Part 15

Economics of the line represented at its best by Mr. Clark has never entered this field of cumulative change. It does not approach questions of the class which occupy the modern sciences,--that is to say, questions of genesis, growth, variation, process (in short, questions of a dynamic import),--but confines its interest to the definition and classification of a mechanically limited range of phenomena. Like other taxonomic sciences, hedonistic economics does not, and cannot, deal with phenomena of growth except so far as growth is taken in the quantitative sense of a variation in magnitude, bulk, mass, number, frequency. In its work of taxonomy this economics has consistently bound itself, as Mr. Clark does, by distinctions of a mechanical, statistical nature, and has drawn its categories of classification on those grounds. Concretely, it is confined, in substance, to the determination of and refinements upon the concepts of land, labor, and capital, as handed down by the great economists of the classical era, and the correlate concepts of rent, wages, interest and profits. Solicitously, with a painfully meticulous circumspection, the normal, mechanical metes and bounds of these several concepts are worked out, the touchstone of the absolute truth aimed at being the hedonistic calculus. The facts of use and wont are not of the essence of this mechanical refinement. These several categories are mutually exclusive categories, mechanically speaking. The circumstance that the phenomena covered by them are not mechanical facts is not allowed to disturb the pursuit of mechanical distinctions among them. They nowhere overlap, and at the same time between them they cover all the facts with which this economic taxonomy is concerned. Indeed, they are in logical consistency, required to cover them. They are hedonistically "natural" categories of such taxonomic force that their elemental lines of cleavage run through the facts of any given economic situation, regardless of use and wont, even where the situation does not permit these lines of cleavage to be seen by men and recognised by use and wont; so that, e.g., a gang of Aleutian Islanders slushing about in the wrack and surf with rakes and magical incantations for the capture of shell-fish are held, in point of taxonomic reality, to be engaged on a feat of hedonistic equilibration in rent, wages, and interest. And that is all there is to it. Indeed, for economic theory of this kind, that is all there is to any economic situation. The hedonistic magnitudes vary from one situation to another, but, except for variations in the arithmetical details of the hedonistic balance, all situations are, in point of economic theory, substantially alike.

Taking this unfaltering taxonomy on its own recognisances, let us follow the trail somewhat more into the arithmetical details, as it leads along the narrow ridge of rational calculation, above the tree-tops, on the levels of clear sunlight and moonshine. For the purpose in hand--to bring out the character of this current economic science as a working theory of current facts, and more particularly "as applied to modern problems of industry and public policy" (title-page)--the sequence to be observed in questioning the several sections into which the theoretical structure falls is not essential. The structure of classical theory is familiar to all students, and Mr. Clark's redaction offers no serious departure from the conventional lines. Such divergence from conventional lines as may occur is a matter of details, commonly of improvements in detail; and the revisions of detail do not stand in such an organic relation to one another, nor do they support and strengthen one another in such a manner, as to suggest anything like a revolutionary trend or a breaking away from the conventional lines.

So as regards Mr. Clark's doctrine of Capital. It does not differ substantially from the doctrines which are gaining currency at the hands of such writers as Mr. Fisher or Mr. Fetter; although there are certain formal distinctions peculiar to Mr. Clark's exposition of the "Capital Concept." But these peculiarities are peculiarities of the method of arriving at the concept rather than peculiarities substantial to the concept itself. The main discussion of the nature of capital is contained in chapter ii. (Varieties of Economic Goods). The conception of capital here set forth is of fundamental consequence to the system, partly because of the important place assigned capital in this system of theory, partly because of the importance which the conception of capital must have in any theory that is to deal with problems of the current (capitalistic) situation. Several classes of capital-goods are enumerated, but it appears that in Mr. Clark's apprehension--at variance with Mr. Fisher's view--persons are not to be included among the items of capital. It is also clear from the run of the argument, though not explicitly stated, that only material, tangible, mechanically definable articles of wealth go to make up capital. In current usage, in the business community, "capital" is a pecuniary concept, of course, and is not definable in mechanical terms; but Mr. Clark, true to the hedonistic taxonomy, sticks by the test of mechanical demarcation and draws the lines of his category on physical grounds; whereby it happens that any pecuniary conception of capital is out of the question. Intangible assets, or immaterial wealth, have no place in the theory; and Mr. Clark is exceptionally subtle and consistent in avoiding such modern notions. One gets the impression that such a notion as intangible assets is conceived to be too chimerical to merit attention, even by way of protest or refutation.

Here, as elsewhere in Mr. Clark's writings, much is made of the doctrine that the two facts of "capital" and "capital-goods" are conceptually distinct, though substantially identical. The two terms cover virtually the same facts as would be covered by the terms "pecuniary capital" and "industrial equipment." They are for all ordinary purposes coincident with Mr. Fisher's terms, "capital value" and "capital," although Mr. Clark might enter a technical protest against identifying his categories with those employed by Mr. Fisher. "Capital is this permanent fund of productive goods, the identity of whose component elements is forever changing. Capital-goods are the shifting component parts of this permanent aggregate" (p. 29). Mr. Clark admits (pp. 29-33) that capital is colloquially spoken and thought of in terms of value, but he insists that in point of substantial fact the working concept of capital is (should be) that of "a fund of productive goods," considered as an "abiding entity." The phrase itself, "a fund of productive goods," is a curiously confusing mixture of pecuniary and mechanical terms, though the pecuniary expression, "a fund," is probably to be taken in this connection as a permissible metaphor.

This conception of capital, as a physically "abiding entity" constituted by the succession of productive goods that make up the industrial equipment, breaks down in Mr. Clark's own use of it when he comes (pp. 37-38) to speak of the mobility of capital; that is to say, so soon as he makes use of it. A single illustration of this will have to suffice, though there are several points in his argument where the frailty of the conception is patent enough. "The transfer of capital from one industry to another is a dynamic phenomenon which is later to be considered. What is here important is the fact that it is in the main accomplished without entailing transfers of capital-goods. An instrument wears itself out in one industry, and instead of being succeeded by a like instrument in the same industry, it is succeeded by one of a different kind which is used in a different branch of production" (p. 38),--illustrated on the preceding page by a shifting of investment from a whaling-ship to a cotton-mill. In all this it is plain that the "transfer of capital" contemplated is a shifting of investment, and that it is, as indeed Mr. Clark indicates, not a matter of the mechanical shifting of physical bodies from one industry to the other. To speak of a transfer of "capital" which does not involve a transfer of "capital-goods" is a contradiction of the main position, that "capital" is made up of "capital-goods." The continuum in which the "abiding entity" of capital resides is a continuity of ownership, not a physical fact. The continuity, in fact, is of an immaterial nature, a matter of legal rights, of contract, of purchase and sale. Just why this patent state of the case is overlooked, as it somewhat elaborately is, is not easily seen. But it is plain that, if the concept of capital were elaborated from observation of current business practice, it would be found that "capital" is a pecuniary fact, not a mechanical one; that it is an outcome of a valuation, depending immediately on the state of mind of the valuers; and that the specific marks of capital, by which it is distinguishable from other facts, are of an immaterial character. This would, of course, lead, directly, to the admission of intangible assets; and this, in turn, would upset the law of the "natural" remuneration of labor and capital to which Mr. Clark's argument looks forward from the start. It would also bring in the "unnatural" phenomena of monopoly as a normal outgrowth of business enterprise.

There is a further logical discrepancy avoided by resorting to the alleged facts of primitive industry, when there was no capital, for the elements out of which to construct a capital concept, instead of going to the current business situation. In a hedonistic-utilitarian scheme of economic doctrine, such as Mr. Clark's, only physically productive agencies can be admitted as efficient factors in production or as legitimate claimants to a share in distribution. Hence capital, one of the prime factors in production and the central claimant in the current scheme of distribution, must be defined in physical terms and delimited by mechanical distinctions. This is necessary for reasons which appear in the succeeding chapter, on The Measure of Consumers' Wealth.

On the same page (38), and elsewhere, it is remarked that "business disasters" destroy capital in part. The destruction in question is a matter of values; that is to say, a lowering of valuation, not in any appreciable degree a destruction of material goods. Taken as a physical aggregate, capital does not appreciably decrease through business disasters, but, taken as a fact of ownership and counted in standard units of value, it decreases; there is a destruction of values and a shifting of ownership, a loss of ownership perhaps; but these are pecuniary phenomena, of an immaterial character, and so do not directly affect the material aggregate of the industrial equipment. Similarly, the discussion (pp. 301-314) of how changes of method, as, e.g., labor-saving devices, "liberate capital," and at times "destroy" capital, is intelligible only on the admission that "capital" here is a matter of values owned by investors and is not employed as a synonym for industrial appliances. The appliances in question are neither liberated nor destroyed in the changes contemplated. And it will not do to say that the aggregate of "productive goods" suffers a diminution by a substitution of devices which increases its aggregate productiveness, as is implied, e.g., by the passage on page 307, if Mr. Clark's definition of capital is strictly adhered to. This very singular passage (pp. 306-311, under the captions, Hardships entailed on Capitalists by Progress, and the Offset for Capital destroyed by Changes of Method) implies that the aggregate of appliances of production is decreased by a change which increases the aggregate of these articles in that respect (productivity) by virtue of which they are counted in the aggregate. The argument will hold good if "productive goods" are rated by bulk, weight, number, or some such irrelevant test, instead of by their productivity or by their consequent capitalised value. On such a showing it should be proper to say that the polishing of plowshares before they are sent out from the factory diminishes the amount of capital embodied in plowshares by as much as the weight or bulk of the waste material removed from the shares in polishing them.

Several things may be said of the facts discussed in this passage. There is, presumably, a decrease, in bulk, weight, or number, of the appliances that make up the industrial equipment at the time when such a technological change as is contemplated takes place. This change, presumably, increases the productive efficiency of the equipment as a whole, and so may be said without hesitation to increase the equipment as a factor of production, while it may decrease it, considered as a mechanical magnitude. The owners of the obsolete or obsolescent appliances presumably suffer a diminution of their capital, whether they discard the obsolete appliances or not. The owners of the new appliances, or rather those who own and are able to capitalise the new technological expedients, presumably gain a corresponding advantage, which may take the form of an increase of the effective capitalisation of their outfit, as would then be shown by an increased market value of their plant. The largest theoretical outcome of the supposed changes, for an economist not bound by Mr. Clark's conception of capital, should be the generalisation that industrial capital--capital considered as a productive agent--is substantially a capitalisation of technological expedients, and that a given capital invested in industrial equipment is measured by the portion of technological expedients whose usufruct the investment appropriates. It would accordingly appear that the substantial core of all capital is immaterial wealth, and that the material objects which are formally the subject of the capitalist's ownership are, by comparison, a transient and adventitious matter. But if such a view were accepted, even with extreme reservations, Mr. Clark's scheme of the "natural" distribution of incomes between capital and labor would "go up in the air," as the colloquial phrase has it. It would be extremely difficult to determine what share of the value of the joint product of capital and labor should, under a rule of "natural" equity, go to the capitalist as an equitable return for his monopolisation of a given portion of the intangible assets of the community at large. The returns actually accruing to him under competitive conditions would be a measure of the differential advantage held by him by virtue of his having become legally seized of the material contrivances by which the technological achievements of the community are put into effect.

Yet, if in this way capital were apprehended as "an historical category," as Rodbertus would say, there is at least the comfort in it all that it should leave a free field for Mr. Clark's measures of repression as applied to the discretionary management of capital by the makers of trusts. And yet, again, this comforting reflection is coupled with the ugly accompaniment that by the same move the field would be left equally free of moral obstructions to the extreme proposals of the socialists. A safe and sane course for the quietist in these premises should apparently be to discard the equivocal doctrines of the passage (pp. 306-311) from which this train of questions arises, and hold fast to the received dogma, however unworkable, that "capital" is a congeries of physical objects with no ramifications or complications of an immaterial kind, and to avoid all recourse to the concept of value, or price, in discussing matters of modern business.

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The center of interest and of theoretical force and validity in Mr. Clark's work is his law of "natural" distribution. Upon this law hangs very much of the rest, if not substantially the whole structure of theory. To this law of distribution the earlier portions of the theoretical development look forward, and this the succeeding portions of the treatise take as their point of departure. The law of "natural" distribution says that any productive agent "naturally" gets what it produces. Under ideally free competitive conditions--such as prevail in the "static" state, and to which the current situation approximates--each unit of each productive factor unavoidably gets the amount of wealth which it creates,--its "virtual product," as it is sometimes expressed. This law rests, for its theoretical validity, on the doctrine of "final productivity," set forth in full in the Distribution of Wealth, and more concisely in the Essentials--"one of those universal principles which govern economic life in all its stages of evolution."

In combination with a given amount of capital, it is held, each succeeding unit of added labor adds a less than proportionate increment to the product. The total product created by the labor so engaged is at the same time the distributive share received by such labor as wages; and it equals the increment of product added by the "final" unit of labor, multiplied by the number of such units engaged. The law of "natural" interest is the same as this law of wages, with a change of terms. The product of each unit of labor or capital being measured by the product of the "final" unit, each gets the amount of its own product.

In all of this the argument runs in terms of value; but it is Mr. Clark's view, backed by an elaborate exposition of the grounds of his contention, that the use of these terms of value is merely a matter of convenience for the argument, and that the conclusions so reached--the equality so established between productivity and remuneration--may be converted to terms of goods, or "effective utility," without abating their validity.

Without recourse to some such common denominator as value the outcome of the argument would, as Mr. Clark indicates, be something resembling the Ricardian law of differential rent instead of a law drawn in homogeneous terms of "final productivity"; and the law of "natural" distribution would then, at the best, fall short of a general formula. But the recourse to terms of value does not, as Mr. Clark recognises, dispose of the question without more ado. It smooths the way for the argument, but, unaided, it leaves it nugatory. According to Hudibras, "The value of a thing Is just as much as it will bring," and the later refinements on the theory of value have not set aside this dictum of the ancient authority. It answers no pertinent question of equity to say that the wages paid for labor are as much as it will bring. And Mr. Clark's chapter (xxiv.) on "The Unit for Measuring Industrial Agents and their Products" is designed to show how this tautological statement in terms of market value converts itself, under competitive conditions, into a competent formula of distributive justice. It does not conduce to intelligibility to say that the wages of labor are just and fair because they are all that is paid to labor as wages. What further value Mr. Clark's extended discussion of this matter may have will lie in his exposition of how competition converts the proposition that "the value of a thing is just as much as it will bring" into the proposition that "the market rate of wages (or interest) gives to labor (or capital) the full product of labor (or capital)."

In following up the theory at this critical point, it is necessary to resort to the fuller statement of the Distribution of Wealth, the point being not so adequately covered in the Essentials. Consistently hedonistic, Mr. Clark recognises that his law of natural justice must be reduced to elementary hedonistic terms, if it is to make good its claim to stand as a fundamental principle of theory. In hedonistic theory, production of course means the production of utilities, and utility is of course utility to the consumer. A product is such by virtue of and to the amount of the utility which it has for a consumer. This utility of the goods is measured, as value, by the sacrifice (disutility) which the consumer is willing to undergo in order to get the utility which the consumption of the goods yields him. The unit and measure of productive labor is in the last analysis also a unit of disutility; but it is disutility to the productive laborer, not to the consumer. The balance which establishes itself under competitive conditions is a compound balance, being a balance between the utility of the goods to the consumer and the disutility (cost) which he is willing to undergo for it, on the one hand, and, on the other hand, a balance between the disutility of the unit of labor and the utility for which the laborer is willing to undergo this disutility. It is evident, and admitted, that there can be no balance, and no commensurability, between the laborer's disutility (pain) in producing the goods and the consumer's utility (pleasure) in consuming them, inasmuch as these two hedonistic phenomena lie each within the consciousness of a distinct person. There is, in fact, no continuity of nervous tissue over the interval between consumer and producer, and a direct comparison, equilibrium, equality, or discrepancy in respect of pleasure and pain can, of course, not be sought except within each self-balanced individual complex of nervous tissue. The wages of labor (i.e., the utility of the goods received by the laborer) is not equal to the disutility undergone by him, except in the sense that he is competitively willing to accept it; nor are these wages equal to the utility got by the consumer of the goods, except in the sense that he is competitively willing to pay them. This point is covered by the current diagrammatic arguments of marginal-utility theory as to the determination of competitive prices.

But, while the wages are not equal to or directly comparable with the disutility of the productive labor engaged, they are, in Mr. Clark's view, equal to the "productive efficiency" of that labor. "Efficiency in a worker is, in reality, power to draw out labor on the part of society. It is capacity to offer that for which society will work in return." By the mediation of market price, under competitive conditions, it is held, the laborer gets, in his wages, a valid claim on the labor of other men (society) as large as they are competitively willing to allow him for the services for which he is paid his wages. The equitable balance between work and pay contemplated by the "natural" law is a balance between wages and "efficiency," as above defined; that is to say, between the wages of labor and the capacity of labor to get wages. So far, the whole matter might evidently have been left as Bastiat left it. It amounts to saying that the laborer gets what he is willing to accept and the consumers give what they are willing to pay. And this is true, of course, whether competition prevails or not.

What makes this arrangement just and right under competitive conditions, in Mr. Clark's view, lies in his further doctrine that under such conditions of unobstructed competition the prices of goods, and therefore the wages of labor, are determined, within the scope of the given market, by a quasi-consensus of all the parties in interest. There is of course no formal consensus, but what there is of the kind is implied in the fact that bargains are made, and this is taken as an appraisement by "society" at large. The (quasi-) consensus of buyers is held to embody the righteous (quasi-) appraisement of society in the premises, and the resulting rate of wages is therefore a (quasi-) just return to the laborer. "Each man accordingly is paid an amount that equals the total product that he personally creates." If competitive conditions are in any degree disturbed, the equitable balance of prices and wages is disturbed by that much. All this holds true for the interest of capital, with a change of terms.

The equity and binding force of this finding is evidently bound up with that common-sense presumption on which it rests; namely, that it is right and good that all men should get what they can without force or fraud and without disturbing existing property relations. It springs from this presumption, and, whether in point of equity or of expediency, it rises no higher than its source. It does not touch questions of equity beyond this, nor does it touch questions of the expediency or probable advent of any contemplated change in the existing conventions as to rights of ownership and initiative. It affords a basis for those who believe in the old order--without which belief this whole structure of opinions collapses--to argue questions of wages and profits in a manner convincing to themselves, and to confirm in the faith those who already believe in the old order. But it is not easy to see that some hundreds of pages of apparatus should be required to find one's way back to these time-worn commonplaces of Manchester.

In effect, this law of "natural" distribution says that whatever men acquire without force or fraud under competitive conditions is their equitable due, no more and no less, assuming that the competitive system, with its underlying institution of ownership, is equitable and "natural." In point of economic theory the law appears on examination to be of slight consequence, but it merits further attention for the gravity of its purport. It is offered as a definitive law of equitable distribution comprised in a system of hedonistic economics which is in the main a theory of distributive acquisition only. It is worth while to compare the law with its setting, with a view to seeing how its broad declarations of economic justice shows up in contrast with the elements out of which it is constructed and among which it lies.

Among the notable chapters of the Essentials is one (vi.) on Value and its Relation to Different Incomes, which is not only a very substantial section of Mr. Clark's economic theory, but at the same time a type of the achievements of the latter-day hedonistic school. Certain features of this chapter alone can be taken up here. The rest may be equally worthy the student's attention, but it is the intention here not to go into the general substance of the theory of marginal utility and value, to which the chapter is devoted, but to confine attention to such elements of it as bear somewhat directly on the question of equitable distribution already spoken of. Among these latter is the doctrine of the "consumer's surplus,"--virtually the same as what is spoken of by other writers as "consumer's rent." "Consumer's surplus" is the surplus of utility (pleasure) derived by the consumer of goods above the (pain) cost of the goods to him. This is held to be a very generally prevalent phenomenon. Indeed, it is held to be all but universally present in the field of consumption. It might, in fact, be effectively argued that even Mr. Clark's admitted exception is very doubtfully to be allowed, on his own showing. Correlated with this element of utility on the consumer's side is a similar volume of disutility on the producer's side, which may be called "producer's abatement," or "producer's rent": it is the amount of disutility by which the disutility-cost of a given article to any given producer (laborer) falls short of (or conceivably exceeds) the disutility incurred by the marginal producer. Marginal buyers or consumers and marginal sellers or producers are relatively few: the great body on both sides come in for something in the way of a "surplus" of utility or disutility.

All this bears on the law of "natural" wages and interest as follows, taking that law of just remuneration at Mr. Clark's rating of it. The law works out through the mediation of price. Price is determined, competitively, by marginal producers or sellers and marginal consumers or purchasers: the latter alone on the one side get the precise price-equivalent of the disutility incurred by them, and the latter alone on the other side pay the full price-equivalent of the utilities derived by them from the goods purchased. Hence the competitive price--covering competitive wages and interest--does not reflect the consensus of all parties concerned as to the "effective utility" of the goods, on the one hand, or as to their effective (disutility) cost, on the other hand. It reflects instead, if anything of this kind, the valuations which the marginal unfortunates on each side concede under stress of competition; and it leaves on each side of the bargain relation an uncovered "surplus," which marks the (variable) interval by which price fails to cover "effective utility." The excess utility--and the conceivable excess cost--does not appear in the market transactions that mediate between consumer and producer. In the balance, therefore, which establishes itself in terms of value between the social utility of the product and the remuneration of the producer's "efficiency," the margin of utility represented by the aggregate "consumer's surplus" and like elements is not accounted for. It follows, when the argument is in this way reduced to its hedonistic elements, that no man "is paid an amount that equals the amount of the total product that he personally creates."

Supposing the marginal-utility (final-utility) theories of objective value to be true, there is no consensus, actual or constructive, as to the "effective utility" of the goods produced: there is no "social" decision in the case beyond what may be implied in the readiness of buyers to profit as much as may be by the necessities of the marginal buyer and seller. It appears that there is warrant, within these premises, for the formula: Remuneration <> than Product. Only by an infinitesimal chance would it hold true in any given case that, hedonistically, Remuneration = Product; and, if it should ever happen to be true, there would be no finding it out.

The (hedonistic) discrepancy which so appears between remuneration and product affects both wages and interest in the same manner, but there is some (hedonistic) ground in Mr. Clark's doctrines for holding that the discrepancy does not strike both in the same degree. There is indeed no warrant for holding that there is anything like an equable distribution of this discrepancy among the several industries or the several industrial concerns; but there appears to be some warrant, on Mr. Clark's argument, for thinking that the discrepancy is perhaps slighter in those branches of industry which produce the prime necessaries of life. This point of doctrine throws also a faint (metaphysical) light on a, possibly generic, discrepancy between the remuneration of capitalists and that of laborers: the latter are, relatively, more addicted to consuming the necessaries of life, and it may be that they thereby gain less in the way of a consumer's surplus.

All the analysis and reasoning here set forth has an air of undue tenuity; but in extenuation of this fault it should be noted that this reasoning is made up of such matter as goes to make up the theory under review, and the fault, therefore, is not to be charged to the critic. The manner of argument required to meet this theory of the "natural law of final productivity" on its own ground is itself a sufficiently tedious proof of the futility of the whole matter in dispute. Yet it seems necessary to beg further indulgence for more of the same kind. As a needed excuse, it may be added that what immediately follows bears on Mr. Clark's application of the law of "natural distribution" to modern problems of industry and public policy, in the matter of curbing monopolies.

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Accepting, again, Mr. Clark's general postulates--the postulates of current hedonistic economics--and applying the fundamental concepts, instead of their corollaries, to his scheme of final productivity, it can be shown to fail on grounds even more tenuous and hedonistically more fundamental than those already passed in review. In all final-utility (marginal-utility) theory it is of the essence of the scheme of things that successive increments of a "good" have progressively less than proportionate utility. In fact, the coefficient of decrease of utility is greater than the coefficient of increase of the stock of goods. The solitary "first loaf" is exorbitantly useful. As more loaves are successively added to the stock, the utility of each grows small by degrees and incontinently less, until, in the end, the state of the "marginal" or "final" loaf is, in respect of utility, shameful to relate. So, with a change of phrase, it fares with successive increments of a given productive factor--labor or capital--in Mr. Clark's scheme of final productivity. And so, of course, it also fares with the utility of successive increments of product created by successively adding unit after unit to the complement of a given productive factor engaged in the case. If we attend to this matter of final productivity in consistently hedonistic terms, a curious result appears.

A larger complement of the productive agent, counted by weight and tale, will, it is commonly held, create a larger output of goods, counted by weight and tale; but these are not hedonistic terms and should not be allowed to cloud the argument. In the hedonistic scheme the magnitude of goods, in all the dimensions to be taken account of, is measured in terms of utility, which is a different matter from weight and tale. It is by virtue of their utility that they are "goods," not by virtue of their physical dimensions, number and the like; and utility is a matter of the production of pleasure and the prevention of pain. Hedonistically speaking, the amount of the goods, the magnitude of the output, is the quantity of utility derivable from their consumption; and the utility per unit decreases faster than the number of units increases. It follows that in the typical or undifferentiated case an increase of the number of units beyond a certain critical point entails a decrease of the "total effective utility" of the supply. This critical point seems ordinarily to be very near the point of departure of the curve of declining utility, perhaps it frequently coincides with the latter. On the curve of declining final utility, at any point whose tangent cuts the axis of ordinates at an angle of less than 45 degrees, an increase of the number of units entails a decrease of the "total effective utility of the supply," so that a gain in physical productivity is a loss as counted in "total effective utility." Hedonistically, therefore, the productivity in such a case diminishes, not only relatively to the (physical) magnitude of the productive agents, but absolutely. This critical point, of maximum "total effective utility," is, if the practice of shrewd business men is at all significant, commonly somewhat short of the point of maximum physical productivity, at least in modern industry and in a modern community.

The "total effective utility" may commonly be increased by decreasing the output of goods. The "total effective utility" of wages may often be increased by decreasing the amount (value) of the wages per man, particularly if such a decrease is accompanied by a rise in the price of articles to be bought with the wages. Hedonistically speaking, it is evident that the point of maximum net productivity is the point at which a perfectly shrewd business management of a perfect monopoly would limit the supply; and the point of maximum (hedonistic) remuneration (wages and interest) is the point which such a management would fix on in dealing with a wholly free, perfectly competitive supply of labor and capital.