C. Structure of Modern Industrial Society

4. THE SYSTEM OF INDIVIDUAL EXCHANGE

CO-OPERATION'

It is easy to imagine an economic order wherein each person produces the very things which he consumes-bakes the bread he eats from flour he has ground from wheat he has raised. Such an order might be called an autonomous economic order. But the actual system is far different. Most of the goods which each of us consumes are, speaking literally, produced by others, while most of those which each produces are consumed by others. In short, the present order is not autonomous, but co-operative. Herein is the most important single characteristic of that order.

The second important fact about our present system is to be found in the peculiar way in which our co-operation is effected, brought about. When the word co-operation is used, the first thought suggested is that of a system in which we act together as the result of an agreement entered into, or of authority exercised over us by some outside power. Thus, people co-operate in getting up a church supper or a picnic, through agreement. On the other hand, in the family we have a co-operation which is brought about by the authority of one or both of the parents. Such co-operation is conscious, organized. This type is present in communistic societies, many of which have existed in the United States, e.g., the Shakers, Oneida, Amana. In contrast with such conscious, organized co-operation, that of the present order is largely spontaneous, unconscious, organic. Each man produces some commodity or service and exchanges it for the commodities or services of his neighbors. In doing this he and they really co-operate, but they are scarcely conscious that this is true. The fact just brought out is expressed by saying that our co-operation in the present order is effected, brought about, through exchange. And accordingly we denominate that order as one of exchange cooperation.

But there is another reason for calling this order one of exchange co-operation. It is pretty clear that, if we have any co-operation at all, there must be some way of regulating that co-operation. We need more of some things than of others. We need certain things so much that it will pay us to have them even at the cost of going without

Adapted by permission from F. M. Taylor, Principles of Economics, pp. 9-13. (University of Michigan, 1916.)

some other things altogether. Unless there is some guiding, directing machinery, we shall be wasting our resources producing the wrong things, or the right things in the wrong proportion. Now, in some kinds of co-operation this regulating is done, or would be done, by authority. This is the case within the family. How much time the farmer's boy shall put in weeding the garden, how much splitting wood, how much picking up stones, and so on, the farmer determines by authority; and such a system prevails in the main in the communistic societies to which reference has already been made. But throughout most of the present order our co-operation is regulated by the same machinery of exchange which effects that co-operation, and in the same spontaneous way. If too little of anything is produced, prices rise or the market expands, profits increase, and so producers of their own motion increase output; if, on the other hand, too much of anything is produced, prices fall or the market contracts, profits diminish, and so producers of their own motion diminish output. Again, if the output of some commodity during a particular year is exceptionally small, so that consumption all along the line needs to be curtailed, this is usually accomplished, not by the interposition of the public authorities, but by an automatic rising of price which induces almost everyone to cut down consumption of his own motion. So, in various other ways, exchange regulates our co-operation.

The next most important characteristic of the present order is individual initiative. It is quite possible to conceive a system of co-operation which, in part at least, is effected and regulated by exchange, but in which initiative is left to society as a whole, government. This would be the case under socialism as it is commonly advocated. In such a system the state would be the sole farmer, miner, manufacturer, merchant, et al., i.e., the state alone would undertake to produce things, putting all individuals into the position of employees. But it would enter into relations with these individuals under the conditions of free contract, buying their services in the open market. Further, it might, probably would, pay for these services prices determined under the free working of the laws of value. So, in determining what, and how much, should be produced, it would probably be guided by the fluctuations of freely determined prices. (For example, if the price of some particular thing went down, the government would take this as a warning to diminish the production of that thing.) But while such a system would, like the present, be a system of exchange co-operation, it would differ radically in leaving all

initiative to the state; whereas, in the present order, initiative is mostly, though not entirely, the business of the individual-persons who have the means and think they see a chance to obtain profits set about producing wheat or iron or chairs or what not. Accordingly, to give something like a complete characterization of the present order in its most general features we have to say that it is a system of individual exchange co-operation.

The preceding discussion has laid much stress upon the fact that the existing order is co-operative. In thus characterizing that order we almost necessarily say that it is one wherein specialization prevails, i.e., one in which different persons devote themselves to doing different things-one man makes shoes, another clothes, another bread, and so on. Doubtless there are occasions when homogeneous cooperation, i.e., co-operation of persons doing the same sort of things, is of decided advantage, e.g., a barn raising; but co-operation would have very slight significance compared with what it now has did it not also prevail in the form of heterogeneous co-operation, i.e., a cooperation in which the different participants do different things. Further, the successful workings of heterogeneous co-operation would require that the differentiation of tasks should be more or less permanent-each one should make a practice of doing one sort of thing only. That is, we should have to have thoroughgoing specialization. And of course this is what we do have in the present order. Each devotes himself to doing one sort of things, acquiring in this way extraordinary skill and efficiency. Further, the same rule of specialization is applied to the instruments used in production, the tools and machines, till more and more each is fitted for one very small job. Finally, the same idea is carried out with respect to land-one district being devoted to celery, another to onions, another to citrous fruits, and so on.

5. HOW THE INDUSTRIAL SYSTEM WORKS1

Let it be assumed, as the starting-point in the inquiry, that we have a community in which the money régime has reached its complete development. Let it be supposed that the division of labor, with its results as to exchange, sale, and money, has been carried so far that no one consumes any of the things he produces. Every article produced comes to market and is sold. It follows that the total product or output of the community is sold for money. It follows, also,

Adapted by permission from F. W. Taussig, "The Employer's Place in Distribution," Quarterly Journal of Economics, X (1895-96), 69–81.

that all income of every sort appears first in the form of a money receipt.

Let us now suppose a simple case, perhaps never to be seen in the actual world, yet largely typical of what goes on in it, and at all events serviceable as a first step towards understanding its complexities. Suppose a capitalist, active in the conduct and management of a productive enterprise, to own all of his plant and to start at the outset with funds sufficient to pay all laborers and to buy all materials until sales are made. Such a capitalist buys for cash and sells for cash, pays laborers out of funds in his own possession, and has his assets always under complete and ready, control. His product, whatever it be, whether an article nearer or farther removed from completion so far as the community's real income is concerned, yields him an available income as soon as sold.

That income he is free to spend as he pleases. He may spend the whole of it for his own immediate pleasure. He may reinvest the whole of it or, rather, may reinvest everything over and above what is necessary for his support and the support of those whom he cherishes as part of himself. If he reinvests, he devotes this gross money income to the purchase of more materials, the enlargement of his plant, the payment of more laborers. If he spends, he devotes it to the purchase of real income, of enjoyable wealth, for himself and for those dependent upon him. The mode in which he shall apportion his money income between these different objects is a matter at his discretion.

Let us now stretch further this supposition of simple conditions. Let it be assumed that all the capitalists of the community are of the sort just described-that there are no idle investors, no bankers or other lenders, and that all buying and selling are for cash. Every active producer owns his own plant and materials, and every shopkeeper and every merchant his stock. All these persons collectively own the capital of the community; meaning the real capital of the community, the inchoate wealth which is to be advanced by successive stages to completion. Further, let it be assumed that all laborers are hired by these capitalists. None work on their own account or sell anything but their labor. None own capital or have any source of present income beyond pay for the labor of the day. They may have some accumulations in present enjoyable form, such as houses, furniture, food in the closet, but these must have been derived from income of the past. Their income for present work comes exclusively as pay from the capitalists.

In such a society, then, the total money income would flow in the first instances entirely into the hands of the capitalist managers. They may spend it all for themselves or invest it all. They may spend only their net income, i.e., the excess over what they must use to keep intact their capital (and so the community's capital), or may spend less than their net income and so cause capital to be added to. All this means simply that the machinery of production at any L given time is arranged for the supply of the habitual and anticipated wants of the community. Each individual capitalist produces the commodities which he has sold before, and which experience leads him to expect to sell again. The pig-iron maker has a reasonable faith that his iron will be bought by the maker of machinery, and he, again, that his machinery will be bought by the person who means to use it in making one product or another. That process of investment and accumulation, by which existing capital is maintained and new capital is added, is thus prepared for and virtually accomplished before the individuals take the steps which for them are decisive, of turning their money income to investment rather than to enjoyment. The producers of luxuries go their way in the same fashion. Some create or maintain machinery for silks and satins, others prepare the raw material, others, finally, buy the products from the manufacturer and arrange them in the shops of the cities, for the expected purchases of the capitalists, who will presumably do as they have done in times past-spend part of their inflowing money receipts for enjoyment. Not least, the makers of the commodities for laborers continue to produce these on the accustomed scale, anticipating the transference of money income by capitalists to laborers, in the course of that continuance of investment of which the purchase of machinery and materials is the other part.

We may now make the conclusions derived from this analysis more closely applicable to real life by introducing the complications which appear in society as it is organized in fact.

No active capitalist is in that position of complete independence which has been assumed-of neither borrowing nor lending, of buying for cash, and of selling for cash. He buys on credit, and thus is under obligations to transfer part of his money income, as it flows in, to his creditors; while those to whom he has sold on credit are under similar obligations to him. As between the direct managers of industry, the obligations which thus fetter each one do not change the case for the mass. Collectively, they are still free and uncontrolled as to the