Leopold Kohr, The Breakdown of Nations (1957, 1978).
THE EFFICIENCY OF THE SMALL
'Luxury here takes a turn much more towards enjoyment than consumption.'
Higher living standard in small states. Modern large-scale production, a token of enslavement rather than of rising living standards. Life in the Middle Ages. Cyclical depressions characteristic not of capitalism but of large-scale economy. The law of diminishing productivity. Greater efficiency of small productive units. Aggregates-- the opiate of economists. Justice Brandeis on the limits to size. Monopolies are to economics what great powers are to politics. Small states no bar to large free-trade areas. International Service Unions. Customs Unions.
The Economic Argument
We have found that the small-unit principle is superior to the large-unit principle in almost all fields ranging from physics to technology, and from politics to culture. We have also found that practically all problems of existence result from overgrowth and must therefore be solved through splitting the big, not through the union of the small.
There is, however, one field in which our arguments in favour of a return to a system of small states seem to lose their validity. This is economics. Would not such a return mean economic chaos? Would it not be truly reactionary to erect again the countless barriers separating countless regions from each other, impeding traffic and trade, and undoing the gigantic economic progress which the existence of large-area states and the resultant big-plant and mass-production facilities have made possible? If union has sense nowhere, it certainly has in the economic sphere considering that without it our living standards would in all likelihood still be at the low level that characterized the Middle Ages.
How can we answer these objections which, as we shall soon see, are not only of the same kind but of the same superficiality as those raised against the political parcellation of the great powers. Instead of giving testimony of the validity of modern theories they illustrate the sloganization of our thinking. For even in economics every single fact indicates that unification is not the solution of our problems but their very cause. As everywhere else, it is not a system that is at fault, be it capitalist or socialist, but its application to too vast a scale. If capitalism has had such stunning success in its earlier stages, it was not because of the incentive effect of private property relationships. Stalin medals produce the same results. It was because of its embodiment of the competitive principle whose most fundamental prerequisite is the side-by-side existence not of a few large but of many small facilities requiring not the waste of extensive but the economy of intensive operation. And if it developed cracks in its later stages, it was not because of its social shortcomings but because of its infection with large-scale organisms such as monopolies or unsurveyably huge market areas which, far from being responsible for economic progress, seem to be its principal obstacle.
l. The Living-standard Argument
Before discussing the theoretical implications of economic oversize, however, let us analyse the most convincing argument advanced in support of large-scale development -- the argument that it has improved the allegedly low standards of previous small-state economies.
To deal with this principal apology for economic bigness, it is first of all necessary to know what we understand not so much by living standard but by a rise in living standard. Assuming that the zero level, below which no standard can decline, is expressed by the possession of those consumer goods which are necessary for survival, a rise in living standard would express itself by the widening margin of consumer goods available to the various groups of the economic community in excess of these essentials. In other words, a rise in living standard must be measured in terms not just of goods but of consumer goods, since these alone -- in contrast to producer goods -- make for the enjoyment of life. Moreover, it must be measured not just in terms of consumer goods in general, but of consumer goods in excess of the essentials, the luxuries. Thus, if vast-scale development has been accompanied by a rise in living standards, as its supporters assert by using such descriptive words as phenomenal, fantastic, undreamt and unheard of, it must have manifested itself in an increasing margin of luxuries, enabling modern man to satisfy a greater variety of material wants, or the same variety to a greater extent, than was possible before.
What actually happened under the impact of mass-production facilities and large-area markets was a phenomenal increase in the production not of non-essential but of essential consumer goods, accompanied by a still more phenomenal increase in the production of producer goods such as factories which satisfy no direct human want but have become necessary in order to enable us to meet our increasing requirements for essentials. Considering the enormous statistical weight of the production figures in these two fields, it is not too surprising that our macro-economic analysts should have lost sight of a much less pleasing fact. This is that the production of luxuries -- the goods above the zero level of survival, which alone measure the degree of a country's living standard -- not only failed to experience a rise along with the output of those other goods. They actually seemed to have suffered a serious decline. As a result, what statistically looked like an advance, amounted in fact not to a rising but a declining standard of living.
To realize this, we need only compare the vaunted advanced living standards of our modern great-area states, the great powers, with those of small economic entities such as present-day Switzerland or medieval Nuremberg. Since the small medieval states are considered to have been more retarded in their economic development than the small states of our own time, let us concentrate on them rather than their modern counterparts. For even medieval states will show that, in spite of all the cars, bathrooms, health and education services made possible through large-area economies, we seem worse off than those much-ridiculed little economic realms that did without these facilities not because they were poorer but richer. They could afford to do without them.
Let us give some examples. It is, of course, conceded that no medieval state could have produced in a century as many units of a commodity, such as shirts or shoes, as a single modern factory is able to produce in a year. But this is beside the point, for the purpose of economic activity is not the increase in production but the satisfaction of human wants. And in this the medieval small state was as efficient as the modern great power, particularly if we take into account that its goods, being produced at a slower pace and by hand, were in addition better than their modern equivalents. The fact that they were maintained in serviceable condition for generations proved not the misery of an age that could not have paid for replacements, but the excellence of manufacture which made quantity efficiency unnecessary even if it had been feasible. If chairs, tables, doors, ironwork, chests of drawers produced in the quality-efficient small workshops of former days command even today such infinitely higher prices than their mass-produced modern equivalents, it is not because they are scarce. No man in his senses pays for something merely because it is old and cannot be reproduced. They fetch these high prices because they are better than our modern products. And one should not imagine that these pieces of furniture, which give such prestige to their present owners, could formerly be found only in the homes of the rich. They were and, if not destroyed by war or the deterioration of taste that accompanied the advent of the age of mass production, still are today, hundreds of years later, found in the peasants' houses of many European countries, giving them an air of stability and prosperous stateliness for which we look in vain in the shaky frame houses of the mechanized television-owning farmers of our own day.
Thus, though mass production yields unquestionably more units of goods per individual than small-shop manufacturing, it does not indicate the achievement of a higher living standard. For the quality of these more numerous goods, and their ability to satisfy our wants, seem to have declined in proportion to their increased availability. We not only have more shirts or shoes; we also need more shirts and shoes merely to maintain past standards. As a result, the actual satisfaction of our wants cannot be said to have experienced any increase simply because essential goods have become more plentiful along with our increased need for them.
But what about such goods as cars or aeroplanes which more than anything else symbolize the achievement of an integrated modern large-scale economy? There is again no doubt that these could never have been produced in small economies, at least not in such quantities. But once more the question arises: has their increased production increased the satisfaction of our travel wants? Hardly! In a small-state world, motor-cars were not needed. The satisfaction we desire in our travels is not the spanning of distances for the sake of distance but for the sake of extracting pleasure from the variety of different experiences which each different region and habit offers us. What we want from travel is adventure, not cars. The small-state world, being also a small-scale world, gave us all the excitement of vast space travel with the difference that we could find it all near by. A journey of fifty miles surprised the voyager with an almost infinite variety of new vistas and heretofore unknown experiences. Walking along, he would meet adventures, couriers, brigands, merchants, monks, and lords, and since they could not flit by in seventy-mile speeds as they do today, he not only would meet but also get to know them. He passed smoky smithies and stately inns. He passed vineyards and tin-mines. Each different city was a new world to him, with different customs, architectures, laws, and princes. The conversation with customs officials alone gave him more information than the reading of a dozen modern travel books whose main interest incidentally is that they still guide one occasionally through the remnants of former times. On a fifty-mile trip he passed through worlds, and learned about new products and devices he had never known before. And to sally forth into the unknown space for a distance of fifty miles required neither aeroplanes nor motor-cars.
To extract similar satisfactions from a large-area world, we must now travel not fifty but thousands of miles. To do this, we indeed need cars and planes, and speeds of a hundred miles per hour or more. But what do they give us in experience? Almost nothing. If we travel three thousand miles from New York to Los Angeles, we find the same kind of city on which we have just turned our back. If we go to the village of Hudson, one of the most northern places along the Canadian National Railway hewn out of the wilderness of virgin forests, and walk into a restaurant, we find the same sort of place we have just left behind in Brooklyn. Things that might be different, we have passed by because our super highways have been smoothed and straightened to such an extent that we no longer can afford to lose time by driving slowly. We may race up and down the entire North American continent and see nothing but Main Street all over again, filled with the same kind of people, following the same kind of business, reading the same kind of funnies and columnists, sharing the same movie stars, the same thoughts, the same laws, the same morals, the same convictions. This is why, if we want to read really exciting adventure stories nowadays, we have to fall back on Homer or Stevenson who crammed into their journeys of a few hundred miles more fascinating incidents than our modern cartoonists whose spaceships, travelling with many times the speed of light, lead us to distant stars in distant galaxies only to find what? That Kilroy had already been there, leaving a copy of the Constitution and a can of the beer that made Milwaukee famous.
If in several European vast-area states such as Italy, France, or Germany, so many exciting though rapidly dwindling differences are still experienced on relatively short journeys, it is because the medieval small-state diversity has left so lasting an imprint that no unifying process has as yet been able to wipe it out. Ironically, the largest single source of income of some of these advanced big-area states is often not found in their giant industry in which they take such pride, but in the money left them by tourists coming to enjoy the old-world charms and comforts created not by them but their 'backward' little predecessors. However, soon these last refuges of former small-scale living will be swallowed up by the impending further improvements of our travel and transportation means. Being able to span distances still faster, it will become uneconomical as well as impossible to stop anywhere except at hamburger stands along the roads, and in the terminal towns of the big autostradas from which every difference will have disappeared for ever. And with it will be gone the purpose of all travel.
2. The Creation of Necessities
Cars seem thus to have brought us less satisfaction than a good old steed or a pair of sturdy shoes brought our forefathers. However, one may say, cars and other highly efficient means of modern transportation such as tubes or bus services are no longer a luxury to satisfy our travel wants. They have become a necessity to satisfy our basic needs. This is quite true. But since when is the creation of new necessities a sign of progress? Our fantastic media of communication and transportation, which we take for a token of higher living standards, are nothing but the symptom of our increasing enslavement. Without them, we would not only be reduced to a level of hopeless starvation; unlike our forefathers, who did not need them, we would be condemned to extinction. Their introduction has cost us much, but brought no gain. Previously we would reach our place of work by strolling leisurely from the second floor of our homes to the first, or across the street. Because we spent most of our time near our homes, we beautified them and thereby helped create the lovely cities of former days in which it was as joyful to live as it is now an agony. No one dreamt of escaping from them. Everything, the church, the taverns, the authorities, the theatres, our friends, and even the countryside, was within easy reach of everybody. Since the things that belonged together for a rich and full life were not separated into residential, theatre, business, banking, government, and factory districts, an unhurried walk of half a mile per day met all economic requirements without the dependence on 'the world's best commuter service', whose very necessity for excellence is an indication of the misery of functionalized modern large-scale living. Professor Schrodinger has well described this condition when he writes:'But consider only the "marvellous reduction of size" of the world by the fantastic modern means of traffic. All distances have been reduced to almost nothing, when measured not in miles but in hours of quickest transport. But when measured in the costs of even the cheapest transport they have been doubled or trebled even in the last 10 or 20 years. The result is that many families and groups of close friends have been scattered over the globe as never before. In many cases they are not rich enough ever to meet again, in others they do so under terrible sacrifices for a short time ending in a heart-rending farewell. Does this make for human happiness?'1
All that modern large-scale development has brought about seems thus a phenomenal increase in the production, not of luxury goods, which would indeed mean a higher living standard, but of the goods we need to cope with the phenomenal difficulties it has created. It has showered tools on us, without adding to the value of our possessions. Having placed w/mecessary distances between friends and families or between offices and homes, it has provided us with the now necessary facilities to span them again but at an expense which increasingly fewer people can afford without curtailing their consumption of more pleasureful commodities. It has given us air-conditioning, not as an improvement, but as a necessary addition, since modern buildings have lost the magic of pleasant temperatures that clung to the thick-walled houses of former times. And along with its new cooling system it has furnished us with previously unknown techniques of catching pneumonia. It has shortened our working time, but it has lengthened our unproductive, though not less exhausting, commuting time by more than we have gained by working less. It has enabled us to keep homes in the country instead of the now hated city. But their function has declined to serving us as inconveniently distant dormitories of which we have become the tired absentee owners. It has provided us with those famous bathrooms in which our theorists must think we spend most of our waking hours, so proud are they of this particular symbol of a high living standard. But at the same time it has made us so dirty by the end of the day that we can hardly say that our daily showers have made us any cleaner. It has enabled us to drive to our offices in our own vehicles, only to cause the disruption of our wits when we try to find a parking space. This means that now we are in need not only of space, rendered scarce by the abundance of cars, but of psycho-analytic treatment, rendered necessary to undo the mental effects of our harassing search for space. It has lowered our death rate at birth, but die resulting population densities have produced a proportionate increase in the death rate of mid-life. A survey conducted in 1951 showed that in the United States the 'death rate as a whole is one of the world's lowest; but after the age of 45, Americans cannot expect to live as long as their contemporaries in many other countries, e.g. England, Canada, the Netherlands, and especially Denmark and Norway ... A dig into the records shows that American men have more fatal accidents and more heart disease. American women have more accidents, more diabetes.'2 But why should there be more heart disease and accidents in the highly advanced United States (population 155,000,000) and, in descending order, in Great Britain (51,000,000), Canada (15,000,000), and the Netherlands (9,000,000), than 'especially' in Denmark (4,000,000) and Norway (2,500,000) except for the fact that the strains of integrated modern large-scale living lessen as the size of a country's population becomes smaller and its pace slower?
It is said, however, that modern life has at least taught us all to read and write. Which is true. But it seems to have failed to raise our educational standards. So that the modern literate person can grasp anything at all, he must have everything pre-chewed, condensed, and broken down into cartoon language. Marx's Communist Manifesto, a brilliant essay that a hundred years ago could be understood by the workers of the world to whom it was addressed, has outgrown the reach of the average mass-educated college student of the twentiedi century. His vaunted literacy seems to have given him no other ability than that of answering yes or no to questions if they are properly put, and of filling in forms entitling him to intellectual senility pensions from the age of twenty onward. Our ancestors, unable either to read or write, seem to have had more education in the tips of their fingers than we have in our heads. When the brothers Grimm wrote down their fairy tales, which they had collected by listening to illiterates, they brought forth one of the masterpieces of literature. In antiquity, not only people were unable to read or write but, as in Greece, even some of their greatest poets. So they sang their epics! And what epics these were! And what audiences they had! Never again will it be possible for a poet to capture in the melody of his lines the sound of the sea, or of leaves rustling softly in a breeze, since our advanced technology has enabled us to do all this much more realistically and fashionably by crushing ice cubes in a champagne bucket.
While it is thus true that smaller economies did produce fewer goods, these were both more lasting than ours and more satisfying in meeting the demands of a society adjusted to the pleasures and leisures of a slower pace. Life, there, was like walking on a belt moving under one's feet in opposite direction. But since the belt's movement was slow, it needed only a leisurely effort to counterbalance its speed. Few shoes were worn out and little energy was consumed by the tasks of existence.3 Large-scale living, on the other hand, has increased the speed of the belt tremendously, with the result that the successful individual now no longer can afford to walk. He must run. And our production and living standard experts point to the runner with pride and say: 'Look at his health, his physique, his muscles, his chest, and take note of the food, vitamin, shoe, and bath-water supply which modern science provides for him.' All of which overwhelms us. But what we fail to see is that he needs all this desperately, and to accomplish what? the same thing the small-state stroller accomplished in leisure and pleasure: -- to keep up with the belt's speed. Nothing more and, perhaps, not even that, because, the greater the belt's speed, the more likely is it that even the best runner will fall behind. And this is, indeed, what historic evidence seems to prove: that vast-scale economic expansion has caused not an advance but a back-sliding of living standards and that what we confront in the fantastic increase in production is nothing other than a form of inflation. More of the new goods seem to give us less satisfaction than fewer of the old ones.4
3. From Princes to Paupers
So far, the comparison of living standards has run perhaps on lines too general to be entirely believable. In order to obtain a more realistic picture it will, therefore, be of help to test the relative effect of small-and large-area economic development on the style of living of some specific professions, from kings down to workers. This will show that, from whatever angle we approach the subject, the result is always the same, indicating not a rise but a decline along the entire line.
To begin with the rulers, there can be no doubt that the sovereigns of little states lived in far greater material splendour than their large-power successors of modern times. Could the Queen of England afford today what every petty prince could afford formerly? Build a riding school, a theatre, an art gallery? What she still has in regal trimmings such as palaces and castles has been provided for her not by the rich present but the poor past. If the President of the United States were to build a swimming pool for his horses, he would be investigated and possibly impeached for reckless spending. Even if he could afford the extravagance of our ancestors, our socially conscious age would not permit him to display it in deference, obviously, not to the superior but the inferior standards of the masses. However prosperous our century may be, our rulers can hardly be said to have benefited by it. Nor have the rich. In fact, nowhere has the decline in living standards been experienced more drastically than amongst the rich and the heads of those states whose economies are said to have advanced most conspicuously.
But what about other professions such as scholars? University professors of Bologna or Prague of former days, or of contemporary Denmark or Switzerland, lived in a style that is scarcely within the reach of American bank directors of the 1950s. They owned stately houses, had coachmen and maids, gave two or three lectures a week, entertained scholars of near and distant lands, and set a table for their guests whose culinary excellence rivalled that of the best inns. Their present-day counterparts in the world's richest countries, preaching in their classrooms the improvements of modern living, teach twelve to fifteen hours a week, live in small cottages with cubby-hole rooms if they are prosperous or, if not, in trailers mounted on cement, supplement their incomes by taking on extra jobs and, if they give a cocktail party for their colleagues more than once a year, are pushed to the border of financial ruin.
College students in the 'low-living-standard' countries of former times used their summer vacations for reading, musing, travelling abroad, or generally doing little except absorb the fruit of a year's learning. Students of today, on the other hand, again full of pride in the rise of a living standard which is praised by all and experienced by none, have to work through all of their vacations as dishwashers, postal clerks, or lorry drivers to get enough cash by autumn to finish an education from which they cannot profit because modern 'wealth' does not give them enough leisure to digest it. In fairness to the argument I should, however, point out that students of earlier times did not always have the luxurious ease just pictured. They, too, had to work occasionally. Thus, Professor G. G. Coulton, in order to awaken the sentimentalist lovers of the Middle Ages to the facts of life, writes of the end of the fifteenth century that 'if we ourselves were Cambridge University men of that day, we might very well recognize several undergraduates among the harvesters; the Long Vacation, such as it was, would include both hay and corn harvest, and some students, like their brethren of America today, must have been able to do manual work in part payment of their expenses'.5 This was undoubtedly the case. But it must be kept in mind that, in the first place, fifteenth-century England, though small, had, unlike Bologna or Florence, as yet not reached a state of economic maturity and can consequently not be compared with mature large-area economies. And secondly, in spite of its admitted stage of retarded development, the worst Professor Coulton could say in an apparent attempt to prove the lower living standard of the Middle Ages was that 'some' students of that period did what a vast number of'their brethren' still have to do today in the fully developed rich America -- work in part payment of their expenses. Whatever this proves, it does not exactly seem to prove any advance in a student's style of living.
And so we could run through nearly all professions and still come to the same conclusion. Shoemakers or tailors from the city-state of Nuremberg, to judge from contemporary descriptions and the evidence of pictorial illustrations, lived in a patrician style such as few prosperous modern merchants can afford. Journeymen were able to lead a life now enjoyed, perhaps, by the higher ranks of university professors in the United States. Workers had the material comforts and goods which their modern equivalents may have also, with the difference, However, that the latter seem no longer able to enjoy them as much in this age of haste, superficiality, and separated functions.
And housewives? Well housewives had maids, those most pleasant symbols of high living standards whom almost no one in the 'high-living-standard' countries of the world seems to be able to afford any longer. And the few who still can, have found out that they must humour them to such an extent that it is no longer worth having them in the first place. In England, for instance, in order to ensure their return in the morning, housewives must do the dishes of the preceding evening meal themselves. For a maid will no longer condescend to start work except in an atmosphere indicating that most of it has already been done by the mistress. Which again cannot exactly be called an improvement in the latter's position. The only profession that seems to have experienced a genuine improvement is that of the maids themselves. And this, ironically, is the only profession which its own rising living standard is rapidly driving out of existence.
However, it is said, the disappearance of maids is precisely one of the most convincing proofs of the advance in living standards. For those who formerly were servants are now housewives, secretaries, or business women. But in this case they must, of course, be compared not with maids of former times but with the former occupants of the jobs they hold now -- with housewives, secretaries, or business women. And these, as we have seen, could afford the maids which their successors of today no longer can. That there are now more individuals in a higher profession than there were previously does not in itself indicate that the standards of that profession have risen. On the contrary! As the laws of diminishing marginal productivity tell us, an increase in the numbers of a professional group will eventually not raise but depress individual standards. This is exactly what has taken place. Thus, all that the disappearance of maids shows is not an improvement of their condition, which has become meaningless since their species is dying out and the dead cannot have any standards; but a lowering of the level of those professions whose ranks they swelled in the expectation of greater benefits only to find that their very act of joining whittled them away. When they broke into the ranks of housewives in those 'unprecedented numbers' which are for ever presented to us as the infallible sign of progress while they indicate merely an inflationary washing-down process, they hoped to have maids themselves now. But what did they discover? That their 'rising' living standard had successfully eliminated the quaint amenities of a 'retarded' past. Instead of turning every maid into a housewife, progress has turned every housewife into a maid.6
What is true of individual professions is equally true of classes and communities. Naturally, small states also had their share of poverty but, since their inhabitants were few, their poor were fewer still. And these did not constitute a fraction of the social problem reflected in the scandalous unemployment figures of the rich great powers of our time. In addition, it must be noted that the 'unemployed' of former times, the beggars, were not frustrated proletarians but members of an ancient and honourable caste who abstained from the hardships of work not as a result of the insensible forces of depression but, like kings, in pursuit of a dignified and happy way of life. Had a reformer offered them relief, he would in all likelihood have met with the same objections as were raised in 1951 by the beggars of Lhasa when the Chinese communist invaders of Tibet tried to 'rehabilitate' them, free them from 'oppression', and improve their economic status by providing them with work. Instead of showing gratitude they firmly rejected the very idea of employment by pointing out that 'they followed their "traditional profession" as a result.of "sins in previous life" and not because of "oppression".' How greatly they must have enjoyed suffering for their previous sins may be deduced from the assertion of one of their spokesmen to the effect that 'we are happy begging, and furthermore we are not used to work'.7
We frequently bewail the poverty of the Middle Ages, and in the next breath castigate the profligacy of their princes for staging festivals for their subjects lasting weeks, and the economic madness of their bishops for declaring half a dozen saint's days every month. Thus, Professor Pasquale Villari writes in his work on Savonarola that Lorenzo the Magnificent'. . . encouraged all the worst tendencies of the age and multiplied its corruption. Abandoned to pleasure himself, he urged the people to lower depths of abandonment in order to plunge them into the lethargy of intoxication. In fact, during his reign Florence was a continuous scene of revelry and dissipation.'8
We know from many other sources that this picture of princely and popular revelry and dissipation is neither exaggerated nor unique. It prevailed in many other little states. But surely, if they could afford this extravagance in work-free holidays and the 'lethargy of intoxication' which even the most ambitious labour leader of our day would not dare to claim for his wards, their living standard must have been considerably higher than we imagine, and the last beggar must have had a jollier time than a car- and bathtub-owning member of John L. Lewis's powerful mineworkers' union. This is all the more striking as, unlike the sterile extravagance of modern periods of prosperity, these earlier periods produced not only material but also intellectual abundance. In the midst of this revelry and dissipation, slumless cities grew of unmatched beauty, books were written of unmatched depth, and paintings were created of unmatched charm.
4. The Size Theory of Business Cycles
If we could overcome the preposterous conceit of considering ourselves the most advanced of all generations, though no other generation has proved itself so utterly incapable of solving its problems as ours, we might at last surrender to the evidence of facts and realize that the small-state world was economically as happy and satisfying as any world inhabited by man could be. It certainly seems to have been more satisfying than the big-scale arrangement that followed it. But why should this have been so? Up to this point we argued with comparisons. Now we must furnish a reason. And the reason for the deterioration of modern economic development is again, as in the case of all other problems of the universe, that something has become too big. And the thing that seems to have become too big is not only the individual production unit which is discussed later, but the production area, the market, the integrated economic territory of modern large powers.
As has already been indicated, it is not any particular economic system that seems at fault, but economic size. Whatever outgrows certain limits begins to suffer from the irrepressible problem of unmanageable proportions. When this happens to a community, its problems will not only increase faster than its growth; they will be of a new order, arising no longer from the business of living but from the business of growing. Instead of growth serving life, life must now serve growth, perverting the very purpose of existence. Economically speaking this means that once a society outgrows its proper size, a size determined by its function of providing the individual with the greatest possible benefits, an ever-increasing portion of its increasing product and productivity must be used to raise not the personal standard of its members but the social standard of the community as such. Up to a point the two are complementary and can be raised simultaneously; but beyond it they become mutually exclusive, the perfected tool turning into a self-seeking master, and the swollen means into its self-serving end. From then on, the more powerful a society becomes, the more of its increasing product, instead of increasing individual consumption, is devoured by the task of coping with the problems caused by the rise of its very power. The more it gains in density, the more is devoured by the process of meeting the problems caused by its increasing density. And the more it advances, the more is devoured by the problems resulting from its very advance.
Examples of the first category of such 'growth' products which enhance the standard of society without adding to the material welfare of its members are what might be called power commodities such as tanks, bombs, or the increase in government services required to administer increased power. In the United States, the production increase in this field between 1950 and 1951, as expressed by the increase in government expenditures, amounted to no less than 18 billion dollars, or 72 per cent of the much-hailed 2 5-billion dollar increase of our total gross national product.9 Growth products of the second category, or density commodities, rendered necessary as a result of population increases but no more capable of adding to an individual's happiness than bombs, are goods such as traffic lights, first-aid equipment, tube services, or replacement goods for losses which would never have occurred in less harassed smaller societies. In 1950, such replacements necessary as a result of fire losses in the United States amounted to almost $700,000,00010 and those caused by the 9 million casualties of the same year -- of which 35,000 were fatal car accidents more than the loss of life incurred in many a major war -- to $7,700,000,000.11 Growth products of the third category, which one might call progress commodities, are (a) improvements rendered necessary by improvements such as the improved anti-aircraft guns whose costs rose between 1945 and 1950 from $10,000 to $275,000, or more than twenty-seven times, so that they could match the improvements achieved during the same period by aircraft which, in turn, had to be further improved to match the increased deadliness of the improved anti-aircraft guns; and (b) those unwanted tie-in products we must acquire along with the desired fruit of progress such as licence plates or parking space with cars, repair work with television sets, idle standby orchestras with gramophone records, or bogus printer's type along with the real. The bulk of the vaunted production and productivity increase experienced by today's great powers goes into these personally sterile but socially necessary growth commodities. It raises not our real but our bogus standard of living by giving us the illusion of increasing wealth while, like currency in inflation, it amounts to nothing but an enormous increase in the price and effort an expanding society imposes on us for giving us the goods we really desire.12
But even if we allow ourselves to be swept for a moment off our feet by the stunning production figures of large-scale economies; and even if we concede that in modern times production can reach such staggering totals that it may lift not only the margin of essentials but of luxuries as well; we cannot ignore the fact that along with vast-scale economies developed the phenomenon of business cycles which, as Penelope did with her cloth, undo in the nights of depression whatever they may have accomplished in the days of prosperity. And business cycles are no longer just inherent in the capitalist system, as is maintained by capitalist and socialist theorists alike. That is why both advocate some form of a controlled economy as a solution to our present economic difficulties. With their modern connotation of destructive-ness, they are inherent in large-scale systems. They arise from overgrowth. A better name for them would therefore be growth cycles, since their destructive nature and scale depend not on business but on growing business, and not only on growing business but on growing industrialisation and integration.13
Nothing proves this better than a glance at Russia where communism has been introduced on the assumption that this would eliminate once and for all the wasteful misery of cyclical fluctuations. Yet, in spite of the most rigid control measures, depressions occur in Russia as regularly as in any other large-area state. The only difference is that, there, they are neither called nor recognized as such. Unable to comprehend why a typically capitalist phenomenon, attributed to the business man's effort to increase his profit, could play havoc also with the heartland of communism where profit is no motive and everydiing is supposed to be under control, Soviet authorities have solved the dilemma by ascribing the mysteriously recurring dislocations of their economy to either incompetence or the criminal negligence of 'the enemies of the people, the Trotskyite-Bukharin and bourgeois nationalistic diversionaries and spies'.14 As a result, Russian depressions have produced the peculiarity of being frequently accompanied by waves of managerial purges, giving rise to the irreverent but highly descriptive term liquidation cycle. Otherwise, however, they show all the traditional hallmarks of old-fashioned cyclical disruptions such as misdirected production, unemployed resources, and the uncanny inability to distribute stocks piling up in regions where they are not needed. Thus, Harry Schwartz quotes in his book on Russia's Soviet Economy a Soviet writer as declaring in 1933 that 'mines, steel works and plants in the light and food industries were choked up with unshipped output. . . The railroads could not even deal with shipments of rails, fastenings, or pipe, the needs of transport itself.' By the end of 1934, the situation had deteriorated to a point that 'there were more than 3 million tons of timber awaiting rail shipment, along with 2 million tons of coal and almost 1 million tons of ore. A total of 15 million tons of cargo, altogether, awaited shipment at that time. Heavy industry alone had 650,000 freight cars piled up awaiting transportation.'15 All this in a controlled economy.
What caused this? Communism? Of course not, since the same things happen in capitalist depressions. Mismanagement? This was still less likely, since the Soviet manager knows that his failure, unlike in capitalist countries, means not only the loss of his job and wealth, but of his freedom and perhaps even his head. Absence of experience and technical knowhow? This can again not be the reason, since their uncontested possession in capitalist countries could not prevent their depressions either. It is inability, the plain sheer unadulterated inability of man to cope with the problems of societies that have grown too large. What Thomas Malthus said of the relationship between food and population -- that the population must outrun its food supply because of its tendency to multiply at a geometric ratio while the latter increases only at an arithmetic ratio -- is true also of the relation between human talent and the problems of size. While the latter multiply at a geometric ratio once an organism begins to outgrow its optimum limits, the human ability to cope with them seems to increase only at an arithmetic ratio, and even that only up to a certain point. No degree or training, university education, or organization can compensate for the pace with which the problems of size outdistance our effort to catch up with them.
This is why no measure of human control, whether suggested by Karl Marx or Lord Keynes, can present a solution to problems which have arisen precisely because an organism has outgrown all human control. The cause of modern business cycle problems can therefore not be found in the natural functioning of capitalism, nor in the mismanaged or immature functioning of communism. It is found in the vast scale of modern economies. It is found in what some lucid Soviet writer was able to sneak into the text of a decree of 26 February 1938, when he wrote in involuntary deviationism from strictly Marxist doctrines that 'the biggest shortcoming in planning and construction is gigantomania'.16 And gigantomania is the natural concomitant not of capitalism but of large-scale development.
The idea that cyclical fluctuations, in so far as they do constitute a major problem, are phenomena of size and not of capitalism seems also verified by the fact that, while they have made their appearance in communist Russia, which is large, they have failed to give evidence of their destructive nature in capitalist countries which have remained small politically as well as economically.17 No one has ever heard of a depression problem in capitalist Liechtenstein or Andorra (or, for that matter, in any country during the early stage of capitalist development, which is always characterized by its competitive small-unit pattern or in largely agricultural countries whose lacework of self-sufficient farms and regions splits their economic unity). Their boundaries have the effect of piers and sea walls, breaking the violence of the storms tormenting the open oceans, and admitting them into the sheltered smallness of the harbour only as harmless ripples. Switzerland, Denmark, Norway, or Sweden, having a number of industries which have broken through the limiting boundaries of their states, are somewhat more vulnerable but, being small none the less, the problems of business cycles have never as yet outgrown the natural ability of their sturdy leaders. One may say that, as in the case of Denmark, Norway, or Sweden, this is due to the fact that capitalism has been tempered by a measure of socialist direction, and that it is because of this that the Scandinavian countries could check the germ of depression more successfully than others. True, they did check it, but not because of socialist direction. All they proved was merely that everything works on the small scale, capitalism as well as socialism. In small states only nature can exert a depressing influence, and with this man's ingenuity can cope. In large states, on the other hand, it is not nature which leads to depressions but man's inability to deal with monstrous proportions. As a result, only there do we find 'poverty in the midst of plenty', except in Russia, where we find poverty in the midst of poverty. Only there do we find factories ready for use, workers willing to work, employers eager to produce, side by side with a total and allegedly inexplicable inability to do anything whatsoever.
The consequence of bigness is thus always the same: the inability to cope with the problems it creates. Whatever large-scale economies may have accomplished in the way of production increase in the only field that counts from the point of view of rising living standards, the field of luxuries, has been devoured in cyclical destruction. And what has not been devoured in destruction has been whittled away by the necessity of dividing the greater product amongst a greater number of people to meet greater needs, or of putting it aside as an idle reserve against uncertain disaster.
It is therefore only when dealing with overall aggregates and national income figures -- which, to paraphrase Marx, are the opiate of all those who delight in the soothing macro-economic approach that has become the unfortunate necessity of macro-social living -- that modern times do indeed show impressive increases in total income and total wealth. But we do not live in macro-economic aggregates, as the youth indicated who complained: According to statistical evidence, there are two and a half women to every man -- and I have none.' So long as society has not become a levelled-off honey-producing bee cooperative, we shall live as micro-economic individuals, at the margin of reality, not in consoling averages. This is the only level that matters. It is there that we realize what we would never guess by reading our textbooks -- that our vaunted modern vast-scale development seems to be nothing but a backsliding device. It runs in vain against the iron laws of economics which, like those of the universe in general, put a limit to every expansion and accumulation. The totals may increase, yet the margins may decline. But it is at the margins where living standards are determined and where we see that, with every new promulgation of record figures praising progress and unification, streets which were previously clean become dirty; and that, with every new economic concentration at the centre, a new slum arises at the widening fringes of the periphery, dissolving its social fabric, and breeding miseries such as no small-scale economy ever knew. For on a small scale, ends never fringe.
Oblivious of their own inconsistency, some of our modernists point out that small states had an easier time of it, being so insignificant in size and population. But this is exactly it! Because they were small, they could not only solve their problems better than their large counterparts; they could do so without the assistance of such brilliant minds as Marx, Schacht, Cripps, or Keynes. They did not need to deal with aggregates which, in large countries, even statisticians can only guess, and whose meaning even experts do not always understand. They could at all times see their economy at their feet -- open, surveyable, manageable. They did not need to operate on assumptions which no one on earth can prove, however great his learning and many his degrees. Even a Minister of Finance could understand what was going on, and could direct economic activities with lucidity instead of daring. And every elementary-school teacher could be Minister of Finance.
What our macro-economists might do, therefore, is not to complain that small states had no great problems because they were so small, and then blissfully suggest their elimination in the interest of economic progress. They might advocate the elimination of the condition that requires a macro-economic approach in the first place. If gigantomania seems our chief economic problem, as it seems also our chief political problem, the solution is of course not further unification but the restoration of a small-cell economic system in which all problems are reduced to proportions in which they can be solved by everybody, not only by a genius, who may not always be forthcoming. A small-cell pattern does not necessarily mean a small-state pattern. But it is so obviously the cure that even Russia has come to the conclusion that she must abandon her original dream of turning the entire country into a single factory. Rather, as becomes increasingly evident, she is developing a pattern of small self-sufficient economic regions. Instead of erasing economic boundaries, she has begun to recreate them, not as tariff barriers but as invisible walls behind which innumerable local economies can be developed within ranges that can again be mastered by normal human beings.18 The same tendency has manifested itself also in capitalist countries in the form of the co-operative movement. The principal device of the latter for eliminating the terrors of violent economic fluctuations is the creation of production and market units of so small a size that their activities can at all times be surveyed and anticipated. Since the consequences of economic behaviour can be foreseen only in units that are small, the smallness of the economic complex is not an accidental but the most fundamental characteristic of cooperative concepts. It excludes gigantomania by constitution, as early capitalism excluded it by competition.
The productive superiority of small economies, based in addition on relatively small economic units, was shown in a United States Senate Report of 1946, of which David Cushman Coyle gives the following summary:'A Senate report in 1946 compared the life of various middle-sized cities which are dependent on either big or little business but otherwise closely alike. In cities A and C about 95 per cent of the factory workers were employed by big absentee companies; in cities B and D only 13 to 15 per cent were so employed. Wages were higher in the big-business towns A and C, but unemployment was worse during the depression. In A and C the stores were poor because of the heavy risk of unemployment, and many people went to other towns.
'Naturally the small-business cities, B and D, had many more business owners and officers, and there were several times as many $10,000 incomes and 50 to 100 per cent more income-tax payers. That is, there was a larger middle and upper class, with loyalties that were mainly local. Accordingly, these small-business cities had more civic enterprises, better co-operation with labour in civic affairs, and a better city to live in. Statistics were there to prove the point. The small-business cities had less than half the slums and a much lower infant death. They had more magazine subscribers, more private telephones and electric meters, more church members, and bigger libraries and parks.'19
5. The Reason for the Illusion of Progress
From whatever point we may look at it, the idea of a rising living standard produced by modern large-scale economic development seems little more than a myth magnified by repetition to a degree that it has taken on the appearance of unchallengeable truth. But how could this have come about, particularly in an age whose scientific pretensions demand that everything must be proved by facts and figures? The explanation is not too difficult.
In the first place, in spite of the mass of figures at their disposal, our analysts are frequently too timid to give them interpretations contradicting accepted prejudices. They do what that acolyte opinion pollster of Denver, Colorado, did before the presidential elections of 1948, when all his figures indicated a victory for President Truman. But because the renowned prince-archbishops of polling proclaimed ex cathedra that the President did not have a chance, he mistrusted the result of his own research and, by his own admission, changed his figures for fear the correct ones would not be believed.
In the second place, even where analysts do not inflict violence on their material, they often convey wrong impressions by comparing the wrong things. Instead of comparing mature large economies such as the United States with mature small ones such as modern Switzerland or medieval Florence at the peak of their development, they compare them with immature small ones such as modern Haiti or medieval England. The reason for the latter is in part because England is the one country with whose medieval history most of us are really familiar. But it is unfortunately also one of those countries whose medieval development was amongst the most retarded. Naturally, by having medieval England instead of medieval Florence, Venice, or Nuremberg in mind, we are able to construe an illusion of our own progress that has nothing to do with reality. The same illusion can be obtained if we compare our farmers' houses with those of modern Haiti which, in spite of being small, is also retarded. To get a proper picture we have to compare them with the peasant houses of small mature states such as Liechtenstein or Switzerland. Then we shall find that it is safer to advertise the progress of modern times in Haiti rather than in the valleys of the Alps.
The most important error, however, has been made with regard not to countries but to periods. Because of the wealth of sources made available through the work of great economic writers, we have fallen into the habit of comparing the well-documented twentieth with the well-documented nineteenth century. Both of these are characterized by the same vast-scale development. Within this period we may indeed say that we have economically advanced. But this is not surprising considering that the first result of economic unification and large-area development was not only an increase in wealth but also in misery. Marx has formulated this phenomenon in his law of capitalist accumulation whose only error is that it attributes to the system of capitalism what was solely due to the overgrowth of its institutions.20 Before capitalism outgrew its competitive small-unit pattern, it suffered little of the subsequent miseries of accumulation. For as long as its cells were small, it provided automatically what our time tries so desperately to accomplish through the use of government direction -- a harmonious distribution that prevented the accumulation of either excessive wealth or excessive misery in the first place.21
It was this period then, symbolized by the advent not of capitalism but of vast-scale economic unification made possible through the industrial revolution, which characteristically furnished as the first sign of its 'stupendous improvement' descriptions of poverty and child labour abuses such as no retarded medieval state could ever have provided. And it was this period which, also characteristically, produced the world's greatest social reform movements. But an increase in social reform movements is a sign of worsening, not of improving, conditions. If social reformers were rare in former ages, it could only have been so because these were better off than ours. After all, man was not less courageous and eager for happiness in the fourteenth century than in the twentieth. All that can therefore be said in favour of the idea that we have advanced is that the living standard of the earlier small-state period had so declined under the first impact of the industrial revolution with its crushing large-scale consequences that the subsequent improvement means only that our present living standard is higher than that of the nineteenth century, but not necessarily of the preceding periods. Nor does it mean that it is higher than that still found today in mature small countries such as Switzerland or Sweden.
Far from solving the insignificant problems of small economies, the solidified large-area states have magnified them to the point where they defy any solution whatever. Were it not so, how could one explain the abject dependence on American aid of such great powers as Italy, France, or Germany? How could one explain why Great Britain, struggling heroically to do without this aid, can give her inhabitants no more than varying degrees of an unvarying austerity? or why mighty Russia, deprived of American aid altogether, can grant none of the amenities of life to her tried populations and depends in addition on the small economies of her satellites to such an extent that she could not permit them to leave her orbit on this ground alone? Or how could one explain why the very birth of another great power, India, was accompanied not by economic independence but by her prompt addition to the list of applicants for American aid? One might say that at least the United States represents an example of the success of large-scale development. But where would the United States be if the other large powers did not need her so badly? We are as dependent on them as they are on us, and the more dependent they are on us, the worse off we become ourselves.
On the other hand, while the gun-doting, grandiloquent great powers of the world seem to show nothing to their account except their inability to support themselves, coupled with a pitiful efficiency in sending one backmailing mission after another to Washington in the hope of maintaining what is still left of their dilapidated greatness, the small states -- whom they are so eager to reason off the surface of the earth on the ground that they are economic anachronisms -- continue to blossom by their own resources. There is no record of help-seeking missions from Switzerland, Sweden, Liechtenstein, or such remote Himalayan states as Nepal, Sikkim, Bhutan, and many another from whom one has never heard because they have never asked anything and are able, in many respects, to provide their citizens with higher living standards without American aid than their powerful neighbours are able to afford with it. If their representatives do once in a while put in an appearance in Washington it is to convey greetings to the President, not to ask gifts. This sounds so incredible that the Washington press corps could hardly believe its ears when Prime Minister Sidney G. Holland of New Zealand told them during his visit in February 1951:'I'm on my way back home, you know, and I came to pay my respects. And I told the President we are making no requests of any kind. There is nothing we need that we can't pay for out of our own resources. I just happened to say we are not seeking any gifts or loans of any kind.'22
Which representative of the vast economic realms of France, Great Britain, Italy, India, China, or Russia could nowadays make a statement of this kind? None! If also small countries are occasionally found in the boat of economic distress, it is only because their problems, as in the case of the giant Marshall Plan area, have been fused with those of their neighbours. But even there they proved to be the healthier of the partners in need, as can be seen from the fact that by far the fastest recovery from the dislocations of World War II has been experienced by the smaller states of Europe such as Belgium, Denmark, Luxembourg, or the Netherlands, and not by the great powers.
6. The Law of Diminishing Productivity
The principal argument against the fetishism of large-scale economies, however, is not derived from the comparison of economic development in large and small states, but from economic law. Every student of economics must acquaint himself in one of his first lessons with the law of diminishing productivity as the most basic of all economic principles. This, however, is again nothing other than the economic version of the small-unit principle which, as we have found, permeates all creation.
The law of diminishing productivity states that, if we add variable units of any factor of production to a fixed quantity of another, a point will be reached beyond which each additional unit of the variable factor adds less to the total product than the preceding one.
What does this mean? Economists distinguish amongst four factors of production, land, labour, capital, and the entrepreneur. Let us assume that the variable factor is labour, and that we add it in varying units to a fixed quantity of land. The yield of this fixed unit of land, if worked by a single labourer, is, let us assume, 10 bushels of wheat. Two labourers may boost this to 22 bushels, three to 27, and four to 28. If we add a fifth labourer, the total may actually decline because each may now be in the other's way and impede instead of assist work. What we see from this example is that, up to the fourth labourer, each additional worker is able to increase the total output, but that already after the third each increase per man is effected at a diminishing rate. Expressed in figures this means that if we employ only two workers, their total product will be 22 bushels, and the product per man 11. If we decide to employ four workers, however, we shall increase their total by only six additional bushels to 28. This means that, though we employ more, the output per man is now much less in terms of wheat, having declined from 11 to 6 bushels.
The application of too much power to a fixed production unit has thus the overall effect of decreasing instead of increasing individual efficiency, though this is hidden for a time by the continued rise in aggregates. In the case of our example, it would thus obviously be more profitable -- provided that land is available in sufficient quantities and could therefore be made variable also -- to apply the other two workers to a second unit of land. In this way, having made both factors variable, the yield per unit of land would decline from 28 to 22 bushels, but the product per man would go up from 7 to 11, and the combined product from 28 to 44. By making other factors variable also and expanding on a small-unit pattern instead of turning a single fixed cell into a compact production concentrate, it is possible to increase general efficiency through expansion and bypass for a time the inexorable law of diminishing productivity.
But, one may say, is this not an argument for larger rather than smaller units? Up to a point, yes, as is indicated by the law of diminishing productivity itself, according to which decline sets in only after a certain expansion has been accomplished. It is therefore not only reasonable but also economical to add fields until they reach the optimum size in the form of a farm. Beyond that, however, efficiency decline can no longer be bypassed by utilizing the variability of factors, since one of the essential factors of production, to which the law applies also, is by its very nature not subject to variation. This is the entrepreneur or, in the case of our example, the farmer. Entrepreneurial ability, being limited and unexpandable once it has reached full maturity, can cope only with the problems of a limited enterprise, an enterprise whose activities do not become dimmed at the horizon. It is for this reason that the law of diminishing productivity is not an argument for unlimited expansion but for limitation, a limitation adjusted to man's unexpandable small intellectual stature.
Every producer knows and follows this basic economic law whether he is familiar with its name or not. And every consumer follows a different version of it under the name of the law of diminishing utility in which the production concerned is not the creation of goods but of satisfactions. We could satisfy our hunger with nothing but a ten-unit chunk of bread. Yet, if we have a chance, we shall prefer to eat only one unit of bread, and one unit of something else such as meat, one other unit of milk, and one other unit of dessert. By taking only first units of different goods instead of a big multiple-unit chunk of a single good, we avoid the deplorable decline of satisfactions which each additional unit of the same good would cause. In this way we are able to increase the total utility of our meals by breaking them down into a succession of small items.
In other words, increase in quantity, mass, size, power, or whatever physical element we may use, does not produce a corresponding increase in productivity or satisfactions. Up to a certain point, yes! But beyond a certain point, no! There is a limit. And the ideal limit is always relatively narrow! It is again Aristotle who has expressed the significance of oversize so succinctly in his Politics when he writes:'To the size of states there is a limit, as there is to other things, plants, animals, implements; for none of these retain their natural power when they are too large or too small, but they either wholly lose their nature, or are spoiled.'23
We experience this spoilage in our typically modern prize-winning attempts at growing fruit or vegetables of monster proportions. They look extraordinary to the eye, but they are not only spoiled, they have also lost their nature. It is like giving a premium for obesity which, as we all know, does not add to, but detracts from, performance. What pleasure do we gain from eating strawberries that are huge but taste like half-brewed beer, or from tomatoes that have the size of grapefruit but taste like soiled water? It is taste that attracts us in food, not bulk. And taste, like vitality, vigour, efficiency, does not increase with size. What does increase, of course, if we add units of effort to fixed quantities, is the aggregate product which keeps growing long beyond the point of diminishing productivity. But although this is not more praiseworthy than the gain of additional weight in a woman after she has reached her optimum figure, we are for ever stunned and impressed by it in the field of economics, forgetting our fundamental aim which is not quantity but quality, not the bulk of aggregates but the flavour of the unit, and not total output but output per man. Four workers do produce more wheat than two, but if four are at work on the same plot, the individual output is much less than that of two. This is what matters. As life becomes more crowded, we cannot avoid the unit decline of productivity. But this is no excuse for diverting our attention from the iron reality of falling individual incomes, and for seeking irrational consolation in the meaningless things that continue to rise such as the aggregates of national incomes.
7. Small versus Big Business Units
As land yields less per unit of added effort after a certain point, so does the firm. According to the same law of diminishing productivity, the performance of an enterprise, after it has reached a certain size, begins to decline in relation to the amount of resources put into it, in spite of the deluding fact that, as always, its absolute performance continues to increase. This is such an elementary fact that Justice Brandeis could properly state that:'A large part of our people have also learned that efficiency in business does not grow indefinitely with the size of the business. Very often a business grows in efficiency as it grows from a small business to a large business; but there is a unit of greatest efficiency in every business at any time, and a business may be too large to be efficient, as well as too small.'24
As a result, a wise business man will not extend his production to maximum capacity but to optimum capacity. Whatever that may be, it is at all times considerably lower than the maximum. It will never be a giant whose forces cannot be fully utilized. Squeezing out of his plant the last possible drops means to get these additional drops of product at a disproportionately heavy expense, so that it is far more profitable to go without these drops. Instead, if he desires to extend his production, the producer will build a new and mechanically independent plant, and begin the battle of diminishing productivity all over again, but with fresh forces, by fanning out on a small-cell pattern. When the optimum size is reached in the second plant, he will build a third plant, or, what is better still, plants II and III will be built by others to make them not only mechanically but also financially independent, and to add not only fresh forces, but new vitality and genius. This is the basis of a healthy capitalism and its most essential secret of success, competition. And since competition means the coexistence of a great number of individual firms, it also means that each individual producing unit must by necessity be relatively small.
Thus a sound capitalist economy, far from thriving on large-scale concepts, is more than any other system dependent on individual diversity and its concomitant, the small firm.25 It is this that has given us our greatest benefits and the firms their greatest efficiency, as we can easily perceive if we compare a few personal experiences and a few impersonal facts.
Everybody knows what it means to buy something in one of our vast department stores. True, we can buy everything in a single building, but is this more efficient? Being located in a large city, it takes us in the first place up to an hour to reach the place. Then we are spewed into an overcrowded interior where we are assisted by snappy information services, watched by discreet detectives, and hurled about until we arrive at our counter. There we line up in a queue and wait docilely for being processed without the benefit of old-fashioned individualized service or courtesies. Instead, neon signs on balconies or inscriptions on the bosoms of overworked sales girls flash the cheerful news abroad that This Store Gives You Friendly Service, or that Our Password Is Politeness. That takes care of that. It is the collective advance apology for any subsequent individual atrocity that may be committed on the customer. But it is useless to complain since rudeness, like any other social vice, is directly proportionate to the size of the social unit within which we move.
At lunch we sit down at another counter whose idea of efficiency is to cascade upon us within sixty seconds all the implements of eating plus sandwich, coffee, and check, so that we are through with the task of replenishing our strength in less than five minutes. Finally, we are caught in a high-speed ejector stream that tears the buttons off our overcoats, and thrust back into another subway. By the time we arrive home we need a steam bath and brandy to revive ourselves. But we acquired a tie at a saving of ten cents and enjoyed otherwise the comforts of having everything under a single roof. In a small town unable to afford either subways or department stores, we get the same thing perhaps at slightly higher prices, but at an enormous saving of time and energy. We are not processed but served. We are not fed, we eat. Each effort yields infinitely more satisfactions which, translated into economic terms, means greater efficiency. Slowing down the record of life to its proper speed, it takes longer to play but it echoes at last the beautiful melodies which the fast-running gramophone of vast-scale living has turned into unbearable shrieks.
What this personal experience illustrates from the point of view of the consumer who exhausts his energy by patronizing super stores in super cities under the illusion of gaining something, a few impersonal facts and data will prove with regard to the producer. When a great combine is organized through the fusion of a number of small producing units into a single large enterprise, we are usually impressed by the unprecedented new output figures. What we overlook in our hypnotic preoccupation with totals and aggregates is that the now amalgamated empire will in most instances produce less than the combined equivalent of the previously independent units unless it maintains these units in physically separate operation. But even then, the addition of new factories cannot stave off the relentless working of the law of diminishing productivity. To quote Justice Brandeis once more:'Man's work often outruns the capacity of the individual man; and no matter what the organization, the capacity of an individual man usually determines the success or failure of a particular enterprise, not only financially to the owners, but in service to the community. Organization can do much to make concerns more efficient. Organization can do much to make larger units possible and profitable. But the efficiency even of organization has its bounds; and organization can never supply the combined judgement, initiative, enterprise, and authority which must come from the chief executive officers. Natiire sets a limit to their possible accomplishment. As the Germans say, "Care is taken that the trees do not scrape the skies".'26
A number of recent studies have made it abundantly clear that the idea of the greater efficiency, productivity, or profitability of large producing units seems largely a myth. The Twentieth Century Fund found on the basis of an analysis of income statistics for 1919, 'that the larger corporations earned less than the average of all corporations; that those with an investment of more than $50,000,000 earned the least; while those with an investment of less than $50,000 earned the most; and the earnings declined almost uninterruptedly, with increasing size'.27 Another study, examining the industrial profits in the United States, found after analysing the data of 2,046 manufacturing corporations from 1919 to 1928, 'that those with an investment under $500,000 enjoyed a higher return than those with more than $5,000,000 and twice as high a return than those with more than $50,000,000'.28 So consistent is this picture that a study of the Federal Trade Commission undertaken for the Temporary National Economic Committee came to the following conclusion:'The results of the total tests reveal that the largest companies made, on the whole, a very poor showing . . . Furthermore, in the tests of group efficiency, the corporations grouped as medium sized or small sized had preponderantly lower average costs of production or higher rates of return on invested capital than the groups of large-sized corporations with which they were compared.'29
The most surprising fact, however, is that, apart from those few enterprises which, such as the railroad or steel industry, are intrinsically dependent on large-scale equipment and organization, not even mass production seems best served by plants of large size. For, as experience has shown, 'the economy of mass production in its proper sense ... is more a matter of the degree of specialization attainable within a single factory than a matter of the size of the plant as a whole'.30 Nor does it seem that large-scale enterprise contributed significantly in another area in which myth ascribes to it more success than the facts appear to justify -- in research. Using the electric-appliance industry as an illustration of the inventive barrenness of modern laboratories maintained at enormous expense by big business, Mr. T. K. Quinn, himself a big business man as former vice-president of the General Electric Company, chairman of the board of the General Electric Finance Company, and president of the Monitor Equipment Corporation, points to the fact 'that not a single distinctively new electric home appliance has ever been created by one of the giant concerns -- not the first washing machine, electric range, dryer, iron or ironer, electric lamp, refrigerator, radio, toaster, fan, heating pad, razor, lawn mower, freezer, air conditioner, vacuum cleaner, dishwasher, or grill. The record of the giants is one of moving in, buying out, and absorbing after the fact.'31
For all these reasons it is precisely the economists who are rediscovering the value of die small-unit principle and who suggest that a multicellular arrangement with as many independent entrepreneurs as are economically supportable would be more wholesome, productive, efficient, and profitable than a world composed of giant concerns spilling across the surface of the globe, unimpeded by limiting boundaries. They are rediscovering that the law of diminishing productivity is more than a mere formulation to be discussed in an elementary economics class. It is elementary. Up to a certain point, the addition of units of productive factors, as additional food in the human body, builds up creative energy; beyond it, sterile fat. Before the optimum size of organization is reached, be it in companies or in labour unions, such additions are used in the fulfilment of their economic functions; after it has been reached, they are squandered in personal or political dissipation, in unwarranted speculations, in unwarranted political pets, in unwarranted displays of power, or in that most wasteful of economic activities: the construction of an idling financial security belt with which overgrown enterprises must surround themselves to withstand disasters that may never occur or, if they do, may not be worth surviving.
Capitalist theorists and even capitalist business men have therefore come to the point where they oppose rather than favour economic concentration,32 and many have made a vicious spectre of concentration driven to its extreme -- monopoly. But what is monopoly in the economic world? Nothing other than what great power is in the political world. It restricts material production and forces on us undifferentiated standardized goods, even as great power restricts our intellectual production, forcing on us standardized platitudes. But the problem of power manifests itself always in the same way, whether it is in the physical, the economic, or the political field. As Professor Henry Simons put it:
'No one and no group can be trusted with much power; and it is merely silly to complain because groups exercise power selfishly. The mistake is simply in permitting them to have it. Monopoly power must be abused. It has no use save abuse.'33
So we are once again back at the problem of power, and once again the conclusion forces itself on us that the way to deal with it is not by attempting to control what is by nature uncontrollable, but by cutting down what has become too big. Our macro-economists suggest cutting too, but at the wrong end. They try to solve the dislocation problems produced by the uneven accumulation of wealth and misery by attacking the consequences instead of the cause. They are always full of ideas of parcelling, redividing, redistributing the income which has been diverted from the swift stream of production into stagnant by-waters. But what should be done is, not to redivide the income from production but the size of the productive unit. For in small firms, little could be spared to accumulate in stagnant pools in the first place. All that would be needed is, therefore, to render the unitarian overgrown enterprises smaller, mobile, and multiple again. In this way, the proper distribution of income -- which is quite correctly thought to be one of the most essential prerequisites of a healthy economy and of a sound policy of protection against unduly severe cyclical fluctuations -- would not need to occupy the time of a single reform economist. For it would automatically result from a proper and well-balanced distribution of productive units. A small-cell arrangement always and everywhere has this one great virtue: it solves the problems, which no degree of planning can handle if they occur on the large scale, by reducing them to proportions in which they solve themselves.
8. Economic Union
We thus see that there is nothing in either economic experience or economic theory indicating that large unified territorial entities are essential to a healthy development. If the most productive form of enterprise in most fields is the smaller business unit, there is obviously no necessity for surrounding it with a giant unified economic hinterland. As a result, a sound small-scale economy, while it does not exactly demand a small-state arrangement, is certainly not damaged by it. In fact, it represents the same thing economically as the small state represents politically, and its health is due to the same reasons. It is therefore a queer paradox that many of those who, having discovered the weakness of huge economic size, are now all out to smash big business and trusts in favour of the resurrection of a small-business world, advocate exactly the opposite in the world of politics. There the unitarian idea of concentration has taken such possession of them that nothing could delight them more than the vision of the monster holding company of a world state. Economically, more than from any other point of view, it would be more consistent with our ideals if we were to have thousands of small states rather than a single big one. That is, if our ideals are individualistic. For a collectivist, it might be different. But even collectivists and totalitarians seem no longer to preclude the development of small, self-sufficient regional economies in preference to an uncontrollable huge-area centralism, as the more recent experiments of Soviet Russia have shown.
All this should indicate that economics, which was supposed to provide the main argument for the unification of mankind into large-area establishments and even a world state, actually furnishes in the law of diminishing productivity the most telling argument in favour of small-cell sovereignty. Instead of centralized integration it suggests once more as a principle not of reaction but of advance the division of all those organisms which, such as trusts, cartels, market areas, or great powers, have become afflicted by the cancer of oversize.
Yet the abandonment of the present large unified-area system of the great powers in favour of a small-state world would not necessarily mean the destruction of all existing kinds of economic unity, even as the abandonment of centralized dictatorship in favour of individual self-determination does not mean the destruction of all previously existing social ties. In other words, political particularism does not automatically entail economic particularism, as we can well see in the United States or in the economic union of the otherwise fully independent Benelux countries. It does above all not entail the recreation of any form of artificial economic obstacles such as customs and traffic barriers running along the political boundaries of small states.
It is this spectre of the restoration of boundaries which seems to hold such terrors to our unification theorists, but only because they cannot visualize that boundaries do not necessarily mean barriers and that, without the connotation of barrier, they are the source of our happiness, not of our misery. This is why all our instincts drive us constantly to create boundaries, not to tear them down. We draw them around our gardens in the form of fences, and within our houses in the form of walls separating our rooms. In harbours, we erect piers to keep out the storms. Boundaries are shelters, and for that reason they must be close to us, and narrow. To tear them from human societies would be like tearing away the shell from the body of a tortoise or the shore from the ocean. But boundaries are no barriers. What we want to keep from the harbour is the storm, not the sea. Making a barrier out of a sheltering boundary would mean to seal off the ocean along with the storms, rendering its very purpose meaningless.
It is the barriers, then, which are detrimental to human development, not the protecting boundaries whose function is to keep things within healthy limits. And barriers, which one might define as unnatural boundaries, would paradoxically become meaningless in the ideal state of competitive capitalism where every business unit casts its own boundaries until it is automatically checked by the forces of competition. The ideal economic portrait of a small-state world would thus be an area full of breathing, changing and self-controlling business boundaries, but free of all obstructing unnatural obstacles such as customs and traffic barriers.
Surprisingly, then, the result of an economic small-unit arrangement would be the disintegration for lack of purpose of the true impediments to economic intercourse, the barriers of traffic and trade, without disintegrating at the same time the continued existence of political or other natural boundaries. The new economic map of Europe, for example, would thus show no barrier at all. It might, in fact, be what economists call a customs union, a territory presenting no obstacle to the flow of goods whatever. It would be a single region but not a unified region. It would consist of a finely woven pattern of overlapping circles, some smaller some larger, indicating the economic territories of the various individual firms. Economically, each firm would thus constitute its own business nation. Local retailers would have, as they do anyway, a boundary of a few miles; their wholesalers, being held down to optimum size by the mechanism of competition, of a few hundred miles. Their reach may already spill across political boundaries. Some firms, producing special or rare products such as gold or steel, would have territories of perhaps a thousand miles in diameter. Finally, those few serving by their very nature whole continents or the entire world, such as certain communication and transportation enterprises, would have their continents of the globe as their commercial domain. In this way, a meshwork of economic realms, each fitting in size its special purpose, could develop without encroachments set up by political authorities.
This has brought us in a roundabout way for once to a kind of unity that is acceptable since it does not represent organizational unity that builds up power with all its inherent dangers, but the physical unity of contiguous territories and market areas. Here unity has sense for two reasons. First, it exists anyway, boundaries or not. Secondly, being a physical reality, it must be served, and thus creates almost automatically its own system of service transcending all man-made boundaries. Such international service unions, in contrast to power unions, are for example the International Dining and Sleeping Car Company, the International Postal Union, or the recently inaugurated European steel and coal union. They resemble the natural monopolies34 of domestic economies and as such are the only production units for which large-area development is justified. Their function, however, is not to unify productive or political entities but, on the contrary, to provide them with the facilities that enable them to remain separate and small. They are here to link, not to fuse, to adjust, not to unite -- as roads passing through a patchwork of fields are here not for the sake of facilitating their absorption in a single large estate but for securing their continued independence of ownership and operation.
. . .
Summarizing, we may thus say that even economics refuses to yield arguments against a small-state world. For, even in the field of economics, the only problem of significance seems to be the problem of excessive size, suggesting as its solution not growth but the stopping of growth, not union but division. We have found that high living standards in large states seem a macro-economic illusion while they appear to be a micro-economic reality in mature small ones. We have found that, as the size of the productive unit grows, its productivity ultimately begins to decline until, instead of giving off energy, it puts on fat. We have found that the reason for this is the law of diminishing productivity which puts limits to the size of everything. And lastly we seem to have discovered the one economic area in which union of some sort may have sense: international customs and service unions. Yet, even in their case, we have seen that their purpose seems not to do away with the allegedly outmoded, diversified, small-state sovereignties with their inspiring boundaries of habits, tastes, education, art, music, philosophy, literature, and cuisine -- but, on the contrary, to serve them and preserve them.
1 Erwin Schrodinger, Science and Humanism. London: Cambridge University Press, 1951, p. 3.
2 Time, 3 December 1951.
3 That this did not mean a low standard of living was well illustrated by an eighteenth-century traveller through Italy and France. When comparing the seemingly poorer life of Venice with that of his native England which was already harvesting the first fruits of the Industrial Revolution, he noted: "Luxury here takes a turn much more towards enjoyment than consumption; the sobriety of the people does much, the nature of their food more; pastes, macaroni, and vegetables are much easier provided than beef and mutton. Cookery, as in France, enables them to spread a table for half the expense of am English one.' (Arthur Young, Travels in France and Italy. Everyman's Library, No. 720, pp. 254-5.)
4 As a monetary inflation, according to Professor Anatol Murad of Rutgers University, is characterized not by an abundance but a shortage of currency which banks must try to meet by issuing increasing quantities in response to the rising demand of people who now need more currency simply to buy the same amount of goods, so a production inflation may be said to be characterized not by an abundance but a shortage of producer and essential consumer goods which is met by manufacturers producing more and more of these new goods simply to obtain die same degree of satisfaction it obtained previously from fewer units of the old ones.
5 G. G. Coulton, Medieval Panorama. Cambridge University Press, 1938; New York: Macmillan, 1945, pp. 69-70.
6 Jane Whitbread and Vivian Cadden (The Intelligent Man's Guide to Women. New York: .Schuman, 1951) have well described the blessings of progress when they write that 'every laboursaving device of the past century has added to women's work. ... A man invents a vacuum cleaner and ... a co-conspirator popularizes Venetian blinds, so there will be something else for the vacuum cleaner to do in a jiffy. A man turns out a simple little mechanism to make melon balls, and it's no longer comme il faut to toss a plain hunk of melon into a fruit salad. ... In the period when beer came in kegs, the man of the house hauled it himself. Now that it comes in handy little cans, even a woman can lug a dozen from the delicatessen. The man who speeds by a woman, stopped by a flat tire, can't be accused of lack of chivalry. He knows that the way they make jacks these days, even a woman can change a tire.'
7 New York Times, 11 November 1951.
8 Pasquale Villari, Life and Times of Savonarola. New York: Charles Scribner's Sons, 1896, p. 45.
9 As to the objection that the period 1950-51 represents an exceptional rise in government expenditures due to exceptional defence outlays, it must be pointed out that in the future high and increasing defence expenditures will not be exceptional but normal, considering that the danger of war is not the exceptional but normal by-product of the uneasy balance of our two-power world. Exceptional was the pre-1950 illusion, inducing a temporary reduction in government expenditures between 1945 and 1950, that defence expenditures could ever be reduced again.
10 Facts and Trends. National Board of Fire Underwriters, Vol. VIII, No. 4.
11 National Safety Council, 1950.
12 The price of society (price of government plus price of security plus price of producer goods necessary to provide us with consumer goods) has risen in the growing United States from 27% of our total gross national product in 1939 to 37% in 1951. Though the latter figure represents a decline from the 51 % of the peak war year of 1945, the trend of the cost of society to increase more than proportionately with its increasing power has established itself firmly since 1947.
13 Business cycles, in so far as they are defined as periodically recurring fluctuations of economic activities, adhere to all economic systems that live, whether they are small or large. They are a sign of life. As such they constitute neither a problem, nor can they be avoided. But while all have as their general cause the dynamics of existence, a number of special causes may have multiplying effects on either specific or all economic systems. And it is the multiplier that constitutes the problem, not the fluctuation, just as in man it is not the heartbeat but the excessive heartbeat that causes concern. Before capitalism, cyclical fluctuations in economic activities were magnified by the cyclical fluctuations of non-economic forces such as weather, disease, or war. With the advent of capitalism, the external non-economic causes were augmented by internal economic causes, magnifying the natural fluctuations as a result of the working of the economic system itself. Modern business cycle theorists are therefore quite correct when they maintain that certain cycles, business cycles in the narrower sense, are inherent in the profit-seeking business system of capitalism. The accumulation of profit or, as Marx says, of surplus value, must periodically lead to the impossibility of selling the full output since those retaining the money profit from production do not want to buy their own surplus product, while those willing to buy it, the workers, have no surplus money left with which they could buy it. Hence, curtailment of production, unemployment, and the idea that capitalist business cycles might be checked through the introduction of a planned economy. Up to a given development stage, the traditional interpretation as well as the idea of an effective cure by control was perfecdy valid. However, with the large-scale integration of modern economies resulting on the one hand from the growth of capitalist business and, on the other hand, from the political integration of increasingly large population complexes, the peculiarly capitalist cause of cyclical fluctuations has lost most of its significance. For even under capitalism, the true problem of cyclical fluctuations has never been one of origin or nature but of scale, just as the problem of waves in the sea is not whether they are caused by winds or the inner agitation of water, but whether they are large or little. And die scale of fluctuations, depending in its magnitude not on the system but on the size of the integrated social complex through which the wave of economic activities transmits itself, has become such as a result of recent unification processes that a controlled economy is as unable to offer checks as an uncontrolled one. For even the effectiveness of control depends on limited social size. Thus while it is true that certain kinds of cycles are in their origin peculiar to capitalism, they have long ceased to be a problem plaguing the world. The modern problem in economics, as in most other fields, has become one of scale, making the distinction among systems obsolete. It is in the sense of the scale, growth, or size cycle, that the term business cycle is used in this chapter.
14 Harry Schwartz, Russia's Soviet Economy. New York: Prentice-Hall, 1950, p. 210.
15 Ibid., p. 337.
16 Ibid., p. 209.
17 The two are not necessarily always the same. Luxembourg is politically a miniature state but through its giant steel industry it is economically a vast-scale economy. Because of this we find cyclical fluctuations of considerable degree in spite of the fact that the country is small, since it is small only politically, not economically.
18 See Harry Schwartz, op. cit.
19 David Cushman Coyle, Day of Judgement. New York: Harper and Brothers, 1949, p. 116.
20 It is strange that Marx should have failed to link misery to the scale rather than the system of economic activities, for no one has shown better than he himself that the weaknesses of capitalism come into existence only when things outgrow certain limits. In his Capitalist Contradictions, as has been mentioned in an earlier chapter, he pictures the decline of capitalism as due to the fact that increasing surplus value will result in declining profit; increasing exploitation in the strengthening of the proletariat; increasing production in declining sales possibilities; increasing competition in the elimination of competition; increasing colonialism in the freedom of the colonies. In each case, the element of destruction is the fact that something increases in magnitude, that growth is driven beyond the point where it is beneficial. Had Marx drawn the logical conclusion from his own diagnosis, he would have suggested the prevention of overgrowth, not the elimination of capitalism and its replacement by socialism which, far from preventing overgrowth, is based on it from its very beginning.
21 There were, of course, great accumulations of wealth in the hands of princes and lords, but these arose not from their economic but their political functions as heads of their principalities. As it would be foolish to accuse the mayor of a city for having at his disposal large accumulations, it would be equally foolish to accuse a former lord on this account.
22 New York Times, 8 February 1951.
23 Aristotle, op. cit., 1326 a.
24 Louis D. Brandeis, The Curse of Bigness. New York: The Viking Press, 1935, p. 109.
25 By the term 'small' firm, as by a 'small' country, is understood in this study an establishment of optimum size. The use of the term 'small' rather than 'medium' or 'middle-sized' which it is meant to embrace, should emphasize die relatively low ceiling limiting development upwards. There is no such narrow limit in the opposite direction. Liechtenstein is a small country, and so is Switzerland. In spite of their vast difference in size, it would be misleading to apply the term medium power to Switzerland.
26 Louis D. Brandeis, op. cit, p. 117^ 162
27 Temporary National Economic Committee, Competition and Monopoly in American Industry, Monograph No. 21. Washington: Government Printing Office, 1940, p. 311.
28 Ibid., p. 311.
29 Temporary National Economic Committee, Relative Efficiency of Large, Medium-sized, and Small Business, Monograph No. 13. Washington: Government Printing Office, 1941, p. 10. In fairness to this quotation, I must fill in the words represented by the three dots which show again the annoying timidity of authors whose figures point so obviously in the opposite direction from acceptable results that they do not venture to draw their own conclusions or, if so, contradict them in such a way as to render them almost meaningless. Thus, after saying that the tests revealed a poor showing on the part of the largest companies, the report continues: 'This should not be taken that in every test all medium-sized or small companies had lower costs or better rates of return than the largest companies. Indeed most cases of highest costs were those of very small companies; this in turn should not be taken to mean that die average costs of large-sized businesses were necessarily lower than the average costs of medium-sized or small businesses.' In the text above I used only the first sentence of this extraordinary sequence because either the largest companies did make a poor showing or they did not. According to the report they did, irrespective of the water the authors poured into their own wine.
30 Professor Frank A. Fetter in his testimony before the Federal Trade Commission (Ibid., pp. 404-5).
31 T. K. Quinn, 'Too Big', The Nation, 7 March 1953, p. 211. Explaining the relative sterility of large laboratories, Mr. Quinn continues his argument against economic bigness by quoting the following from Dr. Clarence Cook Little, former president of the Universities of Michigan and Maine: 'Scientific research is an intensely personal effort... like the artist, the creative scientist must be permitted to pursue his own ideas unhampered by restrictions of organized groups. The large groups have made extremely important contributions only when an original discovery, made by a single individual, is already available for further technical development.'
32 Note the present vogue by which business grows in the biological way, by multiplying and splitting, rather than the political way, by uniting and centralizing. Instead of enlarging existing factories, new ones are built on a smaller scale, and instead of keeping them together, they are distributed over many geographic regions. Another example is the trend of department stores to break down the unity of floor space by creating what Macy's in New York calls the 'thrilling new experience' of 'little shops'.
33 Henry Simons, op.cit., p. 129.
34 Natural monopolies are those enterprises which, such as public utilities, are best organized monopolistically rather than competitively even in an otherwise competitive system. It is the one field in which competition is detrimental. If several telephone companies were to service a city instead of one, each user would have to subscribe to all of them to reach all his friends and associates who might be subscribers to a different system.