Hollinger pH 8.5 Mill Run F03-2245 HB 171 .5 .C7 Copy 1 ©nlUgp of tljp (fitly nf £Jrm $nrk ©eatljprH SxtPWBtan (Enurars OUTLINES OF LECTURES ON ECONOMICS BY WALTER E. CLARK HEAD OF THE DEPARTMENT OF POLITICAL SCIENCE, THE COLLEGE OF THE CITY OF NEW YORK NEW YORK 1916 Copyright, 1916, BY Walter E. Clark. CI. A 453904 FEB -2 191/ HJB/7/ .s =7 ECONOMICS TABLE OF CONTENTS SUBJECT I. The Business Life: An Important Factor in History. 4 II. Fundamental Notions in Economics 4 III. Consumption of Wealth 6 IV. Production of Wealth 7 V. Labor: A Factor of Production 9 VI. Immigration to the United States : History and Ad- vantages 10 VII. Immigration to the United States: Disadvantages and Legislation 11 VIII. The Factory System and Factory Legislation 13 IX. Labor Organizations 14 X. Capital : A Factor of Production 16 XL Corporations and Their Securities 17 XII. Trusts in the United States : Origin and Price Effects 18 XIII. Trusts in the United States: Evils and Remedies 19 XIV. The Evolution and the Uses of Money 21 XV. Money Value and Coined Money 22 XVI. Paper Money 23 XVII. Bimetallism 24 XVIII. Credit and Banking 24 XIX. Outline History of Banking in the United States 25 XX. The Federal Reserve System 26 XXI. Rising Prices: Principles, Facts and Supply Causes.. 27 XXII. Rising Prices: Demand Causes, Effects and Remedies. 27 XXIII. Principles of International Trade 28 XXIV. Tariff History of the United States 29 XXV. Free Trade versus Protection 30 XXVI. Railways in the United States 31 XXVII. Distribution of Wealth 34 XXVIII. Rent of Land 35 XXIX. Socialism 36 XXX. Taxation 37 XXXI. The Development of Economic Thought 40 GENERAL READING REFERENCES. Students in this course are advised to secure one or more of the fol- lowing general text books, which will give them supplementary reading : 1. Ely, R. T., Outline of Economics (1908). 2. Fetter, F. A., Economic Principles (1915) and Modern Economic Problems (1916). 3. Marshall, Wright and Field, Material for the Study of Elementary Economics (1913). 4. Seager, H. R., Principles of Economics (1913). 5. Seligman, E. R. A., Principles of Economics (Sixth Edition, 1914). 6. Taussig. F. W., Principles of Economics (1911). Special topical reference lists are given in the body of the Syllabus at the close of the treatment of each topic. In such lists the titles marked with an asterisk are especially recommended. ECONOMICS LECTURE I. THE BUSINESS LIFE— AN IMPORTANT FACTOR IN HISTORY The economic interpretation of history affirms that the way in which men get their livelihood largely determines their whole social evolution. The validity of this claim may be illustrated by considering: I. The effects upon society of land forms and resources, climate, and water supply. II. The evolution of social institutions as affected by: 1. The domestication of animals. 2. The cultivation of grains. 3. The working of metals. III. The economics of : 1. The Crusades. 2. The Medieval City Leagues of Europe. 3. The French Revolution. 4. The American Revolution. 5. The American Civil War. 6. The present era of transition from the old military age to the new, peaceful age of industry. References for Reading: Buckle, Henry Thomas, History of Civilization in England, Chapter II. *Jenks, Edward, A History of Politics (1900). Marshall, Alfred, Principles of Economics, Chapters II and III. Rogers, Thorold, The Economic Interpretation of History (1889). Seligman, E. R. A., The Economic Interpretation of History (1907). *Semple, E. C, Influences of Geographic Environment (1911). LECTURE II. FUNDAMENTAL NOTIONS IN ECONOMICS [. Definitions. 1. Economics. Economics is the science which studies the conduct of man, in society, as he satisfies his daily wants. The aim of the science is to discover and to formulate the laws of man's producing and consuming life. 2. Wealth. Goods are useful things, relations and influences. Wealth includes all economic goods, i. e., all goods which are lim- ited in quantity relative to human need for them. Man's powers are not wealth. 3. Utility. Utility is power to satisfy human need. Marginal utility is the utility of the last unit in a supply of a series of units. 4. Value. Value is the estimate of utility. Value attaches to economic goods only. 5. Price. Value expressed in terms of money is price. Definitions of market, market price, normal price, demand, supply and stock are necessary to clear reasoning upon prices. 6. Perfectly Free Competition. Perfectly free competition involves the assumption that all factors of production are perfectly able and willing to move to that place in the industrial system where they can earn most. II. Methods Used in Economics. 1. Both the inductive and the deductive methods are used in modern economics. 2. Leading Principles utilised by the deductive method are: a. The Principle of Self Interest. Self interest, often called the economic motive, dictates that in getting his living a man will always seek the largest possible return for a given effort. Thr the fundamental business life premise. us is b. The Law of Diminishing Utility. (Treated in Lecture III.) c. The Law of Diminishing Returns from Land. (Treated in Lecture XXVIII.) d. The Law of Population. (Treated in Lecture V.) III. Divisions in Economics. For purposes of convenience in study and completeness in analysis, the materials of an economic course are usually classified under the four heads of Consumption, Production, Exchange and Distribution. Some analysts classify these same materials under but two heads, Consumption and Production. References for Reading: Cairnes, J. E., The Character and Logical Method of Political Econ- omy (1875). Marshall, A., Principles of Economics (1898), Book II. Seager, H. R., Principles of Economics (1913), Ch. IV. Seligman, E. R. A., Principles of Economics (1914), Part I, Chapters I and II. LECTURE III. CONSUMPTION OF WEALTH I. Introduction. Human wants, both elemental and social, stimulate and direct production. Because of this fact, modern economic analysis treats consumption of wealth before it treats its production. Human satisfaction, through wealth, is the ultimate economic goal. II. Definition and Classification. Broadly defined, Consumption is the process in the course of which utilities are destroyed. It has two leading divisions: 1. Destructive Consumption. Utilities disappear without benefit to human beings, e. g., floods, fires, blights, natural decay. 2. Economic Consumption. Utilities disappear with benefit to human beings. This benefit may be : a. Indirect. Many utilities disappear as such, reappearing in higher forms, e. g., wool reappears as cloth. b. Direct. Consumption goods in the hands of the final consumer lose their utilities in the process of giving direct satisfaction to the consumer. The circle of eco- nomic life is completed, when goods are thus con- sumed, whether the final consumer be a person of leisure or a person of labor. III. The Law of Diminishing Utility. 1. Statement. Recurring satisfactions of like kind, and within a given time, bring less and less of pleasure up to the point of satiety. 2. Illustration. Conceive a thirsty person to be supplied with a series of glasses of water, or a hungry person to be supplied with a series of slices of bread, and the operation of the law will appear. 3. Importance. This is the economic principle operative in all consumption. It is basic to an understanding of value and of prices, as explained in modern marginal utility theories. IV. Engels' Law. 1. From a study of Saxon workmen's family budgets Engels concluded : a. As incomes rise the proportion expended for food decreases. b. As incomes rise the proportion expended for clothing, shelter, fuel and light remains nearly constant. c. As incomes rise the proportion expended for health, recreation and education increases. 2. Corollaries of this law are : a. "The curse of the poor is their poverty." b. There is Social Economy in high wages. c. There is Social Economy in general systems of free education, free recreations, free medical care, etc. V. Conclusion. The luxuries of one age become the necessities of the next. The material progress of the world is registered in this con- stantly rising standard for wealth consumption. High stimu- lus to that persistent effort which induces individual and social growth comes from the desire to secure a higher consumption standard. References for Reading: Clark, J. B., Philosophy of Wealth (1886). More, Louise Bolard, Wage Earners' Budgets (1907). Patten, S. N., The Consumption of Wealth (1889). Patten, S. N., Theory of Prosperity (1902). Patten, S. N., The New Basis of Civilisation (1907). LECTURE IV. PRODUCTION OF WEALTH I. Definition. Production is the creation of form, place, time and possession utilities. II. Forms of Production. Productive activity takes many forms from hunting, through the extractive industries, agriculture, mining and fishing, up to transportation, manufacture and exchange. Even the pre- vention of waste or of decreased production as by police, firemen, clergymen, etc., should be listed as productive. 8 III. The Conditions of Production. Nature and labor are factors indispensable to any production. Capital and social organization are indispensable to produc- tion on the modern scale. 1. Nature. a. Location, topography, climate and extent of territory all affect a nation's productiveness. b. Nature supplies the materials which producers use. In any given case, these materials are important according to their abundance, distribution, availability, durability and the range of needs they can satisfy. c. Nature supplies also forces of winds and waters, and electricity, of adhesion and cohesion, some organic and some inorganic, some spontaneous, some humanly de- veloped. These forces are important for reasons similar to those given as to the materials, with addition of their degrees of power and their stability and regularity. 2. Labor. (Treated in Lecture IV.) 3. Capital. (Treated in Lecture X.) 4. Social Organization. a. Society is necessary to large production. In society the individual is stimulated to do his best and in it, only does high division of labor become possible. b. Society inherits scientific truth such as that found in the sciences of chemistry, geology, engineering and stock breeding, which contributes largely to modern production. c. The State contributes to production by preserving peace and order, insuring property rights and adjudi- cating conflicts of wills. The slightest insecurity in these matters paralyzes industry, as is evidenced by conditions in many Central and South American re- publics. d. There is a growing range of productive activities which the State can carry on directly, such as postal service, forestration, irrigation, etc. IV. Conclusion. Nature is being highly enlisted in productive service, capital is daily bodying forth in new inventions, labor is growing more intelligent and better organized, and society and the State are perfecting in their productive powers. References for Reading : Bullock, Chas. J., Introduction to the Study of Economics, Chapters V and VI (1908). Marshall, A., Principles of Economics, Book IV, Chapters I to Vll ( 1 898 ^ Seager, Henry R., Principles of Economics, Chapters VIII to XI Seligman, E. R. A., Principles of Economics (1914) Chapters XVIII and XX. LECTURE V. LABOR: A FACTOR IN PRODUCTION* I. Introduction. The Malthusian principle of population aims to formulate the dependence of population upon food supply. The labor force of any nation is proportioned to its population, and is there- fore subject to the modernized Malthusian Law. Labor, defined as human effort in production of economic goods, is a necessary factor to any production. Its effective- ness is dependent upon its quantity, its quality, and its division. II. Quantity of Labor. Other things equal, the production of a community varies directly as the quantity of its labor force. This quantity is dependent upon : 1. Size of population. 2. Mode of population growth. a. Native increase. b. Immigration or Emigration. 3. Sex of population. 4. Number of idlers and defectives. 5. Daily working hours and number of holidays. III. Quality of Labor. Other things equal, the production of a community varies directly as the quality of its labor force. This quality is dependent upon : 1. Native strength and enterprise of workers. 2. Native and acquired intelligence of workers. 3. Moral character of workers. 4. Relation of workers to their product. 5. Political status of workers. IV. Division of Labor. Other things equal, the production of a community varies directly as the division of its labor force. ♦References for Reading for Lectures V, VIII and IX follow Lec- ture IX. 10 1. Advantages of Divisions of Labor: a. Develops dexterity. b. Utilizes abilities. c. Economizes time and capital goods. d. Saves interest and insurance. e. Stimulates invention. /. Shortens apprenticeship. 2. Disadvantages of Division of Labor : a. Monotonous and narrowing to workers. b. No joy in completed product. c. Strikes more effective. 3. Limitations of Division of Labor: a. The breadth of the market. b. The nature of the business. V. Conclusion. The productive efficiency of the world's labor force is steadily growing, for its quantity is increasing, its quality rising, and its division perfecting. LECTURE VI. IMMIGRATION TO THE UNITED STATES: HISTORY AND ADVANTAGES* I. Causes. 1. General. a. Pressure of old world populations. b. Love of adventure. 2. Religious. Pilgrims, Quakers, Jews, and Armenians. 3. Political. a. Revolutionists. b. Evading military service. c. Governments have aided paupers and criminals to come. d. Private societies aid undesirables to come. 4. Economic. a. Poverty abroad. b. Prosperity here. The tide of immigration varies directly as business prosperity here. c. Steamship company solicitation and cheap passage. d. Aid from friends or from relatives. ♦References for Reading for Lectures VI and VII follow Lec- ture VII. 11 II. Quantity. 1. From 1789 to 1820 it is estimated that only 250,000 immigrants came, yet the population more than doubled. 2. From 1820 to 1870 nearly 7,000,000 immigrants came. 3. From 1870 to 1914 over 25,000,000 immigrants came, over 1,- 300,000 coming in the year 1914 alone. 4. Since the outbreak of the world war, in 1914, yearly immigra- tion has dropped to about one-third of the average annual immigration for the decade before 1914. After the war ends, immigration, after a possibly large increase for a few months, is likely to remain permanently relatively low in volume. III. Quality. 1. There is high proportion of adults and of males. 2. There is large proportion of unskilled laborers. 3. Up to 1870 the immigrants came largely from North and West Europe, and were readily assimilated. In 1870 only one per cent, of the immigration came from Italy, Austro-Hungary, and Russia. 4. Since 1870 the immigrants have come largely from South and East Europe, having alien traditions and tongues, and being more difficult to assimilate. Since 1900, 65 per cent, of all immigrants have come from Italy, Austro-Hungary, and Russia. In 1907 nearly 900,000 immigrants came from these three countries alone. 5. During this world war the percentage of immigration from South and East Europe has fallen notably. During the year ending June 30, 1916, less than 17 per cent, of the total number of new immigrants came from Italy, Austro- Hungary and Russia. IV. Advantages. 1. Better life chance for the immigrants. 2. Political. Military strength of the nation increased. 85 per cent, of im- migrants before 1860 had settled in the Northern States and helped to sustain the Union. 3. Economic. The productivity of the nation largely increased. About 85 per cent, of present immigrants are between the ages of 15 and 45 At an estimate of $1,000 value to the nation of each immigrant, the immigration of 1914 was worth more than $1,300,000,000. 4. Social. It is argued that the mixture of races develops the best nation. LECTURE VII. IMMIGRATION TO THE UNITED STATES: DISADVANTAGES AND LEGISLATION I. Disadvantages. 1. Political. Immigrant masses furnish material for corrupting bosses and render successful democracy more difficult. 12 2. Economic. Immigrants with lower standards of living tend to displace native born Americans, to lower wages, to impair the de- velopment of labor unions, and to embitter labor struggles. 3. Social. Immigrants and their children yield a disproportion of illiter- ates, diseased, insane, paupers and criminals. They tend to congest in large cities and to complicate our already difficult urban problems. II. Right to Legislate. 1. An incident of sovereignty in International Law. 2. Constitutionally given to Congress in the United States. III. Legislation Favoring Immigration. Prior to 1868 all immigration legislation, State and Federal, was aimed to benefit the immigrants and to induce immigra- tion. IV. Legislation Restricting Immigration. Since 1868 immigration legislation has been steadily increasing its restrictions. The law of 1907 is the most restrictive ever passed. If rigidly enforced, all applicants for admission who are physically, mentally, or morally defective will be rejected. V. Future Legislation, Future laws will probably increase restrictions. Leading plans to increase restrictions suggest the adoption of : 1. An illiteracy test. 2. An army standard as to physique. 3. A largely increased head tax. 4. Consular inspection. 5. Closing to immigrants of certain entry ports, such as New York and Boston. 6. Percentage limitation by nationalities. 7. Total exclusion of immigrant laborers, at least for a period of years. References for Reading: Commons, John R., Races and Immigrants in America (1907). Fairchild, H. P., Immigration (1913). *Hall, Prescott F., Immigration (1907). Hamilton, W. H., Current Economic Problems (1915) pp. 463 to 515. Hourwich, T. A., Immigration and Labor (1912). *Jenks and Lauck, The Immigration Problem (1913). Mayo-Smith, Richmond, Emigration and Immigration (1892). Steiner, Edward A., On the Trail of the Immigrant (1906). Warne, F. J., The Immigrant Invasion (1913). Whelpley, James D., The Problem of the Immigrant (1905). Report of the Industrial Commission, Volumes XV and XIX. Annual Reports, U. S. Commissioner General of Immigration. Report, Commission on Immigration, New York State (1909). Report of United States Immigration Commission (1911-1912). 13 LECTURE VIII. THE FACTORY SYSTEM AND FACTORY LEGISLATION I. Introduction. "The Industrial Revolution" is producing modern factory- determined civilization. This revolution began in Great Britain and is extending throughout the world. II. Rise of the Factory System in Great Britain. 1. British Labor the Century before the Industrial Revolution. Feudalism and the Guild system were gone and the Manorial system passing. The people were largely agricultural with bye-product manufacturing carried on successively by a. Household Industry, and b. The Domestic System. 2. The New Machinery and the New Motor Power. There was slow, steady and interdependent development of machinery for spinning and for weaving. Demand for textile raw materials greatly increased enclosures for sheep and world cotton culture. Steam power, applied to manu- facture and to transportation completed the mechanical revo- lution. 3. The New Factories and Their Workers. a. The new factories differed from the old, having new machinery, new motor power, and "free" laborers. Most earlier factory buildings were ill adapted for manufacturing. b. Enclosures and the Parish Apprenticeship System fur- nished the laborers, many of them children, ill-treated. c. The prevalent theory of an exaggerated harmony of public and private interest made reform difficult. III. Rise of Factory System in the United States. Forced by the Napoleonic Wars, the Embargo, and the War of 1812, the United States rapidly adopted the new factory system. After 1815 a protective tariff system was developed to safeguard the young factories. "The Golden Age" of small industry (1840 to 1860) was fol- lowed by the war which set slave laborers free. After the war heavy immigration renewed, transportation was rapidly developed, capital concentrated, and great factories came with all their labor problems. IV. Factory Legislation in Great Britain. 1. Period of beginnings, 1802-1833. The first Factory Act of the world passed in 1802. This act was of little importance except as a beginning. The general public was ignorant as to factory conditions, and inert, labor was not permitted to organize or to vote and, despite graphic reports of factory horrors, little reform was obtained during a whole generation after the first law. 14 2. First Period of Advance— 1833 to 1848. The acts from 1833 to 1848 laid a solid foundation for all sub- sequent British factory legislation. The following two de- cades busied reformers in holding the laws already secured and in bettering their enforcement. 3. Second Period of Advance— 1867 to 1878. In 1867 public control over factories and over workshops was greatly extended by the Factories Extension Act and the Workshop Regulation Act. The Act of 1878 concentrated control over both factories and workshops. 4. Legislation Since 1878. British factory legislation since 1878 has been mainly relative to particular industries and to strengthening administra- tion. The Acts of 1901 and of 1906 codify preceding acts and afford the highest protection to women and children and the fullest assurance of decent and sanitary factory condi- tions ever offered by the law. V. Factory Legislation in the United States. 1. Prior to 1880 there was but little factory legislation, although bad factory conditions had developed long before this 2. Since 1880 there has been an awakening of the people, fruiting in State Labor Bureaus, a National Bureau of Labor, and the adoption of progressively strict factory laws in most of the States. The most advanced States are now in the fore rank of the modern world in their public safeguards to the life, limb, health and morals of factory operatives and particularly of women and children in the factories. VI. Conclusion. The factory system is the most ingenious, the most compli- cated and the most effective producing agency ever in- vented. Through their advancing factory legislation States have aimed to elide the evils of this new productive agency without lessening its benefits. LECTURE IX. LABOR ORGANIZATIONS I. Introduction. Modern labor organizations are a necessary outgrowth of the system of production. II. History of Modern Labor Organizations. 1. In Great Britain. a. The Period of Beginnings— 1700 to 1825. b. The Revolutionary Period— 1825 to 1842. c. The Period of Nationalization and Combination— 1842 to 1880. d. The New Unionism— 1880 to the present. 15 2. In the United States. a. The Period of Beginnings— 1776 to 1840. b. The Period of Quiet Growth— 1840 to 1865. c. The Period of Aggressive Trade Union Effort— 1865 to 1878. dj The Period of General Organization— 1878 to the present. e. The Industrial Workers of the World— 1905 to the present. III. Forms of Organization in the United States. 1. Local, National and International Trade Unions. 2. Central Federations. 3. State Federations. 4. The American Federation. 5. Industrial Unions. IV. Aims of Labor Organizations. 1. To secure "benefits." 2. To raise wages. 3. To shorten hours. 4. To lessen child and woman labor. 5. To better factory conditions. 6. To enforce collective bargaining. 7. To educate working men. V. Methods of Labor Organizations. 1. Strikes. 2. Boycotts. 3. Union label. 4. Apprenticeship. 5. Closed Shop. 6. Restriction of output. 7. Arbitration and Conciliation. 8. Politics and Legislation. VI. Conclusion. Notwithstanding all the mistakes and the social costs incident to its pioneering development, and all the wide differences of opinion concerning the methods used by it to gain its ends, organized labor is one of the supreme institutions of present civilization. References for Reading, for Lectures V, VIII and IX: Adams and Sumner, Labor Problems (1905). *Brooks, John G., American Syndicalism (1913). *Carlton, F. T., History and Problems of Organized Labor (1912). Commons, J. R., Trade Unionism and Labor Problems (1905). ♦Commons, J. R., (Ed.) A Documentary History of American In- dustrial Society (1910-1911). Cooke-Taylor, The Modern Factory System (1891). Groat, G. G., Trade Unions and the Law in New York (1905). *Groat, G. G., Organized Labor in America (1916). Hamilton, L. H., Current Economic Problems (1915) Chapters II and XL Hollander and Barnett, Trade Unions in the United States (1904). 16 Jevons, W. S., The Stale in Relation to Labor (1882). Marot, Helen, American Labor Unions (1914). Mitchell, John, Organized Labor (1903). Taussig, F. W., Wages and Capital (1896). Toynbee, A., The Industrial Revolution (18S6). Walker, F. A.. The Wage Question (1876). Webb, S. and B., i Trade Unionism (1894). Annual Reports and Bulletins of the United States Department of Labor. Annual Reports and Bulletins of New York State Department of Labor. Industrial Commission Reports (U. S.), Vols. V, VII, VIII, XIV and XVII. LECTURE X. CAPITAL: A FACTOR IN PRODUCTION I. Introduction. The lead among productive factors has shifted during social evolution. Primitive industry was largely dependent upon Nature ; medieval industry was largely dependent upon man ; modern industry is largely dependent upon capital. II. Definitions of Capital. 1. Capital may be generally denned as wealth actively or passively aiding in increase of utilities. 2. Distinction is made between : a. Free capital and specialized capital. b. Fixed capital and circulating capital. c. Pure capital and capital goods. III. Source of Capital. 1. Capital results from production and abstinence. 2. The mass of capital is made greater through : a. Improvements in modes of production, increasing total wealth production. b. Education, developing appreciation of the future. c. Effective machinery for saving, e. g., banks and insur- ance companies. d. Stability of government, effectually guarding life and property. IV. The Functions of Capital. 1. Capital makes possible the "round-about" highly productive methods, characteristic of the modern industrial system. 2. Capital is an indispensable factor of advancing civilization, being not only a fructifier of industry, but also a prerequisite to all progress in arts and sciences. V. The Share of Capital. 1. The distributional share of capital in social product is called interest. 17 2. There are three leading theories of interest : a. Interest is the reward for abstinence and risk. b. Interest is due to discounting the value of future goods. c. Interest is the marginally tested product of capital as a factor of production. 3. Interest rates. a. Contract interest tends to approximate economic in- terest. b. Usury laws, forbidding interest above specified rates, do little good and much harm. c. Interest rates tend to be high : a. In new lands. b. Under unstable or corrupt governments. VI. Conclusion. Whatever may be the controversies as to the socially most ex- pedient system of control over capital, and whatever may be the abuses of capital power under any given system, the rich- est inheritance of each human generation is its capitalized world. The largely increasing capital hastens the complete transition to the industrial age of world peace and plenty. References for Reading: *Bohm-Bawerk, Positive Theory of Capital (1891). Bohm-Bawerk, Capital and Interest (1890). Clark, J. B., Distribution, Chapters XII and XIII. *Fisher, I., The Nature of Capital and Income (1896). Giffen, R., Growth of Capital (1889). *Hobson, J. A., The Evolution of Modern Capitalism (1913). Each of the General Reference Reading Texts, listed on page 2 of this syllabus, treats capital. LECTURE XI. CORPORATIONS AND THEIR SECURITIES I. Introduction. The nineteenth century was a century of incorporation. The corporation, a legal person, is the present dominant business unit. II. Historic Development. Individual management of business, and partnerships, both preceded corporations. The corporation evolved to meet the demand of modern business conditions. III. Advantages of Corporations. 1. Long Life. 2. Limited liability. 3. Large capital aggregated. 4. The fact that there are many stockholders democratizes in- vestment. 5. The enormous economic power centered in the greater mod- ern corporations both simplifies and compels the extension of public control over business. 18 IV. Disadvantages of Corporations. Control centralized with the few directors, may be used to detriment of : 1. The stockholders generally. 2. The general public. V. Corporate Securities. 1. Kinds. a. Bonds and temporary notes. b. Stocks. 2. Machinery for placing securities. a. The stock market. b. The banks, trust and investment companies. c. Underwriting syndicates. VI. Conclusion. The corporation is a business machine necessary to the modern day. Intelligent reform seeks to eliminate its evils without lessening its advantages. References for Reading : Academy of Political or Social Science, Corporations and the Public Welfare (1900). Chamberlain, Lawrence, The Principles of Bond Investment (1911). Davis, J. P., Corporations; A Study of the Origin and Development of Great Business Combinations and of Their Relation to the Authority of the State (1905). ♦Emory, H. C, Speculation on the Stock and Produce Exchanges of the United States (1896). Frost, T. J., The Incorporation and Organization of Corporations, (1908). Gerstenberg, Charles W., Materials of Corporation Finance (1915). Greene, T. L., Corporation Finance, (1901). Lownhaupt, Frederick, Investment Bonds (1908). Lyon, W. H., Capitalization (1912). Meade, E. S., Trust Finance (1912). ♦Meade, E. S., Corporation Finance (1912). ♦Wood, W. A., Modern Business Corporations (1916). LECTURE XII. TRUSTS IN THE UNITED STATES: ORIGIN AND PRICE EFFECTS I. Introduction. The year 1898 is the beginning of a new era in United States history. Among other notable events of that year was the startlingly rapid development of huge industrial combina- tions. II. Origin and Development of Trusts. 1. The earliest combinations of several business enterprises into one were real Trusts, beginning with the Standard Oil Com- pany in 1882. These original Trusts unlawful in the early nineties. 19 2. The advantages were so great that the combinations continued in other forms. The prevailing form soon came to be and is to-day a single corporation combining all or nearly all of the leading establishments in one line. A trust to-day may be defined as a single corporation, combining enough of the establishments in one line to give it effective control over prices. III. Motives for Forming Trusts. 1. To do away with competition. "Where combination is pos- sible, competition is impossible." 2. Trusts get, in the highest degree, all the advantages of large scale production, and also additional advantages which a single great plant cannot get. Under these two classes of advantages Trusts : a. Can specialize in machinery and labor division. b. Can carry on auxiliary and subsidiary industries. c. Can relatively decrease fixed charges with the increase of invested capital. d. Can pay high salaries and secure the best men. e. Can buy raw materials more cheaply. /. Can utilize each plant to its full capacity. g. Can economize in advertising and in soliciting business. h. Can get control of many leading patents and brands. i. Can save cross freights. /. Can effectively apply comparative accounting. k. Can adjust supply to demand. 3. Opportunity for large promoter's profits has been an incentive in the forming of some Trusts. IV. Trusts and Prices. 1. Trusts are subject to economic law; they can control prices only by controlling the output of product. 2. Trusts actually tend to maintain a level of prices insuring a high return to them. 3. The desire for the maximum net revenue will prevent even a complete monopoly from charging exorbitant rates. 4. The protective tariff enables the Trusts to charge home con- sumers higher prices than they charge foreign buyers. LECTURE XIII. TRUSTS IN THE UNITED STATES: EVILS AND REMEDIES Evils of Trusts. 1. Power over prices may be arbitrarily used to the detriment o£ particular rivals or of the home consumer. 2. Unfair tactics are used against competitors: a. Local price discriminations. b. Factor's agreements. c. Illegal secret transportation rates. 20 3. Control over many plants gives a trust great advantages in any disagreement with its employees at one plant. 4. Speculative management of Trusts may defraud the investing public. Some of them were largely over-capitalized. 5. The power and the motives for corrupting public officials are very great. II. Legal Control of Trusts in the United States. 1. The common law against monopoly has been interpreted to apply to legal monopoly only. A broader interpretation of the common law is being given by some American courts to-day. 2. Congress lias no Constitutional power to deal with manufac- turing concerns and therefore it cannot directly control Trusts. 3. The individual States have no power to prevent corporations from other States from selling goods within their borders, and therefore State anti-Trust laws only drive the Trusts to incorporate in those States offering most liberal terms. 4. Uniform restrictive action by all the States is practically im- possible. 5. Federal legislation : a. The Sherman Act of 1890. b. The Federal Trade Commission Act of 1914. c. The Clayton Act of 1914. III. The Remedies for Trust Evils. 1. Greater Publicity of the Trusts' business affairs would inform the investor, the consumer and the potential competitor. 2. Laws should be passed and enforced stopping price discrimina- tions, factor's agreements, and railroad rebates. 3. Competition in the industrial field would be fairer if no patent monopolies were allowed to be held by any corporations. 4. The repeal of the Tariff rates on Trust made products would prevent the unfair saddling of all the fixed charges upon the home consumer. 5. All Trusts should be required to incorporate under a Federal charter. If Congress has not at present the power to require this, then the Constitution should be amended, granting it such power. That power granted, Congress, through taxa- tion, denial of the mails, or refusal to grant inter-state Com- merce privileges, could much more effectively eliminate the evils of Trusts than could the common law or individual State action. 6. The wisest public policy would be to encourage further con- centration of control wherever it cheapened the cost of pro- duction and attained the further concentration by fair com- petitive means. Even complete national monopoly, so achieved, should be permitted. If in any industries approximately com- plete national monopoly were achieved, effective public control would become necessary. Such control would concern itself, not only with prices charged by the monopoly, but also with prices paid by it for its raw material, with its securities' issues and with its treatment of its employees. 21 References for Reading : Clark, John Bates, The Problem of Monopoly (1904). Clark, John Bates, The Control of the Trusts (1905). Collier, William M., The Trusts (1900). Crowell, John F., Trusts and Competition (1915). Dewing, A. S., Corporation Promotions and Reorganisations (1914). *Ely, Richard T., Monopolies and Trusts (1900). Hamilton, W. H., Current Economic Problems (1915) Ch. VIII. Haney, Lewis H., Business Organisation and Combination (1913). *Jenks, Jeremiah W., The Trust Problem (1903). *Meade, Edward S., Corporation Finance (1912). Moody, John, The Truth About the Trusts (1904). *Stevens, W. S., Industrial Combinations and Trusts (1913). Van Hise, C. R., Concentration and Control (1912). Wyman, Bruce, Control of the Market (1911). Industrial Commission Reports, Volumes I, II, XIII, XVIII and XIX. Outline treatment of Trusts is given in each of the General Reference Reading texts named on page 2 of this syllabus. LECTURE XIV. THE EVOLUTION AND THE USES OF MONEY* I. The Philosophy of Exchange. Environment and heredity decree that men shall be specialists in production, but universalists in consumption. Only through exchange is this possible. II. Barter. The earliest form of exchange, that of goods for goods, gave rise to many difficulties, to avoid which men resorted to primitive money. III. Primitive Money. Examples of early forms of money are fish, shells and peltries, in the hunting stage; cattle, in the pastoral age; beans, tobacco, etc., in the agricultural age, and bronze and iron in metal-working days. IV. Why Gold and Silver Came to be Universally Used as Money. 1. They are cognizable, durable, portable, divisible, impressible, and homogeneous, and these qualities obviate many of the inconveniences of the other kinds of money. 2. Again, they are the steadiest of all things in value (chiefly be- cause they are so durable), the importance of which appears when we examine into the uses of money. V. The Uses of Money. 1. First of all, it is used as a Medium of Exchange, in the per- formance of which function it is actively productive and not mere "dead capital." 2. Again, it measures values. To do this, it must itself have value, and, the steadier this value, the better. 3. It is a standard for deferred payments. 4. It is the best means of transporting values in space and in time. * References for Reading of Lectures XIV to XX, inclusive, follow Lecture XX. 22 VI. Conclusion. The clear conclusion is, that because gold and silver best solve the difficulties of barter, best obviate the inconvenience of primitive moneys, and best serve the uses of money, these precious metals have become the base of all civilized money systems. LECTURE XV. MONEY VALUE AND COINED MONEY I. Value of Money. 1. Being made of a commodity, money is subject to the general law of commodity value, which is, that things are valuable which are useful and are limited in quantity. 2. The Quantity Theory of Money is simply the application to money of the general economic principles relating to supply and demand. 3. The precious metals are distributed among the nations by an adjustment of prices throughout the world. II. Coinage. 1. The metals used in history have been iron, lead, copper, etc. 2. Early coins were rude in their shapes, weights and markings. 3. Acceptable coins must be : a. Convenient in shape and size. b. Difficult to counterfeit. c. Difficult to clip or sweat. d. Little subject to abrasion. e. Historic monuments. 4. Systems of Coinage. a. Government may leave coinage to private parties. b. Government may provide merely a system of weights. c. Government may use one metal only. d. Government may use two or more metals, each equally a primary money. c. Government may use one metal as primary money and others as subsidiary. III. Gresham's Law. It is a universal law that, if coins of the same denomination, but of different market value as bullion, be put into circula- tion, the cheaper coin will drive the better out of circulation, i. e., bad money drives good money out of circulation, if there be enough of it to do the business. 23 IV. Outline History of United States Coined Money. This Grehsam's Law is again and again illustrated in the His- tory of United States Coins, which will be noted in the outline. 1. Hamilton's Dollar — its weight, purity and the ratio of gold to silver— 1791. 2. Market fall of bullion silver drives gold from circulation and brings on the coinage acts of 1834-1837. 3. Gold discovered in California (1849) further cheapens gold and drives even silver small coins from circulation, leading to the debasing of subsidiary silver (1853). 4. The "Crime" of 1873 dropped the silver dollar from the coin list. 5. In 1878 the Bland-Allison Act, and in 1890 the Sherman Act restored the silver dollar and caused heavy coinage of it. Since the repeal of the Sherman Act, in 1893, no silver has been purchased for a silver dollar coinage. 6. A brief statement of the facts as to the number of gold and silver and other coins of various denominations. LECTURE XVI. PAPER MONEY I. Kinds of Paper Money. 1. Paper money may be issued by the Government or by private persons or corporations. Government issue gives great se- curity, but lacks elasticity. 2. All money may be classified as either redemption money, rep- resentative money, or inconvertible money. Paper money is either representative or inconvertible. Paper money is called surrogate, when it has a specific dollar-for-dollar reserve in coin; is convertible, when there is a general re- serve, maintained for its redemption, and is called incon- vertible, when there is no provision for its redemption. II. Dangers of Paper Money. 1. There is great danger of over-issuing paper money, as the history of American Continental Currency abundantly shows. 2. There are also great difficulties if anything except the precious metals is offered as a reserve for representative paper money. III. Outline History of Paper Money in the United States. The United States throughout its history has issued no strictly fiat paper money, but has aimed to keep its government paper all convertible. 24 1. During the second war with Great Britain government notes, bearing interest, issued and fully reedemed later. 2. During Civil War, a large volume of "green backs" issued, declared to be redeemable in coin, but not actually so re- deemed from 1861 to 1879, when the Specie Redemption Act went into force. Nearly $350,000,000 in these "green backs" still in circulation. 3. Later issues of government money include gold and silver certificates and Treasury notes, all surrogate money. 4. Issues of private banks in U. S. up to 1863 illustrate the dan- gers of convertible paper money, as the present National Bank notes show one way to safeguard such issue. 5. A brief summary of the statistics of paper money in the United States to-day. LECTURE XVII. BIMETALLISM I. Meaning of Terms: Bimetallism, Legal Tender, Legal and Market Ratios and Free Coinage. II. Advantages of Bimetallism. 1. It prevents so great value-fluctuations of money. 2. It increases money supply, and thus: a. Helps debtors. b. Makes business thrive. c. Makes it more difficult to corner primary money. III. Disadvantages of Bimetallism. 1. Gresham's Law sure to operate and leave but one metal actually in use. 2. It is questionable whether it is socially expedient to aid debt- ors, or to develop business by currency manipulation. A much better way to secure equity between debtor and cred- itor is furnished by the Tabular Standard. LECTURE XVIII. CREDIT AND BANKING I. Credit. 1. Credit is the power to command wealth now in exchange for assurance of future return. 2. The advantages of credit are that : a. It utilizes small savings. b. It transfers capital to more productive hands. c. It furnishes a strong motive toward saving. d. It makes possible great enterprises. 25 3. The disadvantages of credit are that: a. It may promote indebtedness. b. It may transfer wealth to less productive hands. c. It may overstimulate prices and thus aid in bringing on commercial crises. II. The Functions of a Bank. A bank is an institution for facilitating credit. It has three functions : Deposit, discount, and circulation. III. Banking Currency. 1. Bank checks facilitate exchanges and lessen the need for money. 2. Bank Notes are representative money. Regulation of note issues by banks is very important. All nations impose some restrictions on such issues. The leading restrictions are: a. The Maximum Limit. b. The Proportional Reserve. c. The Bond Deposit, and d. The Safety Fund System. IV. The Clearing House System. LECTURE XIX. OUTLINE HISTORY OF BANKING IN THE UNITED STATES I. Introduction. The banking functions, the necessity for maintaining an ade- quate reserve and acceptable means dictated by experience, the necessity for protecting depositors and bank note holders are all amply illustrated in the National Bank History of the United States. II. The Earlier National Banks. The First and Second National Banks, chartered respectively in 1791 and in 1816, worked out many protective features later embodied in the National Bank Act of 1863. III. Private and State Bank Protective Systems. Through private and State banks great losses were suffered by the public, especially through the paper money issues of these banks. The Suffolk Bank System in New England and the Safety Fund System in New York were two dis- tinct and successful methods of preventing losses to bank note holders. Both systems worked successfully before the National Bank Act of 1863 was passed. This Act by high taxation, practically made it impossible for other than Na- tional banks to issue bank notes. IV. Regulations of the National Bank System to 1914. Leading regulations of the National Bank System as amended and in force at the passing in 1913 of the Federal Reserve Act (treated in Lecture XX) controlled: 26 1. Organization. 2. Relations to depositors. 3. Loans. 4. Note issue. 5. Taxation. Merits and Defects of the Third National Bank System. The leading merits of the Third National Bank System prior to the Amendment of the Federal Reserve Act of 1913, were its stimuli toward uniformity and towards high-grade bank- ing policies and practice in the United States. Critics of the system alleged its leading defects to be inelasticity of note issue, lack of branch banking, and failure to give com- pletest possible security to depositors. LECTURE XX. THE FEDERAL RESERVE SYSTEM I. The Establishment of the System. The Fourth National Bank System of the United States was established under the Federal Reserve Act of December 23, 1913. This Act was amended in August, 1914, and again in March, 1915. II. Control of the System. 1. The Federal Reserve Board. 2. The Federal Advisory Council. III. Membership in the System. 1. Management of Member Banks. 2. Functions and Powers of Member Banks. a. General. b. Special : (1) Rediscounting. (2) Market operations. (3) Clearing and collections. (4) Control of gold supply. (5) Reserves. (6) Issue of notes. IV. Effects of the System. 1. The System and the Treasury. 2. The System and the National Banks. 3. The System and the State Banks and Trust Companies. 4. The System as an Improvement on the Third National Bank System. References for Reading: Money and Banking. Bolles, Albert S., Money, Banking and Finance (1903). Conant, C. A., A History of Modern Banks of Issue (1896). *Conant, Charles A., The Principles of Money and Banking (1905). DeKnight, W. F., History of the Currency and Loans of the U. S. (1900). Fisk, A. K., The Modern Bank (1904). Holdsworth, J. T., Money and Banking (1914). 27 *Jevons, W. S., Money and the Mechanism of Exchange (1876). *Johnson, J. F., Money and Currency (1905). Kinley, D., Money (1904). Knox, J. J., History of Banking in the U. S. (1900). Scott, William A., Money and Banking (1903). *Sumner, W. G., History of American Currency (1874). Walker, F. A., Money (1878). *White, H., Money and Banking (1908). Reports of the National Monetary Commission (1910). The National Bank Act, as amended, The Federal Reserve Act, and Other Laws Relating to National Banks (July 1, 1915), Government Print- ing Offce, Washington, D. C. For Current Statistics and Facts relating to Money and Banking in the United States, see such Government publications as the Annual Statis- tical Abstract of the United States and the Annual Reports and Special Circulars of the Treasury Department. Each of the General Reading Reference texts listed on page 2 of this syllabus deals briefly with the subjects of Money and of Banking. LECTURE XXL RISING PRICES: PRINCIPLES, FACTS AND SUPPLY CAUSES I. The Principles of Price Making. 1. Utility, value and price. 2. The Quantity Theory of Money. II. The Facts of Rising Prices. 1. In the United States. 2. In Great Britain. 3. In other countries. III. The Causes of Rising Prices Analyzed. 1. Causes affecting supply: a. Exhausting natural resources. b. Middlemen. c. Adulteration and package goods. d. Cold storage. e. Trade Unions. /. Tariff. g. Trusts. h. Transportation. LECTURE XXII. RISING PRICES. DEMAND CAUSES, EFFECTS AND REMEDIES I. The Causes of Rising Prices Analyzed (Continued from Lecture XXI). 2. Causes affecting demand : a. Increasing population — immigration. b. Speculation. 28 c. Extravagance and waste. d. Rising Standard of Living. c. Increasing gold supply. II. The Effects of Rising Prices : 1. Upon business generally. 2. Upon wage earners. 3. Upon receivers of salaries and of fixed incomes. 4. Upon debtors and creditors. 5. Upon owning producers — farmers, fishermen, etc. 6. Upon interest. 7. Upon crises. 8. Upon general social reform. III. The Remedies Proposed for Rising Prices. 1. Natural check to further gold production. 2. Lowering the tariff rates. 3. Back-to-the-farm movement. 4. More scientific farming, forestry, etc. 5. Changing the money medium. References for Reading : Rising Prices : Clark, Walter E., The Cost of Living (1915). Fisher, Irving, The Purchasing Power of Money (1911). Fisher, Irving, Why the Dollar Is Shrinking (1914). Franklin, Fabian, Cost of Living (1915). Nearing, Scott, Reducing the Cost of Living (1914). Bradstreet's Journal, current numbers. Bulletins of U. S. Bureau of Labor Statistics on Wages and Prices. Senate Document No. 349, 61st Cong., U. S. Report of the Massachusetts Commission on The Cost of Living (1910). LECTURE XXIII. PRINCIPLES OF INTERNATIONAL TRADE* I. Introduction. A history of commerce is a history of civilization. . Babylon was a centre for caravan ranks ; the art of Athens and of Florence developed after they were great commercial cities ; the great medieval town leagues for commerce foreshadowed the rise of the Third Estate, of representative government, of medieval art, and of religious toleration. These are but illustrations. II. Principles of Trade. 1. In a voluntary exchange both parties gain. 2. The greater the difficulty each party would have to produce the thing he exchanges for, the greater the gain from exchange. 3. Since both parties gain by any voluntary exchange, there is obvious loss caused by every restriction of freedom to trade. 4. It may pay a nation to buy from another goods which the first nation can produce more cheaply than can the second. ♦References for Reading for Lectures XXIII, XXIV and XXV follow Lecture XXV. 29 5. A nation cannot in the long run sell more than it buys, and it would be a loss to it if it could do so. 6. A so-called "favorable" balance of trade may or may not indi- cate that a nation is strong. The crude balance of trade i? to be carefully distinguished from the refined balance of credits, the latter allowing for excess interest and tourist expenses, costs of shipping, etc. LECTURE XXIV. TARIFF HISTORY OF THE UNITED STATES I. Introduction. The year 1789 began a political but not an economic epoch in the history of the United States. Tariff came up for early consideration in the first Administra- tion, and it has continued to be a fore-rank problem of every Administration. II. Period of Tariff Beginnings— 1789 to 1816. The early tariff acts were intended mainly to be revenue pro- ducers and had low ranges of duties. The Berlin and Milan Decrees, the Embargo and Non-Intercourse Acts, the War of 1812, and the high cost of ocean transport, all supple- mented the low tariff duties in producing conditions which greatly stimulated the development of new industries. III. Period of Aggressive Protectionism — 1816 to 1833. Heavy competition, after the close of the Napoleonic Wars, threatened to destroy the young industries. To safeguard them various Protective Acts were passed, culminating in the so-called "Tariff of Abominations" (1828). IV. Period of Freer Trade— 1833 to 1860. Reaction against the higher tariffs of the "Abomination" period gradually reduce the tariff rates approximately to the reven- ue point, where they remained from 1846 to 1860. V. The War Tariff and Its Related Successors. Civil War conditions produced very high and very compre- hensive customs duties, justified by revenue needs and largely offset by high internal revenue taxes. Most of the high internal taxes were abolished soon after the war, but the high customs duties were continued, and even increased in their essential protective differentials. Several futile attempts to reduce them were made in the seventies and the eighties. The McKinley Law (1890) was even more protec- tive than the War Tariff. After an ineffective reaction, con- creted in the Wilson Law (1894), restoration of the high duties came in the Dingley Law (1897). No substantial abatement of the protection offered by the Dingley Law was made in the Payne- Aldrich Law (1909). 30 VI. The Underwood-Simmons Act of 1913. Important additions to the free list were made and the rates on dutiable goods generally were lowered. This was the first notable lowering of the United States tariff since the Civil War. VII. Conclusion. Under our Constitutional limitations, customs duties seem an essential Federal revenue source. Since 1860 tariffs have not been primarily for revenue, but they have been primar- ily and highly protective. Even the Reciprocity features, notable in the Tariff Acts since 1890, have been "handmaid- ens of protection." Speaking in tariff terms, the United States still sat in the shadow of the Civil War until October, 1913. LECTURE XXV. FREE TRADE Vs. PROTECTIONISM Customs duties may be used by nations for revenue, for polic- ing purposes, or for encouragement of commerce and in- dustry. They are indirect taxes, having the merits and demerits of such taxes. Discussion of customs duties, in the light of the trade principles treated in Lecture XXIII, may be centered profitably about the free-trade-protection controversy. II. Free Trade versus Protection. 1. Common Ground. A customs tariff may be advantageous for a. Diversifying industries through the development of infant industries. b. Creating domestic war materials. c. Use as an international weapon. d. Securing revenue. 2. Disputed Ground. It is disputed that a protective tariff is beneficial, as claimed by its advocates, who allege that it : a. Makes foreigners pay part of our taxes. b. Keeps money and exchange profits at home. c. Employs more workmen in America. d. Maintains the American standard of wages. Its opponents, besides opposing the above claims, allege that a protective system a. Taxes the many for the benefit of the few. b. Begets infants that never grow to maturity. c. Is a prolific source of corruption. III. Bounties versus Duties. Granted that aid is to be given to an industry, a bounty is preferable to a duty as the means of granting such aid, for 1. Duties induce smuggling. 2. Duties increase the prices of protected articles. 3. The actual amount of aid given to an industry is more easily determined under the Bounty system. References for Reading: Trade and Tariff: General and Historical — Dewey, Davis R., Financial History of the U. S. (1907). Hamilton, W. H., Current Economic Problems (1915) Ch. VI. Laughlin, J. L. and Willis H. P., Reciprocity (1903). Stanwood, Edward, Amcr. Tariff Controversies of the XlXth Centurv (1904). *Tarbell, I. M., The Tariff in Our Times (1912). ♦Taussig, F. W., Tariff History of the United States (1914). *Whelpley, J. D., The Trade of the World (1913). Favoring Protection — Byles, J. B., Sophisms of Free Trade (New Edition, 1904). Dixwell, Geo. Basil, The Premises of Free Trade Examined (1882). Hoyt, Henry M., Protection vs. Free Trade (1888). *List, Friedrich, System of National Economy (1841). Patten, Simon N., The Economic Basis of Protection (1890). Young, John P., Protection and Progress (1900). Favoring Free Trade — Avebury, Lord, Free Trade (1904). Bastable, C. F., Theory of International Trade (1887). Bastiat, The Sophisms of Protection (1874). *Cairnes, J. E., The Principles of Political Economy (1875). *Sumner, William G., Protectionism (1885). References for Present Trade Facts — Monthly Summary of Foreign Commerce of the United States, U. S. Department of Commerce. The Statesman's Year Book (annual). The Statistical Abstracts, of the United Kingdom and of the United States (annuals). Tariff Acts of the United States from 1789 to 1909. Tariff Board Reports, U. S. (1911-1912). Tariff Hearings, Sixtieth Congress (1908-1909). U. S. Treasury Decisions (weekly issue). Each of the General Reading Reference texts, listed on page 2 of this syllabus, outlines the principles of international trade. LECTURE XXVI. RAILWAYS IN THE UNITED STATES I. Introduction. The evolution of man may be outlined in the story of the de- velopment of transportation. Ocean, lake, river and canal transportation are all of impor- tance, but railways play an especially important role in the United States. II. History of Railways in the United States. 1. Period of Beginnings — 1826 to 1850. The United States fell heir to knowledge from the foreign developments of track and of power. 32 Early railways in the United States were built largely to stimulate new traffic rather than to accommodate traffic already existing, as in the Old World. This resulted in cheaper cost of construction, keener competition, and lower rates than elsewhere. 2. Period of Rapid Expansion— 1850 to 1890. Trunk lines were completed. Enormous public land grants were made to induce Western railway building. During this period the national mileage rose from 9,021 to 163,597. 3. Period of Consolidation and Territorial Grouping — 1890 to the present. Construction in this period has been steady, but not rapid as in the preceding period. Territorial grouping of the rail- ways and concentration of their control developed during this period. 4. Present Railway System. The United States railways include over two-fifths of the rail- way mileage of the globe. In 1916 nearly 270,000 miles of railways, exclusive of switches and terminals, were in use. The railway companies are capitalized at nearly $22,000,- 000,000, or at about one-eighth of the total wealth of the United States. They are divided into seven geographical groups. While their securities are widely owned, the railways are in the control of a very few groups of financiers. III. Theory of Railroads. 1. Railroads Differ from Other Business, for a. They are quasi-public. b. They are monopolistic in nature. c. A large proportion of their annual expenditure is con- stant. 2. The Theory of Rates and Pares. a. The cost of service, which applies in most business, is not applicable to railways. b. The value of service principle is only an application of the ability to pay principle. 3. Rail-way Discriminations. a. Classification is a valid and a necessary discrimination, but it may be abused. b. Local discriminations may be necessary, to allow for differences between local and through traffic, and for water competition. c. Personal discriminations are wholly unjustifiable from the social standpoint. IV. Railway Regulation in the United States. Since railways are huge, fundamental, quasi-public enterprises, some form of social control over them is necessary. Two general methods of social control are proposed : 33 1. Government Ownership and Operation. a Advantages: 1. No discriminations. 2. Possibly lower rates and fares, since lower Gov- ernment interest rate and no profits. 3. The system would be operated in the interests of the whole people. b. Disadvantages : 1. Likelihood of great corruption in place getting and in rate making. 2. Railways the greatest, most complex, and most fundamental industry, and there would be great difficulty in securing efficiency under Govern- ment operation. 3. The railway income is several times as large as the present income of the United States Gov- ernment, and therefore Government ownership and operation would involve serious fiscal dif- ficulties. 2. Commission Control. A continuation of Commission Control, increased powers being granted to the Commission, appears to be the wisest policy for the United States to-day. References for Reading: Acworth, W. M., The Elements of Railway Finance (1905). Baldwin,' Simeon E., American Railroad Law ( l9 °4)- Dunbar, Seymour, History of Travel in America (1915). *Hadley, Arthur T., Railroad Transportation (1885). Hamilton, W. H., Current Economic Problems (1915) Lh Vll. *Tohnson, Emory R., American Railway Transportation (1903). Johnson! Emory R., Elements of Transportation (1909). Meyer, Hugo Richard, Government Regulation of Railway Kates *Noyes, Walter C, American Railroad Rates (1905). Parsons, Frank, The Railways, the Trusts, and the People (l^Uo). Pratt, Edwin A., American Railways (1903). Spearman, Frank H., The Strategy of Great Railroads (1906). Thompson, Slason, The Railway Library (annual since 1909) Industrial Commission Reports, Volumes IV, IX, XV 11 and XI A. Annual Reference Works for Facts- Poor's and Moody's Manuals of the Railroads of the United States. Interstate Commerce Commission— Annual Reports The Board of Jiailroad Commissioners of New York State— Annual ^Each of the General Reading Reference texts listed on page 2 of this syllabus has an outline discussion of the Railroad problem. 34 LECTURE XXVII. DISTRIBUTION OF WEALTH I. Introduction. Functional distribution is the parceling out of the net income of industry to the factors of production. Modern industrial society has solved its problem of productioa of wealth better than it has solved its problem of individual distribution of wealth. II. Functions, Not Individuals. The general theory of distribution is concerned with factors of production and not with individuals. An individual may function under several factors. III. The Static versus the Dynamic State. Assuming no changes in quantity, quality or organization of the factors of production, under perfectly free competition, last increments of any factor of production would receive equal returns in all kinds of industry. This would be the Static State. The real, and highly dynamic, productive world approximates far more closely to this static state than first thought might indicate. IV. Distributive Theories of Wage. 1. Legal Theory of wage fixed by law. 2. Wages Fund theory. 3. Iron Law of wages. 4. Socialistic Theory. 5. Productivity Theory. This Productivity Theory holds that, under free competition, each factor of production tends to get what it has produced, marginally tested. This widely accepted Productivity The- ory, applicable to each of the factors of production, reaches a factual and not an ethical conclusion. It seeks to deter- mine functional distribution, leaving society under the gen- eral dictates of social expediency, to determine individual distribution of wealth. V. The notably unequal individual distribution of wealth and of incomes actually persisting in modern society is the basic premise of all propaganda for extended social control of economic ac- tivity. References for Reading *Clark, J. B., Distribution (1900). Hobson, J. A., Economics of Distribution (1900). King, W. I., The Wealth and Income of the People of the United States (1915). Smart, W., Distribution of Income (1899). Each of the General Reading Reference texts listed on page 2 of this syllabus treats Distribution. 35 LECTURE XXVIII. RENT OF LAND I. Introduction. Broadly defined, rent is the return to any durable capital good. It is here narrowed to ground rent. II. Law of Diminishing Returns from Land. 1. Statement of the Lazv. As capital and labor is increasingly applied to given land, a point is reached beyond which increase of returns is less than proportional to increase of capital and labor applied. 2. The Law may be illustrated, hypothetically, and from actual experiment. 3. The Law is not to be confused with a statement of mere soil exhaustion. 4. The Law applies to all uses of land. 5. The Law may be generalized to apply to any factor of industry, increasing less rapidly than the other factors. III. Ricardian Rent Formula. 1. Statement of Formula. Rent is the surplus product obtained by applying given capital and labor to given land, over the product obtained by apply- ing the same capital and labor to marginal land. 2. Criticism. "No-Rent Land" is assumed. 3. Economic Rent is the Ricardian surplus. It is due to the better location and the richer resources of rent-producing land. Under free competition Contract Rent approximates Economic Rent. IV. Relation of Rent to Price. Higher prices cause higher rents, rather than the commonly accepted reverse. V. Relation of Rent to Wages and to Interest. Since population and capital tend to increase more rapidly than land put to economic use tends to increase, rent tends to rise. This fact, that land as a productive factor is the largest beneficiary of Social Progress, is a basic proposition of the "Single Tax" theory. This theory asserts that the State should receive the increasing share apportioned to land by the process of functional distribution. References for Reading Clark, J. B., Distribution, Chaps. XXII and XXIII (1900). ♦Johnson, A. S., Rent in Modern Economic Theory (1900). Marshall, A., Principles, Book V. Each of the General Reading Reference texts listed on page 2 of this syllabus treats Rent. 36 LECTURE XXIX. SOCIALISM I. Philosophy of Socialism. Human society evolves under stimulus of its economic forms of production. The class struggle persists — slave vs. master, serf vs. lord, wage earner vs. capitalist. Utopian dream systems of speculative Socialism yield to mod- ern scientific Socialism. The efforts of sporadic Utopian dreamers give way to the solidarity of a persistent labor class movement, whose goal is perfection of human oppor- tunity through economic freedom. II. Socialism's Criticisms of Present Economic Society. 1. Socialism teaches that better life for all is coming through community ownership and operation of all the socialized means of production. 2. Socialism claims that present society fails of its best in : a. Production. Anarchy in the producing world except where monop- olies control. b. Exchange. Great waste in speculation, advertising, sale and distri- bution of goods. Surplus theory of value should replace other value theories. c. Distribution. The community should parcel out the whole social product. The exact manner and method of this dis- tribution is a matter of disagreement among Social- ists, though they agree : 1. All able-bodied persons within specified age lim- its should labor. 2. There should be increased gratuitous public serv- ices, such as free medical treatment, free legal services, and extended free educational oppor- tunities. 3. No receipt of rent or of interest by individuals should be permitted. d. Consumption. There should be individual enjoyment of earned con- sumption goods, with higher and better developed tastes to satisfy and with more leisure to enjoy. IV. Popular Misunderstanding of Socialism. Socialism, as such, is not : 1. Identical with Anarchism. 2. Identical with Communism. 3. Hostile to Religion. 4. Hostile to family fidelity. V. Criticism of Socialism. 1. Regimentation of industry would be necessary. This would bring hard problems of distribution of labor and determina- tion of industrial incomes. 37 2 "Class" emphasis is narrowing and embittering. 3 The "party discipline" is questionable. 4. The surplus value theory is faulty. 5. Socialism makes persistent assumption that its way is the only way to cure the ills of modern life. References for Reading Arnold-Foster H. O., English Socialism of To -Day (1908). Barber, J Ellis Socialism; An Examination of Its Doctrines, Policy, Aims and Practical Proposals (1908). *Cross Ira B., The Essentials of Socialism (1912) _ De Tunzelmann, G. W., The Superstition Called Socialism (1911). Guyot, Yves, Socialistic Fallacies (1910). Hamilton, W. H., Current Economic Proble^ (19^) Ch. XIV. Hillquit, H. M., Socialism m the United States (1903 . *Hillquit Morris, Socialism in Theory and Practice (1909). ♦Hunter, R., Socialists at Work (1908) *Kirkup, T., History of Socialism (1913). _ Mallock, A Critical Examination of Socialism 1907). *Marx, Karl, Capital (Translation, Kerr & Co. 1906) Marx K. and Engels, F., Communist Manifesto (1848) Orth S P., Socialism and Democracy in Europe (}9U). Peizorto J. The French Revolution and .Modern Socialism (1901). Rauschenbusch, Walter, CWMy and the Social Crisis (1908). Scudder, Vida D., Socialism and Character (1912). Skelton, O. D., Socialism~A Critical Analysis (1911). Walling, William E., Socialism As It Is (191^). , Wallinl William E The Larger Aspects of Socialism (1913). Wells H. G., New Worlds for Old (1908). Each of the General Reading Reference texts listed on page 2 of this syllabus outlines Socialism. LECTURE XXX. TAXATION I. Introduction, Taxation has played a vital part in history, and is to-day of fundamental world importance. It affects every man, woman and child. In the United States it consumes nearly one-twelfth of the aggregate income of the population. Government is necessary and its expenses must be met Rev- enue mav be obtained from sales, from fines, from fees, irom spedaT assessments, and from taxation. A tax is a general levy to be used for a general purpose. II. Taxation Ideals. Taxes might be levied according to 1. Equality. . This is unjust and impossible. 2 ' Thisls tapotibt to measure and would overburden the poo, 3. Ability to pay. , This is just and practicable. 38 III. Rules of Acceptable Taxation Policy. 1. Tax nothing which can and will run away. 2. Tax nothing which can hide. 3. Taxes should be o. Definite in amount, time and manner of payment. b. Levied and collected in a way convenient to payers. c. Levied at lowest possible cost of collection. d. Levied so as to encourage and not to discourage indus- try, integrity and intelligence. IV. Kinds of Taxes. 1. Direct and Indirect. a. Direct taxes are borne by the original payer. Examples are Poll and Inheritance Taxes. b. Indirect Taxes are shifted by the original payer. A leading example is the Customs Duty, which is ordi- narily paid by the final consumer, in the form of higher price. Such taxes are objectionable, for the people do not know when they pay them, their collec- tion is costly, and they are oppressive to the poor, particularly when specific. c. In the United States direct taxes are favorites with the States, and indirect with the nation. 2. General Property Tax. The "American System." Although this form of tax has been abandoned by the more enlightened nations of Europe, and has been condemned uniformly by the many tax in- vestigating commissions of the United States, it is still the most important source of revenue in the United States. The attempts to levy on personal property are costly, and put a premium on dishonesty. The practical failure to reach personalty makes the levy unjust. 3. Land Tax. a. A land tax is readily and inexpensively levied — land cannot hide or run away. A land tax cannot be shifted. b. The Single Tax on Land has all the advantages of the land tax, but it has defects, since it would yield the Government an inelastic income, it would deprive the Government of policing power through taxation, and, if inaugurated by practical confiscation of land, it would be unjust. 4. Stamp Taxes. Stamps may be used as mere vouchers, as in the excise stamps, or they may be required to legalize the drawing of deeds, the sale of patent medicines, etc., as in the stamp tax of the United States during the Spanish-American War. Require- ment of stamps is annoying to business men. In the United States it is perhaps wise to reserve the stamp tax for emer- gency needs of revenue. 39 5. Income Taxes. Theoretically the progressive income tax, with a reasonable minimum of subsistence income exempt form any tax pay- ment, is one of the most defensible of all taxes. Practically, it may be a source of perjury rather than of revenue, and since many will evade it, in actual practice it becomes unjust. The lower the rates and the more effective the administrative system the less these practical difficulties will be. 6. Inheritance Taxes. Progressive inheritance taxes are socially justifiable, and are growing in favor in democratic countries. They may be justified as a levy to counterbalance other taxes evaded by estates, or on the ground that the bequest receiver's ability to pay has greatly increased, or on the broad social ground that the community is the silent partner in every great business enterprise, and that it is entitled to some reasonable share in the profits. 7. Corporation Taxes. There is a developing tendency in the United States to tax corporations upon the value of their franchises. The move- ment favors the taxing of corporations locally on their real estate, and then the taxing for the State of the difference between the market value of the corporations' securities and the value of realty owned by them, or taxing of gross or of net earnings. Such taxes satisfy the ability to pay criterion and the rules for an acceptable taxation policy. V. Conclusion. In summary, taxes upon land, upon inheritances and upon cor- porations seem best adapted to United States conditions. Industrial democracy is adapting the revenue systems to the new conditions, for which it is so largely responsible, and is striving to eliminate old injustices. In the contests to be waged, taxation is a powerful weapon in the hands of this industrial democracy. References for Reading: *Adams, H. C, The Science of Finance (1898). *Cohn, Gustav, The Science of Finance, Book II (translated 1895). Cooley, Thomas M., A Treatise on the Law of Taxation (3rd Ed. 1903). Fillebrown, C. B., Taxation (1914). George, Henry, Progress and Poverty (1879). Goodnow, F. J., Cases on Taxation (1905). Hamilton, W. H., Current Economic Problems (1915) Ch. XIII. *Holt, Henry, Talks on Taxation (1901). Plehn, C. C, Introduction to Public Finance (1909). Plehn, Carl C, Government Finance in the United States (1915). Seligman, E. R. A., Essays in Taxation (8th Ed., 1913). Wells, Davis H., The Theory and Practice of Taxation (1900). West, Max, The Inheritance Tax (1893). 40 Industrial Commission Report, Volume XI, Taxation in Various States and in Canada. Proceedings of the National Tax Association — Annual, beginning 1907. Reports of U. S. Bureau of Corporations on Taxation (1909 to 1916). Report of the Joint Legislative Committee on Taxation, New York (1916). Special Report of U. S. Census Office — Wealth, Debt and Taxation (1914). LECTURE XXXI. THE DEVELOPMENT OF ECONOMIC THOUGHT I. Ancient. The Greeks and Romans, with economic conditions so different from those of the present day, left little economic thought of more than merely historic value. II. Medieval. The Middle Ages focused their economic writings closely to the two problems of interest and of government fixation of prices. III. Mercantilism. As Feudalism yielded before nationalism, economic thought adopted the nationalistic colors. Mercantilism was founded on the ideas that nations can grow strong only at the expense of their rivals, and that money is the most im- portant form of wealth. The mercantilist writer favored legislation to increase the balance of trade of his nation, to foster commerce and industry, to lure in food supplies, raw materials, skilled laborers and supplies of the precious metals, to exclude manufactures of other nations, and to prevent export of foods, raw materials and the precious metals. IV. Physiocracy. The Physiocratic school in France over-emphasized the im- portance of agriculture, believed that surplus income came from land only, argued that taxes should be levied directly upon the land and upon the land only, and that other vex- atious taxes, shackling industry and commerce, should be removed. V. Adam Smith and His Followers. Adam Smith, who published his famous Wealth of Nations in 1776, is oftentime called the father of modern economics. He taught the importance of labor, the benefits of free com- petition, the dangers of over-emphasizing either agriculture, manufacture or commerce. His teachings, untempered by his historic sense, were narrowed into dogmatic formula by his followers, asserting universal truths, the economic man and the harmony of public and private interests. 41 VI. The Historic and the Socialistic Schools. The historic school denies the validity of the dogmatic social generalizations of Adam Smith's followers and teaches evo- lution and the relativity of all knowledge. The Socialistic school rejects the idea of harmony between public and private interests and advocates far-reaching extension of governmental activities. VII. Present Day Economic Thought. Economic thought to-day emphasizes the study of distribution of wealth rather than of its production, so much emphasized by Adam Smith and his followers. Present day thought, acknowledging its large debt both to historical and Social- istic thinkers, still holds as against the extreme historical school men that there are some valid, important general- izations, and as against the extreme Socialists that there is large harmony between private and public interests, and that each case for extension of government control in busi- ness must be proven. References for Reading: Cossa, L., Introduction to the Study of Political Economy (1893). Ely, R. T., Outlines of Economics (1909), Ch. XXXVI. *Haney, L. H., History of Economic Thought (1910). Ingram, J. K., History of Political Economy (1888). ♦Seligman, E. R. A., Principles of Economics (1914), Ch. VIII. LIBRARY OF CONGRESS 013 478 672 3 •