Sismondi Competition - Over Production

Sismondi’s Criticism Of Over Production and Competition

Deceived as to the best method to follow, mistaken in its conception of the nature of the object to be kept in view, it is not surprising that the "Chrematistic school" should have gone astray in its practical conclusions. The teaching of the school gave an undoubted incentive to unlimited production, for it was loud in its praise of free competition. It preached the doctrine of harmony of interests, and considered that the best form of government was no government at all. These were the three essential points to which Sismondi took exception.

First as regards its immoderate enthusiasm for production. Accord­ing to the Classical writers, the general growth of production presented no inconvenience, thanks to that spontaneous mechanism which im­mediately corrected the errors of the entrepreneur if he in any way under­estimated the necessities of demand. Falling prices warned him against a false step and influenced him in directing his efforts towards other ends. In a similar way rising prices proved to the producers that supplies were insufficient and that more must be manufactured. Hence the evils committed would always be momentary and transient. To this Sismondi replied: If instead of reasoning in this abstract fashion economists had considered the facts in detail, if instead of pay­ing attention to products they had shown some regard for man, they would not have so lightheartedly supported the producers in their errors. An increased supply, if supply were already insufficient to meet a growing demand, would injure no one, but would be profitable for all. That is true. But the restriction of an over-abundant supply when the needs grow at a less rapid rate is not so easily accomplished. Does anyone think that capital and labour could on the morrow, so to speak, leave a declining industry in order to engage in another? The worker cannot quickly leave the work he lives by, to which he has served a long and costly apprenticeship, and wherein he is dis­tinguished for a professional skill that will be lost elsewhere. Rather than consent to leave it, he will let his wages fall, he will prolong the working day, remaining at work for fourteen hours, and will toil during those hours that would otherwise be spent in pleasure or debauchery; so that the produce raised by the same number of work­men will be very much increased. As for the manufacturer, he will not be less loath than the worker to quit an industry into the manage­ment and construction of which he has put half or even three-quarters of his fortune. Fixed capital cannot be transferred from one use to another, for even the manufacturer is bound by custom—a moral force whose strength is not easily calculated. Like the worker, he is tied to the industry which he has created and from which he draws a living. Consequently production, far from being spontaneously restrained, will remain the same or will even perhaps tend to increase. In the end, however, he must yield, and adaptation will take place, but only after much ruin. "Producers will not withdraw from that industry entirely, and their numbers will diminish only when some of the workshops have failed and a number of workmen have died of misery." "Let us beware," says he in conclusion, "of this dangerous theory of equilibrium which is supposed to be automatically estab­lished. A certain kind of equilibrium, it is true, is re-established in the long run, but it is only after a frightful amount of suffering." The dictum which was to some extent true in Sismondi's day controls the policy of every trust and kartel of the present day.

Nowadays production chiefly grows as the result of the multiplication of machinery, and Sismondi's most telling attacks were directed against machinery. Consequently he has been regarded as a reac­tionary and treated as an ignoramus, and for half a century was refused a place among the economists.

On the question of machinery the Classical writers were unanimous. Machinery they considered to be very beneficial, furnishing com­modities at reduced rates and setting free a portion of the consumer's revenue, which accordingly meant an increased demand for other products and employment for those dismissed as a result of this intro­duction. Sismondi does not deny that theoretically equilibrium is in the long run re-established.

Every new product must in the long run give rise to some fresh consumption. But let us examine things as they really are. Let us desist from our habit of making abstraction of time and place. Let us take some account of the obstacles and the friction of the social mechanism. And what do we see? The immediate effect of machinery is to throw some of the workers out of employment, to increase the competition of others, and so to lower the wages of all. This results in diminished consumption and a slackening of demand. Far from being always beneficial, machinery produces useful results only when its introduction is preceded by an increased revenue, and consequently by the possibility of giving new work to those displaced. No one will deny the advantage of substituting a machine for a man, provided that man can obtain employment elsewhere.

Neither Ricardo nor Say denies this; they affirmed that the effect of machinery is just to create some part of this demand for labour. But Sismondi's argument is vitiated by the same false idea that, as we have seen above, made him admit the possibility of general over­production—the idea that increased production, if it is going to be useful, must always be preceded by increased demand. He was un­willing to admit that the growth of production itself created this demand. On the other hand, what is true in Sismondi's attitude— and we cannot insist too much on this—is the protest he makes against the indifference of the Classical school in the face of the evils of these periods of transition.

The Classical school regarded the miseries created by large-scale production with that sang-froid which was to characterize the fol­lowers of Marx amid the throes of the 'inevitable Revolution.' Among many similarities which may be pointed out between the writings of Marx and the doctrines of the Classical school, this is one of the most characteristic. The grandeur of the new regime is worthy of some sacrifice. But Sismondi was an historian. His interest lay primarily in those periods of transition which formed the exit from one regime and the entrance into another, and which involved so much suffering for the innocent. He was anxious to mitigate the hardships in order that the process of transition might be eased. Nothing can be more legiti­mate than a claim of this kind. J. B. Say recognized its validity to a certain extent, and this is precisely the role of social economics.

Sismondi makes another remark which is no less just. What dis­gusted him was not merely that workmen should be driven out by machinery, but that the workers who were retained only had a limited share of the benefits which they procured. For the Classical school it was enough that workers and consumers should have a share in the general cheapening of production. But Sismondi demanded more. So long as toil is as laborious as it is to-day, is it not just that the work­man should benefit by the introduction of machinery in the way of increased leisure? In the social system as at present existing, owing to the competition among workers as the result of excessive population, machinery does not increase leisure, but it rather strengthens competi­tion, diminishes wages, provokes a more intense effort on the part of the workman, and forces him to extend his working day. Here again Sismondi appears correct. We cannot see why the consumer alone should reap all the profit of improved machinery, which never benefits the workman unless it affects articles which enter into his consumption. There would be nothing very striking if the benefits of progress, at least during a short time, were to be shared between consumer and worker just as to-day they are shared between inventor, entrepreneur, and society. This idea is the inspiring motive of certain trade unions to-day, which only accept a new machine in exchange for less work and more pay.

Sismondi's method when applied to production and machinery leads to conclusions very different from those of the Classics. This is also true of his treatment of competition.

Adam Smith had written: "In general, if any branch of trade, or any division of labour, be advantageous to the public, the freer and more general the competition it will always be the more so." Sismondi considered this doctrine false, and invoked two reasons of unequal value in support of his view.

The first is a product of the inexact idea already mentioned above, which regards any progress in production as useless unless preceded by more intensive demand. Competition is beneficial if it excites the entrepreneur to multiply products in response to an increased demand. In the opposite case it is bad, for if consumption be stationary, its only effect will be to enable the more adroit entrepreneur or the more powerful capitalist to ruin his rivals by means of cheap sales, thus attracting to himself their clientele, but giving no benefit to the public. This is the spectacle that in reality is too often presented to us. The movements of our captains of industry are directed, not by any con­cern for the presumed advantage of the public, but solely with a view to increased profits.

Sismondi's argument is open to the same objection as was made above. Cheapened production dispenses with a portion of the income formerly spent, and creates a demand for other products, thus repair­ing the evil it has created. Concentration of industry gives to society the same advantage as is afforded by machinery, and the same argu­ments may be used in its defence.

But against competition Sismondi directs a more serious argument.

Pursuit of cheapness, he remarks, has forced the entrepreneur to econo­mize not only in the matter of stuff, but also of men. Competition has everywhere enticed women and children to bear the burden of production instead of adults. Certain entrepreneurs, in order to secure a maximum return from human energy, have enforced day and night toil with only a scanty wage in return. What is the use of cheapness achieved under such circumstances? The meagre advantage enjoyed by the public is more than counterbalanced by the loss of vigour and health experienced by the workers. Competition impairs this most precious capital—the life-energy of the race. He points to the work­men of Grenoble earning six or eight sous for a day of fourteen hours, children of six and eight years working for twelve or fourteen hours in factories "in an atmosphere loaded with down and dust" and perish­ing of consumption before attaining the age of twenty. He concludes that the creation of an unhappy and a suffering class is too great a price to pay for an extension of national commerce, and in an oft-quoted phrase he says,

The earnings of an entrepreneur sometimes represent nothing but the spoliation of the workmen. A profit is made not because the in­dustry produces much more than it costs, but because it fails to give to the workman sufficient compensation for his toil. Such an industry is a social evil.

It is futile to deny the justice of the argument. When cheapness is only obtained at the cost of permanent deterioration in the health of the workers, competition evidently is a producer of evil rather than of good. The public interest is no less concerned with the preservation of vital wealth than it is with facilitating the production of material wealth. Sismondi showed that competition was a double-edged sword, and in doing so he prepared the way for those who very justly demand that the State should place limits upon its use and prescribe rules for its employment.

We might be tempted to go farther and see in the passage just cited an unreserved condemnation of profits, even. That would involve placing Sismondi among the socialists, and this is sometimes done, although, as we think, wrongly.

In certain passages he doubtless expresses himself in a manner similar to Owen, the Saint-Simonians, and Marx. Thus in his studies on political economy we come across phrases such as the following: " We might almost say that modern society lives at the expense of the proletariat, seeing that it curtails the reward of his toil."2 And else­where: " Spoliation indeed we have, for do we not find the rich robbing the poor? They draw in their revenues from the fertile, easily culti­vated fields and wallow in their wealth, while the cultivator who created that revenue is dying of hunger, never allowed to enjoy any of it." We might even say that Sismondi enunciated the theory of surplus value, which was worked out by Marx, when he makes use of the term mieux value. But the similarity is simply a matter of words. Sismondi, speaking of surplus value, means to imply the value that is constantly growing or being created every year in a progressive country, not by the effort of labour alone, but by the joint operation of capital and labour. Marx's idea that labour alone created value, and that consequently profit and interest constituted a theft, is entirely foreign to Sismondi. Sismondi, indeed, recognized that the revenues of landed proprietors and capitalists were due to efforts which they themselves had never put forth. He rightly distinguished between the wages of labour and the revenues of proprietors, but to him the latter were not less legitimate than the former, for, says he, "the beneficiaries who enjoy such revenues without making any corresponding effort have acquired a permanent claim to them in virtue of toil undertaken at some former period, which must have increased the productivity of labour." When Sismondi says that the worker is robbed he merely means to say that sometimes the worker is insufficiently paid; in other words, that he does not always receive enough remuneration to keep him alive, and that, if only for the sake of humanity, he ought to be better paid. But he does not consider that appropriation by pro­prietors or capitalists of a portion of the social product is in itself unjust. His point of view is not unlike that adopted at a later period by the German socialists when they sought to justify their social policy.

But although Sismondi's criticism does not amount to socialism, he causes considerable consternation among Liberals by the telling manner in which he shows the falsity of the theory affirmed by the Physiocrats and demonstrated by Smith, namely, the natural identity of individual and general interests. It is true that Smith hesitated to apply it except to production. But Sismondi's peculiar merit lies in the fact that he examined its content in relation to distribution. Sismondi finds himself forced by mere examination of the facts to dispute the very basis of economic Liberalism. Curiously enough, he seems sur­prised at his own conclusions. A priori the theory of identity of in­terests appeared to him true, for does it not, in fact, rest upon the two ideas (1) that "each knows his own interest better than an ignorant or a careless Government ever can," and (2) that "the sum of the interests of each equals the interests of all"? "Both axioms are true." Why, then, is the conclusion false?

Here we touch the central theme of Sismondi's system, the point where he leaves the purely economic ground to which the Classical writers had stuck and approaches new territory—the question of the distribution of property. Sismondi discovered the explanation of the contradiction which exists between private and general interests in the unequal distribution of property among men and the resulting unequal strength of the contracting parties.