a reduction is not possible. If, e. g., cotton-mills, threatened by foreign competition, seek to cut their costs, they are not in a position to lower the prices of raw cotton, as the price of the latter is unaffected by the question as to whether the demand for quantities sufficient to meet our consumption requirements is evinced by domestic or foreign spinning mills. Nor is the prospect any better for procuring any more cheaply the spinning jennies which are imported from England. There remain, accordingly, only the factors represented by wages and profits. The strongest pressure is brought to bear, of course, upon wages. If weaving mills seek to reduce the cost of production of fabrics, they are able to force down the prices of yarn only in so far as the spinners transfer the pressure to their operatives or reduce their own profits; as for the rest, the weavers too, in turn, can, for the most part, only reduce wages and their own profits. At the same time, it is possible, by virtue of the reduction of the costs of production thus attained, to maintain, to a greater or less degree, the domestic production which would otherwise be suppressed through foreign competition. In this case, instead of the cessation of a portion of the domestic production, there ensue lower profits and wages, and a deterioration in the livingconditions of the workers,-a situation which carries with it more unfavorable working-conditions for the whole branch of industry, serving to diminish the demand, on the part of the operatives, for articles of consumption, and thus to reduce, indirectly, the production of other goods. The process is similar to that which occurs in the case of pressure brought to bear on an industry by a more favorably situated competitor: instead of a sudden collapse, a chronic disease sets in, as it were.

In consequence of the importation of commodities susceptible of domestic production, the sum-total of domestic production is, accordingly, diminished, and economic life thus impaired. This limitation of production is not to be regarded as an economic disadvantage from the standpoint of an abstract striving after the maximum amount of production, but rather from the standpoint of a diminution in the quantity of commodities which is produced by the population and is available for the satisfaction of its needs and for the fulfillment of the purposes of the State.

XV

BRENTANO: THE TERRORS OF THE PREDOMINANTLY INDUSTRIAL STATE1

ERMAN political economy has for several decades been undergoing a radical transformation. During the last thirty years manifold changes have become apparent in German economic life. The most important of these changes is indicated by the fact that, whereas from its earliest existence up to the most recent times Germany was primarily an agricultural state, during the last thirty years it has been steadily approaching the status of a predominantly industrial state. Such a transition cannot be effected without severe internal struggles. This process is ordinarily accompanied by changes in the political importance of the social classes which play an active rôle in the different economic trades and professions. It is perfectly natural for the social classes which, in consequence of the rapid growth of new classes, are thrust relatively into the background to make every possible effort to retain their influence; it is, in fact, only human for them to be honestly convinced that the very future of the fatherland is threatened by a movement which relatively diminishes the importance of their own rôle, and for them to predict the most gloomy consequences on the basis of the growing strength of their rivals. On the other hand, there is great activity on the part of those who perceive, in the demand of their opponents that the natural course of development shall be opposed, a threat directed against the development of their powers. This situation thus gives rise to the struggle which is being waged so vigorously on both sides.

1 Lujo Brentano (1844- ), Die Schrecken des überwiegenden Industriestaats (1901), pp. 5-52.

I

The change which has taken place and is still in progress consists in a transformation in the organization of the German population according to trade or occupation. The German vocational statistics serve to throw light upon this question. If one compares the total agricultural population with that engaged in industry and trade, one finds that of every 100 persons there were engaged:

We see, accordingly, that as early as 1882 it was no longer true that even one half of those who belonged to the three vocations in question were supported by agriculture; by 1895 the share represented by agriculture was only 41 per cent. Since this time the population of Germany as a whole has increased 7.78 per cent in the predominantly industrial sections, 18 per cent; in those districts which are primarily agrarian, on the other hand, only 5 per cent, showing in fact, in certain sections of the country, an actual decrease. If a new census were to be taken to-day, it would probably show that, at the present time, of every 100 persons belonging to the three vocational classes in question more than 60 are engaged in manufacturing and trade and less than 40 are supported by agriculture.

Not only vocational statistics but, no less clearly, the economic position of the different occupations with reference to one another, and the distribution of income, as well, show that the center of gravity of German political economy is no longer to be found among the agriculturists and the rural population; and our whole financial system is already based on the recognition of this fact. No one, accordingly,—unless he be a pettifogger,-questions the fact that the German Empire is to-day primarily a manufacturing state; and it is precisely this fact which is responsible for the plaintive longing for a return to the organization of the predominantly agrarian state.

II

But what is the source of this transformation of the German Empire from a state predominantly agricultural to one predominantly industrial?

This phenomenon is the result of the so-called law of diminishing returns in agriculture. It is perfectly evident that a given surface cannot yield an unlimited quantity of produce. But long before the upper limit of productivity has been reached it is found that the increased application of labor and capital to the soil shows a relative diminution in profit. The amount of produce is susceptible of increase, absolutely considered; but every such increase is possible only through a relatively greater application of efforts. The result is that a growing population can be supplied with foodstuffs only at greater expense than hitherto. Temporarily, to be sure, the operation of this law can be neutralized by an improvement in the technical methods of agriculture. Technical progress may make it possible to increase the returns not merely absolutely but relatively as well, that is, in proportion to the investment involved. But such technical progress presupposes conditions which cannot always and at every place be fulfilled. It can take place, accordingly, only to a limited extent; and, even where it does occur, its tendency to reduce expenses is impaired, if not actually neutralized, in consequence of the increase in the price of the chief economic means of production, the soil, due to the increase in population. Moreover, as soon as the technical improvement in question has been effected, the law of diminishing agricultural returns again comes into operation. Every further application of labor and capital to the soil yields, once more, relatively smaller returns. Moreover, there is always a final limit to the amount of produce which a given area can be made to yield. Thus, as soon as the population of a country has reached the point where all the available soil is under cultivation, the crops necessary for supplying this population with food can be produced only at progressively greater expense. In connection with manufacturing, on the other hand, the converse holds true. In this field the chief means of production are represented by augmentable capital. As the most important means of production essential to the manufacture of a greater quantity of commodities can be obtained

at the same price as in the case of the production of a smaller volume of these commodities, the same is true of the products of the industry in question. As the ten-thousandth spinning machine can be manufactured as cheaply as the first, it follows that the thread which it has woven can be furnished at as low a price as that spun on the first machine. Nay, more. The ten-thousandth spinning machine can be produced more cheaply than the first; for its manufacture on a large scale costs less than its production on a small scale, and the larger the spinning machines become in consequence of the increase of the amounts of capital applied to their production, the smaller is the cost of a single spindle. It follows from this that the thread can be supplied at progressively lower prices. The essential costs of manufacturing industrial products decrease, accordingly, in proportion to the increase in the application of capital to their production.

There is thus a tremendous difference between agricultural and industrial production. The principal means of agricultural production are found in the soil. This is available in only limited quantities and becomes increasingly expensive, yielding greater returns, furthermore, —apart from exceptional cases over whose conditions man can exercise no control,-only at proportionately greater expense. The chief means of industrial production, on the other hand, are represented by augmentable capital. These factors can be obtained not only at a uniform expense but at a progressively lower cost; and every additional application of labor and capital in this field yields, accordingly, a greater return. It follows from this that the number of human beings which a country can supply with food is in inverse ratio to the extent to which it devotes itself to agriculture; and this consideration explains the greater density of population of manufacturing countries. Likewise the accumulation of a surplus over and above the amounts invested-that is, the accumulation of wealth-proceeds far more slowly in agrarian districts than in regions which are primarily industrial. It is for this reason that, as soon as the population of a country increases to such an extent that it becomes impossible to produce at home the essential foodstuffs save at exorbitant expense, the country in question turns in increasing measure to industry. In this way it becomes possible to offset the increasingly unfavorable character of the natural means of domestic production, through the importation of the products yielded