[Letter] Feb.21,1890,Smith College [to F.H. Giddings]

Feb. 21, 1890, Smith College.

Dear Friend,
        Will you please tell
me how the following strikes
you as a criticism and
correction of the Walker
theory of profits.
 W's profits are composite
i.e. (1) pure profit originating in
a commercial situation and (2)
wages of management. The real
analogy restricts itself to the
second. In the case of a large
class of employees the analogy
holds true only if land be
credited with a capacity for
increasing returns, instead of
diminishing, becoming more 
and more productive per day's
labor as more and more labor
is spent on it. 1st grade
land would then supply the
whole demand. 2nd grade would be
kept by a distinguishable interval
from the possibility of being
cultivated. If with one man per
section land yields 10 bu. of
wheat per acre; with 2 men
per section 21 bu.; with 4
men, 44 bu. etc. then
grade No. 2 is less and less
likely to be used as the cultivation
of No. 1 becomes intensive. No. 1
can command a rent due
to gains from centralization.
To produce 44 bu. on No. 2
would take 4 4/10 men, on
No. 1 it takes 4 .men.
Rent can be, if land is
monopolized, equal to
4/10 of a man's wages say for
a year.
 Applying the analogy to
employees - suppose one of
them could produce to better
and better advantage the larger
his staff became. He would
shut out all others in his
department of production, and get
a rent on his managing power
approximating the gain effected
by the concentration.
 But he does not have a
monopoly of the privilege of enlarging
operations. Employee No. 2 can
enlarge also and effect an economy.
Fit the land analogy to this case.
Land #2 has a power of increasing
returns in a somewhat smaller
degree than #1. This leaves
theoretical and final rent of #1
equal to gains realized by tilling it
less what would be realized by tilling
#2 with corresponding intensity.
It will be less than ( ) 4/10 of a
year's wage, as above.
 But many employees have perhaps
an equal power to effect economy by
enlargement. Fit the land analogy
to this. There are many No. 1
fields all yielding 44 bu. when
work is quadrupled on them.
Enlargement must be gradual.
Sudden cultivation of No. 2 with the
intensity already attained by No. 1
would double the supply and reduce
price to next to nothing.
Beginning on a small scale
leaves No. 2 under the
disadvantage first referred:
and leaves No. 1 in possession
of a rent approximating gains of
centralization. As No. 2 slowly
enlarges its output it touches
on gains of No. 1 and reduces its
rent. This approximates actual
conditions. Large establishments
in possession of field can give
to managers a rent of ability
determined by what society
would lose if the business
were given to the concern that
comes next in order of
enlargement, being of equal
quality as to personnel.
The possibility of hiring
single man out of one managing
corps into another is left out
of account.
 All this is stated
with a brevity that does not
promise much in the way of
clearness; but I think you will
get my notion. How does it
strike you? Is there anything
of positive calm in it? My article
had to wait for June No. of Quarterly,
and I sent ( ) it for a little
revision. If this is worth putting in I
can do it.

         Yours Very Truly,
               J. B. Clark