122 SECTIONAL ADDRESSES. 



hold that American industry is managed better, that its leaders study its 

 problems more intelligently and plan more courageously and more wisely 

 can cite no facts in support of their opinion save the differences in the 

 results achieved. Allowing for the circumstance that British industry, as 

 a whole, has proved to be rather badly adjusted to the new post-war 

 economic situation, I know of no facts which prove or even indicate that 

 British industry, seen against the background of its own problems and its 

 own possibilities, is less efficiently organised or less ably directed than 

 American industry or the industry of any other country. 



Sometimes the fact that the average American labourer works with the 

 help of a larger supply of power-driven labour-saving machinery than the 

 labourer of other countries is cited as evidence of the superior intelligence 

 of the average American employer. But this will not do, for, as every 

 economist knows, the greater the degree in which labour is productive or 

 scarce — the words have the same meaning — the greater is the relative 

 economy of using it in such indirect or roundabout ways as are technically 

 advantageous, even though such procedure calls for larger advances of 

 capital than simpler methods do. 



It is encouraging to find that a fairly large number of commentators 

 upon the volume of the American industrial product and the scale of 

 American industrial organisation have come to surmise that the extent of 

 the American domestic market, unimpeded by tarifE barriers, may have 

 something to do with the matter. This opinion seems even to be forced 

 upon thoughtful observers by the general character of the facts, whether 

 or no the observers think in terms of the economists' conception of 

 increasing returns. In certain industries, although by no means in all, 

 productive methods are economical and profitable in America which 

 would not be profitable elsewhere. The importance of coal and iron and 

 other natural resources needs no comment. Taking a country's economic 

 endowment as given, however, the most important single factor in deter- 

 mining the effectiveness of its industry appears to be the size of the 

 market. But just what constitutes a large market ? Not area or popula- 

 tion alone, but buying power, the capacity to absorb a large annual output 

 of goods. This trite observation, however, at once suggests another 

 equally trite, namely, that capacity to buy depends upon capacity to 

 produce. In an inclusive view, considering the market not as an outlet 

 for the products of a particular industry, and therefore external to that 

 industry, but as the outlet for goods in general, the size of the market 

 is determined and defined by the volume of production. If this statement 

 needs any qualification, it is that the conception of a market in this 

 inclusive sense — an aggregate of productive activities, tied together by 

 trade — carries with it the notion that there must be some sort of balance, 

 that different productive acti\'ities must be proportioned one to another. 



Modified, then, in the light of this broader conception of the market, 

 Adam Smith's dictum amounts to the theorem that the division of labour 

 depends in large part upon the division of labour. This is more than 

 mere tautology. It means, if I read its significance rightly, that the 

 counter forces which are continually defeating the forces which make 

 for economic equilibrium are more pervasive and more deeply rooted in 

 the constitution of the modern economic system than we commonly 



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