It tries completely to isolate the static forces that act in distribution from the dynamic forces. Actual society is always dynamic, and the part of it that we are most concerned with is highly so. Change and progress are apparent everywhere, and industrial society is constantly assuming new forms and discharging new functions. Because of this continual evolution the standards of wages and of interest to-day are not what they will be ten years hence.
There are, however, normal standards to-day.
In the midst of all changes there are at work forces that fix rates to which, at any one moment, wages and interest tend to conform. However stormy may be the ocean, there is an ideal level surface projecting itself through the waves, and the actual surface of the turbulent water fluctuates about it. There are, likewise, static standards with which, in the most turbulent markets, actual values, wages and interest tend to coincide. What would be the rate of wages, if labor and capital were to remain fixed in quantity, if improvements in the mode of production were to stop, if the consolidating of capital were to cease and if the wants of consumers were never to alter?
The question assumes, of course, that industry shall go on, and that, notwithstanding a paralysis of the forces of progress, wealth shall continue to be created under the influence of a perfectly unobstructed competition. The values and the rates of wages and interest which, under such conditions, would prevail, are those to which, in spite of all disturbances that progress occasions, the rates in the actual market tend, at any one time, to conform.
They are the theoretically "natural" rates which science has seeking. In presenting the laws by which such rates are fixed, this volume tries to perform a work that is constructive and not controversial. At a few points it will gain something, in the way of clearness, by calling attention to contrasting theories, but it will offer no systematic criticism of them. An adequate treatment of the various theories of distribution would require a book not less extensive than this one devoted wholly to controversy.
The plan of making relatively few references to other writings may leave a reader in some uncertainty as to whether a particular part of the present work may have been borrowed from existing economic literature, and it seems therefore necessary to say that no part has been consciously borrowed in this way. At the dates when I first published the several parts in the series of articles above referred to, only one important point could, so far as I now know, have been thus obtained.
The omission is now remedied. Up to a certain point the two theories can be stated in identical terms; and yet the difference between them is in reality a radical one. It was the claim advanced by Mr. The product of the "final unit" of labor is the same as that of every unit, separately considered; and if normal tendencies could work in perfection, it would be true not only of each unit, but of the working force as a whole, that its product and its pay are identical.
There are resemblances and contrasts between the theory that is here presented and those of the Austrian economists, Karl Menger and Friedrich von Wieser; and one feature which distinguishes the present system from the others is a recognition of the difference between permanent capital, or an abiding fund of productive wealth, and particular capital-goods, or instruments of production, which perish in the using. If my present plan had admitted it, I should have been glad to cite and to discuss many specific contributions to the literature of the theory of distribution, such as those made by Professor Alfred Marshall, President Francis A.
Natural Law | The Mint
Walker, President Arthur T. Hadley, Professor Frank W. Taussig, Professor William Smart, Mr. John A. Hobson, Dr. Charles W.
MacFarlane, Dr. Stuart Wood and Mr. Herbert M. To three men I am indebted for general stimulus and suggestion, the effects of which must have appeared in any theoretical work that I have done. Patten of the University of Pennsylvania. For an understanding of the plan on which this book is arranged, it is necessary to note that the principle of final productivity—which, as the work claims is at the basis of the law of wages and interest—can be stated in a few words; but that, when it is so stated, the significance of the terms used requires very extended defining.
Interest, for example, is said to depend on the productive power of the final unit of social capital. What, however, is such a final unit, and in what sense can it be called social? Is it highly composite, and is it apportioned, by some nice adjustment, among all the industries of society?
Does it consist in concrete things that can everywhere be distinguished?
Social Justice: History, Purpose and Meaning
It is said, in the theory, that this increment of productive wealth, on the efficiency of which the rate of interest depends, consists of a quantity of "permanent capital. They perish and require continual replacing, and it is essential to know the true relation between the instruments which are thus perishing and the fund of wealth which is abiding.
In the apportioning of this fund among different industries, the market values of different products have their influence; and it is necessary to ascertain the relation between the laws of value and those of distribution. Moreover, incomes that are determined by the final-productivity law may also be translated into a form that makes it possible to apply to them the principle of rent.
The nature of rent and its relation to wages and interest need to be ascertained. Extended statements on many other points are required, if the apparently simple final-productivity formula for wages and interest is to have definiteness of meaning and a character of reality that will cause it to interpret the practical facts of life. Now, it would have been possible to make these explanatory statements first, and to reserve the presentation of the law of final productivity till every term that a statement of it would use should have been fully defined and made to represent something in actual business.
It would have been possible to discuss the nature of capital and of capital-goods, value, group relations, rent, etc. There would have been a logical justification of such an arrangement, since the explanatory statements would have prepared the way for a brief concluding thesis, which would have contained the essence of the theory. The work would then have culminated in one all-embracing statement. But the use of so much of the book for preliminary definitions and discussions would have made a large demand on the reader's patience, and would have added to the difficulty of connecting the explanatory matter with the principal thesis.
I have, therefore, preferred to state the main proposition early and the explanatory ones afterward. The variety of these latter statements is such that, unless the central truth—the final-productivity law—be kept in mind from the outset, it is not entirely easy to bring them into apparent unity. To make the logical connections more apparent, I have given to the table of contents the character of an outline of the series of leading ideas contained in the several chapters, without any attempt to make it an abstract of the entire contents of the chapters.
Many paragraphs are not referred to in it, but the general argument of the book is, I hope, the better given by reason of these omissions. The plan of advancing early the chief thesis of the work and causing the full meaning of it gradually to unfold itself requires that a subject such as rent or value be treated in more than one part of the book. If rent were to be discussed for its own sake, the treatment of this subject should, of course, be consecutive; but as the purpose of each reference to rent is to add something to the meaning of the thesis which states the final-productivity law of distribution, it is best to forego the attempt to finish the treatment of rent in one passage and, rather, to give the amplifications of the main thesis in a natural order.
The mathematical modes of statement that have been adopted in many parts of the book have been purposely made entirely simple and untechnical. Not even the notation that is in vogue in mathematics has been used. In the final preparation of this volume I have received assistance that I desire gratefully to acknowledge from my colleague, Professor E.
Seligman; from Professor H. Moore, of Smith College; from Mr. Johnson, Fellow in Columbia University; and particularly from Mr. Day, Instructor in Political Economy and Social Science in the same University, who has read the work repeatedly in the manuscript and has made very many helpful suggestions, and, in connection with the revising of the proofs, has rendered invaluable aid. For practical men, and hence for students, supreme importance attaches to one economic problem—that of the distribution of wealth among different claimants.
Is there a natural law according to which the income of society is divided into wages, interest and profits? If so, what is that law? This is the problem which demands solution. A majority of men live chiefly by labor; and for these men the resultant of all the economic forces takes the practical form of wages.
Arts have been mastered, labor has been divided and subdivided, and machinery has been set working; and as the result of it all, that which comes to wage-earners is the pay that employers give to them.
The Relationship Economy
The amount of this pay fixes the degree of comfort that these men themselves can enjoy, and the amount of culture, health and well-being that they can insure to their children. Moreover, the affects of high or low wages upon the welfare of the working class are cumulative, as generations succeed each other. The money that a man earns may be thought of as potential well-being condensed into a material form; and if workers now get enough of it to put them on a high plane of comfort, their descendants will probably reach a higher plane. It is, then, the nature of the law of wages which determines whether the continuous life of working humanity shall have a rising or a falling trend.
Wages are usually paid by one person to another. The amount thus paid is adjusted by bargain, and may seem to depend on the comparative power and the adroitness of the parties to the contract; for commercial strategy is an important art, practised by both employers and workmen according to their several abilities. There is, however, a market rate of wages; and this is, in the main, controlled by ulterior and positive forces. The so-called "higgling of the market," in fact, affects the rate of pay for labor only in a local way and within narrow limits.
The amount that workmen can generally, by any shrewdness or firmness, exact from employers is limited, as we shall show, by the productive power that resides in labor; and the forces that control the prevailing terms of wage contracts are those which determine the amount of that productive power. There is, in short, a deep acting natural law at work amid the confusing struggles of the labor market.
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The function of this natural law is to separate the gross earnings of society into three generic shares that are unlike in kind. It causes the whole annual gains of society to distribute themselves into three great sums—general wages, general interest and aggregate profits. The function in itself includes no working and no owning of capital: it consists entirely in the establishing and maintaining of efficient relations between the agents of production.
We have said that the pay which, with all the bargaining strategy that they call use, workmen get from employers is limited by the productive power that resides in labor itself, and that a study of the wage law must search for the influences that fix this productive power. We may now advance the more general thesis—later to be proved—that, where natural laws have their way, the share of income that attests to any productive function is gauged by the actual product of it.
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