the lion's share of the oil.1 The cost of sinking these unnecessary wells would give some idea of the total integral loss involved, though it takes no account of the accompanying wasteful and incomplete extraction of petroleum.

In the case of forests there are yet other complications. Only a part of the costs of deforestation fall on the forest-owner. As a consequence of his decision the neighboring territory may have a regular water supply replaced by spring floods and fall droughts, and fertile farm lands may be wasted away in spring mud. Estimates of damages from such de facto torts would probably vary widely, but there is no question that their total annual amount for the country has often been a large item.

With water-power the case is reversed. Mineral deposits stand nearly still awaiting exploitation, but the energy of a waterfall is constantly wasting away. Yet differentially it does not pay under divided ownership to develop our hydraulic energy resources to anything like the full, without the assistance of special legislation. Thus riparian rights to drainage of property upstream interfere with necessary storage for evening the flow, and their owner can (acting differentially) exact monopoly tribute, unless the power-development project can exercise the right of eminent domain. In the larger streams there are also complications of navigation rights and often of sovereign jurisdiction.

IV. The incentive problem in business organization illustrates another aspect of the theory. Differential advantage is not always a matter of relations between separate business enterprises. And, if integration is not a mere pooling but preserves the identity of the separate parties, it may sometimes be required to disentangle the parties to a pool or a consolidation. In a sense we may think of the several departments or branches of an enterprise as elements of a consolidated whole. And the question arises,-What are the incentives of department managers? or What does it pay each differentially to do or neglect? How widely does a manager's differential advantage diverge from what would pay him integrally, from what would pay him if he could gain only by adding to the company's profits and if any increase in profits for which he was responsible was reflected in a loss to him? To answer this question the enterprise must be split up into separate cost-accounting units, according to managerial responsibility, and records kept of individual managerial pecuniary performance. The question is then,-How accurately does his pay vary with his value to the enterprise? The

1 J. E. Pogue, Economics of Petroleum, 1921, 31-34, 343-5.

1

Law of Size of Firm has usually contemplated profits as the type of incentive payment and one such accounting unit per firm. The gradual development of separate cost accounting units within each firm and of managerial and other bonus-systems now in process offers interesting possibilities for the significance of this law. In combination with the competition for place and promotion, we may find here something that may some day be designated intra-corporate competitive profits.

6. CONCLUSION

In a specialized and interdependent society as complex as our own it is little wonder that there are many far-reaching conflicts of interest,-little wonder that pecuniary values, resting, as they do, upon an elaborate code of legal precedents entrusted to the keeping of a specialized cult, should fail frequently to check exactly with one another, owing to the difficulty in so intricate a situation of tracing the responsibility for each cost and gain, and should in failing give rise to differential advantages to one man at the expense of anotherdifferential advantages that pervade and distort the whole fabric of the price-system. The wonder is, indeed, that communities of interest should be as many and as inclusive as they are; and yet economists, impressed by that great community of specialized servants of their fellows who are also generalized consumers of their fellows' services "the great coöperation"-have too often left no place in their "theory" for anything but harmony. So pervasive, indeed, are these differential advantages and so inextricably are their various distortions intertwined that when one attempts to introduce corrections into the process of social cost accounting which money, price, and exchange perform, he is compelled to confine himself to a single, somewhat narrowly defined, community of interest. Integral advantage stands always in contrast to some particular differential advantage, having reference to the same party to whose discretion the differential advantage makes appeal, and being, like it, stated in pecuniary terms. It differs from differential advantage in that the discretionary party counts all the costs and all the gains without change of shape, which his action imposes on the pecuniary interests of others. But, being thus a resultant of more accurate social cost accounting, its definiteness of reference and of pecuniary statement make it a peculiarly significant form of specifying the direction in which a community of interests lies.

It is not intended to suggest that all communities of interests can thus definitely be formulated. As we have seen, in cases where the

effect on non-discretionary parties is in terms of real cost or psychic income, a definite statement of integral advantage can not be made with any great assurance. And these are but the borderland of cases that the economist is likely to slight, cases in which pecuniary value does not enter at all. We may, quite properly, look forward with Professor Cooley to a progressive assimilation of these nonpecuniary realms of human appraisal by price.1 And as rapidly as this "progress in pecuniary values" takes place, they will be brought within the scope of our analysis. But the limits of the analysis are not less real nor less important because they happen to be changing. Nor should it be thought an implication of the present position that conflicts of pecuniary interest can ever be completely and permanently eliminated, either in theory or in fact. In a changing society such as ours, established legal rights and precedents are perpetually getting out of adjustment with technology and social organization; new conflicts of interests arise as rapidly as older conflicts are eliminated. Conflicts are the inevitable accompaniment of institutional evolution.

It is not expected that the statement of integral pecuniary advantage should be the only standard of comparison employed even by the economist, or the only method of expressing divergences of the actual situation from the common interest. It may be desirable to make other revisions of the pecuniary standard, such as estimates of the effect on prices of more adequate market information more evenly distributed. In certain cases, statistics in physical units may be very useful, as already indicated,-man-days of unemployment, calories of wasted fuel-energy, and so forth. And so the technological processes underlying a confusion of differential pecuniary gains and interlocking legal claims may prove a handy short-cut to the integration analysis. Again, the mores and conventional codes of welfareincluding the opinion typical of specialized groups, such as physicians may well supplement the pecuniary standard. Statistics of industrial accidents stand fairly on their own merits. And it may well be that the economist will find it worth his while to investigate communities of non-pecuniary interests. Finally, we may list the notion of function which has recently gained currency in economic thought, and which, though open to grave abuses, should prove a valuable way of conceiving the behavior of groups and institutions. To one who is willing to follow the statement of integral pecuniary

1 C. H. Cooley, Social Process, New York, 1918, 320, 326.

2 An important illustration of such a problem, lying on the border-line of economics, is afforded by competitive armaments.

advantage as a formulation of the direction in which a harmony of interests lies, it may very well seem an easy step to lend his approval to such a situation as is thus depicted and to offer his support for any proposal that promises to bring it about. But the acceptance of this pecuniary formulation of an ideal tends to condition the method employed in its realization,-it suggests that the method of social reform employed, whatever other features it may embody, should be in the nature of an attempt to preserve and improve upon the various pecuniary incentives which now function imperfectly in exchange coördination. Property rights, contract forms, social organization, and so forth, should be altered so as to make individual gain more closely reflect service rendered. In so proceeding we should preserve a fundamental teaching of laissez-faire,-reliance on the pursuit of one's private pecuniary gain as an incentive to the performance of service to others. In proportion as the integrations attempted were realized in practice, it would come to be more nearly true of everyone that "the study of his own advantage . . . leads him to prefer that employment which is most advantageous to the society," or more strictly, most advantageous to his fellows.

THE REALITY OF NON-COMMERCIAL INCENTIVES IN ECONOMIC LIFE

5. The Dominance of Non-Commercial Motives in the Lives of Men of Science

173

6. The Dominance of Non-Commercial Motives in Practical

2. The Motives Illustrated in the Consumers' Coöperative Movement

185

V. Conclusions Concerning Incentives to Economic Effort

187