The Theory of Distribution
by F.Y. Edgeworth

Quarterly Journal of Economics, volume 18, 1904
pp. 159-219

The Theory of Distribution(1*)

    Distribution is the species of Exchange by which produce is
divided between the parties who have contributed to its
production.(2*) Exchange being divided according as both, or one
only, or neither of the parties have competitors, Distribution is
similarly divided. The case in which both parties have
competitors will here be first and principally considered.
    The simplest type of this distributive exchange would be of a
kind which is effected once for all, without reference to a
series of future productions and exchanges. For example, to adapt
an illustration used by Mr Henry George,(3*) let it be supposed
that on a particular occasion each out of a number of white men
hires one or more black men to assist in catching seals, on the
agreement that each white man shall give his black assistants a
certain proportion of the take, the terms having been settled in
an open market in which any one white is free to bid against any
other white and any one black against any other blacks. A
conception more appropriate to existing industry is that each
white agrees to pay in exchange for a certain amount of service a
definite quantity of produce, not in general limited to the
result of a particular operation. On a particular day less seal
may be taken than the employer has agreed to give the employee
for the day. In this case, even if payment is not made till the
end of the day, the employer must pay for help on a particular
day in part with seal caught on a previous day. He must pay
altogether out of past accumulations when payment is made before
the work is one. When the employer agrees to pay a definite
amount, he cannot expect to gain on each day's transaction, but
on an average of days.
    This example is suited to illustrate some general properties
of Exchange which attach to Distribution as a species of
Exchange. Such are the laws which connect a change in the supply
or demand upon one side of the market with a change in the
advantage resulting from the transaction to the parties on either
side. Thus, competition on both sides being presupposed, a
decrease of supply in a technical sense of the term on the one
side is, ceteris paribus, universally attended with detriment to
the other side, but is not universally attended with detriment to
the side on which the supply is decreased.(4*) Accordingly, a
limitation of supply on one side may be advantageous to that
side, though not to both sides. The case of Distribution compared
with Exchange in general in respect to such limitation of supply
has only this peculiarity, -- that the danger of this policy
defeating itself is in the case of Distribution specially visible
and threatening. There is an evident limit to what the black man
dealing with the white man can get in exchange for a certain
amount of his service; namely, the total product which that
service utilized by the white man will on an average produce. To
be sure, there is here but a case of the general principle that
no one will give more for a thing, whether article of consumption
or factor of production, than the equivalent of its total utility
to him, which total diminishes as the quantity of the commodity
is reduced. But this limit is less liable to escape attention
when it is fixed by the material conditions of production rather
than by the desires of consumers. Conspicuous warning is given to
parties in the position of our black men not to attempt to
benefit themselves by a considerable reduction in their supply of
service; for, though they might possibly obtain a larger
proportion, they would probably obtain a smaller portion, of the
average product. The laws which have been stated and other
general laws of Exchange are equally true in more complicated
cases of Distribution.
    So far, we have supposed only a single factor -- the service
of the black man, or, more generally, the factor beta -- offered
by the competitors B1, B2, etc., in exchange for some of the
produce a offered by the competitors A1, A2, etc. Let us now
introduce other kinds of factors, alpha, beta, etc. And let us no
longer suppose payment to be made by parties of the type A, in
the kind of commodity which is produced, namely, alpha. A more
concrete conception is that, besides the group A, B, C, D, there
is another and another group, -- A', B', C', D'; A", B", C", D";
-- where each capital letter typifies a set of competing
individuals. It may be supposed that each A purchases out of the
finished product that he turns out -- namely, a -- portions of
the products a', a'', etc., which he distributes according to the
law of supply and demand among parties of the type B, C, D. In
fine, each A may pay for the factors of production altogether in
some one product, a''', -- "numeraire," as happily conceived by
M. Walras, or, less generally, money -- which the purveyors of
the factors can exchange for the articles which they want. These
articles need not be all commodities ready for consumption: some
of the parties may care to purchase factors of production
wherewith to play the role which has been assigned to A.
    Having now obtained a general idea of the machinery by which
distribution in a regime of competition is effected, let us go on
to consider in more detail the parts of the mechanism. And,
first, of the party that takes factors of production in exchange
for products or the means of purchasing the same, the party above
represented by the white man and labelled A. The functions of
this party may be investigated by an ancient method which
Sidgwick has proposed to rehabilitate(5*) for the purposes of
modern economics, -- the search for a definition. What is an
entrepreneur? Amid the diversified combinations of attributes
which the industrial world presents -- innumerable as the
varieties in which vegetable nature riots -- we ought to fix
certain characters agreeably to the rule laid down by Mill under
the head of Definition by Type. "Our conception of the class"
should be "the image in our minds which is that of a specimen
complete in all the characteristics."(6*) Four such
type-specimens may be distinguished, ranged in a descending order
according to the extent of functions ascribed to the
entrepreneur. There is, first, the party whom the classical
writers designate as the Capitalist, "who from funds in his
possession pays the wages of the laborers, or supports them
during the work; who supplies the requisite buildings, materials,
and tools, or machinery; and to whom, by the usual terms of the
contract, the produce belongs to be disposed of at his pleasure."
(7*) This party will here be considered as devoting his care and
savings to a single business. There is, second, the entrepreneur
as portrayed by the late President Walker, "not an employer
because he is a capitalist, or in proportion as he is a
capitalist." (8*) There is, third, the party to whom Mr Hawley
would wish to restrict the term "entrepreneur," (9*) the man who
undertakes risks, of which class the most prominent, though not
the only, species is the investor in joint stock companies.(10*)
Fourth, at the extreme degree of tenuity, is the entrepreneur who
makes no profit. It might seem, indeed, as if this class did not
call for special treatment, as differing only in the amount, not
in the kind of remuneration. A fig-tree which bears no fruit is
not therefore a tree of a distinct species. The horse which the
Scotchman its owner had just trained to live upon a minimum, when
the animal unfortunately died, was not therefore a new variety of
the equine genus, requiring mention in a treatise on Natural
History. However, as imposing theories have been connected with
this last category, it comes within the scope of the present
    As our aim in comparing definitions should be, as Sidgwick
says, "far less to decide which we ought to adopt than to
apprehend the grounds on which each has commended itself to
reflective minds," -- the hunt for a definition being followed
not so much for the sake of the quarry as of the views which are
incidentally presented, -- let us go on to consider the principal
propositions which the several conceptions are adapted to bring
under our notice. In this inquiry much assistance will be
obtained from a series of articles on cognate subjects in the
Quarterly Journal of Economics,(11*) which forms a sort of
economic symposium.
    The first definition is particularly suited to inquiries in
which the parties who are in the habit of saving are contrasted
as to their actions and interests with the parties who do not
save, -- approximately the working classes. Specimens of such
inquiry may be found in the fifth chapter of Mill's first book,
and in Professor Taussig's important article on "The Employer's
Place in Distribution." It sounds paradoxical to add that the
classical conception is not particularly adapted to illustrate
the Ricardian theory of rent. But the definition of the
capitalist above given is not easily reconciled with the received
representation, that the capitalist's remuneration is equal to
the number of doses which he lays out, multiplied by the
remuneration of the last dose, the ordinary rate of profit. For,
as Sidgwick argues, there is no adequate reason for expecting
that "remuneration for management" as well as interest should
tend to be at the same rate for capitals of different sizes.(12*)
Doubtless, the proposition is accurate enough to support the
practical consequences which have been deduced from it. But,
while fully admitting this, one may still agree with Sidgwick
that "even Mill's exposition" is "highly puzzling." For the idea
of an economic person laying out doses up to the margin and
obtaining the remuneration equal to the number of doses
multiplied by the marginal productivity of each dose is only
proper to the case in which the doses are for sale. But it is
only in the conditions proper to our third definition that doses
of capital are put on a market in exchange for profit. Perhaps
the classical writers, having an eye to practice and not
restricted by a sharp definition, often tacitly introduce the
supposition that it is open to the "capitalist" to take part in
some other business besides his own.
    The classical formula for surplus may be employed along with
our second definition if we use the phrase "amount of outlay
multiplied by average rate of return" to designate the amount
which the entrepreneur of the Walker type pays in the way of
interest from year to year to those who have lent him the means
of carrying on his business. The surplus, according to this
conception, will include not only the landlord's rent, but also
the entrepreneur's net income. The portion of this surplus which
accrues to the entrepreneur is not given by any simple formula.
The conditions by which it is determined may be considered under
two heads, corresponding to Cairnes's categories, -- commercial
and industrial competition. This distinction becomes clearest
when, in conformity with the division of employments, we conceive
different occupations to be separated by great gulfs, so that
they who would pass from one to the other must make a complete,
or at least a considerable, change in their business
arrangements.(13*) In virtue of the first kind of competition the
entrepreneur endeavors to make the best possible arrangements
within the occupation which he has chosen. In virtue of the
second kind of competition he endeavors to choose the occupation
which will afford to him the greatest net advantage.
    His motive under the first head may be understood by likening
him to a monopolist who does not control the prices of the
factors of production, nor yet the price of the product, the
latter being fixed by a maximum law, or, rather, the case being
that in which the monopoly is just becoming extinct, as Cournot
would say, by the introduction of competitors, so that this
entrepreneur can no longer sensibly alter at will the price of
the product. Under such circumstances each entrepreneur will vary
all the variables under his control up to the margin at which his
own advantage becomes greatest. If he or we be content with a
rough estimate of this advantage, it may be measured by the
difference between his incoming and outgoings. His incoming may
be regarded as the product multiplied by the price thereof, the
amount of the product depending in some definite manner on the
amounts of the factors of production which are employed.(14*) The
outgoings may be regarded as a sum of terms, each of which is the
amount of a factor of production multiplied by its price.(15*) It
follows(16*) that in a state of equilibrium the increment of
value produced by the last increment of a factor is just equal to
its price. "The marginal shepherd... adds to the total produce a
net value just equal to his own wages."(17*)
    So far supposing the entrepreneur's work to be a constant
quantity. In a more exact estimate the quantity which the
entrepreneur seeks to maximize is the utility to be derived from
his net income minus the disutility incident to its production.
From this consideration it follows that the increment of utility
due to the increment of product which is produced by the last
increment of entrepreneur's work is just balanced by the
increment of disutility due to that work.
    To this condition is superadded the tendency towards equal
net advantages in different occupations, resulting, as Professor
Marshall has shown, not so much in the equal advantageousness as
in the equal attractiveness of different occupations. The
remuneration of the entrepreneur thus corresponding to his
services may be classed along with the remuneration of the
workman as "earnings," from a certain point of view, which is
doubtless proper to the publicist and philosopher. As Mangoldt
points out, "the circumstance that certain services do or do not
attain a market price" does not "essentially alter the measure of
their compensation." But there is another point of view which is
proper to those who study the mechanism of distribution. As
Professor Taussig well observes, "The cobbler who works alone in
his petty shop gets in the main a return for labor as much as the
workman in the shoe factory"; but "with regard to the machinery
by which distribution is accomplished he [the cobbler] belongs in
a different class from the hired laborer." (18*)
    The tendency to quality of net advantages of course only
exists with respect to positions between which there is
industrial competition. Accordingly, if the union in one person
of natural abilities and money constitutes him a member of a
"non-competing group," there is no presumption that the
remuneration of such an entrepreneur will be exactly equal to the
interest which he might have obtained by lending his money plus
the salary which a person of his ability could command as a hired
manager. There exists an excess above that sum, corresponding to
what Mangoldt calls Unternehmergewinn. There may be excesses
somewhat similarly caused by different degrees of ability and
resources; the various "rents" enumerated by Mangoldt, which, as
he observes, tend to diminish with the progress of society, so
far as education becomes more diffused and it becomes easier for
persons properly qualified to obtain the use of capital.
    Some additional light on the functions of the entrepreneur
may be obtained by comparing the profits in businesses of a
different size. Suppose (for the sake of the argument) that the
work and worry of the "boss" do not increase(19*) with the scale
of operations, how is the equality of net advances which theory
leads us to expect brought about? Ceteris paribus, might we not
expect the entrepreneur's residue to be larger in the large
industries? (20*) The answer seems to be that, as equilibrium is
approached under the joint influence of Commercial and Industrial
Competition, the amounts of the factors(21*) are so varied as to
fulfil the condition that equal efforts and sacrifices on the
part of the entrepreneur are attended with equal
remuneration.(22*) This equality is irrespective of identity in
the relation between factors and product.(23*) It may exist
whether that identity is supposed to be present between
industries of different sizes or, as in general to be supposed,
there is no identity in the relation between factors and product
for different individuals and industries.
    The sort of adjustment thus postulated may be illustrated by
a more familiar kind of surplus, that which accrues to the
landlord according to the received theory of rent. Let there be a
homogeneous tract of land equally adapted to the cultivation of
wheat and barley, owned by a set of competing landlords, who
accordingly obtain an equal rent per acre whether wheat or barley
is to be grown thereon.(24*) Now let a tax be imposed on the rent
of land used for growing barley. There must result a new
equilibrium, in which it remains true that owners of homogeneous
land obtain equal rent per acre for whichever purpose used, and
that cultivators of wheat and barley obtain, ceteris paribus,
equal profits. These conditions can be fulfilled if the extent of
the land applied to the cultivation of wheat is increased while
the intensity of cultivation is diminished, and contrariwise for
barley the extent is diminished and the intensity increased. This
proposition holds good whether or not the relation between outlay
and product(25*) -- corresponding to the shape of the curve in
the illustration which Professor Marshall has made familiar(26*)
-- is supposed identical for wheat and barley, and even if the
cultivator seeking the greatest possible profits is able to vary
that relation in accordance with the "law of substitution." It is
here assumed that the case of manufacture is not so different
from agriculture, but that an analogous adjustment of "margins"
must be considered to take place between large and small
businesses under the conditions specified, and generally between
different industries where industrial competition acts.
    A similar adjustment must be postulated when we entertain the
third definition of entrepreneur, and consider competing
investors in the stock of companies which may at first be
supposed equal in respect of risk, though not in size. The
competitors being free to invest units consisting, say, of 100
or less in any kind of business (of the given riskiness), large
or small, it follows that a return to a dose anywhere invested
tends, ceteris paribus, to be the same.(27*) This result, which
is by no means a deduction from the general formula considered
under our second head, may be supposed to be brought about by an
adjustment of margins of the sort which has been explained.
    Now at length the Ricardian theory of rent as ordinarily
stated becomes exact, -- the payment for land rented by a joint
stock company ought to be Just the difference between the returns
(after capital has been replaced and labor paid) and the amount
of capital laid out, multiplied by an average rate of profit.
    Though the class of shareholder is the principal, it is not
the only species, of the third kind of entrepreneur, if defined
so as to include all risk-takers. As Mr Hawley observes,(28*)
workmen take some risk, entrepreneurs who have no capital of
their own run the risk of not being paid for their trouble.
Enterprise may be taken as the essential attribute of a wide
class entitled to a share in the national dividend along with the
purveyors of land, labor, and capital. It does not seem to be a
fatal objection that enterprise is hardy to be found in the
concrete, separate from other factors of production. As Mr Hawley
replies,(29*) labor and waiting, the attributes of familiar
classes, are not to be found in abstract purity.
    To some there may seem a more serious scruple: whether the
undertaking of risk does even in thought constitute a fourth
factor, whether the distinction between interest and the reward
for risk is radical. It is all very well for Jevons to
distinguish by different coefficients, p and q, the depreciation
of future goods due to uncertainty and to remoteness. But, since
the distant pleasure is always uncertain, can we really
disentangle the two causes of depreciation?
    Fortunately, these questions of logical definition and
psychological analysis do not affect the important lessons
respecting the participation of risk which have been taught by
Professor J.B. Clark, -- "that a corporation can run risks which
the individual could not with prudence," that by forming
corporations "we reduce the initial terrors of business
enterprises."(30*) It is an exemplification of the old maxim not
to put all one's eggs in one basket. If a hundred persons are
carrying each a hundred eggs, each independently running the risk
of tripping and by the loss of all or many of his eggs being
exposed to great privation, this great danger will be averted,
this chance of great disaster will be commuted for a somewhat
higher probability of a much more easily borne loss, if each
person carries only one of his own eggs and one belonging to each
of the rest, the total to be redistributed at the end of the
journey to market or after sale.
    It is noticeable that in Professor Clark's nomenclature this
risk is borne by the capitalist. "The hazard of business falls on
the capitalist." "Business repays men not only for their labors,
but their fears." But this repayment is "not a part of mercantile
profit": it is realized by the capitalist "as such." Admitting a
real remuneration for risk, while giving a different name to the
recipient from that which others have preferred, Professor Clark
is perhaps not committed to the paradox which Mr Hawley would
affix upon the conception of the entrepreneur with vanishing
profits, -- our fourth species.

"To eliminate profit, wholly static conditions must be more
absolute.... There must be a cessation of all variations due to
the changeableness of the environment due to fire, lightning,
hail. We must imagine industrial society in the static condition
as an automatic machine,... working without friction in an
absolutely unchangeable environment."(31*)

This idea of perfect tranquillity is certainly inappropriate to
the troubled world in which we live. "Things are always finding
their level," like a fluctuating and, in nautical phrase,
"confused" sea. The oscillating character of the waves is quite
consistent with a gradual change of level, as when the tide is
flowing. It is a legitimate conception, familiar in statistics,
to regard a phenomenon as hovering about an average, even though
that average is known to be changing. Let the great tidologist
calculate the dynamics of the flow, but let him not convey the
impression that but for the action of this flow there would be
the level of the proverbial mill-pond. Very probably, however,
Professor Clark would recognize the continuance of risk not
involving secular progress, -- due to unpredictable weather or
credit cycles, for example, -- but would regard the remuneration
for undergoing such risk as accruing to the "capitalist as such"
rather than, with Mangoldt and others, as a part of the
entrepreneur's gain. With regard to other elements of
remuneration it is more doubtful whether Professor Clark would
accept Mangoldt's statements as to the permanence of the
entrepreneur's gain, -- statements which read with their context,
and attention being paid to Mangoldt's terminology, deserve much

    We must suppose the existence of undertaker's gain
[Unternehmergewinn], -- otherwise what object has the
entrepreneur to increase his business? (substance of p. 50).
    The undertaker's gain (Unternehmergewinn) is "not simply
something transitory," but a "permanent species of income" (p.
    "The undertaker's remuneration [Unternehmerlohn] preserves
its position, though in a limited form" (p. 105. Cf. p. 169).

Perhaps Professor Clark would be satisfied with the "limited
form" of the remuneration and the disappearance of certain other
    It is always pleasant to believe that one's differences with
high authorities are only verbal. This satisfaction may now be
enjoyed with respect to M. Walras's doctrine that the
entrepreneur makes neither gain nor loss. Professor Pareto(33*)
has made it clear that, as the object of the entrepreneur is to
procure the greatest amount of satisfaction, so his income is not
to be considered as nil, in the ordinary sense of the term.
Rightly interpreted, the doctrine that "the entrepreneur makes
neither gain nor loss," taken in connection with the
"coefficients of production," appears to cover all the conditions
of equilibrium, both those which are involved in what Cairnes
called "industrial competition" and those which would be
satisfied even if we made abstraction of the tendency to equal
advantages in different occupations.(34*) But, while we accept
the ideas, we are not bound to swear to the words, of any master;
and the expression in question may be objected to on several
grounds which will repay examination. It is violently contrary to
usage; it lends itself to a dangerous equivoque; and it has led
distinguished economists to paradoxical conclusions.
    No amount of authority and explanation can make it other than
a strange use of language to describe a man who is making a large
income, and striving to make it larger, as "making neither gain
nor loss." There is an oddity about the phrase which recalls the
use of "gratis" by Sir Murtagh's lady in Castle Rackrent: "My
lady was very charitable in her own way. She had a charity School
for poor children where they were taught to read and write
gratis, and where they were kept well to spinning gratis for my
lady in return."
    A more serious objection is that the term "making neither
gain nor loss" has to be used in two different senses almost in
the same breath. It is a sufficiently difficult lesson for the
plain man to learn that the maximum of income which the
entrepreneur aims at realizing is zero. But the difficulty is
doubled when he comes to learn as he must in dealing with a
maximum problem -- that the increment to that income due to the
last increment of any factor of production is also zero. There is
apt to arise a confusion between conditions belonging to the
total and to the marginal quantity, -- an ambiguity of a kind
which has before now proved detrimental in economics.(35*) A
hasty reader of Professor Walras might suppose that it was
intended to affirm that the entrepreneur made neither gain nor
loss at the margin: whereas the meaning is, rather, that nothing
remains to be distributed -- on an average and apart from
oscillations -- after that the entrepreneur has paid a normal
alary to himself.(36*)
    The implication that the remuneration of entrepreneur labor
may be treated like that of any other labor presents some
difficulty. It is the one obscure topic in Professor Barone's
brilliant studies on Distribution.(37*) His observations deserve
to be quoted at some length. He first (in a note on p. 132)
announces as true in a particular case, what is here regarded as
true in general, that "there must be left to the entrepreneur's
profit (profitto dell' impresa) the differentiating character of
'residual claimant'; and nothing else can be said but that profit
is formed by the difference between the entire product and the
remunerations of the various factors corresponding to (raggua
gliate) their respective marginal productivities." But Professor
Barone regards this enunciation as only provisional. He promises
to show in a later section that "with the increase in the number
of the competing entrepreneurs the profit of the undertaking
tends to lose more and more the character of residual claimant;
and tends to conform to that of the law of marginal
    In the later section he says: --
    "If on the market there is only one entrepreneur Titius, and
if he does not monopolize the product, that is if he in the
management of his business arranges [fa in modo di] to obtain not
indeed the greatest monopoly profit, but the greatest profit
obtainable in a regime of free competition,... his profit will be
[a surplus indicated by a figure which is not here reproduced].
But, if there is an entrepreneur Caius capable of entering into
competition with the preceding,... the profit of Titius will be
reduced below what he had when he was alone on the market. And,
if there is a third employer also capable of entering into
competition with the first two, the profit of Titius will be
reduced still more. The more the number of employers increases,
the more there is a necessary tendency to a limiting state in
which all the employers who continue to produce have a
remuneration which, like that of any other labor, satisfies the
condition that the marginal disutility [penosita] of the same
labor [medesimo] shall be equal to the marginal utility of the
returns which that labor procures, and not more than this. And,
since it is this equality which characterizes the return to
labor, it follows (ne viene) as a legitimate consequence that in
this limiting state the remuneration of the entrepreneur may be
treated like the remuneration of any other species of labor."
    The fact that Wages are usually paid in advance is not to the
point, as Professor Barone very properly observes. He proceeds:
    "These considerations seem to me to prove to demonstration
how profound and correct is Walras's conception of an
entrepreneur who under the conditions postulated makes neither
gain nor loss after having paid himself (or others, it is
indifferent which) the remuneration of the labor of direction and
conduct of production. And, if it is no wonder that this
conception should not be comprehended by economists who have
really very vague ideas of quantity, it is absolutely astounding
that the conception should have been also made the subject of
criticism by other economists to whom the notions of quantity are
quite familiar.... I frankly must confess myself absolutely
incapable of understanding how any difficulty whatever can arise
as to the validity [literally, the affirmation] of this
conception, which is indeed most simple."
    Having called once more attention to the abstract character
of the conditions, Professor Barone reiterates: --
    "In such conditions the law of marginal productivity extends
to the remuneration of the entrepreneur; and, after having
remunerated all the factors (the work of the entrepreneur
included) in proportion to their productivity [with a discount
corresponding to the time elapsing between the service and the
product], there remains no undistributed residue."
    If there could be any doubt about the meaning of this thesis,
it would be removed by the unequivocal language of symbols
employed in the Appendix,(38*) where, by way of illustration, the
labor of the entrepreneur is expressed by the total number of
hours of work that he devotes to the business.
     Upon this it may be remarked that the last state of Titius,
after Caius and the rest have entered as competitors, seems
identical with the case of "extinct" monopoly which was
above(39*) adduced, in order to exhibit the motives of the
entrepreneur. As there appears, both before and after the
competitors have entered the remuneration of the entrepreneurs,
in Professor Barone's phrase, "satisfies the condition that the
marginal disutility of the labor shall be equal to the marginal
utility of the return which that labor procures." But neither
before nor after the competitors have entered is there any reason
for regarding the remuneration of the entrepreneur as the product
of the number of doses (e.g., hours worked) and the marginal
productivity of a dose (multiplied by a coefficient depending on
the length of the productive process(40*)). It is only with
respect to factors of production which are articles of exchange
that the proposed law of remuneration, the "law of marginal
productivity;" is fulfilled in a regime of competition. Thus, in
our typical example of black men assisting white men to catch
seals,(41*) what the black man gets in a perfect market is an
amount of seal equal to the number of units of service which he
supplies, multiplied by the quantity of seal for the sake of
which he is just induced to offer an additional unit of service,
the unit employed being a small quantity. Likewise, what the
white man gets in exchange is an amount of service equal to the
amount of seal which he distributes to the black man, multiplied
by the quantity of service for the sake of which he is just
induced to offer an additional unit of produce. If the amount of
service rendered may be taken as the measure of the black man's
labor (or of some other factor of production supplied by him),
the proposed law holds good for his share of the distributed
produce. But, as the amount of produce given by the white man in
exchange for services cannot be taken as the measure of his work,
the proposed law does not hold for his share of the distributed
    This discussion will appear otiose to the economists who are
not conversant with the science of quantity. The proposition that
the remuneration of the entrepreneur is equal to the amount of
his work multiplied by its marginal productivity will be
interpreted by them as signifying simply that he will get more,
ceteris paribus, the more work he does and the greater the
addition to the produce which he would effect by doing a little
more work. For them a product will do duty for a function of two
variables which increases with the increase of either variable.
But this easy interpretation is not open to mathematical
economists. They must be aware that the formulae in question
affirm something more than the simple truth above stated. If
nothing more than that simple truth can be deduced from the
theory of Exchange, it ought not to be a matter of surprise that
the "law of marginal productivity" applied to the entrepreneur
should be challenged by those who affect mathematical precision. 
    The law of marginal productivity, then, is not fulfilled in
the sense that the portion of the national dividend accruing to
entrepreneurs is a sum of terms each of which is the product of
an entrepreneur's work reckoned in hours, or similar doses, and
the marginal productivity of a dose (multiplied by a certain
coefficient(42*)). Let us see whether the law is fulfilled when
we take a larger dose, the total work of an entrepreneur. The law
will then be fulfilled if the net gains of any entrepreneur tend
to be equal to what society would lose if he were removed. Can
this be generally affirmed? Let us look at the typical case of
distribution between whites and blacks above(43*) instanced. It
may be granted that the white entrepreneur does not normally
obtain more than he adds to the common stock. For otherwise the
society would gain through his removal, his black assistants
either hunting by themselves or being taken on by other
entrepreneurs. And neither of these suppositions is possible in a
state of equilibrium; for, if either were possible, it would have
been already brought about by the free play of self-interest, in
a regime of competition. The gain of a white man, then, cannot be
greater, but where is the proof that it cannot be less, than the
loss which would be occasioned to the society by his removal? 
    Such a proof might be forthcoming if the white men were not,
as hitherto supposed, genuine entrepreneurs, but managers acting
under entrepreneurs of our third species, the stockholder. The
income of the managers will fulfil the marginal law of
productivity if the new entrepreneurs are conceived as competing
against each other in such wise as to bring about the result that
no manager earns more or less than what he adds to the profits of
his employers. The income of the new entrepreneurs also fulfils
the law; for the remuneration of this species of entrepreneur --
unlike that of entrepreneurs in general -- is proportional to the
amount of the factor which they contribute, -- namely, capital
    The affinity between entrepreneurs and salaried managers in
modern industry supplies the missing link for the general proof
of the new law. For, normally, it may be presumed that an
independent entrepreneur (of our second species) does not make
less (in Edition to the profits that he makes or might have made
by investing in some other business money of his own) than a
manager of like abilities. And perhaps he does not make much
more. The difference is possibly small,(45*) probably
diminishing, certainly difficult to verify statistically, perhaps
hardly worth fighting about. Interpreted cautiously, the law
holds good approximately. If the remuneration of the manager,
like that of the "marginal shepherd," is just equal to the amount
that he produces, then the remuneration of the entrepreneur is
not very different from the amount that he produces. But, if the
law of marginal productivity is fulfilled for the manager only
while we consider doses less than his total work, say hours of
work, then the law is fulfilled for the entrepreneur only so far
as it is presumed from the similarity in nature and habits
between the manager and entrepreneur that, when the total
remuneration of each is nearly the same, the amount of work and
its marginal productivity are not very different. 
    According to the interpretation which has been suggested, the
new law of distribution would be fulfilled by an adjustment of
the quantities involved,(46*) the amount of each factor, not
simply in virtue of the relation which subsists between the
product and the factors of production.(47*) The sense in which
the law is fulfilled is otherwise conceived by a distinguished
mathematical economist, Mr Wicksteed, who regards the law as
following from "the modern investigations into the theory of
value,"(48*) and seems to treat it as a clue whereby to
investigate the nature of the relation between the product and
the factors of production, including the work of the
entrepreneur.(49*) In fact, he finds that the product depends
upon the factors by a relation which mathematicians designate a
"homogeneous function of the first degree." (50*) This is
certainly a remarkable discovery; for the relation between
product and factors is to be considered to hold good
irrespectively of the play of the market: "an analytical and
synthetical law of composition and resolution of industrial
factors and products which would hold equally in Robinson
Crusoe's island, in an American religious commune, in an Indian
village ruled by custom, and in the competitive centres of the
typical modern industries." (51*) There is a magnificence in this
generalization which recalls the youth of philosophy. Justice is
a perfect cube, said the ancient sage; and rational conduct is a
homogeneous function, adds the modern savant. A theory which
points to conclusions so paradoxical ought surely to be
enunciated with caution. 
    To sum up this criticism, as Distribution is a species of
Exchange, it seems undesirable to employ a phrase so foreign to
the general theory of Exchange as the dictum that one of the
parties to an exchange normally gains nothing. Innocently used at
first, such paradoxes are calculated to lead to confusion and
    A similar remark applies to another form of the gainless
entrepreneur, involved in Walker's analogy between profits and
agricultural rent. Even on the simpler and provisional view which
is confined to short periods and commercial competition, this
form of expression has no advantage over the terminology proper
to the general theory of Exchange.(52*) When we consider long
periods and industrial competition, Walker's theory has the
graver disadvantage of not distinguishing between rent and
quasi-rent. It seems to be generally admitted that Walker's
masterly portrait of the industrial captain was not improved by
his representation of profits as rent.(53*)
    Having now considered the party that takes factors of
production in return for products, or the proceeds thereof, let
us look at the other side of the counter, -- the triangular
counter across which we may imagine the three factors of land and
labor and capital to be exchanged, if we place in the interior of
the triangle an entrepreneur of Walker's type, our second
species, dealing with three parties in quick succession, and in
some sense simultaneously.(54*)

    At the height of abstraction from which it is here attempted
to survey the economic world, what appears the most salient
feature in the transactions respecting land is the circumstance
that the quantity of ground, or at least space,(55*) is limited,
not capable of being increased by human effort. From this
property flow most of the general theories relating to the
landlord's share in distribution, -- that a tax on rent (proper)
falls wholly on the land, that the remission of agricultural rent
by landlords would not benefit the consumer,(56*) and other
propositions often connected with the formula that "rent does not
enter into the cost of production." Some remarks on that
time-honored formula seem called for here. It would not be
consistent to have complained of the expression that "the
entrepreneur makes no gain" as perplexing and apt to mislead,
however innocently used by high authorities, and to pass over in
silence this dictum about rent, against which and in favor of
which much the same is to be said. Certainly, it is supported by
very high authority, -- the authority not only of Ricardo and
Professor Marshall, but also of Hume, who in the letter which he
wrote to Adam Smith on the publication of The Wealth of Nations
(the letter which, written a few month before Hume's death, may
be considered his economic testament) says, "I cannot think that
the rent of farms makes any part of the price of the produce, but
that the price is determined altogether by the quantity and the
demand." (57*) On the other hand, it can hardly be denied that
the dictum in question is calculated to obscure the truth that
"land is but a particular form of capital from the point of view
of the individual manufacturer or cultivator;"(58*) that, as he
doses land with capital and labor, so he doses capital and labor
with land,(59*) up to a margin of profitableness. And, in fact,
the similarity of the factors of production from the
entrepreneur's point of view does not seem to have been
apprehended in all its generality by the classical writers. Thus
Fawcett, who may be taken as a type, when explaining rent seems
to posit the size of the farm as something fixed and
constant.(60*) J.S. Mill argues that "there is always some
agricultural capital which pays no rent," (61*) not noticing the
counter-argument that there is a portion of land which pays no
interest.(62*) These imperfections belong now, it may be hoped,
to past history. And yet that the description of rent as not
entering into price is apt to prove misleading may be inferred
from the many protests which eminent critics have raised against
Professor Marshall's use of the time-honored phrase.(63*) Their
criticisms attest the correctness of their own views rather than
their capacity of appreciating the views of others. What should
we say of critics who should think fit to read Mill a lecture on
the errors of the Mercantile system, because Mill had employed
the terms "favourable and unfavourable" exchanges! To have
attributed to Professor Marshall the very error which he by his
doctrine of the "Margin-of-building" has done more than any other
economist to obviate would be unpardonable if it were not excused
by the misleading associations of an unfortunate phrase.
    To return to the real, from the seeming, import of the
phrase, we see that, as the offer of land is in general attended
with no real cost, a tax upon the payment for land does not
disturb production.(64*) On grounds of distribution, too, a sort
of income which increases without any effort on the part of the
recipient is prima facie a suitable object for a specially heavy
impost. On these grounds Mill's proposal to tax away the future
unearned increment of rent is defensible, if accompanied with
Mill's proviso, that existing interests should not be disturbed.
For, as argued elsewhere,(65*) a special tax on existing incomes
from land would violate the two principal conditions of a good
tax: it would both tend to diminish the amount of production, and
also to impair the equality in the distribution of burdens
between the owners of incomes derived from land and from other
kinds of property.
    The practical importance of Mill's proposal is greatly
reduced by the proviso with which it is accompanied. For, in
order that the State may make a good bargain by giving the market
price for a certain class of future goods, the State must be able
to look further ahead -- must exercise the telescopic faculty of
prospectiveness in a higher degree -- than the ordinary
capitalist. And it may well be doubted whether this condition is
fulfilled by the politicians who act on behalf of the State. We
hear much of instances, like that of Chicago, where the value of
sites is said to have multiplied some eighty-fold in half a
century; but we hear little of proposals to buy up at their
present market value the site of some future Chicago, unless,
indeed, as part of a scheme for Land Nationalisation, which does
not include compensation to vested interests. Unlike the
husbandman, who plants trees the fruit of which he will not
himself see, the advocates of a single tax and other socialist
agitators grasp at the standing crop which has been sown by
others, heedless whether cultivation in the future is thereby
    But, even if their outlook were as distant as it is bounded,
there would remain the possibility that, though looking far
ahead, they might not discern distant objects clearly. Mill
cannot be accused of the shortsightedness which sacrifices the
future to the present. He looked very far ahead. But he did not
see what was coming, the fall of English rents. Actuated by the
highest motives, he proposed an arrangement which was perfectly
just to the landlords, and would have proved perfectly disastrous
to the State. 

    Passing in the traditional order from Land to Labour, we may
begin by considering a very abstract labour market, in which the
difficulty caused by the "advance" of wages is kept out of
sight.(66*) The following example of such a labour market may be
worth reproducing, although it is not a genuine case of
Distribution: --
    Let us suppose several rich men about to ascend some an easy
mountain, some a difficult one, each ascent occupying a day. And
let these rich travellers enter into negotiations with a set of
porters who may be supposed many times more numerous than the
employers. An arrangement according to which the remuneration for
ascending the easy and the difficult mountains was the same could
not stand: it would not be renewed from time to time. For some of
the porters employed on the difficult mountains, seeking to
minimise the disutility of their task, would offer their services
to travellers on the easy mountains at a rate somewhat less than
the temporarily prevailing one. Nor would equilibrium be reached
until each porter employed on a difficult mountain received an
excess above the fee for the ascent of an easy one sufficient to
compensate him for the extra toil. At the same time --
simultaneously, in a mathematical sense -- the increment of
satisfaction due to the last porter taken on by each traveller
would just compensate the purchaser of that labour for his outlay
on it.(67*)
    In this example the great number of the employees as compared
with the employers is not an accidental circumstance. Suppose
that the arrangement which is common in the Tyrol -- that each
amateur ascensionist should be accompanied by only one guide --
were for technical reasons universal. Then the bargain between
travellers, on the one hand, and guides, on the other, would not
in general be perfectly determinate. It would still indeed be
true that "an arrangement according to which the remuneration for
ascending the easy and the difficult mountains was the same could
not stand." But it would no longer be true that the remuneration
for the easy mountain -- or, rather, for the average mountain,
from which the fares both of the easier and the more difficult
ascents might be measured -- would be in general
determinate.(68*) There would in general exist no force of
competition by which any particular arrangement (as to the
average mountain) initiated by custom and accident could be
disturbed. That is, still supposing the service of a guide or
porter to be sold as a whole. For, if the labour of the
assistants can be sold by the hour, or other sort of differential
dose, the phenomenon of determinate equilibrium will reappear.
There seems no reason to think that the case of indeterminate
equilibrium which has been illustrated is other than exceptional
in the actual labour market, even where the bargain appears to be
made for totals as distinguished from doses of labour, --
situations rather than tasks. For there is, in fact, such a
variety of situations attended with different amounts of
work(69*) as probably in practice to realise that divisibility of
the thing supplied -- here labour -- which, together with the
divisibility of the thing demanded, -- here money, -- constitutes
a condition of a perfect market with determinate
equilibrium.(70*) Still, the point of theory is worth notice.
Perhaps the friction in the labour market would be less if labour
were sold freely by the hour (or other small "dose").
    It ought to be mentioned that a different view of Exchange
has been taken by a high authority on Distribution. Professor
Bohm-Bawerk presents as the general type of a market that very
case which is here regarded as exceptional. On one side of the
markets are put dealers each with a horse or it may be a batch of
several horses(71*) -- which he will not sell under a certain
price, on the other side buyers each of which will not go beyond
a certain price. The following scheme is given as an example of
such data:(72*) --


A1 values a horse at ...........     30
   (and will buy at any price under)
A2           ditto                   28
A3                                   26
A4                                   24
A5                                   22
A6                                   21
A7                                   20
A8                                   18
A9                                   17
A10                                  15


B1 values a horse at ..........      10
   (and will sell at any price over)
B2           ditto                   11
B3                                   15
B4                                   17
B5                                   20
B6                                   21 10s
B7                                   25
B8                                   26

From these data it is deduced that the price of a horse must be
between 21 and 21/10s. But, if the data had been different, the
price might not have been thus determinate. "If there are, for
instance, ten buyers who each value the commodity at 10, and ten
sellers who each value it subjectively at 1, obviously all the
ten pair can come to terms, and the zone which lies between the
valuation of the last buyer and the last seller represents the
wide latitude between 1 and 10." Of this character, according
to the writer, are the circumstances of the labour market.(73*)
In such a case some further datum is required to determine price.
"That this latitude should be narrowed down, the further
circumstance must be present that the desire of the buyers is
directed to an limited number of goods, while at the same time
the total amount of means of purchase must be strictly limited,
and the buyers must be determined to spend the whole of this sum
in purchase of the commodities in question."(74*) This condition
is fulfilled, according to Professor Bohm-Bawerk, by the "general
subsistence market."
    This example will hardly be accepted as typical of a market
by the mathematical economists who walk in the way of Gossen.
Agreeing with the Austrian leader that value rests at bottom on
subjective estimates, they will accept his scheme, just as they
would accept the description of a common auction, as illustrative
of that attribute. But they may complain that the illustration
does not illustrate another attribute which they regard as
essential to the determination of value in a market, -- the
circumstance that each party on the one side is free, in concert
with some party or parties on the other side, to vary the amounts
of those quantities on which depends his advantage -- the quid
and the pro quo -- up to a limiting point, or margin at which he
estimates his advantage to be a maximum. The "marginal pair" of
the Austrian scheme hardly exemplifies the law of marginal
utility. We require to know, not so much the least price which
each horse dealer will take for his horse or stud,(75*) but how
much horseflesh each individual, or at least all collectively,
will offer at each of several prices, with similarly graduated
data for the would-be buyers. Granted data of this sort, the
mathematical economist need not trouble himself much about a
matter which is vital according to the Austrian scheme, --
whether the "subjective valuation" of a horse is the same (or
very similar) for all the sellers, while the dispositions of the
buyers are likewise identical. The case of like dispositions does
not constitute a special variety of the problem, one which is
insoluble without additional data. Far from being anomalous, that
case may be normally assumed as a harmless and convenient
simplification, very proper to an introductory statement of the
general theory.(76*)

 "Nec Deus intersit, nisi dignus vindice nodus
    Inciderit" --

The case of like dispositions does not present any peculiar
difficulty calling for so very mechanical a Deus ex machina as
the hypothesis that "the total amount of means of purchase must
be strictly limited and the buyers must be determined to spend
the whole of this sum in purchase of the commodities in
question." It is riding a one-horse illustration to death to put
the accidents of an exceptional sort of auction as representative
of the actual transactions by which the great mass of national
income is distributed.
    This criticism, it must be freely admitted, involves an issue
about which legitimate differences of opinion may exist, -- what
is the most appropriate conception of the process by which value
is determined through the higgling of the market? Any simple
conception must involve a considerable element of hypothesis, not
admitting of decisive proof. The hypothetical character of the
inquiry will appear if we look back to that model labour market
in which guides or porters were supposed to be hired by amateur
mountaineers. It was tacitly assumed that each party has certain
dispositions as to the amount of money that he is willing to give
or take in exchange for a certain amount of work, -- a scale of
subjective estimates(77*) which is supposed to be formed before
the parties come into communication, and not to be modified by
the chaffering of the market. The constancy of these dispositions
being assumed, it is presumed that somehow a state of equilibrium
will be brought about, such that the party on one side cannot
improve his position by entering into new contracts with some
party or parties on the other side. The better opinion is that
only the position of equilibrium is knowable, not the path by
which equilibrium is reached. As Jevons says, "It is a far more
easy task to lay down the conditions under which trade is
completed and interchange ceases than to attempt to ascertain at
what rate trade will go on when equilibrium is not
attained."(78*) Particular paths may be indicated by way of
illustration, "to fix the ideas," as mathematicians say.(79*)
    In this spirit two kinds of higgling may be distinguished as
appropriate respectively to short and long periods. First, we may
suppose the intending buyers and sellers to remain in
communication without actually making exchanges, each trying to
get at the dispositions of the others, and estimating his chances
of making a better bargain than one that has been provisionally
contemplated. By this preliminary tentative process a system of
bargains complying with the condition of equilibrium is, as it
were, rehearsed before it is actually performed. Or, second, one
may suppose a performance to take place before such rehearsal is
completed. On the first day in our example a set of hirings are
made which prove not to be in accordance with the dispositions of
the parties. These contracts terminating with the day, the
parties encounter each other the following day,(80*) with
dispositions the same as on the first day, -- like combatants
armis animisque refecti,(81*) -- in all respects as they were at
the beginning of the first encounter, except that they have
obtained by experience the knowledge that the system of bargains
entered into on the first occasion does not fit the real
dispositions of the parties. The second plan of higgling was
supposed in the example,(82*) -- the plan which is more
appropriate to "normal" value. 
    Contemplating the theory of exchange in the abstract, we may
exclaim with Burke, "Nobody, I believe, has observed with any
reJection what market is without being astonished at the truth,
the correctness, the celerity, the general equity, with which the
balance of wants is settled."(83*) But, when we come to the
labour market, or any particular market, we must carefully
inquire with what degree of approximateness the above-stated
fundamental postulate(84*) holds good. When the bargaining
extends over a considerable time, changes are apt to occur in the
dispositions of the parties, whether independently of each other
and sporadically, or in a manner even more fatal to the theory,
by way of imitation.(85*) Also, where there occurs a series of
encounters between buyers and sellers, the results of the earlier
encounter may affect the dispositions with which the later ones
are entered on. The terms which the labourer is ready to offer
and accept are altered by the alteration in his habits and
efficiency which is the consequence of previous bad
    The peculiarities of the labour market pointed out by
Professor Marshall go far to modify the general presumption in
favour of laisser faire. But less careful writers are less
successful in supporting the burden of proof which lies on those
who profess to add to or take away from that outlined theory of
Exchange which seems to express all that is known in general
about the working of a market. A warning example of such
modification not warranted by specific experience is the doctrine
of the wage-fund, which is now universally discredited, and ought
always to have excited suspicion and challenged proof because, as
already intimated in another connection, it is a supposition
repugnant to the general theory of Exchange that "the total
amount of means of purchase must be strictly limited, and the
buyers must be determined to spend the whole of this sum in
purchase of the commodities in question."(87*) Perhaps, as Sir
Leslie Stephen says with reference to the classical writers, "the
assumption slipped into their reasoning unawares."(88*) Sometimes
it may have been intended only to convey that early lesson which
is contained in our opening paragraphs, -- that no party to
production can expect to earn more than the total produce.
Sometimes there was contemplated a more definite statement true
of short periods, -- a truth which has been well stated by
Professor Taussig in his article on "The Employer's Place in
Distribution," and at greater length in his book on Wages and
Capital --
    "The whole of the real income available for the community is
not in any substantial sense at the disposal of the
capitalists.... A large part of the commodities now on hand would
not serve their turn. The supply of bread and flour and grain at
any moment is adjusted to the expected needs of the whole mass of
consumers.... The effective choice which the capitalists would
have... would be thus confined, for the time being at least,
within limits not very elastic."(89*)
    Let us suppose that the working classes live on bread only,
while the capitalist classes consume buns also. On a day, after a
conference between employers and employed, the partition of the
national dividend is altered in favour of the capitalists. Yet
they will be unable to benefit immediately by the change. On that
day more buns will not be forthcoming, all the bakers' ovens
being preoccupied with bread. 
    For the purpose of illustration there has been chosen a
specially simple case in which the articles consumed by the two
classes are formed out of the same material, and by a process
which is identical up to the penultimate stage. The stream of
production does not bifurcate till it debouches into the mouths
of the two parties to Distribution. 

    When we consider longer tracts of that stream, there comes
into view a circumstance to be discussed under the head of
Capital, the influence of time on value. To illustrate the
distribution of produce between those who have contributed at
different times to its production, let us at first make
abstraction of other differences, and imagine economic men
uniting the functions of workman and capitalist-entrepreneur,
differing only in the amount of capitalisation, the length of
time during which their labour is invested. One labours at
proximate means, another at remote means, tending to the ultimate
product out of which all the producers are remunerated. An idea
of a train of production formed by successive operations directed
to an ultimate product may be obtained by watching any factory.
Here you have the raw cotton-wool put in, there you see a
"sliver" of carded cotton flowing from one machine en route to
another, until at the last stage there comes out the finished
article. To illustrate the process of distribution, we must now
conceive a backward flow of the ultimate product to the several
producers. We might imagine each one's share to be conveyed to
him by some contrivance like those wondrous little vehicles in
the Boston Public Library, which, as if gifted with human
intelligence, find their way about the building to the particular
place where each book belongs. To illustrate the effect of
distance in time on distribution, we must further modify the
model presented by an ordinary factory. We must suppose the
interval of time between the processes to be greatly magnified,
months being substituted for minutes. Then there will come into
view the circumstance to which attention is particularly
directed, -- that a larger share will be conveyed to each
producer (other things being equal), the greater his distance
from the final stage. There will thus be a continual flow of
materials in process of manufacture onwards and of products ready
for consumption backwards, if the work at each stage is steadily
maintained, provided that there is a continual stream of raw
material, and that the machines are continually renewed.(90*)
Considering the continuous round of production and consumption,
we realise the important truth which Mill has thus expressed: --
    "The miller, the reaper, the ploughman, the plough-maker, the
wagoner and wagon-maker, and the sailor and ship-builder, when
employed, derive their remuneration from the ultimate product, --
the bread made from the corn on which they have severally
operated or supplied the instruments for operating."(91*) To
represent the continual expansion of value as the present ripens
into the future, a series of concentric circles has been happily
employed by Professor Bohm-Bawerk.(92*) Varying his illustration,
let us suppose the circles to be drawn on ground which rises
uniformly from the outmost circle towards the centre O in the
accompanying diagram at which the apex tapers to a
needle-point.(93*) The circles are drawn at equal distances as
measured on the surface, and therefore, in a bird's-eye view
which the diagram is intended to represent, become huddled
together in the neighbourhood of the central height. Across the
circles, down the hill, flow streams with uniform velocity, so as
to pass from circle to circle in a unit of time. The breadth of a
stream increases with its length, -- not in direct proportion to
the length, but according to the law of accumulated price.(94*)
The volume of the stream is proportioned to its breadth and to
its depth (not shown on the figure). The stream takes its rise at
some position on the channel (e. g. at a5a'5), the flow per unit
of time at that point being proportioned to the energy put forth
in pumping from a certain source. As the volume thus originated
rolls down the channel, it continually increases by infiltration
from the neighbouring soil without any additional pumping, so
that, the depth being preserved constant, the volume is
proportioned to the increasing breadth.(95*) Besides this
increase due to its defluxion, the volume may also in the course
of its downward flow be increased by additional pumping from a
second source (e.g. a2a'2). This second increase corresponds to
an increase in depth (not shown in the figure); and this second
contribution is augmented, like the first, by the infiltration
which attends defluxion.

There may be as many sources as there are circles cut by the
descending stream. But there need not be a source at each
interval. The equidistant circles correspond to successive lines,
not always coincident with successive stages of production at
each of which additional labour is applied.(96*) The train of
production thus represented terminates in a product ready for
consumption -- it may be loaves or ribbons, wine or shoes -- on
the shore of a circumfluent sea of commodities. As in the natural
world rivers are replenished by the melting of the snow, which is
formed on mountains by the congelation of vapour, which is wafted
up from the ocean, into which the rivers flow down, so in the
mundus economicus, by a compensation carried into more just
detail, labour is restored and re-created by a refreshing rain of
commodities derived from that sea into which all finished
commodities are discharged. Volatile shoes and wine, and other
commodities in due admixture up to a certain value, find their
way to each point upon the heights from which a source has been
tapped, the volume of this return corresponding to the volume of
the original contribution, -- not indeed the same, but the same
increased by a factor of accumulation, the ratio which the
breadth of the stream at the littoral bears to its breadth at the
point of origin (e.g. a1a'1: a5a'5). The flight of the
commodities from the littoral to the heights need not be supposed
to occupy an appreciable time.
    The idea of a Flow which has been illustrated is primary
applicable to the case in which materials and consumable
commodities aroused up once for all within a unit of time. But
the case of labour invested for longer periods is easily
assimilated. Suppose that a plough lasts five years, and that in
each year of its existence it makes an equal addition to the
consumable crop, the year being taken as the unit of time. Then,
although the plough may have been made in a week or month, the
labour of its production is to be considered as invested in five
unequal portions at unequal distances in time from the epoch at
which the invested labour meets with its return. The total labour
of making the plough may be considered as applied at several
positions (a'1a1, a2a'2,... a5a'5) in several contributions,
respectively proportioned to the breadth of the stream at these
points. If labour is invested in the production of a machine,
imagined by economists, which lasts for ever,(97*) or, what comes
to the same, an improvement, such as the draining of land or
opening a mine, or cutting an isthmus, which is calculated to
yield a constant income for an indefinitely long series of years,
then the series of positions along the stream at which the labour
is supposed to be invested must be carried back indefinitely (see
the channel of which the mouth is b1b'1) up to that needle-point
whose tapering dimensions correspond to the perspective of an
indefinitely distant future.
    Eternal machines are not very common; but the conception may
serve to illustrate a species of tool or implement of which the
race remains immortal, though the individual is worn out and
perishes. Of this kind are implements which are directed not only
to produce goods immediately ready for consumption or implements
of a kind different from their own, but also to reproduce their
own kind. Hammers and axes are presumably of this kind in a
primitive society; in an advanced state of industry, some more
complicated engines.(98*) Such machines may be compared to
horses, if used not only as beasts of burden, but also as
stations. The demand for such creatures is presumably influenced
by the expected series of future generations, so far as
commercial prospectiveness may extend. In the stationary state of
steady motion, here provisionally contemplated, reproductive
machines would be illustrated by beasts of burden of which the
breed does not sensibly improve in successive generations.
    Two channels only have been represented in the diagram, one
of finite, the other of infinite length, with breadth exaggerated
for the sake of clearness. Properly, there should be as many
channels as there are categories of articles ready for immediate
consumption, -- "goods of the first order," as the Austrians say;
and the breadth should be such as to allow of the corresponding
number of sectors being fitted into the circle. Another
circumstance which must be left to the imagination is the
introduction of one and the same article into several streams of
production at different distances from the final stage. Coal, for
instance, so far as it is used for warming dwelling-houses, is a
good of the first order; so far as it is used to drive machines,
-- themselves perhaps used only to produce other machines, --
coal is to be placed among the higher orders.
    The distinction which has been drawn between work which is
applied in the neighbourhood of and at a distance from the final
stage of production is not coincident with the distinction
between the saving and the non-saving classes. The shower of
commodities apportioned to each spot according to its height
above the littoral as well as to the volume of value which there
took its rise, is not "like the gentle rain from heaven." It does
not drop impartially on all who have been concerned with the work
of eliciting the stream. Those who have done the common labour of
pumping -- the drawers of water-fare no better than if that work
had been done at the littoral. In fact, it is proper to conceive
that it was done at the littoral. As the energy generated at the
Falls of Niagara is transmitted for use to a point higher up on
the river, so on the stream of production the work of pumping is
mostly done at the littoral, though it is applied at the heights.
For instance, on the first stream an amount of work proportioned
to a5a'5 might be done at the littoral, and be paid for in
commodities at the rate current on the littoral; that is, without
the augmentation of value which is due to defluxion. The
remainder of the volume of value which is discharged per unit of
time flies off to those who occupy the height represented by
    If now it is asked where rent comes into this representation
of distribution, the answer is to be found in the theory (above,
p. 33) that from the point of view of the entrepreneur the use of
land appears in the same light as the use of labourers, -- as a
factor of production. The idea of a steady cyclic flow which we
are striving to win becomes not much more complicated when we
imagine that those who, placed on the heights, preside over the
origination of productive streams, obtain the material that is to
form the current, the precious fluid which it is their office to
start upon its downward flow, not solely from a pumping
proletariat, but also from the fortunate owners of springs which
gush spontaneously. There is, indeed, this difference between the
labourer and the land-owner: that, whereas the former (even in
the present age and still more when the classical economists
flourished) has to spend a great proportion of his daily wage
upon his daily necessaries, and therefore in respect of the bulk
of his income must be placed at the littoral line, the latter may
save a great part of his income, when it is greatly in excess of
his daily necessaries, and in particular, with respect to that
great portion, may defer fruition until the stream shall have
flowed down from the point at which his contribution is applied
to the point at which production becomes merged in consummation.
Another difference between land and labour in their relation to
capital and enterprise arises from the circumstance that, unlike
the labourer (in a free country), land itself, as well as its
use, is sold. Whence arises a well-known correspondence between
rent and interest in their relation to the capital value of land.
This similarity will not be mistaken for identity(99*) by those
who find the essential attribute of rent in the limitation of the
objects for which rent is paid.(100*)
    To complete the analysis of the parties to Distribution, it
may next be required to distinguish the capitalist from the
entrepreneur. They are both easily distinguished from the
salaried manager in that he is at the littoral, in that respect
like the common workman, while they are both above that line. But
to draw a line in the series of shades which intervene between
the employer of Walker's type and the mere shareholder, to
determine at what point the capitalist ends and the entrepreneur
begins, appears to defy analysis. As Thought and Emotion are
inseparably blended, though one may so far preponderate as to
give its name to the state of consciousness at any time, such is
the inseparable connection, such the intelligible but not exactly
definable distinction, between Enterprise and Saving. The
indefiniteness of the relation is illustrated by the shifting use
in economic literature of the term Profit.(101*)
    That profit other than remuneration for managerial work
should be transmitted to those who occupy a position on the
heights -- often the easy position of a dormant shareholder -- is
certainly invidious and difficult to justify to those who toil
below. Yet it may be reflected that the condition of those below
would have been worse if those above, or those from whom they
purchased or inherited their position, had not been content to
wait for future goods instead of grasping at immediate pleasure.
The Flow so beneficial to all classes would never have been set
up without abstinence.(102*) It could not continue in its present
magnitude but for the continued abstinence of each one who has a
right to dispose of wealth which is in course of production, make
a bonfire of it, if he can get a momentary pleasure from that
extravagance, or by some less simple, though more familiar
increase of unproductive consumption "eat up his capital."
    The consequences of an increase in unproductive consumption
may be contemplated by reversing the consequences of an increase
in parsimony. The latter increase forms part of a larger subject,
economic progress. The progressive change in the volume of value
and channels of production cannot be understood until there has
been attained what was the object of the preceding paragraphs, --
the clear idea of a steady flow in channels for a time
unchanged.(103*) The study of this stationary state is perhaps
the part of economic science which principally deserves to be
described as theory of Distribution. In these pages it is not
attempted to go far beyond the comparatively narrow round of
steady motion in fixed cycles of production and consumption. It
must suffice to indicate three species of progressive alteration
in the economic mechanism. There is, first, a uniform increase in
the number of both capitalists and labourers, or, more generally,
capital and labour, other things being the same. This change
presents no difficulty: it may be represented by an increase in
the depth of all the channels. Second, the rate at which the
breadth of the channels diminishes as one ascends from the
littoral -- in other words, the rate of interest -- might be
diminished. A limiting case of this species is put by Mill when
he supposes unproductive expenditure of capitalists to be
"reduced to its lowest limit." Conceivably, this change might
have no other effect than to reduce the portions accruing to the
capitalists -- such as a1a'1a2a'2 -- to a minimum. The
capitalists with new eagerness bid against each other for the
service of the labourers; but, if the latter do not give more
work for higher pay, the consequences might be a new equilibrium
in which the same volume of value is steadily rolled down the
same channels of trade, though the portion which flies back to
the heights is a minimum. But, even if the quantity of value
continued constant, it is hardly to be supposed that the
quality(104*) of the commodities which make up the amount would
remain unchanged. And, in fact, an increase of wages would
probably be followed by an increase in the number and efficiency
of the wage-earning classes.(105*) And these results would favour
the occurrence of a third kind of progress which may, however, be
considered as arising independently of the others; namely, the
lengthening of the trains of production.(106*) It may be doubted
whether any great lengthening of the trains is possible without a
concomitant improvement in the arts of production; yet, as
Sidgwick observes,(107*) invention is not necessarily followed by
increase of capitalisation.(108*)
    The third head of progress even more surely than the second
will be attended with changes in the channels of production. As
already observed(109*) with reference to the portion of truth
contained in the wage-fund theory, time will in general be
required for the carrying out of such changes. The means of
production which are rolling down the channels at the instant
when the change begins must all or in great part be suffered to
run out: otherwise there will probably be a considerable waste of
labour, and interruption to consumption. One delicate adjustment
which would be deranged can only be alluded to here -- the
monetary circulation, especially that form of it which consists
of debts that are continually "cleared," or cancelled. We might
imagine the flow of factors in the channels of production and the
flight of finished products backward on the way to consumption to
be attended each with a displacement of air in a direction
opposite to the main movement, -- light counter-currents which
have their use in facilitating the movements of solid wealth, and
in the fulfilment of their useful function continually meet and
neutralise each other. But, evidently, we have reached the degree
of complexity at which the illustration becomes more difficult to
understand than the thing which is to be illustrated. For a more
concrete embodiment of a more complete theory the student is
referred to the Principles of Economics, -- a reference of which
the value is, if possible, enhanced by the solid work which Mr
N.G. Pierson has published under the same title.(110*)

    The preceding hints and metaphors and warnings may assist the
student to obtain a general idea of the process by which
distribution of the national income is effected. An outline of
theory so abstract is not to be despised as useless. It satisfies
a legitimate curiosity. It is part of a liberal education. It is
comparable in these respects with an elementary knowledge of
astronomy. Such knowledge will not be of much use in navigation.
And yet it has a certain bearing on real life. The diffusion of
just notions about astronomy has rendered it impossible for
astrologers any longer to practise on the credulity of mankind. A
knowledge of first principles affords a test by which the
authority of those who offer themselves as guides may be
estimated. A little science has a further use: it is of
assistance in obtaining more. 
    As the astronomer will proceed from a first approximation to
a second, so economists should soften the hard outline of
abstract theory by a regard to particular circumstances. As he in
dealing with a new object will make certain of his first
approximation,will consider, for example, whether an ellipse or a
parabola fits better to the orbit of a new comet, -- so it
behoves us to consider whether the classical hypothesis
presupposed in the preceding pages(111*) -- two-sided
competition(112*) -- is appropriate to the conditions of modern
industry. The hypothesis of two-sided monopoly(113*) is strongly
suggested by what we see before us, -- consolidated capital
confronted by consolidated trade unions. But it is alleged that
beneath that appearance the forces of competition are effectively
at work; that the settlement which is apt to be, and ought to be,
agreed to between a combination of Capital and a combination of
Labour is no other than that which would have been determined by
competition if the individuals now combined had been free to act
competitively. No one has expressed this view with more authority
and decision than Walker: --
    "Competition, perfect competition, affords the ideal
condition for the distribution of wealth."(114*)
    "Competition affords the only absolute security possible for
the equitable and beneficial distribution of the products of
    To the same effect, Professor Clark, when he teaches that --
    "The question whether the labourer is exploited and robbed
depends on the question whether he gets his product."(116*)
    What is meant by getting his product appears from the
following passages: --
    "What we are able to produce by means of labour is determined
by what a final unit of mere labour can add to the product that
can be created without its aid."(117*)
    "If each productive function is paid for according to the
amount of its product [thus reckoned], then each man gets what he
himself produces." The ideal of just arbitration is that --
    "Men should get something approximating the part of that
joint product which they may fairly regard as solely the fruit of
their own labour.(118*) The basis of the claim that a workman
makes is that his presence in a mill causes a certain increase in
the output of it."(119*)
    If these views are generally accepted, the analysis of
bargains in a regime of competition will retain its importance.
But it may well be doubted whether these views will be generally
accepted, even by the thoughtful few, much less by the more
numerous of the concerned parties. First, it may be objected that
the same principle will give very different results according to
the relative numbers of the parties. Put a case which has
actually existed, or at least may be well supposed to have
existed, in order to test the general application of the
principle, -- the case in which the number of the employees is
not much greater than, say not more than twice as great as, the
number of the employers. In such a case, if labour is sold by the
hour, -- openly, or virtually in a fashion that probably prevails at
present,(120*) -- there would be a determinate equilibrium of the
labour market such that each labourer would earn an amount equal
to the number of hours worked, multiplied by the final
productivity of each hour. That arrangement might appear just, on
a certain interpretation of the dictum that one's product "is
determined by what a final unit of mere labour can add to the
product." But the arrangement would not be just if "the basis of
the claim that a workman makes is that his presence in the mill
will cause a certain increase in the output of it." All turns on
the unit employed. If it is allowable to take the hour as the
unit, and find the wage of the individual man by multiplying the
number of hours worked by the final productivity of the unit, why
should it not be allowable to take a gang of men as the unit, and
find the wage of the individual man by dividing the number of men
in a gang into the final productivity of a gang? Not to rest the
argument on supposed cases, take the case of the "capitalist" as
he existed in Ricardo's time, or even the modern entrepreneur who
is not a salaried manager. If such a one is to be paid on the
basis that "his presence in a mill causes a certain increase in
the output of it," it is quite possible that he would be
justified in claiming a much larger share of the joint product
than he now obtains.(121*) The assertion that the entrepreneur
receives just as much as he adds to product is at best an
empirical law,(122*) not possessing the sort of universality
proper to a general canon of distributive justice. Thus the
coincidence of perfect competition with ideal justice is by no
means evident to the impartial spectator: much less is it likely
to be accepted by the majority of those concerned, whose views
must be taken into account by those who would form a theory that
has some relation to the facts. One who has closely observed
popular movements in America testifies to "the growing belief
that mechanical science and invention applied to industry are too
closely held by private interests."(123*) "An enormous private
ownership of industrial mechanism, especially if coupled with
lands and mines," forms the gravamen of the complaints. To advert
for a moment to the accessory grievance with the view of
understanding the main one, can we suppose that in a case such as
Ireland was supposed to constitute before the Gladstonian land
legislation, the land leaguers would have been content if they
had obtained a perfect market in land, an equation of supply and
demand undisturbed by hustling or delay, intimidation or
cornering?(124*) This perfection of the market might have served
only to bring out the disadvantage at which the many were placed
by the vesting of the complete ownership of land in the hands of
a few. The prevailing sentiment about the "enormous private
ownership of industrial mechanism" may well be similar. It is
true that the expediencies governing "judicial rents" are very
different from those which are opposed to the legal regulation of
wages. But we are now considering how the matter appears to the
many, what regime they can be got to accept. It seems not to be
competition pure and simple.(125*)
    Are we, then, to abandon the guidance of competition, and
follow a higher, an ethical, standard? Does the theory of
distribution require a definition of distributive justice? What
is justice? The result of Plato's prolonged inquiry would not be
satisfactory to the modern asserter of the rights of labour. If a
new Socrates were to go about inquiring, what is the ideally just
distribution between the employing and employed classes, he would
probably find the wisest to be those who confessed their
ignorance. As Jevons says, nothing at first sight can seem more
reasonable and just than the "favourite saying that a man should
have a fair day's wages for a fair day's work.... But, when you
examine its meaning, you soon find that there is no real meaning
at all. There is no way of deciding what is a fair day's wages."
(126*) It has been well observed that an intuition as to the just
rate of wages, the labourer's share of the total product,
involves an intuition as to the capitalist's share, -- a share
which depends on the rate of interest.(127*) Can any one
seriously pretend that the dictates of a moral sense are clear
and decisive in such a matter?
    Let it be remembered also that the path of justice is not
only dark, but dangerous. Striving to secure the rights of
labour, you are very likely to hurt the interests of labour. The
action of trade unions by lowering interest and harassing
employers may result, as pointed out by Professor Marshall,(128*)
in checking the accumulation of capital and the supply of
business power. The increase in personal capital may indeed
compensate for this check, but also it may not. Greater
efficiency does not follow higher wages as the night the
    In view of these considerations it is doubtful whether in the
near future an influential majority will aim at setting aside
competition. Moreover, even if this consummation were aimed at,
it is not likely to be attained. So invincible in human nature is
the "propensity to truck," (130*) so true is it that, "when one
person is willing to sell a thing at a price which another is
willing to pay for it, the two manage to come together in spite
of prohibitions of King or Parliament, or of the officials of a
Trust or Trade Union."(131*) competition is like the air we
breathe, which it is not only dangerous, but difficult to
    Between two guides, of which neither can be followed
implicitly, let us walk warily. On the one hand, let us not aim
at impossible ideals. But, on the other hand, let us not deserve
the criticism which the advocates of trade unionism have with too
much truth directed against "the verdict of the economists"
respecting trade unions.(132*) Let us not be as trenchant in act
as we have been in thought. Let us be cautious in applying our
abstract theory to flesh and blood. 
    To one seeking a representation at once clear and
appropriate, the actual conditions of industry present the
appearance of a viscous and deliquescent body,(133*) not so easy
to be treated by simple formulae as a perfect liquid or a perfect
solid. An adequate theory of Distribution must in these days take
some account of the action proper to combinations, effecting
collective treaties between employers and employed: competition
pure and simple no longer constitutes an adequate hypothesis.
Exactly how these two principles are to be conceived as
coexistent it is premature to state dogmatically: the economist
whose aim is to "teach, not preach," to show what is or will be
rather than what ought to be, may well hesitate to pronounce on
this question. He can at best invent hypotheses which may
facilitate the conception of a compromise between the opposed
principles of competition and combination. For example, the
required compromise might be attained if it were arranged that
the agreement between employers and employed under some heads
might be settled by collective treaty between combinations, but
under other heads by competitive bargaining between individuals,
-- as the German students in their duels expose only certain
parts, not all parts, of the body to the brunt of the
combat.(134*) To determine what matters should be the subject of
treaty would indeed itself require some sort of treaty.(135*) But
it would be a kind of treaty for which there is good precedent in
laws and institutions. For instance, there might grow up, or be
enacted by law, the practice that the hours of labour in a trade
should be a matter for collective treaty between a trade union
and a combination of employers, the particular number of hours to
be settled by such treaty, while other terms, such as the rate of
wages, should be settled by the play of competition. 
    So far as competition has free play, the received theory of
supply and demand, even in its severest mathematical form, would
be applicable. Indeed, the severer forms would be peculiarly
appropriate in that they do not lend themselves to the
contemplation of cornering and other dodges of the market, but
assume the "true price"(136*) to be worked out honestly.
Presumably, the competition which all parties agreed to retain
would have to be conducted in a similar spirit. The conditions of
the duel, already prescribed, would be further limited by
forbidding certain strokes. 
    A similar regulation may be suggested for the working of an
imaginary sort of competition which seems to be contemplated by
some who are conversant with the practical problems of industry.
Their view appears to be(137*) that two combinations might,
without resorting to actual competition, agree to accept those
terms which would probably result from the play of free
competition. In playing this sort of Kriegspiel, it might be laid
down as a rule of civilised industrial warfare that the workman
should not be treated as living from hand to mouth. Suppose him
freed from the imminence of starvation for a time at least, and
then consider what sort of arrangement of the terms to be settled
would constitute a steady flow of the type above described, in
which each individual's final sacrifice is normally equivalent to
the final utility which he procures thereby.(138*) Other rules
might be suggested for the working of such imaginary
competition.(139*) But it may be questioned whether the method
admits of precision, for a reason urged by Mr L.L. Price with
reference to a proposed principle of arbitration, "that the
arbitrator should endeavour to award such wages as would be
attained if combination on either side were absent." "Where is
the arbitrator to discover this ideal standard?" pertinently asks
Mr Price.(140*)
    The terms forming the subject of a collective treaty would be
settled by a method essentially different from competition. For
instance, in the case above proposed, the length of a working
day, let there be a law removing this article from the category
of terms which are to be settled by the play of competition
between individuals. Those who hold that such a law is based on
the utilitarian first principle, the greatest happiness of those
concerned, -- here the citizens who have enacted the law, -- will
be prepared for the further suggestion that the particular number
of hours to be settled will also be regulated by the utilitarian
first principle, only that those concerned, whose maximum
advantage constitutes the criterion, are not now the citizens, --
if the citizens generally have no interest in the particular
number of hours in the trade,but only the parties to the
distribution, the members of the contracting combination. That
this undergrowth of utilitarianism may, like the parent tree,
prove fruitful, has been argued elsewhere.(141*) Here it need
only be repeated that, when the utilitarian arrangement is
defined as the basis of conciliation between self-interested
parties to a contract, it is presupposed that both parties gain
by the contract:(142*) that it does not seem to either party to
be their interest, rather than accept such an arrangement, to
give up dealing at all with the other party -- seek, it may be,
some third party, some other employment of their capital and
labour,(143*) or at least to defer agreement with the other
party, in view of the probability that they will reduce their
terms.(144*) The rationale of conciliation thus presented will
doubtless not commend itself to many who accept substantially
identical principles invested in a different form. Uniformity is
not to be expected in the enunciation of first principles. The
vital tenet is that each party must take account of and enter
into the wants and motives of the other party. When competition
is no longer umpire, the economist must abandon -- if he ever
maintained -- the position of extreme solipsism which Jevons in a
solitary but remarkable passage has propounded: --
    Every mind is thus inscrutable to every other mind, and so no
common denomination of feeling seems to be possible.... The
motive in one mind is weighed only against other motives in the
same mind, never against the motives in other minds. Each person
is to other persons a portion of the outward world.... Hence the
weighing of motives must always be confined to the bosom of the
    Jevons himself has not remained consistently on this pinnacle
of solitude. it is abandoned by economists in general in the
received theory of taxation, founded, as Mill says, on "human
wants and feelings."(146*) Self-regarding self-interest, the
gospel of Adam Smith, is not alone sufficient for industrial
salvation: a leaf must be taken from his older and less familiar
testament, of which the cardinal doctrine was sympathy. Sympathy
does not necessarily imply sentimental attachment: sympathy,
according to Adam Smith, is the basis of a not very sociable
emotion, -- ambition. A distinguished psychologist has not
hesitated to pronounce "sympathy compatible with dislike." (147*)
It is, then, no counsel of perfection to cultivate sympathy, in
the sense of mutual understanding, between the parties to
distribution. No Utopian eradication of self-love is
contemplated. It may be hoped, indeed, that through the practice
of conciliation, in the course of generations, the dispositions
of which the gratification constitutes self-interest may become
more social, so that, for instance, an advantage founded on the
extreme privation of others would not appear desirable to the
capitalist employer of the future. But such "moralisation" of the
saving classes, though it may be expected, need not be postulated
for the working of conciliation. intellectual sympathy alone
might effect much. The arts(148*) by which the sympathetic
imagination may be cultivated form a supremely important topic,
but one which hardly falls under the theory of Distribution. 


1. The substance of some lectures which formed part of a course
"On the Uses of Deductive Reasoning in Social Science" delivered
Harvard University in the autumn of 1902.

2. This definition, if not made more specific, includes some
kinds of International Trade includes some kinds of Distribution.
See Economic Journal, vol. iv. p. 34 and p. 49.

3. Progress and Poverty, Book I, chap. iii.

4. See II, 8, 35.

5. See Economic Journal, vol. iv, p. 46.

6. Mill, Political Economy, Book II, chap. xv. sect. 1.

7. The Wages Question, p. 236.

8. Quarterly Journal of Economics, vol. vi, (1892) p. 263, vii,
p. 450 et seq.; xv, p. 77 et seq.

9. Compare Mangoldt, Unternchmergewinn, pp. 41-43. A person who
does not work, "wie der stille Gesellschafter, hort darum nicht
auf, wahrer Unternehmer zu sein." This type is the limiting case,
short of which the trouble of management in various degree is
combined with what Mr Hawley call "the irksomeness of risk". As
Professor Taussig says, "The corporation of modern times presents
all possible varieties of the relation between active manager and
idle investor. Nominally, the stockholders are a group of
associated active capitalists. Practically, they range from
shrewd managers to the most helpless of inactive investors."
Quarterly Journal of Economics. vol. x. (1895) p. 83. Cp.
Marshall, Principles of Economics, Book IV, chap. xii. sections 8
and 9.

10. References to the series up to November, 1900, are given in
the Quarterly Journal of Economics, Vol. XV, p. 75.

11. Quarterly Journal of Economics, Vol. X, p. 72.

12. Political Economy, 3d edition, Book II, chap. ix, sec. 3. Cp.
chap. ii sec. 8; and below, p. 21.

13. Cp. Mill on various employments of capital, Political
Economy, Book II. chap. xv. 1, par. 4. 

14. See note to the present writer's Address to the British
Association, Section F, 1889 (a, vol. ii.), which, written before
the publication of Marshall's Principles of Economics, does not
sufficiently emphasise the "principle of continuity." It may be
observed that the two kinds of competition involve respectively
two mathematical operations, the determination of a maximum, and
of the greatest among maxima. There is the distinction between
finding the top of a hill and finding the highest hill-top. The
demarcations between the two species of competition and between
the two mathematical operations are not coincident, so far as an
entrepreneur, without leaving his business, may introduce
considerable and, so to speak, integral changes in its
organisation, in accordance with the "principle of substitution"
(Marshall). This principle seems to cover both the species of
competition and both the mathematical operations. Doubtless, it
is convenient to have a term applicable to every method by which
maximum advantage is sought. Among such methods ought, perhaps,
to be placed the calculus of variations, where the "margin of
profitableness" is considered as "a sort of boundary line,
cutting one after another every possible line of business
organisation." Principles of Economics, Book VI. chap. vii. sec.
7, 4th edition. 

15. Some function of the amounts.

16. Or, rather, the accumulated price, in the sense explained by
Professor Marshall (Principles of Economics, Book V, chap, iv,
sec. 2, p. 432, 4th edition): "Looking backwards, we should sum
up the net outlays, and add in accumulated compound interest on
each element of outlay." Compare note xiv, of his mathematical
Appendix. Abstraction was made of this sort of correction in the
British Association Address to which reference has been made. For
instance, it was tacitly assumed that the entrepreneur might have
as much labour as he could pay for (at a prevailing rate of
wages) at the time when the value of the finished product was
realised. Professor Barone has pointed out the need of greater
accuracy and a means of obtaining it by employing his remarkable
conception of "capital of anticipation." Giornale degli
Economisti, February, 1896.

17. Marshall, Principles of Economics, Book VI. chap. i. sec. 8,
4th edition. Mr J.A. Hobson's criticism of this doctrine
exemplifies the difficulty of treating the more abstract parts of
Political Economy without the appropriate mathematical
conceptions. An elementary discipline in the differential
calculus would have corrected the following passage and its
context: "In order to measure the productivity of the last dose
of labour, let us remove it. The diminution of the total product
may be 8 per Cent. This 8 per cent., according to Marshall's
method, we ascribe to the last dose of labour. If now, restoring
this dose of labour, we withdrew the last dose of capital, the
reduction of the product might be 10 per cent. This 10 per cent.
is regarded as the product of the last dose of capital.
Similarly, the withdrawal of the last dose of land might seem to
reduce the product by 10 per cent. What would be the effect of a
simultaneous withdrawal of the last dose of each factor?
According to Marshall's method, clearly 28 per cent, But is this
correct?" The Economics of Distribution, p. 146. Quite correct,
if in the spirit of the differential calculus we understand by
dose an increment as small as possible, not as large as the
objector pleases. He goes on: "Put the same experiment upon its
broadest footing, and the overlapping fallacy becomes obvious.
Take the labour, capital, and land as consisting of a single dose
each; now withdraw the dose of labour, and the whole service of
capital and land disappears. Is the destruction of the whole
product a right measure of the productivity of the labour-dose
alone?" (loc. cit., p, 147). Imagine an analogous application of
the differential calculus in physics, "put upon its broadest
footing," an objector substituting x wherever a mathematician had
used dx or Delta x!

18. It being assumed that the function expressing the product in
terms of the factors of production is such that for the values of
the variables with which we are concerned the net income of the
entrepreneur may be a maximum, let P be the amount of the
product, PI its price, a, b, c, amounts of factors of production,
p1' p2, p3' etc., their respective prices -- their actual
prices-for a first approximation, their accumulated prices for a
more accurate statement. The net income of the entrepreneur may
then be written (abstraction being made of the entrepreneur's own
effort) P = PI f(a, b, c) - p1a - p2b - p3c. In order that this
expression may be a maximum, the law of decreasing returns must
hold in the first of the two senses elsewhere distinguished
(below, p. 67 and p. 152). The condition must still be postulated
when account is taken of the entrepreneur's subjective feelings,
-- effort and sacrifice in the way of production balanced by
satisfaction immediate or prospective in the way of consumption.
Nor is the case essentially altered when account is taken of the
possibility (noticed by Professor Pareto, Cours, Art. 718) that
the factors are not independent. Suppose that the amount of
labour must always be in proportion to, or on any definite
function of, the amount of land. Then, eliminating one of these
quantities, we may treat the other as independent. 

19. Quarterly Journal of Economics, Vol, X, (1895) p, 88.
Professor Taussig goes on, "For an understanding of the machinery
by which distribution is accomplished in modern times, the
classification of sources of income should thus be different from
that to be adopted for an explanation of the fundamental causes."

20. That the trouble does not increase proportionately would be a
more concrete supposition. As Sidgwick says, "Though it is more
troublesome to manage a large factory than one half the size, it
can hardly be twice as troublesome." Political Economy, Book II.
chap. ix. 3. 

21. Cp. Marshall, Economics of Industry, Book II. chap. xii. 4,
1st edition.

22. The factors generally, and sometimes also the form of the
function expressing the quantity of the product in terms of the
quantities of the factors used, the function designated f in note
to p. 20. 

23. The equality is that of an ordinary equation, not an

24. The function which expresses the amount of the product in
terms of the factors (including entrepreneur's work). 

25, Compare II, 78.

26. The function expressing the product in terms of the outlay.

27. Economics of Industry, 1st edition, p. 83. Principles of
Economics, 4th edition, p. 232.

28. Accordingly, in order that equilibrium should be stable in
this regime, investment in each industry ought to be pushed up to
a point at which the law of decreasing returns is fulfilled in
the second sense, -- that the rate of total cost to total product
increases with the increase of product.

29. Quarterly Journal of Economics, Vol. VII, (1893), p. 470.

30. Ibid., Vol. XV (1900) p. 78.

31. "Insurance and Business Power," Ibid., Vol. VII (1892) p. 40,
et seq.

32. Quarterly Journal of Economics, vol. XV (1900) p. 91.

33. Cours d'Economie Politique, passages referring to

34. Cp. above, p. 18.

35. Mill's hesitation between equal sacrifice and least sacrifice
as the criteria of taxation may seem due to a confusion of this
kind, as pointed out by the present writer in the ECONOMIC
JOURNAL 1897. (Cp. Mathematical Psychics, p. 118) Mill's
ambiguity had already been noticed by Professor Carver in his
article on "The Ethical Basis of Distribution." in the Annals of
the American Academy for 1895, p. 95.

36. Cp. Pareto, Cours, Art. 87, "his salary as director of the
enterprise being comprised in the expenses of production."; and
the similar expressions of Professor Barone, quoted below.

37. Giornale degli Economisti, February, 1896.

38. Loc. cit.

39. Above, p. 12.

40. Cp. note 2 to p. 19 above; but remark that the correction
proposed by Professor Barone for the effect of time is not
identical with Professor Marshall's accumulation of price.

41. Above, p. 14.

42. Above, p. 19, note.

43. Above, p. 14.

44. Above, p. 23.

45. Mainly and apart from "rents" of the order of quantity called
by Mangoldt Unternschmerlohn.

46. Cp. p. 20 above.

47. The form of a function such as that represented by f in a
preceding note (p. 20) or rather what that function becomes when
the work of the entrepreneur enters as a variable.

48. Essay on the Co-ordination of the Laws of Distribution
(1894), sect. 2 and prefatory note.

49. The product being a function of the factors of production, we
have P = f(a, b, c, ...); and the form of the function is
invariably such that, if we have PI = f(ALPHA, BETA, GAMMA, ...
), we shall also have nPI = f(nAlpha, nBeta, nGamma, ... ) (loc.
cit., p. 4).
    "Let the special product to be distributed (P) be regarded as
a function (F) of the various factors of production (A, B, C, ...
)" (loc. cit., p. 8).

    dP/dA (A) + dP/dB (B) + dP/dC (C) + ... = P

"under ordinary conditions of competitive industry." (loc. cit.,
pp. 33-38).

50. As pointed out by Professor Flux in his review of Mr
Wicksteed's essay, ECONOMIC JOURNAL, vol. IV p. 311. In Mr
Wicksteed's notation the function f must be of the general form A
 (B/A + C/A ... ) where  is an arbitrary function. See Forsyth,
Differential Equations, Art. 189, or Boole, Differential
Equations, chap. xiv., Art. 6.

51. Loc. cit., p. 42.

52. As argued by the present writer in his Address to the British
Association for the Advancement of Science 1889, written before
the publication of Professor Marshall's weightier judgment in the
Principles of Economics.

53. Compare Mr J.H. Curran's temperate criticism in his study on
Walker (in Conrad's Abhandlungen). 

54. In the sense in which equations are called simultaneous.

55. Cp. Marshall on "extension" as the "fundamental attribute of
land." Principles of Economics, Book IV. chap. ii. p. 221 et
seq., 4th edition. Not even the enterprise of Boston, which
converted marshes into the site of noble streets, can form an
exception to the law so stated. But the more familiar statement
is accurate enough. For, as Professor Bullock has said (at the
banquet of the Massachusetts Single Tax League, 1902), "it may be
safely contended that the additions which man can make to the
land surface of the globe are so small as to be a negligible
quantity when we compare land with the things that human labour
places upon it."

56. The received proposition is of the nature of a first
approximation, as pointed out in II. 76, When the writer there
observed that "there might be now required a higher rate of
remuneration to evoke the same exertion from the cultivator," et
seq., he was not aware that he had been anticipated by the very
first writer who stated the true theory of rent, James Anderson,
who says that the only consequence of remitting rents "would be
the enriching one class of farmers at the expense of their
proprietors, without producing the smallest benefit to the
consumers of grain, -- perhaps the reverse, as the industry of
the farmer might be slackened." Enquiry into the Nature of the
Corn-laws (1777), p. 48, note.

57. Burten's Life of Hume, Vol, II, p. 486.

58. Marshall, Principles of Economics, Book V . chap. ii. 5.

59. The propriety of reversing the classical formula so as to
make dose and patient change places is well expressed by Mr
Wicksteed, Laws of Distribution, p. 20. 

60. Manual of Political Economy, Book III. chap. iii.

61. Political Economy, Book II. chap. xvi, 4.

62. As noticed by Professor J.B. Clark and other writers
mentioned by Professor Fetter in the Quarterly Journal of
Economics, Vol. XV., note to p. 436.

63. See in particular Hobson's Economics of Distribution, chap.
iv.; Fetter, "The Passing of the Old Rent Concept," v, and vii.
(3), Quarterly Journal of Economics, Vol. XV. (1901); J. B.
Clark, Political Science Quarterly, March, 1891; Wicksteed, Laws
of Distribution, p. 47 (the last critic not referring nominatim
to Professor Marshall), For a more sympathetic criticism of
Professor Marshall's doctrine see ECONOMIC JOURNAL, Vol. V. p.

64. As Professor Carver said lately (at the banquet of the
Massachusetts Single Tax League, 1902), a person who thinks that
the repressive effect of a tax on land is at all comparable with
the repressive effect of a tax on the products of industry must
have an eye for exceptions like "a certain senator of whom it was
said that he could see a fly on a barn-door without being able to
see the barn or the door either." The incident in question may be
elucidated by representing the "supply-curve" of land as a
perpendicular line. Cp. II. 69.

65. ii. 198 et seq.

66. There is an abstract point of view from which, as Professor
Barone well observes (Giornale degli Economisti, loc. cit.), the
circumstance that wages are paid in advance is of secondary

67. ECONOMIC JOURNAL, Vol. IV. p. 225.

68. As argued in Mathematical Psychics, p. 42. 

69. Cp. Marshall, Principles of Economics, Book VI, chap. ii. 2,
note, p. 599, 4th edition. Consider the case of managers, above,
p. 180. 

70. Mathematical Psychics, p. 18.

71. Though one condition of a perfect market is thus secured, it
does not follow that the labour-market will be perfect. Let us
start with any system of bargains between entrepreneurs and
work-people (presumed not to be capable of serving two masters at
the same time). Then, there being supposed a variety of
situations and tasks, let the round men in square berths change
places with the square men in round berths with advantage to all
(entrepreneurs included). There will thus be reached a settlement
such that it cannot be disturbed with advantage to each and all;
except by the employers competing with each other for workmen.
Suppose the settlement to be such and so favourable to the
work.people that it cannot be disturbed by the competition of the
employers; then, the market will be indeterminate, just as if the
work-people were all squally efficient, Accordingly, "There is no
determinate and very generally unique arrangement towards which
the system tends under the operation of, may we say, a law of
Nature, and which would be predictable if we knew beforehand the
real requirements of each, or of the average, dealer; but there
are an indefinite number a priori possible settlements (see B.
II. 313 and references there given).

72. In the criticism of the Positive Theory of Capital, at p, 333
of the ECONOMIC JOURNAL, Vol. II., repeated from the Address to
the British Association, Section F, 1889 (reprinted in the
Journal of the Statistical Society, December, 1889), it was too
leniently suggested that the author, in a subsequent note (p.
214, Smart's translation of Positive Theory), brought in the
essential circumstance which his main frustration omits; namely,
doses with varying marginal utility. It would rather seem,
however, that the stud of horses permitted in the said note does
not differ essentially from the single horse of the main
illustration. It seems to be treated as a mass of commodity which
the seller offers, the buyer takes or leaves, as a whole. At any
rate, the writer has failed to see the significance of
divisibility in the commodity. For, otherwise, he would not have
attributed so much "latitude" (loc. cit. quoted in the text) to
the case in which the sellers (and likewise the buyers) do not
differ from each other in their subjective valuation of a horse. 

73. Positive Theory of Capital (translated), Book IV. chap. iv. 

74. Op. cit., Book IV, chap. v. p. 217; Book VI, chap. v. ("On
the General Subsistence Market").

75. Loc. cit.

76. See note 1, p. 37.

77. It is so assumed in Mathematical Psychics.

78. Whether expressed by a demand curve (or schedule, cf.
Marshall, Principles, Book III). or by the way of indifference
curves, as Professor Pareto has suggested (Giornale degli
Economisti, 1909).

79. Theory, 2nd edition, pp. 101-2. The context seems to impose
an unnecessary limitation: "Holders of commodities will be
regarded not as continuously passing on these commodities in
streams of trade, but as possessing certain fixed amounts which
they exchange until they come to equilibrium." The "fixed amount"
may be considered as renewed from time to time for each of the
individuals placed along a "stream of trade" (see below, p, 197),

80. This view of the subject is presented at greater length in an
article in the Revue d'Economie Politique, January, 1891.

81. They recontract, in the phraseology of Mathematical Psychics.

82. AEneid, xii, 788,

83. Above, p, 35.

84. Thought and Details on Scarcity, He is speaking with special
reference to the labour market,

85. Above, p. 39. 

86. See Pigou on "Utility" in the ECONOMIC JOURNAL for March,
1901. Compare, as to the absence of predeterminateness in the
dispositions of parties to the labour market, Walker, Political
Economy, Art. 320. 

87. Cp. Marshall, Principles of Economics, Book VI. chap. iv.,
and Walker, Political Economy, Art. 308 et seq. 

88. Quoted from Bohm-Bawerk, who himself compares his theory with
that of the wage-fund (Positive Theory, p. 419). Both theories
seem true of short periods. The context accords with the view
here taken of the theory, as true of short periods, inadequate to
long periods. 

89. The English Utilitarians, Vol. III. p. 216. 

90. Quarter Journal of Economics, vol. x, p. 74.

91. Cp. p. 46, below.

92. Political Economy, Book I, chap. ii, sections 1, 2.

93. Positive Theory, Book II, chap. v.

94. The series of highering circles is not shown in the diagram
after the fifth circle.

95. Marshall, as cited above, p. 19, note 2.

96. The broadening of the strew corresponds to the two consilient
facts, that future pleasures are discounted and that production
is increased by "round-about" methods. As to the first of these
facts, see in Marshall's Principles of Economics the passages
which relate to discounting future pleasures, and the remarks on
those passages in the review of the second edition of the
Principles in the ECONOMIC JOURNAL, Vol. I. (1891) p. 613. See
also the admirably clear explanation and frustration given by
Professor Carver in his article on "Abstinence and the Theory of
Interest," Quarterly Journal of Economics, Vol, VIII. (1893) p.
48. As to both the first and second facts, see Bohm-Bawerk's
well-known expositions. But as the the conscience of the two
facts see, rather, Professor Marshall on the "fundamental
symmetry" between the action of Supply and Demand (noticed in the
review referred to). See also Professor Carver's explanation of
the double statement that interest is payment for the sacrifice
of abstinence, and that interest is paid because capital is
productive (loc. cit. p. 43). 

97. Corresponding to the machines in the frustration given in the
preceding paragraphs. 

98. Mill, Political Economy, Book I. chap. vi. 2. 

99. Or rather a certain system of machinery. Cp. Marx on machines
produced by machinery. Capital, ch. xv.

100. "The attempt of certain writers to refine away this
traditional distinction between land and capital, rent and
interest, impresses me as a subtle obscuration of plain facts,"
well remarked one of the speakers at the recent banquet of the
Massachusetts Single Tax League (1902).

101. Cp. above, p. 32, Marshall, Principles, sub voce " Rent."

102. As instructively pointed out by Mr L.L. Price in his article
on "Profit-sharing" published in the ECONOMIC JOURNAL, Vol. II.
(1892), and in his Economic Science and Practice, p. 75 and ante.

103. Compare Adam Smith. "By what a frugal man annually saves he
not only affords maintenance for an additional number of
productive hands for that or the ensuing year, but, like the
founder of a workhouse, he establishes, as it were, a perpetual
fund for the maintenance of an equal number in all times to
come." Wealth of Nations, Book II. chap. iii. In our metaphor,
taking up a new position on the heights corresponds to this
establishment of a perpetual fund. 

104. On the nature of the steady flow with which we are concerned
see Marshall, ECONOMIC JOURNAL, Vol. VIII. p. 40, and Principles
of Economics, sub voce "Stationary State."

105. Cp. Mill, loc. cit., -- "there would no longer be any demand
for luxuries on the part of capitalists."

106. Cp. Marshall, Principles, Book IV . ch. xiii. 

107. It is possible, as Mill shows, Political Economy, Book I.
chap. vi. 2 (cp. Ricardo on machinery and Mr Pierson, Principles
of Economics, p. 311), that lengthening the period of investment,
and also invention, while it increases the amount of goods
accruing to the capitalist, may diminish the amount accruing to
the workers. What Mill says in this connection of the "fresh
creation" of capital and "additional saving consequent on
improvements" is made more intelligible by the use of the
illustration here offered.

108. Political Economy, Book I. chap. iv . 8.

109. Loc. cit. Mill treats capital and arts of production as
independent variables. Political Economy, Book IV. chap. iii.

110. Above, p, 41.

111. Translated into English from the Dutch by Wotzel.

112. See the opening paragraphs above, p. 14.

113. The useful phrase of Dr, Bohm-Bawerk,

114. Political Economy, par, 466,

115. Ibid., par. 467. Cp. par. 343 et seq. 

116. The Distribution of Wealth, chap. i.

117. Ibid., p. 180. 

118. "Authoritative Arbitration," Political Science Quarterly,
December, 1892, p. 559. 

119. Ibid., p. 559.

120. See Marshall, Principles of Economics, Book VI, chap. ii. 2,
note to p. 499, 4th edition, referred to above. 

121. The attribution of a portion of the product to a unit of
productive factor is only significant when the unit can be
treated as a final increment. Cp. Marshall, Principles of
Economics, note to p. 465, 4th edition. When this condition is
not fulfilled, -- e.g. Professor Clark's Distribution of Wealth,
p. 326, where "the amount that is attributable to one.half of the
capital" ("the capital that is used in the industry") is
specified, -- this doctrine of attribution becomes perilously
like the Austrian doctrine of "imputation," as to which see III,

122. As argued above, p. 29. See Index s. v. Entrepreneur.

123. Graham Brooks, The Social Unrest, p. 122.

124. Such a market as is analysed in Mathematical Psychics, p.

125. It is possible that competition purified in the manner
suggested below might be accepted by moderate trade unionists of
the type of Applegarth and Dunning, as to whom see History of
Trade Unionism, S. and B. Webb. 

126. Scientific Primer, chapter on "Wages." 

127. Margaret Benson, Capital, Labour, and Trade, chap, xvi. 

128. Elements of Economics of Industry (1892), Book VI, chap.

129. See the careful statement of the relations by Mr Pierson in
his Principles of Economics. 

130. Adam Smith, Wealth of Nations, Book I. chap. ii.

131. Marshall, Quarterly Journal of Economics, Vol. XI. (1897) p.

132. Sidney and Beatrice Webb, Industrial Democracy, Part III.
chap. i.

133. Cp. J. B. Clark, Philosophy of Wealth: "The present state of
industrial society is transitional and chaotic.... The
consolidation of labour is incomplete," that of capital also (p.
148 and context).

134. Cp. J. B. Clark, op. cit., p. 208: "A spirit of Justice is
ever standing over the contestants, and bidding them compete only
thus and thus."

135. "No individual competitor can lay down the rules of combat."
Sidney Webb, Contemporary Review (1889), p. 869. 

136. Condillac's phrase, appropriate to the ideal market above

137. It is difficult to attach any other interpretation to
Walker's dicta referred to above. He is presumably supposing that
all the terms of contract are settled by ideal competition, a
limiting case of the regime here suggested that some of the terms
should be settled by competition, actual or imaginary. 

138. The "method of mutual insurance" practised by trade unions,
according to Mr and Mrs Webb (Industrial Democracy), seems to
confer this sort of advantage on its members. 

139. E.g. in order to estimate that result, it might be thought
consonant to the amount of industrial solidarity actually
existing not to treat each individual workman as an economic
atom, but rather to suppose comparatively few independent bodies,
each formed by the solidification of many individual atoms.
Compare T.J. Dunning, Trade Unions and Strikes (a work mentioned
by J.S. Mill with approval), p. 21, where reply is made to the
question, "Why cannot a man sell his labour for what he likes, as
a shopkeeper tickets his goods under the price of those of his
neighbour?" "The shopkeepers," replies Dunning, "are not obliged
to be always together." "But the matter assumes a very different
aspect" in the case of wage-earners who work together. Though, as
will presently appear, a preliminary use of the sort of potential
competition which has just been described may be required. 

140. Economic Science and Practice, p. 198 and context.

141. II. 101, and Mathematical Psychics, p. 53.

142. Consider the weighty passage referring to the principles on
which courts of arbitration and boards of conciliation should
act, in Marshall's Economics of Industry (1879), Book III. chap.
viii. sec. 2: "They must not set up by artificial means
arrangements widely different from those which would have been
naturally brought about," et seq. Compare Marshall's Preface to
(L.L. Price's) Industrial Peace, p. xxiii: "The arbitrator is
compelled to take some account of the fighting forces of the two
sides; the necessity to be practical may compel him to go further
than he would otherwise have done away from an absolute standard
of fairness."

143. In the technical terms of Mathematical Psychics the
utilitarian point in the contract curve must not be outside the
points at which that curve is cut by the indifference curves. It
is significant that this abstract representation is adapted to
the first rather than the second of the two cases, in which the
utilitarian arrangement would not be accepted, -- the case, for
example, in which the capitalist combination refuses the
arrangement, because, considering it as permanently at work, they
would be worse off than if they were to transfer their capital to
some other field of enterprise; not the case in which they defer
making an agreement for strategic reasons, because, being better
supplied for a siege, so to speak, than the other party, they
hope to reduce them in case of a strike to submission. Compare
what was said above as to the advisability of not admitting this
kind of strategy into industrial combat waged under ideal

144. Compare Marshall, Economics of Industry, loc. cit.:
"Mischief almost always results in the long run from an award
which gives to one side terms much worse than those which it
knows it could obtain by a strike or a lock-out."

145. Theory of Political Economy, edition 3, p. 14. 

146. Political Economy, Book V. chap. ii. sec. 4.

147. Bain, Emotion and Will (Table of Contents).

148. For example, co-operation, as many economists have pointed
out, would have among its good effects that of enabling workmen
to realise the position of employers. Again, the trailing of
future business men in economics at the universities, as
Professor Marshall has lately urged, would tend to develop the
sympathetic use of the imagination. "It has been found," he says,
"by experience in England and in America that the young man who
has studied both sides of labour questions in the frank and
impartial atmosphere of a great university is often able to throw
himself into the point of view of the working-men and to act as
interpreter between them and persons of his own class with larger
experience than his own." See his address on "Economic Teaching
at the Universities," published in the review of the Charity
Organisation Society, January, 1903, noticed in the ECONOMIC
JOURNAL, Vol. XIII. p. 155, and his Plea for the creation of a
curriculum in economics (addressed to the Cambridge Senate),
noticed in the ECONOMIC JOURNAL, Vol. XII. p. 289.
    Compare the expressions in the Report of the Anthracite Coal
Commission, U.S.A. (1903), on the importance of "a more
conciliator disposition in the operators and their employees."