'Led as by an invisible hand', every owner of capital, labour or other productive power, disposed of his factor in a manner at once most serviceable to the production of the general body of wealth and most profitable to himself.The application of this theory, of course, assumed that everybody knew or could get to know what employment he would be likely to find most profitable for his capital or labour, and would use that knowledge.It was, moreover, held that the actual conditions of industry and commerce did and must substantially conform to this hypothesis of mobility.Any circumstances, indeed, which contravened it by obstructing the mobility and liberty of employment were treated as exceptional.Such exceptions were monopolies, the exclusive owners of which forbade freedom of entry or of competition to outside capital and labour, and secured higher rates of profit than prevailed in other businesses.The harmony of perfect individualism demanded that all such monopolies, together with protective duties and other barriers to complete liberty of commerce and of industry, should be removed.All productive power would then flow like water through the various industrial channels, maintaining a uniform level of efficient employment, the product being distributed in accordance with the several costs of its production and being absorbed in the processes of productive consumption that were required to maintain the current volume of productive power or to enhance it.
There was a little difficulty in the case of rents of land.Though differential rents, measuring the superior productivity of various grades of land as compared with the least productive land in use, were necessary payments to landowners, they could not rank as costs and could not be productively consumed.So likewise with the scarcity rents, paid even for the least productive lands where the supply for certain uses was restricted.Both scarcity and differential rents were classed as surplus.But though the magnitude of this exceptional element might seem to have been a fatal flaw in the individualist harmony, a characteristic mode of escape was found in the doctrine of parsimony which prevailed.Though economic rents could not be productively consumed by their recipients, they furnished a natural fund of savings, so providing the growing volume of new capital which was necessary to set labour to productive work.So, by a somewhat liberal interpretation, it was contended that 'the simple system of natural liberty', even operating on a basis of private ownership of land, drew from each man the best and fullest use of his productive powers, and paid him what was economically necessary to maintain and to evoke those powers.Early critics of this theory, of course, pointed out that the interpretation of distribution 'according to needs' was defective from the standpoint of humanity, since the only needs taken into account were efficiency for productive work, the nourishment and stimulus to produce a larger quantity of marketable goods, not the attainment of the highest standard of human well-being.
But to most economists of that day such a criticism seemed unmeaning, so dominant in their minds was the conception of economic wealth as the index and the instrument of human welfare.
§7.It is commonly asserted and assumed that this laissez-faire theory is dead, and that the attainment of a harmony of social welfare, by the free intelligent play of individual self-interest in the direction of economic forces, has been displaced by some theory of conscious cooperative or corporate direction in which the State takes a leading part.But at this very time, when the policy of every civilised nation is engaged more and more in checking monopolies and industrial privileges upon the one hand, and in placing restraints upon the havoc of unfettered competition on the other, a distinct and powerful revival of an economic theory of production and distribution undistinguishable in its essentials from the crude 18th century laissez-faire has set in.Largely influenced by the desire to apply mathematics, so as to secure a place for economics as an 'exact' science, many English and American economists have committed themselves to a 'marginalist' doctrine, which for its efficiency rests upon assumptions of infinite divisibility of the factors of production, and frictionless mobility of their flow into all the channels of industry and commerce.
These assumptions granted, capital and labour flow into all employments until the last drop in each is equally productive, the products of the 'marginal' or final drops exchanging on a basis of absolute equality and earning for their owners an equal payment.Among English economists Mr.
Wicksteed has set out this doctrine in all its economic applications most fully.He shows how by a delicate balance of preferences 'at the margins'
