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Dictionary of the History of Ideas

Studies of Selected Pivotal Ideas
  
  

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The Free Social-Economic Order, Assuming Sta-
tionary Conditions.
Under this head, II-A in the sug-
gested scheme, what is to be considered is the station-
ary economy (or stationary state) which was much
discussed early in the present century, especially in the
American economic literature. It was pioneered by
John Bates Clark, whose book, The Distribution of
Wealth,
was published in 1899, following earlier arti-
cles. Clark's main object was to advocate the marginal-
productivity theory of income-distribution and defend
it ethically. He assumed two productive factors, labor
and capital, including land in the latter. About the
same time, Alfred Marshall, of Cambridge University,
published a more realistic, though less systematic,


054

treatment in connection with discussion of price-
determination over long and short periods. He ex-
tended the former to include “secular changes” in
conditions of demand and supply, but did not explicitly
work out this concept. (See his Principles of Economics,
Book V, p. 379 in the sixth edition, little changed in
his “final” eighth edition.) However, the subject comes
up again in his treatment of “Distribution” in Book
VI, which involves fallacies that must be pointed out.

It may be Marshall's (obvious) veneration of his
classical forebears, especially Ricardo, that led him to
commit himself to the idea of a real stationary-state
in the future—implied by ultimate equilibrium rates
of wages and interest—which implies the same as
regards “rent.” He said (following Ricardo) that land
is (approximately) fixed in supply (most explicitly on
p. 170; cf. also pp. 534-36) and called its rent a “sur-
plus” (p. 429, Glossary). Of land acreage this is true;
of the economic land that is leased or bought and sold,
not true at all. Ricardo's land, as “original and inde-
structible,” never existed since human beings have
planned economically. Imagination can by abstraction
form an idea of such “powers of the soil,” but they
cannot be separated in practice from “artificial” ones,
in various meanings, and evidence shows that these
account for most or all of present land value; in fact,
past investment probably exceeds this, on the average.
Moreover these elements exist in all productive agents.
As to the “surplus” theory, reasoning at an arithmetical
level shows that rent viewed as a surplus is the mar-
ginal product, and either theory applies to any “factor
of production.” (Marshall improved on J. S. Mill in
seeing that the increase in land value is not free of
cost.)

Marshall's main error, as regards stationary condi-
tions (from which Clark can be exonerated) also results
from following the “classicals,” specifically in neglect-
ing the nature and the consequences of technological
progress. This of course has offset any tendency to
“diminishing returns” from labor or capital or both.
Wages have risen manifold, in the face of a similar
population growth; the rate of interest has shown
something of a seesaw, moving upward or downward
at different periods (but not very much) with the fluc-
tuating growth of investment opportunity, which in
principle fixes it. The most serious error, still common
in economic writings since Marshall, is failure to note
that new technology is chiefly produced by investment,
which increases the yield of and demand for all kinds
of productive services, however these may be classified.
Moreover, this field of investment shows the opposite
of diminishing returns; scientific and technical progress
constantly opens the way to more progress, with no
assignable limit. (And it also changes the character of
both labor and economic land.)

One can use the concept of a stationary economy
as a postulate useful for analysis (which Clark perhaps
meant, and which can be read into Marshall's words),
but should make it clear that asserting a tendency
towards a long-run equilibrium assumes “other things
equal” which could not be, and that such tendencies
are more than offset by others making for indefinite
cumulative change. Clark also failed to recognize this.
The exposition has already trespassed on the subject
matter of the next section where, incidentally, it will
be shown that even in a social economy, if stationary,
there would be little occasion for the lending of money.