Sept. 19, 1889J 



NATURE 



505 



this premise without expressing an opinion as to its accuracy. It 

 is fortunate not to have to take sides on an issue concern- 

 ing which the highest authorities are divided, and statistical 

 demonstration is hardly possible. 



But, though the expositor of method is not called to dispute 

 the truth of this proposition, he has something to say against the 

 evidence which has been adduced in proof of it. He must enter 

 a protest against the form of the following argument : — 



"Let our hypothesis be clearly understood. We assume, 

 first, that there is in a given community a number of employers, 

 more or fewer, who alone are, by law or by custom, permitted 

 to do the business of that community, ... or else who are so 

 exceptionally gifted and endowed by Nature for performing this 

 industrial function that no one not of that class would aspire 

 thereto, or would be conceded any credit or patronage should 

 he so aspire. Secondly, we assume that neither in point of 

 ability nor opportunity has any one member of this class an 

 advantage as against another, . . .all being, we might say, 

 the exact copies of the type taken, whether that should involve 

 a very high or a comparatively low order of industrial power. 



"Now, in the case assumed, what would be true of business 

 profits, the remuneration of the employing class? I answer, 

 that if the members of this class were 

 few, they might conceivably effect a 

 combination among themselves, and 

 ... fix a standard for their own 

 remuneration. ... If, however, 



■ the community were a large one, and 

 if the business class . . . were nu- 



■ merous, such a combination . . . 

 would be impracticable, . . . the 

 members of the business class would 

 begin to compete with each other. 

 From the moment competition set 

 in it would find no natural stoppirg- 

 place until it had reduced profits to 

 that minimum which, for the purposes 

 of the present discussion, we call nil, 



" What, in the case supposed, would 

 be the minimum of profits? I answer : 

 This would depend upon an element 

 not yet introduced into our problem. 

 The ultimate minimum would be the 

 amount of profits necessary to keep 

 alive a sufficient number of the em- 

 ploying class to transact the business 

 of the community. Whether, how- 

 ever, competition would force profits 

 down to this low point would depend 

 on the ability or inability of the em- 

 ploying class to escape into the labour- 

 ing class. We have supposed that 

 labourers could not become em- 

 ployers ; but it does not follow that 

 employers might not become labourers 

 an d earn the wages of labourers. . . ." 

 {Quarterly Journal of Economics, 

 1887, p. 270 and context). 



This reasoning will puzzle those who have received the abstract 

 theory of supply and demand as formulated by the mathematical 

 section [above, notes (a) and {d)\ Because the dealers on one 

 side of a market, as the employers in the labour market, com- 

 pete against each other without combination, it does not follow 

 that the advantage which they obtain from their bargains is ml. 

 The minimum to which the play of competition tends is not 

 necessarily small in the sense of a bare subsistence. It is a 

 minimum only in the mathematical sense in which every position 

 of equilibrium is a minimum (of potential energy in physics ; in 

 psychics, may we say, of potential utility). See note {d). 



Representing the ^«/';'^/;r;/^7</.f demand for work by the curve 

 OG (Fig. 5), where the abscissa measures work done, and the 

 ordinate money payable out of the wages and profit fund, and 

 putting OE for the offer of the workmen, we see that the point 

 r may differ to any extent from the utility-curve ON, which in- 

 dicates the advantage of a transaction [see note (</)]. As far as 

 abstract theory, without specific data, carries us, the competing 

 entrepreneurs may make very good bargains. They may be 

 ever so prosperous ; they may be, in Burke's fine phrase, 

 "gambolling in an ocean of superfluity." 



So far, on the hypothesis that neither in point of ability nor 



opportunity has any one member of this class an advantage as 

 against another. The heterogeneity of faculty will, of course, 

 introduce a graduation of gain. But in this flight of steps it is 

 not necessary that the lowest should be on a level with the grade 

 of common labour. The scale of profits may be a sort of Jacob's 

 ladder, culminating in a paradise of luxury, and having its lowest 

 rung suspended high above the plain of ordinary wages. 



Let us suppose, however, that the writer has tacitly made some 

 assumption as to the numbers of the "numerous" business class re- 

 latively to the " large " community (compare the parallel passages 

 in his "Political Economy," Arts.). Still, what does the con- 

 sideration of business profits as rent do more than the received 

 principle of supply and demand? If the workmen, believing 

 that in the distribution regulated by competition too much has 

 been assigned to brain and too little to muscle, determine to 

 reduce profits by means of a combination, should they stay their 

 hand because they are told that profits (above the lowest grade) 

 are of the nature of rent ? The terms " rent " and " margin " may 

 indeed suggest that the extra profits of the abler entrepreneurs 

 exactly correspond to their greater ability. It might seem that 

 if, so to speak, we pushed down all the higher faculties to the 

 level of the lowest grade of business power, the diminution of 



Fig. 6. 



the total distributed to the wages and profits fund would exactly 

 correspond to the subtraction from the earnings of the degraded 

 entrepreneurs, while everything else remained constant. Con- 

 versely, it might be argued that the increment of produce due 

 to the existence of superior ability may justly be assigned as 

 extra profit. 



But how little appropriate is this precise conception will at once 

 appear from the annexed diagram. Let OE in Fig. 6 represent 

 the entrepreneur' s demand, OW the workmen's offer of labour, 

 the abscissa representing work done, and the ordinate wages 

 payable out of the wages and profits funds (abstraction being 

 made of interest and rent for land). Let OE be formed by the 

 superposition of O^q. the demand-curve for the lowest collective 

 entrepreneurs, and one or more curves, such as O^i, appertaining 

 to the entrepreneurs of higher ability. Now let us shrink these 

 higher natures to the zero of business ability. The individual 

 demand- curve for each degraded entrepreneur will become iden- 

 tical with that from which 0^„ was formed (by the combination 

 of all the demand curves for the lowe-t grade). The new 

 demand-curve will therefore be of the form OE' intersecting 

 with OW at the point ;', (Whether the disturbance will stop 

 there will depend upon the nature of the communication between 



