can be consumed before it has been produced. But demand for Consumption
as certainly precedes Production. An opposite inference might be drawn
from the fact that particular Artificial Objects are often produced
in advance of specific demand for them. In fact, however, the output
is always in response to demand, either actual or probable--like the
outflow from a reservoir of water which follows the inflow but to which
there would be no inflow were it not for anticipated demand. Production
in advance of actual demand indicates nothing more than that the
producers are confident that such demand exists in embryo. If they err,
the Products have no market; if they have guessed aright, the volume of
Products increases to meet the demand. By and large, then, demand for
Consumption regulates Production; or, in Economic phrasing, supply in
Production is determined by demand for Consumption.
Being continuous, the human demand for Artificial Objects to consume
stimulates continuous Production; being progressive, it promotes
improvement in Productive methods and accomplishments.
I. HUMAN FACTORS
The Productive Process is accomplished by Man’s exertions, mental and
physical, each of those forms of exertion being dependent upon the
other.
In that connection Man is governed by natural law, a manifest law of
human nature. It resembles the familiar law of external nature in
obedience to which physical force advances along the line of least
resistance. The former, the Economic law, may be concisely, accurately
and indisputably expressed in these terms: Men seek to satisfy their
Economic desires with the least exertion.
The validity of that generalization is sometimes questioned on the
basis of the fact that men often seek to satisfy their desires with
excessive exertion. But is that true? Is it not at best only apparently
true? Although for the purpose of satisfying a desire for something,
one were to walk three miles when he might reach his goal and satisfy
his desire by a shortcut only one mile long, but which is unknown to
him or is haunted by a dreadful ghost or infested with predatory men or
savage animals, or so reputed to be, he would nevertheless be seeking
to satisfy his desire with the least exertion. To risk contact with a
ghost or a robber or savage beasts would add much more to his exertion
mental and physical, than a walk of three miles for the satisfaction of
a desire that might be satisfied by a walk of one. The statement that
men seek to satisfy their desires with least exertion is to be read
with the interpretation that they do so with the least known and the
least dreaded exertion; also that the desire may include effort for the
sake of effort, for effort desired as in exercise for health’s sake or
exertion for the sake of play.
The Economic principle that men seek to satisfy their desires with
least exertion does not imply that all men, or any of them know what
the least possible exertion is. It is least only in their more or
less biased or ignorant judgment. There is no contention that they
do satisfy their desires with least exertion. The contention is that
they naturally seek to do so. Critics of this natural law of Economics
should have a care lest they fail to “see the forest for the trees.”
Like the principle in physics to which it is analogous this law of
Economics involves the element of least resistance. As in physics the
line of least resistance may not be a straight line, although that is
its tendency, so in Economics it may not be a direct line. Nor may
it be the same line from generation to generation. Precisely as in
physics physical obstacles may divert a line from direct to crooked,
so in Economics such obstacles as customs, habits, superstitions and
ignorance may cause analogous diversions. But as the physical line
of least resistance, though not always the shortest by foot rule
measurement, is the shortest considering obstacles, so the Economic
line of least exertion is as straight as habit, custom, superstition,
advice, ignorance, and other obstacles permit.
Let the principle be tested by Money measurements. Will any sane man
pay $100 to satisfy any Economic desire of his which he knows he can
satisfy as perfectly for $75, or $80, or $90, or even more than $90
so it be less than $100? Certainly not. Then the Economic law in
question may be expressed in terms of Money. Instead of saying that
men seek to satisfy their Economic desires with least exertion, we
may express the same natural law by saying that men seek to satisfy
their Economic desires at the lowest Money cost. Both statements have
the same meaning. The only difference between them is that the latter
is expressed in terms of Money measurement whereas the former is
expressed in terms of human effort.
Another familiar demonstration of this natural Economic law that men
both individually and in the mass seek to satisfy their Economic
desires with least exertion, is the human craving for Labor-saving
invention. Could any more comprehensive exemplification of the natural
law in question be demanded? Why does mankind crave Labor-saving
methods for producing Artificial Objects from and upon Natural
Resources, if there be no law of human nature which impels mankind to
seek satisfaction of Economic desires with least exertion? John Orr
concisely sums up this Economic law in these words: “Very strong and
deep is the desire of men to find the easiest way of doing things.”[4]
[4] “Short History of British Agriculture,” By John Orr. Oxford
University Press, 1922.
The earliest expression of this principle was by Henry George in 1879.
Alluding to Political Economy, the term by which Economics was then
identified, he wrote: “It lays its foundations upon firm ground. The
premises from which it makes its deductions are truths which have the
highest sanction; axioms which we all recognize; upon which we safely
base the reasoning and actions of every-day life, and which may be
reduced to the metaphysical expression of the physical law that motion
seeks the line of least resistance--viz., that men seek to gratify
their desires with the least exertion.”[5]
[5] “Progress and Poverty: An Inquiry into the Cause of
Industrial Depressions, and of Increase of Want With
Increase of Wealth. The Remedy.” By Henry George. New York:
D. Appleton and Company. 1883.
In the Economic realm all human exertion is usually and appropriately
distinguished by the technical term “Labor.” This Economic term for
human exertion in the production of satisfactions for human wants
has been much abused by colloquial interpretations. So interpreted,
Labor is often limited in meaning to the exertions of persons hired in
“lower class” pursuits for fixed “wages.” For somewhat “higher” grades
of service, “salaries” instead of “wages” are paid. For self-employers
still other terms are colloquially used, such as “profits” for the
services of merchants and manufacturers and contractors; “fees” for
the services of lawyers and physicians; “commissions” for the services
of salesmen and brokers; and “discounts” for the services of bankers.
Those verbal variations are of course admissible for such secondary
purposes as private business may require; but for fundamental or
general Economic distinctions which concern the whole human family,
they are recklessly undiscriminative and hopelessly confusing. This
lack of discrimination is attributable to a tendency in Economic study
toward devotion to infinite detail regardless of precise generalization.
The result is a confusion of fundamentally different objects in messy
categories, such as Labor with Labor-products; such as Labor-products
with Natural Resources; such as income from Natural Resources with
income from Labor--as, for instance, “Land” (Natural Resources) with
“Capital” (Artificial Objects). It is like thinking of oil and water as
a chemical compound when they happen to be in the same receptacle.
Fundamental conclusions in Economics cannot be based upon unassorted
details. Students must concentrate their study upon the big facts, the
Basic Facts, those primary categories which distinctively classify the
whole swarm of secondary facts. Well enough it may be not to start
out with assumed principles, nor with the scientific substitute known
as “hypotheses;” but all rational study of Economics must begin with
the Basic Facts and proceed thence to a consideration of details with
reference to their basic relations.
The distinctive phase of the present Lesson with reference to human
exertion is exertion of the Economic type. Whatever its kind as matter
of secondary classification, all human exertion comes within the
meaning of the comprehensive Economic term for human service, which, as
already stated, is Labor.
No more truly in the Labor category are the services of “wage-workers”
than are those of farmers, of manufacturers, of merchants, of
brokers, of bankers, of architects, of lawyers, of physicians, of
engineers, of authors, publishers, teachers, or the services of any
other useful workers who participate in the intricate processes of
Economic production. All are within the Labor category. Be the Economic
service whatever it may which any human being--from inventor to
chattel slave--contributes to the satisfaction of human wants, such
service belongs in the same basic category with every other Economic
service. Consequently, it must be identified in fundamental Economic
classification by the same technical term.
What term may be best for that purpose is of minor importance, if of
any importance at all, since names are for identification rather than
description. Consequently, the technical term Labor, adopted long
ago by Economists of the highest rank to identify human service in
Economics, is fully justified regardless of its descriptive qualities.
Even as a descriptive term, what other word could better identify human
service as a whole?
Among the outstanding minor classifications of Labor is Business, and
to this another attaches which some advanced students in Economics
classify by itself fundamentally. The latter is the service of the
“entrepreneur” or “enterpriser.” As a secondary classification this
distinction is probably useful; but for comprehensive Economic study it
is as useless as “carpenter” or “bricklayer” would be. Worse yet, it is
misleading.
The “enterpriser” is a worker whose compensation for service is not
fixed but depends upon the profitableness of the enterprise he pursues,
which may be any business venture from mining or manufacturing to
merchandizing, and in any capacity from employer seeking “profits”
to salesman on “commission.” To eliminate this type of Economic
service from the fundamental Labor category in Economic science
is not only useless and misleading but also absurd. The fact that
the “enterpreneur’s” service may or may not prove profitable to
himself--the fact, in other words, that when he enters upon an
enterprise he “takes chances” as to compensation--does not alter the
Economic character of his functioning. He is none the less nor any
the more in the Man category of Economics in contradistinction to the
Natural Resource category and the Artificial Objects category. The
only Economic difference, essentially, between him and the “common
laborer” or “wage-worker”--except that one may be more serviceable than
the other, individual for individual--is that the compensation of the
“common laborer” or “wage-worker” is nominally secured by contract,
whereas the “enterpriser’s” is contingent; and this difference is not
fundamental. To take the “enterpriser” out of the Labor category in
Economics by assigning him to a fourth fundamental category, is to
trifle with Economic classifications. Why extend the basic categories
of Economics from Natural Resources, Artificial Objects and Man, to
Natural Resources, Artificial Objects, Man and Enterprisers?
A similar classification of Business itself--which, by the way,
is usually managed by “enterprisers”--would likewise be absurd and
trifling as well as confusing. What is legitimate Business but human
service? And what else in Economic classification fundamentally can
human service be but Labor? Business is in the Man class of Economics
in contradistinction to the Natural Resource class and the Artificial
Objects class. No other fundamental classifications are possible.
Consequently, the activities of Business classify themselves naturally
in the domain of Economics as Labor.
And so of the professions.
So, too, of every other kind of human service in the Productive
Process, whether the service take on such direct forms of Production as
making Artificial Objects and such as delivering them from hand to hand
or place to place, or such indirect forms as promoting the comfort,
the enjoyment, the health, the education, the cleanliness or what not
(provided it be Economically legitimate), of such human workers as
literally do make or deliver Artificial Objects. All are in the Labor
category.
Labor comprises, too, the serviceable operations of partnerships as
such; also of corporations, of chambers of commerce, of labor unions;
the services of schools and churches and theaters and social clubs;
of political parties and religious societies--every kind of corporate
service, in short, including the service of governments--to the extent
that such service contributes, in addition to the contributions of
its constituents in their individual capacities, to the production of
Artificial Objects.
And Production--let the reference to this fact be not
overlooked--comprises Delivery throughout the whole Productive Process
to and including its termination in delivery to ultimate consumers.
Railway workers and sailors and storekeepers and household servants
and waiters at hotels and restaurants and all their Economic associates
from employer to “menial,” are producers as truly as are farmers,
mechanics or manufacturers.
Human services of the corporate type, as well as those of the
individual distinctively, are too numerous and too intricately woven
together to permit of detailed consideration here. It is enough to note
that far and away as some of them may at a glance seem to be from the
Productive Process in Economics, they will be found upon intelligent
inquiry--except as they may be more or less perverted in operation--to
be in the Economic category of Labor. That is to say, they are human
factors in the Production of Artificial Objects from and upon Natural
Resources.
One kind of corporate service, a comprehensive kind, should perhaps
be given brief special consideration for the double purpose of
illustrating the Productive functions of every variety of corporate
service and of explaining the Economic characteristics of that
outstanding one of all. This particular kind is Government.
The “business” of Government, to use a colloquialism, the Labor of
Government, to use the technical Economic term, is comprehensive and
effective in the Productive Process to the degree--a reservation
that applies to all other subclassifications of Labor, from the
lowest grade of “hired man” to the most powerful partnership or
corporation, from the most awkward apprentice to the shrewdest business
“enterpriser,”--that its functions are wisely and fairly devoted to the
task.
Governments are legislative, executive and judicial agencies of
social wholes. It is their function to contribute service to the
production of Artificial Objects by preserving public order, defining
and protecting private rights, distinguishing and conserving common
rights, and managing or providing for the management of common affairs.
To the degree that governments faithfully exercise their legitimate
public functions and refrain from interfering with legitimate
private functions, they contribute to the Productive Process. This
is demonstrated by observable Economic results. Wherever Government
approximates a realization of its functions, Economic conditions are
manifestly better than where it neglects or abuses them. Evidently,
then, Government is a form of human service which, like all other human
service forms, belongs as an Economic factor in the Labor category.
And as with Governments, so is it with all other organizations in
so far as their organic activities tend to promote good order, fair
dealing, righteous social adjustments, peace, and general Economic
prosperity.
The essential considerations with reference to Labor may be compactly
summarized in these terms: (1) Labor can create nothing; it can only
_produce_, by altering the forms and locations of natural substances.
(2) Nothing but Labor can so produce. (3) Labor is therefore the sole
directing factor in the production of Artificial Objects from and upon
Natural Resources.
II. NATURAL RESOURCE FACTORS
In the foregoing discussion of the relation of Labor in its broad
Economic meaning to the Productive Process, it has been necessary, as a
precaution in the interest of clear thinking, to give warning that the
technical term Labor is often blurred in its significance by colloquial
or business interpretations. A like warning is necessary with reference
to the technical term for Natural Resources. This term, adopted long
ago and quite appropriate and distinctive, is Land.
If it be said that Labor applied to Land produces Artificial Objects,
the Economic meaning is the same precisely as if it were said that
Artificial Objects are produced by Man from and upon Natural Resources.
But all rational Economic meaning departs from the statement if
indefinite colloquialisms or loose business terms be substituted for
the precise technical terms.
Yet the technical term Land, like the technical term Labor, suffers
in significance from a variety of colloquial and indefinite business
interpretations. Indiscriminately it may mean open prairie land, or
improved farms, or vacant building-lots, or buildings and the lots
on which they stand, or all of them together. The absurdity of such
undiscriminating interpretations is obvious to any one who reflects
upon the significance of the three Basic Facts of Economics--Man,
Natural Resources and Artificial Objects.
Such colloquial and business-habit confusions of the technical Economic
term Land, like similar confusions with reference to the technical
Economic term Labor, often mislead advanced students of Economics as
well as “the man on the street.” In any serious consideration of the
Productive Process it is of the utmost importance that the Basic facts
be kept distinctively and definitely in mind.
As Labor in Economics means service by and for Man, and nothing else,
so Land in Economics means neither more nor less than any and all
Natural Resources. It is the technical Economic term for the Natural
Resource factor in the Productive Process.
Without Land, Labor would be powerless to produce Artificial Objects.
But Land is abundant in all varieties. Trees grow in forests, minerals
repose in the earth, the soil offers itself to the farmer, the sea
to the sailor, solid ground to the builder, flowing streams to all.
Together with the winds, the lightning, the snow, the rain and all the
other subtle and mysterious forces of Nature, those Natural Resources
respond freely to the multifarious energies, the broadening knowledge
of natural law, and the intensifying skill of Labor. They are among the
natural substances and forces which are comprehended in the word Land
as a technical Economic term.
As Labor is the active factor in the production of Artificial Objects,
so Land is the corresponding passive factor.
III. ARTIFICIAL OBJECTS
Unless the category of Artificial Objects (which are the continuous
outcome of the Productive Process) be treated with like fidelity to the
meaning of technical Economic terms, there will still be confusion and
consequent bafflement in Economic study.
Yet such fidelity is sadly lacking. There is an unfortunate tendency to
indulge in the same colloquial trifling and business habits of speech
with the technical term for this Basic Fact as with the technical term
for the Man factor and the technical term for the Natural Resource
factor. Although Wealth is the generally accepted technical term
for Artificial Objects, careless uses of this term have well nigh
obliterated its technical significance.
Technically it is correct to say that Wealth is produced by Labor
applied to Land. This means neither more nor less than that Artificial
Objects are produced from and upon Natural Resources by mental and
physical exertions of Man. So used and understood, those technical
terms enable us to trace Economic details in the Productive Process
easily and accurately through all their complexities from origin to
destination. We have but to assign them to their respective categories
or Basic Facts and always to think of them in that connection. Yet, as
with Labor and Land, so with Wealth. Colloquializations and arbitrary
business meanings of this specific technical term multiply complexities
and make Economic confusion worse confounded.
By colloquial usage and in business accounts the word
“wealth”--“capital” when used as a sub-classification of Wealth,
that is, Wealth devoted to the production of more Wealth--has taken
on a variety of misleading connotations. In business accounts, for
example, whatever will bring a price to the owner is accounted
Wealth, or Capital as a sub-classification of Wealth, whether the
object of the price be a building, a domesticated animal, a slave,
a vacant building-lot, an unused agricultural area, or an improved
and cultivated farm. Some of those items of “wealth” or “capital”
do belong, Economically, in the Wealth category, buildings and
domesticated animals being among them; but many fall wholly or in part
into one or the other of the two other categories, Labor and Land.
Evidently the science of Economics, which comprehends the interests of
all and not merely those of a private business, cannot classify slaves
as Wealth. Since they are not and cannot be Artificial Objects, but are
human beings, they belong of necessity in the Man or Labor category.
They differ radically from animals. In the wild state animals belong
Economically in the category of Land (Natural Resources) as truly
as wild vegetation does; in the domesticated state they are Wealth
(Artificial Objects) as truly as produced vegetation is; and if used
to produce Wealth they are Capital (Wealth used for the production of
Wealth) as truly as machinery is. But slaves in their “wild state” are
not Natural Resources for the use of Man, as wild animals are; they are
human beings, and as such they belong in the Man category.
As used in business accounts and colloquially, the word “wealth” does,
as indicated above, include some kinds of true Economic Wealth, such as
“store goods,” buildings, farm produce, machinery and other Artificial
Objects. But in those undiscriminating uses it also includes such
Natural Resources (Land) as mineral deposits, water fronts, building
sites, railroad rights of way; also mere titles to various kinds of
property interests, such as bonds, mortgages, deeds, bank balances,
money in hand and corporation stocks.