| This is because if the productivity of labor
were threatened by a relative excess of labor and a relative
deficiency of capital goods, the effect would be a drop in the
demand for labor, and thus in the wage earners’ demand for
consumers’ goods, and a rise in the demand for capital
goods. The effect of this, in turn, would be a higher relative
production of capital goods and a lower relative production of
consumers’ goods. The larger number of workers of each year
would find sufficient additional capital goods available
because they would be produced by a larger proportion of
the labor and capital goods of each year, as well as by a
growing volume of labor and capital goods from year to year.
And, as time went on, the positive effects of the unlocking
of more human talent would occur. The effect of this would be
an increase in the output of capital goods (and consumers’
goods) that can be obtained from any given quantity of labor
working in conjunction with any given quantity of capital
goods. Even if it occurred on a strictly delimited,
once-and-for-all basis, the effect of this in turn would be a
more rapid rate of increase in the production both of capital
goods and consumers’ goods, with each year’s larger output
of capital goods serving as the base for the following year’s
further increase in the production both of capital goods and
of consumers’ goods.
Thus, a capitalist economy with the freedom of immigration
turns out in the long run to have a more rapid rate of capital
accumulation than one without it. For it has both a larger
relative production of capital goods and uses capital goods
more efficiently in the further production of capital goods
than one without the freedom of immigration. The effect of
this more rapid rate of capital accumulation is a
correspondingly faster rate of economic progress, which soon
makes up for the reduction in the proportion of output going
to the consumption of wage earners.
If one wants to form a more precise, quantitative estimate
of the relationships involved, let us assume that free
immigration, together with any increase in population coming
from those already present, results in an overall rate of
population growth of 3 percent per year. This is a rate last
seen in the United States in colonial times. It would be
sufficient to double the population every twenty-five years.
In order for a 3 percent larger number of workers each year
to be as well equipped as the workers would be without
population increase, something on the order perhaps of an
additional 9 to 12 percent of national income—more
accurately, current net output—would need to be devoted to
saving and capital accumulation. This figure is generous. I
arrive at it on the basis of the fact that in the nineteenth
century and the first few decades of the twentieth century,
the period in which the American economy was relatively free,
the long-term historical ratio of reproducible capital to
national income was about three or four to one.
Thus, a 3 percent increase in capital to accompany the
3 percent increase in the number of workers and so maintain a
three or four to one ratio of capital to output per worker,
would repre sent no more than something on the order of 9 to
12 percent of national income in conditions in which the
degree of capital intensiveness was substantially higher than
it is today.
Having to obtain this 9 to 12 percent of national income
from the share of national income previously going to wage
earners, would represent something on the order of a one-time
reduction in wages of about 13 to 17 percent, if, as is
typical, wages initially constitute about 70 percent of
national income. This magnitude of reduction in wages,
however, greatly overstates the magnitude that would actually
follow the establishment of free immigration. This is because
it is predicated on going from zero population increase
to an annual rate of 3 percent increase. In reality, the
effect would be more likely to be to go from a 1 1
.2
percent annual increase without freedom of immigration
to perhaps a 3 percent annual increase with it. The additional
capital required would thus actually equal only 4 1
.2
to 6 percent of national income, rather than 9 to 12
percent; and the one-time wage reduction would be on the order
of 6 1 .2
to 8 1 .2
percent rather than 13 to 17 percent.
If the freedom of immigration were introduced following the
establishment of greater economic freedom in other respects,
this short-run negative effect would probably go largely
unperceived, since it would be more than offset by other,
positive developments. But, in any case, if the effect of the
freedom of immigration and the pool of talent it unlocks is to
enable the productivity of labor to increase by just an
additional 1 percent a year, then, as soon as this happens,
within seven to nine years the initial loss is made good and
thereafter the process results only in gains. *
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