Essentials of Economic Theory / As Applied to Modern Problems of Industry and Public Policy

by John Bates Clark

So long as the substitution caused by the cheapening of aluminum affected copper only it might be a serious matter for the producers of copper; but when it came to replacing in some degree steel, stone, brick, wood, and other materials, the effect would be so diffused and subdivided as to create small disturbances in any one of these industries.

Effects of Reduced Cost of Materials which already enter into Many Finished Products.—In the case of aluminum the prospect of a greatly increased market brings with it the probability that it may come to be a component element of products into which it does not at present to a great extent enter. Such things as steel, stone, and wood already constitute important components of more articles than can be counted, and there is no great prospect that they will enter into a much greater variety of products. In the case of these materials there is a prospect that cheapness will show itself in reduced costs of the finished goods that are made of them, and that these finished goods will be used in greater quantities without substituting themselves for other things in so drastic a way as that which we have described in the case of aluminum. A reduction in the cost of steel would indeed bring about a substitution of that material for others at every point where the steel and something else are now on a plane in desirability. The type of building that now is made with plain brick walls and wooden floors, because that cheap mode of building enables it to earn a slightly larger interest on its cost, would often be made with a steel frame and concrete floors. At every such marginal point steel would gain somewhat on its rivals in the extent to which it would be used; but in addition to this enlargement of the market for it by substitution, one might count on an increase in the use of it because of an increase in the use of very many things that are already made of it. Some of these cater to highly elastic wants, and persons who use a quantity of them may be induced to use more without discarding anything else. Such an absolute enlargement of consumption is highly probable in the case of any material that enters into a vast number of products, and this, together with the enlargements that come by substitution, may suffice to create a great demand for the raw material and call for as much labor in the subgroup that makes it as was used before the improvement was made. In the case of the raw materials of industry the resources for gaining an increased market by substitution are:—

(1) The substitution of the material for others in uses different from those in which it is now employed;

(2) The substitution of it for other materials in the marginal parts of its present field, where it is already nearly as available as other things;

(3) The substitution of the finished consumers' goods made of it for other consumers' goods.

In addition to all these there is the direct increase in the use of finished goods wholly or partly made of the material by persons who do not, for this reason, discard any other goods.

This statement places the different influences in the order of their relative efficiency in the majority of cases in which they act.

Effects of cheapening Tools of Industry.—What is true of a raw material which enters into many completed products is true of the tools of industry which are used for many purposes. A turning lathe, a planing machine, or a circular saw helps to make a large number of products, and the assertions we have made concerning steel, stone, or wood apply to it. As it becomes cheaper it gains an enlargement of its market by a combination of the four influences just enumerated. It is brought into new uses, is employed more in its present marginal uses, and is required in greater quantity because its products are substituted for other things and are also required in greater amounts independently of these substitutions.

Cheap Motive Forces.—Motive power is so nearly universal in its applications that developing a cheap source of it is much like improving the method of producing everything and securing a universal increase of products. We shall see why such a general enlargement of the output of all the shops creates no displacements of labor which entail hardships. If the power is used more in the upper subgroups than in the lower ones,—if it is more frequently available for fashioning raw materials than for producing them through agriculture or mining,—the development of it checks in some degree the drift of labor from the lower subgroups toward the upper ones, which has been referred to in an earlier chapter.

Utilizing the power of Niagara, that of Alpine torrents and other unused streams, that of the waves of the sea, and that which has long slumbered in the culm heaps of coal mines, will give increased facility for producing nearly everything; and though the amount of the enlargement of output will vary in different cases and some effect on the movements of labor will be produced, few serious hardships will result, and a majority of the persons who will suffer from these changes at all will get an offsetting benefit from the enlarging productiveness of industry.