CHAPTER II VALUELESS RESOURCES

(1) Valueless idle resources are those which it would not pay any individual to employ, even if no charge were made for their use

THE FIRST form of idleness, we have termed “valueless resources.” Two conditions might be understood by this term: first, resources of no capital value; second, resources which at any time it would not pay any individual to employ for any purpose, even if no charge were made for their use.¹ We shall adopt the second meaning as some resources may be usefully regarded as temporarily valueless; and some resources may have no capital value or a negative capital value, and yet provide valuable services and be valuable in our sense. It is easy to illustrate the conception in the case of natural resources. Orthodox economics has at all times recognized that there exists a huge amount of unemployed natural resources of this type, more and more of which, with developing technique and expanding population, have been observed first, to be drawn into active exploitation; and second, when they are scarce, to acquire capital value. Much unoccupied land falls into this category. Another example is that of the tides which are a source of immense potential power which it seldom pays, at present, to exploit. Equipment, and even the powers of human beings, can be conceived of as falling under the heading of “valueless resources,” although it is less easy to think of instances.

(2) The range of valuable resources may expand or contract

Resources may be employed but valueless. Uncongested rivers, and oceans, and the air that we breathe, may be regarded as examples. No scarcity, or an infinitesimal scarcity attaches to the services of marginal resources in such cases. No social problem arises, as Hume pointed out in 1777,² in respect of the utilization of productive powers of this kind. If they are not employed, it is clearly because cooperant resources can be better employed elsewhere. They make no claim on the value of what is produced. But the more important examples of utilized but valueless resources are to be found where economic change is tending to confer value on them; and they are important because of the light which they throw upon the nature of the employment of resources which lie within the range of valuable resources. The case of land is clearest because we can conceive of the range in terms of the economically arbitrary notion of area. But the conception of a boundary or margin within which resources have some value and outside of which they are without value can apply to all resources, although there can be no idea of measurement of the range so imagined. The position of this boundary may change: it may be extended or it may be drawn in. That is, the compass of resources possessing some scarcity may vary.

(3) The range of valuable resources does not reflect the effectiveness of the response to consumers’ (or some other) sovereignty

Such variations are of importance in studies of idleness; but it must be recognized that they do not indicate the extent to which the preferences of the community are receiving the most effective satisfaction. In other words, variations in the range of valuable resources do not correspond in any certain way with any of the conceptions to which different definitions of social or national income have attempted to give concreteness. As we have already argued, there can be no criterion of the size of production as a whole. The conception of the effectiveness of response to consumers’ sovereignty or some other sovereignty, a response which is not subject to numerical measurement, is the only logically satisfactory criterion of effective production. We make this point at this stage in order to emphasize the error of the very likely assumption that, if the range of valuable resources happens to contract, it is necessarily a phenomenon to be deplored. The point may be illustrated by consideration of the case of an increased demand for leisure, which is one of the causes of what has been termed a “decreased propensity to consume.” Although, ceteris paribus, some physical resources tend to lose value in such a case,³ the result itself is in no sense to be regretted in the light of the consumers’ sovereignty ideal. On the other hand, if there is a similar decreased willingness to cooperate through exchange, owing to a collusive (or State enforced) reduction of the hours of labor, with work-sharing intention, there will be a similar tendency for some cooperant physical resources to lose value (and perhaps to fall valueless) in a manner which does conflict with the ideal. It is probable that most withholdings of capacity (through price or wage-rate fixations, output restrictions, or other protections of private income-rights) have the effect of causing the range of valuable resources to contract; and it is only when these policies are the origin of such idleness that there is any social loss reflected.⁴

(4) The vague phrase “increase in economic activity” can only have meaning if it refers to a fall in the proportion of valuable idle resources to all valuable resources

The question of the position of the margin between valuable and valueless resources may be important for some purposes but it is obviously not the problem with which those writers who use phrases like “an increase in the general level of economic activity” are concerned. If that phrase is taken to mean an improvement in the efficiency with which consumers’ preferences (or some other sovereignty) are being satisfied, it has no obvious relation to this margin. If, on the other hand, that phrase means a fall in the proportion between resources which have value but are idle and all resources which have value, it does have some meaning, although most abstractions of the nature of “general levels” are dangerous.

(5) Purely valueless equipment can have no net scrap value

In the case of equipment, the definition of “valueless resources” is not as easy as with the “gifts of nature.” We have the complication that the idle resources may have a net positive scrap value although no immediate hire value. (We can define “scrapping” as the process of destroying specialization.) Equipment of a given degree of specialization may be thought of as valueless when it would not pay any individual to use it, for any purpose, even if no charge greater than the interest on its net positive scrap value were made. But, ceteris paribus, equipment will be scrapped when its net positive scrap value exceeds its specialized value. Purely valueless equipment can exist only when the costs of scrapping are greater than the scrap is expected to realize.

(6) Resources are not valueless because the costs of depreciation cannot be earned

The fact that, in any instance, depreciation might not be covered if a particular piece of equipment were employed in production (i.e., if the earnings did not cover the sum required to maintain its original physical state) would not bring it into the valueless resources category. To permit a machine to wear out may be socially (or privately) the most profitable way of scrapping it. The excess of its immediate hire value above the interest on its net value as realized material or parts can be regarded as reflecting the immediate specialized value of its services.

(7) Idle unscrapped resources possessing scrap value may be in pseudo-idleness

But if a plant whose services are valueless in this sense (i.e., as specialized resources), yet has a positive net scrap value, is allowed to remain unscrapped, then its continued idle existence may be due to the fact that it is waiting for an expected revival of demand or an expected fall in costs.⁵ If these expectations alone account for its continued idle existence, it falls into a different category which we shall explain later, namely, “pseudo-idleness.” We use this term for the case in which the supposedly idle resources do have scrap or other market value. They are in “pseudo-idleness” when they are being productively withheld from some other use, “scrapping” being one of these other uses.

(8) Idle resources with capital value but no scrap or hire value are “temporarily valueless”

If equipment has no positive net scrap value and no immediate hire value, whilst it still has capital value, it must be regarded as temporarily valueless. Of course, its capital value reflects expectations, not prophecy; and the word “temporarily” merely implies an individual’s estimate.

(9) The idleness of equipment is seldom due to its being purely valueless

The practical implications of these considerations are important. Cases of purely valueless plant and equipment (i.e., whose costs of scrapping are estimated to be greater than the value of the scrap),⁶ seem hardly likely to be frequent, although exhausted mines and derelict jetties on silted rivers are clear examples. With railways and other public utilities, instances are imaginable, but very difficult to discover in practice. Common-sense observation suggests that the condition is virtually nonexistent in the idle plant and equipment which we occasionally contemplate in the industrial world. It always seems that in any price situation in our present experience, there is hardly any specialized plant in the industrial system that an entrepreneur (protected from the coercive power which monopoly confers on others) could not use profitably if he were allowed free access to it; if, that is, no charge for hire entered into his costs. Moreover, we believe that the “most profitable” use would seldom involve scrapping, the destruction of specialized capacity.

(10) Full utilization of existing resources is more likely to cause the range of valuable resources to expand than to contract

But such an empirical judgment may be misleading, for it is based on the assumption of the continuance of the existing price situation. If our economic system permitted the community to make full use⁷ of available resources, the existing price situation would not remain. The effect might conceivably be that in any representative case the cheapening of the product through the full utilization of all available resources would exterminate a large part of the value of much equipment, and so cause it to be realized as scrap or, if it were highly specialized, to push it into the category of valueless resources. But we can hardly assume with confidence that this would happen more often than not if the full capacity in many individual industries were utilized. And even if it were likely to happen, it does not follow that the general release of productive power would have this effect; for the manifold fields of profitable employment of resources when their services are cheap, and the growing diversity of consumers’ preferences which can be expected to result (from economies achieved in realizing ends which we are already able to satisfy under the present regime⁸) suggests that it is much more likely that the bounds outside of which “valueless resources” lie will be extended. Increased “scrapping” might be resorted to; but that does not mean increased idleness. Unless leisure, or other things requiring less of the services of physical resources, happen to be more wanted in consequence of the release of productive power, the willingness to cooperate through exchange will tend to increase and the range of valuable resources to extend.

(11) Resources which have negative capital value but provide valuable services are unimportant

Resources are not valueless in our sense simply because the liabilities attached to their possession are equal to or greater than their value as assets, or because their continued existence involves costs equal to or greater than the revenues they can earn. Indeed, the resources may be of negative capital value, but still have hire value, and hence be valuable as resources so long as they exist. Thus, an edifice like the Eiffel Tower may well cost more to preserve than the receipts obtainable from its use. It may, nevertheless, be preserved because, if neglected, it will be a public danger whilst the interest on the cost of scrapping it is greater than the sum required to preserve it. In the meantime, however, it can provide valuable (i.e., scarce) services. Hence it will not be valueless in our sense. Again, consider the dumps of coal mines which are often a nuisance to development. It has been recently discovered that they can be used for brick-making. Now it is conceivable that in some circumstances they could be utilized for this purpose provided the manufacturer of the bricks was paid a subsidy by the mining corporation for removing the dumps. Thus, the materials would be sold at, so to speak, a negative value; but they would at the same time be valuable resources. Their negative value would be small or large according to whether the demand for bricks was large or small. It might be more realistic to regard the material in the dumps as a by-product of services rendered to the owners of the mine. But the point which must be made is that the resources would not be utilized even if no charge was made for their use. The subsidy, or a contract to remove the dumps, would be a necessary condition. The situation arises when resources obtain value because their utilization enables other costs to be reduced. It is a special case of joint supply, and of hardly any practical importance. We have mentioned it for completeness and because it might lead to misconceptions.

(12) Except for imbeciles, the sick and children, there are no parallels to valueless resources in labor

In the case of labor it is even more difficult to conceive of examples of “valueless resources.” Imbeciles and the seriously sick might be regarded as qualifying, in the sense that there are no means of making their employment profitable. Convicts, the condition of whose punishment or isolation makes impracticable their undertaking work in competition with free labor, fall under this heading also. But if their services are not utilized because “convict labor” is thought of as, say, “unfair competition,” they cannot be classed as “valueless resources.”⁹ Concerning children; although we are not in the habit of regarding the young as property, there is a sense in which they can be thought of as having capital value from the outset. Hence, they might be described as “temporarily valueless.” Parents, guardians and society may, however, be observed to be investing in the young from their birth onwards. In this situation they are best thought of as employed; although, as we shall show later, the actual position is often difficult to interpret. When they reach the age at which they are capable of remunerative work (and we know from history that this is a very early age), they may be withheld from the labor market (a) because to enter it would interfere with their education (i.e., the process of investment in them); or (b) because early employment may destroy their powers and hence the value of their services later; or (c) because leisure is demanded on their behalf as an end in itself; or (d) because their unpaid domestic service inside the home is worth more to their parents than they could add to the family earnings from work outside; or finally, (e) because their competition in the labor market is not wanted. In the first and second cases they do not happen to be in the labor market, but they are employed in the sense in which capital equipment in the course of its own production is employed. In part, both cases may be regarded as examples of “pseudo-idleness.” In the third case it is a type of “preferred idleness.” In the fourth case the children are not idle in any sense. And in the fifth case it is an example of “enforced idleness” or “withheld capacity.” The idleness of the very old is usually “preferred idleness” of the leisure kind, but where the receipt of a pension is contingent upon remunerative work not being undertaken, it must be classified as “participating idleness.”

(13) The “unemployed” are not valueless

If we consider the actual “unemployed,” it is impossible to regard them as “valueless resources.” They are not unemployed for that reason. At low enough wage-rates they could practically all be profitably absorbed into some task, even if their earnings were insufficient in many cases to pay for physically or conventionally necessary food, let alone clothing and housing. In a slave economy, such people might be allowed to die off; or they might, for sentimental reasons, be kept alive. But in the latter case, their efforts would still be available and they would not be “valueless resources” so long as the utilization of their efforts produced more than the extra outgoings incurred. Imagine a society which decides that a national minimum of subsistence shall be provided for those whose earnings fail to procure a tolerable standard of living (tolerable, that is, in the collective judgment). It is obviously unnecessary in such a society that an individual’s earning power shall equal or exceed his freely received allowance in order that his capacity shall be regarded as having positive value. And where philanthropic poor relief exists, the same principle holds. Because a blind man in receipt of services and pocket money equivalent to 30s. a week from a charitable institution can contribute to its funds from the basket-making which he is called upon to do a mere 15s. a week, it would be wrong to think of his services as valueless. Thus, both in respect of capital equipment and labor, idleness due to absence of value is almost certainly rare and unimportant. That temporary absence of hire value, accompanied by a positive net scrap value which we shall call “pseudo-idleness,” is an entirely different sort of condition.

(14) Natural resources which have once been valuable seldom lose all their value, so that any subsequent idleness must be due to other causes

It is not usual for “practical” writers and reformers to think of unexploited natural resources as “unemployed.” But they are not essentially different, economically, from labor and produced resources. Now it can be observed as a fact of experience that once natural resources have acquired value and been utilized or specialized they hardly ever become valueless (a) unless their physical nature changes (as under soil erosion or exhaustion, for example); or (b) unless they are the refuse from production (mine dumps, for example); or (c) unless huge shifts of demand (as from war to peace, for example) take place; or (d) unless communities migrate (from exhausted mining districts, for example). In settled communities, the writer can think of very few cases of land going out of cultivation and pasturage, except under the coercions or collusions of agricultural “cooperation” and State policy, or where soil exhaustion has destroyed its productive qualities, or under apathetic ownership in the case of “social farms,” or where estates are reserved as public or private parks.¹⁰ Still less can instances be found of land, once occupied, losing all capital value; and the continued¹¹ existence of some capital value in such land suggests that in spite of apparent idleness, some services of an income nature are being provided by it. This serves to illustrate further our main point that, whilst it is theoretically conceivable that certain types of labor, capital equipment and once utilized resources can pass outside the margin of profitable employment (when, say, demand is transferred from one set of preferences to another), valueless resources in a “pure” form other than untouched natural resources seem to be rare, and an unimportant type of idleness. The phenomena which reformers deplore when they discuss trade depression are not of this nature.

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1 The phrase “even if no charge were made for their use” covers all but one unimportant special case discussed below (para. 11).

2 D. Hume, An Inquiry Concerning the Principles of Morals, opening of chap. III, part (i) “Of Justice.”

3 See below, para. 11.

4 One

5 This is simply a special case of the general position which exists when the present hire value of unscrapped plant is less than the interest obtainable on the capital realizable from scrapping.

6 The presence of this condition alone obviously does not make resources valueless. It is simply one necessary condition. If it is absent, valuelessness is not present.

7 See chap. 1, para. 10, for conception of “full employment.”

8 For the prices in one industry are costs to a cooperant industry.

9 It is not necessary, as our argument in the previous paragraph made clear, that the costs of housing, feeding and clothing such convicts should be covered by what they can be made to earn, in order to take them outside the category of “valueless resources.” These costs have to be incurred in any case.

10 This is a particular case of utilization.

11 I.e., it cannot be explained as “temporary absence of hire value.”