\\nnical productivity is only one factor of this under-\\nvaluation, and it is not indispensable. There are\\nthree factors of this undervaluation, each of which\\nis, according to Bohm-Bawerk, by itself sufficient\\ncause for a difference in the value of present and\\nfuture goods, and an adequate reason why interest\\nshould be paid. These factors are the difference\\nin the circumstances of provision between present\\nand future, the underestimate due to perspective,\\nand, finally, the greater fruitfulness of lengthy\\nmethods of production.\\n4. The first factor has reference to the real\\nservices or satisfaction which the same goods\\nwould yield now as compared with what they\\nwould yield at some future time, and is con-\\ncerned with comparative capacity of enjoyment\\n1 Positive Theory^ p. 272.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0288.jp2"}, "287": {"fulltext": "POSITIVE THEOBY OF CAPITAL, 273\\nand comparative wealth at the two periods. The\\nsecond refers to the rate at which the same amount\\nof real services will be discounted by forethought\\nor intelligence. The third factor corresponds to\\nwhat is generally called productivity of capi-\\ntal. It is, however, right to record the fact that\\nBohm-Bawerk persistently repudiates the expres-\\nsion productivity of capital and refuses to\\nidentify with it the factor which he denominates\\nthe greater fruitfulness of lengthy methods of\\nproduction. The significance of this greater\\nfruitfulness of capitalism consists, according to\\nhim, in the technical superiority of present\\ngoods rather than in the greater quantity of\\nproducts which arises from the productive use\\nof present goods. The chapter in which this\\ntechnical superiority of present goods is un-\\nfolded is the most difficult portion of his treat-\\nment, not from any obscurity in the texture of\\nthe reasoning, but from the perversity with which\\nhe labours to assign to time the productive power\\ncommonly attributed to capital. He proposes at\\nthe outset to substitute for productivity of capi-\\ntal what he terms the facts. These facts\\nare as follows that, as a rule, present goods are,\\non technical grounds, preferable instruments for\\nthe satisfaction of human wants, and assure us,\\ntherefore, a higher marginal utility than future\\ngoods. 1 From the elaborate explanation which\\n1 p. 260.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0289.jp2"}, "288": {"fulltext": "274 THE ECONOMICS OF BISTBIBUTION.\\nfollows, this sentence appears to mean that a given\\nquantity of forms of capital or other productive\\nmeans in our possession now is superior both in\\nmarginal utility and in value to the same quan-\\ntity to be possessed a year hence, because the\\nproductivity of long-period production begins\\nearlier and is represented at any given time in\\nthe future by a larger quantity of goods. This, of\\ncourse, is quite consistent with the ordinary view\\nof productivity of capital capital which begins\\nnow to be applied productively will be repre-\\nsented by a larger amount and a larger aggregate\\nvalue of goods in five years time than the same\\namount of capital which only begins to function\\none year hence. The difference, however, be-\\ntween Bohm-Bawerk and the ordinary produc-\\ntivity economist is, that the former seems to\\ninsist that the increased quantity of goods and\\nof value is due to a priority of time and not to\\na productive use of the material forms of capital.\\nTo this issue I shall presently return. It is here,\\nhowever, enough to point out that the third factor\\nto which Bohm-Bawerk alludes is virtually a pro-\\nductivity of capital, though his explanation of\\nthe greater productiveness of lengthy methods\\nof production assigns the efficient causality to\\nthe length of time rather than to the use or\\nthe productive consumption of the forms of\\ncapital. However we explain it, this third factor\\ndoes yield an objective fund of wealth from which", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0290.jp2"}, "289": {"fulltext": "POSITIVE THEORY OF CAPITAL, 275\\nobjective interest can be paid. If, then, this third\\nfactor were essential to all functioning of capital\\nand all payment of interest, Bohm-Bawerk s theory\\nwould at any rate contain an objective fund of\\nproductivity. But he denies explicitly that this\\nthird faculty is essential, for he affirms that each\\nof the three factors, independently of the others,\\nis adequate to account for a difference in value\\nbetween present and future goods in favour of\\nthe former and this undervaluation of future\\ngoods is continually put forward as the essence\\nof the problem of interest. In other words, the\\nchange in human subjective valuations, which\\ntakes place when the passage of time ripens future\\ngoods into present goods, is assigned as in itself a\\nsufficient explanation of the payment of a sum of\\nobjective goods in interest.\\nThat Bohm-Bawerk does not deem the produc-\\ntive use of capital to be essential to the emergence\\nof interest is further attested by his treatment\\nof saving and abstinence. Of saving, he says\\nthat it has its place, not among the means of\\nproduction, but among the motives of production\\nthe motives which decide the direction of pro-\\nduction. 2 Now, if our reasoning in the last chap-\\nter is correct, we have shown that saving not only\\ndetermines the direction but the amount of pro-\\nduction, in that it enables an increased productive\\npower to function in industry. This denial of sav-\\n1 p. 273. 2 p. 123.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0291.jp2"}, "290": {"fulltext": "276 THE ECONOMICS OF BISTBIBUTION.\\ning as a means of production is implicitly and\\nnecessarily a denial of the productivity of capital.\\nThe plainest denial of the productivity of capi-\\ntal, however, is conveyed in Chapter III where,\\nputting the question whether capital is a third\\nand independent factor of production alongside\\nof labour and nature, he says the answer must be\\na most distinct negative. Capital has, first, a\\nsymptomatic importance. Its presence is always\\nthe symptom of a profitable roundabout produc-\\ntion. I say, deliberately, symptom, and not\\ncause or condition of profitable methods of\\nproduction for as a fact, its presence is rather\\nthe result than the cause. From the context it\\nis evident this means not merely that some pro-\\nduction can be carried on without capital, and that\\nin this sense capital cannot rank on an equality\\nwith nature and labour, but that in so-called\\ncapitalist production capital is not a factor or\\ncause of production. A certain sort of productiv-\\nity is admitted of capital. It is first productive\\nbecause it finds its destination in the production\\nof goods it is further productive because it is an\\neffectual tool in completing the roundabout and\\nprofitable methods of production once they are\\nentered on; finally, it is productive indirectly\\nbecause it makes the adoption of new and profit-\\nable methods possible. But it is not an inde-\\npendent factor of production along with nature\\n1 p. 95. 2 p. 92. 3 p. 99,", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0292.jp2"}, "291": {"fulltext": "POSITIVE THEORY OF CAPITAL. 277\\nand labour, but only the medium through which\\nthe two original productive powers exert their\\ninstrumentality.\\n5. It is not easy to deal with the mixed\\nthought embodied in these judgments. It is\\ntrue that capital cannot operate as an indepen-\\ndent factor, but neither can nature or labour it\\nis true that these two latter factors have a claim\\nto be deemed original in a sense to which capi-\\ntal cannot lay claim, but for all that, as soon as\\ncapital exists and functions as an integral part of\\na more productive method, it is possible and per-\\nhaps even necessary to treat it as a joint cause, or\\nat any rate condition, of the increased produc-\\ntivity. It is of course possible to force language\\nso as to insist that capital is only a tool by the\\nuse of which the two original powers, nature and\\nlabour, attain greater productivity, and to attrib-\\nute the whole of this increased productivity\\neither to labour and nature, as Bohm-Bawerk\\nappears to do, or to labour alone, as socialism,\\nfollowing early English economists, does, or to\\nnature alone as did the physiocrats. But nothing\\nis gained by drawing such hairbreadth distinc-\\ntions between a cause and a condition, a condition\\nand a tool. If it is convenient, as it is generally\\nadmitted to be, to separate capital from labour and\\nnature in tracing the organic operations of in-\\ndustry, and if, moreover, capital is admitted to be\\nnecessary to the operation of the more productive", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0293.jp2"}, "292": {"fulltext": "278 THE ECONOMICS OF BISTBIBUTION,\\nmethods, no object is served by denying direct pro-\\nductivity to capital the question whether it is an\\nindependent factor is entirely beside the point.\\nThe description of the actual place filled by\\ncapital, which Bohm-Bawerk gives here and else-\\nwhere, amply justifies and even requires the attri-\\nbution of direct productivity to it, and so provides\\na fund for the payment of real interest correspond-\\ning to the fund which the admitted productivity\\nof nature and labour furnishes for the payment\\nof rent and wages. There is, of course, neither\\nindependent productivity nor an independent\\nproduct, for the organic nature of cooperation of\\nthe factors renders this impossible. But the ac-\\ncount of the actual functioning of forms of capital\\ngiven by Bohm-Bawerk does not justify him in\\nplacing capital on any different footing from\\nnature and labour in a theory of distribution.\\n6. But while Bohm-Bawerk, as we see,\\nadmits that capital as an instrument does assist\\nto increase objective productivity, he denies that\\nsuch objective productivity is essential to explain\\nthe payment of interest. The subjective pro-\\nductivity, the ripening of future into present\\ngoods by the passage of time, is deemed a sufficient\\nsource of interest. Thus, time itself is given as a\\nsufficient explanation of the origin and payment\\nof interest.\\nProfessor Smart puts this in unmistakable\\nterms The simplest case of interest is that in", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0294.jp2"}, "293": {"fulltext": "POSITIVE THEORY OF CAPITAL. 279\\nwhich it appears in the loan for consumption.\\nHere we have a real and true exchange of a smaller\\nsum of present money or present goods for a\\nlarger amount of future money or goods. The\\nsum returned principal plus interest is the\\nmarket valuation and equivalent of the principal\\nlent. The apparent difference in value is simply\\ndue to our forgetting that XlOO in our hands\\nnow is not the same thing as XlOO a year hence.\\nThis agio on present goods is interest. In other\\nwords, interest is a complementary part of the\\nprice a part equivalent of the principal lent.\\nApart altogether from an organised system of\\nproduction this agio would emerge, and has\\nemerged, as something claimed by the saving\\nfrom the unthrifty.\\n7. This passage summarising the extreme\\nclaim of Bohm-Bawerk s theory will serve to bring\\nhome to our minds its deficiencies. My first\\ncriticism is that a theory which explains interest\\nby the rise of subjective valuation taking place\\nwhen future goods become present goods, is inade-\\nquate, because it provides no fund for the pay-\\nment of real or objective interest. I have already\\nshown that the instance of a loan of consumption\\ngoods to an unthrifty person shirks the issue, be-\\ncause either the payment of interest is impossible\\nor it proceeds from the abnormal productivity of\\nsome other factor such payment is no more a\\n1 Preface to Positive Theory^ p. xi.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0295.jp2"}, "294": {"fulltext": "280 THE ECONOMICS OF DISTRIBUTION.\\ncase of normal interest than the advance obtained\\nby a farmer to pay rent which his land has not\\njustified, is a normal instance of rent. An agio\\nof the kind Professor Smart describes, a mere rise\\nof subjective valuation, cannot of itself explain\\nhow a quantity of goods with an objective ex-\\nchange value is paid as interest. A change of\\nestimate cannot of itself be capable of yielding an\\nincrease of objectively measured values. The un-\\ndervaluation of a future as compared with a pres-\\nent satisfaction provides in itself no economic\\nmeans of enlarging the objective source of the\\nfuture satisfaction when it comes. The lapse of\\ntime cannot be held to cause forms of capital to\\nbreed or grow so as to furnish an increased num-\\nber for future enjoyment. Yet it is evident that\\nthis objective interest is what we require to ex-\\nplain. If I lend goods represented by 100 pieces\\nand receive back at the end of the year goods rep-\\nresented by 105, no change of subjective valuation\\nwill account for the existence of the extra 5.\\nNeither the lapse of time nor my change of view\\nwill explain this origin. They must arise from\\nsome industrial power to which the term pro-\\nductivity may be given. Since it is admitted\\nthat the service of capital as a tool is to lengthen\\nthe processes of production, and that every\\nlengthening of the process is accompanied by a\\nfurther increase of the technical result, in other\\n1 p. 84.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0296.jp2"}, "295": {"fulltext": "POSITIVE THEORY OF CAPITAL. 281\\nwords that every extension of the productive\\nprocess leads to some surplus result, it is\\nsurely wise to regard this surplus result as the\\ntrue source of objective interest. We have here\\nan objective productivity as a basis of interest.\\nIf Bohm-Bawerk and Professor Smart had con-\\nfined their view to these cases of loans of capital\\nfor productive purposes, they could at any rate\\nhave supported the theory of Undervaluation of\\nFuture Goods as the source of interest by falling\\nback upon an objective product which should fur-\\nnish the goods to pay this interest. But the\\nhardihood of these instances in which this objec-\\ntive productivity is directly and purposely ex-\\ncluded invalidates this theory. Referring to\\nProfessor Smart s statement, I cannot for one\\nmoment admit that apart altogether from an\\norganised system of production this agio would\\nemerge. If there were no organised system of\\nproduction, the subjective undervaluation of future\\ngoods by a lender would in no wise enable him to\\nreceive any material representative of this agio\\nin interest. Bohm-Bawerk s theory of production\\ndoes not require him to dispense with this sur-\\nplus product of long-period production, and by\\ndoing so he wrecks his theory. In a word, the\\nproblem which appears to Bohm-Bawerk an es-\\nsentially subjective one is also objective.\\nBohm-Bawerk and Professor Smart think that\\n1 p. 86.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0297.jp2"}, "296": {"fulltext": "282 THE ECONOMICS OF DISTRIBUTION.\\nthey have only to prove an emergence of subjec-\\ntive values, whereas they must prove an emergence\\nof objective values, or, other things equal, an\\nincrease of products. Treatment of the problem\\nof loans in terms of money sometimes enables\\nthem to evade this fact. The simple essential\\nsetting of the problem of interest is not that of a\\nloan of ^100, but the case where A lends B a saw\\nand receives back a saw plus a plank. Required\\nto explain the existence and payment of the plankr\\n8. The truth seems to be that the part played\\nby time, and its treatment as a sort of agent of\\nproduction of value, is altogether misconceived by\\nBohm-Bawerk. In his treatment of what he\\nterms, in a phrase which itself begs the question,\\nthe technical superiority of present goods,\\nhe asserts, It is an elementary fact of experi-\\nence that methods of production which take time\\nare more productive. That is to say, given the\\nsame quantity of productive instruments, the\\nlengthier the productive method employed,\\nthe greater the quantity of productivity that can\\nbe obtained. Here he would make it appear\\nthat the lengthiness of method is the cause of pro-\\nductivity. He affects to have proved this, but he\\nhas done no such thing. He has only proved that\\ntime or lengthiness is one condition of those\\nroundabout processes which are technically more\\nproductive.\\n1 p. 260.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0298.jp2"}, "297": {"fulltext": "POSITIVE THEORY OF CAPITAL. 283\\nThe effort to attribute to lapse of time a causal\\nefficiency due really to the nature of the processes\\nwhich require time is most plainly manifested in\\nthe following instance. Suppose that, in the\\nyear 1888, we have command of a definite quan-\\ntity of productive instruments, say, thirty days of\\nlabour, we may assume something like the follow-\\ning. The months of labour, employed in methods\\nthat give a return immediately, and are, therefore,\\nvery unrenumerative, will yield only 100 units of\\nproduct, but of course yields them only for the\\nyear 1889 employed in a two years process it\\nyields 280 units for the year 1890, and so on\\nin increasing progression say 350 units for 1891,\\n400 for 1892, 440 for 1893, 470 for 1894, and 500\\nfor 1895.\\nHere time is made to appear a cause of objective\\nproductivity. But what are the facts It is not\\nthe duration of the process which gives the in-\\ncreased yield, but the nature of the processes\\nwhich take a longer time, i.e. the employment of\\nconcrete forms of capital which are more pro-\\nductive instead of concrete forms which are less\\nproductive. Bohm- Bawerk shirks the issue by tak-\\ning for his example 30 days of labour, a thing\\nwhich is not capital, and which is expressed in\\nterms of time. Let him take concrete forms of\\ncapital and he will have difficulty in evading the\\nconclusion that the technical superiority consists\\n1 p. 261.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0299.jp2"}, "298": {"fulltext": "284 THE ECONOMICS OF DISTRIBUTION.\\nnot in duration, but in the industrial character of\\nthese forms.\\nWhen Bohm-Bawerk proceeds to claim for dura-\\ntion of time increased value as well as increased\\ntechnical productivity, he falls into another error.\\nIn a contribution to a theory of interest he is\\nrequired to prove that this time process yields\\nobjective or exchange value. What he actually\\nclaims for it is an increase of subjective value, or,\\nto quote his words, If it puts more means of sat-^\\nisfaction at our disposal, it must have a greater\\nimportance for our well being. But this greater\\nsatisfaction is only one factor in the attribution\\nof greater exchange or objective value to goods.\\nThe confusion of thought, which is involved in\\nthis whole attempt to make time do something\\nwhich it cannot do, is most curiously illustrated\\nin the final paragraph in which Bohm-Bawerk sum-\\nmarises the positive result of his argument.\\nThe relation between want and provision for\\nwant in present and future, the undervaluation of\\nfuture pleasures and pains, and the technical ad-\\nvantage residing in present goods, have the effect\\nthat, to the overwhelming majority of men, the sub-\\njective use value of present goods is higher than\\nthat of similar future goods. From this relation\\nof subjective valuation there follows, in the market\\n1 The tabular illustration on p. 262 only makes the same\\nassumption more elaborate.\\n2 p. 263.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0300.jp2"}, "299": {"fulltext": "POSITIVE THEORY OF CAPITAL. 285\\ngenerally, a higher objective exchange value and\\nmarket-price for present goods. Passing over\\nthe assumption contained in the last sentence, that\\nobjective values are determined by the subjective\\nvaluation of one of the two parties to an exchange\\n(the root fallacy of the Marginal Utility School), I\\nwish to call attention to the astonishing argu-\\nment of the earlier sentence in which the\\nundervaluation of future pleasures and pain is\\nmade a cause of the fact that the subjective use\\nvalue of present goods is higher than that of\\nsimilar future goods, i.e. undervaluation is the\\ncause of undervaluation.\\nThe involved reasoning which arises in the vain\\neffort to impute objective results to purely subjec-\\ntive causes almost inevitably lands its author in\\npatent absurdities like this.\\nBy stating the problem of interest as consisting\\nin the undervaluation of future goods, time is rep-\\nresented as a producer of values by undoing this\\nundervaluation. The point of view which the\\nfamiliar process of discount presents lends itself\\nnot unnaturally to this subjective view of inter-\\nest which assigns to time itself a productive\\npower. But the attribution of such power to\\ntime is quite erroneous. The change of subjective\\nvaluation which conies with time indisputably\\nplays a part in determining the price of the use of\\ncapital, or, in other words, how much of the total\\n1 p. 281.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0301.jp2"}, "300": {"fulltext": "286 THE ECONOMICS OF DISTRIBUTION.\\nincrease of objective productivity due to the\\ncooperation of capital with the other factors shall\\nbe paid to the owner of the capital but the part it\\nplays is entirely different from that assigned to it\\nby Bohm-Bawerk. In the pages of the Posi-\\ntive Theory itself are expressions which might\\nhave put its author on the right track. The\\ndisadvantage connected with the capitalist method\\nis its sacrifice of time surely suggests that\\ntime is a cost of capitalist production rather than\\na creative force. So, again, we are told that capi-\\ntalism demands a sacrifice of time, but it has\\nan advantage in the quantity of product, which\\nsurely suggests the entire truth that this ad-\\nvantage in the quantity of product, affords a\\nfund out of which payment of interest is made for\\nthe cost involved in sacrifice of time.\\n9. Not merely are we not justified in regard-\\ning time as capable of the technical productivity\\nrequired to explain real interest, but we cannot\\nregard it as creative of a rise of subjective values.\\nBecause my valuation of a house is XlOO for this\\nyear, \u00c2\u00a395 4s. for next, and because in a year s\\ntime I shall value at \u00c2\u00a3100 what I had valued at\\n\u00c2\u00a395 4s., Bohm-Bawerk insists that by lapse of\\ntime a piece of goods, value ^95 4s., has added\\n5 to its value.\\nWe have already noted the fallaciousness at-\\ntending the treatment of interest as payment for\\nthe use of capital as valued in money. Since the\\n1 p. 82.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0302.jp2"}, "301": {"fulltext": "POSITIVE THEORY OF CAPITAL. 287\\nmoney value of capital is only obtained by capi-\\ntalising the interest, this process assumes the very\\npoint at issue, namely, the growth of value. For\\nif I receive for the use of forms of wealth, during\\nthe past year, the sum of \u00c2\u00a35, I proceed to do a\\nlittle sum which enables me to say that what I\\nlent was worth .\u00c2\u00a3100 at the beginning of the year\\nand X105 including the interest at the end. But\\nby saying this, I beg the question of a growth of\\nvalue by my method of reaching the XIOO. I\\nonly know that what I lent has been returned\\nwith an addition oi I cannot, however, assume\\nthat the increased quantity of goods returned has\\ngreater value, either subjective or objective,\\nthan the smaller quantity originally loaned, for\\nthis is to assume an absolute stability or inherency\\nof value in material forms. I am not logically\\nentitled to assert that the bargain by which I get\\nc\u00c2\u00a3105 goods instead of \u00c2\u00a3100 is a growth of value\\nfrom \u00c2\u00a3100 to \u00c2\u00a3105, for if instead of getting back\\n\u00c2\u00a3105 I only get back \u00c2\u00a3102, I should be obliged\\nto say that what I lent was not worth \u00c2\u00a3100, but\\na smaller sum of money. In other words, the\\nvalue of the capital is not a prime datum., but is\\ncalculated from the interest by a method which\\nassumes that an increase of value has been brought\\nabout by the process of lending. This increase of\\nvalue I suggest is due to the greater technical\\nproductivity which Bohm-Bawerk himself admits\\nof capitalism.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0303.jp2"}, "302": {"fulltext": "288 THE ECONOMICS OF DISTRIBUTION.\\n10. In other words, the ripening of future\\ninto present goods by process of time is really a\\ncost theory of interest. The positive and even the\\nproductive complexion it puts upon the familiar\\nphenomenon of discount or undervaluation must\\nnot deceive us. The statement of undervaluation\\nis simply the quantitative statement of the cost of\\nabstinence which involves time as a condition of\\nits operation. If I value the services of a house\\nat ^100 for this year, my preference of present\\nto future enjoyment may lead me to value next\\nyear s services at \u00c2\u00a395 4s. But when next year\\nactually comes my \u00c2\u00a395 4s. valuation has risen to\\n\u00c2\u00a3100. But to say that I now esteem the current\\nyear s services at \u00c2\u00a35 more than I esteem the pro-\\nspective services of next year is only another and\\na less obvious way of saying that I estimate the\\nloss or pain of a year s postponement of satisfaction\\nat \u00c2\u00a35. If I could take out the whole satisfaction\\nat once, the man who shall persuade me to post-\\npone it must pay me what the market determines\\nto be the price of this effort of abstinence or post-\\nponement. It is evident what time does here, and\\nwhat it does not do. It does not create either\\nincreased product or increased value, but does\\nconstitute a condition of the cost which, by affect-\\ning the supply of capital, helps to determine the\\nprice of the use of that capital, or from the stand-\\npoint of the capitalist the price of the effort of\\nabstinence. I have already shown that this absti-", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0304.jp2"}, "303": {"fulltext": "POSITIVE THEOBY OF CAPITAL, 289\\nnence is not a merely negative force, but one\\nwhich must be ranked as positive and productive,\\nat any rate in the sense that it is essential to the\\nexistence and so to the technical productivity of\\ncapital.\\nUndervaluation, or discounting of future values,\\nis simply one way in which the cost of abstinence\\npresents itself to the mind of the person who\\nsaves or lends. It is not a source of interest, it\\naffords no explanation of the possibility of objec-\\ntive interest, it is simply one determinant of the\\namount or rate of interest. As an economic\\nfactor in the determination of price it ranks as a\\nsubjective cost with the subjective cost of labour,\\nand as an expense of production must be defrayed\\nout of the extra product due to the productive\\ncooperation of the capital and labour.\\n11. It is to be clearly understood that I do\\nnot dispute any of the facts of Bohm-Bawerk s\\nstatement of undervaluation, or that they have a\\ntrue bearing upon the problem of interest. Where\\nI join issue with him is that while he admits the\\nproductive services of forms of capital, he refuses\\nto regard these services as the root and indispen-\\nsable condition of interest and finds instead a\\npurely subjective cause.\\nLet me briefly rehearse my objection to his argu-\\nment as to the payment of interest for use of dura-\\nble goods. He says, If the current year s use of\\na machine is worth 100, and the machine is capable", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0305.jp2"}, "304": {"fulltext": "290 THE ECONOMICS OF DISTRIBUTION.\\nof doing work of equal quality for five years more,\\nthe machine is not worth 6 x 100, but 100 95.23\\n90.70 82.27 78.35 532.93. The capi-\\ntal valuation of the machine at the beginning will\\nbe 532.93 but, during the six years it lasts, the\\ntotal use or consumption of the machine will\\nwork out at an aggregate value of 600. The\\ndifference between the two sums affords a fund\\nout of which interest is payable. This fund ap-\\npears to arise from the ripening process of time.^\\nNow I dispute none of the facts in this statement,\\nbut I assert that they do not furnish the required\\nexplanation of the economic phenomena which\\nactually occur when a loan of durable goods is\\nmade. As a matter of fact, when a loan of a\\nmachine or other durable goods is made, the terms\\nare such as to secure a permanent life for the\\nmachine interest does not fructify during six\\nyears, but for a perpetuity. According to Bohm-\\nBawerk s setting, it is possible to obtain the exact\\nvalue of the capital by adding up the value of the\\nservices of six years in actual industry, though\\nthe capital possesses an exact known value at the\\noutset, its value for purposes of loan or invest-\\nment is not calculated by consideration of its gross\\nservices during the time it lasts, but by capitalisa-\\ntion on the basis of the value of the net interest,\\nafter provision for its continuous existence has\\nbeen made. If A rents to B a house or a machine,\\n1 p. 343.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0306.jp2"}, "305": {"fulltext": "POSITIVE THEORY OF CAPITAL. 291\\nhe reckons the capital value of this loan by capi-\\ntalising the rent or net interest, provision being\\nmade to repair or replace the house or machine.\\nNow, since an indefinite or eternal life is thus se-\\ncured to the house or machine, it cannot be pre-\\ntended that the capital value can be obtained by\\nadding the yearly values, for these would come\\nout as infinity. Bohm-Bawerk s explanation of\\ninterest ignores, in the first place, the actual in-\\ndustrial services or productivity of the capital\\nforms which are used, and whose use or consump-\\ntion do actually furnish the goods whose value\\nis returned as yearly interest to the owner, and\\nfinds the cause of interest in what is really a con-\\ndition of this productivity. In the second place,\\nit posits a fixed duration to the functioning of\\nform of capital which is discordant with indus-\\ntrial facts. For the actual phenomenon which\\nseeks explanation is the eternity of interest paid\\nfor the loan of a material form whose existence\\nappears to be perishable. I have tendered an\\nexplanation of this phenomenon by showing that\\nthe economic existence of a material form of capi-\\ntal is not really terminable, but that it exerts a\\nproductive force which can secure for it a per-\\npetuity of existence, and leave a margin of prod-\\nuct from which perpetual interest may be paid.\\nBy ignoring the productivity of the services of\\ncapital, which he yet generally admits to exist,\\nand confining his attention to a merely subjective", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0307.jp2"}, "306": {"fulltext": "292 THE ECONOMICS OF JDISTBIBUTION.\\nphenomenon, the change in the mind of the\\nlender, Bohn-Bawerk cuts himself off from all\\npossibilit}^ of explaining the real problem of a\\nperpetuity of net interest.\\nHe rightly insists that, in order to support this\\ntheory of interest derived from productivity, it is\\nnecessary to prove a net surplus product after pro-\\nvision against wear and tear of capital, what he\\nterms a net Nutzung. I claim to have shown,\\nby illustration from each of the several classes of\\ncapital forms, that this surplus product or net\\nNutzung does exist.\\nThus, and thus alone, is it possible to place capi-\\ntal on the same footing with nature and labour.\\nIn the case of these two factors, a net surplus\\nproduct, after replacement of wear and tear, is\\nadmitted. The ordinary finance of the business\\nworld enables us to attribute to capital a direct\\nproductivity analogous to that of nature and la-\\nbour, of such size that, after similar provision for\\nreplacement has been made, a positive surplus may\\nexist for payment of net interest.\\nTime is a condition, on the one hand, of the\\neffort of abstinence which keeps as productive\\ngoods a value which would otherwise be consumed\\nas consumption goods; and, on the other hand,\\nof the productivity of the forms of capital which\\nthis abstinence supports. The productivity thus\\nobtained furnishes a net product which forms a\\nmaterial economic fund out of which real interest", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0308.jp2"}, "307": {"fulltext": "POSITIVE THEORY OF CAPITAL. 293\\nmay be paid the amount of this real interest is\\ndetermined directly by the relation between the\\nmarginal cost of the abstinence, and the mar-\\nginal utility of the use of capital, which is the\\neffect of that abstinence.\\n12. In thus repudiating the explanation of\\nBohm-Bawerk, we do not return to a mere pro-\\nductivity theory of interest. Productivity is\\nnot to be termed the efficient cause, but only the\\nessential material condition of interest. Produc-\\ntivity of capital is consistent with the non- emer-\\ngence of interest. The value and price of use of\\ncapital emerge, as do all values and prices, from\\nthe interaction of marginal cost and marginal\\nutility of that which is bought and sold.\\nThe representation of the problem of interest,\\nas residing in an exchange of present against\\nfuture goods, does not accord with the facts of\\ncommercial life, and throwing the whole issue\\nupon conditions of subjective valuations, or differ-\\nences in the mental vision of buyers and sellers, it\\nfurnishes no fund for the payment of objective in-\\nterest. What is actually bought and paid for by\\nnet interest is use of capital, and, in order that\\npayment may be made, that use must find expres-\\nsion in perpetual productivity.\\nI may, in conclusion, sum up my objections\\nagainst Bohm-Bawerk s theory of Interest, in these\\nfour sentences\\n1. By denying the necessity of attributing ob-", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0309.jp2"}, "308": {"fulltext": "294 THE ECONOMICS OF DISTRIBUTION.\\njective productivity to capital, he provides no fund\\nfor the payment of objective interest.\\n2. He furnishes no explanation of the actual\\nphenomenon of the eternity of interest.\\n3. He misrepresents the transaction as an ex-\\nchange of present against future goods, making\\nthe issue one of subjective valuation alone.\\n4. The undervaluation of future goods assigned\\nas the economic cause of interest is in reality a\\ncost of the functioning of capital, and furnishes\\none side of the forces which determine the value\\nand the price of use of capital.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0310.jp2"}, "309": {"fulltext": "CHAPTER X.\\nTHE THEORY OP SURPLUS VALUE ITS INFLUENCE\\nUPON DISTRIBUTION.\\n1. If the analysis of economic bargaining\\ngiven in the preceding chapters is correct, it can-\\nnot fail to have an important corrective influence\\nupon the theory and the practice of Distribution.\\nAlthough the direct treatment of ethical con-\\nsiderations is still commonly ruled out of economic\\ntheory, it has always been tacitly assumed by\\nlaissez-faire economists that the laws regulating\\ndistribution normally assign to each owner of a\\nfactor of production that portion of the product\\nwhich is economically necessary to evoke and\\nmaintain the efficient operation of his factor, and\\nnothing more.\\nIt is claimed that competition, or the free play\\nof enlightened self-interest, among the owners of\\ncapital, organising ability, and labour-power, pre-\\nvents the capitalist undertaker or the labourer\\nfrom receiving any more than the minimum so-\\ncially necessary under existing circumstances to\\nsecure the service he is capable of rendering.\\nAny interference with the operation of this natural\\n295", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0311.jp2"}, "310": {"fulltext": "296 THE ECONOMICS OF DISTBIBUTIOJST.\\nlaw has been represented as slight and transitory\\na necessary friction for which special allowance\\nis to be made. There are no powerful or enduring\\neconomic forces which enable the owners of any\\nclass of land, labour, capital, or business ability to\\nsecure more than the necessary minimum. The\\nfreedom of competition among the owners of the\\nseveral factors, if not absolute, is such as to\\nprovide a process of filtration by which the whole\\nadvantage of improvements in methods of produc-\\ntion of wealth passes into the hands of the con-\\nsumer. It is the consumer who is the residual\\nclaimant in the results of modern industry.\\nEach producer gets his minimum the rest goes\\nto the consumer, and as all are consumers, the\\noperation of the Law of Distribution is even con-\\nformable to a general sense of justice or of social\\nexpediency. Some little hitch rises in the mat-\\nter of economic rent of land; from Adam Smith\\ndownward the laissez-faire economists felt that the\\npower of the landowner to reap where he had not\\nsown failed to harmonise with the moral symme-\\ntry which, in spite of occasional disclaimers, they\\nreally esteemed as a buttress of economic doctrine.\\nBut, after all, rent did not affect directly the\\nconsumer it did not enter into price, nor did it\\ndefraud labourer or capitalist, who got their due\\nwage and profit.\\nTaxes levied upon the agricultural classes and\\n1 Hadley, Economics, p. 318.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0312.jp2"}, "311": {"fulltext": "THE THEORY OF SURPLUS VALUE, 297\\nmore or less upon manufactures and commerce\\ntended to settle upon rent, and an extension of\\nthis policy might enable the community to remedy\\nwhat might seem to be a natural injustice.\\nIt is curious to note how seldom economists\\nsince Ricardo have taken the trouble to probe\\nthe loose and flabby notion which represents the\\nconsumer as a fourth party in the act of distribu-\\ntion, in whose interests the antagonisms of land,\\nlabour, capital, find an ultimate harmony. Pro-\\nfessor Hadley speaks of the consumer as the\\nresidual element, seeming to imply that all con-\\nsumers must be equally able to hold and to enjoy\\nthe benefits of improved industry which reach\\nthem in the shape of lower prices.\\nNow if the labourer, in his capacity of con-\\nsumer, is able to hold all the advantages of falling\\nprices, then his real wages, the only source of the\\nmoney income whicli he spends, are capable of\\nrising indefinitely above the necessary minimum.\\nThe same holds of the interest of the capitalist.\\nAgain, if classes of labourers and capitalists are\\nnecessarily able to maintain rates of real wages\\nand real interests beyond the minimum, they will\\nexert their power as producers, and this rise of\\nreal wages and interests would prevent prices from\\nfalling, for it would imply a stability in those\\nexpenses of production which admittedly enter\\ninto price. The forces upon which the laissez-\\nfaire economist relies to prevent capital and", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0313.jp2"}, "312": {"fulltext": "298 THE ECONOMICS OF DISTRIBUTION.\\nlabour from taking more than minimum profits\\nand wages, will seem to prevent labourer or capi-\\ntalist from holding the advantage assigned to them\\nas consumers.\\nThe theory of the incidence of taxation suffers\\nfrom this same confusion. It is often urged that\\na tax laid upon some product or some factor of\\nproduction will be shifted on to the consumer\\nthrough a rise of prices. But this, though often\\ntrue, is no ultimate analysis. For it will be ad-\\nmitted that consumers can in some cases throw\\nback the tax upon some body of producers. The\\nonly consumers who must be deemed taxable, qua\\nconsumers, are those in receipt of a guaranteed\\nmoney income those whose income is derived\\nfrom and fluctuates with the value of some factor\\nof production will be liable to have their income\\naffected by a tax which is imposed upon them in\\nan enhanced price of commoditiesc It would be\\nnecessary to investigate the sources of income of\\neach consumer closely in order to ascertain how\\nfar he ultimately bore a tax which raised the price\\nof the commodities he consumed. The ability to\\nthrow back a tax upon producers and the rapidity\\nof such rejection are matters for detailed practical\\ninquiry. But in a theory of Taxation every part\\nof a tax must in its ultimate incidence be traced\\nto some class of producers, if we are to understand\\nits effect upon the distribution of wealth.\\nIn a word, for purposes of the theory of Distri-", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0314.jp2"}, "313": {"fulltext": "THE THEOBY OF SURPLUS VALUE. 299\\nbution, the antithesis of producer and consumer is\\na false one. The problem of distribution is that\\nof the payment of owners of factors of produc-\\ntion, and whatever advantage may actually accrue\\nto each or any of the producers, by reason of a fall\\nof prices to consumers, must be reckoned as a part\\nof the real rent, wages, or interest which they\\nreceive.\\nWe are entitled to dismiss altogether the con-\\nsideration of the consumer in dealing with the\\ntheory of distribution, provided that we deal with\\nreal payments for the use of factors of production.\\n2. It is, however, the consideration of the\\ncomposition of a price which brings out the differ-\\nence between our theory and the ordinary theory\\nof English text-books. According to the latter,\\nthe price of a consumption good is entirely resolva-\\nble into a number of expenses of production at the\\nseveral stages of production which represent the\\nmarginal cost of the labour and capital there em-\\nployed. Now the whole tenor of our analysis has\\ngone to show that the price of a commodity is not\\nexhausted by the payment of these various mini-\\nmum money-costs of production.\\nLet me briefly rehearse the method of reasoning\\nadopted.\\nFirst, by analysis of the process of determining\\na price of commodities in a market, we recognise\\nthe existence of an element of price which was\\nnot explained by competition, which was not nee-", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0315.jp2"}, "314": {"fulltext": "300 THE ECONOMICS OF DISTRIBUTION.\\nessary to induce the final pair of bargainers to\\ncomplete that bargain whose terms set the price\\nfor the market. In other words, we recognised the\\nactual existence of an element of forced gain,\\nsomething not paid for as a cost of production,\\nbut yet forming an expense.\\nNext, resolving the price of a commodity into\\nthe several prices of uses of factors of production\\nwhich entered into it, we investigated the condi-\\ntions of determining the price of the use of land.\\nHere we saw that while differential rents of land\\ndid not enter into price, the worst land in use for\\nmost specific purposes yielded a positive rent, that\\nthis marginal rent being necessary to evoke the\\nuse of land for this purpose must enter into price,\\nand that the price of a consumption good will\\ncontain various marginal rents of land.\\nInvestigating in similar fashion the determina-\\ntion of the prices for use of capital and labour,\\nwe found that they did not differ essentially from\\nland in yielding marginal rents that both capital\\nand labour could rightly be divided into practi-\\ncally non-competing groups, from which emerged\\na number of marginal class interests and wages,\\nwhich entered into price.\\nUnder the logical system of laissez-faire eco-\\nnomics, there was properly no social problem of\\ndistribution to be solved, unless it were the ques-\\ntion of the advisability of permitting private own-\\nership of land the complete harmony of capital", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0316.jp2"}, "315": {"fulltext": "THE THEORY OF SURPLUS VALUE. 301\\nand labour was secured by the competition of\\nowners of capital and labour-power, which would\\nprevent the existence of any surplus beyond the\\nnecessary payments to the capital and the labour\\nemployed under the least favourable circumstances.\\nEven allowing that the operation of the law of\\nincreasing returns would yield to the larger busi-\\nnesses a gain over and above this minimum inter-\\nest, it would be difficult to regard this differential\\ngain as a cause of discord between capital and\\nlabour, for it would not be possible for the la-\\nbourers employed in these more profitable busi-\\nnesses to obtain a higher price for the sale of their\\nlabour-power than those employed in the least\\nprofitable businesses. So long as it is held that\\nonly the bare money costs of marginal capital and\\nlabour enter into price, while rent of land is alto-\\ngether excluded, the problem of distribution is of\\na mechanical and business nature which cannot\\nrightly engage the feelings or activities of the\\nowners of factors of production.\\nThe analysis offered here entirely changes the\\ncharacter of the problem. The prime distinction\\nis no longer interest, wages, and rent, but between\\ncosts of subsistence of various factors of produc-\\ntion on the one hand, and a variety of marginal\\nand differential rents supported by various de-\\ngrees of economic necessity upon the other.\\nIt is of the first importance to understand what\\nis respectively comprised under these two heads.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0317.jp2"}, "316": {"fulltext": "302 THE ECONOMICS OF DI8TBIBUTI0N.\\nDistribution is achieved, excepting the cases of\\nannuitants, officials with fixed salaries, etc., by a\\nseries of variable payments for the use of labour-\\npower,^ forms of capital, or land. These pay-\\nments are made at each stage in the processes of\\nproduction out of moneys received from the sales\\nof goods or services.\\nThe money paid as the price of retail goods is\\npartly used by the shopkeeper to maintain his re-\\nduced stock and his premises, etc., partly to pay\\nwages, profit, rent for the factors of production\\nhe employs. The merchant from whom he pur-\\nchases goods effects a similar distribution, and so\\ndoes the manufacturer, the farmer, and the other\\nresponsible managers of the earlier processes of\\nproduction. Thus the circulation of the money\\nsaid to be spent is achieved: the money which,\\nbeing saved, is used by the saver to buy new\\nforms of capital, undergoes a similar process of\\ndistribution.\\nThus the aggregate payment for a supply of\\ncommodities is resolvable into a number of sepa-\\nrate payments for the use of the factors that are\\nengaged in the several processes of production.\\nNow the central problem of distribution consists\\n1 In tliis general setting of tlie Theory of Distribution^ I have\\nthought it best to include under wages all kinds of payment\\nfor industrial work, including earnings of management, and\\nmuch, if not most, of what is commonly included under profit,\\nbecause no different principle is involved in the determination\\nof these earnings.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0318.jp2"}, "317": {"fulltext": "THE THEORY OF SURPLUS VALUE. 303\\nin the varying degrees and conditions of necessity\\nattaching to tlie different parts of these payments\\nfor use of factors of production.\\nIn restating this problem a simple diagram\\nwill help to mark the distinctions. AI represents\\nthe total supply of a factor, either land, labour,\\nN MARGINAL RENT io/\\n30/\\nL SUBSISTENCE\\n20/\\nor capital, toward a specific market, comprised of\\nunits AB, BC, CD, etc., with varying degrees of\\nvalue, HI being the marginal or least valuable\\nunit of supply. The total payment for the use\\nof this factor of production is the figure on the\\nbase AI. Following our analysis we may repre-\\nsent this payment as divisible into the following\\nparts the lowest portion will be a payment of\\nsubsistence or maintenance, the sum just suliicicnt", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0319.jp2"}, "318": {"fulltext": "304 THE ECONOMICS OF DISTRIBUTION.\\nto secure the economic use of the unit in default\\nof any alternative use. This amounts in the\\npresent case to 20s. per unit of supply. In the\\ncase of labour we posited a subsistence wage of\\n15s. for labour of lowest skill in the case of capital\\na minimum interest of 21 In the case of land\\na payment infinitesimally small would, in theory,\\nbe able to secure the use, so that here the line KL\\nwould fall so as to stand only just above AI.\\nIn the case set forth in ou.r diagram the worst\\nor marginal portion of supply gets something\\nmore than this rent of bare subsistence. The\\nrent it actually receives, the marginal rent, is\\n40\u00c2\u00ab. instead of 20s. It can obtain the additional\\n20s. chiefly because one or more of the units of\\nsupply have an alternative use open to them from\\nwhich they could earn a high differential rent.\\nSay that AB has such alternative use open to it.\\nIn order to secure AB for the supply in question\\nit may be necessary to pay it at the rate of 65s.,\\nbecause its alternative use would yield 64s.\\nThis explains the major part of what figures on\\nthe diagram as marginal rent, but not the whole.\\nFor if AB only got 65s., HI, the marginal unit of\\nsupply, would only get a marginal rent of 30s.\\ninstead of 40s., for we have seen that the actual\\nmargin is determined (other things equal) by the\\nnecessary price of that portion of supply with an\\nalternative use, which we call the determinant\\nportion of supply. Now if AB could only get", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0320.jp2"}, "319": {"fulltext": "THE THEORY OF SURPLUS VALUE. 305\\nQBs. and HI 30s., the dotted line would represent\\nthe margin.\\nBut we have seen that although AB could be in-\\nduced to contribute to supply at 65s. he may for all\\nthat be able to claim 75s., if in the bargaining for\\na price he is the stronger party, and can claim a\\nforced gain. The actual margin of 40s. in our\\ndiagram supposes that AB is in a position to take\\nthis forced gain of 10s., being able to secure for\\nhis services not 65s. but 75s. If he has this\\npower, each of the other contributors to supply\\nwill profit by it, since their payment is deter-\\nmined by his. If he can take 75s., the next\\nproductive unit can get 70s., although he may\\nhave no alternative use open to him and would\\ntherefore, if necessary, have been willing to accept\\na far lower price. The determinant portion of\\nsupply fixes the marginal rent or price. In our\\npresent case the marginal rent is 40s., of which\\n20s. is payment of subsistence, 10s. dependent\\nupon an alternative use of some portion of supply,\\nand 10s. a forced gain. In addition to the 40s.\\nat the margin, superior units of supply can take\\ndifferential rents marking the degrees of their\\nsuperiority.\\nNow we have seen that all these payments are\\nnecessary in the sense that they issue naturally\\nfrom processes of competition and bargain in\\nwhich each competitor and bargainer seeks to\\nget the maximum gain for himself.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0321.jp2"}, "320": {"fulltext": "306 THE ECONOMICS OF DISTRIBUTION.\\nBut they are not equally necessary in the sense\\nthat they are payments essential as economic\\nmotives to the application of the productive force\\nfor which they are paid, and cannot be refused or\\ndiverted without interference with the present\\ncourse of industry.\\nThe issue is fraught both with theoretical and\\npractical importance. It can be best approached\\nfrom the standpoint of taxation. Power to resist\\ntaxation is the most efficacious test of economic\\nnecessity. Let us therefore inquire what is the\\nrelative ability of subsistence payment, marginal\\nrents (comprising forced gain and a differential\\nrent), and differential rents to resist direct and\\nindirect taxation.\\nThe taxability of subsistence payments need not\\ndetain us long. True wages of subsistence for\\nlabour or for capital cannot be taxed non-taxi-\\nbility is in reality implied in the very nature of\\na subsistence payment. It may, however, be\\nbriefly illustrated thus. Let us suppose that the\\nmarginal wage of unskilled labour in a town\\nstands at a 15s. subsistence wage, and that an\\nattempt is made under an old-age pension scheme\\nto stop Is. per week out of wages as a tax con-\\ntributory to a pension. What happens? There\\nexist ex hypothesi unskilled labourers who, if the\\nreal wages represented by 15s. are reduced, will\\nrefuse to contribute to the supply of labour.\\nThese determinant owners of supply would go", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0322.jp2"}, "321": {"fulltext": "THE THEORY OF SURPLUS VALUE. 307\\non tramp, cadge, beg, or steal, if 15s. is not\\nguaranteed to them. If employers, therefore,\\nwere empowered to stop Is. out of the 15s.\\nwages, the refusal of these men to work would\\nreduce the supply of labour, and, since the effec-\\ntive demand must be presumed to be constant, the\\nprice or wages will rise and the Is. per week will\\nbe stopped out of 16s. instead of out of 15s., this\\nrise of money wage preventing the withdrawal of\\nlabour from assuming any considerable propor-\\ntions. At this stage it appears as if the employer\\nmust pay an extra shilling, representing the tax,\\nout of his own pocket. If his business is earning\\nfor him a higher rate of profit than is economically\\nnecessary to support the capital and skill engaged\\nin it, the tax will probably be defrayed, in large\\npart at any rate, out of these surplus profits, as it\\nwill probably not pay him to raise prices which\\nare not fixed by conditions of close competition.\\nIf, however, the employer s profits are already cut\\ndown to a subsistence rate, the tax cannot be\\ndefrayed by him. If the trade is one into which\\nscarcity rents of land enter as an expense of pro-\\nduction, a portion, at any rate, of the tax may at\\nthis stage be shifted on to the landowner through\\na pressure by tenants operating through reduction\\nin demand for land-use. But it is safer to assume\\nthat an increased wage-bill, shared by all the\\nemployers in a trade, will oblige them to raise the\\nprices of the goods they sell, and pass the tax on", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0323.jp2"}, "322": {"fulltext": "308 THE ECONOMICS OF DISTBIBUTION.\\nto the consumer through enhanced prices. But\\nwe haye already seen that the consumer is a purely\\nfictitious halting-place in the theory of Distribu-\\ntion. Making the consumer pay is no final polic5^\\nOur 16s. low-skilled labourer is a consumer. It\\nappears therefore, that though he has thrown off\\nthe tax imposed upon him as producer, he must\\ntake up his share as consumer, by paying higher\\nprices for the goods he buys. But this is not the\\ncase. He must have guaranteed to him as a con-\\ndition of contributing to the labour-market such\\nweekly sum of commodities as 16s. would have\\nbought for him. If owing to the rise of prices a\\nnet wage of 16s. will no longer buy these com-\\nmodities, his money wage must undergo a further\\nincrease by virtue of the same economic prices\\nwhich raised his normal wage from 15s. to 16s.\\nto meet the stoppage of Is. from his wages. This\\nrise of wage is in effect another tax, which will\\npass on a similar journey to the first, seeking some\\nsurplus or unnecessary element of income upon\\nwhich to lie. What holds of the subsistence\\nwage of unskilled labour can equally be shown to\\nhold of all other subsistence payments. If it were\\nnecessary to evoke the savings of the determi-\\nnant saver by paying 2^% interest, it will not be\\npossible to tax this element of income in the form\\nof an income tax or indirectly through the prices\\nof commodities.\\nThis argument assumes, of course, that subsist-", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0324.jp2"}, "323": {"fulltext": "THE THEORY OF SUBPLUS VALUE. 309\\nence wages are based upon natural necessities\\nand not on conventional necessities. The latter,\\nthough possessing a strong power of resisting\\ntaxation when firmly embedded in a customary\\nstandard of life, may be defeated and rendered\\ntaxable by a steady prolonged attack. Moreover,\\nthough true subsistence payments are not really\\namenable to taxation, attempts to tax them,\\nespecially when levelled at skilled labour whose\\ntrue subsistence is more expensive, may be fraught\\nwith grave injury by degrading the standard alike\\nof working efBciency and life of a class of work-\\ners. Taxation has been commonly directed so as\\nto prevent a rise of efficiency in work and life of\\nthe working classes in a country. None the less\\nit is true that true subsistence wages, i.e. such\\nwages as a really enlightened employer will find\\nit profitable to pay, resist taxation.\\n3. Turning next to marginal and differential\\nrents, it is convenient first to deal with the ele-\\nment in marginal rents called forced gain.\\nThese forced gains issue, as our analysis dis-\\ncloses, in the determination of a price where one\\nof the final pair is able to force the price up,\\nbeyond what he would be willing to take, to\\nthe utmost that his opponent is willing to give.\\nWhen markets are small and competition very\\nslight and ineffective, we saw that these forced\\ngains made a large element in prices. Their dis-\\ntinctive character is that they are not earned by", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0325.jp2"}, "324": {"fulltext": "310 THE ECONOMICS OF DISTRIBUTION.\\nany effort of production, but constitute a gratu-\\nitous surplus which is obtained by the stronger\\nbargainer. Forming no economic motive to any\\nbargains, they cannot, in theory at any rate, resist\\ntaxation. A tax imposed upon them as an ele-\\nment of income could not be transferred to any\\nother element of income.\\nBut these forced gains, forming, as we have\\nseen, a part of marginal rents, enter into the\\nprices of commodities as portions of the marginal\\nexpenses of production. It is therefore impor-\\ntant to consider whether a tax levied upon the\\nprice of commodities with which they enter will\\nfall upon them.\\nThe commonly accepted theory that taxes upon\\ncommodities generally fall upon the consumer is\\nbased upon the supposition that their prices only\\nmeasure the necessary money-costs of producing\\nthe portion of supply produced under the least\\nfavourable circumstances. Tax^s upon commodi-\\nties, in conformity with this supposition, must nor-\\nmally fall upon the consumer who pays the, tax\\nin enhanced prices. Are these forced gains\\nnecessary money-costs in this sense?\\nMill, in his formulation of the principle that\\na tax upon commodities falls upon the consumer,\\nadmits an exception in cases where the article is a\\nstrict monopoly and at a scarcity price.\\nThe price in this case being only limited by\\n1 Principles^ p. 615.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0326.jp2"}, "325": {"fulltext": "THE THEORY OF SURPLUS VALUE. 311\\nthe desires of the buyer the sum obtained for\\nthe restricted supply being the utmost which the\\nbuyers would consent to give rather than go\\nwithout it if the treasury intercepts a part of\\nthis, the price cannot be further raised to compen-\\nsate for the tax, and it must be paid from the\\nmonopoly profits. Now it will be evident, if our\\nanalysis of price is correct, that every commodity\\nwill be sold at a price, which, however subject to\\nthe keenest competition in its final retail market,\\nwill contain monopoly elements derived from\\nthe scarcity of one or other of the requisites of\\nproduction at different stages. Now a tax im-\\nposed upon commodities will not be represented\\nby a rise of prices until fhese forced gains have\\nbeen absorbed. We must admit that the prices\\nof these commodities, however keen the competi-\\ntion of retailers in the final stage, are scarcity\\nprices, and are therefore squeezable by taxation to\\nthe extent of the forced element they embody.\\nMill admits that a tax on rare and high-priced\\nwines will fall wholly on the owners of the vine-\\nyards. Why? Not, because the owners of some\\nvineyards can extort a high rent for differential\\nadvantages over the other vineyards contributing\\nto the same market. If the worst vineyards con-\\ntributing to this supply paid no rent, the tax\\nwould not lie upon the owners of better vineyards,\\nfor the first effect of the tax in making unprofit-\\nable the production of wine upon the worst vine-", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0327.jp2"}, "326": {"fulltext": "312 THE ECONOMICS OF DISTRIBUTION,\\nyards, and so raising the margin of cultivation\\nand lowering differential rents, will be checked\\nand counteracted by the rise of price which would\\nfollow such a reduction of supply. This counter-\\nacting rise of price would prevent the worst vine-\\nyards from passing out of cultivation: differential\\nrents would remain as before, enhanced prices\\nwould be paid by consumers, if we accept for the\\nnonce the conventional view of the consumer as\\na possible ultimate object of taxation. So far as\\nthis enhanced price reduced demand for the wine,\\nit might operate upon supply and raise somewhat\\nthe margin of cultivation, but even then the tax\\nwould only partially not wholly fall upon the\\nowners of the vineyards. What Mill is really\\nlooking to is the case of vineyards producing a\\nrare wine under conditions in which the worst\\nlands yield a high rent. Here a tax upon the\\nprice of the wine must fall wholly upon the forced\\ngain or scarcity rent until that is exhausted. For\\nif the scarcity rent amounted to \u00c2\u00a32 an acre, no\\ntax upon wine which did not eat up the \u00c2\u00a32 for\\nthe produce of an acre would make either the\\nland or the capital and labour employed no longer\\nprofitable so long as the labour and capital\\nreceived subsistence wages and interest and any-\\nthing was left for rent above the rent which could\\nbe got from converting the determinant vine-\\nland into other uses, the supply would not be\\nreduced. If the supply remained as before, and", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0328.jp2"}, "327": {"fulltext": "THE THEORY OF SURPLUS VALUE. 313\\nthe demand be assumed to stand unchanged, the\\nprice of the wine could not rise.\\nWe have, therefore, in this case a crucial test of\\nthe allegation that a tax upon commodities will\\nsettle upon a rent of land which is represented by\\na monopoly price.\\nIf, therefore, similar rents emerge from the em-\\nployment of certain species of capital and labour\\nentering into prices like the monopoly rents of\\nland, these two will be amenable to taxation.\\nTake once more the case of beer if public-house\\nproperty and breweries yield to their owners a rate\\nof real interest (not interest on watered capital)\\nhigher than is necessary to remunerate the neces-\\nsary amount of capital employed in these pro-\\ncesses, the price of beer must be so high as to pay\\nthis monopoly element of interest, as well as to\\npay the specific rent of lands employed in grow-\\ning hops and barley. A tax upon beer would\\nthen fall upon the interest of brewing and public-\\nhouse property, as well as upon monopoly rents of\\nhop-lands.\\nAlthough the special conditions of the produc-\\ntion and distribution of beer give peculiar force\\nand emphasis to the application of this principle,\\nthe difference between beer and other commodities\\nis only a matter of degree, so far as the presence\\nof the forced or scarcity element in price is con-\\ncerned. If w^e took the price of bread or boots or\\nany ordinary commodity and traced it back to its", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0329.jp2"}, "328": {"fulltext": "314 THE ECONOMICS OF DISTRIBUTION.\\nconstituent parts through the various processes\\nfrom the raw materials, we should find the differ-\\nent market-prices containing some element, how-\\never small, of the same superiority of bargaining\\npower which we have styled forced gain. If\\nthis theor}^ of Determination of Market-prices is\\ncorrect, there must in every commodity price be a\\ncertain portion which, representing monopoly or\\nscarcity, is thus amenable to taxation. It would\\ntherefore not be true that every tax on a com-\\nmodity tends to raise its price, save in so far as\\nsuch tax exceeded the aggregate of forced gains\\nwhich entered into the price. That a tax on the\\nrent of land or upon house-rents containing a large\\nelement of land-rent cannot be shifted, but must\\nbe borne by the landowner, is a generally received\\ndoctrine of economists. It is also frequently ad-\\nmitted that a tax on wages, so far as it relates to\\nthe higher grades of mental or educated labour,\\nwhich enjoy some monopoly of opportunities,\\nmust be borne by these classes and cannot be\\nshifted on to other members of the community.\\nIf the same admission is not made regarding\\ninterest of monopolies in capital, it is only because\\nthese are regarded either as abnormal things or\\nas the products of fortuitous and passing circum-\\nstances. There is, however, ample evidence to\\nshow that economists are quite aware that certain\\nkinds of taxes upon articles sold at scarcity or\\n1 Mill, Bk. V, Ch. Ill, par. 4.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0330.jp2"}, "329": {"fulltext": "THE THEORY OF SURPLUS VALUE. 316\\nmonopoly prices will settle upon and be borne by\\nthe owners of these monopolies. If, then, we can\\ndiscover similar elements of unnecessary gain in-\\nherent in all prices, we shall recognise a large\\nsurplus which is represented in prices and which\\nforms a fund upon which taxation must naturally\\nsettle.\\n4. The conclusion suggested by this kind of\\nreasoning is that a tax imposed upon any class of\\ncommodities will percolate through the various\\nchannels of production, will be rejected from all\\nnecessary or subsistence payments of capital and\\nlabour, and will, either directly or through the\\nagency of consumers, settle upon forced gains\\nor unearned income.\\nThis conclusion may appear at first sight to be\\nopposed to certain well-grounded judgments con-\\ncerning the taxation of monopolies. It is a cor-\\nrect and generally admitted fact that a tax upon\\nthe price of monopolised commodities may have\\nthe effect of raising their price, and it appears as\\nif the monopolist, in this way, could exercise a\\npower to resist completely the taxation of his\\nrents of monopoly. A closer investigation of the\\nmatter will, however, show that everything de-\\npends upon the kind of tax which is imposed.\\nA monopolist fixes his price so as to obtain for\\nhimself the largest net revenue from sales. He\\nmay sell a smaller quantity at a higher price, or a\\nlarger quantity at a lower price. The price at", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0331.jp2"}, "330": {"fulltext": "316 THE ECONOMICS OF BISTBIBUTION,\\nwhich it will be most profitable for him to sell\\nwill, in default of any tax or other external inter-\\nference, depend upon the elasticity of demand on\\nthe one hand, and the elasticity of supply upon\\nthe other.\\nIt can easily be shown that the effect of a fixed\\ntax upon monopolised commodities may be the\\nsale of a smaller quantity at a higher price. The\\nsimplest test is that of a monopoly which in its\\nexpenses of production conforms to the Law of\\nConstant Returns, each new increment of product\\nbeing produced at the same expense as each past\\nincrement.\\nTake the case of a coal monopoly, where the\\nmines are so rich that a virtually unlimited amount\\nof coal can be produced at a selling price of 12\\nshillings per ton, which will include under ex-\\npenses of production ordinary interest upon capi-\\ntal and earnings of management.\\nThe line XY represents possible supply, divided\\ninto increments of 1 million tons. While the cost\\nper ton is constant with every increase of supply,\\nthe selling price falls. The perpendicular AB\\nrepresents the selling price of 20 shillings per ton\\nwhere 1 million tons are sold. If 2 millions are\\nsold, the price is 19 shillings if 3 millions, 18\\nshillings. So the selling price falls 1 shilling on\\neach increment of 1 million tons, until we reach 9\\nmillion tons, which can only be sold at 12 shillings,\\nor just enough to defray expenses of production.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0332.jp2"}, "331": {"fulltext": "THE THEORY OF SUBPLUS VALUE. 317\\nNow, in order to ascertain what quantity of\\nproduction and sales will yield the largest net\\nrevenue of monopoly rents, let us compare the\\ndifferent quantities of supply.\\nIf 1 million tons were sold, the receipts would\\nbe 20 million shillings deduct expenses of pro-\\nduction, 12 million shillings, at 12 shillings per\\nK-\\nr\\n5\\nton, and the monopoly revenue stands at 8 million\\nshillings. If 2 millions were sold, receipts would\\nbe 38 million shillings (19 x 2) and expenses 21\\nmillions, yielding a monopoly revenue of 11 mill-\\nion shillings. By similar calculation the net\\nrevenue of 3 millions is found to amount to 18\\nmillion shillings, of 4 millions to be 20 million\\nshillings 5 millions yields the same net revenue\\nas 4 millions. After 5 millions a decline of net", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0333.jp2"}, "332": {"fulltext": "318 THE ECONOMICS OF DISTRIBUTION.\\nrevenue appears; 6 million tons only yielding\\n18 million shillings and 7 million tons only 14\\nmillion shillings.\\nIt is evident that a monopolist unhampered by\\ntaxation will produce 4 or 5 million tons, selling\\nthem at a price of 17 shillings or 16 shillings per\\nton, and taking on each ton a monopoly rent of\\n4 or 5 shillings.\\nNow what would be the effect of imposing a\\nfixed tax upon a ton of coal, with the view of\\nforcing rents of monopoly Let us suppose a tax\\nof 6 shillings per ton to be imposed. The effects\\nare obvious. In the first place, since from the\\nstandpoint of the producer, expenses of produc-\\ntion are now raised from 12 shillings per ton to\\n18 shillings, no sale is possible at a less price than\\n18 shillings. Instead of selling 4 or 5 million\\ntons at 16 shillings or 17 shillings per ton, he is\\neconomically forced to raise his price to 18 shil-\\nlings and sell 3 millions at that price. But at\\n18 shillings, though he pays the enlarged expenses\\nof production, he earns no monopoly revenue.\\nHas the tax then succeeded in taking the monop-\\noly rents No. Just as it was not to his interest\\nat the lower level of expenses, 12 shillings, to sell\\n8 million tons at that figure, so at the artificially\\nheightened level of expenses, 18 shillings, it is not\\nhis interest to sell 3 million tons at that price.\\nIt is his interest to sell some smaller quantity at\\na higher price so as to earn monopoly rents. In", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0334.jp2"}, "333": {"fulltext": "THE THEORY OF SURPLUS VALUE, 319\\nthe case we have taken, the new net maximum\\nrevenue of monopoly will be obtained by selling\\n2 million tons at 19 shillings per ton.\\nA fixed tax upon monopolised commodities will\\nnot succeed then in taking the whole of the mo-\\nnopoly revenue, and will succeed in restricting\\nproduction so as to force consumers to pay a\\nhigher price, which shall remain a monopoly price,\\nfor their commodities.^\\nIf, instead of a production conforming to the\\nLaw of Constant Returns, the production were\\nsubject to the law either of diminishing or in-\\ncreasing returns, the calculation would be far more\\nintricate, but the same general law would hold.\\nUnless the curve of expenses happened to vary\\ndirectly in exact proportion and for an indefinite\\nextent with the curve of demand, so that the\\nmonopoly element in price per ton did not fall\\nwith the fall of selling price, a fixed tax on mo-\\nnopolies must have the effect assigned to it in the\\ninstance above taken.\\nIf we were able to take into accurate account\\nthe eccentricities of both demand and suj)ply\\ncurves in any actual trade, we should perceive, as\\nProfessor Marshall has shown, that there may be\\na number of equilibria between supply and de-\\nmand, the prices at which yield an equal net\\n1 See Professor Edgeworth s note in the Economic Journal,\\nJune, 1898 (pp. 235-6), for the mathematical proof of the\\neffect of a specific tax on monopolised articles.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0335.jp2"}, "334": {"fulltext": "320 THE ECONOMICS OF BISTBIBUTION.\\nrevenue to the seller. In such case a fixed tax\\nupon commodities would in many cases be evaded\\nin large measure by a monopolist choosing the\\nequilibrium where the most restricted supply was\\nsold at the highest price. The tendency of such\\na tax must always be to produce a restriction of\\nsupply and a rise of prices. Professor Marshall\\nsums up the matter with admirable lucidity A\\ntax proportional to the amount produced causes\\na greater total loss of monopoly revenue when\\nthe amount produced is large than when it is\\nsmall, and we shall find it causes the sales which\\nafford the maximum revenue to be somewhat\\nsmaller than before, and offers an inducement\\nto the monopolist to raise his prices and con-\\ntract his sales. A fixed tax upon commodities\\nis a tax proportional to the amount produced.\\nBut it must be borne in mind that the partial\\nability of a monopolist to resist such a tax, and\\nthe injury such tax inflicts upon consumers by\\nrestricting supply and enhancing prices, by no\\nmeans justifies a general condemnation of a tax\\nupon monopolised commodities, but only of the\\nfixed tax.\\nThe failure of a fixed tax upon each unit of sup-\\nply is due to the fact that while the value of the\\ntax is fixed, the value of the commodity on which\\nit falls is variable.\\nA tax upon monopolised commodities so regu-\\n1 Principles^ 2d ed. p. 517.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0336.jp2"}, "335": {"fulltext": "THE THEORY OF SURPLUS VALUE. 321\\nlated as to take the same proportion, or even the\\nwliole, of the monopoly rent at each price, would\\nnot be open to valid criticism on grounds of theory.\\nBut the application of such a tax would imply the\\npossibility of an accurate assessment of the rela-\\ntions between monopoly rents, expenses of pro-\\nduction, and selling prices. An ad valorem tax\\nupon the selling price of commodities would be\\nopen to the same objection, though in a less de-\\ngree, as that which applies to a fixed tax upon\\neach unit of supply. Since we could not pre-\\nsume the monopoly rent to vary directly and pro-\\nportionately with the selling price, an ad valorem\\ntax upon selling prices might make it more profit-\\nable for a monopolist to restrict production and\\nraise prices.\\nThe scientific basis of taxation of monopolies is\\nan ad valorem tax upon the monopoly element in\\nprices. Theoretically, this might be levied upon\\neach unit of commodity practically, it can only be\\nsafely and conveniently levied upon net revenues\\nof monopoly as represented in annual incomes.\\nWe saw how a tax placed upon subsistence\\nwages of labour was shifted directly and indirectly\\nupon those elements of income which, not being\\npayments necessary to evoke the use of the factor\\nof production for which they were paid, had no\\npower to resist the tax. What is true with regard\\nto subsistence wages of labour, is equally true of\\nany other element in expenses of production.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0337.jp2"}, "336": {"fulltext": "322 THE ECONOMICS OF DISTBIBUTION.\\nSubsistence payments cannot be taxed forced\\ngains, of which the monopoly element in price of\\ncommodities is one plain instance, cannot resist\\ntaxation properly directed against it, whether the\\ntaxation be of net revenue, or an ad valorem tax\\nlevied upon the monopoly gains in each act of\\nsale.\\n5. But forced gains or scarcity rents only\\nform one part of marginal rents it remains to\\nconsider the taxability of the other part of mar-\\nginal rents, and of the individual differential rents.\\nA reference to the diagram on p. 303 will make\\nit clear that when we remove from a marginal\\nrent any element of forced gain that may in-\\nhere in it, the rest of that marginal rent is im-\\nposed by the determinant owner of supply, and\\nmeasures the pecuniary inducement which causes\\nhim to abandon a differential rent he might have\\nearned in some other supply. For example, if the\\nmarginal rent of 20s. for wheat land is determined\\nby the fact that some of this wheat land above the\\nmargin, drawing (say) 25s., as wheat land, has\\nan alternative use for pasture land which would\\nafford a rent of 24s. GtZ., it is evident that the\\nmarginal rent of wheat land depends upon a dif-\\nferential rent of pasture land, and that any cause\\nwhich raised differential pasture rents would dis-\\nturb this margin of wheat land. Under such\\ncircumstances we have a clear answer to the ques-\\ntion. Can marginal rent (apart from the forced", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0338.jp2"}, "337": {"fulltext": "THE THEORY OF SURPLUS VALUE. 323\\ngain it contains) be taxed A tax levied on mar-\\nginal rent will fall also upon the units of supply\\nearning differential rents. If the marginal rent\\nof wheat land, 20s., is taxed Is. per acre, the\\ndeterminant portion of supply, land earning previ-\\nously a rent of 25s., is now reduced to 24s. This\\nland, ex hypothesis possesses an alternative use for\\nwhich it can earn 24s. 6cZ. it will therefore cease\\nto contribute to the supply of wheat land, and\\nconvert itself into pasture at 24s. Gc?., thus re-\\nducing the total supply of wheat land, and raising\\nthe margin to a nominal rent of 21s. by the action\\nof some other portion of supply which now be-\\ncomes the determinant. An attempt thus to tax\\nthe marginal rent for some specific supply, will\\nhave the necessary effect of driving some portion\\nof supply into an alternative use, and, by reducing\\nthe specific supply, will enable the whole of the\\ncontributors to that supply to evade the tax.\\nWhat holds of specific margins of land, holds\\nsimilarly of specific margins of capital and labour.\\nA tax upon marginal rents can .only lie on con-\\ndition that the alternative employment is similarly\\ntaxed. A tax upon the rent of marginal wheat\\nland cannot be resisted if a similar tax falls upon\\npasture rents and rents for other uses of land.\\nThe fact that the marginal rent for one specific\\nuse of land depends upon the rents for other uses,\\nproves that the markets for land-uses, though\\nconveniently separated for certain purposes, are", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0339.jp2"}, "338": {"fulltext": "324 THE ECONOMICS OF BISTBIBUTION,\\norganically related at certain points, forming a\\nsingle supply of land.\\nSo far then, as taxability is concerned, the mar-\\nginal rent (forced gains excepted) may. be treated\\nas differential rents, and the real issue relates to\\nthe taxability of these differential rents.\\n6. It is generally agreed by economists that\\ndifferential rents of land cannot resist taxation.\\nA tax of 10s. or 19s. in the pound upon all rent\\nof land could not be transferred by the landowner\\nto his tenant in rise of rent or to any other person\\nwith whom he has dealings.\\nHow far is this economic precept applicable to\\ncapital and labour In so far as our gradation\\nof investments is valid, an ad valorem tax upon\\ndifferential and marginal interests could not be\\nresisted, for these are not necessary motives to the\\napplication of capital in the directions to which it\\nis actually applied. Looking to the real and not\\nthe money forms of capital, we must place it upon\\nprecisely the same footing with land as regards\\ntaxability. Of land it has been said that differ-\\nential rents cannot resist taxation, if the tax be\\nlevied upon all rents for all uses of land. For so\\nlong as any rent remains, no land will be with-\\ndrawn from supply. The whole, however, of\\nthese differential rents of land could not advan-\\ntageously be taken, because some minimum dif-\\nferential rent is necessary to induce the landowner\\nto put his land to its best economic use. It is", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0340.jp2"}, "339": {"fulltext": "THE THEORY OF SURPLUS VALUE. 325\\nnecessary to preserve some inducement sufficient\\nto persuade the owner of good vine-land to apply\\nhis land to this purpose rather than to wheat grow-\\ning or some other less productive use.\\nSimilarly with differential and marginal rents\\nof capital. If an attack was made upon a specific\\nkind of capital drawing high marginal and differ-\\nential rents, by imposing a tax either upon the\\nestimated forced element of price or upon the\\nnet surplus revenue, this tax might be evaded,\\nsupposing that some of this capital could be di-\\nverted without much waste to an alternative use\\nnearly as profitable where it would not be taxed.\\nIf the capital engaged in brewing earned a rate of\\nprofit 5% higher than any of the owners could\\nget in alternative investments open to them,\\nalmost the whole of that surplus rent could be\\ntaken by taxation. But if some portion of that\\ncapital were capable of being transferred with in-\\nconsiderable loss to another use almost as profit-\\nable, a special tax on brewing profits would not lie.\\nIn a progressive condition of industry this tax-\\nability would not generally depend upon the\\nadaptability of existing forms of capital to some\\nother use, but upon the alternative employment\\nopen to the new savings which might be engaged\\nin increasing the real capital of the brewing trade.\\nIn capital, as in land, differential rents can only\\nbe safely taken by taxation, applied, not specifi-\\ncally, but generally. A general tax imposed upon", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0341.jp2"}, "340": {"fulltext": "826 THE ECONOMICS OF DISTRIBUTION.\\nall interest above subsistence rate will lie without\\ndisturbance of industry, provided it is imposed in\\naccordance with the principle evolved in our in-\\nvestigation of taxation of monopoly prices. The\\nwhole of differential rents of capital could not,\\nhowever, be taken by taxation. If the special\\nprofits of a particular brewery were derived from\\na closer monopoly of tied houses, this extra gain\\ncould doubtless be taxed; such gain, however,\\nwould not properly be a differential rent but\\nrather a forced gain or scarcity rent made\\nin a restricted market by means of monopoly\\nprices for beer. If the brewery was really com-\\npeting in a market with other breweries, its higher\\nprofit, or differential rent (if not disguised earn-\\nings of superior management), would be derived\\nfrom economics of large-scale production with the\\nuse of the best plant and labour. An attempt to\\ntake by taxation the whole of this advantage would\\ndiminish the incentive of capitalists to make the\\nmost productive use of their capital. In a word,\\nthe superior differential productivity of capital,\\nthough not of necessity rightly attributed to skill\\nof management (which is but one factor in produc-\\ntivity), is conditioned by such skill unless the\\ncapital has some element of differential interest\\nsecured to it, there is danger it may not be fully\\nutilised. This consideration involves no general\\ndenial of the taxability of differential interest of\\ncapital, but merely enforces the retention of what-", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0342.jp2"}, "341": {"fulltext": "THE THEORY OF SURPLUS VALUE. 327\\never minimum inducement in the shape of higher\\ninterest (or profit) may be found necessary to pro-\\nmote the most economical use of capital.\\nA tax rightly adjusted so as to take even 99%\\nof the net revenue derived from such differential\\nrents could not be resisted, and would have no\\neffect in disturbing the application of existing\\ncapital, or the saving for the establishment of new\\ncapital. Differential rents are no necessary eco-\\nnomic motive to saving they do not enter into\\nthe market-price of saving, which is measured\\nfrom the cost or the utility of the marginal saver,\\nwho is willing to-day to save for some 2^%.\\n7. Now let us turn to wages of labour. Mar-\\nginal class wages, so far as they do not consist\\nof forced gains or scarcity rents artificially\\nmaintained, depend upon the option which some\\nlabourers possess to take a differential rent in\\nsome other trade. The transferability of some\\npart of a given labour-market from one emj)loy-\\nment to another, is positively easier and freer than\\nin the case of land and existing forms of capital,\\nso that the question easily appears to resolve itself\\ninto that of a general power to tax differential\\nwages over the whole field of labour in other\\nwords, an income tax on wages above subsistence\\nmargin.\\nSo far as a differential wage is really a wage of\\nsuperior skill or productivity, and not a scarcity\\nwage maintained by some artificial ordering of", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0343.jp2"}, "342": {"fulltext": "328 THJE ECONOMICS OF DISTRIBUTION.\\nthe market, it appears to stand on a different foot-\\ning from other differential rents with regard to\\nthe power to resist taxation.\\nIt is even commonly supposed that such a tax\\nwould be defeated by a refusal of labourers to\\napply their full productive power unless the full\\nrent of individual productivity were secured to\\nthem. But closer scrutiny indicates that no such\\ngeneral judgment can be pronounced. At first\\nsight, it doubtless seems as if a man, who gives out\\ntwice as much productive power in a day s work as\\nanother, must have twice as much secured to him\\nin real wages, and that he can keep these wages\\nagainst all attempts to tax them. But is this nec-\\nessarily true Suppose A, B, C are three work-\\ners in a trade, and A produces a product 30, B 20,\\nand C 15 if a tax amounting to the value of 2\\nwere placed on B s wage, and one of 6 on A s\\nwage, would they necessarily withhold part of\\ntheir labour-power? To argue that they necessa-\\nrily would withhold, is to make productivity the\\nsole determinant of value and price, and to ignore\\neffort. The subjective basis of endurance enters\\nin as a chief determinant of supply, and requires\\nthat certain units of labour-power, even in the\\nsame market, shall be remunerated at a higher rate\\nthan others. This does not contravene the princi-\\nple of an equal price for an equal quantity in a mar-\\nket. What is really bought in the labour-market,\\nis not the objective units of labour-power for which", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0344.jp2"}, "343": {"fulltext": "THE THEOBY OF SURPLUS VALUE. 329\\nthe wage is nominally paid, the piece work or\\nthe hour, but the subjective or vital effort which\\nunderlies it. The subjective effort of the deter-\\nminant owner of labour-power in a given supply\\nreally determines, from the supply side, the price\\nper unit of the whole supply, the supply price\\nbeing the result of his bargaining with the repre-\\nsentative of marginal utility on the demand side.\\nIn the case taken above, the subjective effort of\\nC may be the determinant on the supply side, and\\nhis bargaining with the marginal buyer may have\\nfixed a price per unit of labour. If, now, B can\\nproduce one-third more units of labour in a day,\\nand A twice as many, with the same amount of\\nsubjective effort as C gave out in producing 15,\\nthey take a differential rent of 5 and 15 respec-\\ntively. But it by no means follows that they\\ncould resist a tax which reduced this rent by 2 and\\n6 for 5 and 15 are not necessarily the sums they\\ninsist upon receiving as conditions of giving out\\nthe same subjective effort as C gave out. Some-\\nthing more than C receives they must receive, or\\nthey will reduce their objective productivity to\\nthe level of C, but the how much is a problem\\nseparately determinable in each case.\\nIn some kinds of work it might be the case that\\na man will consent to give out his superior energy\\nor skill for a wage which is not proportionately\\nhigher than the wage of the marginal worker in\\nhis trade. In other cases, the greater intensity or", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0345.jp2"}, "344": {"fulltext": "330 THE ECONOMICS OF DISTRIBUTION.\\nskill can only be evoked by a fully proportionate\\nincrease of wage. No general principle could\\ntherefore be applied in taxation of differential\\nwages. The taxability would vary, not only with\\nthe varying character and conditions of the work,\\nbut even with the individual nature of the worker,\\nand with the character of the wants he used the\\nlater increments of his income to satisfy. In many\\nkinds of work the utmost intensity of exertion can\\nonly be evoked by a rate of payment even higher\\nthan what is paid for an equal product achieved\\nby slower and less intense exertion, a fact recog-\\nnised in various schemes of task or piece wages, as\\nalso in special rates for overtime. In other kinds\\nof work less disagreeable or exhausting, a capable\\nworker might consent to express his capability,\\neven if he could not reap the full advantage of his\\nsuperiority over the least effective labourer by a\\ncorrespondingly higher wage.\\nWe must always keep clearly in mind the real\\nnature of these rents of ability. It is only\\nwhen we take the individual man or a portion of\\nhis labour-time for our standard of measurement,\\nthat the rate of remuneration seems differential.\\nIf we regard the worker as a seller of productive\\nefficiency, the one who sells more than another of\\nhis commodity, or who sells a better quality, natu-\\nrally gets a correspondingly larger amount of pay.\\nIf, however, we retain the idea of differential rents\\nof labour, we must admit that they are not amen-", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0346.jp2"}, "345": {"fulltext": "THE THEORY OF SURPLUS VALUE. 331\\nable to taxation in the same way and to the same\\ndegree as differential rents of land.\\n8. The difference which manifests itself in the\\ntaxability of differential rents of labour on the one\\nhand, and of land and capital on the other, is not\\ndifficult to understand.\\nDifferential rents, beyond a bare minimum, are\\nnot economic inducements to owners of land and\\ncapital to apply these factors of production for\\nexisting forms of land and capital a minimum rent\\nand profit suffices to retain their economic service,\\nand though new capital is only brought into exist-\\nence by a certain subsistence rate of interest, no\\nhigher rate for any special purpose is an economic\\nmotive of saving.\\nBut labourers will withhold part of their pro-\\nductive power unless some differential wage of\\nability is secured for them. Inanimate nature has\\nno ability to withhold its continuous output of\\nproductive powers the owner of a more fertile\\nfield, who withheld its use because its differential\\nrent was taxed, would be cutting his own throat,\\nunless the tax swallowed the entire economic rent.\\nThe value of such supply is determined on the sup-\\nply side by natural scarcity. Where the supply\\ndepends upon voluntary effort, as in the supply of\\nlabour-power, the option to withhold enables the\\nowner to make conditions which shall secure for\\nhim a differential rent, some indeterminate propor-\\ntion of which must be even secure against taxation.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0347.jp2"}, "346": {"fulltext": "332 THE ECONOMICS OF DISTRIBUTION\\n9. Our analysis of the taxability of the vari-\\nous payments made out of money spent on com-\\nmodities, resolves these payments into necessary\\nexpenses of production, subsistence payments for\\nuse of labour and capital, which cannot be taxed,\\nand marginal and differential rents which are in\\nvarious degrees and to various extents amenable\\nto taxation. Forced gains or scarcity rents to-\\ngether with differential rents of land and capital\\nhave no power to resist direct taxation imposed\\nupon them as elements in income. Forced or\\nscarcity rents of labour, together with certain por-\\ntions of differential rents of labour, are also in\\ntheory directly taxable.\\nThe general tendency of this analysis is to\\njustify the economic superiority of taxation upon\\nincomes or net revenues over taxation imposed\\nupon special classes of commodities or upon special\\nclasses of rents or profits.\\nA general income tax, graduated upon the sup-\\nposition that the proportion of unearned and there-\\nfore economically taxable income varies directly\\nwith the absolute size of incomes, on the one\\nhand, escapes the supreme difficulty of discrimi-\\nnation of the origins of special forms of gain, and,\\non the other hand, can be shown to have a genu-\\nine, rapid, and accurate tendency to discover and\\nsettle upon the various portions of incomes which\\nare unearned in the sense that they furnish no\\nnecessary inducement to owners of factors of pro-", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0348.jp2"}, "347": {"fulltext": "THE THEORY OF SURPLUS VALUE. 333\\nduction to put these factors to their best economic\\nuse.\\nBut while our investigation of the incidence of\\ntaxation exhibits the superior economy of direct\\ntaxes upon monopoly revenues or other unearned\\nelements in income wherever they can be ascer-\\ntained and measured, and approved a general grad-\\nuated income tax upon the ground that it will\\ndiscover and settle upon such elements of income,\\nthe condemnation of .specific or even of ad valorem\\ntaxes upon commodities must not be misunderstood.\\nWe have seen that a monopolist appears to exer-\\ncise a power to resist both these latter forms of\\ntaxation of monopolised commodities by restrict-\\ning production and raising prices. By raising\\nprices he appears to shift a portion, if not the\\nwhole, of the tax he nominally pays, on to consum-\\ners. But following the line of reasoning laid\\ndown in our discussion of the attempt to tax sub-\\nsistence wages for an old age pension scheme, we\\nperceive that such enhanced prices paid by con-\\nsumers living on subsistence wages or subsistence\\nrate of interest, have the effect of raising the\\nmoney payments for subsistence, and thus of trans-\\nferring the tax up to other persons who must\\neventually pay it out of unearned elements of\\nincome. To shift a tax upon to the consumer,\\nas we have seen, is no final determinant of inci-\\ndence a tax must always be deemed to settle\\nupon some element of income the power of sub-", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0349.jp2"}, "348": {"fulltext": "334 THE ECONOMICS OF DISTRIBUTION.\\nsistence payments to resist taxation we have seen\\nis absolute so long as there exist unearned ele-\\nments of income upon which they can be placed.\\nThe particular monopolist, therefore, can only re-\\nsist specific or ad valorem taxation of his monopo-\\nlised articles by imposing the tax upon the unearned\\nincomes of certain classes of consumers, and not\\nby distributing it over all classes of consumers.\\nThe same general principle applies to all taxation\\nof commodities, monopolised or free no such tax\\ncan settle upon incomes which are subsistence pay-\\nments for factors of production, until all forms of\\nunearned income have been exhausted.\\nThe chief condemnation of such forms of indi-\\nrect taxation is not that they are liable to be paid\\nindiscriminately by rich and poor, by those who can\\nand those who cannot bear them, but that they\\ntend in many cases by checking production to\\nrestrict the most efficient use of factors of pro-\\nduction, and so to decrease the general output of\\ncommodities.\\nIf this analysis be correct, the practical impor-\\ntance of its conclusions is very great. By indi-\\ncating the existence of a vast surplus of rents\\nanalogous to the economic rent of land in its\\ntaxability, it strengthens immensely the economic\\nmeans of social progress. By exploding two fal-\\nlacious notions, that taxes are paid by the poorer\\nclasses of the working population, and that high\\ntaxation is injurious to trade, our analysis removes", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0350.jp2"}, "349": {"fulltext": "THE THEORY OF SURPLUS VALUE, 335\\nchief barriers to that increase of taxation and of\\nwise public expenditure which are essential to a\\nsound progressive social policy.\\n10. Differential rents play so considerable a\\npart in determining the inequality of incomes in\\nan industrial society that it may be well to append\\nto this discussion of their taxability some consid-\\nerations of a more general character.\\nA progressive social economy is by no means\\nconfined to the difficult, sometimes hazardous, and\\nalways wasteful processes of taxation in order to\\nprocure for society some of these differential pay-\\nments which are shown not to be necessary in-\\nducements to their recipients to take part in\\nproduction. More enlightened methods of pro-\\nduction, increased equality of economic oppor-\\ntunities, organisation of employers or of workers,\\nwill often succeed in effecting large reductions\\nof differential rents. In respect of land this was\\nseen by Ricardo and explicitly stated by J. S.\\nMill,^ who argued that improvements of agri-\\ncultural science or of means of carriage which\\nincreased or rendered more available the output\\nof more fertile farms would, by rendering it no\\nlonger profitable to work farms on the margin\\nof cultivation, raise that margin and so reduce\\ndifferential rents. In similar fashion the differ-\\nential rents or interests of capital may be reduced\\nby such organisation of employers or of workers\\n1 Principles, Bk. IV, Ch. Ill, 4.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0351.jp2"}, "350": {"fulltext": "336 THE ECONOMICS OF DISTRIBUTION.\\nas throws a larger proportion or the whole of a\\ntrade into the hands of the largest, best-equipped,\\nand most profitable firms.\\nWhere an organisation of employers by organis-\\ning a syndicate or a trust achieves this result by\\nweeding out the weaker mills, it commonly suc-\\nceeds in preventing this economy of differential\\nrents from passing to the consuming public in the\\nshape of lower prices, and, instead, substitutes a\\nmonopoly or scarcity rent for these differential\\nrents. But none the less is it true that this\\nweeding out or crushing out of feebler com-\\npeting firms signifies a reduction of the differ-\\nential rents which were formerly necessary to\\nkeep the requisite supply of capital in operation.\\nThe more far-sighted labour leaders are quite\\naware that their true interests lie in promoting\\nthis same improvement of trade organisation, pro-\\nvided that they can maintain among employers\\nsuch competition as will enable them to take in\\na rise of wages the reduction of differential rents.\\nThis policy, indeed, forms one of the stoutest\\narguments in favour of that attempt to acquire\\nby legislation, or by trade unionism, a recognised\\nstandard of subsistence, of hours of labour, and\\nof other terms of employment. This movement\\nfor better conditions of employment, implying a\\nrise in current expenses of production which seems\\nto press unendurably upon the weaker employers,\\nis thus seen to be a positive instrument of eco-", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0352.jp2"}, "351": {"fulltext": "THE THEORY OF SUBPLUS VALUE. 337\\nnomic progress. Upon this topic Mr. and Mrs.\\nWebb thus write It is obviously to the inter-\\nest of the trade union so to fix the common rule\\nas to be constantly weeding out the old-fash-\\nioned or stupid firms, and to concentrate the\\nwhole production in the hands of the more effi-\\ncient captains of industry, who, however, have to\\nlower the cost of the product without lowering the\\nwage. Thus, so long as the more advantageously\\nworked establishments in the trade are not work-\\ning up to their full capacity, or can, without losing\\nthis advantage, be further enlarged, the trade\\nunion could theoretically raise its common rule,\\nto the successive exclusion, one after another, of\\nthe worst employers, without affecting price or the\\nconsumers demand, and therefore without dimin-\\nishing the area of employment. By thus raising\\nthe margin of cultivation, and simultaneously in-\\ncreasing the output of the more advantageously\\nsituated establishments, this device of the com-\\nmon rule may accordingly shift the boundary of\\nthat part of the produce which is economically of\\nthe nature of rents, and put some of it into the\\npockets of the workmen.\\nThe failure of most economists to recognise the\\nlarge proportion of forced gains and scarcity, or\\ndifferential rents, which are included in the net\\nprofits of a trade, is chiefly responsible for the tone\\nof disparagement in which even the most liberal\\n1 Industrial Democracy, Vol. II, pp. 729-30.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0353.jp2"}, "352": {"fulltext": "338 THE ECONOMICS OF DISTRIBUTION,\\nminded amongst them speak of the economic effi-\\ncacy of trade-union efforts to raise wages. That\\nwages at any given time are fixed absolutely by\\nthe operation of economic laws which are immuta-\\nble, few would now contend, but even Jevons and\\nProfessor Marshall, while generally favourable to\\ntrade unionism, are apt to deny its validity when\\nthey come to apply economic reasoning. The\\npower of unions to raise general wages by direct\\nmeans is never great, writes Professor Marshall,^\\nwhile Jevons boldly affirmed that, though organisa-\\ntion might enable one class of workers to increase\\nthis wage, this increase was paid for by other\\nclasses in their capacity of consumers.^ The gen-\\neral tendency is to insist that trade unionism is\\nconfined, so far as efficacy in raising wages is con-\\ncerned, to securing rises that are already justified\\nby increased prices and profits, and to obtaining\\nsuch rises as are attended by a correspondent in-\\ncrease of productivity of labour, such increase, for\\nexample, as is sometimes claimed to follow a rais-\\ning of the standard of comfort.\\nOur analysis, if it be correct, involves the recog-\\nnition of a great fund of surplus profits, which is\\navailable for higher wages, as it is also amenable\\nto taxation, and which can be obtained by a suffi-\\nciently strong pressure of trade unionism.\\nIn other words, forced gains and differential\\n1 Elements of Economics of Industry (1892), pp. 407-8.\\n2 The State in Belation to Labo ar, pp. 105-7.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0354.jp2"}, "353": {"fulltext": "THE THEORY OF SUEPLUS VALUE. 339\\nrents of capital are not permanently necessary\\npayments to the owners of capital who take\\nthem, and may be transferred, either to the\\npublic by taxation, or to the workers by a rise\\nof wages. It is not difficult to see that differ-\\nential rents of labour, mental or manual, may\\nbe reduced or transferred in similar ways. Pri-\\nmary public education has had a plainly recognised\\neffect in reducing the differential rents of ordinary\\nclerical employments. Technical education, in so\\nfar as it extends to larger social areas the oppor-\\ntunity of successfully learning high-skilled and\\nwell-paid trades, makes in the same direction. In\\nfact, every enlargement of education, in so far as it\\nmakes for greater equality of economic opportuni-\\nties, tends to reduce differential rents of employ-\\nment and likewise the marginal specific rents which\\nare seen to depend upon them. If the marginal\\nphysician is better paid than the marginal corn-\\nporter, it is not because of any greater inherent\\nskill in the former calling which gives its services\\na higher marginal value. We pay the marginal\\nphysician a relatively high fee because the present\\ndistribution of economic and educational oppor-\\ntunities is such that only a small proportion of\\nthe population can equip their sons for competi-\\ntion in that market, hence the competitors, by\\nfairly close organisation, can maintain a high rate\\nof piece wages. The high rate does not depend\\non a natural scarcity of high skill. When it is", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0355.jp2"}, "354": {"fulltext": "340 THE ECONOMICS OF DISTRIBUTION.\\nmade as easy to any lad who has the desire to pre-\\npare himself for medicine as it is to become a dock\\nlabourer, the piece wage for the former work will\\nbe as low and probably lower than the piece wage\\nfor the latter, so far as the marginal labourer is\\nconcerned. Even those high fees which pro-\\nfessional talent of a distinguished rank can draw\\nwill be greatly cut down when every career is\\nopen to natural talent from any social or economic\\ngrade. A distinguished specialist in surgery may\\nnow take a fee of XIOOO for a single delicate opera-\\ntion. He will not now do it for less because he\\ncan actually get this sum. But his ability to get\\nit depends on two facts, one relating to supply,\\nthe other to demand, neither of which is a per-\\nmanent necessity. The first fact consists in the\\nlimitation of supply of finest surgical talent by\\nreason of the exclusion of most children from any\\nopportunity to discover such a talent, to educate\\nit, and to enter upon a medical career. Destroy\\nthis artificial limitation of supply, and instead of\\none surgeon able and willing to do this job we\\nshould have three or four upon a fairly equal level\\nof skill and reputation, whose competition direct\\nor indirect, would bring down the fee from \u00c2\u00a31000\\nto say \u00c2\u00a320. On the other side, there is the fact\\nof the existence of a certain number of very wealthy\\npeople who, drawing large elements of unearned\\nincome from various rents, can afford to pay\\nXIOOO. Every equalisation of economic oppor-", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0356.jp2"}, "355": {"fulltext": "THE THEORY OF SURPLUS VALUE. 341\\ntunities, each application of sound principles of\\nprogressive taxation, will reduce this number, and\\nreduce the effective demand for work at such a\\nprice.\\nThus it is seen that there is nothing inherent or\\nimmutable in these differential rents of ability\\nwhich are sometimes regarded as a necessary re-\\nward for superior skill which cannot be refused or\\nmaterially reduced.\\n11. I have for convenience reserved for a spe-\\ncial, separate consideration those payments to which\\nProfessor Marshall gives the name quasi-rents.\\nHe has done more than any other economic writer\\nto break down the barrier which has separated land\\nfrom other factors of production, and to extend\\nthe name and the application of the Law of Rent.\\nThe rent of land is to him no unique fact, but\\nsimply the chief species of a large genus of eco-\\nnomic phenomena, and he recognises that there\\nis a continuous gradation from the true rent of\\nthose free gifts which have been appropriated by\\nman, through the income derived from permanent\\nimprovements of the soil, to those yielded by farm\\nand factory buildings, steam engines, and less dur-\\nable goods.\\nA careful consideration of the chapters in which\\nthe theory of quasi-rents receives full treatment,^\\nshows that the quasi-rents are analogous, not to\\n1 Bk. VI, Ch. IX.\\n2 (Bk. V, Chs. VIII, IX, and Bk. VI, Ch. IX.)", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0357.jp2"}, "356": {"fulltext": "342 THE ECONOMICS OF BISTBIBUTION.\\ndifferential rents of land, but to scarcity rents.\\nFirst to illustrate his meaning he takes the cases\\nof a find of meteoric stones and of the ownership\\nof the pictures of a dead artist. Here we have\\nan absolute monopoly selling at a monopoly price\\nand yielding what Marshall terms a true rent.\\nA tax upon such articles falls entirely on their\\nowners. If, however, by labourers search other\\nmeteoric stones could be found, or if we were deal-\\ning with the pictures of a living artist who still\\ncontinued to produce, the monopoly price or rent\\nwould only last for a short season, since it would\\nserve to stimulate such exertion and would equate\\nsupply and demand at ordinary expenses of pro-\\nduction. But while the higher price lasted, the\\nstones or pictures might be regarded as yielding a\\nquasi-rent. In other words, a quasi-rent or mo-\\nnopoly element would figure in short period or\\nmarket-price, and would gradually disappear as\\nthe period was lengthened and what is commonly\\ntermed a normal price was reached. Any supply\\nof highly specialised capital, ability, or labour,\\nwhich cannot be quickly and widely replenished,\\nmay for a season stand in the position of being\\nable to take, in addition to ordinary rate of profit,\\na quasi-rent which must, however, disappear when\\nthe lapse of time brings into the market a suffi-\\ncient number of new forms of specialised capital\\nand labour.\\nNow it is evident that these quasi-rents marking", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0358.jp2"}, "357": {"fulltext": "THE THEORY OF SUEPLUS VALUE. 343\\nshort-time monopolies are nothing else than the\\nmore variable forms of monopoly or scarcity rents\\nof capital and labour, and it is not easy to under-\\nstand why the disparaging epithet quasi should\\nbe appended to them. So long as they exist they\\nare as true rents as any land-rents, nor are they\\nnecessarily of brief duration highly specialised la-\\nbour and capital are frequently able, by checking\\ninvestments of outside capital and labour, to hold\\nup market-prices above marginal expenses of\\nproduction for long periods. Some of these\\nmonopolies may be as stable and as strong as\\nthe monopolies of natural resources which are\\nadmitted to draw true rents.\\nIt appears that these quasi-rents are simply less\\nenduring forms of monopoly rent. The test of\\nrent commonly accepted is this. Will it bear a\\ntax Marshall asserts in one passage that wealth\\ndrawing quasi-rents is taxable. A tax on any set\\nof things that are already produced falls exclu-\\nsively on the owners of those things, if it is not ac-\\ncompanied by a tax, or the expectation of a tax, on\\nthe production of, or bringing into use of, similar\\nor rival things. If it falls also on all rival things,\\nand the supply of them is not absolutely fixed, its\\nincidence will be gradually transferred to the con-\\nsumers. For a shorter period in which the\\ntax falls mainly on the owners, the income may be\\nregarded as more or less of the nature of rent.\\n1 Bk. V, Ch. VIII, par. 2.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0359.jp2"}, "358": {"fulltext": "344 THE ECONOMICS OF DISTBIBUTIOm\\nUnder the class quasi-rent come tlie earnings\\nof improvements of land,^ buildings, machinery,\\netc., 2 nearly all the profits of business institutions,^\\nand in one passage it is suggested that all skill,\\nmaterial capital, and business connections when\\nand in so far as they are specialised, cease to\\nexert a direct influence on the value of the prod-\\nucts due to them; and, on the other hand, the\\nvalue of these products determines the in-\\ncome which can be derived from these factors, i.e.\\nit determines what we have called their quasi-\\nrent.\\n12. Now Professor Marshall does not explic-\\nitly discuss this theory of Quasi-rents in relation\\nto taxation, though a passage previously quoted\\nseems to signify that they are taxable. But Mr.\\nCunningham, in a discussion of these quasi-rents,\\nconsiders that not merely are they directly amen-\\nable to taxation, but that a tax upon products\\ninto which they enter will lie upon them. Ac-\\ncording to him, the profit upon capital that is\\nirrevocably fixed is of the nature of rent,\\nand he concludes by saying, It follows from\\nwhat has gone before that a tax on production\\nwill affect price in so far as it is not paid out of\\nthat part of price which is of the nature of rent.\\nAnd whenever a tax is laid upon production,\\nwhenever it can come out of rent, it will do so.\\n1 pp. 665, 459. 2 p. 670. p. 659. p. 655.\\nEconomic Journal, March, 1892.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0360.jp2"}, "359": {"fulltext": "THE THEORY OF SURPLUS VALUE. 345\\nNow it is certainly true that forms of capital\\nwhich are irrevocably fixed are in the first\\ninstance liable, like rent of land, to bear a specific\\nor an ad valorem tax upon the products to which\\nthey contribute. But it by no means follows that\\nthey cannot recoup themselves by causing a rise\\nof prices. Take the case of the interest on capital\\nsunk in houses houses already built would not\\nbe withdrawn from supply if the interest upon\\nthe sunk capital fell toward zero, but it is equally\\ncertain that a tax upon houses could not and\\nwould not be borne by this capital. For there is\\na constant flow of fluid capital toward houses so\\nlong as this capital is able to earn normal interest,\\nwhich flow would be checked by a tax upon the\\ncapital already irrevocably appropriated in the\\nform of houses. In one passage Mr. Cunningham\\ndoes seem to admit that the taxation of quasi-rents\\nmight affect price and production, but he urges\\nthat it would do so very slowly after a time.\\nNow this is not correct in any trade open to\\ninvestment and vitally sustained by a flow of\\ncapital from without, the effect of taxing the\\nquasi-rents of fixed forms of capital would be\\nrapid and immediate. It is only when such ir-\\nrevocably appropriated capital enjoys a power of\\n1 This check might operate either by a restriction of saving\\nin case the tax reduced the rate of interest below that required\\nby the marginal saver, or it might divert new capital from\\nbuilding into other forms of investment.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0361.jp2"}, "360": {"fulltext": "346 THE ECONOMICS OF DISTRIBUTION.\\nmonopoly, derived from checking the flow of out-\\nside capital, that the profits on fixed capital will\\nbe unable to resist taxation on production. If\\nthe breweries of a district have a corner upon the\\nsupply of public houses, so that interests on fixed\\ncapital in brewing are 2% higher than normal out-\\nside interests, that 2% is indeed amenable to taxa-\\ntion, but it is so amenable, not because it takes\\nthe form of irrevocably appropriated capital,\\nbut because the interest of such capital enjoys\\na power of restricting the infloAV of outside capital\\nand so of earning a special rate of interest. This\\nspecial interest is what I term a forced gain or\\nscarcity rent. It may be included in the quasi-\\nrent of Professor Marshall, but it differs vitally\\nfrom the ordinary interest on fixed capital in\\nbeing unable to resist taxation by raising prices.\\nIn the supposed case, a tax upon beer would fall\\nupon the 2% excess interest and could not be\\nrecouped by raising prices it could not fall upon\\nany further part of the interest without reducing\\nbrewing profit below the normal rate and prevent-\\ning the fresh influx of capital required to sustain\\na growing trade, or even to maintain a deprecia-\\ntion fund.\\nThe mere fact, then, that capital or labour is\\nspecialised and cannot be withdrawn does not en-\\ntitle us to regard the earnings of such specialised\\nfactors as a surplus, so long as the industry is\\nopen to fresh investments of capital and labour.", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0362.jp2"}, "361": {"fulltext": "THE THEORY OF SURPLUS VALUE. 347\\nA tax will not lie upon these specialised forms,\\nbut will be transferred to the consumer by en-\\nhanced prices to be bore ultimately by such con-\\nsumers only as enjoy some unearned elements of\\nincome. Only in cases where some natural or\\neconomic power restricts the inflow of capital\\nor labour will the earnings be rightly regarded\\nas a surplus and liable to bear taxation and in\\nsuch a case the tax, so far as it falls upon interests\\nor wages which are results of monopoly, and are\\nin excess of competition rates, will not be con-\\nfined to the capital which is specialised. In a\\nword, the specialisation of capital or labour is not\\nreally a condition which assimilates its earnings\\nto rent.\\n13. These quasi-rents, then, in so far as they\\nare rents at all, are monopoly or scarcity rents\\nand are liable to taxation. They also enter into\\nprices, for we have seen that wherever a scarcity\\nrent exists, the marginal portion of supply is able\\nto obtain it, and it will figure in supply prices.\\nProfessor Marshall indeed denies that they enter\\ninto price, but when the marginal labourer in a\\nclass of labour or the marginal mill in a particular\\nindustry obtains a higher wage or a higher interest\\nthan free competition would assign, that mar-\\nginal wage or interest must figure in expenses of\\nproduction and in price. It can only be excluded\\nby the fallacious dosing application of the Law\\nof Diminisliino Returns.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0363.jp2"}, "362": {"fulltext": "348 THE ECONOMICS OF DISTRIBUTION,\\nProfessor Marshall himself illustrates a quasi-\\nrent of labour by the high wages miners drew in\\n1873. Now it would scarcely be possible for him\\nto affirm that the high piece wages then paid did\\nnot enter into the price of a ton of coal, for\\nevery ton of coal paid this piece wage. If it be\\nadmitted that the quasi-rent here enters into\\nthe price of coal, it may be contended that it does\\nnot help to determine the price of coal, but con-\\nsists in a surplus which remains after the neces-\\nsary expenses of production are defrayed from\\nthe price. But even here the denial that the\\nquasi-rent helps to determine the price is a mere\\nverbal quibble. For the quasi-rent is a direct\\nmeasure of the pressure of scarcity, which is as\\nmuch, and in the same sense, a determinant of\\nvalue and of price as the utility measured by\\ndemand. The quasi-rent is under the circum-\\nstances a necessary payment of marginal labour,\\nit is not a mere surplus in the sense that it takes\\nwhat remains after expenses are paid out of price,\\nfor that implies that price is determined exclu-\\nsively from the demand side, which, as we have\\nalready seen, is not true, even of the closest mo-\\nnopolies. The quasi-rent of the miner not only\\nenters price, but helps to determine price. It is\\ntrue that it is also determined in its amount by\\nprice, but this only means that it is one of a\\nnumber of mutually determinant factors of price.\\nIf, however, the quasi-rent of miners enters", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0364.jp2"}, "363": {"fulltext": "THE THEORY OF SURPLUS VALUE. 349\\nprice and helps to determine price, the same is\\ntrue of every other quasi-rent of labour, capital,\\nor ability. It is only differential rents, whether\\ntrue rents or quasi-rents, which do not enter\\ninto or determine price, because they form no part\\nof the expenses of the marginal supply.\\nSuch, then, of these quasi-rents as deserve to\\nhave the term rent applied to them should\\nreceive it without the timid justification of quasi.\\nThey are to all intents as much true rents as the\\nscarcity rent of land, entering price as an addition\\nto marginal expenses and being unable to resist\\ntaxation.\\n14. We have seen that elements of forced\\ngain marking superiority of bargaining power\\narise in all the processes of exchange, and that\\nan accurate analysis of the payments for finished\\ncommodities would disclose a large number of\\nsuch gains payable to owners of factors of pro-\\nduction at various stages. Our investigation of\\nthe markets for the use of the several factors\\nindicates that, while any of these factors may\\nassume this position of superiority of bargaining,\\nthere is no warrant for supposing it to be equally\\ndistributed among them, even in the long run.\\nA closer regard to the actual mechanism of\\nmodern industry seems to indicate that an increas-\\ning proportion of this power to take forced\\ngains adheres to the class called entrepreneurs, or\\nundertakers, and is included under the vague", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0365.jp2"}, "364": {"fulltext": "350 THE ECONOMICS OF DISTRIBUTION.\\ntitle of profits. The undertaker is sometimes the\\nowner of one of the factors of productive capital\\nor business capacity, or both, who buys the use\\nof the other factors, and, organising them for\\nproductive purposes, is able to sell the products\\nupon terms which are highly profitable. These\\nprofits, in so far as they exceed necessary interest\\nand necessary wages of management, consist of\\nforced gains, not necessarily extracted entirely\\nout of bargains with labourers, but partly perhaps\\nby bargains with owners of capital, and partly by\\nrestriction of free competition in the markets in\\nwhich he disposes of the products.\\nThe typical form of private business to-day is\\none in which the undertaker buys in the cheapest\\nmarket each of the factors of labour, capital, and\\nland which he requires, and organising their uses\\nfor production, sells the product in the dearest\\nmarket he can command. Our analysis of the\\nrelation of buyers and sellers indicated that\\nthe buyer was in modern industry normally\\nthe stronger bargainer, so that the undertaker\\nmay well exert a power to take forced gains in\\nhis bargains for the use of labour and capital. The\\nreal crux lies in the question, Can he retain for\\nhimself these gains when he assumes the position\\nof seller in disposing of his products Where\\ncompetition is said to be free, he cannot, and must\\nhand over to consumers such portions of his\\nforced gains as are not swallowed up in ex-", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0366.jp2"}, "365": {"fulltext": "THE THEORY OF SUBPLUS VALUE. 351\\npenses of competition. He can only hold these\\nforced gains by restricting freedom of compe-\\ntition in markets where he is seller. Hence,\\neverywhere he is devoting his energies to one of\\ntwo policies. Arranging price-lists by agreement\\nwith competitors, entering into closer agreements\\nwith these competitors, and eventually organising\\nalliances, syndicates, or trusts, he labours to\\nstrengthen the bargaining power of his trade\\nin these dealings with middlemen or consumers.\\nOr else he strives, by striking out some slight\\nnovelty in goods or by securing a supremacy over\\na particular part of the market, to be able to\\nevade the superior bargaining power which nor-\\nmally belongs to the buyer.\\nHis success in achieving these results is the\\ndominant feature of modern industry so far as the\\ndistribution of wealth is concerned. There is\\ngood reason to believe that an increasing propor-\\ntion of forced gains or unearned income\\ncontinually assumes the form of the business\\nprofits of undertakers.\\nEven where formally it is capital that takes the\\ninitiative, as where a number of capitalists pool\\ntheir capital and form a joint-stock company, capi-\\ntal buying the use of labour and law and manage-\\nment, a closer scrutiny will generally disclose the\\nfact that the real gains of such an enterprise are\\nabsorbed, often by anticipation, by one or two\\nbusiness men who as financiers, promoters, or", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0367.jp2"}, "366": {"fulltext": "352 THE ECONOMICS OF DISTBIBUTION\\nmanaging directors, have organised the business\\nin their own interests.\\nThe recognition of these forced gains or sur-\\nplus elements in price involves important conse-\\nquences in considering methods of social reform.\\n15. If price contains no surplus beyond neces-\\nsary payment of money costs, the arguments, by\\nwhich not merely old economists, but so mod-\\nern an economist as Jevons, proved the futility\\nof trade-union organisation in seeking to achieve\\na general rise of wages, would be valid. If the\\nprofits of the marginal supply of capital are kept\\nat a minimum in all classes of investment, it will\\nbe evident that a rise of wages (unless attended\\nby a corresponding increase of efficiency of la-\\nbour) would be impossible, and any attempt to\\nextort such a rise would be injurious. A simi-\\nlar condemnation must be passed upon the eight\\nhours movement, or upon any other progressive\\nmovements which would raise the wage bill. The\\nportion of the real income of the nation which\\nwent as differential rents to owners of land or\\ncapital or ability, could not be touched by such\\na policy. In other words, differential rents do\\nnot constitute a surplus value. But marginal\\nrents, which enter into price, do constitute such\\na surplus.\\nWe have seen that, if a single business in a\\ntrade, owing to exceptional advantages, is earning\\na higher rate of profits than others, it is not pos-", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0368.jp2"}, "367": {"fulltext": "THE THEORY OF SURPLUS VALUE. 353\\nsible, under normal conditions, for the employees\\nto take this profit in higher wages if by special\\norganisation of a group it were possible to take\\nthe whole or part of it, it would only pass from\\nbeing a differential rent of capital into a differ-\\nential rent of labour, i.e. a certain group of\\nworkers would have established a sectional mo-\\nnopoly in a labour-market. If, on the other hand,\\na whole trade were earning a higher profit than\\nwas necessary to keep the required capital in the\\ntrade, a surplus exists, which can raise the price\\nof labour for a whole market, provided labour is\\nsufficiently well organised to take it. If it can be\\nshown that not merely do certain trades rise for\\nbrief seasons into the condition of earning surplus\\nprofit, but that other trades, by reason of special\\nlimitations upon the field of investment, are per-\\nmanently in that condition, the existence of a\\nlarge element of surplus profit gives to the labour\\nmovement that firm economic basis of support\\nwhich otherwise is lacking.\\n16. Karl Marx was right in his insistence\\nupon the fundamental importance of recognising\\nthe idea of surplus value. He was wrong in re-\\ngarding the surplus value as exclusively the pro-\\nduct of labour-power taken by capital in the\\nprocess of bargaining for the sale of labour-\\npower. He failed to explain why labour, alone\\nof the factors, should be conceived as making all\\nthe value of material marketable goods. He", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0369.jp2"}, "368": {"fulltext": "354 THE ECONOMICS OF BISTBIBUTION,\\nfailed also to explain wliat the nature of the power\\nwas by which capital took the surplus value made\\nby labour and, finally, he failed to show how any\\nindividual capitalist who took it was not compelled\\nto relinquish it under the stress of competition\\nwith his fellow-capitalists.\\nThe surplus value here described issues, not\\nmerely from one class of bargains (between capi-\\ntal and labour), but from every class it represents\\nthe economic might of the stronger in every mar-\\nket. The true economic motive of the organisa-\\ntion alike of labour and of capital is to establish\\nsuch a power of bargain at some point or other in\\nthe field of industry as to obtain some of this sur-\\nplus. Capital, by various processes, limits free\\ncompetition price-lists and other trade agree-\\nments regarding prices and wage-rates, corners,\\nand other temporary coups, syndicates, amalgama-\\ntions, trusts, are all endeavours to enable the capi-\\ntal in a given market to obtain a rate of profit\\nabove the necessary minimum, by raising prices,\\nreducing wages, or both. So far as capital suc-\\nceeds, these higher profits are represented in\\nmarket-prices which exceed the economically\\nnecessary money-costs of production.\\nThe organisation of labour must also be con-\\nsidered to be directed, in the main, by a similar\\nmotive. So far as trade unionism is confined to\\nprotecting a class of labour against specially in-\\njurious conditions of low wages, irregular employ-", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0370.jp2"}, "369": {"fulltext": "THE THEORY OF SURPLUS VALUE, 355\\nment, and other risks imposed by the greed or\\ncarelessness of employers, and in thus securing\\na bare maintenance for labour, we are entitled to\\ndiscriminate trade unionism from organisation of\\ncapital. But trade organisations in most skilled\\ntrades are evidently devoted, not to a merely pro-\\ntective policy, but to a strengthening of their capac-\\nity for bargains by restricting competition in the\\nlabour-market, so that they may obtain in higher\\nwages or increased leisure a surplus corresponding\\nin nature to the higher profits of capital.\\nIn every process of production where capital,\\nlabour, and land are employed, one or other,\\nwhether by organised contrivance of its owners,\\nor else by what may be termed accident, is apt to\\nbe relatively short in supply in such case the\\nwhole supply of this factor will take a price\\ncontaining a surplus element.^ Where many\\ndifferent sorts of capital or labour or land are\\nrequired to contribute directly or indirectly to a\\ngiven process, a number of these elements of\\nsurplus will emerge, attached sometimes to one,\\nsometimes to another factor. So if we followed\\nthe raw material of any commodity from its\\nearliest extractive stages to the final form it\\nreceived as it passed over the retail counter, we\\nshould find it gathering, not only costs of pro-\\n1 I.e. the final seller in the market for the use of this factor\\nof production will be stronger than the final buyer, and will\\nextract a large element of forced gain.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0371.jp2"}, "370": {"fulltext": "356 THE ECONOMICS OF BISTBIBUTION.\\nduction, but surplus elements at various stages\\nof its advance, the final price of the commodity\\ncontaining the aggregate of these costs and sur-\\npluses.\\nThe price of any ordinary material commodity\\nof a complex order will probably contain scores of\\nthese elements derived from the component prices\\nof the productive goods and of portions of the\\nservices of land, labour, and capital, which have\\ncontributed to the final result.\\nIn any given condition of industry, land, labour,\\nand capital will probably all share in this surplus,\\nbut in very different proportions. Our general\\nanalyses of the bargaining powers of owners of\\nland and of many kinds of capital indicate that\\nin the bargains for the use of these factors their\\nowners will normally occupy the stronger position,\\nwhereas in the bargains for the sale of labour-\\npower, the sellers (save in special cases where\\nthey are aided by monopoly of skill or economic\\nopportunity) will be weaker than the buyers. If\\nthe large portion of surplus which passes to the\\ncommercial entrepreneur and the financial classes\\nbe regarded as wages of management rather than\\nas interest upon the capital which they operate,\\nthese grades of skilled labour must be regarded\\nas possessed of a monopoly of business opportuni-\\nties which assigns high marginal rents of labour\\nto the work they undertake.\\nThe fact that among these entrepreneur classes,", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0372.jp2"}, "371": {"fulltext": "THE THEORY OF SURPLUS VALUE. 357\\nas also among the professional classes, some indi-\\nviduals fail to make a living, while among those\\nwho succeed there is the widest variety of success,\\nmust not blind us to the inequality of economic\\nand educational opportunities which secures for\\nthese and other forms of skilled work marginal\\nrates of remuneration that measure the strength\\nof the protection which is applied to them.\\n17. Surplus value, then, is not something which\\nemerges in the dealings of capital with labour or\\nof land with labour; it emerges in every competi-\\ntive bargain and adheres to the stronger bar-\\ngainer; it is only because in modern industry the\\nowner of capital, land, or business capacity is nor-\\nmally found to be the stronger bargainer, that he\\nobtains most of the surplus. Labour, even manual\\nlabour in certain markets and at certain times,\\nshares this surplus, takes in wages what is not\\nessential to the maintenance of labour-power.\\nThe fact that the labourer gets so little as com-\\npared with the capitalist, landowner, and entre-\\npreneur^ ought not to lead us to adopt a false or\\none-sided theory of the origin and nature of sur-\\nplus value. The amount and the proportion of\\nthe surplus which goes to the owners of the sev-\\neral factors will be determined by two general\\nconditions closely related to one another; (1) the\\ncharacter of consumption; (2) the growth of in-\\ndustrial arts in relation to natural conditions of\\nsupply. It is needless here to rehearse the chief", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0373.jp2"}, "372": {"fulltext": "358 THE ECONOMICS OF BISTBIBUTION,\\nlaws that govern these forces. It must suffice\\nbriefly to summarise the influence which these\\nforces exercise upon distribution of the surplus.\\n(1) In a community where a rapid growth of\\npopulation, or a low order of individual culture,\\ncauses a larger increase of effective demand for\\ncommon articles of food and other material goods\\nthan for intellectual, artistic, and, in general, more\\nqualitative goods, the owners of sources of raw\\nmaterials and the organisers of manufacture and\\nof transport machinery will find the requisites\\nthey own to be ever in larger demand, and the\\nproportion of surplus or marginal rents which\\naccrues to them will be larger. Whereas, in a\\ncommunity where the demand for large masses of\\nmaterial goods was subordinated to a growing\\ndemand for highly qualitative goods, either mate-\\nrial or non-maiterial in character, the demand for\\nland, machinery, and capital in general would be\\nreduced, the demand for skilled manual and men-\\ntal labour increased, and the surplus would tend\\nto be distributed in accordance with the new\\nconditions.\\n(2) Changes in the industrial arts will obvi-\\nously affect distribution of the surplus by giving\\na greater or a less importance to one or other of\\nthe factors. The application of machinery and\\nsteam-power is, of course, a most familiar example\\nof a substitution of capital for labour in the pro-\\nduction of a given quantity of many classes of", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0374.jp2"}, "373": {"fulltext": "THE THEORY OF SURPLUS VALUE. 359\\ngoods. But, as we have seen, the Law of Substi-\\ntution has countless applications; new materials,\\nnew sources of supply of old materials, the open-\\ning of new fields of cheap labour, the training of\\nlarge quantities of skilled labour, new processes\\nor methods of industrial organisation, all these\\nfamiliar movements change the balance of power\\nin bargaining among the different classes of own-\\ners of capital and labour- power who contribute to\\nthe production of a commodity, and so affect the\\ndistribution of the surplus.\\n18. We may briefly sum up our reasoning as\\nfollows: Distribution consists in, or is conducted\\nby, the process of fixing market-prices, the price\\nof goods in the various stages of production, and\\nthe price of the use of the various forms of land,\\ncapital, and labour, which are serviceable in pro-\\nduction. The sales of goods, of land-use, capital-\\nuse, or labour-power in the various markets, are\\nconducted by a process of bargains which does\\nnot even tend to an equal division between each\\npair of bargainers of the gain of the bargaining,\\nbeing determined in part by the superior economic\\nstrength or cunning of the marginal buyer or\\nseller, in part by the differential estimates of the\\nseveral buyers or sellers as measured from the\\nmargin, which estimates are themselves referable\\nto a complex of unequal needs and economic\\nopportunities in the various bargainers on either\\nside.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0375.jp2"}, "374": {"fulltext": "360 THE ECONOMICS OF BISTMIBUTION.\\nIn a very large proportion of these bargains one\\nside is notoriously the stronger, forcing a sale upon\\nconditions which give to its members almost the\\nwhole gain of the bargain, leaving to the weaker\\nonly a minimum inducement. So far from com-\\npetition being free, it is fettered and impeded\\neverywhere by the growth of innumerable forms\\nand degrees of monopolies and forced gains. The\\ntheory that the enlightened self-interest of pro-\\nducers keeps down normal prices to the bare\\nexpenses of production, and that in consequence\\nthe whole gain of modern industrial improvements\\nfilters down to the community in their capac-\\nity of consumers, is seen to be quite unwarranted.\\nIndeed, the whole notion of the consumer as re-\\nsiduary legatee is as groundless in theory as in\\npractice. There exists no such fourth party in\\nthe working of distribution the various owners\\nof land, capital, and labour take each according\\nto his strength. Thus emerges the true surplus\\nvalue, derived not from some vague, unintelligible\\nidea of tyranny, but from the various hindrances\\nto perfect equality of bargaining-power in the\\nowners of the various factors of production and\\nthe consequent establishment of different forms\\nand pressures of economic force.\\nThe recognition of this force explains the\\nopposing theories and policies of economics. For\\nthe imperfection of equality of competition may\\nbe met and overcome by securing equality of eco-", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0376.jp2"}, "375": {"fulltext": "THE THEORY OF SURPLUS VALUE. 361\\nnomic opportunity for individuals. This is the\\nidea of laissez-faire economists, though they have\\ncommonly, or perhaps universally, failed to pro-\\nvide or even to advocate equality of opportunity\\nfor obtaining possession or use of land and capital.\\nOr else, recognising the difficulty or the impossi-\\nbility of maintaining perfect equality in all depart-\\nments of economic activity by the free play of\\nindividual interests, we may allow such inequality\\nto issue in forced gains,* and afterward attempt\\nto redress this inequality by taxation. If this\\nmethod of redress prove too difficult or too uncer-\\ntain, economic progress will demand the substi-\\ntution of a public monopoly for those private\\nmonopolies which inequality of economic oppor-\\ntunity has founded, and to which inequality of\\nbargaining assigns forced gains.", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0377.jp2"}, "376": {"fulltext": "", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0378.jp2"}, "377": {"fulltext": "DEMOCRACY AND EMPIRE\\nWith Studies of their Psychological, Economic, and Moral Founda-\\ntions, by Franklin H. Giddings, Cloth. 8vo. $2.50\\nThe work as a whole is the most profound and closely reasoned defence of\\nterritorial expansion that has yet appeared. The volume is one of rare\\nthough tfulness and insight. It is a calm, penetrating study .of the trend of\\ncivilization and of our part in it, as seen in the light of history and of evolution-\\nary philosophy. The Chicago T?-ibune.\\nThe question which most interests both Professor Giddings and his readers\\nis the application of his facts, his sociology, and his prophecy, to the future of\\nthe American Empire. The reader will rise from it with a broader charity\\nand with a more intelligent hope for the welfare of his country.\\nThe hidependent.\\nTHE PRINCIPLES OF SOCIOLOGY\\nAn Analysis of Phenomena of Association and of Social Organiza-\\ntion, by Franklin Henry Giddings, M.A. (Columbia\\nUniversity Press.) 8vo. Cloth. $3.00, net\\nIt is a treatise which will confirm the highest expectations of those who\\nhave expected much from this alert observer and virile thinker. Beyond a\\nreasonable doubt, the volume is the ablest and most thoroughly satisfactory\\ntreatise on the subject in the English language. Literary World.\\nThe distinctive merit of the work is that it is neither economics nor\\nhistory. He has found a new field and devoted his energies to its exploita-\\ntion. The chapters on Social Population and on Social Constitution are\\namong the best in the book. It is here that the method of Professor Giddings\\nshows itself to the best advantage. The problems of anthropology and ethnology\\nare also fully and ably handled. Of the other parts I like best of all the dis-\\ncussion of tradition and as social choices on these topics he shows the greatest\\noriginality. I have not the space to take up these or other doctrines in detail,\\nnor would such work be of much value. A useful book must be read to be\\nunderstood. Professor Simon N. Patten, in Science.\\nTHE ELEMENTS OF SOCIOLOGY\\nA Text-Book for Colleges and Schools, by Franklin Henry\\nGiddings, M.A., Professor of Sociology in Columbia Univer-\\nsity. 8vo. Cloth. $1.10 net\\nIt is thoroughly intelligent, independent, and suggestive, and manifests an\\nunaffected enthusiasm for social progress, and on the whole a just and sober\\napprehension of the conditions and essential features of such progress.\\nProfessor H. Sidgwick in The Economic Journal.\\nOf its extreme interest, its suggestiveness, its helpfulness to a reader to\\nwhom social questions are important, but who has not time or inclination for\\nspecial study, we can bear sincere and grateful testimony. N ew York Times.\\nProfessor Giddings impresses the reader equally by his independenee of\\njudgment and by his thorough mastery of every subject that comes into his\\nview, The Churchman.\\nTHE MACMILLAN COMPANY\\n66 FIFTH AVENUE, NEW YORK", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0379.jp2"}, "378": {"fulltext": "The Citizen^s Library of Economics,\\nPolitics, and Sociology\\nUNDER THE GENERAL EDITORSHIP OF\\nRICHARD T. ELY, Ph.D., LL.D.\\nDirector of the School of Economics, and Political Science and History;\\nProfessor of Political Economy at the University of Wisconsin,\\nMONOPOLIES AND TRUSTS\\nBy Richard T. Ely, Ph.D., LL.D. Half Morocco. i2mo.\\n$1.25\\nIt is admirable. It is the soundest contribution on the subject that has\\nappeared. Professor John R. Commons.\\nBy all odds the best written of Professor Ely s works.\\nProfessor Simon N. Patten, University of Penn.\\nTHE ECONOMICS OF DISTRIBUTION\\nBy John A. Hobson, author of The Evolution of Modern\\nCapitalism, etc.\\nIN PREPARATION FOR EARLY ISSUE ARE\\nESSAYS IN THE MONETARY HISTORY OF\\nTHE UNITED STATES\\nBy Charles J. Bullock, Ph.D., Assistant Professor of\\nPolitical Economy, Williams College.\\nECONOMIC CRISES\\nBy Edward D. Jones, Ph.D., Instructor in Economics and\\nStatistics, University of Wisconsin.\\nWORLD POLITICS\\nBy Paul S. Reinsch, Ph.D., LL.B., Assistant Professor of\\nPolitical Science, University of Wisconsin.\\nGOVERNMENT IN SWITZERLAND\\nBy John Martin Vincent, Ph.D., Associate Professor of\\nHistory, Johns Hopkins University.\\nHISTORY OF POLITICAL PARTIES IN THE\\nUNITED STATES\\nBy Jesse Macy, LL.D., Professor of Political Science in Iowa\\nCollege.\\nTHE MACMILLAN COMPANY\\n66 FIFTH AVENUE, NEW YORK\\nLBAp32", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0380.jp2"}, "379": {"fulltext": "", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0381.jp2"}, "380": {"fulltext": "", "height": "3517", "width": "2198", "jp2-path": "economicsofdistr01hobs_0382.jp2"}, "381": {"fulltext": "", "height": "3518", "width": "2166", "jp2-path": "economicsofdistr01hobs_0383.jp2"}, "382": {"fulltext": "", "height": "3609", "width": "2290", "jp2-path": "economicsofdistr01hobs_0384.jp2"}}