better land been discovered? Has new and better land-better, considering both fertility and location-been made accessible by the development of a new transportation system? Has new and better land been made available through some change of governmental policy? Was the old land "butchered" in the process of securing the 1917 product? Has the old land been improved by turning back into it some of the 1917 product? Has there been a change with respect to "organization" either with reference to the management function or with reference to the arts and sciences? The issues are issues of fact-mainly of physical fact—and would not be essentially different in any other organization of society.

Will labor be more efficient as a productive force in 1918 than in 1917? That answer also will depend upon many (and similar) factors. Has there been a (net) gain in population, and has that gain been in the portion of the population which is available for labor? Was the original element of the labor force "butchered" in the process of securing the 1917 product? Was a sufficient proportion of the 1917 product turned back into maintaining and developing the labor force with respect to both its mental and its physical equipment? Has improvement or deterioration occurred in methods of organization? ` The issues are again mainly issues of physical fact.

Will capital be more efficient as a productive force in 1918 than in 1917? The same considerations apply. Some of the 1917 capital was destroyed in the process of utilization. This was the fate of "circulating capital," such as raw materials. Most of the remainder deteriorated to a greater or less extent. How has this situation been met? Has new (possibly better) capital been made available? Was a sufficient portion of the 1917 product turned back into capital renewal, replacement, and betterment to enable the community to secure a larger product for the coming years? As far as capital is concerned it can be done in no other way.

It becomes clear that much depends upon the use which is made of the 1917 product. Speaking in general terms, that product may be and is utilized in two ways. Part of it goes to maintaining, replacing, renewing, or increasing the productive energy of the community as manifested in land, labor, and capital. The product so used is "consumed productively," using that term in the broadest sense. Not so for the other part of the product. It is utilized in such a way as not to increase-it may even be so used as to diminish— productive energy, and this is unproductive consumption.

Let us now revise our diagram so as to show the influence of the 1917 product upon that of 1918. The 1917 land, labor, capital, and organization forces, each individually increased or decreased (as the facts may have been in that case) by utilization of the 1917 product, become now the 1918 productive forces, and upon these forces depend the size of the 1918 product. Similar reasoning applies for the later years.

There remain two matters which deserve more detailed consideration. (1) What determines how much of the 1917 product shall be "turned back" into any one of the productive factors-capital, let us say? Why not more? Why not less? Why not into land or labor instead of into capital? Why was not more of the 1917 produce "turned back," via productive consumption, into the productive factors taken collectively? The issue is an important one. Upon its satisfactory solution depends the correct balance of the productive forces of the community and thus the size of the product available for application to human needs. No organization of society can afford to be indifferent to such a problem.

(2) Assuming that we have found the answer to (1), and that we now have a certain total in each of the factors, how is it settled how each of these factors of production shall be apportioned among the various industries of the community? Take capital, for example. How is it determined what portion of the available total shall be turned into industry x as over against industry y, z, etc.? This issue also has weight. If it is not properly met we shall have "too much" of some commodities or services and "too little" of others, with consequences more or less disastrous, according to the magnitude of the error made.

As a method of approach to the solution of these problems, let us picture the case as it might be in a society ruled by an omniscient

benevolent despot. The physical facts and issues would be similar to those stated above. Caring as he would for the welfare of his people, this benevolent despot would be interested in seeing that "the product" was consumed productively; that the productive agents were kept intact or even increased; that the product was "turned back" into the productive agents in the proper proportion; that each agent was apportioned properly among the various industries of the community. Being omniscient-and nothing short of omniscience would suffice-he would know and judge sanely and well the needs of his people and he would know the proper mechanical combination of the factors. Knowing these things, he would order using authority-social energy and products to be applied in the proper way, and, being a despot, he could have his orders carried out. But this assumes omniscience. Suppose we were to have a thoroughgoing socialistic society. What then? The same physical facts would be present and the same problems. know the needs of the people? Knowing these needs, how are they to control and apportion productive energy and products? With reference to learning the needs, various answers may be given. It may be by a statistical bureau. If so, it is worth keeping in mind that this would have to be extensive and expensive. It may be by retaining the money economy and the use of price levels as an index of needs. That is the device of our present society. It may be by arbitrary authority-by control of desires. A drab life of that kind is advocated by but few.

How are they to

Assume that the needs are known, how is the socialistic society to determine what part of its "product" is to be turned back into future productive agents; what proportion of each agent is to go to each given industry, and to what extent one productive factor is to be substituted for another? The omniscient despot could-by assumption-know the answer to these questions. The collectivist community cannot. There are no laws of mechanical engineering at least not yet-which will point out the way, and it cannot be done on the basis of cost accounting-at least of the present kind-for there would be no market and hence no price for producers' goods.

Let us turn to our present society. The answer-none too satisfactory-to the questions propounded is immediately forthcoming. These things are worked out through price. The changing needs of the people are reflected in changing price levels and the resulting shifts in profit margins tempt-not order-owners and controllers

of productive energy to direct this energy into the appropriate channels. What proportion of the "product" is to be turned back to further production is determined by price; note, for example, the function of interest in relation to the increase of capital. Whether it is worth while to turn more of this product back into capital and less into land or labor is also worked out through the price scheme. Price levels and profit margins send productive forces into industry x rather than into industry y, z, etc. Price further determines whether one factor of production shall be substituted for another, and here in the more highly organized businesses cost accounting comes to the rescue with methods of measurement.

Price may or may not be the best means that man will ever develop to solve the problems raised in the apportionment of productive energy. It is the chief means used today.

See also 6. A View of Industrial Society in a State of Equilibrium.

106. THE FORMATION, MAINTENANCE, AND APPORTIONMENT OF CAPITAL GOODS

Let us for the moment think of capital in terms of tools, machinery, raw materials, and other instruments of production. Any organization of society would be interested in utilizing capital as thus defined, for this would mean the harnessing of nature's forces to the use of man. Any society must accordingly face the problems involved in the formation of capital, in its maintenance after being formed, and in its apportionment among the various enterprises of the community.

In a society ruled by an omniscient benevolent despot, the situation would be, by assumption, artificially much simplified. This despot, being omniscient, would know that it was desirable to have capital, for thus he could better gratify the wants of his people. He would also know that this capital would not rain down from heaven, that its formation would be a physical, mechanical process. It would be clear to him that the only procedure open to him would be to direct the present productive energy of his community into the making of capital goods. Of course, a nice problem would exist with reference to how much productive energy should be devoted to the making of capital goods as opposed to the amount that should be devoted to betterment of land, betterment of labor, etc. But, being omniscient,

our despot would understand the mechanical situation involved and would take steps to make the proper apportionment.

After his capital had been formed, suppose that it became desirable for the despot to shift a part of this capital from one industry to another, presumably because of changing desires on the part of his people. Here again he would realize that the process is a physical one. Part of his capital-that which we call free capital-could undoubtedly be physically transferred from the one industry to the other without appreciable sacrifice or loss. Another part could be so transferred with some slight amount of remodeling. This remodeling would, of course, mean directing of some productive energy of the community into that channel. Still another part of his capital would be so highly specialized that even remodeling would be out of the question. Here he must take his choice. If he so desires, he may scrap that capital, and if he does, that amount of social energy has been lost. Unfortunate as that procedure would be, in case of rapid shifting of desires it might be the only course of action open to him. If, however, the desires should change more slowly, he might find another course available. He could continue working his old capital in the old industry, but instead of directing productive energy to be applied to the maintenance of this old capital, he could allow the capital to deteriorate in use depreciate have the community consume its product-a steadily dwindling product and direct his productive energy, not to the maintenance of this old capital, but to the creation of new capital for the new industry.

In a socialistic community the same issues would have to be faced, but it is probably fair to assume that omniscience would be lacking. For any conceivable reason, let our socialistic community decide that it needs more capital. Of course, the sensible reason to assign is that this community has been testing the needs of its people and decides to create more capital in order more fully to gratify these needs. The decision to obtain more capital having been reached, grim physical facts face this community also. The capital will not come by magic. It will come only provided this community directs its present agents of production to the making of capital goods. And it also will have nice problems to adjust with reference to whether these agents should be devoted to the making of capital goods or should be devoted to the improvement of land, to the gratification of the passing wants of its people, or to other purposes.