The Principles of Political Economy

Henry Sidgwick

Book 3

The Art of Political Economy

Chapter 2

The System of Natural Liberty Considered in Relation to Production

§6. 1 have spoken above of the manner in which individuals may, through combination, avowed or tacit, make their labour less useful in order that more of it may be required. We have now to observe that, where there is no such combination, open competition may cause a similar uneconomical effect, even while fulfilling its normal function of equalizing the remuneration of producers. For suppose that the services of any particular class of labourers receive on the average a disproportionately high remuneration as compared with those of other classes; there are two ways in which this excess can be reduced, either (1) by lowering the price of a given quantum of the utilities produced by the workers in question, or (2) by increasing the number of persons competing to produce such utilities, without augmenting their aggregate produce, owing to the increased difficulty that each has in finding customers. So far as this latter result takes place, the effect of competition on production is positively disadvantageous. In actual experience this effect seems to occur most conspicuously in the case of services of which the purchasers are somewhat deficient in commercial keenness and activity; so that each producer thinks himself likely to gain more on the whole by keeping up the price of his services, rather than by lowering it to attract custom. An example of this kind is furnished by retail trade, especially the retail trade of the smaller shops to which the poorer class chiefly resorts; since the remarkable success of the cooperative stores of artisans implies a considerable waste of shopkeepers' time and labour under the system previously universal. Still even in a community of thoroughly intelligent and alert persons, the practical advantages of established goodwill or business connexion would still remain: the economic man would find it his interest under ordinary circumstances, for saving of time and trouble, to form and maintain fixed habits of dealing with certain persons. There would always be many dealers who would be trying to form, and had as yet imperfectly succeeded in forming, such connexions. Thus it appears that a considerable percentage of unemployed or half-employed labour is a necessary concomitant of that active competition for business by which industry is self-organised under the system of natural liberty: and the greater the fluctuations of demand and supply, the greater is likely to be this percentage of waste.

A somewhat similar waste, of labour and capital employed in manufactures, &c., due to the difficulty of adapting supply to an imperfectly known and varying demand, has been noticed in the last chapter but one of the preceding book, in discussing the phenomenon of (so-called) ``over-production''.

But again; the importance to each individual of finding purchasers for his commodity also leads to a further waste socially speaking, in the expenditure incurred for the sole purpose of attaining this result. A large part of the cost of advertisements, of agents and ``travellers'', of attractive shop-fronts, &c., come under this head. A similar waste, similarly incident to the individualistic organization of industry, is involved in the initial expenses of forming joint-stock companies, in the case of undertakings too large for ordinary private capitalists---expenses which could not be avoided, even in a community of economic men, though the skilled labour required for launching such companies would not be remunerated quite so largely as it is here and now.

In other cases again, the mere process of appropriating and selling a commodity, involves such a waste of time, trouble, and expense as to render it on the whole a more economical arrangement for the community to provide the commodity out of public funds. Thus (e. g.) it is an advance in industrial civilisation to get rid of tolls on roads and bridges.

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