Diminishing returns

“ Law of diminishing returns.—In considering the value [pg 080] of farm products, it is necessary to notice a natural tendency in all products of the earth toward greater cost of effort in production. This is called the law of diminishing returns, and is illustrated in every industry where the accumulations of nature are depended upon for making labor effective. Hunting, fishing and mining afford familiar illustrations of more work of the same kind for equal product. ”

“ The thought of economic diminishing returns always has reference to value. If a particular kind and amount of a certain material is used in varying combinations with other agents, the value of the added product will not always be in the same proportion to the value of the added agent. The bridge-builder must consider not only what the added material will add to strength, but what it will cost, and whether the result will justify this expense. So the economic problem of diminishing returns is more complicated than the mechanical one, for it contains not only the technical but other factors. ”

“ This truth of diminishing returns in agriculture was confused with the thought of historical diminishing returns. Circumstances of the time led to the belief that because of lack of food misery must continue among the masses of men. It was thought inevitable that the population would continue to increase and food become more scarce. The idea of diminishing returns became thus a prophecy of what would happen, a social philosophy, that affected the thought of men on every practical social question. ”

“ If production be increased, the worker will necessarily receive a larger return; if diminished, he will necessarily get a smaller return. And it makes no difference whether the diminution be effected by reduction in the hours of work, or by less effective work, or by disuse of labor-saving machinery, or by other obstructive agencies. The result will inevitably be the same: there will be less to divide among the producers after the constantly diminishing returns of capital have been withdrawn. ”

“ Political economists have a dismal formula called the Law of Diminishing Returns, which casts a dark shadow upon industrial progress as it is commonly conceived. The more food and clothing, fuel, and other material goods we require, the further we have to go for the material, and the harder it is to get: we must plough inferior lands yielding smaller crops, we must sink deeper shafts for our coal and iron. ”

“ Then you can take a rag and shine it and the more you polish it, the more it’ll shine, but after awhile you reach the point where the extra lustre that can be added by further rubbing is not worth the effort. That’s the point of diminishing returns. When you’ve reached the point where the additional result obtainable is not worth the effort required to obtain it, that’s the point of diminishing returns. ”

“ Other things remaining the same, the additional products which come into being through increasing subdivision, gradually diminish in value as increment after increment is added, according to the well-known law of diminishing returns; and on the contrary the detriment to society as a whole increases as individuals are forced into narrower and narrower rounds of duty. ”

“ Either one of the two agents of industry, used in increasing quantities in connection with a fixed amount of the other agent, is subject to a law of diminishing returns. The final unit of the increasing agent produces less than did the earlier units in the series. This does not mean that at any one time one unit produces less than another, for at any one time all are equally productive. ”

“ The differing values of men in a social population are determined, as other values are measured, by the working of the law of diminishing returns.
Roughly stated, this law is that successive additions of any valued thing bring ever diminished returns. The first quantity of anything is of infinite value. ”

“ It has been seen that the proportion of workers engaged in producing comforts and luxuries is growing, while the proportion of those producing the prime necessaries of life is declining. How far the operation of the law of diminishing returns will allow this tendency to proceed we cannot here discuss. ”

“ That the diminishing rate of returns, in way of interest or profits, by the force of laws which no combination of capital can resist, is seriously impairing the relative value of wealth, and may eventually reach a minimum which will greatly diminish the inducement to individuals to economize or save it, although not generally recognized or appreciated, can not be denied. ”

“ But, if this was his meaning, he overlooked the circumstance that the fall of price, which, if confined to one commodity, really does lower the profits of the producer, ceases to have that effect as soon as it extends to all commodities; because, when all things have fallen, nothing has really fallen, except nominally; and, even computed in money, the expenses of every producer have diminished as much as his returns. ”

“ In the long run, no doubt, it is immaterial whether prices are high or low, whether money returns fall or rise; and yet it might turn out that the habitual association of gain or loss with "making money" would cause a period of simple falling prices to be one of hesitating investment of capital and unenterprising conduct of business. ”

“ In fact the return should be 15 cents to provide much inducement to engage in the business. Some seasons the returns will run greater than this but on the other hand, there is always the chance of occasional big losses. ”

“ What is called 'gross profit' comprehends frequently, not only this surplus, but what is retained for compensating such extraordinary losses. * * * The chance of loss is frequently undervalued and scarce ever valued more that it is worth. * * * In all the different employments of stock, the ordinary rate of profit varies more or less with the certainty or uncertainty of the returns. * * * The ordinary rate of profit always rises more or less with the risk. ”

“ But there are other countries, and England [and the United States are] at the head of them, in which neither the spirit of industry nor the effective desire of accumulation need any encouragement. In these countries there would never be any deficiency of capital, if its increase were never checked or brought to a stand by too great a diminution of its returns. It is the tendency of the returns to a progressive diminution which causes the increase of production to be often attended with a deterioration in the condition of the producers ”

“ Labour sunk in expectation of a distant return, when the great exigencies or limited resources of the community require that the return be rapid, may leave the country not only poorer in the meanwhile, by all which those labourers consume, but less rich even ultimately than if immediate returns had been sought in the first instance, and enterprises for distant profit postponed. ”

“ The individual or the group—operating on a very narrow margin, or on a deficit that involves constant misery and that may at any time spell disaster, tends to slip by with the least possible misery or suffering, or, to put it more technically, tends to expend the least possible amount of energy that is required for survival. The moment the tables are turned, and the individual or the group operates on a surplus which permits the enjoyment of more than the bare necessaries, the law of minimum outlay is supplanted by the law of maximum returns. ”

“ If, for instance, you fixed on 1 or 2 per cent, you would probably discover that you had not achieved your object, that the undertakings for distant returns which passed this test, still consumed far more resources than you could spare. You would be compelled then to raise the rate until it had cut these enterprises down within manageable limits. ”

“ During this period of depression the glut of goods weighing upon the market is gradually worked off, and the prospect of profitable investment slowly returns. Saving rises again to the right proportion to spending and good times prevail for a season. But after a while the chronic impulse towards over-saving becomes fully operative once more, and soon or late begets another congestion of the markets and this congestion begets another depression. Proximately, then, the cause of [Pg 648] alternating prosperity and depression is the tendency toward over-saving ”

“ The principal change in the situation consists in the great diminution, holding out a hope of the entire extinction, of cottier tenure. The enormous decrease in the number of small holdings, and increase in those of a medium size, attested by the statistical returns, sufficiently proves the general fact, and all testimonies show that the tendency still continues. ”

“ All through the year we go on and on in the eddying whirl of business. Money comes and goes, circulates, attracts other money, vanishes; and the fortune of the firm, like a slippery, gleaming snake, always in motion, expands, contracts, diminishes, or increases, and it is impossible to know our condition until there comes a moment of rest. Not until the inventory shall we know the truth, and whether the year, which seems to have been prosperous, has really been so. ”

“ The law of diminishing return applies therefore to mining in a still more unqualified sense than to agriculture; but the antagonizing agency, that of improvements in production, also applies in a still greater degree. ”

“ The effects of this vast and sudden increase of riches are no less evident than their cause: the first, and most obvious effect of the increase of money, is the decrease of its value, like that of all other commodities; for money being but a commodity, its value must be relative, that is, dependant on the quantity of itself, and the quantity of the things to be purchased with it. ”

“ Those who have bought at a higher price than reasonable calculation justified, and who have been overtaken by the revulsion before they had realized, are losers in proportion to the greatness of the fall, and to the quantity of the commodity which they hold, or have bound themselves to pay for. ”

“ The market was falling to pieces. All sales had stopped; one might quote any price one chose, for it was impossible to borrow a dollar. Interest rates had gone to one hundred and fifty per cent to two hundred per cent; a man might have offered a thousand per cent for a large sum and not obtained it. The brokers stood about, gazing at each other in utter despair. ”

“ Failures result, constituting a commercial crisis. A reaction sets in; a reverse movement is initiated. A fall of prices, once begun, tends to be accelerated for reasons exactly corresponding to those which operate in the opposite situation. ”

“ You know how the value of this return varies; how, when an article is scarce, it brings in a large return, and how, when it is plentiful, our customers give less for it; and you must therefore see how your wages vary independently of our will.”
“But whose doing is it, sir, that the return varies so much?”
“It is partly your doing; I mean that of those who bring labour to market. We masters have nothing to do with the quantity of labour brought to sale any further than to purchase it. ”

“ What the causes are which make the return to capital greater in one country than in another, and which, in certain circumstances, make it impossible for any additional capital to find investment unless at diminished returns, will appear clearly hereafter. ”

“ Those who hold themselves in readiness to ascribe the fall of prices to a deficiency in the supply of bullion, and to argue thence against a return to a convertible currency at this time, should look about them and see how great a fall will exist at all events, and how much it will hereafter be fair to attribute to the new Bill. ”

“ When the progress of accumulation has reduced profits either to the ultimate or to the practical minimum,—to the rate, less than which would either put a stop to the increase of capital, or send the whole of the new accumulations abroad ”

“ Prices fall. 2. The rate of interest falls, but not sufficiently. 3. Enterpriser-borrowers, discouraged by small profits, contract their borrowings. 4. Deposit currency (M') contracts relatively to money (M) . 5. Prices continue to fall; that is, phenomenon No. 1 is repeated. Then No. 2 is repeated, and so on. IV.25 Thus a fall of prices generates a further fall of prices. The cycle evidently repeats itself as long as the rate of interest lags behind. The man who loses most is the business man in debt. He is the typical business man, and he now complains that "business is bad." ”

“ Why are the times so "hard?" Why is the long-hoped-for revival of trade so backward? What is it that has put the times so disastrously out of joint?
Every one is asking these questions, and nearly every one is ready with an answer. Some will declare that the trouble is all of the green-backs; others will go so far as to affirm that the lack of greenbacks is the cause. ”

“ I started, however, with the simple notion that rates must be reduced,—but soon came to the conclusion that such reduction might be carried to a considerable extent not only without loss to the revenue, but with positive benefit; that a larger reduction might be made without loss, and a still larger without drawing upon the surplus beyond a reasonable extent. ”

“ Great crises have been caused in past times by fluctuations in the value of the commodities chosen as money, and such an element is, no doubt, at hand in the present crisis, although it had nothing to do with bringing it about. It follows that any improvement in the world's money is worth any sacrifice which it can possibly cost, if it tends to secure a more simple, exact, and unchanging standard of value. ”