The Stationary State

§ 3. The Stationary state is where the population is stationary.

Yet nearly all its features might be seen where population and wealth are both growing, provided:

• they are growing at about the same rate
• there is no scarcity of land
• the methods of production and trade change but little
• the character of man is constant

For in such a state by far the most important conditions of production and consumption, of exchange and distribution will remain of the same quality, and in the same general relations to one another, though they are all increasing in volume.

This relaxation of the rigid bonds of a purely stationary state brings us one step nearer to the actual conditions of life: and by relaxing them still further we get nearer still.

We thus approach by gradual steps towards the difficult problem of the interaction of countless economic causes. In the stationary state all the conditions of production and consumption are reduced to rest: but less violent assumptions are made by what is, not quite accurately, called the statical method. By that method we fix our minds on some central point: we suppose it for the time to be reduced to a stationary state.

We then study in relation to it the forces that affect the things by which it is surrounded, and any tendency there may be to equilibrium of these forces. A number of these partial studies may lead the way towards a solution of problems too difficult to be grasped at one effort.

§ 4. We may roughly classify problems connected with fishing industries as those which are affected by very quick changes, such as uncertainties of the weather; or by changes of moderate length, such as the increased demand for fish caused by the scarcity of meat during the year or two following a cattle plague; or lastly, we may consider the great increase during a whole generation of the demand for fish which might result from the rapid growth of a high-strung artisan population making little use of their muscles.

The day to day oscillations of the price of fish resulting from uncertainties of the weather, etc., are governed by practically the same causes in modern England as in the supposed stationary state. The changes in the general economic conditions around us are quick; but they are not quick enough to affect perceptibly the short-period normal level about which the price fluctuates from day to day: and they may be neglected [impounded in cœteris paribus] during a study of such fluctuations.

Let us then pass on; and suppose a great increase in the general demand for fish, such for instance as might arise from a disease affecting farm stock, by which meat was made a dear and dangerous food for several years together.

We now impound fluctuations due to the weather in cœteris paribus, and neglect them provisionally: they are so quick that they speedily obliterate one another, and are therefore not important for problems of this class.

For the opposite reason we neglect variations in the numbers of those who are brought up as seafaring men: for these variations are too slow to produce much effect in the year or two during which the scarcity of meat lasts. Having impounded these two sets for the time, we give our full attention to such influences as the inducements which good fishing wages will offer to sailors to stay in their fishing homes for a year or two, instead of applying for work on a ship.

We consider what old fishing boats, and even vessels that were not specially made for fishing, can be adapted and sent to fish for a year or two. The normal price for any given daily supply of fish, which we are now seeking, is the price which will quickly call into the fishing trade capital and labour enough to obtain that supply in a day’s fishing of average good fortune; the influence which the price of fish will have upon capital and labour available in the fishing trade being governed by rather narrow causes such as these.

This new level about which the price oscillates during these years of exceptionally great demand, will obviously be higher than before. Here we see an illustration of the almost universal law that the term Normal being taken to refer to a short period of time an increase in the amount demanded raises the normal supply price. This law is almost universal even as regards industries which in long periods follow the tendency to increasing return.

But if we turn to consider the normal supply price with reference to a long period of time, we shall find that it is governed by a different set of causes, and with different results. For suppose that the disuse of meat causes a permanent distaste for it, and that an increased demand for fish continues long enough to enable the forces by which its supply is governed to work out their action fully (of course oscillation from day to day and from year to year would continue: but we may leave them on one side). The source of supply in the sea might perhaps show signs of exhaustion, and the fishermen might have to resort to more distant coasts and to deeper waters, Nature giving a Diminishing Return to the increased application of capital and labour of a given order of efficiency. On the other hand, those might turn out to be right who think that man is responsible for but a very small part of the destruction of fish that is constantly going on; and in that case a boat starting with equally good appliances and an equally efficient crew would be likely to get nearly as good a haul after the increase in the total volume of the fishing trade as before. In any case the normal cost of equipping a good boat with an efficient crew would certainly not be higher, and probably be a little lower after the trade had settled down to its now increased dimensions than before. For since fishermen require only trained aptitudes, and not any exceptional natural qualities, their number could be increased in less than a generation to almost any extent that was necessary to meet the demand; while the industries connected with building boats, making nets, etc. being now on a larger scale would be organized more thoroughly and economically.

If therefore the waters of the sea showed no signs of depletion of fish, an increased supply could be produced at a lower price after a time sufficiently long to enable the normal action of economic causes to work itself out: and, the term Normal being taken to refer to a long period of time, the normal price of fish would decrease with an increase in demand.

Thus we may emphasize the distinction already made between average price and normal price. An average may be taken of the prices of any set of sales extending over a day or a week or a year or any other time: or it may be the average of sales at any time in many markets; or it may be the average of many such averages. But the conditions which are normal to any one set of sales are not likely to be exactly those which are normal to the others.

Therefore it is only by accident that an average price will be a normal price; that is, the price which any one set of conditions tends to produce. In a stationary state alone, as we have just seen, the term normal always means the same thing: there, but only there, “average price” and “normal price” are convertible terms.

§ 5. To go over the ground in another way. Market values are governed by the relation of demand to stocks actually in the market; with more or less reference to “future” supplies, and not without some influence of trade combinations.

But the current supply is in itself partly due to the action of producers in the past. This action has been determined on as the result of a comparison of the prices which they expect to get for their goods with the expenses to which they will be put in producing them. The range of expenses of which they take account depends on whether they are merely considering the extra expenses of certain extra production with their existing plant, or are considering whether to lay down new plant for the purpose.

In the case, for instance, of an order for a single locomotive, which was discussed a little while ago42 , the question of readjusting the plant to demand would hardly arise: the main question would be whether more work could conveniently be got out of the existing plant.

But in view of an order for a large number of locomotives to be delivered gradually over a series of years, some extension of plant “specially” made for the purpose, and therefore truly to be regarded as prime marginal costs would almost certainly be carefully considered.

Whether the new production for which there appears to be a market be large or small, the general rule will be that unless the price is expected to be very low that portion of the supply which can be most easily produced, with but small prime costs, will be produced: that portion is not likely to be on the margin of production. As the expectations of price improve, an increased part of the production will yield a considerable surplus above prime costs, and the margin of production will be pushed outwards. Every increase in the price expected will, as a rule, induce some people who would not otherwise have produced anything, to produce a little; and those, who have produced something for the lower price, will produce more for the higher price. That part of their production with regard to which such persons are on the margin of doubt as to whether it is worth while for them to produce it at the price, is to be included together with that of the persons who are in doubt whether to produce at all; the two together constitute the marginal production at that price. The producers, who are in doubt whether to produce anything at all, may be said to lie altogether on the margin of production (or, if they are agriculturists, on the margin of cultivation).

But as a rule they are very few in number, and their action is less important than that of those who would in any case produce something.

The general drift of the term normal supply price is always the same whether the period to which it refers is short or long; but there are great differences in detail.

In every case reference is made to a certain given rate of aggregate production; that is, to the production of a certain aggregate amount daily or annually. In every case the price is that the expectation of which is sufficient and only just sufficient to make it worth while for people to set themselves to produce that aggregate amount; in every case the cost of production is marginal; that is, it is the cost of production of those goods which are on the margin of not being produced at all, and which would not be produced if the price to be got for them were expected to be lower. But the causes which determine this margin vary with the length of the period under consideration.

For short periods people take the stock of appliances for production as practically fixed; and they are governed by their expectations of demand in considering how actively they shall set themselves to work those appliances.

In long periods they set themselves to adjust the flow of these appliances to their expectations of demand for the goods which the appliances help to produce. Let us examine this difference closely.