This section is from the "Elementary Principles of Economics" book, by Richard T. Ely and George Ray Wicker. Also available from Amazon: Elementary Principles Of Economics: Together With A Short Sketch Of Economic History
It is not uncommon to find men expressing a belief in the possibility of general over-production. Still more common is it for men to hold views which could only be correct if general over-production were a possibility. Even some economists a century ago fell into the same error. By general over-production is meant a production of commodities in general beyond the needs of society. Careful thought will show at once the absurdity of such an idea. The purpose of production, as we have seen, is consumption. Manifestly, there has never been a time when more economic goods were produced than men really needed to satisfy their legitimate wants. On the contrary, there has never been enough produced for this purpose. Sometimes, indeed, production moves forward unevenly, and an undue amount of labor and capital are for a time devoted to producing particular commodities; but until all men are well fed, well clothed, and well housed, and furnished with material appliances for their higher life, such as books and pictures, it will be a manifest absurdity to talk about general over-production as a possibility. When there is an almost universal difficulty in disposing of goods, the chief cause is not over-production but underconsumption. Men want the goods, but they cannot at the time dispose of their services, and consequently lack the purchasing power that would enable them to satisfy their wants. When any class of goods is produced in such quantities that the price falls below the cost, we may say that there is over-production of these goods. Such over-production is not uncommon. It is one of the unpleasant features of our complex organization of economic society that its parts do not always work together harmoniously. Producers are more and more separated in time and space from those who are to consume their products. It follows that only the shrewdest producers can calculate with any approach to accuracy how intense will be the wants for their goods, and in what quantities rival producers will furnish goods to the market. Mistakes in judgment result in over-production in particular industries, and over-production in a few industries often leads to the spread of doubt and uncertainty throughout the business world. Then men in their fear restrict production and thus incidentally close the market for labor. Laborers seeking and failing to find regular employment lose their purchasing power, with the result that the underconsumption spreads all along the line, and society passes through what is called an industrial crisis or panic. Such crises were startlingly regular during the nineteenth century, the greater ones coming at intervals of about twenty years, with minor ones in the alternating ten-year intervals.
The explanation of crises here given is the one usually accepted by economists, but there are two other explanations that should be mentioned. Some writers regard the unequal distribution of wealth as the fundamental cause. If wages do not rise in proportion to the general increase in wealth, it is argued, the mass of the consumers, who are wage-earners, will lack the means to purchase the goods produced. Again, other writers emphasize the monetary aspects of crisis. The crisis of 1893, for example, is by some regarded largely as a monetary disturbance.
Production and Sacrifice. Consumption regularly affords satisfaction. Production as regularly requires sacrifice and exertion. We should recall here, what we have already noted in studying consumption, that the balancing of the satisfaction of wants derived from consumption against the exertion and sacrifice required by production lies at the very centre of all economic thought. It is true that much labor seems in itself so pleasurable that it affords its own satisfaction. But if such labor is not sufficient to produce the goods that society demands, other labor which does not contain its own reward must be applied to production, and the same reward will be paid by society for all labor applied to that end. In most cases, however, it will be found on investigation, the pleasure comes rather from the actual or anticipated result of the labor rather than from the labor itself. Again, when we consume to-day less than we have means to consume, with the object of greater production in future time, we are aiding in production by abstinence from a possible pleasure. True, in such cases we hope to get in the future a satisfaction that will outweigh the present unsatisfied feeling, but the unsatisfied feeling is present with us and must be endured if we are to contribute to production.
The Production of Goods and Services. In what follows we shall treat the production of material goods and services together, since there is little essential difference between the two forms of production. It is worth noting, however, that the proportion of human effort devoted to the production of commodities and services respectively varies with the progress of civilization. In early stages, when only the most pressing wants are either felt or satisfied, men perform for themselves such simple services as are required. It is only later that there arises a want for such personal services as call for special training. The social order gradually increases in complexity, and as a result of new wants and increased means of satisfying them, division of labor among men makes a place for the singer and poet, the physician and priest, and for other classes who are engaged in producing personal services. As the production of material goods becomes better organized, requiring less proportionate human effort, greater numbers of people will find it profitable to specialize their training and effort toward rendering personal service of one sort or another to society.
1.Production means the creation, not of things, but of utilities,
by the application of man's powers to the physical universe. This application of man's power is labor.
2.Individual wealth is not always social wealth.
3.Many productive elements, such as woman's work in the household, and the gathering of natural products for home use, are often overlooked.
4.There can be no general over-production. What is thought of when that expression is used should rather be called underconsumption.
5.With advancing civilization, an increasing proportion of human energy is devoted to rendering specialized personal services.
1.Define production. Compare the definition of consumption with
that of production.
2.Why and how is the physician a producer? The teacher? The actor ?
3.Mention instances of individual wealth. Of social wealth. Do all your examples belong to both classes?
4.As cities increase in size, the value of street railway franchises regularly increases. Is this value a result of production? Explain.
5.What utilities are produced and consumed in your home which do not have a money value put upon them?
6.Germany owns her railways. How would this fact bear upon census estimates of the wealth of the German people as compared with similar estimates of the wealth of the people of the United States?
7.What is meant by the expression " over-production " ? Is such a thing possible ? What is it that is commonly mistaken for general over-production ?
8.Show by a detailed explanation how it is that more men are engaged in rendering personal services than was the case in earlier days.
For a general discussion of the subject of production, consult any standard work on Economics. A considerable number of these are given in the Appendix. Also : —
Marshall, A.: Principles of Economics, Bk. II, Ch. II, §§ 1 and 2.
Mayo-Smith, R.: Statistics and Economics, Chs. III, IV, and V.
Mill, J. S.: Principles of Political Economy, Bk. I, Ch. I, §§ 1 and 2.