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uses will be turned to. Whether we look backward or forward, no general or certain tendency to diminishing returns can be made out.

Let me illustrate my meaning by a consideration of what has happened in the civilized world during the last century or two, say since the middle of the eighteenth century. Suppose there had been during this period, so far as the bettering of capital goes, strictly "static" conditions. Suppose there had been none of the inventions which brought about the industrial revolution and made the modern world, -no steam-engine, no textile machinery, no railways, no steamships, no new iron and steel making processes. Assume, on the other hand, that accumulation had gone on during this long period at the rate which, in fact, has prevailed,-savings and surplus means valued by thousands of millions. Assume that the only thing which could have been done with this enormous mass of surplus means, in the way of bringing into existence more capital (“capital-goods”), had been an increase in the supply of instruments such as were familiar in 1750,-more spinning-wheels, more handlooms, more broad-wheeled wagons and stage-coaches, more wooden sailing-vessels. Is it not obvious that before long the multiplication of these things would have led to no further gain? The persons who had the large surplus means, and who invested them in hiring laborers to make more and more of the old-fashioned tools, would have been brought very soon to the stage of no further increase in productiveness, of rapid decline in the rate of interest, and, if they persisted willy-nilly in accumulating and investing, complete disappearance of any return at all on their investments. The mode in which these consequences have been staved off is also obvious: it has been by the march of improvement and invention, the discovery of ways of applying labor to making more

elaborate tools than before, to ways of getting eventually a larger product in proportion to the total labor applied. These newly discovered ways have not been less effective than those previously followed. They have been probably more effective. The steam-engine and the railwayto mention two great transforming agents—stand for increasing returns, not diminishing returns.

But it will be said that I am confounding static and dynamic conditions. The proposition as to diminishing returns from an increase of capital, it will be said, holds good only in a static state, whereas during the last one hundred and fifty years the civilized world has been under highly dynamic conditions.

I confess not to be certain as to what is meant by a static state, and suspect that confusion between “static" and “dynamic” conditions appears among those whose reasoning rests on the supposed distinction. Thus Professor Clark speaks of going through an “illustrative dynamic process,” and observes that the process by which capital changes its form, as more or less of it is added, “is not a static process. It is not material what phrases are used. It is material only to keep clear just what is the way in which more capital is supposed to be added, and what is the sort of “natural" change that takes place as this is done. Elsewhere Professor Clark says that every increase of capital shows itself primarily in transmuting poor appliances into better ones.”? This seems to me essentially a “dynamic" operation. It is an operation which is assumed by Professor Clark to take place in a "natural" or necessary way, following from the mere presence of more available means,-of more possibilities of making capital. The substitution of steel ships for wooden ones, of power machinery for hand tools, and sundry other improvements, are referred to by him as

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1 Distribution of Wealth, p. 178.

a Ibid., p. 183.

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taking place simply with the greater abundance of capital. But, in fact, they result not merely from that abundance, but from the irregular march of invention and discovery. To quote another passage,' “As capital grows more abundant, ... society also makes all its machinery as nearly automatic as it can, so that one laborer's guidance shall keep much machinery in motion." "Society," I submit, does nothing of the kind. Individual schemers and inventors are trying to find out how to achieve such results. They may or may not succeed. If they do succeed, they may or may not need more “capital”; i.e., may or may not call for a greater preparatory application of labor in making the automatic machinery.

The "static" state, if we are to use that phrase, means a condition in which the arts are stationary. An increase of capital, in such a state, means an addition of tools and materials of the same kind that were used before. By supposing such a situation, we can reason with some clearness as to what would happen if there were simply an increase of capital, and nothing more. We isolate that factor hypothetically, after the familiar practice of deductive reasoning in economics. I have already stated my belief that in such a static state the mere duplication of instruments of the same kind would lead to practically no increase in productivity. This much indeed is implied in Professor's Clark's supposition that with the changes in quantity of capital there are also changes in quality. The changes in quality would not need to be assumed if mere addition of quantity brought an indefinitely continuing gain. The essential point on which I differ is as to the regularity or predictableness of the changes in quality. These changes seem to me, in fact, very variable and subject to no certain law.

In Professor Böhm-Bawerk's treatment of this subject the form of statement is more guarded. The greater efficiency of the roundabout process is said to be a fact of general experience, very possibly subject to exceptions. Similarly, the tendency to diminishing returns as to the process becomes more roundabout, is set forth not as a "natural" law, but again as an empirical fact. Yet in the later development of his reasoning the acute Viennese thinker seems to me to forget the nature of the premises from which he starts. All his ingenious numerical illustrations (which remind one of Ricardo's illustrative figures) are worked out on the assumption of an increase of efficiency that goes on steadily, yet at & diminishing rate. This may be done, very properly, for the purpose of precision in the hypothetical reasoning, just as Professor Clark's figures may be justified as precise statements of a hypothesis. But Professor Böhm-Bawerk, not less than Professor Clark, draws substantive conclusions of importance. Interest, the former says, must appear; for there is always the possibility of using present goods as a means of extending the production period." In other words, no matter how great the accumulation of a general subsistence fund, or, in less technical terms, no matter how great the volume of means pressing for investment, a return in the way of interest can always be secured. Stated in such unqualified terms, the proposition seems to me untenable.

1 Distribution of Wealth, p. 184.

Let me say something more as to the possibilities of an increasing use of capital. To prove that those possibilities are indefinitely extensible, reference is made to the many unused opportunities for applying capital which lie about on every side. There are, it is said, known and perfected devices, as yet only in partial use, to which new accumulations can be directed with clear advantage. Here is a field virtually unlimited, tho one in which further exploitation must face the probability of diminishing returns.

i Positive Theory, p. 333. Book VII., passim.

See also pp. 377-378, and Chapters I., II., III., of

Much of this is true of such a highly “dynamic” state as the world is now in. Inventions and improvements are not adopted by all producers at one fell swoop. They make their way step by step, first adopted by one person then by another, and come into use over the whole field by a gradual process. Professor Clark has effectively pointed out that a characteristic source of employer's profits is in the shrewd appreciation and early adoption of improvements. During the period when they are in process of adoption, very likely a long period, there are these visible and certain ways of applying new accumulations to advantage. If there be a succession of improvements, each new one opens such a vista, and at every instant of time there are unused opportunities for productive investment. Precisely this is what we have seen during the last one hundred and fifty years. We are living in the midst of the greatest burst of invention the world has ever known, one, too, which shows no signs of subsiding. So far as we can see into the future,that is, for a generation or thereabouts,—there is no indication of any relaxation of the advance in the arts. It may be, as the more optimistic predict, that we are only on the threshold of further great conquests of natural forces. These conquests during the last century have involved more and more plant, and thus have involved more capital. They seem likely to do so for the immediate future, tho in what degree and with what certainty or regularity we are quite unable to say.

But these, after all, are the incidents of a period of transition. If we conceive the transition to be completed, the current improvements to be applied universally,– then we reach the stage at which we can judge whether

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