F.— ECONOMIC SCIENCE AND STATISTICS. 121 



productive appliances is more ela&tiC; and beyond a certain level of costs 

 demand may fail completely. In such circumstances secondary economies 

 may become highly important. 



Doubtless, much of what I have said has been familiar and even 

 elementary. I shall venture, nevertheless, to put further stress upon two 

 points, which may be among those which have a familiar ring, but which 

 appear sometimes to be in danger of being forgotten. (Otherwise, 

 economists of standing could not have suggested that increasing returns 

 may be altogether illusory, or have maintained that where they are 

 present they must lead to monopoly.) The first point is that the principal 

 economies which manifest themselves in increasing returns are the 

 economies of capitalistic or roundabout methods of production. These 

 economies, again, are largely identical with the economies of the division 

 of labour in its most important modern forms. In fact, these economies 

 lie under our eyes, but we may miss them if we try to make of large-scale 

 production (in the sense of production by large firms or large industries), as 

 contrasted with large production, any more than an incident in the general 

 process by which increasing returns are secured and if accordingly we 

 look too much at the individual firm or even, as I shall suggest presently, 

 at the individual industry. 



The second point is that the economies of roundabout methods, even 

 more than the economies of other forms of the division of labour, depend 

 upon the extent of the market — and that, of course, is why we discuss 

 them under the head of increasing returns. It would hardly be necessary 

 to stress this point, if it were not that the economies of large-scale 

 operations and of ' mass-production ' are often referred to as though they 

 could be had for the taking, by means of a ' rational ' reorganisation of 

 industry. Now I grant that at any given time routine and inertia play 

 a very large part in the organisation and conduct of industrial operations. 

 Eeal leadership is no more common in industrial than in other pursuits. 

 New catch-words or slogans like mass-production and rationalisation may 

 operate as stimuli ; they may rouse men from routine and lead them to 

 scrutinise again the organisation and processes of industry and to try to 

 discover particular ways in which they can be bettered. For example, 

 no one can doubt that there are genuine economies to be achieved in the 

 way of ' simplification and standardisation,' or that the securing of these 

 economies requires that certain deeply rooted competitive wastes be 

 extirpated. This last requires a definite concerted effort — precisely the 

 kind of thing which ordinary competitive motives are often powerless to 

 effect, but which might come more easily as the response to the dis- 

 semination of a new idea. 



There is a danger, however, that we shall expect too much from these 

 ' rational ' industrial reforms. Pressed beyond a certain point they become 

 the reverse of rational. I have naturally been interested in British 

 opinions respecting the reasons for the relatively high productivity (per 

 labourer or per hour of labour) of representative American industries. 

 The error of those who suggest that the explanation is to be found in the 

 relatively high wages which prevail in America is not that they confuse 

 cause and effect, but that they hold that what are really only two aspects 

 of a single situation are, the one cause, and the other effect. Those who 



