Basic for Economics

BASIC FOR ECONOMICS by L. W. Lockhart

Special list of 50 economics words		Frontispiece
To the Reader		7
PART I.	Discussion	9
PART II:	Examples
	Florence on Current Economic Teaching	30
	Marshall on Gold and Silver	47
	Cannan on the Grouping of Incomes	63
	Lavington on Business Organization	78
	Stamp on Stimulus in Work	94
	Malthus on The Factors Limiting Population	111

Part II : EXAMPLES

4 . LAVINGTON ON BUSINESS ORGANIZATION¹

Some Necessary Conditions of Present Day Organization
In societies of the present day the adjustment of economic ways to economic ends is not undertaken by one authority with unlimited power. This complex business is in the hands of a special group of thousands of free entrepreneurs (or undertakers of business). employers, business men (whatever name we give them), every one of whom is working at some small part of the great undertaking. What conditions are normal, everyone of these entrepreneurs, judging for himself and taking chances for which he only is responsible, gets in the open market the necessary supplies of workers, capital, and land, and puts them together into a business undertaking so that goods are produced with a view to supplying some small and special part of the possible needs of society. This fact that the impulse causing the organization of the producing factors and putting them in motions come from a special group of persons, is so important, and so clearly has a connection with the question of how these changes in amount of business come about, that it will certainly be of value to take our discussion farther with a view to getting a clearer idea of the entrepreneur and the conditions of work.
The entrepreneur of to-day has a number of different forms. He may be a private business man, a group of partners, a joint stock company,² co-operative society,³ a town government or some such body. The special form he takes is not unimportant ; because the growth of the public joint stock company, by making the supply of capital dependent on the changing impulses of the man who makes investments or the trader on the Exchange, is the cause of one more factor in the complex conditions of business changes. But there is no need to go into these forms here. An account of the entrepreneur may be based on what he does. He is the person who makes himself responsible for the producing and undertakes its organization. Everyone who undertakes this work is an entrepreneur ; no one is an entrepreneur who does not do so.
. . . (more) . . . p. 80 for 12 pages . . .
. . . The fact that business in the present is going well or badly is in this way dependent on the view taken by entrepreneurs of the future conditions of demand: it is dependent, in a word, on their belief in the business outlook. If the general feeling of security is high, the complete economic organization gets a stimulus for great-scale operations ; if the general feeling of security is low, the complete organization comes more or less to a stop. For this reason, is it not probable that the key to the cause of ups and downs in business is in the mind of the entrepreneur, in the factors responsible for the degree of his confidence in the business future ? It is this idea which will be worked out in the discussion in Part IV. The argument will be that the present organization is such that it gives birth to factors which, acting on the hopes of entrepreneurs, are the cause of an increase in the feeling of security and with t in the range of business undertakings, which gets greater and greater ; that this forward move goes on till a point at which the discovery of errors in the readings of the future and other troubling conditions give a blow to the feeling of security on which it is based, and so a condition of fear is produced ; and that there then comes a time in which the earlier factors are working the other way round, causing the feeling of security, and with it the business undertakings dependent on it, to get less and less.

1 . F. Lavington : The Trade Cycle, Chap. III.
2 . A company controlled by a committee acting in the interests of those who put capital into the company.
3 . A trading society making a distribution of profits among its purchasers.

5 . STAMP ON STIMULUS IN WORK¹

(8) Stimulus in the Physiology and Psychology of Work
A very important field, having a special connection with economic questions, is covered in detail by Mr. Sargent Florence in his Economics of Fatigue and Unrest, where a number of statistics of the effects produced by changes in working conditions have been put together with great care. These statistics are of the 'before' and 'after' sort in two groups, and there are not enough different stages given for one to be able to see if the curve of increased outputs keeps level or goes up or down but on looking into the facts with some care, one gets the idea that all these points of adjustment which may be said to be better conditions of work, that is, give it greater "feasibility"² as the writer puts it, have the same effect as a better instrument or a new invention would have, and that there is no drop in the increased producing power.
As examples of this order of better conditions we may take such things as best (optimum) points in relation to heat, and air conditions, specially in some processes of certain industries ; distribution of times of unbroken work, giving greatest output, while causing least fatigue, least accidents, ad least bad work ; comparisons of day and night work with the same ends in view ; the accident curve hour by hour ; the effects of different distributions of overtime ; observations of motion with a view to the adjustment of hand-operations. And then, tests may be used for getting at the optimum weight -- for example Taylor made the discovery that when iron was transported in units of 92 lbs., the best workman was only able to take this weight for 43% of his time, and by making the unit less this percentage went up, so that the output was increased as much a 276%.
These are examples of the 'increased range', talked of in another connection, more than of any change in reason for work, or stimulus, and if they come within my field at all, they do so only because of the stimulus in the direction of the discovery of such short cuts, or better organization, or body-reactions. This stimulus may come from the interest taken by the psychologist in his science ; from economic interest, in the effects upon output ; from a desire that is to say, to make work more interesting and to have less fatigue and healthier workers.
In Sargant Florence's discussion of what is covered by the terms fatigue and unrest, ranging from hate at one end of the scale to the ill-effects caused by diseases of industry at the other, he says that they are like the colour band in the way they are shaded off one into another, an "idea of an ever-changing current of feelings and conditions . . . helping to give light upon what may be named the different-degrees-of-stimulus argument." He makes a note to the effect that a stimulus scale has given unnecessary trouble to those interested in these questions because of its use for two quite separate things: (a) different forms of outside stimulus, such as payment of a higher or lower output rate or the fact that days of rest are near, and (b) different degrees in the power or in the desire to do work, that is to say in the inside stimulus or the driving-force with which a man is working, which may or may not be the effect of different conditions of outside stimulus.
The effects of a change of hours upon the economic output are less automatic and physical, and have a more straightforward connection with the body and mind of the worker because there is a more straight-forward relation between them and the economic stimulus. After looking into all the material which gives light upon this point, Sargant Florence comes to the decision that "by putting the hours of work down from 12 to 10 you get an increased day's output ; the effect of putting these 10 down to 8 is that the increased output is at least kept level, but after this point shorter hours of work, while increasing the rate of output in any hour, seem to make the day's output smaller. These observations were chiefly made in connection with the sort of work where the rate of the operation is dependent more or less equally on the worker and on the machine. Probably where the machine is a more important factor in controlling the rate of output, shorter hours would make the increase in output less or the drop greater." It has to be kept in mind that the increase in output is the effect of a number of factors —- better output hour by hour, greater numbers coming to work every day, lower accident rates, and better quality output. When hours are made shorter, there is not an increase in output straight away, because time is needed for adjustments to take place, but when the change is made the other way round, and hours are made longer it is seen from tests that there is a drop in output in a very short time. Vernon made the discovery that by putting the hours of work down from S to 6, an hour's output went down by 11 to 14% -— almost to the old level.
There is nothing in any of the recorded statistics to give one reason for doubting that the increase in output caused by shorter hours is kept up, but they do make it clear that when the hours are made shorter by stages in equal amounts there is a marked tendency for the effect to get less and less. But here one has to take into account that shorter hours on paper are not necessarily shorter hours in fact. When the hours of work are made shorter on paper there is sometimes an increase in the number of hours in which work is done in fact (Florence. p. 208). Things are very different now from the time of Senior, when cutting off an hour from 11 hours work was said to be equal to cutting off all the profit, because there was so much more fixed than working capital. The view has been put forward by physiologists that the worker, consciously or unconsciously, keeps his effort level by balancing the degree of power used at a given time against the number of hours which make up his working day.³ If 12 hours have to be worked in place of 10 the degree of power used will be less throughout the day, and Vernon makes the suggestion that there is an unconscious. balancing of power used causing the surprisingly regular output of workers in operations needing great physical effort.
Sargant Florence, in a short account of the effects of rates of payment based on work done in comparison with time rates says that they give the right ' stimulus ' only under certain conditions : (a) it is necessary for every worker's output to be kept separate and not mixed up with that of others, (b) it is necessary for the system to be clear, and when the rates are not on a scale having a one to one relation to output it is important for them not to be fixed in any complex way. (c) it is important for the worker to have no reason for the belief that his output is being measured for another purpose -— for example, rate-cutting which has so frequently been the cause of a drop in output. The statistics of the effect of starting rates of payment based on output have been given a number of times. The British Health of Munition Workers' Committee, for example, made the statement that with girls working by day there was an increase of 24%; by night 40%. In one special branch of the work the increases caused by the rates based on output were 28% by day and 48% by night.
But no such stimulus is given when time rates and rates based on output are used together. Vernon (Industrial Fatigue and Efficiency, p. 133) gives an account of how the output of certain steel workers with a fixed lowest rate for a day's work had been cut down to a point which at output rates would have given less than 60% of the lowest payment. When this fixed rate was given up. the output for one day became almost as much as the output for two days on the other system.
Florence says that the opposite of a stimulus is given when the rate of payment based on work done is fixed by observation of the best worker, or the best time of a normal worker so that the output is over-judged. Men are so different one from another that the error made in scientific organization on a fixed time or output of 80% to 150% efficiency is rightly pointed out. He gives as an example of a strange stimulus, the money made by those working on a rate based on output a short time before their week off, which is surprising to anyone making observations on fatigue, and is no doubt caused by the desire to put money on one side for amusements. In a general way the value of getting the worker ' interested ' in the producing process by education and so on has been frequently put to the test, but we have no statistics on this point because it is not possible for the degree of interest to be measured.
"If every worker has a very different day's output after an efficiency system of payment has come into force, by comparison with what the distribution was before, this is a sign that it has had the desired effect of increasing stimulus and getting the workers away from a common level of work" (Florence, p. 224). The tendency to a common level of output, the higher outputs being more frequent, is a sign that output is consciously being kept within a certain limit. When the lowest outputs are most frequent and the output of workers not widely different, and generally high, after selection of workers by test has come into use, the tendency may be taken as a sign of the efficiency of the system of selection.
Knoeppel's statement is used by Florence with approval in a discussion of the stimulus of payment based on output. "It is best for every man to have before him the idea of a good which is well within his range of thought, because whenever he gets his desire, some higher good will automatically take its place. In this way, agreement upon common forms has the effect not of making fixed conditions of society, but of a common development." But it is to be doubted if, as a rule, this is true. In the same way in which there is a balance between effort and hours, so may there frequently be one between effort and ideas of ways of living. It has frequently been seen that certain sorts of workers, who are able to get all they are conscious of needing without working all the week, will not come to work on Mondays or other days. Lord Rhondda, talking of coal-mining, said : The more men had, the more possible it was for them to get the necessaries of living, the less effort they made. The output of a man for a year had got very much less. On the other hand, when prices went down and payments for work did the same, the fact that the men did more work made the bad economic conditions worse when they came . . ." ⁴
I have in mind some works I saw in 1919 and 1920 which make it clear that though increases in payments for work had been given the men did not make full use of their increased powers of making money, and other statistics which carne out week by week through 1921 from which it was seen that the opposite process is true,that is to say, that when the rate of payment goes down the workers make no less money in the hour.
Experience has frequently given support to the first observation in a general way, pointing to some normal payment for work which the worker will do much to get, and after which point he will not be so interested.
In physiology, Sherrington has made an observation of special conditions, working against one another as ' reciprocal inhibitions ' of reaction-impulses.⁵ When a stimulus is given to one group of muscles, others become loose. The same sort of thing goes on in the mind, specially in connection with eye-experiences and attention.⁶ In psychology, Speannan says, there are a number of facts in support of the view that there is "competition in in things of the mind" with the law of fixed output. "When any operation is staffed in the mind other operations are stopped ", and the other way round. The law of fixed output may be framed in this way : There is a tendency for every mind to keep its output at any point of time fixed in amount, whatever changes there may be in quality.

1 . Sir Josiah Stamp : On Stimulus in the Economic Live, 8-9.
2 . Make it more possible.
3 . Kent : Second Report on Investigation of Industrial Fatigue, by Physiological Methods.
4 . Statistical Journal, 1914. p. 174.
5 . == re-action impulses working against one another.
6 . Spearman, Abilities of Man.

(9) Experimenting Psychology

In the field of experimenting psychology and the measuring of the powers of the mind by correlation, the mind's reactions to different stimuli have been measured up to a point, but not very frequently for reactions to the same stimulus given over and over again. The persons on whom Schafer's tests were made, while getting into their memory a sense of colours, were given a shock by having a gun fired off from the back. The effect of this was a great loss of memory, the degree of which was measured. When the gun was fired off again the effect on their feelings and on their memory was less. Dancing animals (mice) were trained to go through the right opening for food and keep out of the way of an electric shock, but the process of learning was quicker when the shock was a small one because " though the impulse to the selection of another outlet is increased by all pain from the shock, when there is more than a certain amount of pain its value is more than balanced by other effects."¹
Three fields for observation and experiment are covered by what has been named by the psychologists ' perseveration'² : (a) long after-effects that is, reactions in the mind and body which go on longer than the outside stimulus, (b) the uncontrolled coming back into the conscious mind of our experience, without a new stimulus, (c) the degree to which the after-effects of some past experience of the mind keep a new one of the same sort from taking place.³
Some experiments have made it clear that, even after working at the same thing for a number of years, persons have been able, when the stimulus is strong enough, to do better that what seemed to them before to be the limit of their physical powers. For example, four experienced printers kept on getting better and better for the first quarter of an hour every day. Speannan says " unhappily, the possible reasons for such increased efficiency are so complex that one is not able to say at all certainly what they are. Quite probably the strongest factor was simply that of overcoming a deeply rooted habit, that of working at a rate which they were able to keep up with comfort and without making errors all through the day. It is not possible for a decision on any point to be based on such facts."⁴
Nothing certain has come to light from experimenting with the effects of different forms of stimulus on boys and girls.⁵ There is a tendency for a very great effort —- such as is produced by an offer of money —- to give an increased rate of working only by causing a greater number of errors.⁶ It is not unlike the bad effect of forcing the play in forms of sport in which good play is needed.
The experience of men of thought is different on the point of how far some specially hard question is best worked out by making a specially great effort, and how far this makes efficiency less. Among a group of learners there was an equal division of opinion about it. It puts one in mind of the two different systems of thought used by Spencer and Mill, details of which are given in their books about themselves.⁷ Graham Wallas has something to say about Mill's system of consciously making a great effort till it becomes in part automatic like a habit. "We see in the two statements the chief causes which made Mill's thought, though done by a tired man after or before office hours, of more value than Spencer's thought, though he gave all his time to it."²
How important a stimulus to effort is in comparison with a condition in which there is no driving factor has been made clear by psychologists' tests. Group3 of sounds without sense were got by memory in one experiment after they had been said 13 times and 9 times as against the 89 and 100 times which were needed before, and they were fixed in the memory for longer than in the earlier experiment. For the forming of a habit more is needed than to become automatic -— a fixed purpose is necessary and unbroken effort. With telegraph workers the ' efficiency curve ' only went up when there was a conscious attempt to get better, caused by a strong stimulus, such as the desire to get more money.⁸ There is general agreement on the fact that habit has its roots in the nerves. Mathematical rules for measuring efficiency curves have been worked out and used. Fox's curve is :--

                      k
              t = ------------- + T ,
                   (n + p) c

where t = time necessary for one operation, n, the number of times it has been done before, k, p and T, fixed factors such as the working-power of the person in question and so on.

* * * *

It would seem from my outline of our knowledge about the reactions to stimulus in different fields under scientific observation, from the point of view of measuring them, that the range of what may be measured, in any but a rough way, is still very narrow ; and no general statements are possible at this stage. But in connection with the system of division, examples may be given in a general way for every sort of reaction which I put forward in the first place as possible in theory. It is no use to take over only one line of thought into the economic field. For this reason we will do well to have no ready-made ideas from medical science, but to go with care into every example of economic stimulus to see what it is made up of, keeping in mind all the time that in view of the widely different observations made in connection with the physical, physiological and psychological factors, wide different sorts of stimulus and strongly marked lines of division are to be looked for. It may certainly be said that we have teaching in the field of experimenting psychology which gives a key to which lines of development will be of most value in those economic reactions caused by the stimulus to get greater efficiency of mind, more knowledge, and better ideas.

1 . Spearman, Abilities of Man, p. 105.
2 . After effects in the mind.
3 . Spearman, Abilities of Man, p. 298.
4 . Ibid, p. 333.
5 . Ibid, p. 333.
6 . Ibid, p. 334.
7 . Spencer, Autobiography 1, 399-401 ; Mill Autobiography p. 123
8 . Art of Thought, p. 155.
9 . Fox, Educational Psychology, p. 118

110

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Part II : EXAMPLES

4 . LAVINGTON ON BUSINESS ORGANIZATION1

5 . STAMP ON STIMULUS IN WORK1

(9) Experimenting Psychology

4 . LAVINGTON ON BUSINESS ORGANIZATION¹

5 . STAMP ON STIMULUS IN WORK¹