Another starting point is provided by Dr. Stamp's estimates of the pre-war Wealth and Income of the Chief Powers.1 In the following table Columns I. and II. are taken from Dr. Stamp's estimates. I have calculated Column III. by assuming that the interest on capital is an average 5%, and Column IV. by comparing Columns I. and III.

.. 37.5%

2 .. 33%

If it be thought that 5% is too low an average rate of interest in any particular country, the relative share of property should, of course, be increased. It should be noted that in each country property abroad owned by its citizens is included, and property at home owned by outsiders excluded. But no great reliance can be placed upon the percentages obtained and it is very desirable that statisticians should enquire further into the matter."

1 Statistical Journal, July, 1919.

'Professor Bowley, on pp. 23-6 of his latest pamphlet, The Change in the Distribution of the National Income, 1880-1913, which appears as these pages are going through the press, argues that during this period the relative share of property in this country has remained very nearly constant at about 37%.

CHAPTER VII

THE EFFECTS OF INVENTIONS.

§1. In the last chapter it was argued that, apart from the effects of inventions and of changes in consumers' demand, there was some ground for holding that in normal periods of economic progress, under a capitalistic organisation of industry, there was a tendency for the absolute share of both workers and property owners to increase, and also for the relative share of the owners to increase at the expense of the relative share of the workers. We shall consider in this and the following chapter how far this tendency is either strengthened or weakened by the effects of inventions and of changes in consumers' demand.

§2. Much has been written on the effects of inventions. On the one hand it is sometimes said that the effect of labour-saving inventions, at any rate, is to reduce real wages and restrict employment. On the other hand Professor Clark has expressed the following optimistic opinion. "An invention makes it possible to produce something more cheaply It has made a definite

addition to the income of society, and from the moment when the improved method has been put into operation, the static standard of wages has been higher. The rate towards which the pay of labor is now tending, is not what it was before the invention was applied, but it is a new and higher rate."

Invention is a form of work. But it differs from most other forms of work in that it is heterogeneous and

1 Distribution of Wealth, p. 405

intermittent, in that there is no regular market for it, in that its results are not standardisable, and often indeed cannot be traced to the work of definite individuals.1 Inventors as a body have no trade union and no standard rates. We cannot easily imagine a demand or supply curve for invention. It is better, therefore, for our present purpose, to think of inventions as causing changes in the demand for various other factors of production.

An invention, or minor improvement, introduced into any particular industry causes a change in productive methods, which reduces cost of production per unit below what it would otherwise have been. If such a reduction were not anticipated, the invention would not be introduced. Thus many inventions remain for a long while in the state of not being "commercial propositions." But such inventions may later on become profitable, as the result of changes in the conditions of supply of various factors of production, or in the conditions of demand for various goods and services. Thus many modern improvements have only been rendered practicable by large accumulations of capital and a considerable density of population. Great accumulations of capital were necessary for the building of modern railway systems, and great accumulations of population for that of tramways in large towns. On the other hand, the shortage or high price of any particular factor of production, no less than

1 Compare Marshall. Principles p. 206 n." The full importance of an epoch-making idea is often not perceived in the generation in which it is made. The mechanical inventions of every age are apt to be underrated relatively to those of earlier times. For a new discovery is seldom fully effective for practical purposes till many minor improvements and subsidiary discoveries have gathered themselves around it."

• Except where an invention results in the substitution of a new commodity, more attractive to consumers, for an old commodity, with no reduction, or even with an increase, of price. Many modern examples of this type of invention could probably be found, e.g., in colour printing, but they are not likely to be of great quantitative importance.

its abundance or low price, may be a cause of changes in the methods of production. It is said that the improvement of mechanical appliances in the South African gold mines was stimulated by the repatriation of the Chinese labourers introduced by Lord Milner at the end of the South African War, and similar effects are often produced by trade union pressure for higher wages and shorter hours.1 Employers here have a specially strong motive to economise labour. In other cases there is a specially strong motive to economise capital, or to economise land, when the price of either is high. The growth of knowledge, moreover, is continually giving birth to new potential inventions, some of which come into operation immediately, others after an interval of time.

§3. The classification of inventions is a matter of some difficulty. A "labour-saving invention" is a phrase commonly used, but not always clearly defined. Most employers, probably, would define a labour-saving invention as one which reduces the wages paid per unit of product in their own business. A better definition for our present purpose, which covers most, though not all, of the same ground, is that a labour-saving invention is one which reduces the proportion of wages to selling price, per unit, in the industry in which it is introduced.

If we adopt this latter definition, it follows that the

1 Compare Pigou, Wealth and Welfare, PP. 322-3, and Industrial Peace, pp. 181-2, and Webb, Industrial Democracy, PP. 413-4.

See e.g., H. P. Greg, Man and Machinery, Their Economic Value in the Textile Trade of To-day, p. 15.

"

⚫ Other alternative definitions are plausible, e.g., an invention which reduces (1) the number of persons employed, or (2) the number of persons employed per unit of output, or (3) the total wages paid per unit of time, or (4) the number of Iman-hours" worked per unit of time, or (5) the number of " man-hours" worked per unit of output, or (6) the intensity or disutility of work for the average worker. This variety of possible definitions arises from the fact that laboursaving' may mean different things according to the point of view of the speaker, e.g., an employer or a workman; also from the fact that the saving may be either absolute or relative.

relative share of labour is reduced in the industry in which the invention is introduced. Whether or not the absolute share of labour will be reduced, depends upon the amount of the wage reduction per unit, upon the elasticity of demand for the product and upon the extent to which the cheapened product is consumed by the workers who produce it. So far the matter is clear. But it is a defect of any classification of inventions, which takes account only of the effects produced in the particular industry where the inventions are applied, that it tells us nothing of the effect produced upon the absolute and relative shares of the factors of production in industry as a whole.1 For the introduction of an invention at any point is liable to have immediate reactions upon the demand for the various factors of production throughout industry, and other reactions, mostly less immediate, upon their supply. Such reactions have been very important, for example, in the history of inventions in transport. There is, therefore, something to be said for generalising our definition of a labour-saving invention, so as to cover all inventions which reduce the relative share of labour in industry as a whole, while reducing or increasing the absolute share of labour according to the special circumstances of the case. If, however, this generalised definition is adopted, the character of any particular invention is less readily recognised. In either case, a labour-saving invention is not necessarily a work

1 Compare, on this point and on the effects of inventions generally, Pigou, Wealth and Welfare, pp. 84-92.

Thus an invention, which is labour-saving in the industry where it is introduced, or, as we may say, primarily labour-saving, may involve a large increase in the demand for machinery, and, hence in the demand for labour to make this machinery. Similarly, an invention which is primarily capital-saving, may involve a large decrease in the demand for labour which previously made the machinery, which is now dispensed with. An invention which is primarily labour-saving or primarily capital-saving, need not be, labour-saving or capitalsaving, as the case may be, in industry as a whole.

P