SMALL HOLDINGS IN INDIA AND THEIR REMEDIES 467
It must be premised at the outset that in a competitive society the daily transactions of its members, as consumers or producers, are controlled by a price regime. It is production, then, in a price regime that we have to analyse here for our purpose. In the main the modern process of production is captained by the entrepreneur, is guided and supervised by him and is worked out through him. All employers of labour or hirers of instrumental goods are entrepreneurs. His computations run, as they must, in a pecuniary society, in terms of price-outlay as over against price-product, no matter whether the prospective product is offered for sale or not. The entrepreneur, in producing for gain, apportions his outlays in varieties of investments. These investments, the same as factors of production or costs to the entrepreneur, have by tradition been confined to wages (labour) profits, rent (land) and interest (capital). Industrial facts do not support this classification. There are many other factors, it is contended, which as they share in the distributive process must have functioned in the productive process, in some way immediate or remote. But it is immaterial how many factors there are and whether they differ in kind or degree. What is important for the purpose of production is the process of combining them.
This combination of necessary factors of production is governed by a law called the law of proportion. It lays down that disadvantage is bound to attend upon a wrong proportion among the various factors of production employed in a concern. Enlarged, the principle means that as a certain volume of one factor has the capacity to work only with a certain volume of another to give maximum efficiency to both, an excess or defect in the volume of one in comparison with those of the others will tell on the total output by curtailing the efficiency of all. Having regard then to this interdependence of factors, an economically efficient combination of them compels the producer if he were to vary the one to vary the rest correspondingly. Neither can it be otherwise. For, the chief object of an efficient production consists in making every factor in the concern contribute its highest; and it can do that only when it can co-operate with its fellow of the required capacity. Thus, there is an ideal of proportions that ought to subsist among the various factors combined, though the ideal will vary with the changes in the proportions. [17]
These proportions it must be acknowledged are affected by the principle of substitution chiefly brought into play owing to variations in the prices of the factors. But this principle of substitution is too limited in its application to invalidate the law of proportion which is the law governing all
- This description of the process of production is pieced together from the remarks of Prof. H. J. Davenport in his masterly treatise “The Economics of Enterprize” New York. Macmilian, 1913, In this connection see also the able paper by Prof. Henry C. Taylor on “Two Dimensions of Productivity” read before the 29th Annual Meeting of the American Economic Association held in December 1916 and the remarks on the same by Prof. A. A. Young. Both these will be found in the American Economic Review for March 1917.