Popular Science Monthly/Volume 77/September 1910/The Cause of Social Progress and of the Rate of Interest
| THE CAUSE OF SOCIAL PROGRESS AND OF THE RATE OF INTEREST |
By Professor J. PEASE NORTON
YALE UNIVERSITY
IT has been generally considered by the scholars of the social sciences that there is no fundamental cause in human societies for social progress. Indeed, the whole Malthusian theory is to the effect that the overwhelming rate of increase possible in human societies tends to keep a considerable percentage of the members of a society on the threshold of continuous poverty. A moral hopelessness characterizes the books of a great many economists, when-they touch upon the subject of population. By reason of these gloomy chapters, political economy has been termed the dismal science.
How many established doctrines of good writers have been swept away by the light of subsequent discoveries and later reasoning! Were it not for the high improbability of any one scientific doctrine long standing without modification, I should hesitate seriously before advancing these notes on the views held by me and which are so completely at variance with the long-established and present theories of the science of political economy with respect to population and interest. Yet, because these views have greatly brightened my interest in all subjects of human history, I am interested in subjecting them to early criticism.
There seems to exist in the tendency of populations to increase in numbers the cause of progress, which, if unimpeded by certain destructive agencies, which I have termed to assist me in my thinking the "wastes of nations," would carry along on the waves of comfort and prosperity an ever-increasing population up to an unassignable limit, so great is the possibility at which a stationary state could be maintained. These destructive agencies are not a product of the increase in numbers, but they constitute the elements of the hostile environment against which progress has been continually made since the earliest historic times.
Now a social group on any habitat at a given time exists through the application of a series of arts which are possessed by the society and are exercised over the environment. The arts existing at any time may be inventoried and logically classified. The arts are productive and are ways of doing things which bring a return. There are the arts of the food supply, such as hunting, fishing, agriculture, food preservation and eventually food production by synthetic chemistry in the broader classifications, of house building, of useful clothing, of hygiene, etc. These arts are known in varying degrees of detail to some members of the society.
There may be two specific arts known at a given time useful for the accomplishing of the same result. We are apt to find that art in current exercise which accomplishes the result with the smaller cost of production. It is wonderful to contemplate how very closely cost of production has been studied at all times. In the same classifications, one art successively displaces another on the basis of reduction of cost of production or saving of human effort.
But the art is very different from a material thing. The art is immaterial and useful. Wealth is commonly defined as material and useful. The art as well as the object of wealth may be possessed. The value of wealth, of the material things which are useful, is the shadow of the force of the arts, the immaterial things which create value. We must distinguish sharply some of the characteristics of the arts. Napoleon once said: "But you can not outnumber the one brain."
In a great problem, a thousand ordinary brains put to work on the same problem can not be added together. The results of all this mediocre thinking will not surpass the products of the brain of a Newton, a La Place, or a Napoleon. There is a degree or quality which can not be gained at random by addition. In the mental tug-of-war, it is true that we can not outnumber the one brain. The art is the product of the "one brain," i. e., of the brain of a quality or degree slightly superior to the brains around it. We, therefore, note that a superior brain is a treasure for the community, provided the brain is put to work to solve the problems of the present life.
Now, Professor Karl Pearson and Sir Francis Galton are wont to define the exceptional man as one in a certain proportion of the population. It is assumed that in a strain of the population, there is the " one brain " in a hundred, in a thousand, in a million and in a hundred million of persons, of increasing quality for each classification. Around the lives of the " one brains " are gathered the essential narrative of the history of their times.
But, our first theorem is that the value of an art or of an invention, measured in a saving or a lessening of the previous cost of production, is theoretically commensurable, and that this value for the same new art varies with the population. In other words, the greater the population at a given time, when a new art is discovered, the greater will be the value of the art. If an art, say the invention of the sewing machine in the clothing trade, is equal to saving two dollars per capita per annum net over previous outlay, after making due allowance for new capital invested in the machine, etc., the value of the new art is plainly the savings per capita multiplied by the population and capitalized at the proper rate of interest for new industries. If the population is one hundred thousand and ten per cent, of a fair rate for capitalization, the above example would produce $2,000,000 as the value of the invention. If the population had happened to be one million, the value of the invention would have been $20,000,000. Consequently, we note that the greater the population the greater will be the value of a new art.
The second theorem is, that the capitalized value of the old arts in current exercise steadily increases with increasing population, since the savings are effected for more people.
As a third theorem, we may assume that the new arts during any period are the products of the inventive or exceptional minds, and that the greater the population, the greater will be the number of exceptional minds of each degree for the various classifications, so that the value of the new arts during a year is the product of the exceptional minds and the average inventive productivity for each degree.
Suppose that in a population of one million, we may expect that the "one brain" in the million will produce an invention capable of saving one dollar per capita per annum over existing arts. Capitalized at ten per cent, the value of one year's product of this mind is ten million of dollars. Now, let us assume that in two million of people, we shall find two such men. The capitalized value of two such inventions as above will be not twenty millions, but forty millions of dollars. In other words, the capitalized value of new inventions for a given time tends to vary at least as the square of the population, and, if we may imagine that the "one brain" in two millions is of higher degree than in the one million of population, the value of inventions will be at a greater rate than the square of the population.
We, therefore, arrive at the conclusion that the comfort and the prosperity of a population tends to increase more rapidly than the population on which it depends; that society tends to progress under the law of increasing returns. It is also interesting to note that through the workings of our law of social progress, the per capita increment of value for arts varies with the population. In our illustrations above the savings for each person in a one million population would be one half that in a two-million population. We find in the above law an explanation of the rise in wages, inasmuch as exceptional men in all degrees tend to receive as wages or remuneration for services of the same per-capita saving a sum proportional to the total population.
All this reasoning is theoretical. The same is true of the writings regarding the Malthusian theory. But it would appear that the steady progress made in average comfort by all nations of the world since the remotest antiquity would favor the former rather than the latter reasoning. It would appear that there can be no more favoring circumstance than a steadily increasing population, provided the quality and frequency of exceptionality are not diminishing through an untoward reproductive selection.
How carefully should statesmen strive to prevent all hindrances to the successful operation of this fundamental law of social progress which is imbedded in the very nature of knowledge. With what forethought should we strive to prevent the wastes of nations. To the wastes of nations such as disease, ignorance, vice, crime, injustice, bad government, lack of opportunity for the exceptional and war, must we ascribe the hideous catastrophes which have wrecked successively one nation after another.
On account of the above law that there tends to be an annual increase in capital value of the new arts, and varying with the square of the population, we are led to the conclusion that herein lies the cause of interest. In those fields where inventions are being made most rapidly at any time, capital is needed. The savings in part effected by the new arts are paid over for the use of the capital. The existence of an interest rate which, eliminating the element of risk, probably varies between two per cent, and eight per cent, is the shadow of this law of progress which says in substance that the product of the annual work of the exceptional men tends to vary as the square of the population, and it follows that as population slowly increases, this surplus fund comes into existence out of which interest is paid. The above, then, seems to be the major cause of interest, and many known facts are in harmony with this theory. Interest has increased historically in times of rapid invention. It rules highest in industries where new inventions are taking place most rapidly. Interest is higher in new countries where population is rapidly increasing. Further, in the case of nations retrograding through disease, vice, bad government and decreasing population, commercial interest sinks to a very low figure. The elaborate agio theories of interest seem to me to throw no light on the cause of interest. A geometrical increase of wealth, which is so universal, must have an adequate cause. I am aware that there are very many important considerations not touched upon in the foregoing, but in a series of notes, this must of necessity be so.