<h2>CHAPTER 28</h2>
<h3>PRODUCTION AND THE COMBINATION OF THE FACTORS</h3>
<h4>§ I. THE NATURE OF PRODUCTION</h4>
<div class="sidenote">Man's active intervention in production here to be studied</div>
<p>1. <i>The aim of industrial effort is the increase of the quantity and
quality of scarce goods; this is economic production.</i> 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<span class="pagenum"><SPAN name="Page_258" id="Page_258">[Pg 258]</SPAN></span> 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.</p>
<div class="sidenote">The four essential characteristics of value</div>
<p>2. <i>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.</i> 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.</p>
<div class="sidenote">Economic vs. technical changes in goods</div>
<p>3. <i>Economic production (in contrast with technical or merely formal
production) is such a change in goods as is attended by an increase in
value.</i> 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<span class="pagenum"><SPAN name="Page_259" id="Page_259">[Pg 259]</SPAN></span> 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.</p>
<div class="sidenote">Acquisition vs. social production</div>
<p>4. <i>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.</i> 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<span class="pagenum"><SPAN name="Page_260" id="Page_260">[Pg 260]</SPAN></span> 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.</p>
<div class="sidenote">Industries are socially more or less productive</div>
<p>5. <i>In this sense, productive industries may be distinguished from
unproductive ones.</i> 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.</p>
<h4>§ II. COMBINATION OF THE FACTORS</h4>
<div class="sidenote">The factors of production defined</div>
<p>1. <i>The various parts, materials, and agents that unite to form products
are called the factors of production.</i> 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<span class="pagenum"><SPAN name="Page_261" id="Page_261">[Pg 261]</SPAN></span> 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.</p>
<div class="sidenote">Progressive stages of control over natural conditions</div>
<p>2. <i>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.</i> Various stages of progress in human
history have been recognized. First is the stage of <i>appropriation</i>—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 <i>pastoral</i> 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 <i>agricultural</i> 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<span class="pagenum"><SPAN name="Page_262" id="Page_262">[Pg 262]</SPAN></span>
makes the first steps in commerce. Then gradually comes the <i>industrial</i>
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.</p>
<div class="sidenote">Increasing importance of skilled organization and direction</div>
<div class="sidenote">The source of American enterprise</div>
<p>3. <i>For a high efficiency of production, as a whole, conditions must
favor the best organization and direction of industry.</i> 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<span class="pagenum"><SPAN name="Page_263" id="Page_263">[Pg 263]</SPAN></span> 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.</p>
<div class="sidenote">Growing specialization of industry</div>
<p>4. <i>A high efficiency of industry is dependent on many social causes
making possible a great specialization.</i> 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,<span class="pagenum"><SPAN name="Page_264" id="Page_264">[Pg 264]</SPAN></span> 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.</p>
<div class="sidenote">Growing importance of directive ability</div>
<p>5. <i>With the growing division of labor, grows the need of the highest
ability for the directing of industry.</i> 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.</p>
<hr class="chap" />
<p><span class="pagenum"><SPAN name="Page_265" id="Page_265">[Pg 265]</SPAN></span></p>
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