The Economics of Welfare

Note: Supplemental materials are not guaranteed with Rental or Used book purchases.

ISBN: 9780765807397 | 0765807394
Cover: Nonspecific Binding
Copyright: 10/31/2001

Rent

(Recommended)

$38.90

Term

Due

Price

Semester

Aug 2

$38.90

Quarter

Jul 19

$36.96

Short Term

Jun 21

$35.01

*This item is part of an exclusive publisher rental program and requires an additional convenience fee. This fee will be reflected in the shopping cart.
Buy New

Usually Ships in 3-5 Business Days

$53.14
eBook

Available Instantly

Online: 180 Days

Downloadable: 180 Days

$39.60

The Economics of Welfare occupies a privileged position in economics. It contributed to the professionalization of economics, a goal aggressively and effectively pursued by Pigou's predecessor and teacher Alfred Marshall. The Economics of Welfare also may be credited with establishing welfare economics, by systematically analyzing market departures and their potential remedies. In writing The Economics of Welfare, Pigou built a bridge between the old and the new economics at Cambridge and in Britain. Much of the book remains relevant for contemporary economics. The list of his analyses that continues to play an important role in economics is impressive. Some of the more important include: public goods and externalities, welfare criteria, index number problems, price discrimination, the theory of the firm, the structure of relief programs for the poor, and public finance. Pigou's discussion of the institutional structure governing labor-market operations in his Wealth and Welfare prompted Schumpeter to call the work "the greatest venture in labor economics ever undertaken by a man who was primarily a theorist".The Economics of Welfare established welfare economics as a field of study. The first part analyzes the relationship between the national dividend and economic and total welfare. Parts II and III link the size of the dividend to the allocation of resources in the economy and the institutional structure governing labor-market operations. Part IV explores the relationship between the national dividend and its distribution.In her new introduction, Nahid Aslanbeigui discusses the life of Pigou and the history of The Economics of Welfare. She also discusses Pigou's theories asexpressed in this volume and some of the criticisms those theories have met as well as the impact of those criticisms. The Economics of Welfare is a classic that repays careful study.

Introduction to the Transaction Edition (2001)

xxix

Preface to the Third Edition (1928)

lxvii

Note to the Fourth Edition (1932)

lxix

Note to the Reprint (1952)

lxx

PART I WELFARE AND THE NATIONAL DIVIDEND

Welfare and Economic Welfare

(20)

The main motive of economic study is to help social improvement

Economic science will, therefore, be ``realistic'' rather than ``pure''; but not merely ``descriptive.''

It is very difficult to make its analysis quantitative

Economic welfare may be defined roughly as that part of welfare that can be brought into relation with the measuring rod of money

Instances can be multiplied in which economic causes, that affect economic welfare in one way, affect total welfare in a different way

Nevertheless there is a presumption that qualitative conclusions about effects upon economic welfare will hold good also of effects upon total welfare

And reasonably adequate conclusions about effects upon economic welfare can often be obtained by economic science, in spite of the partial and limited character of that science

Desires and Satisfactions

(8)

The relation between satisfaction and the money measure is not direct, but is mediated through desires, the intensity of which need not always bear the same proportion to the satisfactions that their fulfilment yields

For the most part this circumstance is not important

But for the choice between using resources for the present and for the distant future it is very important

Coupled with the fact of individual mortality, it suggests that people are likely to save less and to use up nature's exhaustible stores more quickly than consists with the general interest

There is a presumption, therefore, against taxes that differentiate against saving

And in favour of State action to conserve natural resources

The National Dividend

(12)

For the most part economic causes act upon economic welfare, not directly, but through the national dividend

In spite of the paradoxes involved, this is most conveniently taken to embrace only things purchased with money income, together with the services a man obtains from inhabiting a house owned by himself

The national dividend and the national consumable income are distinguished, and various problems connected with the definition and evaluation of the dividend are examined

What is meant by maintaining Capital Intact

(7)

A number of difficulties connected with this matter are studied

Changes in the Size of the National Dividend

(6)

If it were feasible we should wish to define changes in the size of the national dividend in physical terms without reference to people's tastes

But this is not feasible: and the definition we are forced to adopt has serious defects

The Measurement of Changes in the Size of the National Dividend

(26)

Subject to the condition that prices and quantities are the only data accessible to us, we require to construct a measure of changes in the size of the national dividend which will conform as nearly as may be to our definition of these changes

This involves three things: to devise a measure which would be applicable if data about prices and quantities were available for all commodities; to devise a practicable approximation to this measure from the limited data which are in fact available; to determine how reliable this practicable approximation is likely to be

The first of these problems is discussed

Then the second

Finally the third

Economic Welfare and Changes in the Size of the National Dividend

(5)

Provided that the dividend accruing to the poor is not diminished, increases in the aggregate national dividend of the community, unless they result from coercing people to work more than they wish to do, carry with them increases in economic welfare

Economic Welfare and Changes in the Distribution of the National Dividend

(11)

Changes in the distribution of the national dividend in favour of the poor may be brought about in several ways, the most important of which is by a transference of purchasing power to them from richer persons

Except in very special circumstances such a transference must increase economic welfare

Particularly in a country where income is distributed as unevenly as it is in England

This, however, is not quite the same thing as saying that a diminution in the inequality of distribution must increase economic welfare

Reactions through the Numbers of the Population

(8)

It may be objected that the consequences of an increase in the dividend accuring to any group, particularly to a poor group, discussed in Chapters VII. are nullified by reactions on the numbers of the population

Even apart from changes induced by greater wealth in wants and tastes, this thesis is not tenable

And, when account is taken of them, the case for it is further weakened

But the fact of migration between countries complicates the issue

And transferences of income present difficulties

The National Dividend and the Quality of the People

106

(17)

The conclusions reached in Chapters VII. and VIII. must now be reviewed in the light of modern biological knowledge

That knowledge warrants the belief that general welfare and economic welfare alike could be increased by measures restricting propagation among the obviously degenerate. This belief, however, is additional to, and does not disturb, our results

It is sometimes held that modern biology, by demonstrating the dominant part played by heredity as compared with environment, has proved economic inquiries, which are, in the main, concerned with environment, to be unimportant. Reasons are offered for rejecting this view

It is sometimes held, further, that the advantage to economic welfare clamed in Chapters VII. and VIII. to result from (1) an increase in the magnitude and (2) an improvement in the distribution of the national dividend are cancelled by indirect biological effects. Reasons are offered for rejecting these views

The Method of Discussion to be followed

123

(4)

PART II THE SIZE OF THE NATIONAL DIVIDEND AND THE DISTRIBUTION OF RESOURCES AMONG DIFFERENT USES

Introductory

127

(4)

The general problem of this Part is to ascertain how far the free play of self-interest, acting under the existing legal system, tends to distribute the country's resources in the way most favourable to the production of a large national dividend, and how far it is feasible for State action to improve upon ``natural'' tendencies

The Definition of Marginal Social and Private Net Products

131

(5)

The meaning of the term marginal net product is explained

Marginal social and marginal private net products are distinguished

As also their respective values

The Values of Marginal Social Net Products and the Size of the National Dividend

136

(6)

In the absence of costs of movement, it can be shown that, provided there is only one arrangement of resources which makes the values of the marginal social net products equal in all uses, that arrangement will maximise the national dividend

There is difficulty in extending this analysis to differences in degrees of inequality

In so far as there are costs of movement, the optimum arrangement, which is, of course, not so good as the optimum arrangement in the absence of costs, is different, and, within limits, indeterminate

In real life there are likely to be a number of different arrangements of resources, each one of which will make the values of the marginal social net products equal in all uses. Hence, equality of values of marginal social net products does not imply that the national dividend is maximised

There is here a possible opening for the beneficial use of bounties

Rates of Return and the Values of Marginal Private Net Products

142

(2)

Values of marginal private net products are, in general, equal to rates of return

In the absence of costs of movement, self-interest tends to make rates of return everywhere equal; where there are costs of movement to make them as nearly equal as those costs allow

This implies that, except in so far as marginal private and marginal social net products diverge, anything that obstructs the free play of self-interest is likely to damage the dividend

The Effects of eliminating Obstacles to Movement

144

(5)

In a general way the elimination of obstacles, in the form of costs of movement or lack of knowledge, to the free working of self interest is likely to promote equality of returns. But this statement is subject to qualifications

It is important to distinguish between the effects on economic welfare of a real reduction in costs and those of mere transference of costs from the persons who control the movement of resources to the State

Hindrances to Equality of Returns due to Imperfect Knowledge

149

(9)

The tendency towards equality of returns in different occupations is obstructed by imperfect knowledge, resulting partly from the character of business accounts, and partly from the general organisation of business finance

The intervention of banks, which naturally look to permanent and not merely to immediate profit, in the work of promotion may, if other conditions allow, do something to improve matters

The control exercised in minor fields of investment by People's Banks of the Raiffeisen type is a safeguard against the wasteful employment of borrowed resources

Hindrances to Equality of Returns due to Imperfect Divisibility of the Units in Terms of which Transactions are conducted

158

(9)

When the units in which transactions are made are large, or when they are compounded of two factors in a fixed proportion, the tendency of self-interest to make the rate of returns equal in all uses is obstructed

In modern times the size of the unit in which transactions in respect of capital take place has been diminished in a twofold manner, partly with the help of the Stock Exchange

The compound character which formerly belonged to this unit has also, in great part, been eliminated by arrangements which the great growth of securities adapted to serve as collateral has facilitated

The device of dividing shares into several grades and the holding of them in their riskiest early age by financiers, who afterwards pass them on, work in the same direction

In general, in present conditions, imperfect divisibility in the units of transactions has but little effect

Hindrances to Equality of Returns due to Relative Variations of Demand for Productive Resources in Different Occupations and Places

167

(5)

Relative variations in demand are defined

The larger they are the more widely the values of marginal net products at different points are likely to diverge

Their size depends upon the extent of the independent variations in the demands for different products

The extent to which different firms work for one another on commission

The extent to which fashions and the distribution of income vary

And the range of general cyclical fluctuations

The effect of relative variations are different according to the wage policy pursued by workpeople

And according to the speed with which they occur

Divergences between Marginal Social Net Product and Marginal Private Net Product

172

(32)

Private net product and social net product are distinguished. In so far as self-interest tends to bring about equality in the values of marginal private net products in different fields, equality in the values of marginal social net products is obstructed whenever marginal private and marginal social net products diverge. Some sorts of divergence occur under simple competition; further sorts under monopolistic competition, and yet further sorts under bilateral monopoly

The meaning of an increment of productive resources, where several forms of productive resources are being employed, is defined

The source of the first sort of divergence distinguished in § 1 is that, in some occupations, a part of the effects of the employment of a unit of resources fails to be reflected in the remuneration of the person responsible for the investment

This may happen when tenancy and ownership are separated

The point is illustrated by a discussion of laws providing compensation for tenants' improvements and of kindred matters

Divergences under simple competition may also arise independently of leasing arrangements, in respect of forms of investment which render uncompensated services or disservices to the general public. Illustrations are given

But it is an error to suppose that divergence is involved when the investment of resources in improved plant or methods reduces the value of plant already in existence

Divergence may also arise through the setting up of certain psychological reactions

The above classes of divergence can be mitigated by a judicious employment of taxes and bounties, and sometimes by direct coercion

Under monopolistic competition further divergences arise in connection with resources invested in advertisement

Under bilateral monopoly divergences arise in respect of resources devoted to ``bargaining'' and to fraudulent practices. These can be mitigated to some extent by penal laws

Marginal Private and Social Net Products in Relation to Industrial Forms

204

(9)

The relation between marginal private net products and marginal social net products, besides being different in respect of investments in different uses, is also different in respect of investments made under different forms of industrial organisation

For some forms do, and others do not, yield a return in the shape of trained capacity among the workpeople engaged in them, as well as a return of commodity products

In present conditions investments in Workers' Copartnership Associations and in various kinds of small holdings probably yield a marginal social net product greater than the marginal private net product

But the opposite is probably true of investments leading to the ``trustification'' of industry

And possibly, after a point, of investments to promote standardisation

It may also be true of investments made in connection with some aspects of ``scientific management.''

Increasing and Decreasing Supply Price

213

(16)

Under simple competition investment in any particular industry is carried up to the point at which the marginal private net product of resources there is equal to the marginal social net product of resources in general: and the marginal social net product in the particular industry differs from this to the extent to which it differs from the marginal private net product in that industry

The laws of increasing, constant, and decreasing supply price make assertions about analysis, not about history

We must distinguish between increasing, constant, and decreasing supply prices simpliciter, and increasing, constant, and decreasing supply prices from the standpoint of the community

Decreasing supply price from the standpoint of the community is possible over a wide range

But increasing supply price from this standpoint only in a special case

The value of the marginal private net product of investment in any industry is greater or less than the value of the marginal social net product according as this industry conforms to conditions of increasing or decreasing supply price from the standpoint of the community

This implies that the value of the marginal social net product is the greater in all industries that conform to the conditions of decreasing supply price simpliciter; but not that it is less in all industries of the converse type

It is possible, by resort to bounties and taxes, to correct the errors of investment consequent, under simple competition, upon divergencies between the values of marginal social and marginal private net products

Analogous reasoning suggests that economic welfare might be increased by taxes upon things which are desired for their uncommonness and by bounties on things that are desired for their commonness

This analysis is very difficult to apply to practical problems, but it is not, therefore, otiose

State Regulation of Competitive Prices

229

(14)

Apart from the qualifying circumstances considered in the preceding chapters, our discussion suggests that State interference with competitive prices must injure the national dividend. This presumption has now to be confronted with the extensive price regulation of the war period

An account is given of the problems and practice of price control in the United Kingdom during that period

Owing to a variety of causes it is improbable that price control, in the special circumstances of the Great War, damaged production to any significant extent

But there is strong reason to fear that a general permanent policy of control over competitive prices, designed to prevent groups of producers from reaping abnormal profits on favourable occasions, would not be thus innocuous

State Regulation of Supplies

243

(7)

State regulation of prices during the war involved State regulation of distribution also

Supplies of materials were allocated to different uses on the basis of their comparative war urgency; a criterion for which it would be difficult to find a satisfactory substitute in normal times

Within each use materials were allocated to different firms on the basis of their pre-war purchases; an arrangement impossible in normal times

Finished products were allocated among ultimate consumers on the basis of an estimate of their necessary rations

Arrangements of this kind do not directly affect the volume of the national dividend, though the price regulations to which they are supplementary, as was explained in the preceding chapter, do have this effect

The Conditions of Monopolisation

250

(16)

It will presently be necessary to inquire how far the values of marginal private net products in different uses tend to equality under monopoly. As a preliminary to this inquiry, the conditions which determine the appearance of monopolistic power have to be studied

Circumstances, which, when the aggregate scale of an industry is given, make it structurally economical for the typical individual establishment to be large, are favourable to the advent of monopolistic power

So also are circumstances which make it structurally economical for the typical individual unit of business management (embracing, perhaps, a number of establishments) to be large

So also are conditions under which amalgamation is able greatly to reduce expenses by cutting down competitive advertisement

So also is the existence of a highly inelastic demand for any commodity, since this implies the possibility of large gains if monopolisation takes place. The influences by which the degree of elasticity of demand for different commodities is determined are discussed

On the other hand, anything that renders it difficult for negotiations aiming at amalgamation to be opened up is unfavourable to the advent of monopolistic power

The same thing is true of those obstacles to agreement which arise out of conflicting claims about ``participation.''

Monopolistic Competition

266

(3)

Under monopolistic competition, self-interest does not tend to make the value of the marginal social net product of resources in the industry affected equal to the value of the marginal social net product of resources in general

Rather, it leaves the value of the marginal social net product indeterminate over a range, the extent of which depends upon certain influences that are briefly discussed

Simple Monopoly

269

(6)

Under simple monopoly plus restriction of entry to the industry affected it is probable that the value of the marginal social net product of resources in that industry will diverge from the value of the marginal social net product of resources in general more widely than it would do under simple competition

If the entry to the monopolised industry is not restricted, the national dividend will also suffer in another way

Discriminating Monopoly

275

(15)

Under certain conditions monopolists are able to charge discriminating prices

The nature of these conditions, which depend essentially upon the non-transferability of the commodities affected, is discussed

Of three distinguishable forms of discriminating monopoly, the only one of practical importance is discriminating monopoly of the third degree, under which different prices are charged between markets, the composition of which is determined otherwise than by the monopolist's own choice

But a brief analysis of the other two forms is given

Under discriminating monopoly of the third degree, plus restriction of entry to the industry affected, the output may, not improbably in certain circumstances, approach more nearly to the ideal output, which makes the value of the marginal social net product of resources in that industry equal to the value of the marginal social net product of resources in general, than it would do under simple monopoly; but it is unlikely to approach more nearly to this output than it would do under simple competition

Under discriminating monopoly, without restriction of entry to the industry affected, the situation is still less favourable

The Special Problem of Railway Rates

290

(28)

The discussion of the preceding chapter throws light on the controversy between advocates of ``the cost of service principle'' and of ``the value of service principle'' in respect of railway rates

The meaning in concrete form of ``the cost of service principle'' is explained, and this principle is shown to imply uniform charges to different purchasers of ton-miles of transportation, so far as the ton-miles sold to different purchasers are not ``jointly supplied.''

The common view that railway services are in large part jointly supplied---that the carriage of copper and the carriage of coal, or the carriage of coal destined for A and the carriage of coal destined for B, over a given piece of line are joint products---is incorrect

However, some measure of jointness, as, for instance, between out and home journeys, does in fact prevail

The meaning in concrete form of ``the value of service principle'' is explained

``The cost of service principle'' corresponds to simple competition, and ``the value of service principle'' to discriminating monopoly of the third degree. In general, the former is the more advantageous to the national dividend; but, as stated in the preceding chapter, circumstances may arise in which the latter is the more advantageous

These circumstances, however, are less common than writers on railway economics usually suppose

Moreover, such benefit as the ``value of service principle'' is competent to bring about can often be attained more satisfactorily by means of a bounty

The policy of permitting discriminating charges, subject to the condition that profits are prevented from rising above the normal, is discussed

Lastly, something is said of zone systems of railway tariffs

Purchasers' Associations

318

(11)

The preceding chapters have shown that, in many industries, neither simple competition, nor monopolistic competition, nor simple monopoly, nor discriminating monopoly will make the value of the marginal social net product of resources invested in them equal to the value of the marginal social net product of resources in general. We have next to inquire whether this result can be secured by resort to the device of Purchasers' Associations

The answer is clearly in the affirmative; but no inference follows as to the effect on the national dividend, until the comparative advantages in respect of productive efficiency of Purchasers' Associations and ordinary commercial businesses have been ascertained

Not much light can be thrown on that matter by historical examples

Purchasers' Associations have advantages in respect of production, so far as they save costs in advertisement, are exceptionally well fitted to spread knowledge of the best methods of production among their members, and have exceptionally small need of bargaining and safeguards against fraud. These advantages have led to their successful establishment over a considerable field

But for various reasons this field is limited, and a study of further remedies for the imperfections of ordinary business forms is, therefore, still required

Intervention by Public Authorities

329

(7)

This chapter is concerned with the general merits of public intervention in industry, including both control and operation, as a remedy for the failures of private enterprise

For various reasons the experience of the war can afford much less guidance on this matter than might be expected from it at first sight

The problem is essentially the same in industries whose operation does, and in those whose operation does not require resort to the right of eminent domain

The mere failure of private industry, when left free from public interference, to maximise the national dividend does not of itself warrant intervention; for this might make things worse

Certain modern developments have, however, rendered governmental agencies better fitted for intervention than they were in former times

Public Control of Monopoly

336

(45)

This chapter is concerned with attempts by the State so to control private monopoly that supply shall be adjusted to demand, and the national dividend shall, therefore, be as large as it would be under simple competition

The policy of maintaining actual competition by refusing to allow rival concerns to combine is discussed

A second indirect method of control is embodied in the policy of maintaining potential competition. This is worked by penalising the ``clubbing'' devices of cut-throat competition, or destructive dumping, and of boycott

The nature and effect of these ``clubbing'' devices are explained

In spite of many difficulties, it is probable that legislation directed against them, if carefully prepared, may, at all events, lessen the extent to which they are employed

But such legislation, even if successful in its immediate object, would not serve completely to maintain potential competition

The inadequacy of indirect methods of control makes it necessary to supplement them by direct methods

The policy of encouraging the formation---over against combinations of sellers---of combinations of sellers also possessing monopolistic powers, is discussed

And the policy of publicity

Control over the terms of sale in monopolised industries involves a special complication where increasing, but not where decreasing supply price rules

War experience affords little guidance

Control may be either negative---forbidding ``unreasonable'' prices---or positive---establishing maximum prices

The problem of ``sanctions'' is discussed

And the very difficult problem of settling the basis in accordance with which the reasonableness of prices shall be determined

Several methods designed to prevent or limit errors on the part of the price-regulating authority, including the device of sliding scales, are examined

There is also, in old-established monopolies, the difficulty that price limitation may disturb ``legitimate expectations.''

Moreover, control is necessarily cumbersome and expensive

Public Operation of Industries

381

(30)

The difficulty of satisfactory public control suggests that the national dividend might be increased by the public operation---which is not the same thing as the public ownership---of certain industries, provided that this would not involve a serious loss of economy in production

The experience of the war does not give much guidance

The economic efficiency of public and of joint-stock operation of industry cannot be successfully compared by reference to statistics

The public operation of industries may assume a number of different forms, and, from the point of view of technial efficiency, it need not be inferior to private operation---particularly controlled private operation

But, first, under public operation there is a danger that the operating authority may be tempted to maintain its enterprise by the use of unfair extra-commercial methods at the expense of rival enterprises capable of satisfying the same wants more cheaply

Secondly, under public operation efficiency is likely to suffer through unwillingness to take risks and make experiments

Thirdly, efficiency is likely to suffer through the establishment of units of management of an uneconomical size; though, in industries where the normal state of things is monopolistic competition, public operation is, in this respect, superior to joint-stock operation

On the whole, apart from a few special exceptions, the proposal for public operation is a live one only where there is monopoly; and here the case for it, as against that for public control, works out differently in different industries

When public operation is determined upon for a concern hitherto in private hands, the determination of a proper purchase price presents difficulties

But, even when a heavy ransom has to be paid to vested interests, it may still be for the general good that a public authority should buy up a private monopoly, in order to stop artificial restriction of output

PART III THE NATIONAL DIVIDEND AND LABOUR

Industrial Peace

411

(4)

Industrial peace being obviously relevant to the magnitude of the national dividend, the machinery designed for maintaining it must be examined

The Classification of Industrial Differences

415

(5)

Various possible lines of classification are compared and discussed

Voluntary Arrangements for Conciliation and Arbitration

420

(14)

The United Kingdom is the classical home of voluntary arrangements for dealing with differences about broad general questions

A permanent organ of negotiation is more effective than ad hoc meetings called specially to deal with differences as they arise

The constitution of this organ and methods of procedure are discussed

Agreements for conciliation alone are compared with agreements which also provide for arbitration in the last resort

The qualities required in arbitrators, their number, and the best method of appointing them, are discussed

Also the question of a referendum, and the question of monetary guarantees

Mediation

434

(5)

In the event of a failure on the part of employers and work-people in an industry to reach agreement, mediation may be usefully undertaken by eminent outsiders, non-governmental Boards or governmental agencies. But care should be taken not to allow the existence of this machinery to check the development of direct voluntary arrangements between the parties

Coercive Intervention

439

(12)

Coercive intervention may provide for disputants to enter a court of compulsory arbitration if both of them wish to do so

Or for ``extending'' agreements made between associations of employers and employed so as to make them binding on outside employers and workpeople

Or it may follow the model of the Canadian Industrial Disputes Investigation Act

Or it may take the form of compulsory arbitration as understood in Australasia

An Analytical View of Industrial Peace

451

(11)

Disputes between associations of employers and employed are in some respects analogous to disputes between nations

Within limits the wage rate subject to a bargain between two organisations is indeterminate

The influences by which the range of indeterminateness and the range of practicable bargains are determined are examined

The bearing of this study upon the prospects of industrial peace in various circumstances is explained

And also its bearing upon a common view of an arbitrator's functions

Hours of Labour

462

(11)

In each several industry for each class of workers there is some length of working day, varying with the circumstances of different occupations, the overstepping of which is disadvantageous to the national dividend

There is evidence that in fact this limit tends to be passed

The way in which this can and does happen is explained

The length of day best for the national dividend may be too long for economic welfare

There is a prima facie case for State intervention to prevent unduly long hours

In this connection the problem of overtime is discussed

The Methods of Industrial Remuneration

473

(15)

Broadly speaking, the worker's output will be larger, and the national dividend more advantaged, the more nearly his remuneration is adjusted to services rendered

Adjustment is complicated by the fact that a man's services to his firm include more than his immediate physical output

By the fact that output is liable to vary in quality as well as in quantity

And by the fact that even quantity of output cannot, in some occupations, be measured

Under time-wages some degree of adjustment is feasible

Under piece-wages adjustment could be made closer if it were not for the difficulty created by the ``cutting'' or ``nibbling'' of rates

Premium bonus plans and piece-rate plans are compared

The difficulty of ``cutting'' and ``nibbling'' may be dealt with by means of collective bargaining

The task-wage system is discussed

The conclusion reached is that the interests of the national dividend will be best promoted under a system of piece-wage scales controlled by collective bargaining

The Distribution of Labour Among Occupations and Places

488

(24)

In general the national dividend is injured by causes that prevent labour being so distributed that the demand prices for and the wages of labour of any given grade are equal in different places and occupations

This is subject to an important qualification

The chief of the above causes are ignorance, costs of movement and restrictions imposed upon movement

The most fundamental way in which ignorance operates is by impairing the initial distribution of new generations of workpeople as they flow into industry

Ignorance also interferes with the correction of errors in the initial distribution of labour by subsequent movement

The extent to which it does this depends upon the form in which wage-contracts are made

The effects of ``costs of movement'' as an obstacle to adjustment are studied

Including the peculiar element of cost involved in the geographical unity of the family

The most important instance of restrictions imposed from without is afforded by the traditional and customary exclusion of women workers from certain occupations

The foregoing obstacles to what may be called the ideal distribution of labour may (1) crumble from within, (2) be pulled down at public cost, or (3) be leapt over

When they crumble from within, the national dividend is practically certain to be increased

When they are pulled down at public cost, there is a presumption that it will be diminished, but this presumption may be rebutted

When they are leapt over, the effect on the dividend is bound to be beneficial if the obstacle is ignorance, but there is a presumption that it will be injurious if the obstacle is costs

Employment Exchanges

512

(7)

Workpeople are liable, not merely to be distributed badly between different employments, but, sometimes, to be unemployed altogether

Their liability to this, and the loss of dividend associated with it, can be lessened by the development of Employment Exchanges

And by the utilisation of them as centres of engagement

Some principal influences upon which the efficiency of these Exchanges depends are considered

Unemployment versus Short Time

519

(12)

The anlaysis of the two preceding chapters is relevant to a comparison of the three principal ways open to employers of meeting periods of depression: namely, (1) working full time and dismissing some of the staff; (2) working full time and rotating employment among the whole staff; (3) working short time with the whole staff

The causes determining the choice between the short-time plan and both the other two plans are considered

Those determining the choice between the dismissal plan and both the others

And those determining the choice between the rotation plan and both the others

The short-time plan and the dismissal plan are the most usual

Prima facie the dismissal plan seems certain to be the more injurious to the national dividend, because, through the unemployment it creates, it reactes, it reacts adversely on the quality of the workpeople

But against the other method is to be set its tendency to prevent workpeople from moving to other jobs or places when the interests of the dividend require that they should do so

The suggestion that manual workers should be placed in the same position as the permanent salaried staff is discussed

The Practicability of Interference to raise Wages

531

(10)

The ``natural course of wages'' is understood to mean the system of wage rates that would prevail in the absence of interference on the part of some person or body of person external to the workmen and employers involved in the discussion of them

Interference may be attempted by consumers' associations or by governmental authorities

In some conditions interference can be baffled by undetected evasion; but this cannot generally be done when workpeople are organised

There are special opportunities for evasion when the regulating authority is only able to determine minimum day-rates for ``ordinary'' workers

Where undetected evasion is not practicable, there are various sanctions by which interference can be made effective

Methods of engaging Labour

541

(8)

Three methods, the casual method, the preference method, and the privileged class method, are distinguished

Examples are given

The influences which favour the adoption of one or other of these methods are indicated

The relation between the casual method and short engagements is brought out

The suggestion that the State should intervene to encourage continuity of engagements is discussed

Interference to raise Wages in Places and Occupations where they are unfair

549

(23)

Fair wages are defined

In the concrete several kinds of unfairness may be combined in a single unfair wage, but this complication may be ignored in our analysis

Unfair wages may be distinguished into two broad classes, those which, though unfair, are equal to the value of the marginal net product of labour in the place or occupation to which they refer, and those which involve an element of exploitation and are less than the value of this marginal net product

As regards the former type, the effect which interference will produce on the magnitude of the national dividend is independent of the reason why the general conditions of demand for labour at any point where wages are unfairly low are what they are, and depends exclusively on the nature of the cause by which the distribution of labour has been prevented from adjusting itself to those conditions

When wages rates are unfairly low because costs of movement prevent a redistribution of labour in ways that would make them fiar, interference will injure the national dividend

When wage rates are unfairly low, because ignorance prevents the desired redistribution of labour, the effect of interference will be different in different circumstances, being dependent in part upon the methods of engaging labour that prevail

The way in which the latter type of unfair wages distinguished in (that, namely, in which the wage is less than the value of the workman's marginal net product) is liable to arise is explained

It is shown that interference directed against unfair wages of this kind is likely, in general to benefit the national dividend

When the wage rates of women workers, in any occupation, while fair relatively to those of women workers elsewhere, are unfairly low relatively to those of men workers in the same occupation, interference designed to make them fair relatively to men's wages will, in general, injure the national dividend

In practice the detailed discriminating forms of interference to which the preceding discussion points may need to give place to rougher methods

Fair Wages Inside Particular Industries

572

(14)

Inside any industry fair wages as between different men engaged on the same class of job mean wages proportionate to efficiency

Under time-wages more can be accomplished in this sense than is sometimes supposed

Under piece-wages the difficulties are less, and several allowances must be made

First, an allowance for differences in the assistance which different men receive in their work from machinery and nature. This allowance can be calculated closely

Secondly, an allowance for differences in the exact character of the operation which different men perform. This also, with the help of ``elementary rate-fixing,'' can be calculated closely

Thirdly, an allowance for differences in the assistance they receive from the co-operation of managing power. The calculation of this is much more difficult; but something can be done by the establishment, alongside of the piece-rate scale, of a minimum day wage

Fairness as a Variable Relation

586

(7)

What is fair as between dissimilar persons of given characteristics depends not only on what those characteristics are, but also on the surrounding circumstances

This is worked out as regards persons possessing different degrees of the same kind of ability

And as between persons possessing different kinds of ability

The practical significance of this analysis is illustrated

Interference to raise Wages in Places and Occupations where they are already fair

593

(14)

Interference to raise wages that are already fair may benefit the national dividend if, as a result of it, employers are stimulated to improve their organisation and technique

General movements may occur of a kind that would make a change in all wage rates advantageous for the national dividend; and that, therefore, the existence of fairness in a wage rate cannot be regarded as a conclusive reason against change

This consideration is especially important when general prices have been suddenly and largely altered by currency changes; but there are several distinctions to be borne in mind

It is sometimes claimed that, even when the wages in an industry are fair, they should, nevertheless, always be forced up if they are less than ``living wages.''

This claim is examined in detail; and the general conclusion is reached that to act on it effectively would injure the national dividend

The system of ``family wages'' is discussed

Wage Rates and Capacity

607

(6)

Where workpeople are highly incapable, and, therefore, in receipt of very low wages, it appears prima facie probable that the national dividend might be indirectly advantaged by forcing up wages above what previous considerations suggest; because higher wages might improve capcity

Not much light can be thrown on this matter by statistical comparisons

When low wages are due to exploitation, the forcing up of wages will not cause the workpeople afected to lose their jobs, and so there is full scope for reactions on capacity

Apart from exploitation, the prospect of these reactions is most favourable in occupations where the demand for labour is inelastic

Where interference with wages other than exploited wages is warranted by its reactions on capacity, it is essntally a temporary interference

A National Minimum Time-Wage

613

(6)

In this chapter we have to consider the effects of establishing by law a national minimum time-wage

This, being of general application throughout the country, could not be evaded by any redistribution of workpeople of different qualities among occupations

It would, incidentally, prevent a certain amount of exploitation, and would so far do good

But its main consequence would be to drive a number of low-grade workpeople out of private industry altogther

If the State took no further action in regard to these people, the dividend would be certain to suffer; and, even if it undertook to organise training for them, the driving out of old and incapacitated people who are past training would still be an evil

Fixed and Fluctuating Wage Rates

619

(26)

It remains to examine the comparative effects on the national dividend of wage rates fixed by a rigid settlement and wage rates fluctuating on both sides of a standard set up by the settlement in accordance with temporary changes of circumstance

Wage rates fluctuating (or plastic) in response to temporary changes of demand can be shown to be directly more advangeous to the national dividend than fixed wage rates

And the result of a comparison of the direct effects is rarely upset when the indirect effects also are taken into account

But for practical reasons wage changes cannot be operated at intervals of less than two or three moths

When the elasticities of the demand and supply of labour in any occupation are given, the wage fluctuation appropriate to any given fluctuation of the demand schedule is larger, the larger is the fluctuation of that schedule

The practical implications of this proposition are drawn out; and the consequences of the practice of making for stck are indicated

When the demand schedule for labour in any occupation fluctuates in a given manner, the wage fluctuation appropriate to that fluctuation is smaller the more elastic is the supply of labour in the occupation. The practical implications of this proposition are drawn out

Automatic machinery for making adjustments to fluctuations in the demand for labour is provided by sliding scales

A detailed study is made of the various forms which these may assume and of the problems connected with them

When relations between the parties are sufficiently good, better results may be obtained by arrangements under which joint-committees adjust wages at two- or three-monthly intervals, not merely in accordance with a mechanical index, but also with a view to other factors of which this may fail to take account

PART IV THE DISTRIBUTION OF THE NATIONAL DIVIDEND

The General Problem of Disharmony

645

(2)

The purpose of this Part is to inquire whether any important causes can be distinguished wich affect in different senses the size of the national dividend as a whole and the size of that part of it which accrues to the poor; and to study the practical problems which the existence of such causes suggests

Pareto's Law

647

(9)

Certain statistical investigations conducted by Pareto seem, at first sight, to show that the magnitude and distribution of the dividend are rigidly bound together, in such wise that it is impssible for the dividend as a whole and the real income of the poor to move otherwise than in the same direction

But the statistics set out are not adequate to support this conclusion

Nor are its logical foundations sound

The possible openings for disharmony must, therefore, be studied in detail

The Supply of Capital and Labour

656

(15)

The distribution of income among people is analytically quite distinct from the distribution among factors of production discussed in economic text-books. Nevertheless no great error is introduced if we identify the income of the poorer classes with the receipts from wages of the factor labour

In an elaborte discussion it is shown that a cause operating to increase the national dividend by increasing the supply of capital cannot, in present conditions, at the same time diminish the real income of labour

A cause facilitating the investment of capital abroad may act discordantly from the standpoint of a short period, though hardly from that of a long period

On the basis of a proof that the demand for labour in general in any one country is likely to be highly elastic, it is shown that a cause operating to increase the national dividend by increasing the supply of labour cannot at the same time diminish the real income of labour

A complicating side-issue is examined

And some practical implications of the results attained are noticed

Inventions and Improvements

671

(10)

The problem of this chapter is to determine in what, if any, conditions, an invention or improvement, which increases the aggregate dividend, will diminish the absolute share of labour

This problem is not settled by determining whether an invention increases or decreases employment in the industry in which it is made

Its solution turns on the comparative proportions in which the quantities of labour and capital respectively available in occupations outside the one to which the invention applies are affected

An analysis on this basis is carried out in detail

The conclusion is reached that an invention that benefits the national dividend may at the same time lessen the real income of the poor; but that this is a very improbable contingency

The Manipulation of Wages

681

(13)

It is next required to determine in what, if any, conditions the forcing-up of the wage rate of a group of workpeople will at the same time injure the national dividend and increase the real income of labour as a whole

The particular workpeople directly concerned, if they are not themselves purchasers of the commodity they produce, will be benefited if the demand for their labour has an elasticity less than unity

The influences which determine this elasticity in different circumstances are examined

The whole body of workpeople, if they are not purchasers of the commodity, will be benefited if the demand for the labour of the particular workpeople has an elasticity less than unity

Since, in fact, workpeople are themselves purchasers of most of the things that workpeople make, the prospect of a net gain is not, prima facie, very bright

Moreover, when account is taken of the cumulative reactions set up on the side of capital, this prospect, and with it the likelihood of disharmony between the effect on the dividend and the effect on the absolute share of the poor, is lessened

This conclusion must, however, be qualified, in so far as the State undertakes to help with public funds persons thrown into distress through unemployment

Rationing

694

(5)

Prima facie the policy of rationing discussed in Chapter XIII. of Part II. may produce disharmony. It has to be asked whether in fact it can do so

In the Great War rationing benefited distribution without damaging production

In normal times rationing, so arranged as to check the consumption of rich people, would, if applied to commodities of decreasing supply price, lessen both the aggregate national dividend and the share accruing to the poor

If applied within suitable limits to commodities of increasing supply price from the standpoint of the community, it would increase both these things; whereas, if pressed beyond these limits, it would injure the dividend while benefiting the poor, thus involving disharmony

The possibility of net social advantage from rationing, brought out in the course of this chapter, must not be taken, in view of the friction and administrative difficulties involved, to prove that it is on the whole desirable

Subsidies to Wages

699

(6)

In a community where wage-rates are everywhere adjusted to the conditions of demand and supply there is little to be said for a policy of subsidising wages either in selected industries or in general

If, however, wages anywhere are established at an ``uneconomic level,'' both the dividend as a whole and the real income of workpeople might be improved by suitably arranged subsidies

The argument to this effect is developed

The practical objections to such a policy are serious

Direct Transferences from the Relatively Rich to the Relatively Poor

705

(5)

It is sometimes argued that transferences from the rich to the poor are impossible because (1) all money taken from the rich is really taken from the poor, or (2) the beneficiaries will give back what they have received by accepting lower wages

Neither of these arguments is valid

The following chapters will consider in turn the effect of (a) the expectation of transferences from the rich, (b) the expectation of transferences to the poor, and (c) the fact of transferences

The Effect on the National Dividend of the Expectation of Transferences from the Relatively Rich

710

(10)

The expectation of voluntary transferences from the rich tends to increase the contributions they make to the upbuilding of the national dividend

Special opportunities for these transferences are open to wealthy employers as regards their workpeople, and to wealthy citizens as regards their fellow-townsmen

They may be further stimulated by a judicious use of honours and decorations

Voluntary transferences are not, however, sufficient, and transferences by taxation are also requried

The effect on the national dividend of the expectation of transferences from the rich through an income tax not differentiating against saving is studied

An income tax that does differentiate against saving is considered

Transferences through death duties are discussed

On the whole, the expectation of substantial coercive transferences from the rich is likely to damage the national dividend to some unknown extent

The Effect on the National Dividend of the Expectation of Transferences to the Poor

720

(17)

Transferences may be distinguished according as they (1) differentiate against idleness and thriftlessness, (2) are neutral, (3) differentiate in favour of idleness and thriftlessness

Transferences that differentiate against ideleness and thriftlessness are illustrated; the expectation of them tends to augment the dividend

Neutral transferences are illustrated

If they are made in money or things readily convertible into money, the expectation of them tends slightly to lessen the dividend; but if they are made in things that poor people would not otherwise have bought at all, they need not do this, but may have the opposite effect

The expectation of transferences which differentiate in favour of ideleness and thriftlessness damages the dividend

Such transferences may be in part, but only in part, avoided by devices like universal old-age pensions

Their injurious consequences are small when they differentiate in favour of a failure to make provision by insurance

But they are large when they differentiate in favour of ideleness, so far as this is voluntary

In some circumstances, therefore, deterrent conditions, the form of which is discussed, have to be coupled with relief

Bounties on Things Purchased by the Poor

737

(5)

Three forms of bounty are distinguished

They all involve neutral transferences

And are likely in general to be somewhat more injurious to the national dividend than the direct neutral transference discussed in

of the preceding chapter

The Effect on the National Dividend of the Fact of Transferences from the Relatively Rich to the Poor

742

(16)

A transference of resources from the rich to the poor is bound to benefit the national dividend if the rate of return yielded by investment in the poor is larger than the normal rate of interest

Among the degenerate and the old there is little chance of this

But transfernces in the form of training or of care in sickness to normal adult workers may yield a large return

And well-managed transferences in the form of education and nurture to children a very large return

Transferences in the form of general purchasing power are less likely to be employed effectively

Some friendly supervision over the use made of them seems to be desirable

A National Minimum Standard of Real Income

758

(95)

The establishment of a national minimum standard of real income may affect the aggregate dividend disadvantageously at the same time that it benefits the poor

The nature of the national minimum that is contemplated is described

The theoretical considerations relevant to the level at which it should be placed are analysed

Practically we may conclude that it can safely be set higher the larger is the real income per head of the community

This conclusion is developed with special reference to the United Kingdom

Its relation to international labour legislation is discussed

And its relation to the problem of immigration

APPENDICES

I. Uncertainty-bearing as a Factor of Production

771

(11)

II. The Measurement of Elasticities of Demand

782

(7)

III. A Diagrammatic and Mathematical Treatment of certain Problems of Competition and Monopoly

789

(26)

IV (to Part I, Chapter III). The Measurement of Real Income in Relation to Taxes

815

(2)

V (to Part I, Chapter IV). Obsolescence and Kindred Matters

817

(3)

VI (to Part I, Chapters V and VI). Real Income and Economic Welfare

820

(5)

VII (to Part II, Chapter XV). Duopoly

825

(6)

VIII (to Part II, Chapter XVI). All-round Monopoly

831

(2)

IX (to Part II, Chapter XVII). Imperfect Competition

833

(2)

X (to Part IV, Chapter III). The Elasticity of Substitution

835

(10)

XI. Measurability and Comparability of Utilities

845

(8)

Index

853

(22)

Index to Appendices IV-XI

875

Please wait while the item is added to your bag...

FREE SHIPPING

Amazon no longer offers textbook rentals. We do!

The Economics of Welfare

Summary

Table of Contents

Supplemental Materials