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The Black Worker, Economic Justice and the Speeches of Sadie T.M. Alexander
Author(s): Nina Banks
Source: Review of Social Economy, Vol. 66, No. 2 (JUNE 2008), pp. 139-161
Published by: Taylor & Francis, Ltd.
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REVIEW OF SOCIAL ECONOMY, VOL. LXVI, NO. 2, JUNE 2008 iRoutledge Taylor & Francis Group The Black Worker, Economic Justice and the Speeches of Sadie T.M. Alexander Nina Banks Bucknell University, USA Abstract This paper examines Sadie Tanner Mossell Alexander’s challenge to racial oppression within the US. In 1921, Alexander became the first African American woman to earn a PhD in economics. The author links Alexander’s arguments for black political rights to the provision of economic justice for working class Americans. Keywords: economic justice, black workers, full employment, redistributive policies INTRODUCTION Beginning in the 1930s, Sadie Tanner Mossell Alexander, an economist and lawyer, developed arguments to overcome black oppression by calling for policies that would lead to economic justice. Alexander challenged unfair laws and practices directed against African Americans. This paper introduces Sadie Alexander’s recommendations to improve the status of black Americans through the formation of interracial labor alliances, public sector job creation, and policies to redistribute national income. These policies, she believed, would benefit white workers as well as black workers, and Alexander argued that, by doing so, white Americans would be less likely to infringe upon the political and economic rights of racial minorities. This paper suggests that Sadie Alexander’s analysis of racial conflict and the need for full employment and income redistribution continues to be relevant to the US political economy. Economic insecurity over the availability of jobs, livable wages, and adequate benefits are persistent Review of Social Economy ISSN 0034-6764 print/ISSN 1470-1162 online ? 2008 The Association for Social Economics http://www.informaworld.com DOI: 10.1080/00346760701335707This content downloaded from 209.23.242.17 on Thu, 02 Apr 2020 00:14:13 UTCAll use subject to https://about.jstor.org/terms
REVIEW OF SOCIAL ECONOMY concerns for US workers, particularly with the decline in unionization and the increase in globalization. Deindustrialization has been especially burdensome for African Americans because of their concentration in urban communities experiencing massive job loss. A broader aim of the paper is to recover Sadie Alexander’s economic arguments and to incorporate them into economic analysis. As the only woman among a handful of African American economists in the early-to mid twentieth century, Sadie Alexander offered a unique perspective on black working conditions. Her strategies for improving the welfare of black Americans, however, have been missing from economic analysis because she was not employed as an economist.1 Sadie Tanner Mossell Alexander, the first African American woman to obtain a doctorate degree in economics, was never given the opportunity to work as a professional economist because of discrimination. After earning a law degree in 1927, Alexander spent the duration of her life challenging structural impediments that prevented African Americans from exercising their rights as citizens. From the 1920s through the 1960s, she made speeches across the country that advanced the interests and concerns of black workers. Her speeches?principally economic in content?were addressed to black audiences, racially mixed audiences, religious groups, clubwomen, sororities, members of political parties, and civil rights organizations. Alexander served in elected positions at the national level in the National Urban League, National Association for the Advancement of Colored People (NAACP), Delta Sigma Theta sorority, National Bar Association, and the American Civil Liberties Union (ACLU). Sadie Alexander was pro-labor and argued for the necessity of black and white workers organizing around their common interests as workers, yet her primary struggle was against the oppression of black Americans. Her work was part of a strand in political discourse that linked arguments for political freedoms and equality to the provision of jobs and other necessities of life. By promoting economic justice, Alexander’s ideas were in line with a black radical tradition. Sadie Tanner Mossell was born in 1898 in Philadelphia Pennsylvania. MosselFs maternal grandfather was A.M.E. Bishop Tanner. Mossell’s father, Aaron Mossell, Jr, was the first black to graduate from the law school at the University of Pennsylvania Mossell lived in Washington, DC for much of her 1 Sadie Alexander worked as a practicing attorney rather than as an economist. Kenneth Mack (2005) maintains that after World War II, Sadie Alexander and other leaders in the African American “civil rights bar” attempted to secure the economic citizenship guarantees of the New Deal for black Americans by focusing their attention on the formation of cross-racial, class-based alliances with whites rather than through laying the foundation to court remedies to racial discrimination. 140This content downloaded from 209.23.242.17 on Thu, 02 Apr 2020 00:14:13 UTCAll use subject to https://about.jstor.org/terms
THE BLACK WORKER childhood and attended the M Street School. She received a BSc degree in education in 1918 and a Master’s degree in economics from the University of Pennsylvania in 1919. In 1921, for the first time in US history, three African American women, including Mossell, were awarded doctorate degrees. Mossell said that no company or university world hire her, despite having recommendations from her professors, so she relocated to Durham after she was hired by North Carolina Mutual Life, the largest black insurance company in the US (Alexander 1964). Mossell worked there for two years until she married Raymond Pace Alexander after he graduated from Harvard law school. Sadie Alexander achieved another milestone in 1927, when she graduated from Penn’s law school and was admitted to the Pennsylvania Bar. Holding both Juris Doctorate and Doctor of Philosophy degrees, she was one of the most highly educated individuals in the country. Raymond Alexander hired Sadie Alexander to work for his law firm. According to Mack (2001-2002), the Alexander law firm was responsible for most of the desegregation litigation in Pennsylvania. In 1928, she became the first black women appointed Assistant City Solicitor for Philadelphia. President Truman appointed Alexander to The Committee on Human Rights in 1946. The committee monitored civil rights in the US and developed a report, “To Secure These Rights,” which was one of the most important civil rights documents issued prior to the signing of the 1964 Civil Rights Act (Mack 2001-2002: 1406). BLACK POLITICAL THOUGHT According to Wintz (1996), two main political ideologies dominated African American thought following Reconstruction. The first tradition, associated with Frederick Douglas, T. Thomas Fortune, and later with W.E.B. DuBois, challenged racial separation and disenfranchisement of African American citizens and stressed the importance of agitation for racial justice. The second tradition, associated with Alexander Crummell, rector of St Luke’s Episcopal Church in Washington, DC and later with Booker T. Washington, emphasized the need for African American self-help, community building and economic development, and race pride until justice was extended to the black community. The lines of demarcation between the traditions were blurred as black intellectuals and leaders often advocated aspects of both traditions. Black radicals were a part of the African American intellectual tradition that advocated agitation for overcoming black oppression. According to 141This content downloaded from 209.23.242.17 on Thu, 02 Apr 2020 00:14:13 UTCAll use subject to https://about.jstor.org/terms
REVIEW OF SOCIAL ECONOMY Fletcher (1999), black radicalism in the US has included faith-based activists, socialists, communists, radical democrats, feminists, and revolutionary nationalists. He argues that, for black radicals, the source of black liberation is the black masses acting either alone or in alliance with other groups to challenge dominant racial and class interests. A key aspect of black radicalism is that it calls for struggles against capitalist exploitation of workers. A. Philip Randolph, in his early years as a socialist, embraced the idea that class conflict was at the core of racial conflict and that a united working class could solve racial problems (Wintz 1996). Fletcher says that at the height of twentieth century labor activism (1934-1950), the struggle for black liberation was perceived to be tied to but not defined by the goals of organized labor (1999: 6). Alexander’s opposition to racial oppression was within a black radical tradition. Her ideas evolved to reflect the changing political economy from the 1920s through the 1960s. Her political and economic thinking embraced the dominant racial ideas of the times and become progressively more radical by the end of World War II and continued in this manner through the Civil Rights era. This is in contrast to Abram Harris, who was then a radical as well as the leading African American economist. In the post-World War II period, Harris turned his attention away from racial matters and did not return to them until the early 1960s (Darity 1989). Alexander did not embrace socialism but her ideas were consistent with radical ideas for economic justice. Class and the need for interracial working class alliances was a central part of her analysis of black oppression. In accordance with black radicalism, Alexander interpreted black liberation on the basis of policies beneficial to black workers. Unlike Abram Harris, Alexander examined both black men and women’s working conditions and made policy recommendations to benefit black women workers specifically. According to Darity (1997), Harris and the other Howard University radicals, Ralph Bunche and E. Franklin Franzier, viewed capitalist exploitation of labor as the fundamental problem facing blacks and they believed that this could be overcome through multiracial labor organizing. As such, they rejected agitation for civil rights until blacks had achieved economic power (1997: 234). Alexander, however, agitated against white dominance in the political and social realms as well as in the economic arena. In her speeches, she encouraged grassroots political mobilization and community organizing to redress unfair legislation and practices and to hold public officials accountable to the black community. This paper analyzes her efforts to combat black poverty, unemployment, and economic marginalization through redistributive and full employment policies. For Alexander, the 142This content downloaded from 209.23.242.17 on Thu, 02 Apr 2020 00:14:13 UTCAll use subject to https://about.jstor.org/terms
THE BLACK WORKER struggle for black Americans to fully exercise their democratic rights was contingent upon their ability to secure these fundamental economic rights. Racial and economic justice are intricately linked. Historically, racial antagonisms in the US have been correlated with the state of the economy. When jobs have been scarce, competition over them has typically been accompanied by heightened racial antagonism (Roediger 1991; Rubin 1995). According to Dreier (1998), racial justice therefore rests on the provision of economic justice for all working class Americans. Economic justice entails redistributive policies directed to combat low wages, poverty, and unemployment. Scaperlanda defines economic justice as “fundamentally questions about the ethics of income distribution” and distinguishes between mainstream and heterodox understandings of economic justice (1999: 419). In mainstream approaches, market forces provide labor market participants with a just distribution of national income. Heterodox economists, however, believe that labor market outcomes can and should be improved since market forces are not perfect. Redistributing goods and services, raising wages, and generating jobs for all who want to work would improve living standards for poor and low-income workers and diminish capital’s ability to threaten workers with job loss. Racial tensions that accompany competition over limited jobs would decrease. ALEXANDER’S POLITICAL AND ECONOMIC THOUGHT Alexander’s speeches and writings reveal a sustained commitment to challenging racial oppression in the US. Many of her speeches from the 1930s and 1940s, alluded to in records of her correspondence and speaking engagements, are not in her archival records stored at the University of Pennsylvania. Some of the early speeches from the 1920s were handwritten on paper that has deteriorated. Nonetheless, it is possible to piece together and develop a sense of her ideas for improving the welfare of African Americans, particularly black workers, from the great many documents that have been preserved in the Archives. Alexander was an integrationist who sought to incorporate blacks into the mainstream of American life through legislative reforms and through collective action by blacks. Over time, her political and economic thinking about the means to incorporate black workers into the industrial economy came to embrace ideas associated with economic justice?full employment, the provision of basic needs, and redistribution of national income in favor of poor people. Ultimately, she called for a fundamental restructuring of our economic system through the guarantee of jobs to all who wanted to work. Alexander believed that 143This content downloaded from 209.23.242.17 on Thu, 02 Apr 2020 00:14:13 UTCAll use subject to https://about.jstor.org/terms
REVIEW OF SOCIAL ECONOMY government, industry, labor, schools, and community members would have to coordinate their efforts to help ensure that all Americans would have an equal chance to develop to their full potential (1963: 6). Black Workers in the Expanding US Economy In the 1920s, young Alexander embraced ideas that encouraged blacks to obtain business training in order to become a more central part of the expanding world economy. During this period, black workers were gaining access to industrial jobs in the north because of the increased demand for black labor there during World War I. Black migration from the rural south to northward destinations accelerated as a consequence of this demand and 1.5 million African Americans relocated to the north from 1916- 1930. The majority of black industrial workers, however, were concentrated in unskilled and cleaning jobs. The jobs had limited mobility and often exposed workers to substantial health hazards (Gottlieb 1987; Jones 1985). The first speech on file in the Archives is listed as “Fragment” and in it Alexander discussed the success of the US in producing goods at a “market price which makes them saleable in the world. The man who produces goods for the world market contributes to the happiness of all mankind and to the wealth of his own nation. You do not purchase goods unless they satisfy your tastes” (Alexander cl920s: 1-2). She added that the US was able to gain dominance in the world market of goods and become powerful as a result of its productive capabilities. Alexander worried that black workers would not play a part in the success of US industry since they were marginal workers? loading goods onto ships for export rather than producing them. She urged blacks to obtain training in business, saying: More physicians, lawyers, dentists, school teachers can not place us in a position of importance in a nation of producers. Go into the Schools of Business, young men and women and then do not come out and moan because some white firm will not hire you as a salesman. Do you aspire to sell the goods another man has manufactured or to manufacture goods for him to buy and sell for you_Go into business young men … Go into business young women… Make yourselves a part of the economic system which has placed America as a formidable economic competitor of England?the greatest exporting nation the world has known. Write your names, the name of your race in American Industry, in the export columns and … [no one] can deny your contributions to America for you and your race will be a part of the very life which American greatness is measured. (Alexander c 1920s: 5-6). 144This content downloaded from 209.23.242.17 on Thu, 02 Apr 2020 00:14:13 UTCAll use subject to https://about.jstor.org/terms
THE BLACK WORKER This speech embraces a Washingtonian ideology that encourages the development of business skills. Washington had put forth the idea that black progress was tied to skills demanded by the market (Boxill 1984: 21). Alexander’s speech discouraged professional and graduate level training and, instead, advocated that blacks learn how to produce something useful to the nation. Mack (2005) maintains that black lawyers of the 1920s embraced this “voluntarist” approach to achieving equal status with whites by emphasizing intraracial work that they believed African Americans needed to do in order to more fully participate in civil society. Sadie Alexander also expressed race pride and self-help in the speech by calling on blacks to counter the perception that they had not contributed to the nation. Unlike Washington, however, Alexander believed in the efficacy of agitation to bring about social change. As later speeches illustrate, Alexander advocated agitation through the political process as well as by organized labor. Over the decade of the 1930s, Alexander focused particular interest on black women workers. In “Negro Women in Our Economic Life,” Alexander discussed historical changes in women’s status due to the Industrial Revolution. The article appeared in the Urban League’s Opportunity magazine in 1930 and is Alexander’s only published economics article. The article anticipates many of the arguments about women’s work made by feminist economists in the late twentieth century. According to Alexander, when the family was the unit of production, women’s contribution to household production was recognized as valuable. However, as industrialization increased and household production of goods and services were increasingly produced by the industrial sector, women’s home responsibilities came to be regarded as lacking value because they were not exchanged for a wage. Alexander observed this transition without being critical of it. She recommended that women become a part of the expanding industrial economy so that they would once again be regarded as productive laborers (1930: 97). The article then analyzes black women’s participation in paid labor, their occupational distribution, and their wages. Alexander maintained that black women’s employment in industrial jobs benefited their families because it increased women’s earnings and shortened their work hours compared to domestic service, thus enabling women to take night courses for additional training. The Opportunity publication is one of the only articles or speeches in which class analysis is an explicit part of Alexander’s arguments for racial equality. She wrote: The association between the various racial groups employed in a factory will prove an important factor in solving the laborer’s problems. The real seat of racial friction 145This content downloaded from 209.23.242.17 on Thu, 02 Apr 2020 00:14:13 UTCAll use subject to https://about.jstor.org/terms
REVIEW OF SOCIAL ECONOMY is between the working groups, whose resistance to change in the economic status of a competing group invariably expresses itself in what we commonly define as race, or class prejudice. Could the great mass of white workers learn from industrial experience with Negro workers that they have a common purpose in life, the protection of their bargaining power, and that the sooner the untouched wealth of Negro labor is harnessed into this common purpose, the better can they bargain with capital; then and only then would industrial racial friction subside. (1930: 99) Her reasoning?that a unified working class would be in a better position to bargain with capital?did not address the dilemma that white workers might benefit more from putting their racial interests above their class interests. By aligning themselves with white owners of capital to exclude or limit black workers, white workers would still benefit from a wage premium that they might lose otherwise (Schulman 1996; Boxill 1984). Nonetheless, the article suggested that interracial cooperation between black and white workers against capital was necessary for racial animosity to decrease. Great Depression, New Deal, and the Black Community The Great Depression (1929-1933) was especially devastating to African Americans because they disproportionately lost jobs as tenant farmers in the south and as industrial workers in the north. In rural areas, where the majority of African Americans was still concentrated, the economic depression began in the early 1920s with the boll weevil infestation and with international competition in cotton, tobacco, and sugar cane produc? tion. Farmers responded to the decreased demand for their crops by producing more, and the oversupply had the effect of eroding crop prices. Cotton prices fell from 18 cents a pound in 1929 to just six cents a pound in 1933, pushing farm laborers to the brink of starvation (Hine et al. 2000). Those blacks who had migrated to northern and midwestern cities lost jobs in which they had been marginally employed. In a 1930s speech, most likely given to an Urban League gathering, entitled, “The Economic Status of Negro Women, An Index to the Negro’s Economic Status,” Alexander discussed the status of black women workers based on the 1930 census and maintained that their position indicated the economic status of the black community. According to Alexander’s research, 40 percent of Negro women over the age of ten were employed, a figure about two times greater than foreign and native-born white women. She attributed black women’s higher employment rate to economic necessity, 146This content downloaded from 209.23.242.17 on Thu, 02 Apr 2020 00:14:13 UTCAll use subject to https://about.jstor.org/terms
THE BLACK WORKER stating that this is a “sad commentary on the economic status of our race,” because black women’s employment in low-wage work was tied to black men’s high rates of unemployment and irregular earnings (Alexander c 1930s: 1). Alexander, however, was concerned not that black women were employed but that they were employed at jobs outside of the industrial sector. Over 60 percent of employed black women worked as domestic servants and 27 percent worked in agriculture, two sectors of the economy most adversely affected by the Great Depression, (c 1930s: 2). Black workers, therefore, experienced higher rates of unemployment during the Depression and, consequently, were more likely than whites to be represented among relief rolls. In 1933, some 25 to 40 percent of African Americans were on relief?a figure that was three to four times greater than the percentage of white Americans on relief (Franklin and Moss 2000). Alexander recommended that blacks, through the Urban League, press for legislation that would provide adequate relief for black workers. In the speech, she urged the audience to press for change now rather than focus on otherworldly concerns. Alexander reminded the middle-class gathering that their economic status and ability to earn livelihoods in professions that served a black clientele were dependent upon the black masses (c 1930s: 6). Black business owners were more adversely affected by the collapse of the economy than their white counterparts because black businesses relied on the patronage of the deeply impoverished black community. Alexander stated: Not only must we place on the statute books legislation that is of special benefit to the Negro worker but we must with equal force and zeal see that the Negro worker receives his or her full share of all relief legislation. Never since Reconstruction has there existed such a favorable chance for the federal government to influence the condition of the Negro masses. By scrupulously fair administration of all types of direct and indirect federal aid?in farm relief, public works program and subsidized relief, the principle of equitable distribution can for the first time be enforced for Negro labor in America. But unless the Negro’s claims are definitely, persistently and forcibly brought before the governmental bodies there is real danger that not only will he be overlooked or neglected but that the reorganization of industry will have him in a worse position than prior to the depression, (c 1930s: 5) Alexander ended the speech by stating that black professionals had a duty to work for the benefit of black workers since middle class savings were based on the labor of the masses. However dependent middle class blacks were on black workers, Alexander’s use of inclusive language “[so] that we may not be subjected to greater poverty after the depression” indicates that she did 147This content downloaded from 209.23.242.17 on Thu, 02 Apr 2020 00:14:13 UTCAll use subject to https://about.jstor.org/terms
REVIEW OF SOCIAL ECONOMY not posit much of a separation between different classes of blacks in their economic and political interests.2 For Alexander, the duty to serve the black masses also extended to religious organizations. She believed that the black church had an obligation and a special role to play in the struggle to improve life for poor blacks. Her views on the role of the church in promoting black welfare were stated in a speech on “Negro Achievement” in 1936. According to Alexander: … any program proposed for racial achievement one must first consider the influence of the Negro church … The success of any plan to improve the status of our group must be dependent upon the cooperation of the Negro clergyman and the Negro church, because they come nearer than any other group to controlling the thought of the masses. We must develop some plan by which this group of leaders will realize the social implications of Christian salvation … Jesus … knew that if the lives of the poor were to be made happier, if their souls were to be made purer, there must be an improvement in their general social conditions. His sympathy for the poor did not stop with charity but flowed out into a concept of social justice. (Alexander 1936: 7-8) Alexander was very active in church organizations and her religious convictions were also a source of her radicalism. Wilmore (1984) maintains that, although the black church has been reactionary in its acceptance of white American mythology, it has also been profoundly radical in its doctrine for black liberation. As the Great Depression wore on, Alexander became less optimistic about federal efforts to provide relief, reform, and recovery policies that were beneficial to blacks. As a loyal Republican during the period when most African Americans still belonged to the party of Lincoln, Alexander was understandably critical of Democratic policies, including the New Deal, which she characterized as a “raw deal for the average citizen” (Alexander 1935a: 1). In a speech that she gave for the Republican Party in Lackawanna County elections in 1935, she addressed the issue of blacks voting for Democrats but urged the audience to vote Republican and return liberal judges to office. Soon thereafter, however, in a speech before the Eastern Federation of Negro Republicans, Alexander talked about her dissatisfaction with the Republican Party which, unlike the Democratic Party, had ignored its black voters and not appointed them to positions. And yet, Alexander continued to express concern over blacks switching to the Democratic Party 2 For an interesting discussion of different perceptions about the poor by black and white middle class professionals, see Linda Gordon (1991). 148This content downloaded from 209.23.242.17 on Thu, 02 Apr 2020 00:14:13 UTCAll use subject to https://about.jstor.org/terms
THE BLACK WORKER because of her belief that it was controlled by conservative southern Democrats3 (Alexander 1935b: 5). Her criticism of New Deal relief policies was based on the disproportionately negative impact that unemployment had on the black community. Alexander stated: Let us examine our present economic status. The number of Negroes on relief has steadily increased. Today over three million Negroes of all ages are receiving relief, which means that even a larger number are unemployed. 18.4% [sic] of all cases on relief are Negroes, although Negroes are only 9.4% of the population. In spite of and largely because of this volume of Negro unemployed over 1/3 (36%) of the child labor in America is Negro. Approximately % of all women 15 years of age and over are workers but Negro women form % of all married women working away from home. The ratio is about three times greater than that of all women. The cause for this appalling economic condition can largely be traced to the effect of relief legislation of the Roosevelt Administration. (1935b: 6) In a talk given at the Elks’ Educational and Economic Conference on “The Economic and Occupational Status of Negroes” in 1935/1936, Alexander elaborated on the impact that the Depression and New Deal were having on black workers. She stated: Then came the National Recovery Act, which might well bear the nomenclature Negro Reduction Act. We all know only too well that particularly in the South, employers refused to pay Negroes the same wages as paid white labor for identical work as a consequence of which Negroes lost their jobs. Then the necessity of raising wages for jobs held by Negroes had the effect of attracting the large body of white unemployed workers to traditional Negro jobs. Next, as a measure of economy, many jobs were combined by small employers and given added dignity? too great for Negro labor to fill. Finally, and perhaps the most widespread effect was the forced closing of the small business which had been able to operate only by paying unusually small wages to Negro labor. (Alexander 1935/1936: 3) Alexander was particularly concerned with the loss of traditional black jobs for the black community. She believed that traditional black jobs such as railroad workers, wait staff, and elevator operators were disappearing as black workers were displaced by whites. Because these and other black jobs, such as domestic service, were low-status, blacks generally did not have to compete against white workers prior to the Great Depression. During the 3 Alexander’s concern that the Democratic Party was controlled by conservative white southerners was based on the exclusive control that this group had over politics in the south where black voters were effectively disenfranchised by white Democrats. 149This content downloaded from 209.23.242.17 on Thu, 02 Apr 2020 00:14:13 UTCAll use subject to https://about.jstor.org/terms
REVIEW OF SOCIAL ECONOMY Depression, however, whites experiencing unemployment often were able to push blacks out of these jobs by intimidating employers into firing blacks (Hine et al. 2000). Alexander recommended that this was a problem in need of study in order to determine the ways in which these jobs could be maintained as well as prepare blacks for new fields (Alexander 1936: 7). To counter the harmful effects that the Depression and New Deal policies were having on black workers, Alexander encouraged the black community to support other blacks. In addition to the National Recovery Act, Alexander cited the detrimental impact of the Agricultural Adjust Act (AAA) and Social Security Act on black workers through provisions that excluded them from coverage to policies that generated increased unemploy? ment for black workers.4 The inequitable way in which the Agricultural Adjustment Act was administered by southern whites contributed to the displacement of black tenant farmers from southern farms. The AAA was one of the first New Deal policies enacted by Franklin Roosevelt after he took office. The AAA provided subsidies to farmers?including tenant farmers and sharecroppers?to cut back on the production of cash crops so that prices would stabilize. White landlords, however, often kept checks intended for black farmers and ultimately forced blacks off farms when provisions were made in the AAA that tenants should be paid directly. Although the AAA was intended to help both black and white farmers, black exclusion from the political sphere in the South ensured that the act would be unfairly administered (Hine et al. 2000). Alexander stated to the gathering of black Republicans that “the ultimate solution to our problem lies in the obtaining of favorable laws to protect and advance the Negro masses … nor can we hope for favorable legislation until Negro representatives are a part of the lawmaking bodies of the United States … vote for Negro candidates. When we thus demonstrate our strength we guarantee the future welfare of the Negro race” (1935b: 8-9). Unlike her 1930 address, “The Economic Status of Negro Women, An Index to the Negro’s Economic Status,” this speech indicates that, five years later, Alexander had moved away from looking to government to pass favorable legislation for blacks and, instead, believed that electing black legislators?blacks acting on their own behalf – would be the only guarantee that this would occur.5 4 Southern white Democrats in Congress were able to exclude agricultural and domestic laborers from the benefits of the Social Security Act and the National Labor Relations Act. This had the effect of excluding the substantial number of blacks who worked in these sectors. 5 The mass migration of southern African Americans to urban areas of the north and midwest enabled them to concentrate their voting power and enhance their political clout with northern white politicians. In 1928, Chicago blacks elected Oscar De Priest to the House of Representatives, making him the first African American elected to Congress from the North. De Priest was succeeded in 1934 by Arthur Mitchell, a black 150This content downloaded from 209.23.242.17 on Thu, 02 Apr 2020 00:14:13 UTCAll use subject to https://about.jstor.org/terms
THE BLACK WORKER In a speech that she gave in 1936, “Address on Negro Achievement,” Alexander advocated that blacks channel their consumption for the benefit of black communities. She cited the example of a consumers’ cooperative league in Indiana that was very successful in generating sales and had a sizeable membership. Eventually the members of the cooperative were able to set up a credit union which lent money to members. Alexander stated that “in any program for future development we must include the teaching of ways and means to harness Negro purchasing power so that it will improve the economic status of the Negro people themselves and not make rich any immigrant who establishes a corner store in a Negro neighborhood” (Alexander 1936: 6). This was consistent with other cooperative efforts, such as the Housewives’ Leagues, undertaken by blacks during the Great Depression.6 Economic Security, Democracy, and Racial Unrest Events occurring during World War II led to a pronounced shift in Alexander’s arguments for racial equality. Her rhetoric became more focused on issues of economic justice by the time she gave a speech, “Coming Events Cast Their Shadows,” in Detroit in 1939. The speech is a very eloquent statement of the relationship between economic insecurity and the rise of racial antagonisms and hostility, whether in Nazi Germany or in the US. Observing the treatment of Jews in Germany during periods of economic downturn, Alexander worried that the ongoing denial of democratic protections for blacks in the US against racial violence and discrimination could lead to a similar fate for minorities in the US (Alexander 1939a). In a speech given later that year, Alexander cited recent incidents in the US which, for her, indicated a heightened period of racial animosity and intolerance. These events included the refusal of the Daughters of the American Revolution to allow Marian Anderson to perform at Constitution Hall, the unwillingness of avowed white liberals to issue pronouncements Democrat who had previously been registered as a Republican. Mitchell was the first African American Democrat elected to Congress, signaling the willingness of black voters to vote Democrat as well as to switch their party affiliation to Democrat. 6 The Housewives’ League began in Detroit in support of black businesses. It organized black women of various classes across the country into boycotting businesses in black communities that did not sell black products or hire black workers. It also encouraged black patronage of black businesses as a way to keep money circulating within black communities. Membership is estimated to have peaked at 10,000 and the boycotts were able to get approximately 75,000 new black workers hired during the Depression. Refer to Jacqueline Jones (1985) for an analysis of the Housewives’ Leagues. 151This content downloaded from 209.23.242.17 on Thu, 02 Apr 2020 00:14:13 UTCAll use subject to https://about.jstor.org/terms
REVIEW OF SOCIAL ECONOMY condemning racism, the campaigning by a major political party on the basis of having all white native-born candidates, and the implementation of educational restrictions for blacks by schools that once admitted them (Alexander 1939b). Alexander believed the threat to US minorities to be imminent, and urged her audiences to take prompt action against racism. Alexander called for economic reforms that would make it unlikely that white Americans would resort to fascism as a way of dealing with hunger, homelessness and other manifestations of economic insecurity. She stated: It is therefore obvious that the maintenance of democratic institutions in America depends first upon the development of an economic system which, as stated by the National Policy Committee, will provide an adequate measure of economic security and justice: which will give the public some effective control over their economic as well as their political liberty; and which will find methods of controlling economic activity so as to (a) insure liberty of occupation and consumption, and (b) effectively stimulate the production of wealth (Alexander 1939a: 8) To do this, Alexander advocated government regulations to smooth out fluctuations in the business cycle, modification of tariffs, regulation of public utilities, and regulation of securities and their markets. She reasoned that curbing economic downturns and insecurity would provide the foundation for democratic governance and safeguard minority rights. Alexander’s files also contained the following handwritten note that more clearly makes the link between economic security, democracy, and racial unrest: The right of all individuals to earn a decent living must be achieved if we here at home and throughout the world are to have the kind of life we call a democracy. We have seen in Europe how the desire of one group to exploit and take the jobs of another has led to the development of elaborate theories attempting to justify intolerance. (Alexander c late 30s early 40s) As this quote illustrates, Alexander’s ideas for economic reform were pro labor since they promoted livable wages for workers. However, she also advocated changes that would benefit businesses. Alexander called for relief for capital along with relief efforts aimed at workers. Her policy recommendations included loans for businesses as well as workers, and uniform state taxes on corporations so that they would be less inclined to relocate from higher cost to lower cost states. The right of all individuals to earn a decent living applied to capital as well as to labor. Alexander stated 152This content

Alfred Marshall was educated in mathematics
at St. John’s College Cambridge,
and was elected to a mathematics fellowship
there upon receiving his degree. He
resigned this position in 1877 and took a
position as Professor of Political Economy
at Bristol. He moved on to Balliol
College, Oxford, and, in 1885, returned
to Cambridge, where he remained as
Professor of Political Economy until his
retirement in 1908.
Unlike Jevons, who painted his economics
as representing a strong break from the
classical analysis, Marshall emphasized
the strong degree of continuity between
the Classicals and his own theory. Yet,
through his Principles of Economics
(1890), as well as through the force of
his personality in developing economics
education at Cambridge, Marshall helped
shape many of the principal elements of
what became the microeconomic core of
neoclassical economics: its static partial
equilibrium analysis; the demand and
supply model; the concern with the household
and the firm as the basis of demand
and supply, respectively; and a vast array
ALFRED MARSHALL (1842–1924)
Alfred Marshall, Photographer: Walter Stoneman,
by courtesy of the National Portrait Gallery, London.
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Alfred Marshall 527
Marshall was one of those who used utility analysis, but not as a theory of value; for him
it was part of the theory with which one could explain demand curves, another part being
the principle of substitution. Indeed, Marshall’s scissors analysis—which combined demand
and supply, i.e., utility and cost of production, as if two blades of a pair of scissors—not only
transcended the conflict between Classical and Austrian theories of value but, equally if not
more important, effectively removed the theory of value from center stage and replaced it
with the theory of price; though the term “value” continued to be used, for most people
it was a synonym for “price.” Prices no longer were thought to gravitate toward some ultimate
and absolute basis of price; prices were purely existential, a matter of a dance, as it
were, between demand and supply, or, rather, between and among the factors and forces
operating through demand and supply (only some of which, however, were thought to be
within the purview of economists).
Marshall’s approach to methodological issues was largely low key, or middlebrow. He
emphasized deliberateness over selfishness and, sensitive to criticisms of economics as
extolling selfishness, proposed to study man as he is rather than an abstract “economic”
man; proposed a catholic definition of economics as the study of mankind in the ordinary
business of life, earning a living; affirmed the limited use of mathematics in economic theory
(for example, in spite of his strong mathematical background, Marshall largely relegated
mathematical analysis to footnotes and appendices in the Principles); combined habit with
deliberateness in explaining economic behavior; identified economic laws as statements of
tendency under certain, stipulated conditions, not absolute natural laws; emphasized objectivity
through measurement, though he himself engaged in little quantitative study; combined
quantitative empirical study with both pure theory and study of institutions and behavior;
was dubious about the practical and theoretical relevance of such grandiose notions as maximum
satisfaction, the invisible hand, and laissez-faire; and so on.
The core of Marshall’s theory is the determination of price. Price, he argued, was a function
of demand and supply, but could be analyzed differently on the basis of different conceptual
time periods—especially the market period, short run and long run—understood as the different
lengths of time it took for certain variables to work themselves out. In the short run, for
example, price was heavily influenced by demand; in the long run, by cost of production. In
all such periods, however, price was also influenced by whether the market was competitive
or monopolistic.
Marshall’s distribution theory was, like that of most other economists, eclectic. It included
(1) a general theory of factor pricing, (2) different specific theories of wages, rent, interest
and profit, and (3) attention to the different conditions of supply of the several factors of
production—conditions which reflected class, custom, legal status, and power structure. He
thought that labor markets, especially on their supply side, were not like other markets; such
markets had certain “peculiarities” which worked to labor’s cumulatively disadvantageous
position. While he urged caution in seeking major institutional reforms to improve the position
of labor, he nonetheless argued that failure to attend to labor’s problems was worse than
making mistakes in doing so.
The excerpts from Marshall’s Principles reprinted here are taken from his eighth edition,
published in 1920. We are given a glimpse of his view of the nature and goals of economic
analysis, the theory of increasing and diminishing returns in production, his elegant formulation
of the apparatus of demand and supply, including his famous “scissors” analogy, and his
introduction of period analysis into economic theory, where the reader might take note of the
degree of correspondence between Marshall’s long-period equilibrium and the concept of
market equilibrium in the classical analysis.
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528 The Marginal Revolution
References and Further Reading
Aldrich, John (1996) “The Course of Marshall’s Theorizing about Demand,” History of Political
Economy 28 (Summer): 171–217.
Blaug, Mark, ed. (1992) Alfred Marshall (1842–1924) and Francis Edgeworth (1845–1926), Aldershot:
Edward Elgar Publishing.
Coase, R.H. (1975) “Marshall on Method,” Journal of Law and Economics 18 (April): 25–31.
Cook, Simon J. (2009) The Intellectual Foundations of Alfred Marshall’s Economic Science: A Rounded
Globe of Knowledge, Cambridge: Cambridge University Press.
Friedman, Milton (1949) “The Marshallian Demand Curve,” Journal of Political Economy 57
(December): 463–95.
Gordon, H. Scott (1973) “Alfred Marshall and the Development of Economics as a Science,” in
R.N. Glere and R.S. Westfall (eds.), Foundations of Scientific Method in the Nineteenth Century,
Bloomington: Indiana University Press.
Groenewegen, Peter (1995) A Soaring Eagle: Alfred Marshall, 1842–1924, Aldershot: Edward Elgar
Publishing.
—— (2007) Alfred Marshall: Economist, 1842–1924, London: Palgrave Macmillan.
Keynes, J.M. (1951) “Alfred Marshall, 1842–1924,” in J.M. Keynes, Essays in Biography, London:
Rupert Hart-Davis, 125–217.
Maloney, John (1985) Marshall, Orthodoxy and the Professionalisation of Economics, Cambridge:
Cambridge University Press.
Marshall, Alfred (1879) The Pure Theory of Foreign Trade. The Pure Theory of Domestic Values,
London: London School of Economics, 1930.
—— (1919) Industry and Trade, London: Macmillan.
—— (1923) Money, Credit and Commerce, London: Macmillan.
—— (1961) Principles of Economics, 9th (Variorum) edn., edited by C.W. Guillebaud, 2 vols., London:
Macmillan.
Marshall, Alfred and Marshall, Mary Paley (1979) The Economics of Industry, London: Macmillan.
Pigou, A.C. (1925) Memorials of Alfred Marshall, London: Macmillan.
Raffaelli, Tiziano, Becattini, Giacomo, and Dardi, Marco, eds. (2007) The Elgar Companion to Alfred
Marshall, Cheltenham: Edward Elgar Publishing.
Raffaelli, Tiziano, Becattini, Giacomo, Caldari, Katia, and Dardi, Marco, eds. (2011) The Impact of
Alfred Marshall’s Ideas: The Global Diffusion of His Work, Cheltenham: Edward Elgar Publishing.
Robbins, Lionel (1928) “The Representative Firm,” Economic Journal 38: 387–404.
Robertson, D.H. (1952) Utility and All That, London: George Allen & Unwin.
Shove, Gerald (1942) “The Place of Marshall’s Principles in the Development of Economic Theory,”
Economic Journal 52 (December): 294–329.
Sraffa, Piero (1926) “The Laws of Returns Under Competitive Conditions,” Economic Journal 36
(December): 535–50.
Whitaker, J.K. (1975) The Early Economic Writings of Alfred Marshall, 1867–1890, 2 vols., London:
Macmillan.
—— (1987) “Marshall, Alfred,” in John Eatwell, Murray Milgate, and Peter Newman (eds.), The New
Palgrave: A Dictionary of Economics, Vol. 3, London: Macmillan, 350–63.
Wood, John C. (1982) Alfred Marshall: Critical Assessments, London: Croom Helm.
—— (1993) Alfred Marshall: Critical Assessments, second series, London: Routledge.
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Principles of Economics (1890)*
Book I: Preliminary Survey
Chapter I: Introduction
§ 1. POLITICAL ECONOMY or ECONOMICS is a study of mankind in the ordinary business of
life; it examines that part of individual and social action which is most closely connected
with the attainment and with the use of the material requisites of wellbeing.
Thus it is on the one side a study of wealth; and on the other, and more important side,
a part of the study of man. For man’s character has been moulded by his every-day work,
and the material resources which he thereby procures, more than by any other influence
unless it be that of his religious ideals; and the two great forming agencies of the world’s
history have been the religious and the economic. Here and there the ardour of the military
or the artistic spirit has been for a while predominant: but religious and economic influences
have nowhere been displaced from the front rank even for a time; and they have
nearly always been more important than all others put together. Religious motives are
more intense than economic, but their direct action seldom extends over so large a part of
life. For the business by which a person earns his livelihood generally fills his thoughts
during by far the greater part of those hours in which his mind is at its best; during them
his character is being formed by the way in which he uses his faculties in his work, by the
thoughts and the feelings which it suggests, and by his relations to his associates in work,
his employers or his employees.
And very often the influence exerted on a person’s character by the amount of his income
is hardly less, if it is less, than that exerted by the way in which it is earned. It may make little
difference to the fulness of life of a family whether its yearly income is £1000 or £5000; but
it makes a very great difference whether the income is £30 or £150: for with £150 the family
has, with £30 it has not, the material conditions of a complete life. It is true that in religion,
in the family affections and in friendship, even the poor may find scope for many of those
faculties which are the source of the highest happiness. But the conditions which surround
extreme poverty, especially in densely crowded places, tend to deaden the higher faculties.
Those who have been called the Residuum of our large towns have little opportunity for
friendship; they know nothing of the decencies and the quiet, and very little even of the unity
of family life; and religion often fails to reach them. No doubt their physical, mental, and
moral ill-health is partly due to other causes than poverty: but this is the chief cause.
* Principles of Economics, Eighth Edition, London: Macmillan, 1920.
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530 The Marginal Revolution
And, in addition to the Residuum, there are vast numbers of people both in town and
country who are brought up with insufficient food, clothing, and house-room; whose education
is broken off early in order that they may go to work for wages; who thenceforth are
engaged during long hours in exhausting toil with imperfectly nourished bodies, and have
therefore no chance of developing their higher mental faculties. Their life is not necessarily
unhealthy or unhappy. Rejoicing in their affections towards God and man, and perhaps even
possessing some natural refinement of feeling, they may lead lives that are far less incomplete
than those of many, who have more material wealth. But, for all that, their poverty is a great
and almost unmixed evil to them. Even when they are well, their weariness often amounts to
pain, while their pleasures are few; and when sickness comes, the suffering caused by poverty
increases tenfold. And, though a contented spirit may go far towards reconciling them to these
evils, there are others to which it ought not to reconcile them. Overworked and undertaught,
weary and careworn, without quiet and without leisure, they have no chance of making the
best of their mental faculties.
Although then some of the evils which commonly go with poverty are not its necessary
consequences; yet, broadly speaking, “the destruction of the poor is their poverty,” and the
study of the causes of poverty is the study of the causes of the degradation of a large part of
mankind.
. . .
Book IV: The Agents of Production: Land, Labour, Capital
and Organization
Chapter XIII: Conclusion. Correlation of the Tendencies to Increasing
and to Diminishing Return
§ 1. AT the beginning of the Book we saw how the extra return of raw produce which nature
affords to an increased application of capital and labour, other things being equal, tends in
the long run to diminish. In the remainder of the Book and especially in the last four chapters
we have looked at the other side of the shield, and seen how man’s power of productive work
increases with the volume of the work that he does. Considering first the causes that govern
the supply of labour, we saw how every increase in the physical, mental and moral vigour of a
people makes them more likely, other things being equal, to rear to adult age a large number of
vigorous children. Turning next to the growth of wealth, we observed how every increase
of wealth tends in many ways to make a greater increase more easy than before. And lastly
we saw how every increase of wealth and every increase in the numbers and intelligence of
the people increased the facilities for a highly developed industrial organization, which in its
turn adds much to the collective efficiency of capital and labour.
Looking more closely at the economies arising from an increase in the scale of production
of any kind of goods, we found that they fell into two classes—those dependent on the
general development of the industry, and those dependent on the resources of the individual
houses of business engaged in it and the efficiency of their management; that is, into external
and internal economies.
We saw how these latter economies are liable to constant fluctuations so far as any particular
house is concerned. An able man, assisted perhaps by some strokes of good fortune,
gets a firm footing in the trade, he works hard and lives sparely, his own capital grows fast,
and the credit that enables him to borrow more capital grows still faster; he collects around
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Marshall: Principles of Economics 531
him subordinates of more than ordinary zeal and ability; as his business increases they rise
with him, they trust him and he trusts them, each of them devotes himself with energy to just
that work for which he is specially fitted, so that no high ability is wasted on easy work, and
no difficult work is entrusted to unskilful hands. Corresponding to this steadily increasing
economy of skill, the growth of his business brings with it similar economies of specialized
machines and plant of all kinds; every improved process is quickly adopted and made the
basis of further improvements; success brings credit and credit brings success; credit and
success help to retain old customers and to bring new ones; the increase of his trade gives
him great advantages in buying; his goods advertise one another, and thus diminish his difficulty
in finding a vent for them. The increase in the scale of his business increases rapidly
the advantages which he has over his competitors, and lowers the price at which he can
afford to sell. This process may go on as long as his energy and enterprise, his inventive and
organizing power retain their full strength and freshness, and so long as the risks which are
inseparable from business do not cause him exceptional losses; and if it could endure for a
hundred years, he and one or two others like him would divide between them the whole of
that branch of industry in which he is engaged. The large scale of their production would
put great economies within their reach; and provided they competed to their utmost with one
another, the public would derive the chief benefit of these economies, and the price of the
commodity would fall very low.
But here we may read a lesson from the young trees of the forest as they struggle upwards
through the benumbing shade of their older rivals. Many succumb on the way, and a few only
survive; those few become stronger with every year, they get a larger share of light and air
with every increase of their height, and at last in their turn they tower above their neighbours,
and seem as though they would grow on for ever, and for ever become stronger as they grow.
But they do not. One tree will last longer in full vigour and attain a greater size than another;
but sooner or later age tells on them all. Though the taller ones have a better access to light
and air than their rivals, they gradually lose vitality; and one after another they give place to
others, which, though of less material strength, have on their side the vigour of youth.
And as with the growth of trees, so was it with the growth of businesses as a general rule
before the great recent development of vast joint-stock companies, which often stagnate,
but do not readily die. Now that rule is far from universal, but it still holds in many industries
and trades. Nature still presses on the private business by limiting the length of the life
of its original founders, and by limiting even more narrowly that part of their lives in which
their faculties retain full vigour. And so, after a while, the guidance of the business falls into
the hands of people with less energy and less creative genius, if not with less active interest
in its prosperity. If it is turned into a joint-stock company, it may retain the advantages
of division of labour, of specialized skill and machinery: it may even increase them by a
further increase of its capital; and under favourable conditions it may secure a permanent
and prominent place in the work of production. But it is likely to have lost so much of its
elasticity and progressive force, that the advantages are no longer exclusively on its side in
its competition with younger and smaller rivals.
When therefore we are considering the broad results which the growth of wealth and
population exert on the economies of production, the general character of our conclusions is
not very much affected by the facts that many of these economies depend directly on the size
of the individual establishments engaged in the production, and that in almost every trade
there is a constant rise and fall of large businesses, at any one moment some firms being in
the ascending phase and others in the descending. For in times of average prosperity decay
in one direction is sure to be more than balanced by growth in another.
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532 The Marginal Revolution
Meanwhile an increase in the aggregate scale of production of course increases those
economies, which do not directly depend on the size of individual houses of business. The
most important of these result from the growth of correlated branches of industry which
mutually assist one another, perhaps being concentrated in the same localities, but anyhow
availing themselves of the modern facilities for communication offered by steam transport,
by the telegraph and by the printing-press. The economies arising from such sources as this,
which are accessible to any branch of production, do not depend exclusively upon its own
growth: but yet they are sure to grow rapidly and steadily with that growth; and they are sure
to dwindle in some, though not in all respects, if it decays.
§ 2. These results will be of great importance when we come to discuss the causes which
govern the supply price of a commodity. We shall have to analyse carefully the normal cost
of producing a commodity, relatively to a given aggregate volume of production; and for this
purpose we shall have to study the expenses of a representative producer for that aggregate
volume. On the one hand we shall not want to select some new producer just struggling into
business, who works under many disadvantages, and has to be content for a time with little or
no profits, but who is satisfied with the fact that he is establishing a connection and taking the
first steps towards building up a successful business; nor on the other hand shall we want to
take a firm which by exceptionally long-sustained ability and good fortune has got together a
vast business, and huge well-ordered workshops that give it a superiority over almost all its
rivals. But our representative firm must be one which has had a fairly long life, and fair success,
which is managed with normal ability, and which has normal access to the economies,
external and internal, which belong to that aggregate volume of production; account being
taken of the class of goods produced, the conditions of marketing them and the economic
environment generally.
Thus a representative firm is in a sense an average firm. But there are many ways in which
the term “average” might be interpreted in connection with a business. And a Representative
firm is that particular sort of average firm, at which we need to look in order to see how far
the economies, internal and external, of production on a large scale have extended generally
in the industry and country in question. We cannot see this by looking at one or two
firms taken at random: but we can see it fairly well by selecting, after a broad survey, a firm,
whether in private or joint-stock management (or better still, more than one), that represents,
to the best of our judgment, this particular average.
The general argument of the present Book shows that an increase in the aggregate
volume of production of anything will generally increase the size, and therefore the internal
economies possessed by such a representative firm; that it will always increase the
external economies to which the firm has access; and thus will enable it to manufacture at
a less proportionate cost of labour and sacrifice than before.
In other words, we say broadly that while the part which nature plays in production shows
a tendency to diminishing return, the part which man plays shows a tendency to increasing
return. The law of increasing return may be worded thus:—An increase of labour and capital
leads generally to improved organization, which increases the efficiency of the work of
labour and capital.
Therefore in those industries which are not engaged in raising raw produce an increase
of labour and capital generally gives a return increased more than in proportion; and further
this improved organization tends to diminish or even override any increased resistance which
nature may offer to raising increased amounts of raw produce. If the actions of the laws
of increasing and diminishing return are balanced we have the law of constant return, and
an increased produce is obtained by labour and sacrifice increased just in proportion.
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For the two tendencies towards increasing and diminishing return press constantly against
one another. In the production of wheat and wool, for instance, the latter tendency has almost
exclusive sway in an old country, which cannot import freely. In turning the wheat into flour,
or the wool into blankets, an increase in the aggregate volume of production brings some new
economies, but not many; for the trades of grinding wheat and making blankets are already on
so great a scale that any new economies that they may attain are more likely to be the result of
new inventions than of improved organization. In a country however in which the blanket trade
is but slightly developed, these latter may be important; and then it may happen that an increase
in the aggregate production of blankets diminishes the proportionate difficulty of manufacturing
by just as much as it increases that of raising the raw material. In that case the actions of
the laws of diminishing and of increasing return would just neutralize one another; and blankets
would conform to the law of constant return. But in most of the more delicate branches
of manufacturing, where the cost of raw material counts for little, and in most of the modern
transport industries the law of increasing return acts almost unopposed.
Increasing Return is a relation between a quantity of effort and sacrifice on the one hand,
and a quantity of product on the other. The quantities cannot be taken out exactly, because
changing methods of production call for machinery, and for unskilled and skilled labour of
new kinds and in new proportions. But, taking a broad view, we may perhaps say vaguely
that the output of a certain amount of labour and capital in an industry has increased by
perhaps a quarter or a third in the last twenty years. To measure outlay and output in terms
of money is a tempting, but a dangerous resource: for a comparison of money outlay with
money returns is apt to slide into an estimate of the rate of profit on capital.
§ 3. We may now sum up provisionally the relations of industrial expansion to social wellbeing.
A rapid growth of population has often been accompanied by unhealthy and enervating
habits of life in overcrowded towns. And sometimes it has started badly, out-running the
material resources of the people, causing them with imperfect appliances to make excessive
demands on the soil; and so to call forth the stern action of the law of diminishing return as
regards raw produce, without having the power of minimizing its effects. Having thus begun
with poverty, an increase in numbers may go on to its too frequent consequences in that
weakness of character which unfits a people for developing a highly organized industry.
These are serious perils: but yet it remains true that the collective efficiency of a people
with a given average of individual strength and energy may increase more than in proportion
to their numbers. If they can for a time escape from the pressure of the law of diminishing
return by importing food and other raw produce on easy terms; if their wealth is not consumed
in great wars, and increases at least as fast as their numbers; and if they avoid habits
of life that would enfeeble them; then every increase in their numbers is likely for the time
to be accompanied by a more than proportionate increase in their power of obtaining material
goods. For it enables them to secure the many various economies of specialized skill
and specialized machinery, of localized industries and production on a large scale: it enables
them to have increased facilities of communication of all kinds; while the very closeness
of their neighbourhood diminishes the expense of time and effort involved in every sort of
traffic between them, and gives them new opportunities of getting social enjoyments and the
comforts and luxuries of culture in every form. No doubt deduction must be made for
the growing difficulty of finding solitude and quiet and even fresh air: but there is in most
cases some balance of good.
Taking account of the fact that an increasing density of population generally brings with
it access to new social enjoyments we may give a rather broader scope to this statement and
say:—An increase of population accompanied by an equal increase in the material sources
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534 The Marginal Revolution
of enjoyment and aids to production is likely to lead to a more than proportionate increase in
the aggregate income of enjoyment of all kinds; provided firstly, an adequate supply of raw
produce can be obtained without great difficulty, and secondly there is no such overcrowding
as causes physical and moral vigour to be impaired by the want of fresh air and light and of
healthy and joyous recreation for the young.
The accumulated wealth of civilized countries is at present growing faster than the population:
and though it may be true that the wealth per head would increase somewhat faster if
the population did not increase quite so fast; yet as a matter of fact an increase of population
is likely to continue to be accompanied by a more than proportionate increase of the material
aids to production: and in England at the present time, with easy access to abundant
foreign supplies of raw material, an increase of population is accompanied by a more than
proportionate increase of the means of satisfying human wants other than the need for light,
fresh air, etc. Much of this increase is however attributable not to the increase of industrial
efficiency but to the increase of wealth by which it is accompanied: and therefore it does not
necessarily benefit those who have no share in that wealth. And further, England’s foreign
supplies of raw produce may at any time be checked by changes in the trade regulations
of other countries, and may be almost cut off by a great war, while the naval and military
expenditure which would be necessary to make the country fairly secure against this last
risk, would appreciably diminish the benefits that she derives from the action of the law of
increasing return.
Book V
Chapter III: Equilibrium of Normal Demand and Supply
§ 1. WE have next to inquire what causes govern supply prices, that is prices which dealers
are willing to accept for different amounts. In the last chapter we looked at the affairs of only
a single day; and supposed the stocks offered for sale to be already in existence. But of course
these stocks are dependent on the amount of wheat sown in the preceding year; and that, in its
turn, was largely influenced by the farmers’ guesses as to the price which they would get for
it in this year. This is the point at which we have to work in the present chapter.
Even in the corn-exchange of a country town on a market-day the equilibrium price is
affected by calculations of the future relations of production and consumption; while in the
leading corn-markets of America and Europe dealings for future delivery already predominate
and are rapidly weaving into one web all the leading threads of trade in corn throughout
the whole world. Some of these dealings in “futures” are but incidents in speculative manoeuvres;
but in the main they are governed by calculations of the world’s consumption on the
one hand, and of the existing stocks and coming harvests in the Northern and Southern
hemispheres on the other. Dealers take account of the areas sown with each kind of grain, of
the forwardness and weight of the crops, of the supply of things which can be used as substitutes
for grain, and of the things for which grain can be used as a substitute. Thus, when
buying or selling barley, they take account of the supplies of such things as sugar, which can
be used as substitutes for it in brewing, and again of all the various feeding stuffs, a scarcity
of which might raise the value of barley for consumption on the farm. If it is thought that
the growers of any kind of grain in any part of the world have been losing money, and are
likely to sow a less area for a future harvest; it is argued that prices are likely to rise as soon
as that harvest comes into sight, and its shortness is manifest to all. Anticipations of that rise
exercise an influence on present sales for future delivery, and that in its turn influences cash
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prices; so that these prices are indirectly affected by estimates of the expenses of producing
further supplies.
But in this and the following chapters we are specially concerned with movements of
prices ranging over still longer periods than those for which the most far-sighted dealers in
futures generally make their reckoning: we have to consider the volume of production adjusting
itself to the conditions of the market, and the normal price being thus determined at the
position of stable equilibrium of normal demand and normal supply.
§ 2. In this discussion we shall have to make frequent use of the terms cost and expenses of
production; and some provisional account of them must be given before proceeding further.
We may revert to the analogy between the supply price and the demand price of a commodity.
Assuming for the moment that the efficiency of production depends solely upon the
exertions of the workers, we saw that “the price required to call forth the exertion necessary
for producing any given amount of a commodity may be called the supply price for that
amount, with reference of course to a given unit of time.” But now we have to take account
of the fact that the production of a commodity generally requires many different kinds of
labour and the use of capital in many forms. The exertions of all the different kinds of labour
that are directly or indirectly involved in making it; together with the abstinences or rather
the waitings required for saving the capital used in making it: all these efforts and sacrifices
together will be called the real cost of production of the commodity. The sums of money that
have to be paid for these efforts and sacrifices will be called either its money cost of production,
or, for shortness, its expenses of production; they are the prices which have to be paid in
order to call forth an adequate supply of the efforts and waitings that are required for making
it; or, in other words, they are its supply price.
The analysis of the expenses of production of a commodity might be carried backward to
any length; but it is seldom worth while to go back very far. It is for instance often sufficient
to take the supply price of the different kinds of raw materials used in any manufacture as
ultimate facts, without analysing these supply prices into the several elements of which they
are composed; otherwise indeed the analysis would never end. We may then arrange the
things that are required for making a commodity into whatever groups are convenient, and
call them its factors of production. Its expenses of production when any given amount of it is
produced are thus the supply prices of the corresponding quantities of its factors of production.
And the sum of these is the supply price of that amount of the commodity.
§ 3. The typical modern market is often regarded as that in which manufacturers sell
goods to wholesale dealers at prices into which but few trading expenses enter. But taking a
broader view, we may consider that the supply price of a commodity is the price at which it
will be delivered for sale to that group of persons whose demand for it we are considering;
or, in other words, in the market which we have in view. On the character of that market will
depend how many trading expenses have to be reckoned to make up the supply price. For
instance, the supply price of wood in the neighbourhood of Canadian forests often consists
almost exclusively of the price of the labour of lumber men: but the supply price of the same
wood in the wholesale London market consists in a large measure of freights: while its supply
price to a small retail buyer in an English country town is more than half made up of
the charges of the railways and middlemen who have brought what he wants to his doors,
and keep a stock of it ready for him. Again, the supply price of a certain kind of labour may
for some purposes be divided up into the expenses of rearing, of general education and of
special trade education. The possible combinations are numberless; and though each may
have incidents of its own which will require separate treatment in the complete solution of
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536 The Marginal Revolution
any problem connected with it, yet all such incidents may be ignored, so far as the general
reasonings of this Book are concerned.
In calculating the expenses of production of a commodity we must take account of the
fact that changes in the amounts produced are likely, even when there is no new invention,
to be accompanied by changes in the relative quantities of its several factors of production.
For instance, when the scale of production increases, horse or steam power is likely to be
substituted for manual labour; materials are likely to be brought from a greater distance and
in greater quantities, thus increasing those expenses of production which correspond to the
work of carriers, middlemen and traders of all kinds.
As far as the knowledge and business enterprise of the producers reach, they in each case
choose those factors of production which are best for their purpose; the sum of the supply
prices of those factors which are used is, as a rule, less than the sum of the supply prices of
any other set of factors which could be substituted for them; and whenever it appears to the
producers that this is not the case, they will, as a rule, set to work to substitute the less expensive
method. And further on we shall see how in a somewhat similar way society substitutes
one undertaker for another who is less efficient in proportion to his charges. We may call this,
for convenience of reference, The principle of substitution.
The applications of this principle extend over almost every field of economic inquiry.
§ 4. The position then is this: we are investigating the equilibrium of normal demand and
normal supply in their most general form; we are neglecting those features which are special
to particular parts of economic science, and are confining our attention to those broad relations
which are common to nearly the whole of it. Thus we assume that the forces of demand
and supply have free play; that there is no close combination among dealers on either side,
but each acts for himself, and there is much free competition; that is, buyers generally compete
freely with buyers, and sellers compete freely with sellers. But though everyone acts
for himself, his knowledge of what others are doing is supposed to be generally sufficient
to prevent him from taking a lower or paying a higher price than others are doing. This is
assumed provisionally to be true both of finished goods and of their factors of production, of
the hire of labour and of the borrowing of capital. We have already inquired to some extent,
and we shall have to inquire further, how far these assumptions are in accordance with the
actual facts of life. But meanwhile this is the supposition on which we proceed; we assume
that there is only one price in the market at one and the same time; it being understood that
separate allowance is made, when necessary, for differences in the expense of delivering
goods to dealers in different parts of the market; including allowance for the special expenses
of retailing, if it is a retail market.
In such a market there is a demand price for each amount of the commodity, that is, a
price at which each particular amount of the commodity can find purchasers in a day or
week or year. The circumstances which govern this price for any given amount of the commodity
vary in character from one problem to another; but in every case the more of a thing
is offered for sale in a market the lower is the price at which it will find purchasers; or in
other words, the demand price for each bushel or yard diminishes with every increase in the
amount offered.
The unit of time may be chosen according to the circumstances of each particular problem:
it may be a day, a month, a year, or even a generation: but in every case it must be
short relatively to the period of the market under discussion. It is to be assumed that the
general circumstances of the market remain unchanged throughout this period; that there is,
for instance, no change in fashion or taste, no new substitute which might affect the demand,
no new invention to disturb the supply.
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The conditions of normal supply are less definite; and a full study of them must be reserved
for later chapters. They will be found to vary in detail with the length of the period of time
to which the investigation refers; chiefly because both the material capital of machinery and
other business plant, and the immaterial capital of business skill and ability and organization,
are of slow growth and slow decay.
Let us call to mind the “representative firm,” whose economies of production, internal
and external, are dependent on the aggregate volume of production of the commodity that
it makes; and, postponing all further study of the nature of this dependence, let us assume
that the normal supply price of any amount of that commodity may be taken to be its normal
expenses of production (including gross earnings of managements) by that firm. That is, let us
assume that this is the price the expectation of which will just suffice to maintain the existing
aggregate amount of production; some firms meanwhile rising and increasing their output,
and others falling and diminishing theirs; but the aggregate production remaining unchanged.
A price higher than this would increase the growth of the rising firms, and slacken, though
it might not arrest, the decay of the falling firms; with the net result of an increase in the
aggregate production. On the other hand, a price lower than this would hasten the decay of
the falling firms, and slacken the growth of the rising firms; and on the whole diminish production:
and a rise or fall of price would affect in like manner though perhaps not in an equal
degree those great joint-stock companies which often stagnate, but seldom die.
§ 5. To give definiteness to our ideas let us take an illustration from the woollen trade.
Let us suppose that a person well acquainted with the woollen trade sets himself to inquire
what would be the normal supply price of a certain number of millions of yards annually of
a particular kind of cloth. He would have to reckon (i) the price of the wool, coal, and other
materials which would be used up in making it, (ii) wear-and-tear and depreciation of the
buildings, machinery and other fixed capital, (iii) interest and insurance on all the capital,
(iv) the wages of those who work in the factories, and (v) the gross earnings of management
(including insurance against loss), of those who undertake the risks, who engineer and
superintend the working. He would of course estimate the supply prices of all these different
factors of production of the cloth with reference to the amounts of each of them that would be
wanted, and on the supposition that the conditions of supply would be normal; and he would
add them all together to find the supply price of the cloth. Let us suppose a list of supply prices
(or a supply schedule) made on a similar plan to that of our list of demand prices: the supply
price of each amount of the commodity in a year, or any other unit of time, being written
against that amount. As the flow, or (annual) amount of the commodity increases, the supply
price may either increase or diminish; or it may even alternately increase and diminish. For
if nature is offering a sturdy resistance to man’s efforts to wring from her a larger supply of
raw material, while at that particular stage there is no great room for introducing important
new economies into the manufacture, the supply price will rise; but if the volume of production
were greater, it would perhaps be profitable to substitute largely machine work for hand
work and steam power for muscular force; and the increase in the volume of production
would have diminished the expenses of production of the commodity of our representative
firm. But those cases in which the supply price falls as the amount increases involve special
difficulties of their own; and they are postponed to Chapter XII of this Book.
§ 6. When therefore the amount produced (in a unit of time) is such that the demand price
is greater than the supply price, then sellers receive more than is sufficient to make it worth
their while to bring goods to market to that amount; and there is at work an active force tending
to increase the amount brought forward for sale. On the other hand, when the amount
produced is such that the demand price is less than the supply price, sellers receive less than
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538 The Marginal Revolution
is sufficient to make it worth their while to bring goods to market on that scale; so that those
who were just on the margin of doubt as to whether to go on producing are decided not to
do so, and there is an active force at work tending to diminish the amount brought forward
for sale. When the demand price is equal to the supply price, the amount produced has no
tendency either to be increased or to be diminished; it is in equilibrium. When demand and
supply are in equilibrium, the amount of the commodity which is being produced in a unit
of time may be called the equilibrium-amount, and the price at which it is being sold may be
called the equilibrium-price.
Such an equilibrium is stable; that is, the price, if displaced a little from it, will tend to
return, as a pendulum oscillates about its lowest point; and it will be found to be a characteristic
of stable equilibria that in them the demand price is greater than the supply price for
amounts just less than the equilibrium amount, and vice versa. For when the demand price is
greater than the supply price, the amount produced tends to increase. Therefore, if the demand
price is greater than the supply price for amounts just less than an equilibrium amount; then, if
the scale of production is temporarily diminished somewhat below that equilibrium amount,
it will tend to return; thus the equilibrium is stable for displacements in that direction. If
the demand price is greater than the supply price for amounts just less than the equilibrium
amount, it is sure to be less than the supply price for amounts just greater: and therefore, if
the scale of production is somewhat increased beyond the equilibrium position, it will tend to
return; and the equilibrium will be stable for displacements in that direction also.
When demand and supply are in stable equilibrium, if any accident should move the scale
of production from its equilibrium position, there will be instantly brought into play forces
tending to push it back to that position; just as, if a stone hanging by a string is displaced from
its equilibrium position, the force of gravity will at once tend to bring it back to its equilibrium
position. The movements of the scale of production about its position of equilibrium
will be of a somewhat similar kind.1
But in real life such oscillations are seldom as rhythmical as those of a stone hanging
freely from a string; the comparison would be more exact if the string were supposed to
hang in the troubled waters of a mill-race, whose stream was at one time allowed to flow
freely, and at another partially cut off. Nor are these complexities sufficient to illustrate all
the disturbances with which the economist and the merchant alike are forced to concern
themselves. If the person holding the string swings his hand with movements partly rhythmical
and partly arbitrary, the illustration will not outrun the difficulties of some very real and
practical problems of value. For indeed the demand and supply schedules do not in practice
remain unchanged for a long time together, but are constantly being changed; and every
change in them alters the equilibrium amount and the equilibrium price, and thus gives new
positions to the centres about which the amount and the price tend to oscillate.
These considerations point to the great importance of the element of time in relation to
demand and supply, to the study of which we now proceed. We shall gradually discover a
great many different limitations of the doctrine that the price at which a thing can be produced
represents its real cost of production, that is, the efforts and sacrifices which have been directly
devoted to its production. For, in an age of rapid change such as this, the equilibrium of normal
demand and supply does not thus correspond to any distinct relation of a certain aggregate of
pleasures got from the consumption of the commodity and an aggregate of efforts and sacrifices
involved in producing it: the correspondence would not be exact, even if normal earnings
and interest were exact measures of the efforts and sacrifices for which they are the money payments.
This is the real drift of that much quoted, and much-misunderstood doctrine of Adam
Smith and other economists that the normal, or “natural,” value of a commodity is that which
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economic forces tend to bring about in the long run. It is the average value which economic
forces would bring about if the general conditions of life were stationary for a run of time long
enough to enable them all to work out their full effect.
But we cannot foresee the future perfectly. The unexpected may happen; and the existing
tendencies may be modified before they have had time to accomplish what appears now to
be their full and complete work. The fact that the general conditions of life are not stationary
is the source of many of the difficulties that are met with in applying economic doctrines
to practical problems. Of course Normal does not mean Competitive. Market prices and
Normal prices are alike brought about by a multitude of influences, of which some rest on a
moral basis and some on a physical; of which some are competitive and some are not. It is to
the persistence of the influences considered, and the time allowed for them to work out their
effects that we refer when contrasting Market and Normal price, and again when contrasting
the narrower and the broader use of the term Normal price.
§ 7. The remainder of the present volume will be chiefly occupied with interpreting and
limiting this doctrine that the value of a thing tends in the long run to correspond to its cost
of production. In particular the notion of equilibrium, which has been treated rather slightly
in this chapter, will be studied more carefully in chapters V and XII of this Book: and some
account of the controversy whether “cost of production” or “utility” governs value will be
given in Appendix I. But it may be well to say a word or two here on this last point.
We might as reasonably dispute whether it is the upper or the under blade of a pair of scissors
that cuts a piece of paper, as whether value is governed by utility or cost of production.
It is true that when one blade is held still, and the cutting is effected by moving the other, we
may say with careless brevity that the cutting is done by the second; but the statement is not
strictly accurate, and is to be excused only so long as it claims to be merely a popular and not
a strictly scientific account of what happens.
In the same way, when a thing already made has to be sold, the price which people will be
willing to pay for it will be governed by their desire to have it, together with the amount they
can afford to spend on it. Their desire to have it depends partly on the chance that, if
they do not buy it, they will be able to get another thing like it at as low a price: this depends
on the causes that govern the supply of it, and this again upon cost of production. But it may
so happen that the stock to be sold is practically fixed. This, for instance, is the case with a
fish market, in which the value of fish for the day is governed almost exclusively by the stock
on the slabs in relation to the demand: and if a person chooses to take the stock for granted,
and say that the price is governed by demand, his brevity may perhaps be excused so long as
he does not claim strict accuracy. So again it may be pardonable, but it is not strictly accurate
to say that the varying prices which the same rare book fetches, when sold and resold at
Christie’s auction room, are governed exclusively by demand.
Taking a case at the opposite extreme, we find some commodities which conform pretty
closely to the law of constant return; that is to say, their average cost of production will be
very nearly the same whether they are produced in small quantities or in large. In such a
case the normal level about which the market price fluctuates will be this definite and fixed
(money) cost of production. If the demand happens to be great, the market price will rise for
a time above the level; but as a result production will increase and the market price will fall:
and conversely, if the demand falls for a time below its ordinary level.
In such a case, if a person chooses to neglect market fluctuations, and to take it for granted
that there will anyhow be enough demand for the commodity to insure that some of it, more
or less, will find purchasers at a price equal to this cost of production, then he may be
excused for ignoring the influence of demand, and speaking of (normal) price as governed
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540 The Marginal Revolution
by cost of production—provided only he does not claim scientific accuracy for the wording
of his doctrine, and explains the influence of demand in its right place.
Thus we may conclude that, as a general rule, the shorter the period which we are considering,
the greater must be the share of our attention which is given to the influence of demand on
value; and the longer the period, the more important will be the influence of cost of production
on value. For the influence of changes in cost of production takes as a rule a longer time to work
itself out than does the influences of changes in demand. The actual value at any time, the market
value as it is often called, is often more influenced by passing events and by causes whose
action is fitful and short lived, than by those which work persistently. But in long periods these
fitful and irregular causes in large measure efface one another’s influence; so that in the long
run persistent causes dominate value completely. Even the most persistent causes are however
liable to change. For the whole structure of production is modified, and the relative costs of
production of different things are permanently altered, from one generation to another.
When considering costs from the point of view of the capitalist employer, we of course
measure them in money; because his direct concern with the efforts needed for the work of
his employees lies in the money payments he must make. His concern with the real costs
of their effort and of the training required for it is only indirect, though a monetary assessment
of his own labour is necessary for some problems, as will be seen later on. But when
considering costs from the social point of view, when inquiring whether the cost of attaining
a given result is increasing or diminishing with changing economic conditions, then we are
concerned with the real costs of efforts of various qualities, and with the real cost of waiting.
If the purchasing power of money, in terms of effort has remained about constant, and if the
rate of remuneration for waiting has remained about constant, then the money measure of
costs corresponds to the real costs: but such a correspondence is never to be assumed lightly.
These considerations will generally suffice for the interpretation of the term Cost in what
follows, even where no distinct indication is given in the context.
Chapter V: Equilibrium of Normal Demand and Supply, Continued, with
Reference to Long and Short Periods
§ 1. THE variations in the scope of the term Normal, according as the periods of time under
discussion are long or short, were indicated in Chapter III. We are now ready to study them
more closely.
In this case, as in others, the economist merely brings to light difficulties that are latent in
the common discourse of life, so that by being frankly faced they may be thoroughly overcome.
For in ordinary life it is customary to use the word Normal in different senses, with
reference to different periods of time; and to leave the context to explain the transition from
one to another. The economist follows this practice of every-day life: but, by taking pains to
indicate the transition, he sometimes seems to have created a complication which in fact he
has only revealed.
Thus, when it is said that the price of wool on a certain day was abnormally high though
the average price for the year was abnormally low, that the wages of coal-miners were
abnormally high in 1872 and abnormally low in 1879, that the (real) wages of labour
were abnormally high at the end of the fourteenth century and abnormally low in the middle
of the sixteenth; everyone understands that the scope of the term normal is not the same in
these various cases.
The best illustrations of this come from manufactures where the plant is long-lived, and
the product is short-lived. When a new textile fabric is first introduced into favour, and there
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is very little plant suitable for making it, its normal price for some months may be twice as
high as those of other fabrics which are not less difficult to make, but for making which there
is an abundant stock of suitable plant and skill. Looking at long periods we may say that its
normal price is on a par with that of the others: but if during the first few months a good
deal of it were offered for sale in a bankrupt’s stock we might say that its price was abnormally
low even when it was selling for half as much again as the others. Everyone takes the
context as indicating the special use of the term in each several case; and a formal interpretation
clause is seldom necessary, because in ordinary conversation misunderstandings can be
nipped in the bud by question and answer. But let us look at this matter more closely.
We have noticed how a cloth manufacturer would need to calculate the expenses of producing
all the different things required for making cloth with reference to the amounts of
each of them that would be wanted; and on the supposition in the first instance that the conditions
of supply would be normal. But we have yet to take account of the fact that he must give
to this term a wider or narrower range, according as he was looking more or less far ahead.
Thus in estimating the wages required to call forth an adequate supply of labour to work
a certain class of looms, he might take the current wages of similar work in the neighbourhood:
or he might argue that there was a scarcity of that particular class of labour in the
neighbourhood, that its current wages there were higher than in other parts of England, and
that looking forward over several years so as to allow for immigration, he might take the
normal rate of wages at a rather lower rate than that prevailing there at the time. Or lastly, he
might think that the wages of weavers all over the country were abnormally low relatively
to others of the same grade, in consequence of a too sanguine view having been taken of the
prospects of the trade half a generation ago. He might argue that this branch of work was
overcrowded, that parents had already begun to choose other trades for their children which
offered greater net advantages and yet were not more difficult; that in consequence a few
years would see a falling-off in the supply of labour suited for his purpose; so that looking
forward a long time he must take normal wages at a rate higher than the present average.
Again, in estimating the normal supply price of wool, he would take the average of several
past years. He would make allowance for any change that would be likely to affect the supply
in the immediate future; and he would reckon for the effect of such droughts as from time to
time occur in Australia and elsewhere; since their occurrence is too common to be regarded
as abnormal. But he would not allow here for the chance of our being involved in a great war,
by which the Australian supplies might be cut off; he would consider that any allowance for
this should come under the head of extraordinary trade risks, and not enter into his estimate
of the normal supply price of wool.
He would deal in the same way with the risk of civil tumult or any violent and longcontinued
disturbance of the labour market of an unusual character; but in his estimate of
the amount of work that could be got out of the machinery, etc. under normal conditions, he
would probably reckon for minor interruptions from trade disputes such as are continually
occurring, and are therefore to be regarded as belonging to the regular course of events, that
is as not abnormal.
In all these calculations he would not concern himself specially to inquire how far mankind
are under the exclusive influence of selfish or self-regarding motives. He might be
aware that anger and vanity, jealousy and offended dignity are still almost as common causes
of strikes and lockouts, as the desire for pecuniary gain: but that would not enter into his
calculations. All that he would want to know about them would be whether they acted with
sufficient regularity for him to be able to make a reasonably good allowance for their influence
in interrupting work and raising the normal supply price of the goods.
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542 The Marginal Revolution
§ 2. The element of time is a chief cause of those difficulties in economic investigations
which make it necessary for man with his limited powers to go step by step; breaking up a
complex question, studying one bit at a time, and at last combining his partial solutions into
a more or less complete solution of the whole riddle. In breaking it up, he segregates those
disturbing causes, whose wanderings happen to be inconvenient, for the time in a pound
called Cæteris Paribus. The study of some group of tendencies is isolated by the assumption
other things being equal: the existence of other tendencies is not denied, but their disturbing
effect is neglected for a time. The more the issue is thus narrowed, the more exactly can it be
handled: but also the less closely does it correspond to real life. Each exact and firm handling
of a narrow issue, however, helps towards treating broader issues, in which that narrow issue
is contained, more exactly than would otherwise have been possible. With each step more
things can be let out of the pound; exact discussions can be made less abstract, realistic discussions
can be made less inexact than was possible at an earlier stage.
Our first step towards studying the influences exerted by the element of time on the relations
between cost of production and value may well be to consider the famous fiction of the
“Stationary state” in which those influences would be but little felt; and to contrast the results
which would be found there with those in the modern world.
This state obtains its name from the fact that in it the general conditions of production and
consumption, of distribution and exchange remain motionless; but yet it is full of movement;
for it is a mode of life. The average age of the population may be stationary; though each
individual is growing up from youth towards his prime, or downwards to old age. And the
same amount of things per head of the population will have been produced in the same ways
by the same classes of people for many generations together; and therefore this supply of the
appliances for production will have had full time to be adjusted to the steady demand.
Of course we might assume that in our stationary state every business remained always of
the same size, and with the same trade connection. But we need not go so far as that; it will
suffice to suppose that firms rise and fall, but that the “representative” firm remains always
of about the same size, as does the representative tree of a virgin forest, and that therefore
the economies resulting from its own resources are constant: and since the aggregate volume
of production is constant, so also are those economies resulting from subsidiary industries in
the neighbourhood, etc. [That is, its internal and external economies are both constant. The
price, the expectation of which just induced persons to enter the trade, must be sufficient to
cover in the long run the cost of building up a trade connection; and a proportionate share of
it must be added in to make up the total cost of production.]
In a stationary state then the plain rule would be that cost of production governs value.
Each effect would be attributable mainly to one cause; there would not be much complex
action and reaction between cause and effect. Each element of cost would be governed by
“natural” laws, subject to some control from fixed custom. There would be no reflex influence
of demand; no fundamental difference between the immediate and the later effects of
economic causes. There would be no distinction between long-period and short-period normal
value, at all events if we supposed that in that monotonous world the harvests themselves
were uniform: for the representative firm being always of the same size, and always doing
the same class of business to the same extent and in the same way, with no slack times, and
no specially busy times, its normal expenses by which the normal supply price is governed
would be always the same. The demand lists of prices would always be the same, and so
would the supply lists; and normal price would never vary.
But nothing of this is true in the world in which we live. Here every economic force is
constantly changing its action, under the influence of other forces which are acting around it.
The History of Economic Thought : A Reader; Second Edition, edited by Warren J. Samuels, and Steven G. Medema, Taylor & Francis Group,
2013. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/merrimack/detail.action?docID=1207547.
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