The Vanishing Of Investment Opportunity

3. An analogous argument applies to the widely accepted view that the great stride in technological advance has been made and that but minor achievements remain.

So far as this view does not merely render the impressions conceived from the state of things during and after the world crisis—when an apparent absence of novel propositions of the first magnitude was part of the familiar pattern of any great depression—it exemplifies still better than did the “closing of humanity’s frontier” that error in interpretation economists are so prone to commit. We are just now in the downgrade of a wave of enterprise that created the electrical power plant, the electrical industry, the electrified farm and home and the motorcar. We find all that very marvelous, and we cannot for our lives see where opportunities of comparable importance are to come from. As a matter of fact however, the promise held out by the chemical industry alone is much greater than what it was possible to anticipate in, say, 1880, not to mention the fact that the mere utilization of the achievement of the age of electricity and the production of modern homes for the masses would suffice to provide investment opportunities for quite a time to come.

Technological possibilities are an uncharted sea. We may survey a geographical region and appraise, though only with reference to a given technique of agricultural production, the relative fertility of individual plots. Given that technique and disregarding its possible future developments, we may then imagine (though this would be wrong historically) that the best plots are first taken into cultivation, after them the next best ones and so on. At any given time during this process it is only relatively inferior plots that remain to be exploited in the future. But we cannot reason in this fashion about the future possibilities of technological advance. From the fact that some of them have been exploited before others, it cannot be inferred that the former were more productive than the latter. And those that are still in the lap of the gods may be more or less productive than any that have thus far come within our range of observation. Again this yields only a negative result which even the fact that technological “progress” tends, through systemization and rationalization of research and of management, to become more effective and sure-footed, is powerless to turn into a positive one. But for us the negative result suffices: there is no reason to expect slackening of the rate of output through exhaustion of technological possibilities.

4. Two variants of this branch of the theory of vanishing investment opportunity remain to be noticed. Some economists have held that the labor force of every country had to be fitted out at some time or other with the necessary equipment. This, so they argue, has been accomplished roughly in the course of the nineteenth century. While it was being accomplished, it incessantly created new demand for capital goods, whereas, barring additions, only replacement demand remains forever after. The period of capitalist armament thus would turn out to be a unique intermezzo after all, characterized by the capitalist economy’s straining every nerve in order to create for itself the necessary complement of tools and machines, and thus becoming equipped for the purpose of producing for further production at a rate which it is now impossible to keep up. This is a truly astounding picture of the economic process. Was there no equipment in the eighteenth century or, in fact, at the time our ancestors dwelled in caves? And if there was, why should the additions that occurred in the nineteenth century have been more saturating than any that went before? Moreover, additions to the armor of capitalism are as a rule competitive with the preexisting pieces of it. They destroy the economic usefulness of the latter.

Hence the task of providing equipment can never be solved once for all. The cases in which replacement reserves are adequate to solve it—as they normally would be in the absence of technological change—are exceptions. This is particularly clear where the new methods of production are embodied in new industries; obviously the automobile plants were not financed from the depreciation accounts of railroads. The reader will no doubt observe that even if we were able to accept the premises of this argument, no pessimistic forecast about the rate of expansion of total output would necessarily follow. On the contrary he might draw the opposite inference, viz., that the possession of an extensive stock of capital goods that acquires economic immortality through continuous renewal should if anything facilitate further increase in total output.

If so, he is quite right.

The argument rests entirely on the disturbance to be expected if an economy geared to capital production faces a reduced rate of increase in the corresponding demand. But this disturbance which is not of sudden occurrence can easily be exaggerated. The steel industry for instance has not experienced great difficulties in transforming itself from an industry that produced capital goods almost exclusively into one that produces primarily durable consumers’ goods or semi-finished products for the production of durable consumers’ goods. And though compensation may not be possible within each existing capital goods industry, the principle involved is the same in all cases. The other variant is this. The great bursts of economic activity that used to spread the symptoms of prosperity all over the economic organism have of course always been associated with expansions of producers’ expenditure that were in turn associated with the construction of additional plant and equipment. Now some economists have discovered, or think they have discovered, that at the present time new technological processes tend to require less fixed capital in this sense than they used to in the past, particularly in the epoch of railroad building. The inference is that spending for capital construction will henceforth decrease in relative importance. Since this will adversely affect those intermittent bursts of economic activity that evidently have much to do with the observed rate of increase in total output, it further follows that this rate is bound to decline, especially if saving goes on at the old rate.

This tendency of new technological methods to become increasingly capital-saving has not so far been adequately established. Statistical evidence up to 1929—later data do not qualify for the purpose—point the other way. All that the sponsors of the theory in question have offered is a number of isolated instances to which it is possible to oppose others. But let us grant that such a tendency exists. We have then the same formal problem before us which exercised so many economists of the past in the case of labor-saving devices. These may affect the interests of labor favorably or adversely, but nobody doubts that on the whole they are favorable to an expansion of output. And this is—barring possible disturbances in the saving-investment process which it is the fashion to exaggerate—no different in the case of devices that economize outlay on capital goods per unit of the final product.

In fact, it is not far from the truth to say that almost any new process that is economically workable economizes both labor and capital. Railroads were presumably capital-saving as compared with the outlay that transportation, by mailcoach or cart, of the same numbers of passengers and of the same quantities of goods that actually are being transported by railroads now would have involved. Similarly silk production by mulberry trees and silkworms may be more capital-consuming—I don’t know—than the production of an equivalent amount of rayon fabric would be. That may be very sad for the owners of capital already sunk in the former. But it need not even mean decrease of investment opportunity. It certainly does not necessarily mean decrease in the expansion of output. Those who hope to see capitalism break down solely by virtue of the fact that the unit of capital goes further in productive effect than it used to, may have to wait long.

5. Finally, since the subject is usually dealt with by economists who aim at impressing upon the public the necessity of governmental deficit spending, another point never fails to turn up, viz., that such opportunities for investment as remain are more suited for public than they are for private enterprise. This is true to some extent. First, with increasing wealth certain lines of expenditure are likely to gain ground which do not naturally enter into any cost-profit calculation, such as expenditure on the beautification of cities, on public health and so on. Second, an ever-widening sector of industrial activity tends to enter the sphere of public management, such as means of communication, docks, power production, insurance and so on, simply because these industries become increasingly amenable to the methods of public administration. National and municipal investment could thus be expected to expand, absolutely and relatively, even in a thoroughly capitalist society, just as other forms of public planning would.

But that is all. In order to recognize it we need not make any hypothesis about the course of things in the private sector of industrial activity. Moreover, for the purpose in hand it is immaterial whether in the future investment and the incident expansion of output will to a greater or a lesser extent be financed and managed by public rather than by private agencies unless it be held in addition that public financing will impose itself because private business would not be able to face the deficits to be expected in the future from any investment. This however has been dealt with before.