26: Proximate Static Standards
The factors of production move from one application to another, but this is not instantaneous. Labor may move, but must be retrained to new professions. Capital may move, but in most instances it must be reconfigured extensively. Financing may move, but old investments must be liquidated before new ones can be made. It is the time interval necessary to remove from a present purpose and install in a new one that prevents market correction from being instantaneous.
Consider as an example the migrations of the eighteenth century from European nations to the United States. A worker in Ireland who hears of the opportunities in America cannot teleport himself to the far shore of the Atlantic, but must earn enough to book his passage, make the journey, then find work in his new location - and this is presuming he can work in the same profession he left (no training). Or for the cotton mills of Asia to adopt European machinery, the machinery must be shipped or capabilities established in the Asian market - not to mention the retraining of workers and establishment of the infrastructure to maintain the equipment. Or when higher returns are available in the German market, the British investor must first sell his shares, transfer the funds, and then reinvest.
There is the notion of equalizing wages and interest in various markets around the world, which would occur if movement of labor and capital were instantaneous. But the invisible hands of the market move slowly: when a market is in desperate need of workers, wages skyrocket to entice foreign workers to immigrate. This process begins gradually, with some workers able to make the move sooner - at which point the market is less desperate and wages need not be so high. As more workers leave one market and enter another, wages in their old market rise (as their departure makes labor more scarce) and wages in their new market fall (as their arrival makes labor more plentiful) until the markets are balanced.
The disparity of wages is necessary to entice labor to gravitate to where it is wanted - if wages were artificially kept equal, there would be no incentive to move to a market where demand is greater. And the same can be said for capital: if there were no premium in markets that are short of capital, there is no incentive for capital to move to those markets.
There's a brief bit about it being a "motion" rather than a "creation." When one takes the limited perspective of a domestic market, it makes no difference whence the labor/capital came from. But in the present age all markets are interconnected - one cannot drain a nearby market of half its labor and still expect to export the same volume of goods to that market, as each laborer added to the domestic market removes a consumer from the foreign market whence that laborer came.
Immediate and frictionless movement of capital and labor would mean that customers around the world would gain the immediate benefits of innovation in industrial production and that workers displaced by automation would immediately find employment in other industries. Prices and wages would equalize across all markets, and the citizens of all nations would enjoy the same lifestyle as a consequence.
But movements are not immediate and frictionless - there are natural sources of friction (the time and cost to move something, to render it fit for a different purpose, for some to learn what is already known to others) as well as artificial ones (companies attempting to keep trade secrets, governments attempting to curry the favor of voters by meddling in economic affairs). Technology tends to reduce the friction from natural sources (a faster ship). Liberty tends to reduce that from artificial ones (removal of trade barriers, freedom of emigration, etc.) - though there are many parties that seek to benefit themselves by creating friction for others.
Returning to his metaphor of water, he talks of ripples and tidal waves, droughts and floods, and all manner of natural disasters that occur - all of these things create a terrible panic. But in the long run, everything returns to normal and there is just as much water on the planet today as there was a hundred years ago, and there will me as much a hundred years from now as there is today. Nature is far too large and powerful to yield to the desires of a few men, and so is the world economy.
He also concedes that the long-term stability of the market does seem to suggest that there is a "quasi-static standard" around which market conditions deviate, and toward which one might expect they will gravitate over time. But he also believes that for practical matters, we will "never" reach and settle upon the theoretical standard - much as there will never for any appreciable amount of time be an average amount of water in any ocean - currents, tides, waves, and such are always keeping it in a state of flux. For practical matters, economists must always consider the dynamic nature of the world economy, as every decision made elicits a change that disturbs the state of things.
As the population of the planet increases, as mankind leverages technology to effect ever more dramatic changes, and as world trade continues to grow, we will see an increase in the dynamic nature of markets: a change made by a few in one location will create a ripple that travels around the world - and it will be a larger and faster-moving ripple than in ages past. The notion of a static state, or even a state of rest in which change is negligible, is no longer a realistic concept.