Stephen Leacock - The Unsolved Riddle of Social Justice

The argument of the classicists ran thus. If there is everywhere complete economic freedom, then there will ensue in consequence a régime of social justice. If every man is allowed to buy and sell goods, labor and property, just as suits his own interest, then the prices and wages that result are either in the exact measure of social justice or, at least, are perpetually moving towards it. The price of any commodity at any moment is, it is true, a "market price," the resultant of the demand and the supply; but behind this operates continually the inexorable law of the cost of production. Sooner or later every price must represent the actual cost of producing the commodity concerned, or, at least, must oscillate now above and now below that point which it is always endeavoring to meet. For if temporary circumstances force the price well above the cost of producing the article in question, then the large profits to be made induce a greater and greater production. The increased volume of the supply thus produced inevitably forces down the price till it sinks to the point of cost. If circumstances (such, for example, as miscalculation and an over-great supply) depress the price below the point of cost, then the discouragement of further production presently shortens the supply and brings the price up again. Price is thus like an oscillating pendulum seeking its point of rest, or like the waves of the sea rising and falling about its level. By this same mechanism the quantity and direction of production, argued the economists, respond automatically to the needs of humanity, or, at least, to the "effective demand," which the classicist mistook for the same thing. Just as much wheat or bricks or diamonds would be produced as the world called for; to produce too much of any one thing was to violate a natural law; the falling price and the resulting temporary loss sternly rebuked the producer.

In the same way the technical form and mechanism of production were presumed to respond to an automatic stimulus. Inventions and improved processes met their own reward. Labor, so it was argued, was perpetually being saved by the constant introduction of new uses of machinery.

By a parity of reasoning, the shares received by all the participants and claimants in the general process of production were seen to be regulated in accordance with natural law. Interest on capital was treated merely as a particular case under the general theory of price. It was the purchase price needed to call forth the "saving" (a form, so to speak, of production) which brought the capital into the market. The "profits" of the employer represented the necessary price paid by society for his services, just enough and not more than enough to keep him and his fellows in operative activity, and always tending under the happy operation of competition to fall to the minimum consistent with social progress.

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