Epistemological Problems of Economics

Economic progress in the narrower sense is the work of the savers, who accumulate capital, and of the entrepreneurs, who turn capital to new uses. The other members of society, of course, enjoy the advantages of progress, but they not only do not contribute anything to it; they even place obstacles in its way. As consumers they meet every innovation with distrust, so that new products at first are unable to command the price that they could reach if the buyers were less conservative in their tastes. This is the reason for the not inconsiderable costs of introducing new articles. As workers, the masses fight against every change in the accustomed methods of production, even though this opposition only seldom leads today to open sabotage, to say nothing of the destruction of the new machines.

Every industrial innovation must take into account the fact that it will encounter opposition from those who cannot easily accustom themselves to it. The worker lacks precisely the nimbleness of mind that the entrepreneur must have if he is not to succumb to his competitors. The worker is unable and often is even unwilling to adapt himself to the new and to meet the demands that it makes upon him. Precisely because he does not possess this ability he is an employee and not an entrepreneur. This slowness on the part of the masses works as an obstacle to every economic improvement. It too represents the effect of the influence of the past upon labor as a factor of production, and as such it must be taken into account in every calculation of new undertakings. If it is not taken into consideration, then there is just as much malinvestment in this case as in all other cases in which an enterprise proves to be unprofitable. Every enterprise has to adapt itself to the given situation, and not reckon on the situation it would like to be given.

This applies in particular to enterprises established in regions in which suitably qualified workers are not to be found. However, it is no less valid for those that have been established with the purpose of utilizing workers of inferior ability, as soon as this inferiority disappears—that is to say, from the moment in which “cheap labor” is no longer available. A great part of European agriculture was able to withstand competition from farmers working on better land abroad only so long as culturally backward masses could be employed as workers. As industry was able to attract these workers and the “flight from the land” began, the wages of agricultural laborers had to be increased in order to make remaining on the farms more attractive. Consequently, the profitability of running these farms dwindled, and the great amounts of capital that were invested in them in the course of time now proved to be malinvested.