American Economic Association

Economic Fragments by Dennis H. RobertsonReview by: Harry Gunnison BrownThe American Economic Review, Vol. 21, No. 4 (Dec., 1931), pp. 704-707Published by: American Economic AssociationStable URL: http://www.jstor.org/stable/505 .

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704 Reviews and New Books [December

deflnitio, be termed uneconomic. In that way we manage to divide the prob- lem, so that the preliminary theoretical solution is achieved on a purely economic basis; after that we may proceed to a purely psychological and sociological examination of the nature and extent of the deviations. The way in which these react on the wage, once more 'like the doctrine of monopoly prices-becomes a question of theoretical economy.

This type of analysis is neither calculated to allay the suspicions of the institutionalists nor to give much aid to the business economists to whom it is addressed. The satisfaction of their desires awaits the ap- pearance of someone who will avoid the economic man as earnestly as he shuns the perfect competitive market and who will study what happens in buying and selling, instead of the conditions of non-existent equilibria of supply and demand. To substitute one set of postulates for another is not enough; for the attack upon classicism demands that reasoning from postulates shall be subordinated to observing what happens. Hu- man behavior is more significant than prices; but if this were not so, it is only in terms of wha-t men do, even irrationally and inconsistently, that we can tell how prices are determined.

CORWIN D. EDWARDS New York University

Economic Fragments. By DENNIS H. ROBERTSON. (London: P. S. King. 1931. Pp. viii, 267. 10s 6d.)

The author of this book has given us a collection of more or less technical economic essays, semi-popular economic essays and book re- views. Of course such a collection has no especial unity-nor is it in- tended to have-except in the general sense that it has all issued from a single mind.

The reviews will be, probably, as interesting to the casual reader as anything in the book. They are mostly short. They are written with wit and vigor. One enjoys reading what such a writer thinks about G. D. H. Cole, the Webbs, Shaw, H. G. Wells, Henry Ford and others.

The longer articles are harder to read. They are more sober in style. They call for careful and sustained attention. But the opinions and the supporting arguments presented are too various to permit mention here of more than a few points.

The first essay deals with "economic incentive." It begins with a con- sideration of the inducements to consumption and to production which are summed up in the laws of demand and supply. The author calls attention to the familiar fact that a rise in price increases the supply of a given article through inducing persons not primarily in that busi- ness "to transfer resources from other branches of production into this particular branch." Then he shows how the "law of supply" is likely to be modified when such a "transference of resources is impossible." For

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1931] General Works, Theory and Its History 705

then "it sometimes occurs that an increased reward per unit for some product incites those who are already engaged in its production not to an increase but to a diminution in the number of units supplied" and "a fall in the exchange value of commodities in general against that particular product leads to a smaller total of that product being put upon the market."

The explanation commonly offered for this condition is that with the higher pay (in other goods) per unit of output, workers can satisfy their wants, if these are comparatively inexpansible, with less work and less output than before and that they will prefer this to greatly increasing their consumiiption. It is natural to assume that Professor Robertson has this explanation in mind.

But if this is the explanation, then there is no slightest justification for the application of the conclusion to international trade in such a way as to account thus for business depression in one of the countries engaged in such trade. And the author does so apply the conclusion. For he goes on to say:

This consideration is of some importance in the theory of international trade and of industrial fluctuation. An extreme illustration will serve to make the point plain. Suppose a country to subsist entirely by exporting some one "key" product-say nitrate-in exchange for general imports. Suppose a great rise in the exclhang,e value of nitrate against other products. Then, if the country's nitrate demand for imports in general is inelastic, equilibrium will only be reached at a lower level of nitrate production than prevailed before. But under the complex conditions of modern capitalistic production and international trading relations, the attainment of this lower level will involve dislocation and unemployment; in other words, until it is reached there will be "a condition of over-production" in the country in question.

This reasoning throws some light on a paradoxical feature of the recent trade depression. That depression has been associated in this country with a considerable relative cheapening of the price of imported food and raw materials as compared with the prices of manufactured imports.... But if this alteration is so great that the demand of the manufacturing popula- tion for the products of its agricultural customers becomes inelastic, the principle now under discussion comes into play; and the consequent readjust- ment exhibits the familiar features of an industrial depression.

Surely, it is a far cry from the fact that an individual may cut down his labor and so his supply of a given article when he gets more of other goods for it, the supply being thus decreased because the producer pre- fers to be idle a larger part of the time, to the contention that better relative prices for a country's products (or product) will force out of production men who do not want to be idle any more than before. In the first case, the high price tends to limit the supply and keep up the price. In the second case the high price does not tend to limit the supply. The workers whose product buys in exchange more products of the other

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706 Reviews and New Books [December

country per unit will gladly buy these additional goods. Even should such goods not be worth to them the work necessary to earn the means of buying, they would not, having done the work, refuse to spend their wages. If their demand is inelastic and they do not especially want more goods, they will, all or nearly all of them, work fewer hours and output will indeed be decreased. But this will not inivolve involuntary unemploy- ment or "dislocation." If the unemployment is involuntary, this means that the workers do desire to buy goods, that their wants are not sat- isfied, that they do desire to produce goods for exchange and that they will gladly take in return all the goods from other countries which they can get. It is surprising to find a writer of Professor Robertson's stand- ing trying to explain business depression in England by any such argu- ment as the one above quoted.

When, in a world which has just suffered a considerable credit con- traction, manufacturers, merchants, laborers and others have not ad- justed their charges to the diminished volume of money and credit avail- able for spending, there is, of course, unsalableness of goods and un- employment of labor. And so, if producers in any country are trying to hold out for prices of their goods higher than market conditions justify, they will suffer from decreased demand for the goods of their produc- tion. But if there is any relationship whatever between such facts and a desire of workers to labor fewer hours when their pay per hour is greater, this relationship is certainly a most remote one. And Professor Robert- son's discussion does not demonstrate any relationship at all.

Passing now beyond the middle of the book, we come to an essay on "family endowment." Professor Robertson examines carefully the case for family endowment and does not hesitate to criticize some of the arguments for it as unconvincing and of little cogency. Nevertheless, in the end he appears to reach the conclusion that there should be some system of taxing industry, or requiring insurance, so devised that those workers without children, or with only onie or two, would find themselves with smaller incomes than their productive efficiency would warrant, and that those with several children would get more, and increasingly more as their families were larger.

It is not proposed that the necessary funds be raised chiefly by tax- ing the rich, or from community-produced values, but rather from the wages of those workers who have fewer children than the average. Those who, for one reason or another-and sometimes it will be because of ob- ligations assumed toward nephews or nieces or aged parents or others- have no children or the fewest children, can onlv hope that when such a scheme is adopted there will remain a few countries where it does not apply and where a worker's reward will be in rough proportion to his efficiency rather than to the number of his children and that earlier ideals

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1931] General Works, Theory and Its History 707

of freedom will still not be so entirely forgotten as to forbid migration to such countries. For only thus can they then avoid subsidizing the greater fertility of others.

It may seem a pity to pick out so little, among all the various topics and arguments in a book, for discussion, and that that little should be viewpoints over which the reviewer cannot enthuse. Professor Robertson has given us many a clever paragraph and many a stimulating sugges- tion in his array of articles.

HARRY GuNNIsoN BROWN University of Missouri

Hauptproblene der Arbeitslosiglceit. By ALEXANDER MAHR. (Leipzig: Franz Deuticke. 1931. Pp. 93. RMI. 4.)

Dr. Mahr's brochure on unemployment is almost exclusively theoreti- cal. The chief causes for unemployment, given in Chapter I but modified somewhat in later chapters, are: changes in the profitableness (Renta- bilitit) of industry (seasonal, cyclical, structural); monopolistic inter- ference; the interaction of the foregoing factors, as, for example, the effects of cyclical employmelnt upon technological employment.

This preliminary out of the way, Dr. Mahr discusses work and wages. In general, higher wages follow a larger marginal product; but higher wages may cause a larger marginal product by raising the standard of living and thereby the efficiency of the labor force. In the long run wages higher than the marginal product will result in unemployment; but wages may be above marginal product temporarily in periods of re- vival or prosperity or in industries with large overhead costs. The ex- tent to which monopolies can increase wages is contingent, in general, upon the elasticity of demand for the products.

Rationalization (Ch. VI) involves essentially the problem of com- parative costs-the substitution of cheaper machinery for more ex- pensive labor. The extent to which, and the length of time for which, un- employment results is dependent upon the mobility of labor. Unioniza- tion here leads to decreased mobility and may result in chronic unem- ployment. A large part of the current unemployment is the result of the decreased demand for labor resulting from rationalization (p. 32). The rationalization, in turn, progresses under the pressure of too-high wages.

Seasonal uinemployment insurance aggravates the evil; because, by putting part of the burden upon society, it enables the employer to re- tain his labor force with less cost since it is no longer necessary for the laborer to build up a reserve fund against the off season (p. 45).

Cyclical unemployment can best be controlled by stabilizing the whole- sale price level (pp. 49-51). At the same time, however, Dr. Mahr would

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