Capital once having been formed, suppose that it becomes necessary to shift capital from one industry to another under socialism. It will be clear, without the necessity of any argument, that the processes to be gone through with are identical with those pictured in the society of the omniscient benevolent despot.

And what happens in our own society? The same physical facts, with the motive forces operating through the medium of price and gain. Instead of social energy being directed by the authority either of a despot or of a collectivist community, the social energy is now directed into definite channels by the actions of individuals who own or control that energy. And why do they so direct it? Not because they love their fellow-man, but because they anticipate gain. And they anticipate gain, presumably, because the price situation leads them to believe that the desires of the people are turning to this particular field. The process might be called hard names. It might be said that it is a system of bribery. Hard names do not change the essential facts.

Under our present organization why and how is capital shifted from one industry to another? The why is clear enough. It is done in the hope of gain. The how follows the line of reasoning given in the case of the society ruled by the omniscient benevolent despot. Part of the capital may be physically shifted. Part may be remodeled and shifted. Another part may be allowed to wear out in its old service, disappear as capital goods and reappear as product, the same to be sold and the proceeds devoted to the creation of new capital goods a sort of transmigration-of-souls effect.

It is not at once evident that this is really the process. At first glance it would seem that what happens is that someone saves money-perhaps through the medium of a savings bank-and that in this way capital is created. The thing to notice is that this is not the creation of capital goods. This is merely accumulating a command of money, and money is merely an agent for bribing the various productive factors of the community to go to work in any channel desired by the person who holds the price. In other words, the owner of money or of other forms of property is able to command social energy. True, he does not command it as would the despot or as would the collectivist society. He commands by price, by rewarding, but he commands none the less. And by no other process than by the commanding and directing of productive energy can capital goods be formed or can they be shifted from one industry to another.

107. COSTS OF PROGRESS1

We are now in a position to make a preliminary reckoning of the payments or provisions to be made out of the annual product for maintenance and growth of the industrial system. First, there are the costs of maintenance, or wear and tear fund, for the different factors of production. Secondly, there are the costs of growth, operating in two ways: (1) by evoking a better or intenser use of the labour, land, capital, or ability already in use, (2) by calling into use new supplies of these factors.

If the whole product were compelled by some necessary law of Nature to apportion itself among these several uses so accurately that it was wholly absorbed in these costs of maintenance and growth, we should have a completely rational and socially satisfactory system of production and distribution of wealth.

So far as mere maintenance and its "costs of production” are concerned, powerful laws of necessity do compel a fairly full and accurate provision. For though workers in a trade may be "sweated," in the sense that they are not paid a true subsistence wage, this can occur only where either these workers are subsidized from some other source, or where this worn-out labour power can be replaced out of a reserve of "waiting" or unemployed labour kept alive out of some public or private charity. Apart from these abnormal circumstances "sweating" does not pay, and a trade habitually practicing it cannot live. The case is even clearer as regards the costs of maintenance of capital and land. A failure to make regular and adequate provision against wear and tear means nothing else than the starvation of the business. Individual unsuccessful businesses suffer this starvation, but trades do not thus perish, unless some change in the needs or tastes of consumers renders them no longer useful. A provision which may be regarded as almost automatic is thus made for the maintenance of the industrial fabric.

But as regards costs of growth there is no such security for adequate provision. The surplus of wealth remaining after costs of maintenance are defrayed does not automatically distribute itself among the owners of the several factors of production in such proportions as to stimulate the new productive energies required to promote the maximum growth of production. Instead of disposing itself in these proper proportions, the surplus may be so divided as to furnish

'Adapted by permission from J. A. Hobson, The Science of Wealth, pp. 76–86. (Henry Holt & Co., 1911.)

excessive stimuli to some factors and defective stimuli to others, thus retarding that full progress of industry which requires a proportionate growth of all the factors.

In other words, portions of the "surplus" may be wasted, or, what is the same thing, employed "unproductively." Whenever any owner of a factor of production receives a payment for its use in excess of what is needed to evoke its full use, he receives "unproductive surplus."

Any payment to a factor of production in excess of the costs of maintenance and progress thus ranks as unproductive surplus. It is a source of industrial waste and damage in three ways. First, it furnishes no stimulus to production. Secondly, it takes away a portion of the income, or annual wealth, which might have been productively applied, if it had passed to some other factor. Excessive payments to some factors involve deficient payment to others, and since industrial progress depends upon proportionate growth of all the factors, the receipt of unproductive surplus must be considered an obstacle to industrial progress. Finally, in its effect upon the factor to which it provides excessive payment, it not merely does not promote activity, it depresses it.

So far as the work of the State contributes to the security and progress of industry, it is rightly regarded as a factor of production, co-operating with the labour, land, capital, and ability of the individuals who engage in industry. Although the State is not recognized as standing at each stage in the processes of industry, demanding its payment for work done, like the owners of the factors, it is none the less true that the State must have its share. It also needs its costs of maintenance, and of progress, to be paid out of the only ultimate source of all payments, the product of industry.

Taking account, then, of the claims of the various factors of production, public as well as private, and of the scheme of distribution by which the industrial product is apportioned among the owners of these factors, we may thus summarize the result:

A. Maintenance includes (1) minimum wages necessary to support the various sorts of labour and ability required for the regular working of the industries in their present size and efficiency; (2) depreciation for wear and tear of plant and other fixed capital; (3) a wear and tear provision for land; (4) a provision for the upkeep of the public services which the State renders to industry.

B. The Productive Surplus includes (1) minimum wages of progressive efficiency to evoke a larger quantity and better quality of labour and ability for the enlargement and improvement of the industrial system; (2) such a minimum of interest as suffices to evoke the supply of new capital needed to co-operate with the enlarged and improved supply of labour; (3) a provision for the improved size and efficiency of the public services rendered by the State to industry.

C. The Unproductive Surplus consists of (1) economic rents of land and of other natural resources; (2) all interest in excess of the rate laid down in B; (3) all profits, salaries, and other payments for ability or labour in excess of what would, under equal terms of competition, suffice to evoke the sufficient use of these factors.

IOS. CONDITIONS OF PROGRESS1

A whole group of considerations affect the proportionate increase of each requisite of production required by each increase in the aggregate production. Among them the following are most prominent:

1. Improvements in the industrial arts, and application of laborsaving machinery, (a) enabling the same quantity of capital to suffice to turn out an increased product, (b) enabling capital to take the place of labor, so that what might seem to be an equal demand for more capital and for more labor will act as a demand for a large quantity of new capital and a small quantity of new labor.

2. Social and industrial reforms, improving the organization of labor or inducing greater care and economy in the use of material and of machinery, will, by adding to the average effectiveness of both capital and labor, enable an increase in the aggregate product to be achieved by a less than corresponding increase of capital and labor.

3. Every improvement of physique, morale, intelligence, and technical skill among the workers will enable a demand for more labor

I

Adapted by permission from J. A. Hobson, "The Law of the Three Rents," Quarterly Journal of Economics, V (1890–91), 284-86.

power to be satisfied by a less than corresponding increase in the number of workers.

4. Improvement in agricultural arts may enable a larger product to be obtained without a corresponding fall in the margin of cultivation, i.e., without a correspondingly increased employment of land.

These are some of the determining forces which would require study. Another set of forces and circumstances affect the ease or difficulty of procuring increased supplies of the respective requisite of production. Such are the following:

1. The effect of growing improvements in communication, and the breaking down of international barriers for trading purposes, in their respective bearing upon (a) the increase of the effective land supply for a given community, (b) the increased "fluidity" of capital, (c) the easier migration of labor.

2. The effect of war, political insecurity, national commercial restrictions, and the like, as affecting (a) the available quantity of each requisite of production, (b) the relative fluidity of each requisite of production.

3. Effects of the growth of prudential motives, increased sense of security, and fluidity of capital, as affecting the ease with which an increased demand for capital may be supplied.

4. Complicated effects of rising standard of comfort, education, artificial checks on population, and the like, in determining the increased supply of labor at different degrees of availability.

109. SOME TECHNOLOGICAL ASPECTS OF APPORTIONMENT' It is a fact too evident to need argument that substantially all productive processes are joint processes-processes wherein two or more factors co-operate in accomplishing the result. Land by itself can produce no considerable quantity of potatoes; labor by itself can produce none; a furnace cannot give out heat without coal; feeding the coal to the furnace needs labor; and so on.

Again, it is too evident to need argument that the productivity of any joint or co-operative process varies more or less with changes in the combining proportion. Thus, increasing the quantity of labor used in cultivating a certain piece of land would probably make the total product greater, though it might make that product smaller. Further, in case it made the product greater, the increase might be

Taken by permission from F. M. Taylor, Principles of Economics, pp. 94– 102. (University of Michigan, 1916.)