PRODUCTION AND THE COMBINATION OF THE FACTORS
§ I. THE NATURE OF PRODUCTION
Man's active intervention in production here to be studied
1. The aim of industrial effort is the increase of the quantity and quality of scarce goods; this is economic production. The thought has become familiar to the student that the supply of economic resources of whatever sort is limited, while the wants are practically unlimited. A supply of consumption goods meets a perennial stream of wants, the result being that value is attributed to things. The aim of production is to add to scarce things, to make the supply of goods as large as possible. There is occasion here to recall the thought of the two aspects of production noticed in Chapter 24. Man's part in production is passive when goods come into existence without his effort. One can imagine the indolent savage of the tropics, lying under the banana-tree, letting the fruit drop into his mouth. One can conceive of a tribe living upon manna, where every day the people awoke to discover a certain amount of food provided to each person's hand. Though no effort could increase that amount, still, if the food differed in flavor and the better qualities were rare, value would come into existence and exchange would arise. Now there is something very analogous to that in daily experience. There are some goods which effort can do little to, increase. Usually, however, there is a possibility of change and adaptation to make them better suited to needs, and there is required the use of intelligence to choose among the goods and to employ them in the best way. Further, man can intervene and direct the course of industry; he does not merely gather what is provided. It is this active intervention and effort that is here to be considered.
The four essential characteristics of value
2. To have value, a thing must be of the right stuff, in the right form, at the right time, and at the right place to gratify wants. A distinction is sometimes made between elemental, form, time, and place value. It is a mistake to say that the value of anything is due to any one of these features, for to have value all must be united in a single thing. But the distinction is useful in emphasizing the missing characteristics, which if supplied, cause value to emerge. Ice may be considered to have form value when produced artificially by a machine, time value when stored from winter to summer, and place value when brought from the north to the south. But not less essential is the psychological condition of a hungry and thirsty population ready to consume the ice. Any act or agent is said to be productive which works in any one of these respects: puts things in better form, or in a more fitting place, or provides them at a more fitting time to serve human wants.
Economic vs. technical changes in goods
3. Economic production (in contrast with technical or merely formal production) is such a change in goods as is attended by an increase in value. It is often well to contrast form, appearance, imitation, with the thing itself, the reality. Men sometimes go through the forms of study when their eyes and thoughts are wandering; through the form of getting a college education when they are simply having a good time. Likewise in production there is the form and the reality. The young lady just out of boarding-school rarely produces a masterpiece with the tubes and brushes that Raphael might have used. The justification for amateur work is to be found in the doing and not in the market value of the result. Blue rosebuds, painted with loving if unskilled touch on red velvet slippers, may bloom into a romance and happiness; but to the economist this appears to be a consumption of good pigment for amusement, not a creation of value. The difference between the form and value of productive effort becomes, in the study of business organization, a most essential question. The significance of leadership and control of industry is found in this fact that economic goods may be united to produce results having either a less or a greater value than the materials that are used.
Acquisition vs. social production
4. Individual acquisition may be contrasted with social production in cases where the individual increases his wealth at the expense of others, without adding to value. Most economic efforts increase the income of the individual and the income of society at the same time. The fruits of the field and the uses of machines are net additions to current income; they are not merely subtracted from the income of one and added to that of another. The increase of products by labor may depress somewhat the exchange value of competing labor, but the general welfare is furthered by the greater abundance. With very slight qualification it is true that in these cases the good of each is the good of all. But in some forms of human effort, social and individual interests clash. When two men bet, one gains and the other loses. The gambler's gain is a loss not only directly to his beaten opponent but indirectly to society. Certain forms of speculation approach dangerously near to the appropriation of the goods of others, and others become outright stealing, or cheating so nearly like stealing that it would be treated as a crime if discovered. But many a man prowls along the border-line of crime all his life and succeeds in making large gains without falling into the clutches of the law. Cheating that can be detected, and outright stealing, are prohibited by the law not because the burglar is an idler; he loses sleep; he has his trials too. The pursuit of burglary requires courage, effort, and ingenuity, but society does not reward these as virtues nor recognize as production the transfer of wealth from the bank-vault to the pocket of the burglar. It is the aim of social institutions to harmonize individual and social interests in the pursuit of wealth, to force men into lines of action where individual acquisition adds to the sum of social utilities. But there are many marginal cases where human justice discriminates only in a bungling way, and many controverted questions arise at the meeting-point of ethics, economics, and law.
Industries are socially more or less productive
5. In this sense, productive industries may be distinguished from unproductive ones. The old distinction between productive and unproductive labor rested on the idea that production must be embodied in material and lasting form. We have rejected this for the thought that the tests of production are to be found in feeling, not in outward things. The distinction, therefore, between productive and unproductive labor must now be of a very different kind. Viewed from the social standpoint, the efforts of men may be seen to be directed along more or less productive lines. Enterprise and effort shade off from the more to the less productive, from the extreme where the value is a net addition to wealth, through other cases where one's gain is partly at the cost of others, to fraud and crime where there is merely a transfer of ownership.
§ II. COMBINATION OF THE FACTORS
The factors of production defined
1. The various parts, materials, and agents that unite to form products are called the factors of production. In a general sense every separate thing that enters into industry is a factor; as, in agriculture, for example, the seed, plows, fields, fences, barns, cattle, labor. But usually in economic discussion, these numerous factors are grouped in large classes. The main factors are two, variously named as man and nature, or labor and material agents, or humanity and wealth. Rejecting, as we have, the old view as to the nature of consumption goods and as to the nature and possibility of the distinction between "land" and artificial capital, we class under wealth all material economic agents whatsoever. The discussion of labor and wages has broadly laid down the principles that apply to the value of human effort, but the factor of directing energy presents in modern society so many important features that it calls for special and fuller consideration.
Progressive stages of control over natural conditions
2. The economic progress of society has been marked by decreasing dependence on the bounties and chances of nature and by increasing control of natural forces by man. Various stages of progress in human history have been recognized. First is the stage of appropriation—the stage of hunting, or of fishing, or of gathering fruits. Man in this stage is still an animal in his economic methods, not guiding and controlling nature, but merely gathering what nature chances to bring forth. The limitations to man's powers in this stage are marked. There is excess of supply and waste at one season, scarcity and great suffering at another. With such crude utilization of the bounties of nature, a vast area will support but a small population. When sheep and cattle have been domesticated, and where there is a large area for grazing, industry rises to the pastoral stage. While still dependent on nature's bounties for the feeding of his cattle, man is hourly intervening to increase, regulate, and improve the supply of food and materials. Famines are more rare, economic welfare is greater, a greater population is nourished on the same area. The agricultural stage begins whenever man plants seeds, trims, tends, and increases by his care the supply of vegetable food. This is a still greater intervention in the course of nature. Man anticipates the future, directs forces, and groups materials to his purpose of getting a regular food-supply. He is thus himself forced into settled life, begins hand-production, and makes the first steps in commerce. Then gradually comes the industrial stage, in which control over nature grows, supplies increase, machinery and motive forces are utilized, and humanity is in the full tide of industrial development. These are not sharply marked changes, but throughout all there is a growth of security, of certainty, and of productivity. With man's increasing power and foresight, chance is lessened, for directing energy takes its place.
Increasing importance of skilled organization and direction
The source of American enterprise
3. For a high efficiency of production, as a whole, conditions must favor the best organization and direction of industry. Industry is dependent primarily upon natural resources. Climate, rainfall, iron deposits, fuel, supply of wood or coal, predetermine in large measure the limits within, and the direction in which, the industry of any community can move. The progress of production depends also on an increasing efficiency of labor as embodied in individual men, and upon social and political conditions making possible an increase of capital. But—a condition as important as any of these—production is dependent also on a wise combination of the factors. Social, political, and economic conditions must be such as to call forth the factor of direction and control of industry, to make possible industrial progress. This is one of the greatest sources of America's superiority to-day. It has been strikingly said that it is now no longer "young America and old Europe," but "old America and young Europe." America is older in industrial experience; Europe, with undeveloped resources, awaits the touch of American methods and machinery. There are dynamic forces in American society not present in equal degree in any other. It is therefore not alone the great resources of coal and iron,—equal resources may be found in unexplored parts of the world,—it is the dynamic social forces, invention, enterprise, and organization, which have brought America to the forefront in industry. Her natural resources have thus yielded an incentive and a premium to enterprise as a sort of by-product. Absence of caste, political liberty, the democracy following the spread of the frontier, have not made it possible for every one to succeed, but they have made it possible, as nowhere else in the world, for real ability to scale the barriers of birth, poverty, and hardship. A conservative population never can equal a progressive population in industrial efficiency. It has been remarked that America has little to fear from Oriental competition so long as the avenues of education and enterprise are open to her young men, insuring her the highest capacity in the organization and direction of industry.
Growing specialization of industry
4. A high efficiency of industry is dependent on many social causes making possible a great specialization. It was said in another connection that division of labor is dependent upon the size of the market. With a large population massed at one spot, so that the demand for even the less important products is large, there may be a high specialization of industry. An increase of transportation, such as railways and telegraphs, is equivalent for many economic purposes to growth of population on one spot. In colonial days it took ten days to go from Boston to Philadelphia, and two weeks to go to Washington. San Francisco is now for many economic purposes but one fourth as far from Boston as Washington was at that time. California and the eastern states are distant only thirty minutes by telegraph and three days and a fraction by railroad, and are thus in many respects in the same market. The great development during the past century in the means of communication and of carriage has made possible, as never before, the massing of population to secure the advantages of division of labor in most lines, without meeting the hitherto insurmountable difficulty in the securing of food for such large numbers in a limited space. The population draws its food from the whole vast area; whereas it is massed at the points more favorable for other products and can make use of the most highly specialized machinery. These several conditions thus have favored the growth of large industry under a single control and direction, on a scale never before approached. These changes have brought in their train social problems connected with the concentration of economic power. It remains to be seen whether the unquestioned economies of this new organization can be retained and improved while it is divested of its evils.
Growing importance of directive ability
5. With the growing division of labor, grows the need of the highest ability for the directing of industry. Ability may be judged by various standards. From one point of view, the scientific mind, grouping facts in the cold light of reason to arrive at truth, is the highest type. But supreme, each in his own sphere, are also the artist expressing, through painting, poetry, dramatic action, and music, the subtleties and complexities of feeling, the moral philosopher, the prophet, the preacher, in the best sense of the term the teacher, all aiding to guide the spiritual forces of humanity along lines that make for social welfare. Not least is the business enterpriser, whose function is to direct the economic forces for production. It is vain to assign a mean place to the organizing intelligence and its social work. Its importance grows apace with the growing magnitude and complexity of industry. Misjudgment now will destroy more wealth, and wise judgment can produce larger results, than ever before. The captain of industry also may work as an artist or as a gambler; he may, by the methods he pursues, uplift the moral plane of his society or he may help to corrupt and degrade it. No citizen is in control of more potent influence for good or ill than the successful business organizer. On the attitude of society toward him, and on the standards to which he is held, depend in large measure the use that will be made of his exceptional powers.