Updated: 3/3/20
Esau took his wives, his sons, his daughters, and all the members of his household, his livestock—all his animals, and all his possessions, which he had gathered in the land of Canaan, and went into a land away from his brother Jacob. He did this because their possessions were too many for them to stay together. The land where they had settled could not support them because of their livestock. So Esau, also known as Edom, settled in the hill country of Seir (Genesis 36:6–8).
This section is an extension of Chapter 31 of my commentary on Genesis. This is the second great division of families recorded in the Book of Genesis. The first one was the division between Lot and Abraham. The same reason was given in both instances: “The land was not able to support them both living close together, because their possessions were very many, so that they could not stay together” (Genesis 13:6). We are not told why the land would no longer support the families and flocks of the two sons of Isaac. It may have been that the Canaanites were numerous, and that the families were able to occupy only a tiny fraction of the land of Canaan. Obviously, when the exodus from Egypt brought 600,000 men and their families (Exodus 12:37) back into the land, it was sufficiently productive to support them. Nevertheless, the Bible is clear: neither Abraham and Lot nor Esau and Jacob could raise their cattle on whatever land was available to them. The curse of the ground (Genesis 3:17–19) made itself felt. The families had more living wealth than the land could support.
The result in both cases was a movement outward geographically from a central location. Lot headed toward Sodom. Esau went to Seir. The limited resource of land suitable for herds and flocks, when coupled with the multiplication of animals, was an incentive for the fulfilment of the dominion covenant. “God blessed them and said to them, ‘Be fruitful, and multiply. Fill the earth, and subdue it’” (Genesis 1:28a). The scarcity of land in relation to the fecundity of man’s domesticated animals has produced a geographical spreading out of mankind.
These men faced the law of diminishing returns, an economic doctrine made famous by the English economist David Ricardo in his important book, Principles of Political Economy and Taxation (1817). The basic idea had been discussed by economists of the late eighteenth century, when Sir James Steuart and the Baron de Turgot both published treatments of the topic in 1767. Steuart’s formulation, later called the law of the “extensive margin,” observed that as population increases, poorer and poorer lands are brought into cultivation in order to feed the newcomers, so that equal amounts of productive effort yield progressively smaller harvests. (Of course, this statement of the problem implicitly assumes that other factors remain constant, especially agricultural technology.) The second formulation, put forth by Turgot, is far more relevant, the so-called law of the “intensive margin.” Joseph Schumpeter’s summary of Turgot’s position is a good one. As equal quantities of capital (or labor) are applied to a given piece of land, the quantities of the product that result from each application will at first increase, then decrease. If more applications of the same resource are added, given a fixed quantity of land and fixed technology, then output will eventually fall to zero. Schumpeter wrote in his History of Economic Analysis: “This statement of what eventually came to be recognized as the genuine law of decreasing returns cannot be commended too highly.” He went so far as to say this: “It embodies an achievement that is nothing short of brilliant and suffices to place Turgot as a theorist high above Adam Smith.”
1. Variable Proportions
After 1900, American economists termed this observation by Turgot “the law of variable proportions.” First there is an increase, then a decrease in output per unit of resource input. This is easiest to understand in the case of agriculture. Assume that you own three factors of production: land, seeds, and water. You plant the seeds. Unless water is added, nothing will grow. These are complementary factors of production. You add water. Over time, the seeds will become plants. The transformation is large as a percentage rate of return: from no plants to plants. Say that you add more water. Depending on the recipe or formula, there may be even more output. But, at some point, the addition of more water will produce a lower rate of return per additional unit of water. If you continue to add water, new plants will not grow. There is too high a percentage of water. The ground is water-logged. If you continue to add water, the returns will become negative. The existing plants will die. You will have fewer plants than you had earlier in the process.
Assume that there is a single acre of land. One man works the land by himself. He has trouble lifting large rocks, and he cannot move boulders. Rolling logs is very difficult. Then he hires an assistant. Now certain jobs become manageable, and some, which were previously impossible, become possible. The total output produced by two men may be more than double the cost of each man’s wages. So, the owner of the land hires another man, and another, and another. Eventually, the men begin to get in each other’s way. Production sags. Costs increase. It no longer pays to hire more men. It may even pay to fire one or more of them. Marginal net returns—the profits from the addition of one resource factor to the “production mix”—eventually fall to zero, or even becomes negative. The costs of employing an additional laborer eventually exceed the benefits derived from that additional laborer.
This is precisely the problem that Jacob and Esau faced. Within the confines of the available land, the two families could no longer remain productive. The land had “filled up.” This did not mean that cattle were standing side by side, or that the tents of Esau’s servants were right next to those owned by Jacob’s servants. But the productivity of the land was falling noticeably. The output of cattle, whether in numbers, or weight, or however the two family leaders measured output, was falling because there were too many of them for the relatively fixed supply of land. Esau reached a major decision. He left in order to find a more profitable “mix” of cattle and land. He went searching for the “wide open spaces.” This demonstrates the importance of the curse of the ground for the goal of geographical dominion. Because every single acre of ground has been cursed by God, productivity per acre has been restrained. Those wishing to multiply their flocks or crops are eventually forced to subdue more ground. They cannot remain on that original plot of ground and progressively expand the physical output of goods. If they want more wealth, they must seek out available land to bring under cultivation. Their desire for greater wealth impels them to bring more land under cultivation.
In the case of land, the law of diminishing returns tells us that there are limits on the soil’s ability to sustain life. If a land user refuses to acknowledge the existence of such limits, then his attempts to expand output by adding more and more complementary factors of production—more seed, more laborers, more water, etc.—will eventually deplete the soil. This is one technological reason why Israel was required to rest the soil one year in seven (Leviticus 25:1–7). [North, Leviticus, Leviticus, ch. 23.] Before the soil is completely exhausted, the law of diminishing returns will make itself felt. Output per unit of resource input will decline. The farmer will have to add fertilizers, use new technological devices, implement a system of soil-replenishing crop rotation, or allow the land to lie fallow if he is to save the value of his land. The law of diminishing returns therefore provides men with an economic incentive to care for the land and make it fruitful by acknowledging and honoring its limits.
2. Beyond Agriculture
The law of diminishing returns is not limited to agriculture. It is basic to all economic production. The limits of scarcity are everywhere. Schumpeter’s discussion of this point is informative. Both Steuart and Turgot spoke of agriculture only. In 1900, this would not have astonished anybody, since it was then established practice to restrict the law of decreasing returns to agriculture. Economists today understand that neither increasing nor decreasing returns are restricted to any particular branch of economic activity but may prevail in any branch, provided certain general conditions are fulfilled. They do not recognize how surprising this intellectual breakthrough actually was.
The correct explanation for this lack of understanding before 1900 seems to lie in the fact that, to the unsophisticated mind, there is something particularly compelling in the limitations imposed upon human activity by an inexorably “given” physical environment. It takes prolonged effort to reduce the analytic importance of these limitations to their proper dimensions, and then divorce them from the soil and the industry that works the soil. Yet it should not have taken so long to see that there is really no logical difference between trying to expand output on a given farm vs. trying to expand output in a given factory. If farms cannot be indefinitely multiplied or enlarged, neither can factories. The additional explanation required is provided by the belief of practically all classical economists: while one factor (land) was given once for all, the other original factor, labor, would always increase to any amount required if allowed to do so. If we adopt this view, we can sympathize with the reluctance of those authors to treat labor and land alike, and then apply the laws of physical returns impartially to both. In other words, all economic resources are limited. Put another way, at zero price, there is greater demand for most goods than supply of these goods. This is what defines a scarce resource.
No single resource or good can provide us with all the output we could ever want. There is no magic formula, no genie in a bottle, that can provide us with an infinite supply of desirable goods and services. We cannot turn stones into bread—not at zero cost, anyway. The limited productivity of land, and the limited supply of land, force us to search out new supplies of land when our productivity presses against the limits of the land. But the same restraints apply to all resources. No asset is infinitely productive. If we want more steel, we must build more steel mills, unless we can develop a cost-effective technology that enables us to expand steel production in the same factory.
The curse of the ground also implies a curse on man: technology is not infinitely expandable. Contrary to Schumpeter, there are decreasing returns to technology. Man is not originally creative, nor is he infinitely creative. He is a creature. In any case, even if we admit that men have enormous powers of technological creativity, there are two further limits that can never be overcome: time and capital. It takes time to develop and install a new technology, and it takes capital resources. The day of judgment limits the first factor, and the curse on the creation limits the other. The rate of interest—the discount we apply to future returns—also limits the application of technology. Men will not and cannot give up all present consumption. For this reason, there is an inescapable discount rate applied to future income as against present income.
3. Negative Returns
Whatever man turns his hand to will eventually produce negative returns (losses) if the producer insists on adding ever-greater quantities of complementary resources to a fixed supply of any particular resource. He will have to search out new ways of combining these resources, or find quantities of the overextended factor of production that can be purchased or rented at prices that enable him to increase the value of his production’s final output. His desire for increased wealth impels him to devote energy, capital, and time to subduing his portion of the earth.
In the early phase of the production process, the resource owner sees an accelerating rate of return to this marginal factor. He has moved from a single factor of production, which is not autonomously productive, to a joint production process. The rate of return accelerates. But as the original factor is swamped by additions of the marginal factor, the law of decelerating returns asserts itself. There is too much of the marginal unit in the process.
When we speak of a production process as a recipe, we clarify the matter. In any recipe for a meal, there is an optimum mix of ingredients, at least for the tastes of a majority of those who eat it. The cook must plan accordingly.
In a market economy, there are objective indicators: prices. There is also an accounting system. When the objective price of a marginal input and the objective monetary return from this unit reveal negative returns, the manager is alerted to stop adding another marginal unit. He does not make this judgment in terms of subjective value, whether his or the buyers’. He judges by prices. The price system conveys useful information. He knows when to stop.
This was the title of an influential article in Science (13 December 1968), written by biologist Garrett Hardin. He argued that land that is not privately owned by the person using it is far more exposed to reckless soil depletion and ecological devastation. This is the so-called “tragedy of the commons,” in which the political authority owns the land and leases it out (or even temporarily gives it away free of charge) to private or public uses. The man who benefits immediately from its use—running animals on it, stripping it of its trees, camping on it, digging minerals out of it—has little direct incentive to conserve its productivity. If he had exclusive use of it for many years, he might, but that is almost the same as reintroducing private ownership. His personal benefits are directly and immediately realized; the costs associated with the depletion of the resource are borne by all tax-paying citizens—an infinitesimal additional cost to the actual user. Because it is not his land, he need not conserve its long-run productivity. A kind of positive feedback occurs. It generally pays to add one more cow or cut down one more tree, unless the variable costs—supervising the cow, sharpening the saw, spending the time—have risen so high that even the “free” land is not a sufficient subsidy to continue production. The positive feedback process can continue until an ecological crisis hits. Then the productivity of the “free” resource plummets. The negative feedback of the law of diminishing returns is temporarily blunted, because the retarding factors—increased costs of maintaining the long-term productivity of the resource—are not forcefully registered in the mind of the user. Others also bear these costs, and his personal benefits far outweigh his share of them.
Eventually, the law visibly reasserts itself, since it is a regularity based on a real fact: the curse of the ground. But the looming crisis may give few warnings, at least few that the user will recognize or respect. It comes all at once, not in smaller portions that an owner of private property would be more likely to recognize and take steps to alleviate or reverse. Without private ownership of the means of production, the law of diminishing returns does not produce those warnings concerning the impending advent of radically reduced output from an over-used resource. Or, more accurately, the warnings are not heeded so rapidly. Economists call this the problem of externalities.
It is extremely difficult and costly for bureaucracies to evaluate the long-run effects of the use of any publicly owned resource. The costs of upkeep in relation to the benefits of use are evaluated by different people. The reality of the subjective theory of value asserts itself. The bureaucrats in charge of managing or leasing the public property must estimate the value produced by the users of the resource, but this is impossible to estimate accurately without prices. But even prices do not tell the administrators everything they wish to know. Is the subsidy to the public of “free” land, for example, really the best way to benefit the public? How can any bureaucrat determine the answer? Are the costs too high? Again, how can he put a price tag on the costs if the asset is publicly owned and therefore not subject to the subjective evaluation of costs by its legal owners, the voters? Who is to say whether the bureaucrats’ assessment of the “true” costs and benefits to the “public” are the same as the “public” would assess them? And how is the “public”—a collection of individuals—to register its collective judgment? Who pays the piper, whose ox will be gored, and who eats the cake?
The management of publicly owned resources tends to swing between policies of overuse and no use, between (1) the profligate squandering of resources through “free” leases that lead to erosion, and (2) the mandated inactivity that leads valuable assets to sit inactively. First, the bureaucrats allow erosion; then they require total conservation, which means that productive assets are rendered unproductive, or productive only for those few people who enjoy using the resource in a legally acceptable way, such as hikers who enjoy the wilderness, but who do not enjoy the sound of chain saws or other tools of production. The Puritans of New England learned these lessons early. After 1675, with almost half a century of mismanaged common lands behind them, they steadily sold off the communally owned property to private owners. The bickering about who was to pay for the cattle herders, how many trees were to be cut down yearly, whose fences were in disrepair, and the costs of policing the whole unmanageable scheme, finally ended. So ended the “tragedy of the commons.”
When structured by means of the private ownership of scarce resources, the law of diminishing returns becomes an incentive for the extension of the dominion covenant. Men reach the limits of productivity of a particular production process. They are then forced to find better methods of production, or find additional quantities of some overextended factor of production. They must either intensify production through better technology and more capital, or else search for more of the resource that has reached its limits of productivity under the prevailing production “formula” or “recipe.” The overextended resource may be land, a building, the labor supply, managerial talent, forecasting skill, or any other scarce economic resource. When its limits are reached, men have an economic incentive to find new ways of accomplishing their goals. They may have to re-think their goals because the costs have risen, or else they must find ways to reduce the costs of achieving their goals. Or they may have to settle for a combination: modified goals and reduced costs of production. But they must change. Along with many other factors, the law of diminishing returns makes change inevitable.
The culture that economic change produces in a profit-seeking society in which the private property system prevails is dominion-oriented. The earth is subdued, if not because men aim at subduing it for God’s glory, then at least for individual profits. The general dominion covenant is furthered. By fostering conservation, the quest for long-term returns from the ownership of any productive resource also tends to preserve the productivity of the earth. The dominion covenant is not to serve man as an excuse to destroy the earth. Because men failed to give the land of Israel its rest, they went into captivity for 70 years (II Chronicles 36:21). They were warned not to misuse the soil.
We must pay a price for a productive asset: the expected rate of return from that asset, meaning a stream of income over time, discounted by the rate of interest. We have an incentive to maintain that resource’s productivity. We are pressured to count the costs of ownership and use. The law of diminishing returns is inescapable. We must recognize the limits of scarcity. Having recognized these limits, we are to find ways to mitigate scarcity’s burden in lawful ways by expanding output, improving our techniques of production, and buying more capital resources. We must count the costs and evaluate the benefits. We become winners or losers as individual decision-makers. If output falls when we add more inputs, we are pressured by falling profits to discover why. We are told by the profit-and-loss accounting statements that we are now overusing a particular resource, and that we must stop doing so if we are to keep from wasting resources. The search begins for more of the overextended resource or for techniques of production that compensate for the falling productivity of the present production mix. The dominion covenant is extended.
In Esau’s case, he decided to leave. His decision led to the establishment of Edom. It also allowed Jacob to increase his family’s holdings, at least until the time of the great famine when they journeyed to Egypt. The Canaanites who dominated the land in the era of the famine enjoyed their independence after that famine until Israel’s conquest. Both Jacob and Esau were to increase their dominion of the earth as a result of the law of diminishing returns. It forced them to seek new lands to conquer.
The law of diminishing returns applies to every area of production. It is not only agriculture that is subject to it. This means that in every industry, the law of diminishing returns forces business owners to seek new ways to produce products less expensively by adding different factors of production or by using new formulas. The search for a more productive mix of factor inputs furthers dominion.
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