The forces at work/The capitalist system

CONTINUED FROM LAST WEEK

It is obvious from what we have said that the beneficial effects of division of labour go to confirm and emphasise, most eloquently, the dignity of all forms of labour. Without the unskilled workers – even the ordinary cleaners and tool-bearers – the most skilled workers cannot accomplish successfully and with the same amount of productivity and exquisiteness, their own parts in the varied and complicated processes of modem production.

It is important, however, to point out that division of labour is not an unmixed blessing. It has its disadvantages, the most significant of which is that it seriously hampers the vertical mobility of labour.

FIVE: Utility and productivity are relative terms. They denote the same concept. A quantity of raw cotton has utility for the manufacturer just in the same way as the finished textile has for the consumer. The textile manufacturer is also a consumer. In his case, he consumes not the finished product but raw cotton. He also consumes such finished products – like machinery for instance – as enable him to manufacture textiles. He is, however, a consumer with a difference. Whilst to the final consumer marginal utility is measurable only in subjective terms, to the producer or manufacturer marginal utility can be measured in objective terms. He has, from time to time, to relate the marginal utility of any commodity, including labour, to marginal productivity. Which means, in simple terms, the point at which the cost of production is equal to the price prevailing in the market for the finished products. In other words, it is the consumer’s marginal utility that determines the producer’s marginal productivity. Ifthe consumers will only absorb 1,000 pieces of textile of 6 yards each, for which they will pay not more than 20/ – per piece, it will be unprofitable for the manufacturer to produce 1,010 pieces of textile which, because of the increase in supply, will fetch only 16/- per piece. Unless of course he is able to produce these pieces of textile under conditions of increasing returns – that is, if he is able to produce more pieces of textile at a lower cost per piece.

Under these conditions, he may produce 2,000 pieces at 10/- per piece for which the consumers are prepared to pay only as much as 12/- per piece. But sooner or later, a stage is reached when diminishing ‘returns set in, that is, when the more he produces the higher the cost per piece.

In this illustration, we are assuming that the demand for textile is elastic. But there are instances where the demand for certain goods is inelastic. If consumers will onlypay 5/- per bag when there is a supply of 1,000 bags of yam flour in the market, it will be difficult, other things being equal, to stimulate the purchase of 2,000 bags at 2/- per bag, even if it is possible to produce 2,000 bags at an average cost of a little less than 2/-. The reason is that, other things being equal, people will just not eat more yam flour simply because its price has fallen; at any rate, not anywhere nears the proportion by which the price has fallen.

The manufacturer in Adam Smith’s example will only employ additional labour and other factors of production if he is satisfied that the outcome of the employment of such extra resources will be that each worker will produce as much as, if not more than 4,800 pins per working day, at the same cost per pin; and provided the marginal utility of pins to the consumers is not likely to fall as a result of the increase in the output of pins.

It will be seen, therefore, that productivity is only a word of art. It is otherwise a misnomer. Marginal utility tends to inhibit productivity. The scarcer the commodity, the higher its marginal utility; the converse is also the case. The producer who misjudges the market and produces, with maximum efficiency, a most attractive article, the marginal utility of which, to the consumers in terms of money, is much lower than the average cost of production, will very quickly go out of business. And the producer whose goods are destroyed or’ damaged by unforeseen mishap can only fall on the insurance companies for succour. He has no means otherwise of recouping his loss.

 

The Capitalist System

IN his efforts to live a full and happy life, man has adopted two well-known economic systems, with separate and distinct polarities. They are the capitalist system and the socialist system. There are a number of other systems which, pure and simple, are admixtures or aberrations of these two systems.

In the last chapter, we have outlined the economic forces which are constantly at work in any society. Under the capitalist system these forces are given full rein; save that occasionally some sort of half-hearted, indirect and partial control and direction of the forces may be instituted by Government. Under the socialist system, however, the approach to the working of these forces is entirely different: it is usually direct, all-embracing, and quite effective in ensuring social justice to all. In the next chapter we shall deal with the socialist approach to economic forces. But in the meantime, we propose, for purposes of emphasis, complete fairness, and further clarification, to examine the significant postulates and achievements as well as the vices and evils of the capitalist system. This procedure is considered necessary in order that the claims of the socialist system may be properly understood and appraised.

The essential characteristic of the capitalist system is economic freedom, or freedom of industry and enterprise; and it has four postulates which we will call the postulates of capitalism. They are the postulates of: (l) private property, (2) choice, (3) equality, and (4) egoistic altruism.

Private Property: The right of the individual to own and control as much economic goods as he can appropriate to himself from the operations of supply and demand is recognised and protected by law. These goods may consist of personal possessions, tangible and intangible, corporeal and incorporeal, and of physical means of production which in turn consist of land and capital.

Choice: It is assumed that each individual has complete freedom of choice; he may use his energy and property as he thinks fit subject only to such restraint as may be imposed upon him by law.

Equality: Here, it is posited that everyone may work, live, and freely contract on a basis of equality with others and with the same opportunity as his fellows.

CONTINUES NEXT WEEK

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