Economic science and practice : or, Essays on various aspects of the relations of economic science to practical affairs

Front matter

BOUGHT WITH THE INCO FROM THE

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Preface

THE following papers, which have been written at various times, and for different occasions, during the last eight years, on economic subjects — in which the author has been specially interested — are connected by certain common characteristics. They deal generally with the relations of economic theory to proposals of practical economic reform. In the first, an attempt is made to set forth the moral, if it may be so called, of the present position. In the six succeeding Essays, different aspects of various methods of industrial reform, which have lately engaged a large measure of popular attention, are brought under review. In the eighth, the general relations of economic theory to practical affairs are considered ; and in the three, which immediately follow, the application of these general relations to three particular questions of the day, briefly treated in the eighth as illustrative examples, is more fully developed. In the two concluding Essays, the nature of the changes, which have recently passed over economic theory, and have resulted generally in the incorporation of the older traditional teaching, exemplified by Adam Smith, with the newer presentation, and connection with later facts and practice, supplied vi PREFACE

by contemporary writers such as Professor Marshall, is examined. The Essays have been revised, with a view to the elimination of the more fugitive portions of the reasoning ; and it is hoped that, as in their original composition an attempt was made to bring passing events into connection with abiding truths, and to investigate particular details in the light of general principles, they may be considered not entirely unworthy of the more permanent shape in which they now appear. An excuse for some repetition, and perhaps inconsistency, of argument, may be found in the fact that they are the result of continued reflection on cognate topics, with the consequence, sometimes of modifying, and more often of strengthening, earlier convictions. Some have been published before in various journals, and others, such as Nos. I., v., and XL, appear in print for the first time. Nos. II., III., and VIII. have already been published in the Journal of the Royal Statistical Society ; Nos. IV., VII., X., XII., and XIII., are reproduced from the Economic Journal ; Nos. VIII. and IX. have been previously printed in extenso in the Reports of the British Association for the Advancement of Science; and No. VI. has been retranslated from La Riforma Sociale.

The author desires to express his thanks to the editors of the various journals, to whom he applied, for their kind permission to publish the Essays in their present form. L. L. P.

Oriel College, Oxford, July, 1896.

Contents

PAGK

I. Some Typical Fallacies of Social Reformers i Read before the British Association, 1890.

II. The Relations between Industrial Conciliation AND Social Reform . . .18 Read before the British Association, 1889.

II. THE RELATIONS BETWEEN INDUSTRIAL CONCILIATION AND SOCIAL REFORM.i

IT is a pleasant privilege to be allowed to discuss in Newcastle the important question of the peaceful settlement of industrial disputes. Those of us, who live in the south of England, are accustomed — some with envy, others, perhaps, with misgiving — to look upon the towns of the north as the typical representatives of advanced opinion ; and the industrial district, of which Newcastle is the centre, may not inappropriately be regarded as leading the way in the special department of reform we are now about to consider. It is indeed true that during the last few years the peaceful settlement of industrial quarrels has been subjected to a very severe strain on Tyne-side ;^ and it may be that it has not passed through that strain entirely unharmed. But nevertheless it is by no means extravagant to assert that in the north of England more than anywhere else the methods of avoiding strikes and lock-outs — the wars of the industrial world —

' A Paper read before Section F of the British Association at Newcastle-upon-Tyne, 1889, and printed in the Royal Statistical Journal for June, 1890.

' In the Northumberland coal trade the sliding scale, previously in existence, was terminated in the winter of 1886-87, and a protracted strike followed.

by means of conciliation, by mutual discussion and agreement, that is, between representative masters and men — by arbitration, or the reference of the quarrel to the decision of some third and neutral party — by sliding scales, or the selection of a " standard wage " and a " standard price," and the determination of the manner in which variations in the former are to depend "automatically," if we may say so, on variations in the latter — these different methods have been exemplified in greater variety within the limits of a defined industrial area, have been carried out with more completeness, and have had, perhaps, more serious and manifold difficulties to confront, in the north of England than anywhere else. If their failings have been revealed by the pitiless logic of facts, their virtues have also been brought into prominence; and it is not certain, although this may indeed seem a paradox, that the peaceful settlement of industrial disputes does not owe as much real and permanent advance to the former process as to the latter. In no subject, at any rate, are the lessons of experience — both bitter and pleasant — likely to be more important and helpful.

We do not propose now to examine into the details of conciliation, or arbitration, or the sliding scale. We purpose rather to confine our attention to some considerations of a general — and, perhaps, academic and theoretical — nature on the character of the relations existing between industrial conciliation — using the term in a wide and comprehensive sense — and general social reform.

There is a conclusion, to which the study of social and industrial questions — on its theoretic no less than on its practical side — must lead in the long run, if it be pursued with sufficient thoroughness and open-mindedness ; and that conclusion is that social and industrial reform is, in the last analysis, dependent on moral reform. In a London newspaper, some months ago, a' quotation appeared from a speech delivered by a Norwegian thinker,^ whose fame has obtained recognition in other countries besides his own. He says : " Mere democracy cannot solve the social question. An element of aristocracy must come into our Ufe. Of course I am not thinking of the aristocracy of birth, or of the purse, or even of intellect. I am thinking of the aristocracy of character, of mind, of will. That alone can make us free." In other words, to put this language into prosaic shape, social and industrial reform is inseparably connected with moral reform. It has often been said — so often that it is sometimes impatiently dismissed as a threadbare truism — that you cannot make a people moral by Act of Parliament. But, while such an assertion fails to afford any adequate excuse for a policy, which it is often employed to shield — a policy of unadulterated laissez-faire — and, while it is well-nigh as unreasonable to attribute nothing, as it is to attribute everything, to the influence of governmental machinery and legislative regulation, there is a measure of truth in the assertion, which in these days we are sometimes inclined to neglect. The high-pressure speed, at which our railway engines carry us on the "race" from one part of the country to another, at which the machinery in our factories is worked, and the business in our markets and on our exchanges transacted, has infected our hopes for the future, our verdict on the experience of the past, our opinions and ideas of the present. We are inclined to be impatient with slow results. We are prone to have recourse to plans which promise immediate and gigantic consequences, and the natural outcome is that we are

' Henrik Ibsen.

disposed to pay more attention to the " machinery " of social and industrial reform than to the "material" of human nature with which reform has to deal. All experience teaches that human nature changes slowly — bit by bit — and yet in our impatience we are either inclined to believe that it may be changed with rapidity and completeness ; or, if we find this impossible, we throw up our hands in despair, and exclaim that it is futile to attempt to change it at all. And yet more sober and continued reflection might show us — in the words of a political thinker fresh from the observation of men and manners in that "American Commonwealth," 1 which has seemed to some to hold out the highest hopes of human improvement, and to others to furnish material for not a little despondent pessimism — that, "though the ascent of man may be slow, it is also sure" J and that, while sudden and complete change in human nature is really as impossible as it would be dangerous, gradual and partial change is not only possible, but can hardly be avoided.

Let us apply these general considerations to the subject immediately before us. In connection with the narrower, as with the wider question, we find persons who have held the extravagant belief that, once the machinery for the peaceful settlement of industrial disputes has been provided, industrial strife will become unknown ; and we also find persons, who, confronted with the failure of this machinery, perhaps in one, perhaps in more than one instance, have abandoned their belief with the same absoluteness and precipitancy as they manifested when first they adopted it. They tell us despondently — not to say dogmatically — that all these methods of securing the peaceful settlement of industrial disputes are mere makeshifts; that conciliation has not

' Cf. Bryce's American Commonwealth, vol. iii. p. 685 (ist edit.).

made much way, and is confined to a comparatively narrow industrial area; that arbitrators' awards have proved ineffectual to prevent in some cases the continuance, in others the early renewal, of strife; and that the sliding scale is complicated in detail, and limited in application. They first ignore the material of human nature to be dealt with by the machinery, in which they have reposed such implicit confidence; and then — by a not unnatural reaction — they attach such exclusive importance to the material of human nature that they believe that it cannot be brought at all under the influence of the machinery. In reality, the one attitude is as unreasoning and as truly illogical as the other. If it is wrong to neglect the material of human nature, it is equally wrong to nullify the power of the machinery supplied in conciliation, in arbitration, and in the sliding scale, to handle and to modify that material. Human nature being such as it is, we must be prepared to discover occasions when the machinery works with difficulty, and sometimes stops altogether; but we may still retain our belief in the possibility of bringing that human nature into greater accord with the machinery, and of improving the machinery itself so as to make it fulfil its purpose better ; and we may hold that familiarity with the machinery tends to expedite these results.

And so we must not attach too much importance to the efficacy of conciliation, or arbitration, or the sliding scale. It is possible that differences may arise between masters and men meeting round a table, and engaged in frank and friendly discussion, which do not admit of peaceful adjustment. It is possible that the temper or claims of the representatives of masters and men before an arbitrator, or of their constituents, may on occasions be such that the arbitrator's award fails to secure a lengthy, or even a brief.

respite from industrial contention. It is possible that times may come, or circumstances arise, when a sliding scale appears to the one party or to the other to work with an excess or deficiency of automatic regularity. It is nothing more or less than a truism — though it is a truism which, like many others, is often forgotten — to observe that the tone and temper, with which the two parties meet one another,, are likely to be the tone and temper with which any agreement they arrive at is accepted or observed. The machinery depends in a large measure on the material for its easy and effective working; and the general attitude of men and masters towards one another is beyond comparison far more important than the establishment, or the detailed arrangement, of conciliation, or arbitration, or the sliding scale.

But if, on the one hand, these considerations of human nature supply the corrective to excessive confidence, they are equally incompatible with extravagant pessimism. Human nature may not admit of sudden and complete change, but it does seem to allow of partial and gradual modification. And, again, if the material may sometimes arrest the orderly working of too advanced machinery, it may also be possible to deal with it by means of machinery which may in some parts be defective; for successful resvilts depend on the material even more than on the machinery. It may, then, be the case that it is difficult to obtain accurate data for an arbitrator, or to determine by theoretical considerations ^ what should be the exact nature of the principle on which his award should be based, or an

' Cf. a Paper by the present writer on " The Relations between Sliding Scales and Economic Theory," read before the British Association, at Bath, and printed in extenso in the " Report " for 1888, p. 523, etc. (Essay ix. below. )

agreement arrived at by a board of conciliation, or a sliding scale established. But these difficulties may really become less formidable than they appear, if only there be a favourable tone and temper evinced on either side. And, once more, it may be that the matter in dispute can be determined, and determined alone, by the "higgling of the market " ; but a frank, if not friendly, buyer and seller will come to terms with a rapidity and ease, which admit of no comparison with those possible when buyer and seller are, and are determined to be, relentless foes. If the moral reform be accomplished, the social and industrial reform will easily follow.

And, if we look around us, we can hardly refuse to recognise that there are the elements of a moral reform : that there has taken place an improvement in human nature as between masters and men. In measuring this improvement the student enjoys an advantage over practical men. He can stand aside from the din and turmoil. He can take up a post from which he can quietly observe; and he may detect signs of progress, which are almost invisible to those who are actually engaged in the conflict. It is impossible to look into any recent economic treatise without discovering that it bears some testimony to the change, which has been effected in the relations of employers and employed. And it is certainly impossible to review the aspect of practical affairs from almost any standpoint without being conscious of influences tending in this direction. We must not, indeed, entertain extravagant expectations. We must not imagine that the industrial reform will do more, or much more, than keep pace with the moral reform, if it will even do as much as this. And, bearing in mind how comparatively recent is this improvement in the relations between masters and men, how bitterly their interests are opposed in some matters, however much they may be in accord in others, how suddenly changes of considerable magnitude take place in the conditions and prospects of particular industries, or of general trade, in modern times, how difificult, if not impossible, it is, on purely theoretical grounds, to establish any standard, by which industrial disputes can be adjusted, save some such standard as a relation between the wages of the workers and the selling prices of the commodities as has become traditional — bearing in mind all these circumstances, we should be quite prepared to find that conciliation has not made much way, and is confined to an area narrow by comparison with the whole field of industry; that arbitrators' awards have sometimes failed to prevent the continuance, or the early renewal, of strife ; and that the sliding scale is comparatively limited in application. Its complexity, indeed, may, as we shall see hereafter, be as much an advantage as a drawback.

Let us notice, then, the signs of change and improvement in the relations between masters and men. We may select for exclusive consideration one of the most obvious and, perhaps, the most important and characteristic of those signs. No one, who reads his daily or weekly newspaper, or engages in conversation outside a very limited circle, can fail to observe a change — more marked in some places, less noticeable in others — in the tone and temper with which the objects and the action of trade unions and trade unionist leaders are now discussed. It cannot be denied that you may discover some quarters where the most bitter hostility is felt and displayed — and, perhaps, not without reason — towards those organisations. But any candid and intelligent observer will agree that a change has passed over the tone and temper of general conversation and general opinion with regard to the matter. And it has found, or is finding, its way into theoretical treatises. For it is impossible to establish such a divorce of theory from fact as the theorist, who looks with contempt on the practical man, or the practical man, who despises the theorist, would fain persuade us exists. Theory is acted upon by practice, and, in its turn, reacts on practice; and it is undoubtedly evidence of no little value of a change in practice when we find economists in various countries —Professor Marshall, for example, in our own, M. Leroy-Beaulieu in France, and, we may almost say, a whole school of thinkers here and in Germany and America — recognising, some in a fuller, some in a narrower, sense, that there is a legitimate and definite sphere for trade unions to occupy, even in the theoretical determination of market, if not normal, wages; that they may give to the workman the position of a strong and combined, instead of a weak and isolated, seller of labour, and may enable him to hold out for a reserve-price. We may take this change in the general tone and temper of society as admitted and irrefutable.

But what does this imply, interpreted in the most limited sense? It implies that employers are more disposed to meet on terms of equality representatives of working-men. It implies that public opinion — a force for good or for evil, the potency of which, if once thoroughly awakened, it is impossible to deny — will sanction, will encourage, and will exercise some moral compulsion to bring about, that meeting. And it also implies that trade unions, occupying a position of acknowledged importance and responsibility, will become more sensible of the duties of that position, will be more ready to abandon an attitude of determined hostility, more disposed to court publicity and to enlist public support and sympathy, more inclined to oppose argument to argument rather than force to force, and to convince public opinion that the strength of the argument, not merely of the force, lies on their side. And here, once again, public opinion cannot fail to exercise some moral compulsion. It may be weak, it may be strong, but it will, beyond a doubt, increase with succeeding years.

But not only does this change in the general tone and temper of conversation and opinion promote and indicate a moral reform, which is the essential condition of industrial reform, but it is also of immense practical importance in facilitating the smooth and effective working of the particular machinery of reform known as conciliation, or arbitration, or the sliding scale. It disposes masters and men to be conciliatory j it inclines them, if they cannot come to an agreement themselves, to be willing to refer the decision of the matter under dispute to a neutral arbitrator; it induces them to seek for some means by which occasions of quarrel may be avoided, for a time at least, through the automatic operation of a sliding scale. But it does more. It is impossible that negotiations, whatever form they take, and whatever the character of the arrangement in which they result, can be conducted with ease or success unless a few representative negotiators are selected on either side. But a trade union supplies a basis for the representation of the men, and imposes a binding force on the represented, which are difficult to secure by any other satisfactory means. And so a change in the tone and temper, with which trade unions are regarded, implies greater facility for effective representation.

But here, again, we must not neglect the material of human nature. We will not trespass upon the considerations suggested by recent events'^ in the Northumberland coal trade, more than to say that they afford a singular contradiction to that idea of trade unionist leaders as the promoters of strife, which is still current in some quarters; and that they show us that there may be cases where the opinion and advice of the leaders are unable to prevail against an impulse on the part of their followers, and that, even when we have secured representation, we have not done everything. Our anticipations may conceivably be upset by the incalculable elements of human nature. We ought not, on that account, to depreciate the importance and value of representation ; but we must not expect too much from it, or be excessively discouraged if, on occasion, it fails.

And this leads us to notice another aspect of the general considerations we have been discussing. Although machinery is not everything, yet it is something ; and it is not difficult to point out some of the ways in which methods of securing the peaceful settlement of industrial disputes may help to modify that human nature on which the possibility of that settlement ultimately depends. It is the merest folly not to recognise that, if you can once induce masters and men to meet round a table avowedly for informal, and, if possible, friendly and effective discussion, you have not merely aiforded the machinery for that discussion, but you have helped to implant a habit of resorting to it in lieu of a struggle of force, you have affected — ^it may be in a greater, it may be in a less degree — the attitude of the one party to the other, you have established a presumption in favour of mutual arrangement, and you have contributed to influence human nature for good. Or again,

^ During the strike in 1887, "^e relations between the unionist leaders and the men became strained. ( Vide the following Essay. )

if the two parties refer the matter under dispute to the decision of a neutral arbitrator, they have, by the mere reference, taken a step which they can only retrace with some difficulty, they have, to some extent, committed themselves, and their constituents, to abide by the arbitrator's award, they have in some measure, though it be only in a slight measure, accustomed themselves to the possibihty — though not, we may suppose, to the probability — of an adverse decision. And, though they may argue their case with copious, and indeed with contentious, insistence ; though they may expect that the award will go in their favour, until they are undeceived ; though they may accept the decision with sullen reluctance, if not with outspoken irritation : yet they have familiarised themselves with the machinery, they have incurred an obligation binding in honour, if it is not in legal force, they are conscious of the feeling that their reputation is at stake, if the award is disobeyed, they have contributed to produce some change — though it be small — in human nature. They are not quite the same men after the reference to arbitration as they were before. And, lastly, in the case of the institution of a sliding scale, results somewhat similar to these are achieved. A relation between the wages of the workers and the selling prices of the commodity, or between the former and a combination of the latter with other circumstances of production, has received the sanction, for a time at least, of a formal arrangement, and has so far been recognised as fair and traditional ; an automatic adjustment of matters, which might otherwise have occasioned contention, has for some time at least been in operation, and has so far become familiar; a harmonious concord has for some time at least enjoyed the benefit of being the rule, to which a quarrel is the exception ; and human nature cannot fail to have been to some extent modified. The machinery of industrial peace — whether it be provided in the form of conciliation, or arbitration, or the sliding scale, or of a mixture or development of any of these varieties — may effect but a little change in human nature, and afford the occasion for as much despondent pessimism over its failures, as it supplies by its successes the material for sanguine optimism; but it is nevertheless to be cordially welcomed if it effects any change at all ; and there can be no possibility of doubt about the advantage, if not the necessity, of making the machinery as easy and effective in working, as perfect and complete in detailed arrangement, as we possibly can. It may be the case, as we saw before, that its deficiencies are, in the light of an improvement in human nature, not so important as we might imagine; but there can be no question that it is desirable to reduce their number, and diminish their magnitude.

This may be done by dint of patient investigation and lengthened and varied experience ; but, preserving that attitude of general reflection, which we adopted at the outset, we may say that the one quality above all to be desired, if indeed it be not indispensable, in the machinery of industrial peace, is elasticity, or, to adhere more closely to the metaphor, adjustabihty. And this quaUty we may understand in more than one sense. The machinery must be capable of adjustment to the varying circumstances of trade generally; it must also admit of adjustment to the varying circumstances of each particular industry, and to those, which vary from one industry to another; and, fourthly and lastly, it must allow of adaptation to varying stages of improvement in the relations between masters and men.

If there is one fact more than another, which the comparatil'ely brief history of sliding scales has brought into prominence, it is that friction and irritation are likely to arise when the arrangements of the scale produce, or seem to produce, a lengthy interval between changes in prices and consequent changes in wages. ^ From the nature of the case it is clear that some such interval there must be, for the prices can only be ascertained after they have been realised ; and it would be a waste of time and expense for the accountants — appointed by one, or by both sides, to examine into the books of some or all of the masters — to make this examination, and declare the resulting average price, with too great frequency. But, on the other hand, the changes in wages should follow the changes in prices with as much celerity as is conveniently possible. There may be arrangements of the details of a scale, which may facihtate a more perfect and speedy adjustment of wages to the real circumstances of production — such as, for instance, a more rapid fall in wages when selling prices have fallen to, or below, the expenses of production — but it is not our purpose at present to enter on a discussion of detail. The principle alone it is on which we are concerned to insist — the principle true and important, on theoretic no less than practical grounds — that the provisions of a scale should permit of a correspondence, which can be effected with as much rapidity and completeness as is possible, between the wages of the workmen and the actual contemporaneous circumstances of production. It is for these reasons that conciliation — with free, informal, and speedy discussion and decision between masters and men — is to be preferred to the more elaborate, formal, and necessarily lengthy proceedings before an arbitrator; and that the intermittent awards of an arbitrator, or determinations of a board of conciliation, are to be placed on a lower level of advantage

' Cf. the following Essay.

than the automatic and sustained regularity of a sliding scale. Conciliation affords more opportunity for frequent discussion and rapid decision : a sliding scale, during the time of its continuance, obviates the necessity for discussion or decision at all on major points. It is from this point of view as superior logically to conciliation, as conciliation itself is to arbitration ; for in this sense it is more elastic — more rapidly and easily adjustable.

But there is also another sense in which methods of securing the peaceful settlement of industrial disputes should be elastic and easily adjustable. They must admit of adaptation to the varied circumstances of different industries. And here we may conveniently divide our reflections under two heads. They must admit of being adjusted to circumstances varying within the limits of a single industry — not merely changing from one time to another, as we noticed before, but also existing contemporaneously in different quarters — and they must also allow of adaptation to circumstances varying from one industry to another. This is the point of view from which the complexity of a scale is to be deemed an advantage rather than considered a drawback. For the internal economy of an industry is often as complex in reality as it may seem in outward appearance to be simple and uniform ; and it is therefore important to secure a principle, which shall be so simple in its main features that the least educated and intelligent man can understand it, and yet so complex in its detailed application that it can be adjusted to the varying requirements of minutely different circumstances. This has been the case with the sliding scales in the coal and iron industries of England. To an outsider the principle of wages varying with prices, or some other circumstances of production, may appear to be very simple; but, if he inquires into the detailed working of the scale, he is only too likely to be suddenly arrested by the complexity of the particular arrangements. And, similarly, the difficulties of an arbitrator sometimes commence only when he has to apply a general principle, allowed by both parties to be fair, to the particular details of the question before him ; and the advantage of conciUation lies to some extent in the fact that masters and men, recognising the broad purpose for which they are met, and agreeing on some general principle, bring their knowledge of minutiae to bear on the arrangement of complex details.