Law 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. ”

“ The measure of this does not fall in a particular society at a particular time below a certain level. In other words, if a man cannot get a certain minimum reward for his accumulation, he will not accumulate but spend.
What is called in economics “The Law of Diminishing Returns” acts so that continual additions to capital, other things being equal (that is, the methods of production remaining the same) , do not provide a corresponding increase of revenue. A thousand measures of capital applied to a particular area of natural forces will produce, for instance, 40 measures yearly, or 4 per cent. ”

“ Are they not all scarce and desirable goods yielding a limited supply of uses?
Positively it can be argued that the concept of diminishing returns is indispensable to a reasonable explanation of the value of any indirect agents. Anything that could afford an infinite series of uses at once would be an infinite supply. If an infinite number of uses could be gotten out of one hammer in all places at once, it would pound all the nails in the world. One wagon, one acre of land, one ax, one book of each kind, would serve for all men, and duplicates would be valueless. ”

“ The principle of technical diminishing returns is that at any given moment the uses obtainable from any indirect agent cannot be indefinitely increased without increasing difficulty. Historical diminishing returns occur when, in fact, human effort is less bountifully [Pg 69] rewarded in a later period than in an earlier one. ”

“ 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. ”

“ 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. ”

“ 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. ”

“ 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. ”

“ A timely amended return is as much a 'first return' for the purpose of fixing the capital stock value in contradistinction to returns for subsequent years, as is a single return filed by the taxpayer for the first tax year. ”

“ 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. ”

“ It is charitable to think that the foundation of the great error that was committed, lay in a miscalculation as to the relation between expenditure and returns. We can suppose that there was a certain faith in the potency of money. ”

“ Every day the checks are presented which are sent in in accordance with the law, and the actual money is withdrawn from the channels of trade; that is, the United States Government withdraws reserve money to the full extent of every dollar that is due it. ”

“ 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 ”

“ It does not, however, seem to rise in proportion to it, or so as to compensate it completely. * * * The presumptuous hope of success seems to act here, as upon all other occasions, and to entice so many adventurers into those hazardous trades, that their competition reduces their profit below what is sufficient to compensate the risk. To compensate it completely, the common returns ought, over and above the ordinary profits of stock, not only to make up for all occasional losses, but to afford a surplus profit to the adventurers of the same nature with the profit of insurers. ”

“ The deficit will be a bottomless pit. If stocks fall to ninety-nine, when by law sixteen millions a month must be redeemed, and if money is taken from the savings banks, the Treasury will be in a hopeless difficulty. ”

“ The dread of extortion, deters many from resorting to the market, and forces them to many expedients, which the trader when too late, will find to his cost, have materially affected his returns. Our market is limited, but subjected to such prices as we daily suffer under, it must not be a matter of surprize, if less frequented. ”

“ One is a sort of dark terror with which the word contraction has been invested. It would almost seem as if contraction were some diabolical power, bringing forth all the ills human flesh is heir to. Thus, we are told that contraction, with all its concomitant evils, was one of the infernal effects of the resumption act. It is true that under the resumption act, since 1875, the currency has been contracted. ”

“ But I fear this will not do for me, both because it requires a large experience of things in general, which, as you well know, I do not possess, and because I should want a greater capital than would be required to start a run. More money is sunk, and the returns do not appear to be so speedy. ”

“ On the contrary, all experience shows that a currency not redeemable promptly in coin, but dependent on the credit of a promissor whose resources are rapidly diminishing, while his liabilities are in creasing, soon sinks to the dead level of worthless paper. As no man would have been compelled to take it in payment of debts, as it bore no interest, as its period of redemption would have been remote and uncertain, this must have been the inevitable fate of any extensive issue of such notes. ”

“ 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. ”

“ And what is it that successfully discourages us from direct steps toward specie payments?
In the first place, it is the mistrust of the people in our ability to resume, and to maintain resumption. In the next place, the monthly publication of the Treasury discloses precisely our weakness as well as our strength; and the great element of our weakness is the volume of our past-due and demand obligations. In ordinary times,—that is, when the people have confidence in the ability of the banks to redeem their demand obligations in coin,—a reserve of twenty to twenty-five per cent. ”

“ But when a debt happens to bear a higher interest than any other, and is at the same time small, the probability of a quick redemption will operate in the same manner on its price with the expectation of a reduction ”

“ Though not available for duties there never has been in the history of the world so stable and invariable a measure of value as the greenbacks, since government ceased issuing any more than the amount already out. There has been no great financial panic and no considerable unsettling of commercial values. They require that one thing more should be done—they should be given a fixed measure of value. Then nothing more could be required of a currency than would be found in the greenbacks. ”

“ The proof that a man has paid one price and has charged a hundred per cent. more and upward for the same goods, standing alone, really means absolutely nothing. The real question is whether he has properly guessed what the replacement price will be; and that, of course, he can only do, in most cases, by mere surmise. His wealth consists in his commodities, and he is going straight to ruin, if deceived by the depreciation of the counters of exchange, he fail not to replace that real wealth with a sum fully adequate to secure an equivalent amount. ”

“ His need is specifically for money, not for commodities or capital. It is the demand arising from this cause, which produces almost all the great and sudden variations of the rate of interest. Such a demand forms one of the earliest features of a commercial crisis. At such a period, many persons in business who have contracted engagements, have been prevented by a change of circumstances from obtaining in time the means on which they calculated for fulfilling them. These means they must obtain at any sacrifice, or submit to bankruptcy; and what they must have is money. ”

“ To these rational considerations there is superadded, in extreme cases, a panic as unreasoning as the previous over-confidence; money is borrowed for short periods at almost any rate of interest, and sales of goods for immediate payment are made at almost any sacrifice. Thus general prices, during a commercial revulsion, fall as much below the usual level, as during the previous period of speculation they have risen above it: the fall, as well as the rise, originating not in anything affecting money, but in the state of credit ”

“ The body of the people, I believe, agreed with me in opinion that resumption meant, not the cancellation and withdrawal of greenbacks, but the bringing them up to par and maintaining them as the equivalent of coin by the payment of them in coin on demand by the holder. This was my definition of resumption. I do not believe that any commercial nation can conduct modern operations of business upon the basis of coin alone. Prior to our Civil War the United States undertook to collect its taxes in specie and to pay specie for its obligations ”

“ In addition, therefore, to the contraction in the amount of circulating medium operating directly upon prices, we have a rapid and excessive rise in the rate of interest, proceeding step by step with that contraction, till, ultimately, as the Bank reserve approaches to the verge of exhaustion, a state of general discredit arises; the hoarding of currency at once ensues, a still more ruinous decline in prices is the59 consequence, and nothing but the suspension of the Act can avert the spread of universal panic. ”

“ Whatever the apparent purpose of contraction, and however specious the arguments advanced in its justification, the real object has always been to increase the purchasing power of money. In all countries, and throughout all time, it is the cupidity of the creditor classes and annuitants, and their desire to increase the value of the money unit that has brought about a shrinkage in the money volume. ”

“ Such a policy, however, could not be continued with constantly diminishing net income. The downward tendency in the rate of return was caused in part by a hardening of the rate structure through a more inflexible policy of public regulation, in part by steadily increasing costs of wages and materials, and in part by the greater difficulty of finding means through economies and new operating methods of overcoming increasing costs. ”

“ Rule IV.—Beside long annuities, there are also long dividends. For instance, in the case of Bamboozle, Humbug and Co. who lately declared the third and last dividend of three-fourths of a farthing in a pound, for the benefit of their creditors.
THE INSOLVENT TRAP.
"THE LAW BINDS, BUT THE LAW LOOSES."
[45] RULE VI.
REDUCTION.
Reduction is properly the "art of sinking." It teaches us, according to Martin, to bring numbers to a lower name without altering their value. When numbers are brought to a higher name, it is called Reduction ascending, when to a lower, Reduction descending. ”

“ The seal of the office of draw-back ought to be apply’d to these goods that receive the draw-back; and these intrusted with the draw-back, should give security to pay the price of such goods, with all charges, if found insufficient.
When manufacture and trade prospers, the landed man’s rent is well payed, and increases: when they decay, his rent is ill pay’d, and decreases. a draw-back is so effectual a way to encourage and promote manufacture and trade; that it were the landed men’s interest to tax themselves, rather than a draw-back should not be given, where it is necessary. ”