-ArLANAGAfS C0:VIRi3vM\ CHICAGO. \lEW YORK^ j Class _JiIfeLi:ii2l Sook.__a3IVk___. Copyright N^____ COPYRIGHT DEPOSIT. OUTLINES AND QUESTIONS PRINCIPLES OF ECONOMICS By LAWRENCE DkGRAEE, Ph. B., LL. M., Instiiictnr in Political utul Sucial Science, Highland Park College. Des Mdines, Iowa. Author of "Outlines and Questions cm the Principles of Government in the Tinted States." FOR THE USE OF TEACHERS AND STUDENTS The teacher is usually the waiter at the iatellectual table, while the cook is the author of the text-books which he uses. It is, however, an aim of higher education to unite these functions."' A.' F1..\N.\G.A.N "cblVfPAN'Y' " '' THE LIBRARY OF CONGRESS,, Two Copies Received MAR. 28 1901 Copyright entry CLASS <5lyXXc. N». COPY B. K'' C0PYKIGHT,I9OI, By a. FLANAGAN COMPANY INTRODUCTORY Prof. ^. TI. Patton wrote; '• In a complete and practical educa- tion of American youth, it is fitting that the stud}' of Political Keonomy should hold an honored place, inasmuch as this branch of knowledge, so suggestive in its main principles, is valuable to both sexes -in the active duties of life.' It is but recently that the study of the principles of Political Economy has been given its proper place in the curriculum of our secondary schools and colleges. This is a movement in the right direction. Our American 3'outh should study our social and indus- trial conditions. Economic conditions are constantly changing, and, consequently. Economic Science is and must be one of slow but continuous growth. It is incumbent upon the teacher, the legislator and the citizen to become acfjuainted with the spirit and meaning of social and economic institutions. These Outlines and Questions are iutended to be suggestive, and to be used as supplementary to some good text-book. The author believes that any outline that sevves to suggest definition and material, and directs the student in his researches, has an educa- tional function. , "With a hope that this little pamphlet will serve this purpose, it is commended to the consideration of teachers and students. •' There must he discussion to sJimo how experience is to he inter- preted. Wrong opinions (uul prnctiees grddudlly yield to fact and argu- ment ; hut facts and arguments, to produce any effect on the m,ind, must he hrought hefore it. ^ery few facts are aide to tell their awn story, without comments to hring out their meaning. The uhole strength and value, then, of human judgment, depending on the one j)r(iperty, that it can he set right when it is wrong, reliance can be placed on it only when the means of setting it right are kept constantly at hand. In the case of any person ichose Judgment is really deserving of confidence, how ha.s it h(come sof Becart.w he has kept his mind open tn criticism ufhis opinions and conduct. Because it has heen his practice fo listen INTRODUCTORY, to all that could he said against him; to profit hy as much of it as was just, and expound to himself, and upon occasions to others, the fallacy of what loas fallacirms. " Tlie steady hahit of correcting and completing his oton ojnnion hy collating it loith those of others, so far from causing doubt and hesita- tion in carrying it into practice, is the only stable foundation for a jvst reliance on it; for, being cognizant of all that can, at least obviously, be said against him, and having taken up his position against all gain- say ers, knowing that he has sought for objections and difficulties instead of avoiding them, and has shut out no light ichich can be thrown, upon the subject from any quarter — he has a right to think his judgment better than that of any person or any multitude, who have not gone through a similar j^rocess." — J. S. MiLL, Essay on Liberty. CONTENTS. l'\. '• Political Economy treats of the commercial and industrial activities of men from the standpoint of values and markets." — If. ./. Davenport. 4. An economic law is a statement of a uniformity in economic phenomena. Etymology. From OIKOS, a house, and N'OMOS, a law, crnnnmii, the law which regulates the household, houseJioJJ according to the Greeks, comprehending all the goods in possession of the family) and political, from FOLIS (civitas), the city, ex- tending its application to society or the nation at large. Place. Anthropology. Sociology. Economics. Civics. Ethics. Law. Finance, etc. Aim. The practical aim of Political Economy is to enable the student to judge and predict with greater accuracy the effects of govern mental and social action on the wealth and welfare of the nation. 8 PRINCIPLES OF ECONOMICS. Premises. 1. Facts of human uaturL". 2. Facts of human societ}'. 3. Facts of the physical constitution of the earth. 4. Data of all sciences taken so far as they can be related to the accumulation of wealth. The two schools, English and (3rerman, disagree some- what with respect to the premises of Economics, the latter school accepting a larger field. The line of division is not well-defined. American writers follow the German aim and method generally. Method. Method in scientific language means the road that must be followed for the discovery of truth. — Gide. 1. Deduction. The deductive method starts from certain general prin- ciples or universal truths that are regarded as indisputable, and proceeds by way of logical consequence to deduce an indefinite series of propositions. It is reasoning from the general to the particular. 2. Induction. The inductive method starts from certain particular facts, the result of observation and investigation, and proceeds by way of logical consequence to discover general propositions or universal truths. It is reasoning from the particular to the general. 3. The adoption of both methods is advocated by some econo- mists as the only safe method to discover economic truths. 4. Prof. Charles Gride holds both methods too absolute, and offers the following as the real method : — First. By the observation of facts without an}- pre-con- ceived notion, eyen those which at first sight appear to be the most trivial. Second. By the imagination of a general explanation which will enable us to establish mutual relations between certain groups of facts ; i.e., by the forming of an hypoth- esis. Third. By the verification of the validity of this hypoth- esis, by seeking, by the aid of experiment, if possible, at I'RlNf'lPr.KS OF KCONOMICS. !1 any rate ])y special!}- directed <)l»servatiuiis, to discover whether it exact!}- corresponds with tiie facts. Is there a Science of Political Economy ? 1. Science implies Jmcs, which are fixed and regidar in their operation. 2. Comte held "the test of any science lies in tlie power to predict.'" Can Political Economy predict? Cairnes holds that economic prevision is a prevision not of events, but of tendencies. 3. In stating an economic law we say "other conditions being equal, such and such isso. " Do we need to preface the laws of physics or chemistry in this way ? 4. Experiment is almost impossible. 5. It seems each nation attempts an economy of its own — a national economy. Each age, also, works out its own system. 6. Social and eyonomic facts are necessaril}' limited and gener- ally inaccurate, hence conclusions differ widely. Difficulties Political Economy Encounters. 1. The writings are colored by the individual writers opinion. 2. The subject is oftentimes treated in close affinity with ques- tions of government, sociology, etc. ;*). The subject is viewed by some as too common and familiar to require discussion. 4. The conflicting ideas of the college theorist and the man of practical affairs often bring the subject into disrepute. 5. EiVery person of ordinary intelligence feels that his opinions on economic questions are entitled to consideration, hence the liberty of formulating and expressing so-called economic principles. 6. Conflict of theory among economists. 7. Confusion of the nomenclature. The vocabulary of economists contains words whose pop- ular and scientific meanings are (luite different. The basic word of the science, n-idlfh, yet awaits a definition. Divisions of the Subject. I. Production. II. [Exchange]. 10 PRINCIPLES OF ECONOMICS. III. Distribution. IV. Consuinptiou. . Schools ot Political Economy. I. As enumei-ated by Prof. Gide. 1. ]jiberal or Classical. (a) This school claims that human societies are governed by natural laws which we could not alter one jot, even if we wished, since they are not of our making. Moreover, we have not the least interest in modifying them, even if we could ; for they are good, or at any rate the best possible. Their gospel is summed up in four words : " Laissez faire, laissez passer." (b) Represented by Beaulieu, Bastiat, Eicardo, etc. (c) Criticism. 1. A very marked tendency to optimism. 2. Not logical or legitimate to conclude that because natural laws are permanent and immutable, economic facts and institutions have the same character of permanence. 3. There is no jus divliia governing wages, pi'ivate property, etc. Economic institutions do change even at man's bidding. 2. The Socialist School. { Collectivism. ) (a) This school claims that private property and free competition are vices in modern society, and tend to sacrifice social to private interest. The socialist is naturally disposed to extend as far as possible the functions of collective powers, represented by the state or municipality. It would result in the creation of a new state. (b) Kepresented by Proudhon, Wagner, Karl Marx, Henry George, etc. (c) Criticism. The two opposing theories as to the proper sphere of the state, individualism and socialism, stand for two great truths. The constant intrusion of the state on fields of activity previously given to the individual, is a natural result of the constant increase in the separation of employments necessi- tatino- more extensive organization. It is impossible to i>aiNCll'LES OK ECONOMICS. 11 approve or disapprove a prior! of every intrusion of the state into fields hitherto set aside for the individual. Whenever these intrusions promise definitely the increase of the inllu- ence of the individual, it is desired. The burden of the proof is thrown upon him who would have the state advance into new fields. There is no conclusive presumption oneway or the other that the state should assume new functions. Everyday experience teaches us that associations, large or small, are worth not a jot more than the individuals of whom the}' are composed. Man recjuircs one or two incentives: love or compulsion. Would Socialism weaken the effort of the individual to do and to work? 8. The Catholic or Christian School. 1 This school desires to re-establish social concord by the influence of a triple authority: (a) the father in the family, (b) the employer in the workshop, (c) the church in the State. It does not aim to abolish present institutions. 2. Criticism. The school attacks human libert}', and holds that man through this liberty has seriously deranged the social system. It seeks its ideal in the past rather than in the future. 2. The Historical or Realistic School. 1. This school rejects the deductive method, and claims that economic truth is secured by a patient observa- tion of facts. It is to history that the eyes of the realist are turned. The doctrine of I'lisse: /hire is rejected. 2. Criticism. The method of this school tends to develop a national science. Its aim is practical, and hence new life has been given to empty theories by a study of history, the compari- son of laws and statistics. The true character of the science, however, in spite of all endeavors to the contrary, must remain in the nature of an abstraction. II. As enumerated by Prof. Laughlin. (Historical development.) (1) Mercantile School. 1. Principles. (a) Monej'. the only form of wealth. (b) Secure balance of trade. (c) Prohibit export of specie. 12 PRWCIPLliS OF feCONOMldF*. (d) Navigation Laws. (Colonial polic3^ ) (e) High import duties. (f) Stimulate home industry. (g) Self-aggrandizement. 2. Time. About 1600-1750. 3. Representatives. Thos. Mun, John Locke, Colbert. 4. Faults. (a) Too closely connected with politics. (b) Fallacy of the abundance of money and balance of trade. (c) Monopolies created. (d) Tariff restrictions between provinces. (e) Heavy taxation. (f) Arbitrary regulations. (g) Subordinated science to the art. (2) Physiocratic or Agricultural School. 1 . Principles. (a) The soil the sole source of a nation's wealth. (b) The soil should bear all national burdens. (c) Remove all restrictions from agriculture. (d) Wealth not increased by money per se. { e) Free trade. ( Laissez f aire. ) 2. Time. About 1750-1790. 3. Representatives. Francis Quesnay, Mirabeau, Turgot. 4. Faults. (a) Commerce and manufactures neglected. (b) Labor element ignored. (c) Basis of taxation. (3) English or Industrial School. 1. Principles. (a) Source of a nation's wealth in all three forms, — agriculture, manufacture, and commerce. (b) All labor unproductive that does not tend to pro- duction or the exchange of commodities. (c) No state control. (d) Free competition. No governmental interference. (e) Inequalities in profits equalized by competition. PRINCLPLES OK ErOMiM ics. l'' (f) Labor recognized as a factor in the source of wealth. (g) Division of labor explained, (h) Money properly defined. 2. Time. About 1775. I'eriods ■ ^'instructive (ending with Hicardo). ( Critical. 3. Representatives. Adam Smith, Say, Bastiat, Malthus, Ricardo, Cairnes, etc., etc. 4. Criticisms on Smith's "Wealth of Nations." 1. Failure to fulfill the promise of the title. 2. Influence of Physiocrats strongly felt. 3. Smith writes as though the world was one big government, and man a citizen of the world. •4. No inequalities of civilization or industrial status to affect competition of producer with producer is taken into account. 5. More ideal than practical. Readings. •• I'rinciples of Political Economy." .F. S. Mill. Edited by .1. Laurence Lauirli- lin. pp. 1-42. '• Principles of Political Economy." Clias. Gide. pp. I-.IO. •• Principles of Economics." Alfred .Marshall. Vol. 1, Book 1. " History of Political Economy." J. K. Ingram. •'Outlines of Economic Theory." U. ,]. Davenport, pp. 1-lH. " Elements of Political Economy. ' I{. K.Thompson, pp, 11 ill. A LESSON IN BIOGRAPHY. Method: Let each student be assigneil one or more writers for special investigation. (2) Tabulate the facts from the reports made. (3) The students may make inductions as follows: (a) From what professions or callings has Political Economy claimed the most writers? (b) What were the characteristics of the Age producing the best writers? (C) Does the Science and the Art go hand in hand? (The teacher ma}' suggest other (luestions. ) Biographical Outline. 1. Name of writer. 2. Time. (Birth Death. ] 3. Nationality, 14 rRINCIPLES OF ECONOMICS. 4. Business or profession. 5; Cliaracter of the Age. (a) Political, (b) Social, (c) Religious. (j. School to which the writer belonged. 7. Principles he advanced. 8. His most important writings. 9. His influence on other writers. 10. His ranl^. Writers suggested for studj^: Francis Quesnay, Colbert, Turgot, T. R. Malthus, David Ricardo, Adam Smith, W. Stanley JeA^ons, J. S. Mill, J. E. Cairnes, Alfred Marshall, H. C. Carey, F. A. Walker, Henry George, Karl Marx, P. J. Proudhon, Walter Bagehot, Roscher, Jeremy Bentham, Cliflfe Leslie, Bastiat, J. B. Say. Senior. Readings. " A History of Political Economy." .J. K. lugram. •' Guide to the Study of Political Economy." Cossa. " Mill's Principles of Political Economy." Edition by J. L. Laughlin. pp. 1-43. " Encyclopedia Brittanica. Vol. 19. (1S85) on the article, " Political Economy." " Appleton's Encyclopedia of American Biography for American Writers." Illustrative Quotations. "Science is international; it suffers when the natural relation between different countries is interrupted, and gains when the connection is resumed. " — J. B. Clark, Intro, to Gide. " It is clear that the three questions (How can wealth be pro- duced? What use should be made of it? In what manner should it be divided?) which constitute the pith of political economy are essentially practical ones, and it seems to follow that the science whose object it is to supply an answer to these questions, should itself be of a practical nature; in other words, be an art rather than science.'''' — Gide. " Aristotle and Xenophon had some comprehension of the theory of money, and Plato had defined its functions with some accu- racy. The economic laws of the Romans were all summed up in the idea of enriching the metropolis at the expense of the dependencies. During the middle ages no systematic study was undertaken, and the nature of economic laws was not eyeij 8u§» pected." — 'J. L. Laughlin.^ Intro, to MWr rHINmi'LKS (»!■' KCONOMK's. 1 ') "The desires, passions, and propensities wliieb inHuence man kind in the pursuit of wealth are almost infinite. Yet among these are some principles of so marked and i)aramount a char- acter as both to admit of being ascertained, and when ascer- tained, to afford the data for determining the most important laws of the production and distribution of wealth. To possess himself of these is the first business of the political economist. He has then to take account of some leading physiological facts connected with human nature; and lastly, to ascertain the prin- cipal physical characteristics of those natural agents of produc- tion on which human industr}- is exercised." /. /y. Oitirms. " Even moral and religious considerations are to be taken into account by the economist precisely in so far as t|jey are found, in fact, to affect the conduct of men in the pnrsuit of wealth.'' — F. A. Walhrr. "Political Economy is concerned with man solely as a being who desires to possess wealth, and who is capable of judging the comparative efficacy of means to that end. It makes entire abstraction of every other human passion or motive, except those which rnay be regarded as perpetually antagonizing principles |to the desire of wealth, namely, aversion to labor, and desire of the present enjoyment of costly indulgences." — ./. S. Mill. '> While men are beings possessed of a will, they ordinarily act from motives. This is especially true of their conduct in regard to their material welfare; in this connection the same motives act with great unifornjity upon almost all men. The same wants .exist for all; the same welfare is desired by all: so that in this .department of science of man there is so little caprice that there is nearly as much power to forsee and foretell what men will do. as in some of the sciences to foretell the actions of things. Nearly, but not quite so much: for while men are agreed as to the end here, there is room for dilt'erence of opinion as to the means, and conseciuently for variety of action — for wise and unwise ways of procedure. " — R. E. Tlininjisu}!. "No doubt, in framing a scientific nomenclature, it is often necessary to depart from the ordinary uses of words. Political Economy draws its technical terms from popular language, and the mere circumstance that it is obliged to assign a precise mean- ing to these terms, £md tQ adUeve strictly to this meaning when 16 TRINCIPLES OF EOONOMICH. once assigned — this circumstance compels a deviation from the more or less vague and fluctuating sense which attaches to all words in extensive popular use. " — J. E. Cairnes. " The value of the results of economic reasoning depends on the correctness of its assumptions with regard to the nature of man. If man is not the being he is assumed to be, there is no certainty that the conclusions will be even approximately correct. ;[i ^ iK ^ ^* ^ ^ ' ' The actual course of a cannon-ball may be determined by a mathematical computation, followed by the proper allowance for atmospheric resistance; but the social activities of man can not be determined by assuming that man is a being of a certain kind, elaborating the conclusions with nicety, and then endeavoring to introduce the proper allowance for the fact that man is, after all, a being of quite a different kind. " /. B. Clark. " The student becomes aware that every one of the great sys- tems (economic) possessed some truth, and no one has been elaborated which contains the whole truth. He becomes aware of a still more important fact, and that is, that owing to the continual changes in the nature of the elements with which he has to deal, no universal system, no system which shall be valid in all times and places, can at present, if indeed it ever can, be formulated. We can formulate for one time and countr}^, for our type of society and industry, for our race and nation; but such a formulation, even though perfectly correct, would prob- ably not hold for any other time or country or t5^pe or race, though it would, of course, hold true of them to just the extent to which they are similar to us and ours." — Frof. E. J. James, Introduction to Ingrariis " History of Political Economy.^' Questions. 1. Why should Carlyle call political economy "a dismal science " ? 2. Comte is called a positivist. Spencer, Mill, and Bentham are styled utilitarian. What is the meaning of each? 3. Spencer in England and Giddings in America have developed the "organic theory" of society. Explain. What criticism, if any? 4. ' ' Numerous schools in political economy is an incontestable sign of inferiority of the same." Why? PKIXCIPLES OV ECONOMICS. 17 5. -'The uotion of value is really the basis of :ill political economy." Explain. 6. On what questions does the legislator join hands with the economist? The moralist and the economist? 7. What is meant by the inductive method of teaching Latin? Illustrate. 8. France in 1544, and England in 15r)2, forbade the export of specie. What economic principle of the times were they at- tempting to carry out? 9. What were the first two subjects to engage the attention of economists? 10. Marshall holds that anything that can be quantitatively measured in terms of money is proper subject matter for political economy. Explain. 11. Who is called the " Father of Political Economy'? The "Father of Free Trade" ? 12. What economic school held tliat the laborer did not produce wealth? 13. What were the causes that led to the systematic study of the laws of political economy in the 16th century? 14. Discuss the philosophy of egoism. (I>) Altruism. (r) Hedonism. lij. Hobbes held that selfishness was the motive of all human action. Do you agree with him? 16. Distinguish carefully between the terms, sciince and <(r(. 17. Mill constructed for the theory of economics an " economic man." Define and criticise. 18. State some of the modern tendencies of economic thought. WEALTH AND VALUE. What shall be included in the term Wealth P 1. Material things? 2. Immaterial things? 3. Natural agents? 4. Articles of value, or those things capable of a money meas- ure and nothing else? 5. Must those articles be limited in supply? 6. Is value in use a necessary element? Popular and Scientific meanings distinguished. 1. Would anyone be rich in a communistic state of society? 2. Does wealth in an economic sense signify abundance? Motives which incite flen to seek Wealth. 1. To satisfy the desire for well-being. (a) Food. (^b) Housing. (c)CIothing. (d) Ornaments; or (a) Necessaries, (b) Comforts, (c) Luxuries. 2. To satisfy the desire for social inequality. (!) These motives examined. (2) A study of the development of new economic wants from primitive society to the present time. (a) Nomadic. (6) Herdsmen. ( c) Husbandmen, (d) Manufacturers, (e) Traders (Commerce). The Idea of Value. 1. Value in use and value in exchange distinguished. 2. The cause of value in exchange. Theories of different economists. (1) J. B. Say and Jevons make utiliiij the sole cause of value. (2) J. S. Mill names two conditions, (a) Utility. i/>) JJlJficiilti/ of attaiiimevt. (3) Cairnes adds to Mill's conditions a third element, tran s/era bleness. 18 PRINCIPLES OF ECONOMICS. 19 (4) Walker makes value depend wholly on the relation between demand and suppl)'. (5) Gide makes utiliti/ the cause of value, and names limitation i)i (juantiti/ or scarcity a subordinate ele- ment. (6) The mathematical school gives the preference to scjircifi/. (7) The English Classical school emphasizes difficult 1/ nf iitt) Cherbuliez names two conditions. (a) The ability to give satisfaction and (/>) Inability of attainment without effort. (10) Carey makes the amount of labor to produce an object similar to the one produced the cause of value: /. /. , the labor of reproduction. (11) Bastiat defines the value as the relation V)etweeu two services exchanged, and makes value depend on the labor .sparai the would be acquirer. (12) Karl Marx rejects the idea of the individual laborer, and deals with nfjcial Jai)or, or the average labor necessary for the production of the commodity in general. (lo) Ricardo. Bastiat and Marx make utility the con- dition of value, but name hihor as its cause or measure. Examination of the "labor theory " of Value. 1. If the value of a commodity had for its cause or sul)stance the labor expended in its production, would not this value necessarily be immutable? 2. If labor was the cause of value, would not equal values always have to correspona to equal labors and unecjual to unequal? 3. If labor were the cause of value, would a thing on which no labor was expended have any value? 4. If labor is the cause of value, what is the cause of the value of the commodity of labor itself? 20 PRINCIPLES OF ECONOMICS. Relation of Value to Demand and Supply. 1. The intensit}^ of demand increasing, the supply remaining (a) constant (b) increasing. 2. The intensity of demand diminishing, supply remaining (a) constant (b) increasing. Query: 1. How will each of these conditions affect the mar- ket value of a commodity in question? 2. Is the ratio between Demand and Supply a fixed ratio? Relation of Market Value to Normal Value. 1. D. >S, thenM. V. >N. V. 2. D. , Services. Valuable Individual. I Wealth -; National. I [ Social. Note: In the above outlines point out what you consider wealth. Definitions of Wealth and Value. Wealth is a short name for all the numberless things we all like to have and to own. 22 PRINCIPLES OF ECONOMICS. Wealth cousists of all the useful and agreeable material objects we own, or have the right to use and enjoy without asking the con- sent of any other person. — Macvnne. Wealth is that which can be exchanged, is limited in supply, and is useful. — Patton. Wealth is the collective name for all useful things that can be owned and exchanged. — Waijland. Wealth includes all material goods that have value. — Davenport. Wealth is all useful and agreeable things which possess exchange- able value. — J. S. Mill. Wealth consists of natural products that have been secured, moved, combined, separated, or in any other way modified by our exertions so as to fit them for the gratification of our desires. — Henry George. Wealth is anything transferable, limited in supply and useful. — Jevons. Wealth is all articles of value and nothing else. — F. A. Waller. Wealth is all material objects possessing utility. — Lavasseur. Wealth consists in power to command material service, includ- ng such intangible things as mental qualities. — Carei/. Wealth then consists in the relative-weal-constituting elements in man's material environment. It is objective to the user, material, useful, and appropriable. — ./. B. Clark. Everything that is of a nature to answer to any desire felt by man and to obtain for him certain advantages, everything that in his eyes is worth the trouble of being paid for, either at the price of a personal effort or by the sacrifice of a sum of money, neces- sarily falls within the sphere of political economy and constitutes "wealth."— G^iWr. Wealth includes all those things external to a man which [1] belong to him, and [2] which are directly capable of money meas- ure — a measure that represents, on the one side, the efforts and sac- rifices by which they have been called into existence, and, on the other, the wants which they satisfy. — Marshall. Material wealth is some transferable thing, for the enjoyment of which we are willing to undergo a sacrifice. — J. L. Lauglilin. PRINCIPLES OF ECONOMirS. 23 Value is the ratio in which commodities in open market are ex- changed against each other. — ,/. E. (^(iN-ms. Value is the power which an article confers upon its possessor, irrespective of legal authority or personal sentiments, of command- ing, in exchange for itself, the labor or the products of the labor of others.—/; A. Wr. \'ahie is the measure of the resistance to be overcome in obtain- ing those commodities or things recjuired for our purpose — of the power of nature over man. — CVory. Value is proportion in exchange. — Jrnnis. A'alue is quantitative measure of utility. — Clork. Value is always and everywhere the relation of mutual purchase established between two services by their exchange. —.4. Jj. Perry. Value is purely relative, consisting as it does in a preference given to one thing over another. — CIkix. Gidr. The value of any particular thing is the measure of its power of commanding the sacrifice of other things. — //. ./. Dnrcnport. The valuation of an object is nothing more or less than the affirmation that it is in a certain degree of comi)arative estimation with some other specified object, and any other object possessed of value may serve as the point of comparison. — ./. B. tSa//. Further Definitions. Price is the value of a thing in relation to money — the quantity of money for which it will exchange. — Mi/L Utilitij is the capacity which anything or any service has to gratify human desire. Final UtUitii is the point in buying at which the buyer ceases to buy, preferring to keep his money rather than take any more of the article at that price. JVonwd Price marks the cost of production at the greatest dis- advantage. Market Price is the price that marks the final utility. Demand is the desire for commodities or services seeking its end by an offer of general purchasing power; and supply is the desire for general purchasing power, seeking its end by an oflfer of specific commodities or services. — Cairve.s. 24 PHlNCIPhES dp EOOiNO.MtCS. The actual market price is the price which ecjiuilizes supply and demand in a given market. — /. S. Mill. The normal price of a commodity is that price which suffices, and no more than suffices to yield to the producers what is consid- ered to be the average and usual remuneration on such sacrifices as they undergo. — Cairncs. Economists understand by the term market., not any particular mai'ket place in which things are bought and sold, but the whole of any region in which buyers and sellers are in such free intercourse with one another that the prices of the same goods tend to equality easily and quickly. — Cournot. Illustrative Quotations. "The numberless theories which have been propounded for the explanation of the phenomena of value may be divided into two distinct groups or tendencies. The one is bound up with the idea of utility, and rests value on man's irants/ the other is bound up with the idea of labor, and rests value on man's efforts. The first is, in our opinion, the expression of what is; in fact, the value of things is proportional to our wants or desires. The second is the expression of vhat should he; in point of equity it is to be wished that value might be proportional to our efforts of labor." — Gule. "Demand and supply govern the value of all things that can not be indefinitely increased; except that even for them, when produced by industry, there is a minimum value, determined by the cost of production. But in all things which admit of indefi- nite multiplication, demand and supply only determine the per- turbations of value during a period which can not exceed the length of time necessary for altering the suppl3\ While thus ruling the oscillations of value, they themselves obey a superior force which makes value gravitate toward Cost of Production, and which would settle and keep it there, if fresh disturbing influences were not continually arising to make it again deviate." —J. S. Mill " A measurement of utility made by an individual gives value in use, not at all identical with what passes under that name in current discussion, which is utility itself, but the quantitative measure of that utility to an individual user. We have now to see, that, in a sense, measurements of utility are never made by I'RlNCJPl.KS (»!■" E('(lN(t.MI('S. 25 :in3' other than a single independent being. Society, as an organic whole, is to be regarded as one great isolated being; and this being may and does measure utilities like a solitary tenant of an island. That is a part of our definition, — measure of service rendered to society as an organic whole. Though the thing were priceless to its owner, it might be cheap to society.'" — ,/. B. rinrh. Questions. 1. Do you favor having all the wealth in the world distributed equally ? 2. Are inequalities in men a necessar}' evil ? Do you iavor a state of social equality ? 3. Compare the wants of a savage with your own wants. 4. Compare the wants of the city inhabitant with those of the rural inhabitant. 5. From the time of Diogenes there have been moralists who have regarded the progressive and indefinite multiplication of wants as a great evil. How would 3'ou answer such a person ? 6. Every plant is a weed until some property useful to man is discovered. What has this to do with wealth ? 7. We do not love money any more than we do baggage-checks or soup-tickets. Why, then, do we seek money ? How about the miser ? 8. Are precious metals on the planet Mars, wealth ? In the ocean? Give reasons. 9. One person spends $1,000 in a home, and another $1,000 in an education. Do you deem both to fall within the category of wealth? 10. Why has a tailor made suit more value than a ready made suit when both serve the same purpose? 11. Why did the mere rumor of Edison's invention of lighting [1878] cause a serious fall in the price of gas stocks? 12. Is value more subjective than objective in character? 13. Does a national loan, per se, increase the wealth of the country? 14. Which of the following do you classify in the catalogue of wealth: Honesty? Land? Forests? Ice? Good-will of a business? Professional skill? An article which has no use? Bank stock? A pleasure boat? Admiral Dewey's autograph?' The ability to sing? 26 PRINCIPLES OF ECONOMICS. Music? Food? Money? Electricity?, A lecture to which you pay admission? A lecture to which you do not pay admission? A phonograph? Music b}' a phonograph? Windows of a dwelling house in a populous city? 15. Why has the diamond more value than the ameth3^st? 16. Why are strawberries generally the cheapest in the Saturday afternoon market? 17. Do men dive to the bottom of the sea to get pearls because they are valuable, or are pearls valuable because men must dive to the bottom of the sea to get them? 18. When you speak of demand, do you always mean an effectual demand? Explain. li). Why does the Natural [or Normal] Price of commodities vaxy from the Market Price? 20. If you had $10,000, what would you do with it? 21. In some countries a man s wealth is measured by the number of his wives. Are the women icealtk in such a society? 22. A dog has been trained to guard sheep. Is this an increase in wealth? 23. Would any system of political enconomy be possible for a man alone on a desert island? Did the terms wealth or value have any meaning to Crusoe on the island of Juan Fernandez? 24. Walker says that there are some things that are better than wealth, but are not wealth. Explain. 25. Why will a large increase in the annual output of the pre- cious metals have a less perceptible effect on their value than a corresponding increase in the production of wheat on its value? 26. There is no such thing as a general rise of values, but there is such a thing as a general rise of prices. Explain. 27. "Value varies in direct ratio of the quantities demanded, and in inverse ratio of the quantities offered." Is the proposition absolutely false? 28. "Moreover, it is a petifio prmcijyi'i- to say that the cost of production is the cause of the value of things. On the contrarj^ it would be more correct to say that it is the value of the product which determines the cost of production.^' Comment on the statement. 29. ' ' The equalization of income is certainly a good thing to aim at, but economy in production is better." What does this argue? PKlNTll'LES (IK ECONOMICS. 27 30. Does the repiuduction of Millels •• Angelas" lessen the intensity of demand for the painting itself ? 31. The same author makes these statements in the same chapter: "All forms of labor create wealth,' and •' i^abor is not always the cause of wealth." Are these statements contradictory? Readings. "Leading Principles of Political Economy." J. E. Cairnes, Chap. 1. Part I. "Principle of Political Economy." J. S. Mill, Edited by LauK'ilin. Book III Chap. I. "Treatise on Political Economy." J. B. ."^ay. Book II, Chap. I. " Political Economy." F. A. Walker. Part III. Chap. I. "Political Econom.y." Gidc. pp. :-{l-!)2. " Principles of Economics." INlarshall. Book II, Chap. II. " The Philosophy .] The New England States. 6. How much land-area is there? Is it capable of increase? How does this affect production? 28 I'RlNCll'LKS OK ECONOMICS. 29 7. What iiiduence had geography on Greece? On Rome? What differences? 8. J. S. Mill names two requisites of production: labor and appropriate natural objects. What criticism, if any? 9. How many people to the square mile in the U. S. ? England? Belgium? 10. ^^■ould there be a greater production of wealth from 40-acre farms than from J GO-acre or larger? 1 1 . What relation do good roatls bear to production? 12. Do speculators or gamblers contribute to the increase of wealth? 13. Does the economist take into consideration gratuitous serv- ices and acts of philanthropy? Give examples. 14. The phenomenon of life is characterized by <<. Genesis or birth; />. Development or Growth: c. Reproduction: d. Decay and Death. How far can these be harmonized with the view that society is an organism? Illustrative Quotations. '•There are thus two forces in the problem of history — man and nature. The resultant is the direction of human develop- ment. This is not a difficult conception. It is one aspect of that which the biologists call the law of adaptation or of correspondence to environment. Life for each one of us is a question of what there is in us plus what is outside — of our powers and energies in face of our surroundings and opportunities. Give Crusoe his island. What will he do with it? This is in part a question of Crusoe, and in part a question of the island. Likewise for races the question is one, on one side, of character and propensity: on the other, of sur- roundings and opportunity. " — Ddceitport, Ec. Till 11. ^ p. S. B. Labor. Definition. 1. Labor is any voluntary human effort, involving sacri- fice. 2. Labor is any exertion of mind or body undergone partly or wholly with a vie\v to some good other than the pleasure derived directly from the work- — Marsh,(/I. 30 PRINCIPLES OP ECOiNOMICS. Classification of: 1. Muscular and Nervous or Mental. 2. Direct and Indirect. 3. Productive and Unproductive. 4. Skilled and Unskilled. Classes (2) and (3) illustrated. '1. Direct — e. g. , the baker of bread. Labor (Bread-making) ^ a. Production of materials — e. g. , the miller, coal-miner, farmer. h. Production of implements, e. g. , the oven- maker. 2. Indirect. -{ c. Protection — e. g. , legislator, po- lice. d. Transportation — e. g., teamsters, common carriers. e. Training — e. g. , teachers. f. Invention — e. g., improvers of flues and ovens. 1. Idlers or unproductive [Unproductive laborers ^ [ Consumers. Labor (The world contains) ^ f (a) For productive I consumption. 2. Productive labor- ^ ers. I (b) For unproductive [ consumption. The Efficiency of Labor. Conditions of — 1. Race. 2. Inherited strength. (a) Muscular (b) Nervous, PRINCIPLES OF FX'ONO.MICS. )]l 3. Food. (a) Character, (b) Amount. ■i. Eavii'oument. (a) Climate, (b) Natural resources. (C) Legislation and I'rotection. (d) Social life, (e) Sanitation. ( f ) Means of increasing intelligence. (g) Means of increasing the technical skill of the laborer. 5. Cheerfulness and Hopefulness. Cfianictcr of Ins rcnanl. The Mobility of Labor. (a) In the same country, (b) Between ditterent countries. Competition Among Laborers. 1. Industrial society is made up ol' non-competing groups, but within each group, competition plays. Query: How does centralization of capital aflfect com- petition within these non-competing groups ? Illustrative Quotation. " Man can not create material things. In the mental and moral world indeed he may produce new ideas; but when he is said to produce material things, he really only i)rodnces utilities: or in other words, his efforts and sacrifices result in changing the form or arrangement of matter to adapt it better for the satisfaction of wants. All that he can do in the physical world is either to reajust matter so as to make it more useful, as when he makes a log of wood into a table; or to put it in the way of being more useful by nature, as when he puts seed where the forces of nature will make it burst out into life." — MnrnlmJI. Prin. of Econ.. p. 114. " The acquisition of the rudiments of education, and in many cases, the most profound knowledge of chemistry, physics and recondite studies, are essential to production; and teaciiers are indirect laborers in producing almost every article in the mar- ket. In this country especially are inventors a class of indirect laborers essential to all ultimate production as it goes on." — LtiughUii. Mill's Prin., p. 57. PRINCIPLES OF ECONOMICS. ' ' By unproductive labor, will be understood labor which does not terminate in the creation of material wealth. And all labor, according to our present definition, must be classified as unpro- ductive, which terminates in a permanent benefit, however im- portant, provided that an increase of material products forms no part of that benefit. The labor of saving a friend's life is not productive, unless the friend is a productive laborer, and pro- duces more than he consumes." — J. S. Mill. Laughlin's Ed., p. 60. ' ' Finally discussion has been keenest with regard to services rendered, such as those afforded by the liberal professions; for it may seem strange to call ' productive ' the labor of a surgeon who amputates a leg, or of the executioner who cuts off a head. However, this last step has also been taken, and now without halting at antiquated and pedantic distinctions, we have come to place under the heading of productive labor all labor that in any way whatever contributes to the satisfaction of the wants of man. The term ' productive ' should be taken in the widest pos- sible sense. In the social organism, thanks to the law of the division of labor, there is such a solidarity between the labors of men, and they are so closely related that it is impossible to sep- arate them." — Gidc, Prill, of Pol. Econ.., 2D. 115. •' Whoever makes, interprets, or enforces law, produces wealth. He imparts to the commodities of the society which employs him, the essential wealth-constituting attribute of appropriability. " The production of social modifications which result in giving to commodities the attribute of appropriability is the chief econ- omic function of legislative and judicial labor. Is is as truly a wealth creating function as the direct production of useful com- modities." — Chirk, Phil, if Wealth, p. 13. "If labor was a talisman which turned everything to gold, the slag of the blast-furnace should have value as well as iron. The difference between them is their utility, not in their origin. K chance chemical discovery might reveal uses for the slags in their present form, and they would become wealth ; but they would have been a product of labor before they became wealth as well as after." — ./. B. Clarh. ■'Labor imparts want-satisfying powers, or utilities to natural agents. These utilities are of four kinds, and may be arranged PRINCIPLES OF ECONOMICS. 33 in four corresponding classes; namely, elementary utility, form utility, place utility, and time utility," — Ihid. Questions. 1. What is the difference between labor and play? 2. Do you ever call the work of horses, labor ? 3. When you buy a book, how many forms of labor does the price represent ? 4. When you accidently destroy or lose some form of wealth, you are consoled by the fact that to reproduce it, labor will be given something to do. Wherein is the fallacy ? 5. The destruction of wealth by strikers is a detriment to themselves. Explain. 6. Can you ever say that the burning of a city is an economic good? 7. Do you class the following laborers as productive or unpro- ductive: An actor? a soldier? a clergyman ? an artist ? an organ- ist? officers of government ? a confectioner ? a maker of an article for which there is no use ? 8. Make a classification of laborers under our present industrial system. What is the basis of your classification ? Would you class the capitalist as a laborer? The rntrrpriniur/ 9. Do you observe any distinction Itetween the cost of labor and the cost of production ? 10. Does the carpenter compete with the watchmaker ? The brick-layer with the stone-mason ? The teacher who is a university graduate with the teacher who is not a graduate ? C. Capital. Definition. Capital is that part of a person's stock from which he expects to derive an income. — Adam Sniitli. Capital is that part of a person's wealth by which he wins his livelihood. — Marshall. Capital is saved wealth devoted to reproductive employ- ment. — J. iS. Mill. Capital is an article of wealth, the result of human exer- tion, employed in the production or distribution of wealth. — tSeni'ir, ;i 34 TRINCIPLKS OF ECONOMICS. Capital is a complex of means of obtaining a livelihood made by man; that is, a complex of goods which had their origin in a previous process of production and as destined not for immediate consumption for the sake of enjoyment, bnt the acquisition of more goods. — Bohm- Bawerli. The capital of a community is that part of its wealth (excluding land and natural agents, considered as unim- proved) which is devoted to the production of wealth. — F. A. ^Yi-^'^^. Davenport's Ec. Tlieo., pp. 119-43; .50-67. PRODUCTION IN RELATION TO SOCIAL CONDITIONS. Examination of the Organic Theory of Society. 1. How far is society differentiated that we may find organs and functions? 2. Primitive society compared with lower forms of animal life; e. g. , the amoeba. 3. Ma}' we view economic and industrial conditions as the prod- uct of social evolution? Illustrate this view by a study^ of the social development from patriarchal conditions to our present complex state. Phenomena of Social Production are {(rlxh) I. Association. II. Division of Tiabor. III. Exchange. IV. Credit. I. Association. 1. For what purpose indispensable? 2. Association of labor illustrated. 3. Association of capital illustrated. 4. How do communistic conditions affect association? 40 PRINCIPLES OF ECONOMIC^. 5. How do socialistic conditions (state interference) affect association? 6. Association studied from the standpoint of organized industry on a large scale. A. Advantages of large production. 1. Extends the limit of individual strength and capacity. 2. Economy in labor in making Division of Labor possible. 3. Economy of space or situation. 4. Economy in natural agents. 5. Economy in capital. 6. Economy in product (resulting from the economies supra,) giving a cheaper and better product. B. Disadvantages of large production. 1. Supplanting of wdepoident labor by hired employment. 2. Disappearance of middle men. 3. May lead to monopoly prices by destroying com- petition. 4. Calls for more legislation. 5. Lessens individual enterprise. 6. May cause the State to become a. factor in production. A priori this can not be considered a disadvantage. It is a question of comparative services for the public good. Questions. 1. Compare the development of economic conditions with the development of political conditions. Do they correspond, stage by stage? In what sense? 2. Do you consider that the present system of production on a large scale is a natural growth? What will be the next stage in this industrial evolution? 3. Could the State by owning and controlling the means or instruments of production give an increased wealth-product to be distributed! How? 4. Is it practicable or desirable that large production should extend to Agriculture? What is the present tendency? 5. As the United States becomes more densely populated, what effect will it have on property holdings in land? 6. Does the number of laws increase or decrease the more com- plex society becomes? Why? PRINCIPLES OP ECONOMICS. 41 II. Division of Labor. 1. Development of as seen in a. Trades. I>. Workshops, c Professions. 2. Necessary conditions of a. Production on a large scale. 1. Large investments of capital in machinery, build- ings, etc. 2. Large number of laborers of different grades under one general management. h. Production must be continuous. 1. Character of the labor; e. g. , agriculture. 2. An extensive market, c. Great executive ability. 1. Superintendence of the mechanical processes. 2. General management of purchases and sales, credits, collections, etc. 3. Close study of markets, competition, etc. 3. Division of labor in relation to production. a. Advantages. 1. Products are multiplied and cheapened by a. Economies of time, h. labor, c. capital. 2. Products are increased in varieVy. 3. Certainty of steady employment of laborers. 4. Proper balance between different branches of industry. 5. Develops dexterity in the laborer. (i. Gives latitude to individual capacities and aptitudes and develops mastership. 7. Diminishes the -'pain element"" of labor, making labor less arduous. 8. Economy of time in, a. Apprenticeship. f>. "Setting to work " in changing labors. 9. Develops an esprit de corps. 10. Gives play to invention. h. Disadvantages. 1. Makes the laborer's work mechanical. " It is a sad confession for a man that during his whole life he has constructed nothing more than the eighteenth part of a pin."' 2. Makes the laborer incapable to do anything well except the fixed and special operation. 42 I-RINCIPLES OF ECONOMICS. 3. Danger of impairment of the health and vigor of the laborer. 4. Involves the loss of some independence and self respect. 5. Dwarfs the laborer's faculties. 6. A financial failui-e of an establishment of large pro- duction involves the fate of great numbers of work- men. Questions. 1. Describe any large manufacturing establishment you have ever visited, and point out the Divisioa of Labor found therein. 2. Do you think that the establishment of a large factory in your town is productive of more good than evil ? Give i-eason. 3. What is the character of Factory Acts that are generally found upon our Statutes ? 4. Illustrate division of labor among, (/. doctors, h. lawyers, c. bookkeepers. Do avy disadvantages suggest themselves to you? 5. Would a co-operative system of society affect division of labor to any extent? Illustrative Quotations. ' ' This division of labor first dwelt on by political economists as a social phenomenon, and thereupon recognized by biologists as a phenomenon of living bodies which they called the ' physiologi- cal division of labor,' is that which in the society, as in the animal, makes it a living whole. Scarcely can I emphasize enough the truth that in respect of this fundamental trait, a social organism and an individual organism are entirely alike." — Herhert Spencer, Priii. Soc, Vol. I, p. Jf.Jf-0. ' ' Now, are there nothing but advantages in this evolution to- wards large production? No one but the most sanguine of opti- mists could think so. Were this evolution brought about solely by the means of perfect association, by the progressive substi- tution of associated for isolated labor, we might perhaps be able to see in it nothing but advantages. Even then, however, if the result of the development of collective organization was to weaken and relax the stimulus of individual initiative and re- sponsibility, like springs which rust for want of use, we might justly expi'ess some fear, or at any rate some regret." — (ride, Pol. Econ., p. 158. PttlNCllM.ES OF ECONOMICS. 4H '' It is foand that the pi'oductive power of labor is increased by- carrying the separation further and further; by breaking down more and .more every process of industry into parts, so that each laborer shall confine himself to an even smaller number of simple operations. And thus in time, arise those remarkable cases of what is called the division of labor.'' — ,/. ,S. MIIK Frin. JBJcon., J). lOS. "The business of making a pin is divided into about eighteen distinct operations. One man draws out the wire, another straightens it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on is a peculiar business; to whiten the pins is another; it is even a trade by itself to put them into paper. ' — A(hnn Smif/i. Readings. Laughlin's Mill. Pria. Pol. Econ.. pp. 99-IU. Gide's Pol. Econ., pp. 145-16;'). Walker's Adv. Course, pp. 56-61. Bastiat. Ec. Harm., p. 211. Patton. Pol. Econ.. pp. 50-56 Smith's Wealth of Nations. Bk. T, Chap. TV. THE QUESTION OF INSUFFICIENCY IN FUTURE PRODUCTION. The Growth of Numbers. Premises. 1. Land is fixed in amount and is not capable of increase. 2. The production from land has a limit; /. <.. it is affected by the Law of Diminishing Keturns. 3. Other conditions being equal, population or growth in numbers has no assignable limit. Query. Will the time ever come when population will press upon food production? Counteracting forces are two in number: L Those causes retarding the growth of population. 1. War, famine, pestilence. 2. Deaths by a. Natural causes. I>. Suicide, c Accidents. 3. Legislative restrictions. •1. Moral and prudential restraints. (Altruistic.) u PRINCIPLES OF ECONOMICS. 5. Physiological causes. 6. Public opinion and spirit of the age. 7. Standard of comforts. 8. Luxuries. 9. Immorality. II. Those causes increasing the efflcienc}^ of production. 1. Improved machinery. 2. Increased intelligence. 3. Irrigation. 4. New fertilizers. 5. Intensive cultivation. 6. New economic wants enlarges the field of labor. 7. Better roads and means of communication. Law of Population as enunciated by Malthus. 1. Essay on the Principles of Population, by T. R. Malthus, first edition, 1798. 2. His famous formula affirmed that "population tends to increase in a geometrical progression, whilst the means of subsistence can only increase in an arithmetical pro- gression. " Progression of Pojiulatio n ; 1, 2, 4, 8, 16, 32, 64, 128, etc. Progression of Production; 1, 2, 3, 4, 5, 6, 7, 8, etc. 3. His reasoning consists of three parts: a. The Supply of Labor. He shows that every people of whose history we have a trustworthy record has been so prolific that the growth of numbers would have been rapid and con- tinuous, if it had not been checked by scarcity of the necessaries of life, by disease, by war, by infanticide, or by voluntary restraint. h. The Demand for Laboi'. He shows that up to the time he wrote, no country had been able to obtain an abundant supply of the necessaries of life, after its territory had become thickly populated. c. The Conclusion. He claims that what had been in the past was likely to be in the future, and that population would be checked by poverty or money, unless it were checked by voluntary restraint. PRINCIPLES OF ECONOMICS. 45 Objections to the Malthusian doctrine. 1. Increase in numbers increases productive power. — A. A. Evi'i-etl (18.>S). 2. Human fertility varies inversely witli numbers. — M. T. iSiidler ilS.JO). 3. Material improvement of the human race is a proof that man can produce more than he consumes. — A. Alison (18Jf.O). 4. Increased demand upon the nervous system causes a diminu- tion of fertility. — Sj)rnc('r {lS').:i). 5. Reason, as well as facts, are against Malthus. — R. E. Thomp. son {lS7-'>). 6. Tendency is for subsistence to outstrip the increase of popu- lation. — JSf. W. Senior. 7. J. S. Mill held the tendency pointed out by Malthus is the constant element in the problem, and all others are incon- stant and variable. 8. Malthus is also opposed by Carey, Bowen, and Henry George in America. Illustrative Quotations. "It would seem, then, that what has been ambitiously called Malthus' theory of population, instead of being a great discovery, as some have represented it, or a poisonous novelty, as others have considered it, is no more than a formal enun- ciation of obvious, though sometimes neglected, facts. The pretentious language often applied to it by economists is objec- tionable, as being apt to make us forget that the whole subject with which it deals is as j'et very imperfectly understood — the causes which modify the force of the sexual instinct, and those which lead to variations in fecundity, still awaiting a complete investigation. "Malthus and his followers appear to have greatly exagger- ated both the magnitude and the urgency of the dangers to which they pointed. Because a force exists, capable, if un- checked, of producing certain results, it does not follow these results as imminent or even possible in the sphere of experi- ence." — /. K. liiyram. Hist. Pol. Econ., j>. 117. " The rate of increase of population in civilized countries may be reckoned as about 1 per cent (more exactly 9 out of lUUU), which corresponds to a period of doubling in 72 years, and ia 46 PRINCIPLES OF ECONOMICS. thus far inferior to that predicted by Malthus. Thus the 3'early increase for G-ermany, England, and Russia is respectively 9, 10, and 13 per 1000; but it is less for some countries, especially for France, which is far in the rear. "Yet, even at this apparently moderate rate of 1 per cent, the increase in population would be literally awful, and would lead to almost inconceivable results. Granting the population of the world (now calculated at 1,500,000,000) were to increase 1 per cent per annum, it would reach 3,000,000,000 by the middle of the next century, and 48,000,000,000 about the year 2240." — Gide, Pol. Econ., p. 32^. "In the animal and vegetable world the growth of numbers is governed simply by the tendency of individuals to propagate their species on the one hand, and on the other hand by the struggle for life which thins out vast numbers of the young before they arrive at maturity. In the human race alone the conflict of these two opposing forces is complicated by other influences. On the one hand regard for the future induces many individuals to control their natural impulses; sometimes with the purpose of worthily discharging their duties as parents; sometimes, as for instance at Rome under the Empire, for mean motives. And on the other hand, society exercises pressure on the individual by religious, moral, and legal sanctions, some- times with the object of quickening, and sometimes with that of retarding, the growth of population." — Marshall, Prin. Ec, p. 229. ''One should aim less at augmenting the population than at increasing the national income, for the condition of greater com- fort which is derived from a good income is preferable to that in which a population exceeds its income, and is ever in urgent need of the means of subsistence. " — i^raiic/s Quesnay. " As the fertility of any sj^ecies appears usuall}" to vary in inverse ratio to the development of the individuals of the species (for the lower species increase in infinitely larger proportions than do the higher animals, and man in particular,) — as in the human species itself the lower class have generally more children than the picked classes, — and further, as there appears to be a phys- iological law which would seem to establish an antagonism between generative activity and cerebral activity, we may hope that the fecundity of the human species is destined to slacken I'RlNril'LES OF ECONO.Mirs. 47 progressively in proportion to the intellectual and moral develop- ment of the individuals that compose it." — ^Spencer's Frinriplc. Gide, Pol. Econ.^ p. 3i2o. ••But further, there can be no doubt that fecundity is dimin- ished by any great nervous strain. Mr. Galton has indeed proved that those who do high mental work are not as a class unprolific. But then as a class they have much more than the average of constitutional and nervous strength. And it seems ceitaiu that given the natural strength of the parents their expectation of a large family is diminished by a great increase of mental strain. How far this tendency may reach is under dispute; but there are some who think it so strong as to make it probable that the progress of civilization will of itself hold the growth of population completely in check." — MarxhtU, Prin. Ec, p. 239. '• The general misery of mankind is a fact that can be accounted for upon only one of tWo positions, either that there is a tend- ency in population to increase faster than capital, or that capi- tal has by some means been prevented from increasing as fast as it has a tendency to increase. However slow the increase of population, provided that of capital is still slower, wages will be reduced so low that a portion of the population will reg- ularly die of want.'' — James Mill. " Elkanah Watson in 1815 estimated the population of the United States for each decade until 1900. In 1820 he was only about 8,000 out of the way; in 1830 about 32,000; in 1840 about the same; in 1850 something like 080,100; and in 1860 over 310,000. Then he took a mighty fall, and was millions too much in 1870 and 1880, closing nearly 15,000,000 too high in 1890, while his estimate for 1900 of 100,235,985 will prob- ably exceed the actual amount by 25,000,000." — Roht. Porter, Supt. CriLSUS, ISUO. The human family living on earth to-day consists of about 1,450,000,000 souls; not less, probably more. These are dis- tributed literally all over the earths surface, there being no con- siderable spot on the globe where man has not found a foothold. In Asia, the so-called "cradle of the human race, ' there are now about 800,0(10,000 people densely crowded, on an average of about 120 to every square mile. In Europe there are 320,- 48 PRINCIPLES OP ECONOMICS. 000,000, averaging 100 to the square mile, not so crowded as Asia, but everywhere dense and in many places over populated. In Africa there are, approximately, 210,000,000, and in the Americas — ^ North, South, and Central — 110,000,000; these latter, of course, relatively thinly scattered over broad areas. On the islands, large and small, there are probably 10,000,000 more. The extremes of the blacks and whites are as five to three; the remaining 700,000,000 interrpediate brown, yellow, and tawny in color. Of the entire race, 500,000,000 are well clothed — that is, they wear garments of some kind that will cover their nakedness; 250,000,000 habitually go naked; 700,- 000,000 cover only the middle part of the body; 500,000,000 live in houses ; 700,000,000 in huts and caves, the remaining 250,000,000 virtually having no place to lay their heads. Readings. Marshall. Prin. Ec, Vol. I, Chapters IV- V. Gide. Pol. Econ., pp. 320-323. Herbert Spencer's Prin. of Biology, Part VI. Patrick Geddes' "The Evolution of Sex." R. E. Thompson. El. Pol. Econ., Chap. IV. Walker. Pol. Econ., Adv. Course, Part V,'Chap. I. THE LAW OF DIMINISHING RETURNS. Principle stated: An increase in the capital and labor applied in the cultivation of land causes in general a less than proportionate increase in the amount of produce raised, unless it happens to coin- cide with an improvement in the arts of agriculture ; or After a certain point in the cultivation of land, doubling the dose of labor and capital will not give a proportionate increase in product. 1. Marginal Dose. — That which only just remunerates the culti- vator. 2. Marginal Return. — The return which the marginal dose gives. Query: How would you define the Margin of Cultivation, PRINCIPLES OF ECONOMICS. 49 THE LAW OF DIMINISHING RETURNS IN RELATION TO OTHER INDUSTRIES. 1. Fisheries. 2. Mines. 1. In what way does the Law of Diminishing Returns aft'ect the above industries? In what respects differently than in agriculture? 3. Gil round-rents. 4. Manufactures. Questions. 1. Does the means of subsistence increase in an arithmetical progression? Is this too favorable a supposition? 2. What are some of the most potent checks on the growth of population? Which do you deem the most potent to-day? 3. Does the increased facility of immigration nullify the Mal- thusian doctrine? Why? 4. Trace the connection between the law of Malthus and the law of diminishing return. 5. How does the increasing productiveness of manufactures affect diminishing returns on those materials entering into manufactured product ? 6. Why do you accept the law of diminishing returns without debate ? 7. Read (xenesis 13 : 6, and state what economic principle is found. 8. " Thus we need not suppose when the return to extra labor and capital has begun to diminish, it will alwa3's continue to do so. " Why not ? !>. Is there a law of increasing Returns ? 10. In the absence of anj^ special cause to the contrary, tlic growth of population and wealth will make the poorer soils gain on the richer." Explain. Readings. Marshall, Prin. of Ec, Vol. I. pp. 20fi-22r. Mill, Prin. Pol. Eron. Laushlin. Chapters !) and 10, Gide. Pol. Econ., pp. 333 .333. Walker. Adv. Course, pp. 36-43. 50 PRINCIPLES OF ECONOMICS. The Subject of Over=Production. 1. -There cau not be an excess in production if the increase operates simultaneously and proportionately in all branches of production. Why ? 2. Fluctuations in production. Causes. (1_). Failure of the producers to meet promptly and pre- cisely the demands of the consumers. (2). Inability to measure the demands of the future. (3). Excess of production of certain commodities, due to temporary high profits. (Profits tend toward an equilibrium. How low can they fall ?) (4). Misdirection of productive forces. (5j. Confidence destroyed, causing a retrenchment of capital and labor. 3. Crisis. "(1). A crisis is a disturbance of the equilibrium between the forces of production and consumption. (2). Periodicity of Crisis. (3j. Causes. a. Glut or scarcity of commodities. h. Glut or dearth of capital. c. Excess or dearth of coin. d. Speculation and over-confidence in the future. Business is not yaMibling. (4). A study of crises in the United States. Principal dates: 1837, 1857, 1873, 1893. (Consult Histories of the United States and summarize the concrete causes.) 4. Is there reason to fear too much production ? (1). J. B. Says "Theory of the Law of Markets." "The more abundant and varied produots are, the more markets do they find." (2). The question of machinery and further invention ? a. Does machinery antagonize the laborer's interests ? PRINCIPLES OF ECONOMICS. 51 The Question of Trusts. 1. Are they to be viewed as the outgrowth of evohitionary forces; /. <■., do they mark a stage ia economic progress that has had a natural development ? 2. Explanation of the query. Accepting the Historical theory of the origin of society, we may mark off successive planes of economic develop- ment from primitive conditions to our present complex state ; e. (/., (1). Primitive society, when everyone produces or attempts to produce for himself all that he needs. (2). A slight differentiation but with no division of labor as yet. Production on a small scale. (3). A still more dift'erentiated industrial society, division of labor playing a more important part due to larger production. (4). Successive developments and changes until production on a large scale is reached, with well defined divi- sions of labor. (5). Centralization of labor and capital of the large pro- ducers, leading to monopolies. (6). What next ? Query: If monopolies were not actuated with selfish motives, would there be more benefits than evils resulting from them ? Monopolies Classified — {Ely). 1. Natural. 2. Artificial. :{. Public. 4. Private. " Monopolies with respect to ownership and management may be divided into two classes, public and private. But monopolies may be divided iuto two different classes from another stand- point. Certain pursuits are monopolies on account of their own inherent qualities. These we call natural monopolies, legisla- tion neither makes them monopolies, nor can it prevent thein from becoming monopolies. All that .legislation can do Is to recognize the fact that they are and must remain mo- 52 PRINCIPLES OP ECONOMICS. 'nopolies, and to act upoii it. There are other pursuits which are made monopolies by legislation, and these we call artificial monopolies." — ProhJems of To-day, Ely, p. 108. ' ' If competition does not necessarily lead to cheapness, it follows, a contrario, that monopoly does not necessarily produce dearness. It has the disadvantage, it is true, of allowing the producer who is invested with this particular monopoly to realize exceptional profits, but it may enable him, also, to reduce his prices, through economy in his general expenses, thus a trifling disadvantage would be compensated by a great advantage. The equalization of incomes is certainly a good thing to aim at, but economy in production is better. — Gide, Pol. Peon. , p. 69. (Read chapters XVII-XX of R. T. Elys "Problems of To- Day. ") Readings. Walker's Pol. Econ. Adv. Course, pp. 171-186. Gide's Pol. Econ. pp. 68-71; 334-356. Mill's Pol.'Econ., Laughlin, Book IV. Davenport's "Outlines of Econ. Theo.," Chap. XIII. SELECTED THEMES FOR WRITTEN WORK. 1. The Aim and Scope of Political Economy. 2. Schools of Political Economy and the Principles of Each. 3. The Necessary Elements in the Definition of Wealth. 4. The Factors that have made the United States a Wealth- Producing Country. 5. Improvement in Machinery iu relation to the Laborer's Welfare. 6. A study of Capitalists and how they became such. 7. Cost of Production of Wheat. 8. The G-rowth of Cities in Relation to Economic Causes. 9. Would the U. S. Grovernment be Justified in Building National Roads? 10. The part the U. S. has played in Expenditures for Public Improvement. 11. Are there Natural Laws in Political Economy? I'RINCIPLES Of ErONO.MIOS. 53 12. Pain as a Factor of Jjubor. 13. The Meaning of Saving. 14. Effects Produced on Value by Competition. 15. Objections to the '> labor-theory " of Value. 16. Causes determining the Efficiency of Labor. 17. Is Poverty a necessary Evil? 18. Physical Causes as Economic Forces. 19. The Influence of the Invention of Printing on Industry. I>. Influence of the Reformation, c Influence of the Discctv- ery of the New AVorld. 20. The Centralization of Capital. Can it be Controlled? 21. The Origin of Large Business Undertakings. 22. Induction and Deduction are Mutually Dependent. 23. Wants in Relation to Activities. 24. What is a Market? 25. Ancient Castes and Modern Classes. 26. The Nature, Origin, and Measure of Value. 27. The Exact Economic Meaning of Supply and Demand. 28. Over-Production. 29. Cost of Production of Straw and Grain, and tbe variance i n Values. EXCHANGE. A Study of Exchange under Primitive Conditions. 1. Barter. <7. Disadvantages of barter illustrated. h. A medium of exchange substituted. c. Introduction of forms of credit. A Study of Exchange under our Present Industrial System. 1. Trace a bushel of wheat from the farm to the bread-con- sumer and note the possible exchanges. Advantage of Exchange. 1. The utilization of a large quantity of wealth which would otherwise remain unused. 2. The utilization of productive abilities which would otherwise remain idle. 3. Simplifies production and affords continuous labor in the pro- duction of the same commodity. How Exchange is Facilitated. 1. By middlemen, or traders. 2. By means of communication and transport. 3. By the invention of a medium of exchange and a common denominator of values. 4. By forms of credit. A. Functions of middlemen or traders. 1. Bring the producer and consumer together, saving time to each in finding the other, respectively. 2. The quantity offered by the producer and that de- manded by the consumer tends towards an equilib- rium. 3. Enables the disposition of the commodity to be effected without loss of time; i. e., between the manufac- turer of the product and the acquisition by the consumer. 54 I'MlNCll'l.ES OF ECONOM1("8. 55 B. Conditions atl'ectiug transportation. 1. Distance. 2. The kind or nature of the commoditj-. 3. (Character or means of transportation and tlie natural interferences. These obstacles are overcome by (1) Macadamized roads. (2) Bridges and tunnels. (3) Improved means of vehicular carriage on land and water. (-4) The utilization of nature's forces. C. The function of money. — (Jcvnis.) 1. A common measure or common denominator of value. 2. A medium of exchange. 3. A standard of value, or as Walker terms it, "a stand- ard of deferred payments.' D. The functions of credit. (1) The utilizing of existing capital to the best possible advantage, for the reason that a large number of people can not use their own capital. a. Those who have too much. h. Those who have too little. c. Those who on account of age, sex. or condition of life can not employ their capital. (2) The formation of new capital. (3) Gives an impetus to saving and increases the dispo- sition to save. (4) Saves the use of metallic money. Questions. 1. Discuss the economic function of traveling men, or '' drum- mers." 2. Each person in the process of an exchange considers that he receives more than he gives. Is there any sophistry in this asser- tion? 3. What causes are at work to do away with the shop-keepers? 4. What disadvantages arise from too many traders? 5. What is the economic function of a city market? Of a State Fair? G. " Exchange is the giving up of a comparatively superfluous 5(3 . PRINCIPLES 01' ECONOMICS. thing for one that is comparatively necessary." Examine the mean- ing of this definition. Of Money. 1. The necessity of a common measure, 2. Primitive forms of money. (1) Leather, wampum, cattle, skins and furs, rice, salt, silk, wheat, copper, iron, etc., etc. .3. Requisites for a perfect money. (1) Eoumerated by G-ide. a. Easiness of transport. h. Identity of quality. c. Difficulty of counterfeiting. d. Perfect divisibilit}'. r. Indefinite durability. (2) Enumerated by Jevons. a. Value. I). Portability. c. Divisibility. d. Indestructibility. e. Homogeneity. /. Stability of value. g. Cognizability. (3) Enumerated by Parsons. a. General acceptability. - h. Limitation of volume c. Steadiness of value. d. Portabilit3^ p. Ease of keeping. /'. Ease of concealment. g. Difficulty of counterfeiting. h. Durability. i. Divisibility. /. Elasticity. h. Uniformity. I. Cheapness. 4. Application of these essentials to different commodities \ e. g., gold, silver, iron, paper, corn, labor, etc. 5. The Law of Mutiple Standard. VRlNCll'LKS OF ECONOMICS. 57 '•A long contract, like a government or a railway bond, ought not to be settled by paying back the amount of gold or silver borrowed, but by giving the leader a sum which would, at the time of payment, purchase the amount of commodities for which the money loaned could have been exchanged at the time that it passed from the lender to the borrower.'' The Law of Multiple Standard takes into consideration the i>ur- chusiiig power of money, no matter whether a greater or less (imount of money is to be returned. Newcomb's "Principles of Political Economy," p. 211, shows what the actual working of this system is by the following table, exhibiting the prices of certain necessaries of life in New York markets. ITEMS 1876 1880 1884 1 bbl. corn-meal ... $ 3 68 12 42 7 72 7 65 5 53 2 58 8 90 34 1 34 5 60 9 00 10 00 7 20 2 80 6 12 2 84 36 10 70 2 98 3 30 $ 2 80 11 76 7 78 7 40 3 47 2 30 7 52 30 2 06 4 08 8 80 6 20 .) 10 1 60 7 50 2 92 30 9 00 2 98 3 80 $ 3 24 2 bbls. flour 11 18 1,000 brick 7 59 500 feet lumber 8 53 1 ton coal 4 70 20 lbs. cotton 2 10 ^ ton hay . 9 16 2 cwt. ice . . 23 1 cwt pig'-iron . 1 28 2 pair shoes 4 80 100 lbs. beef 9 90 100 lbs. pork 7 90 30 lbs. butter 5 40 10 doz. eggs 2 10 10 bu. potatoes 6 75 40 lbs. rice 2 40 1 bu. salt 39 100 lbs. sugar 7 10 1 cord wood ... 3 58 10 lbs wool 3 00 Total (1 " multiple unit " ) *111 66 $98 27 $101 33 The Claims of the Multiple Standard. 1. The moral and economic need of a dollar of unchanging po ver of purchase. 2. The unsteadiness of gold and silver. . 58 PRINCIPLES OF ECONOMICS. 3. The steadiness of a composite commodity standard. 4. The practicabilit}' of keeping the dollar in harmony with the multiple commodity standard by careful regulation of the money volume. 5. The publicity, definiteness, and importance of the standard and its operation would constitute a strong protection against fraud. Readings. " Rational Money." by Frank Parsons, pp. 1:24-I(i0. V. P. Taylor. Publisher. Phila.,25c. Gide Pol. Econ., pp. 81-88. Qresham's Law. ' ' In every country where two legal moneys are in circulation, the bad money always drives out the good." Circulation of good money ceases by 1. Hoarding. 2. Selling by weight. 3. Payments to the foreigner. Selling by Weight Illustrated. "In 1820 the market ratio of gold in a dollar (24f) grains would exchange for 15.7 times as many grains of silver in the market, in the form of bullion; while at the mint, in the form of coin, it would exchange for only 15 times as many grains of silver. A broker having 1,000 grains of gold dollars could buy with them in the market silver bullion enough (1,000 X 15.7 grains) to have coined, when presented at the mint, (1,000 dollars in silver pieces, and yet have left over as a profit by the operation 700 grains of silver. So long as this can be done, silver (the cheapest money) will be presented at the mint, and gold (the dearest money) will become an article of merchandise too valuable to be used as money when the cheaper silver is le- gally as good." — Laugldins Mill^ p. 319. Qresham's Law Applies to the Following Cases: 1. When a worn money circulates with a newly coined money. 2. When a depreciated paper money circulates with a metallic money. 3. When a light money is in circulation with a right money, or a right money is in circulation with a heavy money. I'RINCU'LKS OF K('(»NOMiCS. TlU 4. In general when two moneys are governed by the same rules and regulations, and there is a variance between the market or commercial ratio and the legal or mint ratio. Bimetallism Defined. 1. Bimetallism is a system ot coinage in which two metals are coined, subject to the same governmental regulations and restrictions. 2. Claims of the Bimetallist. a. The adoption of the single gold standard involves the demonetization of silver. h. If all countries took gold as their standard, there is fear that the supply would not be sufficient, c. The variations in price are more to be feared with a single standard of values than with a double standard. Coinage Defined. Coinage is the act of assaying, subdividing, and stamping a metal intended to be used as money. A coin is an ingot of metal stamped by the government certify- ing its weight and fineness. Free Coinage is the coinage of a metal by the government, the bullion being owned by an individual and coined on private account. Query: Do we have free coinage of gold to-day? The term '■'■16 to i" expresses the value of gold to silver as a mint ratio; i. e. , for every grain of gold in a gold dollar, sixteen times as many grains of silver would be placed in a silver dollar. Since 183-1, the ratio although commonly stated 1G:1 has been 15,988 to 1, or expressed in grains 371.25 to 23.22. Legal Tender Defined. 1. A legal tender, as applied to money, is such a mone}' which the law makes capable to discharge a debt at maturity. 2. The effects of a refusal to accept are a. To stop the accrual of interest from the date of the tender. h. To throw upon the creditor the costs of a suit to collect, c. To discharge and release whatever pledge, mortgage, or other security given. 3. Legal tender money of the U. S. consists of a. Gold coins to any amount. b. Silver dollars and Treasury notes of 1890 issue, unless otherwise expressly stipulated in contract. 60 PRINCIPLES 01' ECONOMICS. c. United States notes (greenbacks), except for interest on public debt and for duties on imports. d. National Bank notes, legal tender in payment of any debt or liability to any National Bank; also receivable for all government dues except duties on imports, and tenderable for all government dues except interest on bonds. e Silver coins smaller than one dollar, legal tender to the amount of ten dollars in any one paj'ment. / Coins of nickel and copper, to the amount of twenty-five cents. The Quantity Theory of Money. The quantity theory of money assumes that " the value of money (whatever that money may, in the place and at the time, consist of) depends, like the value of anything else, on the relations of demand and supply; that prices are determined in the amount of goods offered for money and the amount of money offered for goods." It takes into account the number of money pieces, and the rapidity of circulation. Readings. Pro: Francis A. Walker— The Quarterly .lournal of Economics, October, 1893. Amasa Walker— The Science of Wealth, pp. 169-184. J. S. Mill, Laughlin's Edition, pp. 305-311. J. L. Laughlin, Political Economy, pp. 77-80. Contra: White— Money and Banking, pp. 419-426. Miss Sarah M. Hardy— The Journal of Political Economy (Chicago), March. 1893. Summary of flonetary Events in the United States. 1792 — Adoption of the ratio of 1 to 15, and the establishment of a mint with free and gratuitous coinage; the silver dollar equal to 371^ grains fine, the eagle to 247|- grains fine. 1792-1834 — Transition from a gold to a silver basis, due to a variance of legal and commercial ratios. 1805-1836 — No silver dollars coined. President Jefferson issued the order. PRINCIPLES OF ECONOMICS. 61 1834 — Substitution of the ratio 1 to 1(1. Gold dollar made 23.22 grains pure. 1837 — Fineness of gold coins was raised from .809225 to .900, and the silver coins from .8924 to 900 giving a ratio of 1 to 15.988, and fixing the standard weight of the silver dollar at 412^ grains. 1834-1853 — Transition from a silver to a gold basis. 1847 — Discovery of gold in California. 1853 — 1. Subsidiar}- silver coin reduced to 345.6 grains as compared with the dollar 371.25 grains. 2. Legal tender of fractional silver currency limited to $5. 3. Amount limited at the discretion of the Secretary of the Treasury. 1853-1878 — Single gold currency, except the paper period. 1861 — July 17 and August 5 — 50 millions of demand notes author- ized in denominations of $5 and upwards, bearing no interest and receivable for public dues. 1861 — Dec. 28 — Suspension of specie payments. 1862 — Feb. 12 — Further issue of 10 millions authorized. Mar. 17 — Made legal tender. 1862— Feb 25 — 150 millions of U. S. notes authorized. July 11 — 150 " " " " " 1863— Mar. 3 — 150 " u .. << a These notes were ' ' receivable in payment of all taxes, inter- nal duties, excises, debts, and demands of every kind due the United States, except duties on imports, and of all claims and demands against the United States, except for interest on bonds and notes, which shall be paid in coin. Fifty mil- lions of said notes shall be in lieu of the demand treasury notes authorized ])y the act of Jul^y 17, 1861; which said demand notes shall be taken up as rapidly as practicable." 1862-1879— Paper period. 1873 — Increase of the intrinsic value of the subsidiary coins of the U. S. Replacing of the double standard by the gold stand- ard. Creation of the trade dollar of 420 grains. Silver dollar dropped from coinage. 62 PRINCIPLES OF ECONOMICS. 1878.^ — Bland- Allison act. Congress provided for the purchase of silver at the market price thereof, of not less than $2,000,- 000 worth per month, nor more than $4,000,000, and the coinage of the same as fast as purchased into silver dollars of 412|- grains. 1878. — Average price per fine ounce, $1.2048. Bullion value of a silver dollar, $.9318. 1879 — Resumption of specie payments. 1887 — Retirement of the trade dollar. 1890 — Sherman Act provided for the purchase of 4,500,000 fine ounces of silver each month, to be paid for by treasury notes, payable in coin. 1890 — Average price per fine ounce, $.9668. Bullion value of a silver dollar, $.7477. 1893 — Repeal of the compulsory clause of the act of July 14, 1890. (For complete statistics, consult the annual "Report of the Director of Mint," sent upon request.) Salient Facts in the World's Monetary Legislation. 1803 — France adopted the double standard, 15|- to 1. 1810 — Russia adopted the silver standard. 1816 — England adopted the gold standard. 1832 — Belgium introduced the French monetary system. 1844 — Turkey adopted the double standard. 1847 — Holland adopted the silver standard. 1850 — Switzerland adopted the French system. 1851 — Gold discovered in Australia. 1854 — Portugal adopted the gold standard. 1862 — Italy adopted the French system. 1864 — Formation of the Latin Union, — France, Belgium, Switzer- land, Ital3\ Ratio, 16 k to 1. 1867 — First International Monetary Conference at Paris. 1868 — Grreece admitted to Latin Union. 1868 — Spain adopted the French system. 1871 — Germany adopted the gold standard. 1871 — Japan adopted the double standard. PRIXCIPLES OF ECONOMICS. Go 1873 — Holland suspended silver coinage. 1873 — Formation of the Scandinavian Monetary Union on a gold basis. 1875 — Italy suspends free coinage of silver. 1892 — Austro-Hungary adopted gold standard. 1895 — Chile adopted gold standard. 1897 — Russia and Japan adopted gold standard. Silver Coinage in the United States. 1798-1853 — Free and unlimited coinage of silver. 1853-1873 — Dollars onl}' were coined on private account. 1873-1899 — No silver coined except on government account. 1793 to 1853 Dollars AH Other $2,407,59(1 $76,708,309.40 1853 to 1873. $5,638,248 $60,361,246.70 1873 to June 30. 1898 $434,964,953 $89,329,857.60 64 PRINCIPLES OF ECONOMICS. Statement of the Public Debt and of the Cash in the Treasury of the V. S., April 1, 1898. INTEREST AND NON-INTEREST BEARING DEBT OF THE U. S. Interest-hearing debt Debt on which interest has ceased since maturity. x> o Oi 1—1 CD CO ■^ 1 I— I ? ""• >»(M 0) CO 05 CO 050 fioo s !> (D tH 1—1 cc 1: » ^k5 03 C a r-l^:^ br a > 'en in cc ■^«^ ci rf J u z o O U. OJ H H H (A OQ C/3 +^ CD o ■iJ c O s m 73 73 c a m «s P^ OJ c 73 'o -4-3 o a> o o >-> -1 • ^ o fi QJ c« CO Id t3 a* f- .„ OJ CO > « o +-1 U O a m =J g S CB s a3 1— 1 ^^ H c g > c3 o mo o y^ 1-^ (m'co 0) ■^/' — ' SM CO I GO o CO o 0) CB 0) s 1 :^ ,i3 o c P5 O OJ eo ■'J* 03 c«'tr "^^ ;3 O >i O CO ■r 73-0 ^ 9 • 5 s: , u cs > to C3 'g- o o PRINCIPLES OF ECONOMICS. 71 Questions. 1. "Credit is not a creation, but a transfer of Capital." Ex- plain. 2. Can an inconvertible currency be made to maintain the same value as a convertible currency, and, if so, how? Supposing that it can, what objections are there, nevertheless, to it? 3. How is it a bad dollar does the work of buying as well as a good one until it is found out? 4. To what extent is a government capable of giving fictitious value to a paper or a metallic currency? 5. Tell in what ways you could pay a debt of 150 in legal tender, U. S. paper money. 6. Ninety per cent, of the business of the United States to-day is done on a credit basis. Explain the statement. 7. The nearer we approach to a pure credit system, we near the restoration of barter. Explain. 8. If a paper money should always have a foundation on actual property, would any of its dangers be obviated? 9. In a country with an inconvertible paper currency, how can it be determined whether the issues are excessive or not? 10. Do you think a paper currency could be maintained per- fectly by international agreement? 11. President Grarfield once said: "We do not export paper money, for the same reason we could not export bad cheese or ran- cid butter," Wherein is the analogy? 12. What is the cost of production of a paper currency? What is the difference in the depreciation of value of paper and metallic moneys, as to the extent of the depreciation? 13. Is the creation of paper money, the creation of wealth? 14. Ricardo said: " The whole charge for paper money may be viewed as seigniorage." Explain. 15. What is meant by inflation? 16. May paper money serve as a standard of deferred payments? As a value denominator? 17. Did the U. S. Demand notes, issue of 1862, depreciate along with the " Greenbacks " ? 72 PRINCIPLES OF ECONOMICS. 18. Could you legally have a die and stamp metals as coin, pro- vided you used an original design? Illustrative Quotation. "What determines the value of any kind of money? What determines the value of anything? Demand and supply. The demand for money is, the amount of mone} -work to be done, the amount of exchanging requiring to be effected, through the use of money. The supply of money is the money- force avail- able to do the money-work. It is compounded of the volume of the circulating money and the rate of circulation. Suppos- ing the occasion for the use of money — the demand — to remain the same, and the rate of the circulation of paper to be the same as tbat of metal, the value of a body of paper money would be the same as that of a body of money consisting of as many pieces of metal as there were pieces of paper, the pieces being of the same "denominations," whether stamped with the mint press or the printing-press." — Walker, Adv. Pol. Econ., 2J. 158. "It is not necessary that paper money should be payable in specie to secure its value; it is only necessary that its quantity should be regulated according to the value of the metal which is declared to be the standard." — Ricardo. ' ' I know of nothing in the history of inconvertible paper money to indicate that such money, when issued of a denominative value not to exceed the mint value of the coin which would have cir- culated in the community under the law for the territorial dis- tribution of money, may not serve as the general medium of exchange, so far as ther internal trade of a country is concerned, in every way as satisfactorily as the coin itself. Indeed, if any preference exists, it will be in favor of the paper money, as more convenient to handle, more readily transported, more suc- cessfully concealed. " — Walker, p. 162. ' ' When, therefore, the question is asked, <■ Does it lie within the power of a government or a banker actually to augment the wealth of a country by the emission of paper money? ' it is not perfectly correct to answer in the negative. As a matter of fact, the affair is feasible, hut only up to the total amount of metallic money in circulation. PRINCIPLES OF ECONOMICS. 73 " But we must note that this gain would be realized only by some countries, not by all at once. One country can certainly productively utilize its metallic stock by selling it abroad; but if every country wished to do the same, it is evident that none of them would succeed. Gold and silver specie being offered by all countries seeking to get rid of them, and being demanded by none, would become a drug on the market, and henceforward valueless." — Gide, Pol. Kc per cent receive barely one-fifth. 4. Rent defined. Rent is the remuneration received by the land-owning class for the use of native and indestructible powers of the soil, or as it might be expressed, for the use of natural agents. — Walker. Rent is the measure of difference in desirability between better lands and marginal lands. — Davewport. 5. The law of rent. (1) Economic rent arises out of the differences of produc- tivity of soils under cultivation at the same time, for the purpose of supplying the same markets. (2) The amount of these differences determines the rent. Illustrate by hypothetical case. Query: 1. How far does this theory conform to actual con- ditions ? 2. Does the single tax advocate argue that what the state should take is the economic rent ? 3. Suppose the earth were a flat surface and of uniform fertility, would there be any economic rent ? Note: — A good discussion of the theory of economic rent with arguments for and against will be found in Walker's Advanced Political Economy, pp. 394-433. ••*. PRINCIPLES OF ECONOMICS 99 The Wage-Earner. 1. Kinds of wages. a. Real — computed in the necessaries and comforts of life. h. Nominal — computed in money. 2. Theories of Wages. a. The Productivity theory. "Demand for labor is evidently a demand for there- suits of labor ;— for the commodities which it produces. The demand for labor must then find a limit at the point where the wage payments approach equality with the increase in the value of the product due the laborer. We come, therefore, to the general proposition that wages are at the maximum limited by the value of the laborer's own contribution to the value of the product. " This theory is supported by Walker, Glide, Davenport, Jevons and others. b. The theory of the Law of Brass. 1. "Wages must be regulated by the value that is abso- lutely necessary for the support of the laborer and his family, or more generally for the subsistence and propa- gation of the laboring population. 2. This theory makes labor a commodity, and demand and supply, and cost of production apply to it as to any other commodity. 3. Objections to the Law of Brass. a. Laborer is placed in a helpless condition. If he works harder or better, what of it? b. To reduce his expenses would make his lot harder. c. Progress in production would not benefit him. d. Does not explain differences in wages in the same or different countries. e. Does not explain why wages are higher to-day than they were a century ago. c. The Theory of the Wages Fund. 1. This theory claims that there is a determined fund of capital to be paid to laborers, and their wages is the ratio of numbers of workmen to the amount to be dis- tributed. L«rc. 100 PRINCIPLES OF ECONOMICS. 2, Objections. a. The dividend is not pre- determined. It must be the aggregate of individual sums, or nothing. Does each employer have a wage-fund of his own? h. The divisor is not represented by the total population of the country. c. This theory demands that wages can vary only as one of two factors varies, both of which may be consid- ered as unknowns. Note: For complete discussion of the Wages-Fund doc- trine, consult J. E. Cairnes' Political Economy, pp. 149-188. The Improvement of the Wage -Earners* Conditions. 1. Strikes. 2. State-interference (Factory legislation, etc. ) 3. Cooperation. a. Profit-Sharing. h. Trades- Unions. Note: Consult Gide's Pol. Econ., pp. 506-525; Cairnes' Pol. Econ., Part II, Chapters III and IV. Walker's Adv. Pol. Econ., pp. 375-394. Illustrative Quotations. ' ' For we may ask, in virtue of what right does the master appro- priate for himself a value which is the product of the labor of his workmen? The master replies, that the article produced is alto- gether his work, for without his initiative it would not exist at all; if he has not made it, at any rate he has had it made. He first conceived the idea of it, and that is the primordial and es- sential act of all production; he, too, has supplied the means of executing it. Who, then, should have more right to the article than he has? " — Gide. " The wages-earner and the master are a pair of characters whose lot is altogether different, but whom fate has inseparably bound together; there is little love lost between them, but they can not obtain a divorce. The man who possesses nothing but his arms can produce nothing whatsoever, unless he receives an instru- PRINCIPLES OF ECONOMICS. 101 ment of production; but, under the present economic organiza- tion, no one can supply him with this instrument save the land- owner or the capitalist. " — Ibid. " The question of wages is confused, as are many other economic questions, by a misunderstanding of the meaning of demand and supply. To say that the value of any commodity is fixed by the equation of demand and supply is a correct and a safe enough proposition. But to suppose that the more laborers there are, the lower wages will be, or that the fewer hours or the more lazily they work, the higher wages will be, is grossly to pervert the meaning of the demand and supply doctrine. The demand for labor, and the wages at which this demand will employ the labor, depend upon the value of the product which the laborers will bring to the employer. If a farm hand adds to the crop by only one bushel of wheat a day, it is certain that his wages will not stand at two bushels of wheat per day. "So if the population of any one city or of the world should double, wages would not fall by a half, unless the average pro- ductiveness of labor fell as a result of the overcrowding and of the attendant disadvantages of opportunity." — Davenport^ El. Econ., p. 111. Questions. 1. Who would be the sharers of distribution in a socialistic sys- tem? How would each one's share be determined? In a co-opera- ive system? 2. Why is a system where the autonomous producer is numerous a most favorable system for the distribution of wealth? 3. Karl Marx said that such a system is only compatible with a narrow and limited state of production and of society. Comment. 4. What has caused the independent workers to decrease in num- bers? How long will this continue? 5. Walker makes profits (share of entrepreneur) conform to some law as rent. Explain. 6. Ricardo held that the rate of profits (interest) always varies in inverse ratio to the rate of wages. Examine the soundness of this. 7. Why is it not economic to say that interest is money paid for the use of money? 102 PRINCIPLES OF ECONOMICS. 8. " Rent forms no part of the price of agricultural products." Prove the proposition. 9. Suppose land-lords should become philanthropic and remit their rents; would this act have any influence on price? 10. What is "ground-rent"? Does the Ricardian law of rent apply at all? 11. Do rents tend to rise or fall with increase of population? With improved machinery? 12. In the discussion of rent is the cost of transportation to market taken into account? 13. Shall we say that the rise in prices results from the cultiva- tion of the poorer land, or that cultivation results from the rise in prices? 14. You have heard it said that wages is purely the result of contractual relation between the employer and laborer, and follows supply and demand. What objections can you give? 15. What are the benefits of trades-unions to the laborer? What dangers, if any? 16. Are strikes justified? Are they generally beneficial? 17. In what ways has the state interfered in the interests of the wage-earner? 18. What objections can you state to organized private charity? 19. Why are the wages of women usually low? 20. What were the English Poor Laws? ' (A very complete bibliography of American and foreign writings on general and special subjects in Political Economy will be found in " Bullock's Introduction to the Study of Economics," pp. 485-501.) TAXATION. Definitions. A tax is a governmental demand upon the resources of persons, whether natural or artificial. A rate is proportioned when the same per cent is levied on all property. A rate is apportioned when the total amount to be raised is ascertained and then distributed, share for share, on each unit of the base. A tax is progressive when the rate increases more rapidly than the base. Customs duties are indirect taxes levied on the goods imported into or exported from certain countries. Tariff rates are either (1) ad valorem, the per cent computed on the value of the goods as shown b}- invoice, or (2) specific, being computed on some unit, per yard, ton, gallon, etc., irrespective of the value of the goods. Impost is a general term for any tax, but the tendency is to make it synonymous with indirect taxes. Excises (English) or Internal Revenue (American) are indirect taxes levied on domestic manufactures. A tax is said to be shifted when the tax- payer reimburses him- self from some one else. The final incidence of the tax is the falling of the burden upon some person who does not shift it. Direct and Indirect Taxes Distinguished. 1. A direct tax, in the expectation of the law-maker, makes the taxpayer the tax-bearer. No shifting of the tax is intended. 2. Direct taxes are such as are regulai'ly laid according to some fixed fact — as of personalty, rank, earning, property, etc., — and are assessed according to some list or roll. Adam Smith's Canons of Taxation. 1. The subjects of every state ought to contribute to the sup- port of the government as nearlj as possible in proportion to their respective abilities. 103 104 PRINCIPLES OF ECONOMICS. 2. The tax which each individual is bound to pay ought to be certain, not arbitrary. 3. Every tax ought to be levied at the time or in the manner in which it is most likely to be convenient for the contributor to pay it. 4. Every tax ought to be so contrived as both to take and to keep out of the pockets of the people as little as possible over and above what it brings into the treasury of the State. Classification of Revenues (Seligman.) 'Gratuitous r Public Property Contractual } ( and Industry Prices Revenues ^ Eminent Domain — Expropriation Penal Power — Fines and Penalties Compulsory -| iFees Special Assessment Taxes Principal Theories of Taxation. 1. Benefits-theory. 2. Faculty or Ability -to- Pay theory. Some Forms of Taxation and their flerits. 1. General Property tax. (Realty and personalty). 2. Import and Export duties. 3. Tax on products of domestic manufacture. 4. Tax on expenditures. 5. Tax on incomes. 6. Single tax on land values. 7. Inheritance taxes. PRINCIPLES OF ECONOMICS. 105 8. Tax on doors and windows. 9. Tax on trades and occupations (licenses). 10. Capitation tax. The Defects of the General Property Tax, 1. Lack of uniformity, or inequality of assessment. 2. Lack of universality, or failure to reach personal property 3. Incentive to dishonesty. 4. Double taxation (question of exemption of debts). 5. The tax regressive. Consideration of the Single Tax on Land Values. Defects suggested by Prof. Seligman. 1. Fiscal. a. No reserve power which can be drawn on in time need. h. Shrinkages or deficits can not be made good by in crease of another class. No elasticity, c. Intensifies the inequalities resulting from unjus assessments. 2. Political. a. Means a total abolition of all customs duties, whether for protection or for fiscal purposes. h. Render impossible to use the taxing power as political or social engine ; e. g. , bank notes, liquors oleomargarine, etc. c. Would take away the sense of the citizen's obligatioc to the government. 3. Ethical. a. Not an equitable tax. It exempts too many. h. The "unearned increment" theory applies to many other values besides land. " On what possible theory of justice shall we tax the man who has invested $100,000 in land which the next year appreciates fifty per cent, and on the other hand exempt the man who has invested $100,000 in the stock of the sugar trust which the 106 PRINCIPLES OP ECONOMICS. next year may also enhance fifty per cent ? Why should the earnings invested in land be taxed and the earnings invested in the sugar trust be wholly untaxed ? 4. Economic. a. Would work a hardship in new communities. h. Would prove an inadequate fiscal system. c. Its administration would be next to impossible. [' 1. Customs duties on Imports I' a Indirect^ {no export duty allowed) I [^2. Internal Kevenue ' Federal -\ Systems of Taxation in the United •States. h Direct {Can he levied only in proportion to 1^ popidation) State a G-eneral Property Tax I 1 Realty 2 Personalty {In some states corporations are taxed as individuals) Questions. l^ h Licenses or fees 1. The chief objections to the "benefits theory " of taxation is (1) that benefits can not be quantitatively measured, hence we have no base to compute the percentage. (2) that if benefits or protec- tion was the base of taxation, the poor man should pay more than the rich man. Comment. 2. How can the United States levy direct taxes ? Why was the Income Tax of 1894 declared unconstitutional ? 3. Does the National Grovernment and the State Government in the United States maintain entirely distinct methods of taxation ? 4. What is double-taxation ? Illustrate. Is double taxation illegal or simply not economic ? 5. " The taxation of a mortgage debt in the hands of the mortgagee, and also of the property in the hands of the mortgagor, is not double taxation." — Meyer vs. Dubuque County, Jf9 Iowa, 193. How would an economist view this decision ? PRINCIPLES OF ECONOMICS. 107 6. Upon. whom is the incidence of the tax in the following cases: Duties on imports? Tax on inheritances? Land tax? Poll tax? 7. Upon what goods does the United States levy taxes under the internal Revenue System? 8. A complete divorcement of State and local taxation is advo- cated by some to cure the evils of our general property tax system. How would this be done? What are the merits? 9. Should assessors be township or county oflQcials? 10. Investigate the Income Tax Systems of England and Prussia, and compare them. What have you to say in favor of the Income Tax? 11. What is meant by the Nationalization of Land? 12. The Single Tax School of Henry George is oftentimes op- posed on the ground that its principles would result in the confisca- tion of land and the destruction of private property rights. Do you consider this a serious objection? 13. What is the justice of an inheritance tax? 14. State different methods or bases for taxing corporations. Illustrative Quotations. " If we sum up the inherent defects, it will be no exaggeration to say that the general property tax in the United States is a dismal failure. No language can be stronger than that found in the reports of the officials charged with the duty of assessing and collecting the tax." — Sdigman^ Essays in Taxation, jJ- 36. < ' Another weakness of the general property tax system is its lack of universality or a failui'e to reach personal property. It is a strange fact that the taxation of personal property is in inverse ratio to its quantity; the more it increases, the less it pays. It is scarcely necessary to give figures to substantiate these statements, but a few may be of interest. From 1860 to 1880, real estate in the United States increased from 6,973 millions of dollars to 13,036 millions, while that of personal property decreased from 5,111 to 3,866 millions. In 1890 real estate had grown to 18,956 millions, while that of personal property was 6,516 millions, less than the figures of thirty years before. In California, in 1872 personal property was assessed at 220 millions; in 1880, 174 millions; in 1887, 164 millions; a 108 PRINCIPLES OF ECONOMICS. net decrease in fifteen years of 56 millions. Real estate increased during the same period from 417 to 791 millions. In Illinois, in 1882, personal property paid 22% of the taxes; and in 1894, only 17^%. In Cook county, including Chicago, personal prop- erty paid only 14% and in Kankakee county only 11%. In 1893, in the state of Iowa, although real estate valuation increased over the preceding year by 32 millions, the assessed valuation of personal property actually decreased. In some instances, the City of Brooklyn for example, personal property paid a little more than 3% of the whole tax on property, and in 1895 it paid but 1.23%. These striking figures become ridicu- lous when it is remembered that in the present civilization the value of personal property exceeds that of real estate as under- stood by the taxing power. And there is not much disagree- ment as far as legal exemptions are concerned between real and personal property in the various commonwealths. Thus it seems that the more differentiated an industry becomes and the more predominant the personalty, the less does the latter contribute to the public charges. The general property tax thus sins against the principle of the universality of taxation even more than against the principle of uniformity." ' ' The economic theory upon which the demand for a single tax is based may be summed up as follows: Land is the creation of God. It is not the result of any man's labor. No one, there- fore, has a right to own land. Increase in the value of land like the land itself is not the result of any individual effort. It is an unearned increment which properly belongs to society. It, therefore, becomes the duty of the government to take what rightfully belongs to the whole community." Readings. " Principles of Political Economy." J. S. Mill, Laughlin, pp, 537-595. " Political Economy." Walker's Adv. Course, pp. 407-448. "Introduction of Public Finance." Carl C. Plehn. (A splendid boolf for beginners.) "Essays in Taxation." E. R. Seligman. (An exhaustive work. May well fol- low Plehn.) "Public Finance." H. C. Adams. Note: A splendid bibliography on the subject of taxation will be found in Seligman's Essays. PRINCIPLES OP ECONOMICS. 109 SCOPE OF POLITICAL ECONOMY ILLUSTRATED BY COURSES OFFERED IN THE UNIVERSITY OF CHICAGO AND IN HARVARD. In the University of Chicago. 1. Principles of Political Economy. 2. Advanced Political Economy. 3. Economic and Social History. 4. Processes of Leading Industries. 5. History of Political Economy. 6. Scope and Method of Political Economy. 7. Economic Theory. 8. Unsettled Problems of Economic Theory. 9. Social Economics. 10. Practical EcDnomics. 11. Socialism. 12. Economic Factors in Civilization., 13. Finance. 14.BIlailway Transportation. 15. Comparative Railway Legislation. 16. Railway Accounts, Exchanges, Etc. 17. Tariff History of the United States. 18. Problems of American Agriculture. 19. [-Financial History of the United States. 20. Money and Practical Economics. 21.nBanking. 22. Statistics. 23. Colonial Economics. 24. Natural Resources of the United States, 25. Seminars. In Harvard University. 1. Outlines of Economics. 2. History and Literature of Economics. 110 PRINCIPLES OF ECONOMICS. 3. Economic Theory in the Nineteenth Century. 4. Methods of Economic Investigation. 5. The Principles of Sociology. 6. Socialism and Communism. 7. The Medieval Economic History of Europe. 8. The Modern Economic History of Europe and America, 9. The Economic History of the United States. 10. The Labor Question in Europe and the United States. 11. Statistics — Studies in Demography. 12. Railways and Other Public Works under Public and Corpo- rate Management. 13. Financial History of the United States. 14. Financial Administration and Public Debts. 15. The Theory and Methods of Taxation. 16. Banking and the History of Leading Banking Systems. 17. International Payments and the Flow of Precious Metals. 18. Economic Thought and Life of the Ancient World. 19. Commercial Crises. 20. Tariff History of the United States. 21. Workingmen's Organizations in the United States. 22. Ethnology in its Application to Economic and Social Prob- lems. 23. Seminars. ^tanagau ^dujcatiottaX Jict;ics TEXTS AND AIDS IN ARITHMKTIC I. TWO NEW TEXT BOOKS. By A.W.Rich, Ph. B. . Associate Professor of Mathematics, Iowa State Normal School. 1. THE NEW PRACTICAL ARITHMETIC, for Grammar Schools and Academies. Cloth. 222 pages. Price, 50 cents. 2. THE NEW HIGHER ARITHMETIC, for Academies, Normal Schools and High Schools. Cloth. 315 pages. Price, 75 cents. II. SUPPLEMENTARY WORK IN ARITH- METIC, by W. M. GiFFiN, A. M., Ph. D., Vice-Principal Chicago Normal School. Parti. Lines and Diagrams. 96 pp. Part 2. Area. 96 pp. Part 3. Percentage. 50 pp. Part 4. Volume and Bulk. 48 pp. The four parts complete in one large volume. Cloth, $1.00. III. ARITHMETICAL REFERENCE AND SOLUTION BOOK, by J. B. F. Showalter, A. M. Fourth edition. Cloth. 454 pages. Price, $L35. This invaluable reference book contains: 1. Model Solutions for Every Case and Every Subject. 2. Solutions ')f most of the "Catch Problems." 3. Arithmetical Principles Stated and Made Clear. 4. Diagrams and Maps Explaining Various Topics. IV. MISCELLANEOUS AIDS AND HELPS. Method in Written Arithmetic. By Pres. Jno. W. Cook, Nor. 111. Nor. School. Cloth. 184 pages. Price, 50 cents. QuiNCY Course in Arithmetic. By Pres. Francis W. Parker. Paper, 15 cents. And many others. Send for Descriptive Catalogue. A. 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