BASIC FOR ECONOMICS by L. W. Lockhart
Part II : EXAMPLES
4 . LAVINGTON ON BUSINESS ORGANIZATION1
Some Necessary Conditions of Present Day Organization
In societies of the present day the adjustment of economic ways to economic ends is not undertaken by one authority with unlimited power. This complex business is in the hands of a special group of thousands of free entrepreneurs (or undertakers of business). employers, business men (whatever name we give them), every one of whom is working at some small part of the great undertaking. What conditions are normal, everyone of these entrepreneurs, judging for himself and taking chances for which he only is responsible, gets in the open market the necessary supplies of workers, capital, and land, and puts them together into a business undertaking so that goods are produced with a view to supplying some small and special part of the possible needs of society. This fact that the impulse causing the organization of the producing factors and putting them in motions come from a special group of persons, is so important, and so clearly has a connection with the question of how these changes in amount of business come about, that it will certainly be of value to take our discussion farther with a view to getting a clearer idea of the entrepreneur and the conditions of work.
The entrepreneur of to-day has a number of different forms. He may be a private business man, a group of partners, a joint stock company,2 co-operative society,3 a town government or some such body. The special form he takes is not unimportant ; because the growth of the public joint stock company, by making the supply of capital dependent on the changing impulses of the man who makes investments or the trader on the Exchange, is the cause of one more factor in the complex conditions of business changes. But there is no need to go into these forms here. An account of the entrepreneur may be based on what he does. He is the person who makes himself responsible for the producing and undertakes its organization. Everyone who undertakes this work is an entrepreneur ; no one is an entrepreneur who does not do so.
. . . (more) . . . p. 80 for 12 pages . . .
. . . The fact
that business in the present is going well or badly is in this way dependent on the view taken by entrepreneurs of the future
conditions of demand: it is dependent, in a word, on their belief in the business outlook. If the general feeling of security is
high, the complete economic organization gets a stimulus for great-scale operations ; if the general feeling of security is low,
the complete organization comes more or less to a stop. For this reason, is it not probable that the key to the cause of ups and downs in business is in the mind of the entrepreneur, in the factors responsible for the degree of his confidence in the business future ? It is this idea which will be worked out in the discussion in Part IV. The argument will be that the present organization is such that it gives
birth to factors which, acting on the hopes of entrepreneurs, are the cause of an increase in the feeling of security and with t
in the range of business undertakings, which gets greater and greater ;
that this forward move goes on till a point at which the discovery of errors in the readings of the future and other troubling
conditions give a blow to the feeling of security on which it is based, and so a condition of fear is produced ; and that
there then comes a time in which the earlier factors are working the other way round, causing the feeling of security, and
with it the business undertakings dependent on it, to get less and less.
- - - - - -
1 . F. Lavington : The Trade Cycle, Chap. III.
2 . A company controlled by a committee acting in the interests of those who put capital into the company.
3 . A trading society making a distribution of profits among its purchasers.
5 . STAMP ON STIMULUS IN WORK1
(8) Stimulus in the Physiology and Psychology of Work
A very important field, having a special connection with economic questions, is covered in detail by Mr. Sargent Florence in his Economics of Fatigue and Unrest, where a number of statistics of the effects produced by changes in working conditions have been put together with great care. These statistics are of the 'before' and 'after' sort in two groups, and there are not enough different stages given for one to be able to see if the curve of increased outputs keeps level or goes up or down but on looking into the facts with some care, one gets the idea that all these points of adjustment which may be said to be better conditions of work, that is, give it greater "feasibility"2 as the writer puts it, have the same effect as a better instrument or a new invention would have, and that there is no drop in the increased producing power.
As examples of this order of better conditions we may take such things as best (optimum) points in relation to heat, and air conditions, specially in some processes of certain industries ; distribution of times of unbroken work, giving greatest output, while causing least fatigue, least accidents, ad least bad work ; comparisons of day and night work with the same ends in view ; the accident curve hour by hour ; the effects of different distributions of overtime ; observations of motion with a view to the adjustment of hand-operations. And then, tests may be used for getting at the optimum weight -- for example Taylor made the discovery that when iron was transported in units of 92 lbs., the best workman was only able to take this weight for 43% of his time, and by making the unit less this percentage went up, so that the output was increased as much a 276%.
These are examples of the 'increased range', talked of in another connection, more than of any change in reason for work, or stimulus, and if they come within my field at all, they do so only because of the stimulus in the direction of the discovery of such short cuts, or better organization, or body-reactions. This stimulus may come from the interest taken by the psychologist in his science ; from economic interest, in the effects upon output ; from a desire that is to say, to make work more interesting and to have less fatigue and healthier workers.
In Sargant Florence's discussion of what
is covered by the terms fatigue and unrest,
ranging from hate at one end of the scale
to the ill-effects caused by diseases of
industry at the other, he says that they
are like the colour band in the way they
are shaded off one into another, an "idea
of an ever-changing current of feelings and
conditions . . . helping to give light upon
what may be named the different-degrees-of-stimulus argument." He makes a note
to the effect that a stimulus scale has given
unnecessary trouble to those interested
in these questions because of its use for
two quite separate things: (a) different
forms of outside stimulus, such as payment
of a higher or lower output rate or the fact
that days of rest are near, and (b) different
degrees in the power or in the desire to do
work, that is to say in the inside stimulus
or the driving-force with which a man is
working, which may or may not be the
effect of different conditions of outside
The effects of a change of hours upon
the economic output are less automatic and
physical, and have a more straightforward
connection with the body and mind of
the worker because there is a more straight-forward relation between them and the
economic stimulus. After looking into
all the material which gives light upon this
point, Sargant Florence comes to the
decision that "by putting the hours of
work down from 12 to 10 you get an
increased day's output ; the effect of
putting these 10 down to 8 is that the
increased output is at least kept level,
but after this point shorter hours of work,
while increasing the rate of output in
any hour, seem to make the day's output
smaller. These observations were chiefly
made in connection with the sort of work
where the rate of the operation is dependent more or less equally on the worker
and on the machine. Probably where the
machine is a more important factor in
controlling the rate of output, shorter
hours would make the increase in output
less or the drop greater." It has to be
kept in mind that the increase in output
is the effect of a number of factors —-
better output hour by hour, greater
numbers coming to work every day, lower
accident rates, and better quality output.
When hours are made shorter, there is
not an increase in output straight away,
because time is needed for adjustments
to take place, but when the change is
made the other way round, and hours are
made longer it is seen from tests that
there is a drop in output in a very short
time. Vernon made the discovery that
by putting the hours of work down from
S to 6, an hour's output went down by
11 to 14% -— almost to the old level.
There is nothing in any of the recorded
statistics to give one reason for doubting
that the increase in output caused by
shorter hours is kept up, but they do make
it clear that when the hours are made
shorter by stages in equal amounts there
is a marked tendency for the effect to get
less and less. But here one has to take
into account that shorter hours on paper
are not necessarily shorter hours in fact.
When the hours of work are made shorter
on paper there is sometimes an increase
in the number of hours in which work is
done in fact (Florence. p. 208). Things
are very different now from the time of
Senior, when cutting off an hour from 11
hours work was said to be equal to cutting
off all the profit, because there was so much
more fixed than working capital. The
view has been put forward by physiologists that the worker, consciously or
unconsciously, keeps his effort level by
balancing the degree of power used at a
given time against the number of hours
which make up his working day.3 If 12
hours have to be worked in place of 10
the degree of power used will be less
throughout the day, and Vernon makes
the suggestion that there is an unconscious.
balancing of power used causing the surprisingly regular output of workers in
operations needing great physical effort.
Sargant Florence, in a short account of
the effects of rates of payment based on
work done in comparison with time rates
says that they give the right ' stimulus '
only under certain conditions : (a) it is
necessary for every worker's output to be
kept separate and not mixed up with that
of others, (b) it is necessary for the system
to be clear, and when the rates are not on
a scale having a one to one relation to
output it is important for them not to be
fixed in any complex way. (c) it is important for the worker to have no reason for
the belief that his output is being measured
for another purpose -— for example, rate-cutting which has so frequently been the
cause of a drop in output. The statistics
of the effect of starting rates of payment
based on output have been given a number
of times. The British Health of Munition
Workers' Committee, for example, made the
statement that with girls working by day
there was an increase of 24%; by night
40%. In one special branch of the work
the increases caused by the rates based on
output were 28% by day and 48% by night.
But no such stimulus is given when time
rates and rates based on output are used
together. Vernon (Industrial Fatigue and
Efficiency, p. 133) gives an account of how
the output of certain steel workers with a
fixed lowest rate for a day's work had been
cut down to a point which at output rates
would have given less than 60% of the
lowest payment. When this fixed rate
was given up. the output for one day
became almost as much as the output for two days on the other system.
Florence says that the opposite of a
stimulus is given when the rate of payment
based on work done is fixed by observation
of the best worker, or the best time of a
normal worker so that the output is over-judged. Men are so different one from
another that the error made in scientific
organization on a fixed time or output of
80% to 150% efficiency is rightly pointed
out. He gives as an example of a strange
stimulus, the money made by those working on a rate based on output a short time
before their week off, which is surprising
to anyone making observations on fatigue,
and is no doubt caused by the desire to
put money on one side for amusements.
In a general way the value of getting the
worker ' interested ' in the producing process by education and so on has been
frequently put to the test, but we have no
statistics on this point because it is not
possible for the degree of interest to be
"If every worker has a very different day's output after an efficiency system
of payment has come into force, by comparison with what the distribution was
before, this is a sign that it has had the desired effect of increasing stimulus and
getting the workers away from a common level of work" (Florence, p. 224). The
tendency to a common level of output, the higher outputs being more frequent,
is a sign that output is consciously being kept within a certain limit. When the
lowest outputs are most frequent and the output of workers not widely different,
and generally high, after selection of workers by test has come into use, the
tendency may be taken as a sign of the efficiency of the system of selection.
Knoeppel's statement is used by
Florence with approval in a discussion of the stimulus of payment based on output.
"It is best for every man to have before him the idea of a good which is well within
his range of thought, because whenever he gets his desire, some higher good will
automatically take its place. In this way, agreement upon common forms has the
effect not of making fixed conditions of society, but of a common development."
But it is to be doubted if, as a rule, this is true. In the same way in which there
is a balance between effort and hours, so may there frequently be one between
effort and ideas of ways of living. It has frequently been seen that certain
sorts of workers, who are able to get all they are conscious of needing without
working all the week, will not come to work on Mondays or other days.
Lord Rhondda, talking of coal-mining, said : The more men had, the more possible
it was for them to get the necessaries of living, the less effort they made. The
output of a man for a year had got very much less. On the other hand, when
prices went down and payments for work did the same, the fact that the men did
more work made the bad economic conditions worse when they came . . ." 4
I have in mind some works I saw in 1919 and 1920 which make it clear that though
increases in payments for work had been given the men did not make full use of
their increased powers of making money, and other statistics which carne out week
by week through 1921 from which it was seen that the opposite process is true,that is to say, that when the rate of payment goes down the workers make no less money in the hour.
Experience has frequently given support
to the first observation in a general way,
pointing to some normal payment for work which the worker will do much to
get, and after which point he will not be so interested.
In physiology, Sherrington has made an
observation of special conditions, working
against one another as ' reciprocal inhibitions ' of reaction-impulses.5 When
a stimulus is given to one group of muscles,
others become loose. The same sort of thing goes on in the mind, specially in
connection with eye-experiences and attention.6
In psychology, Speannan says, there are a number of facts in support of
the view that there is "competition in
in things of the mind" with the law of
fixed output. "When any operation is
staffed in the mind other operations are
stopped ", and the other way round. The
law of fixed output may be framed in
this way : There is a tendency for every
mind to keep its output at any point of
time fixed in amount, whatever changes there may be in quality.
- - - - - -
1 . Sir Josiah Stamp : On Stimulus in the Economic Live, 8-9.
2 . Make it more possible.
3 . Kent : Second Report on Investigation of
Industrial Fatigue, by Physiological Methods.
4 . Statistical Journal, 1914. p. 174.
5 . == re-action impulses working against one another.
6 . Spearman, Abilities of Man.
(9) Experimenting Psychology
In the field of experimenting psychology
and the measuring of the powers of the
mind by correlation, the mind's reactions
to different stimuli have been measured
up to a point, but not very frequently for
reactions to the same stimulus given over
and over again. The persons on whom
Schafer's tests were made, while getting
into their memory a sense of colours, were
given a shock by having a gun fired off
from the back. The effect of this was a
great loss of memory, the degree of which was measured. When the gun was fired
off again the effect on their feelings and on
their memory was less. Dancing animals
(mice) were trained to go through the
right opening for food and keep out of the
way of an electric shock, but the process
of learning was quicker when the shock
was a small one because " though the
impulse to the selection of another outlet
is increased by all pain from the shock, when there is more than a certain amount
of pain its value is more than balanced by other effects."1
Three fields for observation and experiment are covered by what has been named by the psychologists ' perseveration'2 : (a)
long after-effects that is, reactions in the
mind and body which go on longer than
the outside stimulus, (b) the uncontrolled
coming back into the conscious mind of
our experience, without a new stimulus,
(c) the degree to which the after-effects of
some past experience of the mind keep
a new one of the same sort from taking place.3
Some experiments have made it clear
that, even after working at the same thing
for a number of years, persons have been
able, when the stimulus is strong enough,
to do better that what seemed to them
before to be the limit of their physical
powers. For example, four experienced
printers kept on getting better and better
for the first quarter of an hour every day.
Speannan says " unhappily, the possible
reasons for such increased efficiency are
so complex that one is not able to say at
all certainly what they are. Quite probably the strongest factor was simply that
of overcoming a deeply rooted habit, that
of working at a rate which they were able
to keep up with comfort and without making errors all through the day. It is
not possible for a decision on any point to be based on such facts."4
Nothing certain has come to light from
experimenting with the effects of different
forms of stimulus on boys and girls.5
There is a tendency for a very great effort
—- such as is produced by an offer of
money —- to give an increased rate of
working only by causing a greater number
of errors.6 It is not unlike the bad effect
of forcing the play in forms of sport in which good play is needed.
The experience of men of thought is
different on the point of how far some
specially hard question is best worked out
by making a specially great effort, and how
far this makes efficiency less. Among a
group of learners there was an equal
division of opinion about it. It puts one
in mind of the two different systems of
thought used by Spencer and Mill, details
of which are given in their books about
themselves.7 Graham Wallas has something to say about Mill's system of
consciously making a great effort till it
becomes in part automatic like a habit.
"We see in the two statements the chief
causes which made Mill's thought, though
done by a tired man after or before office
hours, of more value than Spencer's thought, though he gave all his time to it."2
How important a stimulus to effort is in
comparison with a condition in which there
is no driving factor has been made clear by
psychologists' tests. Group3 of sounds
without sense were got by memory in one
experiment after they had been said 13
times and 9 times as against the 89 and
100 times which were needed before, and
they were fixed in the memory for longer
than in the earlier experiment. For the
forming of a habit more is needed than to
become automatic -— a fixed purpose is
necessary and unbroken effort. With
telegraph workers the ' efficiency curve '
only went up when there was a conscious
attempt to get better, caused by a strong
stimulus, such as the desire to get more
money.8 There is general agreement on
the fact that habit has its roots in the
nerves. Mathematical rules for measuring
efficiency curves have been worked out and used. Fox's curve is :--
t = ------------- + T ,
(n + p) c
where t = time necessary for one operation, n, the number of times it has been
done before, k, p and T, fixed factors such as the working-power of the person in question and so on.
* * * *
It would seem from my outline of our knowledge about the reactions to stimulus
in different fields under scientific observation, from the point of view of measuring
them, that the range of what may be measured, in any but a rough way, is still
very narrow ; and no general statements are possible at this stage. But in connection with the system of division, examples may be given in a general way for every
sort of reaction which I put forward in the first place as possible in theory. It is no
use to take over only one line of thought into the economic field. For this reason
we will do well to have no ready-made ideas from medical science, but to go with
care into every example of economic stimulus to see what it is made up of,
keeping in mind all the time that in view of the widely different observations made
in connection with the physical, physiological and psychological factors, wide
different sorts of stimulus and strongly marked lines of division are to be looked
for. It may certainly be said that we have teaching in the field of experimenting
psychology which gives a key to which lines of development will be of most value in
those economic reactions caused by the stimulus to get greater efficiency of mind,
more knowledge, and better ideas.
- - - - - -
1 . Spearman, Abilities of Man, p. 105.
2 . After effects in the mind.
3 . Spearman, Abilities of Man, p. 298.
4 . Ibid, p. 333.
5 . Ibid, p. 333.
6 . Ibid, p. 334.
7 . Spencer, Autobiography 1, 399-401 ; Mill Autobiography p. 123
8 . Art of Thought, p. 155.
9 . Fox, Educational Psychology, p. 118
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