CHAPTER III THE “X” FACTOR

Under our form of government we count, we do not weigh, opinion. The fact, therefore, that a certain sound principle may long be recognized as such by an economic-informed few is of little consequence. If the majority is wrong in its thinking, then the direction of the whole is more than likely to be equally wrong.

An important point around which there is much popular confusion is the distinction between price levels and costs. Popular reasoning: “When times have been prosperous, prices have been high. Therefore, the way to make times good again is to force prices up to a former prosperity level.” A perfect analogy of this type of thinking: “When I was rich I bought a Rolls Royce and took a trip around the world. Now that I am poor, I should, in order to be rich again, buy another Rolls Royce and re-circle the globe.”

Price-level changes mean little except disadvantage to the average man. His wages have a tendency to go down with prices—they go up slower than prices. On the whole, however, price levels are fairly meaningless. Prices are high—wages are high, or prices are low—wages are low. We merely change the figures with which we deal. After all is said and done, following a price level rise, we get no more loaves of bread for a day’s labor than before. During the boom years, a favorite American pastime was to mark all goods up and call ourselves rich.

But cost is something else again. If we can buy sixty loaves of bread instead of thirty for a day’s labor, our capacity to acquire wealth, is thereby doubled. Such increased capacity to acquire wealth can be accomplished by a sufficient reduction in the cost of the production and distribution of bread. Therefore, the ability to lower the costs of production and distribution of goods and services, which are the only things that compose wealth, is the paramount requirement in any design of more things for more people. The “X” factor, then, begins to take shape. It can be gradually discerned. Here it is in sharp definition:

The “X” factor is a combination of:

1. The ability to reduce costs;

2. The ability to organize idle labor, land and capital to produce additional goods and services.

3. The free play of forces that compel an exercise of these abilities.

Upon the promotion of this factor depends the extent to which more goods and services will be available to more people. Upon the subversion of this factor depends the extent to which impoverishment will exist in the midst of plenty.

The subsequent discussions of government, business, labor and other groups and forces will be confined to their behavior as they promote or subvert this factor. Assuredly, that is a justifiable basis for criticism or approbation of any action. If we can identify some of the major activities and principles that are either promotive or subversive, we will at least have contributed to the decline of befuddlement.

Should we determine the proper direction in regaining the road of economic progress and should we develop some unanimity of opinion as to the correctness of that direction, it is conceivable we might go in that direction. Certainly, no progress is remotely possible unless we first find the road to take and, second, get enough people to agree to take it. Ordinarily, to get ourselves out of difficulties, we would not need to identify a course of action and then get a lot of people to subscribe to it. Natural forces, normally, could be relied upon to do the job better and quicker than any human design. But we have encumbered natural processes with too many artificialities to place any reliance on their healing our present situation in a sufficiently short time. If we are again to witness progress during our generation, it will be necessary for man to disencumber that which he has encumbered. Such a recommendation is plainly reactionary, but it is a type of reaction that is profoundly human.

An Example of “X” Factor Subversion

You manufacture brick. You run a reasonably efficient plant and are able to compete with your two types of competitors, other brick manufacturers and those who fabricate lumber, concrete and the twenty other building materials. Your ability to keep your costs down enables you to engage in this lusty competition and therefore to maintain your employment.

Let us assume that you have one cost which makes up 5% of your overhead, clerical help, for instance. Now because of sheer carelessness, business ineptitude or because you have been politically sold the proposition that industry should increase employment whether that employment is needed or not, you permit this item of overhead to increase eight times. Absurd? Don’t get ahead of the example, we shall examine that later.

Anyway, you let this item of your overhead increase 800%. You do not require the extra help. How will this new, unnecessary cost react? Where will it find its payment? Out of surplus capital? That won’t last long. Out of profits? There are not enough in the first place and besides, no one will give of his best without some hope of legitimate reward. In an increased price for your product? Eventually, it has to land there. Will you be able to compete against your efficient competitors? No, the market won’t reward your carelessness, your ineptitudes nor your fallacious theories. The consumer will not buy your bricks. You will go out of business. Your employees will lose their jobs. You will have subverted the “X” factor!

An Example of “X” Factor Promotion

You are the same manufacturer, operating under precisely the same conditions. You introduce an efficiency into your clerical operations—perhaps a simpler system or maybe a business machine. That efficiency, one way or another, must affect the labor requirements in this department of your business. Let us assume this efficiency results in the release of one man from clerical work. If you let him out of your employ entirely, your unit cost of brick will be lowered. If you place him in another department where his efforts will increase production, your unit cost of brick will also be lowered. If every one of the many possible consequences of this efficiency is carefully examined, it will be found that it eventually results in a lower cost of the product.

When any product is available at a lower price (a lower price resulting from lower costs and not a price level change) the consumer’s capacity to acquire that product proportionately increases. If the consumer doesn’t want more of your products than he is now purchasing, notwithstanding the lower price, he will apply the money thus saved to the purchase of some other product that he otherwise would have been unable to acquire. The consumer’s capacity to acquire wealth will be increased.

No man with any ability will have difficulty finding employment when consumers can purchase the things they desire. Their desires are unlimited. Our instruments of production, running at full blast, could not fill the demand. We haven’t enough factories, enough farms nor enough labor. Our chief requirement, then, is to produce more goods and more services in relation to a given amount of human effort—a given amount of labor. Only new efficiencies, superior methods, can do this. Therefore, when you introduce an efficiency into your business, you promote the “X” factor!