A VENERABLE anecdote, not often heard of recent years, relates that an Irishman who was ill took the one teaspoonful of medicine that was prescribed for him and then, noting its good effect, swallowed all the contents of the bottle, on the theory that if a little was good for him a good deal would be better. The results were, of course, not what he expected; or perhaps I should say they were what he might have expected. The current lack of interest in this ancient jest is to be regretted, for nothing could be more timely in the present state of American industry.
In an earlier article I have set forth the view that our present comfortable state in America is chiefly due to the large amount of work done here, which is nearly half the total work done in the whole world. Of the total work done in the United States, more than ninety per cent is performed by mechanical means at a cost so low that, even after allowing for interest and depreciation on the capital investment necessary to make this possible, it corresponds to a wage rate of only a few cents per day per man for equivalent work. It is only through this multiplication of work that we are able to have all that we now possess.
Every frontiersman understands the rationale of the process perfectly; in the early days of settlement, although all the members of the family are busily at work from daylight till dark on the most essential tasks, they are simply unable to do enough work to provide themselves with comforts and conveniences. On the other hand, the only reason we can have the twenty million automobiles that we are using is that the workmen who were formerly engaged in making other necessaries of modern life have been released from that work through increasing their productivity by the application of mechanical power.
Every woman understands it also; if she has to wash clothes, scrub floors, and do other housework by manual labor, she is quite unable to find time for social affairs and community activities.
I can support by affidavit, if anyone should doubt my veracity, the case of a modern mother who got breakfast for the family, drove her husband to the station and the children to school, washed the breakfast dishes, did the week’s washing for the family, and was then on time for a 10.30 A.M. committee meeting on Monday morning. Such a performance is not incredible, though it may so appear to some, for most of the work was done by mechanical means, and what she chiefly did was efficiently to apply her able mind to supervising and directing the mechanical slaves that were at her command.
Lowering the cost of production through multiplying work by mechanical means, eliminating unnecessary work, and doing work in such a way that it does not need to be repeated, has taken such a hold upon the imagination of leaders in industry that we seem now in imminent danger of a collapse something like that which results when a child builds a block house higher than his faulty adjustment of his materials will permit to stand. At the present moment we are confronted with the paradox that when the engineer, working with the scientist, has shown how to produce more with less effort, the result is often not increased prosperity for himself and the industry for which he works, but quite the reverse. As a specific example, petroleum engineers have, during the past few years, shown how to drill deep wells at less cost, and how to bring the oil out of the wells more rapidly at less cost, with the result that in 1927 the petroleum companies made smaller profits than they had in 1926, and many of them made no profits at all. Bituminous-coal production has for some years been a broadly unprofitable business, and a host of other instances could be cited. The increased production thrown on the market causes the price to fall more than the cost of production has been decreased, and, unlike Job, the latter state of the business is worse than its beginning.
According to the ideas of the classical economists, such a situation should right itself by those who cannot produce at a profit going out of business and the industry stabilizing itself at the new price level. Unfortunately things are actually quite different from the way the classical economists imagined them to be. The enterprise goes on producing at a loss, hoping for a rise in prices, until it is hopelessly insolvent and is sold at a sheriff’s sale. Someone buys it for a small fraction of the amount of invested capital it represents and, relieved of the former capital charges, it is soon setting a new lower level of production cost. Theoretically this should make the consumer feel fine, but actually, like the Irishman in the anecdote, it makes him feel very ill. Farmers especially feel very ill, because this same relationship that lowers the cost to them of bituminous coal and cotton goods operates equally powerfully on what they themselves produce, and they find themselves without the means to buy the coal and cotton goods supposedly placed more easily within their means.
To illustrate my point with another anecdote, the production of essential raw materials in this country is in very much the same position as the horse of the Scotchman who began by mixing a little sawdust with its oats, gradually increasing the proportion. The project did not succeed, for, before the Scotchman got the horse to the point where he fed it on sawdust alone, it unfortunately died. An individual enterprise cannot go on indefinitely lowering its production cost to meet lowered prices; it either goes into bankruptcy or dies.
Aristotle thought that virtue represented a mean between two kinds of evils, bravery being the mean between cowardice and foolhardiness. The price of commodities that best serves the public interest is a mean between a high level, which represents either an undue profit to the producer or, more commonly, unduly high production costs because of inefficiency, and a low level that does not afford a reasonable annual income to the workers or a fair annual interest on the capital invested.
In a country like ours, where inventive ingenuity abounds and there are abundant natural resources, the play of unrestricted competition tends to drive prices toward the low level rather than to keep them at the mean.
There are several forces that act toward that end, chief among them taxation, which forces the owner of any natural resource, whether arable land or a deposit of coal or iron ore, to bring it into production to prevent the carrying charges from eating up its value. Once brought into production, the compulsion to continue to produce is even stronger, for to the increased tax assessment are added carrying charges on invested capital and also the fact that machinery deteriorates no matter whether it is used or not. When profits vanish, it is better to earn part of these overhead charges than to earn nothing, so that the road of uncontrolled production and unrestricted competition in industry leads inevitably toward no return on the capital and an unduly low wage for the workers.
A former labor leader, in describing the working of these forces in the coal industry before the era of wage contracts, pictures a coal-mine operator calling in his men and showing them his books to prove that his production cost is, say, ten cents above the current market price for coal and that this margin cannot be overcome by mechanical improvements, and suggesting that they agree to a sufficient wage reduction to permit him to continue to operate and thus afford them work. The proposal is agreed to, and the operator receives orders for coal at a slightly lower price than that at which some other operator has been furnishing it. The operator who loses the orders has no recourse except to propose a wage reduction to his men. The wage level that results from such a stopping-down process will inevitably be one where only those men will work at coal mining who cannot find some other occupation, while their capacity as consumers of other products will be reduced to a minimum. The undesirability of such a tendency in the economic structure needs no elaboration.
Control of production to stabilize prices is not a theoretical concept in the interest of a vague general public, but a much-needed practical procedure to benefit the individuals, in all lines of industry, who collectively constitute the general public.
Someone will surely here interject that control of production to stabilize prices means that the consumer will no longer benefit by having prices of raw material move toward an irreducible minimum. The answer to this is that consumers do not, as a group and in the long run, benefit by reductions in price that result from any cause other than the producing of what is needed with less expenditure of energy.
An often-quoted English schoolboy story is that the inhabitants of the Scilly Isles make a meagre living by doing each other’s washing. In our present highly cooperative society we all make a living by doing each other’s washing, printing, news gathering, and a thousand other forms of service, such as the production of raw materials like coal, wheat, and cotton.
It is important to notice that it would not make any difference to the inhabitants of the Scilly Isles what the price per dozen for doing washing was, so long as their system provided for an equitable exchange of services. Nor docs it matter in our system what the general price level of commodities is, so long as it is equitably adjusted. The consumer of raw materials likes, if possible, to buy at a little below the general market average, but after one consumer has bought at two per cent below the average, another at three, and another at four per cent, they are all thrown into confusion if the market average drops ten per cent. If the decline is because someone has found out how to produce with ten per cent less expenditure of effort, the resultant loss to other producers, until they also can find out how to cut their costs ten per cent, is a burden industry has to bear; but if the reduction is because someone who has to sell prefers to take a ten-percent loss in order to get out, nobody is the gainer.
That nobody is the gainer may be hard to accept, but it is inescapable. If the farmer cannot make an adequate living growing wheat and cotton, he cannot buy freely from all the other people who have things to sell to him, and the same rule applies to everybody who produces and sells things. The scaling down of prices to the irreducible minimum benefits nobody when they are adjusted on the minimum level, and the process of reduction is accompanied by terrible hardship. I should temporarily benefit, of course, if the prices of clothes and shoes were suddenly reduced to half what they are now, but, unless that reduction came from their being produced at half their present cost, I should inevitably eventually feel the reaction. No industry can suffer losses without affecting the whole of industry, which in time affects all the consumers.
The distinction between price reduction as a result of lowering of production cost and price reduction through unrestricted competition cannot be made too clear, because they are often interwoven in actual experience. Take the whole population of a town whose principal industry is shoe manufacturing as a concrete example. If the manufacturer is able to cut his price per pair in half because he has found out how to make a pair at half the cost, he will commonly let a number of his men go, because reduction in production cost usually results from substituting cheap mechanical energy for expensive human energy. These people will normally find other employment. The workmen who remain employed usually earn more in dollars than they did before, and in spending it give employment where there was less employment before.
Mining companies that initiate considerable enterprises in foreign lands where the economic level is low, and where most of the people are busily but inefficiently engaged in raising enough food to support themselves and their families, often find themselves confronted with an acute labor problem. If any considerable number of workers leave the land to work in and about the mines, those left on the land cannot raise enough food to keep them all unless they are taught better methods of agriculture and provided with equipment that will enable them to produce more with less expenditure of effort. Add to this the fact that managers commonly find that the ‘natives,’ as our British cousins designate them, usually need more food, and a betterbalanced diet, than they have been accustomed to in order to show anything above the lowest order of efficiency in industrial work, and it is clear that to make a new industry possible in what may be termed an economic province involves increasing the productivity, not only of those who are employed in it, but of the whole social group.
It has already been pointed out that the employment of large numbers of men in automobile manufacture is only possible because the others have increased their productivity enough to turn out everything else that is needed without the help of the automobile workers.
This gives the clue to what is needed in modern industry. When a person is ill a physician normally prescribes two things: certain medicines to produce an immediate but temporary effect, and such modifications in the patient’s way of living as will increase his physical vigor and avoid a recurrence of the bad condition. That the medicines should apply to the disease, and not its symptoms, goes without saying, but the collapse of all the various schemes of price regulation (such as the British one for rubber, and the easily predictable failure of various schemes proposed to benefit the farmer) is due to a failure to distinguish between symptoms and disease. Where the trouble arises from the production of commodities in amounts that are greater than needed, the only medicine to apply is control of production. Not only the American people, but the people of the world, seem mentally unprepared to take this medicine, and prefer to rely on the mysterious magic of price-fixing schemes. Carlyle, in his French Revolution, keeps reiterating that anything that is not fundamentally sound cannot long endure. No price-fixing schemes have long endured, because they all encourage rather than discourage overproduction.
The hygiene to be applied to the condition described must be reasonably clear from what has been said. The present tendency is to invest large amounts of capital for the purpose of lowering production cost of commodities that are already being produced in sufficient amount. The inevitable result of this is to cause the loss of considerable amounts of capital previously invested in production. A good example of this is the shifting of the cotton textile industry from New England to the South. The mill owners of New England failed to equip their mills with mechanisms and methods that would produce more with less effort, largely because the workers, obsessed with the mediæval delusion that increase of productivity throws workers out of employment, would not consent to their introduction. So the modern mills were erected in communities where the workers had no such delusions. The rest of the story is known to most people and may be inferred from what has been said above. The general public would have been as well served by a much smaller investment of capital in improving New England methods and equipment, and it is at least doubtful whether theadvantages reaped by the South counterbalance the losses in New England. The idle New England equipment does not go out of existence, as theoretical economics presupposes, but remains to plague the industry and to work against the general welfare.
What is needed, therefore, is the investment of capital in the production of things that are not now being produced, or else being produced so inefficiently that their price is unduly high and their consumption restricted. Perhaps the most stupid misuse of words to-day is the phrase ‘luxury equipment’ as applied to automobiles, phonographs, radio sets, and a variety of other things that have only recently been brought within the reach of the ordinary man. The word ‘ luxury ’ has a penumbra of immorality about it, and is entirely out of place in this connection. Such things extend the mental and physical horizons of men and, except when they are misused (as all good things may be misused), they are worthy of respect and admiration. It is time that we thoroughly dissipated the delusion, inherited from our European forbears, that it is not good for the common people to have much.
What we now need, therefore, is the imagination to see how the discoveries of science can be applied in the production of new things, or a greater abundance of things, that will serve the needs of everyone. If Mr. Ford had put his mental and physical energy into the coal industry or the textile industry he would not have bettered existing conditions, and perhaps would have only made them worse. He chose instead to apply it to new lines of endeavor, and has greatly benefited us all. With more such ideas, and adequate capital backing for them, the workers, released from the production of present commodities through the increase of productivity per man, will find satisfactory employment in the production of new things to enlarge the common life, and the production-control problem will solve itself.