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OUTLINES 
 
 ELEMENTARY ECONOMICS 
 
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 HERBERT J.'^^pAVENPORT 
 
 Author of " Outlines of Economic Theory 
 
 
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 Weto fork 
 THE MACMILLAN COMPANY 
 
 LONDON: MACMILLAN & CO., Ltd. 
 1897 
 
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 All rights 'reserved 
 
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 9 
 
 Copyright, 1897, 
 By the MACMILLAN COMPANY. 
 
 Worittooti 5P«S0 
 
 J. S. Gushing & Co. —Berwick & Smith 
 Norwood Mass. U.S.A. 
 
NOTE TO THE TEACHER 
 
 The importance which the author attaches to 
 the method of suggestive questions is perhaps 
 sufficiently indicated by the space wliicli he 
 has assigned thereto. The purpose is several- 
 fold : — 
 
 (1) To summon to the aid of the student 
 his fund of observation, experience, and crude 
 generalization. This is the essential feature of 
 the inductive method as applied to the study 
 of social phenomena ; 
 
 (2) To effect, through economics, a new cor- 
 relation of the student's mental acquirements ; 
 
 (3) To stimulate the interest of the student 
 through the association of the discussions with 
 the familiar , facts of his every-day experience; 
 and 
 
 (4) To concentrate his attention upon the 
 difficulties which will furnish the basis for the 
 discussion which is to follow. 
 
vi NOTE TO THE TEACHEB 
 
 It is very possible — indeed it is intended — 
 that out of many of these questions the student 
 will merely become puzzled. It is believed that 
 this is pedagogically helpful ; answers have no 
 place except as following questions. It must 
 happen also that one question be found of profit 
 to this or that student, while entirely failing to 
 appeal to a third. 
 
 The author has made an earnest effort to 
 avoid definitions and sub-classifications, and in 
 general, everything which pertains to what may 
 be called the catalogue method of presentation. 
 Outside of the work which the questions require 
 of the student, the treatment is studiously theo- 
 retical rather than descriptive. 
 
 Rightly taught and rightly learned, political 
 economy is of the utmost value as a culture 
 study, as well as a preparation for the duties 
 and activities of practical life. In neither of 
 these aspects can any training be adequate, or 
 the results of it steadfast in the mental equip- 
 ment, if the treatment is merely descriptive and 
 discursive, instead of offering a close-knit and 
 coherent body of elementary theory. Students 
 who are able to master the abstract conceptions 
 of algebra and geometry, need experience no 
 difficulty with the simpler aspects of economic 
 
NOTE TO THE TEACHER vii 
 
 theory, if these are presented with such sim- 
 plicity of statement and arrangement as the 
 subject permits. 
 
 While, however, as is already indicated, it 
 has not been the purpose of the writer to make 
 an easy text-book, the method' is such that the 
 measure of difficulty or of exhaustiveness in the 
 treatment will largely rest in the decision of 
 the teacher, in view of the age of the pupils 
 and the time at their disposal. 
 
 The teacher is advised to require, in general, 
 that written answers to both the introductory 
 and the review questions be brought to the class- 
 room. It is important also that the answers to 
 the introductory questions be attempted, or a 
 discussion of them had in the class-room, before 
 the text is read by the student or appointed 
 him for study. 
 
 In conclusion, the teacher is especially cau- 
 tioned against the notion that he is expected to 
 furnish for himself or his class a satisfactory 
 answer to every one of the questions, or even 
 in all cases to divine the drift of them. Not a 
 few of the questions the author would himself 
 be unable to answer. In many cases the pur- 
 pose has been merely that the difficulty should 
 be honestly met, or again that it be brought 
 
viii NOTE TO THE TEACHER 
 
 out clearly that the problem suggested is not 
 one requiring the attention of the economist as 
 such. 
 
 HERBERT J. DAVENPORT. 
 
 Chicago, August 10, 1897. 
 
ANALYTICAL TABLE OF CONTENTS 
 
 (Eefekences are to Sections) 
 
 CHAPTER I 
 
 PAGE 
 
 The Scope of the Science 1 
 
 The important thing not money, 1 ; but goods, 2. 
 Value and price defined, 3. 
 Political economy defined, 4. 
 
 CHAPTER II 
 Man and Environment 8 
 
 The law of adaptation, 5. 
 
 Man is one term in the adjustment, 6-8. 
 
 The two terms considered together, 9-11, 
 
 Environment affects man, 10. 
 
 Man in energy and effort, 12 ; in moral qualities, 12 ; 
 in forethought and intelligence, 12 ; liberty and 
 security, 12. 
 
 CHAPTER III 
 Utility and Wealth 23 
 
 Utility explains desire ; desire the primary force, 13. 
 
 Utility not an ethical question, 14. 
 
 Production is not creation, 15. 
 
 There is no material measure of wealth, 16. 
 
 The lines of increase are (1) external, (2) inter- 
 nal, 17. 
 
 Services, 18. 
 
 Intellectual acquirements are not wealth, 19. 
 ix 
 
ANALYTICAL TABLE OF CONTENTS 
 
 CHAPTER IV 
 
 PAGE 
 
 The Factors in Production 33 
 
 Are man, natural opportunity, and capital, 20. 
 Capital an intermediate term, 21. 
 Advantages of machinery, 22. 
 
 Wages, Profits, Rents, and Interest 38 
 
 These factors have their respective remunerations, 23. 
 
 Profit is essentially wages, 24-26. 
 
 The inter-relations of profits and wages, 27. 
 
 CHAPTER V 
 
 Value 47 
 
 All remunerations flow from value, 28. 
 All outlays made in view of value, 29, 30. 
 Desires are satiable, 31, 32. 
 
 Value is fixed by the process of marginal adjust- 
 ment, 33-36. 
 Is an expression of sacrifice, 37. 
 Is in antagonism with utility, 38. 
 Production is a purchase from nature, 39. 
 
 CHAPTER VI 
 
 Cost of Production 67 
 
 Human actions follow line of least sacrifice, 40. 
 Economic action not necessarily selfish, 40. 
 What sacrifice measures value, 41. 
 Outlays not the ultimate cost, 42 ; nor labor, 42. 
 Cost of production analyzed ; the marginal doctrine, 
 43, 44. 
 
 CHAPTER VII 
 
 Rent of Land 78 
 
 Value of product controls outlays, 45. 
 There are differences in land, 46. 
 
ANALYTICAL TABLE OF CONTENTS Xi 
 
 Increase of population raises rent, 47. 
 Lowers wages and interest, 48. 
 Law of diminishing returns, 49. 
 Urban lands, 50. 
 Kent not a part of price, 51, 53. 
 Margin of cultivation and prices^ 52. 
 
 CHAPTER VIII 
 Interest 95 
 
 The demand for capital, 54, 55. 
 
 The importance of time, 56. 
 
 Interest is pr^paiium of present over future, 58, 59. 
 
 How fixed, 60. 
 
 Effect of machinery on wages, 61, 62. 
 
 CHAPTER IX 
 
 Wages and Distribution 108 
 
 Eundamental question is product to divide, 63. 
 
 Standard of living unimportant, 64. 
 
 Bearing of demand and supply on wages, 65, 
 
 Particular classes of laborers, 66. 
 
 Harmony and conflict in relations of employers and 
 
 employees, 67. 
 Machinery raises wages, 68 ; because the tendency 
 
 of profits is downward, 69-71. 
 
 CHAPTER X 
 
 Population, Increasing and Diminishing Returns 124 
 Malthus and the English poor laws, 72, 73. 
 Increase of population may lower the per capita 
 
 product, 74. 
 Diminishing returns, 75. 
 Is over-population coming ? 76. 
 Increasing returns, 77, 78. 
 
xii ANALYTICAL TABLE OF CONTENTS 
 CHAPTER XI 
 
 PAGE 
 
 Money . . . .• 135 
 
 Its usefulness, 79, 80. 
 
 Necessary qualities, 81. 
 
 Credit is one aspect of exchange, 82. 
 
 Peculiar qualities of gold and silver, 83. 
 
 There is no ideal money, 85. 
 
 The silver question, 86. 
 
 The demand for money is limited by the division 
 
 of labor, 87 ; is increasing, 88. 
 The value of money, 89. 
 
 Quasi-rents explain the demand for money, 90-92. 
 Supply of money, 93. 
 Effect of increase of supply, 94. 
 Credit and bank currency, 95. 
 Government issues, 96. 
 Gresham's law, 97-99 ; proves local expansions 
 
 futile, 100. 
 Commercial crises, 101-104. 
 Advantages and disadvantages of credit, 105. 
 Remedies, 106. 
 
 CHAPTER XII 
 
 The Competitive System 179 
 
 Can humanity improve its own condition ? 107-110. 
 Examination of present system, 111-114. 
 Socialism examined, 115. 
 
 CHAPTER XIII 
 
 Population, Rent, and Socialism 191 
 
 Disquieting doctrines not necessarily false, 116. 
 Diminishing returns again, 117. 
 Would socialism help ? 118. 
 Increasing returns again, 119. 
 
ANALYTICAL TABLE OF CONTENTS Xlil 
 CHAPTER XIY 
 
 PAGE 
 
 Some Current Questions in Economics .... 201 
 
 Speculation, 120-127. 
 
 Combination and Monopoly, 128. 
 
 Trades-unions, 129. 
 
 The Eight-hour Daij, 130, 131. 
 
 21ie Sweating System, 132. 
 
 Labor of Women and Children, 133, 134. 
 
 Wages of Women, 135. 
 
 The Tariff Question, 136-147. 
 
 CHAPTER XV 
 Taxation 237 
 
 Is essential fact in government, 148. 
 
 Governments are worth, more tlian they cost, but 
 
 they cost, 149. 
 No miracles in taxation, 150. 
 All taxes fall on consumption, 151. 
 Hovi^ best collected, 152 ; Practical rules, 153. 
 The shifting of taxes, 154. 
 Taxes on rent ; Henry George, 155. 
 Taxes on interest, 156. 
 Taxes on income, 157-159. 
 Taxes on liquors and tobacco, 160. 
 Taxes on inheritances, 161. 
 Distribution between central and local government, 
 
 162. 
 Taxes on personal property, 162. 
 
 CHAPTER XVI 
 
 Consumption, Standards of Life, and Eashion . 257 
 Which is first cause, production or consumption ? 
 
 163, 164. 
 Expansiveness of desires, 165, 166. 
 Disappointing and non-disappointing desires, 167. 
 Ostentation, 168. 
 
xiv ANALYTICAL TABLE OF CONTENTS 
 CHAPTER XVII 
 
 PAGE 
 
 Conclusion 267 
 
 Is business overdone ? In what directions is there 
 
 room ? 169. 
 What things in hfe are best worth while ? 170. 
 The purpose of culture, 171. 
 
ELBMENTAEY ECONOMICS 
 
 CHAPTER I 
 
 SCOPE OF THE SCIENCE 
 
 What do you suppose Political Economy is about? 
 Would the study of the Australian ballot system fall 
 within it? The popular election of senators? The sil- 
 ver question? Money generally? The tariff question? 
 
 Do you see any way in which Geology could bear on 
 what you suppose to be economic questions ? Geogra- 
 phy ? History ? 
 
 Ought the economist to understand the processes of the 
 iron industry? The science of electricity ? Chemistry? 
 
 Have these anything to do with Political Economy ? 
 How? 
 
 Is more required than that the economist understand 
 the laws and facts common to industries in general ? 
 
 What are scientific laws as distinguished from moral 
 laws and civil laws ? 
 
 Is Economics concerned with the relations of employ- 
 ers with employees ? 
 
 Does the study of markets, values, and prices require 
 the examination of transportation questions ? How ? 
 
 How does climate become important in Economics ? 
 Waterways ? Mineral resources ? Human wants and 
 needs? Religion? Morals? Public health? General 
 intelligence ? 
 
 B 1 
 
2 ELEMENT ABY ECONOMICS 
 
 Why should any one produce wealth ? 
 
 Do you know any one who has more wealth than he 
 needs ? Than he thinks he needs ? 
 
 Is either condition likely ever to become common ? 
 
 Does demand limit consumption, or is it supply? 
 
 What is the practical limit to consumption ? 
 
 Does average consumption depend upon the amount of 
 money in the world, or upon the amount of wealth pro- 
 duced? 
 
 Suppose there were no money, how could the farmer 
 use his grain to procure machinery or clothing? 
 
 Do you see any respect in which this would be incon- 
 venient ? 
 
 In what sense can money be termed a common denomi- 
 nator of values ? 
 
 1. If one were to offer you a ten-dollar bill 
 on the condition that you should always keep 
 Why we use i*, you probably would not greatly 
 money. prize the gift. Even were a ten- 
 
 dollar gold piece offered you, and you were 
 bound to keep it as such, not making it over 
 into something of service or ornament, you 
 would not very warmly thank the giver. Money 
 is good to buy things with. Men in society 
 and societies as a whole are well off, not in 
 proportion to the money they have, but in pro- 
 portion to what they can get to consume. We 
 are used to selling things for money and to 
 buying things with money, so that it comes to 
 
SCOPE OF THE SCIENCE 3 
 
 stand with us as the most general symbol or 
 representative of the things which we buy. 
 Men commonly reckon their riches in terms of 
 money, as we commonly state the value of each 
 commodity in money. It would be inconvenient 
 to exchange sheep for cattle, or tooth-brushes 
 for iron. When we go to the concert, it is not 
 practicable to pay in hay, or chickens, or jack- 
 knives. The doctor or the newspaper man ob- 
 jects to garden truck as pay. It is better for 
 all concerned to pay in money and to allow the 
 receiver to expend the money for the things he 
 may desire. We use money as a common de- 
 nominator just as, in arithmetic or algebra, if 
 we are going to work in fractions, it is most 
 convenient to reduce these fractions to a com- 
 mon denominator. 
 
 2. But what things we can get with our 
 money, and not the money itself, is the impor- 
 tant matter. People could g-et on 
 
 . . Things and not 
 
 Without money, making their ex- money the im- 
 changes with each other directly P"^^^^^ f^°*' 
 by trade or barter, though doubtless this would 
 be inconvenient. So people in ancient times 
 used cattle as money, the Indians in early colo- 
 nial days used beads or wampum, the Virginia 
 colonists tobacco, and even of late years in 
 
4 ELEMENTARY ECONOMICS 
 
 some parts of the South, twists of perique 
 tobacco have served as the medium of exchange. 
 The use by children of pins in their small com- 
 merce of store-keeping is a familiar fact. 
 
 How much any people can have to eat and 
 wear and enjoy — its share in the good things 
 of life — must depend upon how much is pro- 
 duced. Consumption is limited by production. 
 It is a question of factories, and herds, and 
 crops, and not of money. Money is the meas- 
 ure — the common denominator of value — the 
 medium of exchanging goods between men — 
 and not the cause or the basis or the test of 
 well-being. Doubling the amount of money in 
 a country would not double the production of 
 the fields and factories, or the strength and 
 skill of human beings. All these would remain 
 as they were before. Each of us would like to 
 have his own money doubled, just as each of us 
 would like an increased number of orders or 
 of coupon books upon the grocer or dry-goods 
 man. But increasing the coupon books would 
 not increase the amount of goods which the 
 grocer or dry-goods man has in his shop. In- 
 creasing the money does not increase the com- 
 modities. The aggregate production is the 
 essential fact in any society. Who has the 
 
SCOPE OF THE SCIENCE 6 
 
 orders or coupons for it — the money — is a 
 question of who gets most in the division or 
 distribution of the goods produced. We there- 
 fore call the aggregate production of a nation 
 or of a society the national or social dividend. 
 The average of consumption is found by divid- 
 ing the aggregate production by the number of 
 shares in it; that is to say, by the population. 
 Average consumption is of the nature of a 
 quotient. 
 
 Thus we see that those nations which used to 
 make great efforts to acquire and keep in the 
 country money or jewels and precious stones, 
 were mistaking the symbol for the substance. 
 It is as if a nation should regard itself as rich 
 in proportion to its yardsticks or coupon books, 
 or as if a farmer were to estimate his crop by 
 the number of wagons he had in which to carry 
 it to market. 
 
 To say that the love of money is the root of 
 all evil is a conveniently short but inaccurate 
 method of expressing a great truth. Love of money is 
 Cupidity in some of its forms is love of wealth. 
 the root of endless evil ; but people want not 
 money, — they want the things which money 
 will buy. Only people with diseased brains 
 care for money as a thing in itself. When we 
 
b ELEMENTABT ECONOMICS 
 
 speak of the love of money, we use a sort of 
 shorthand expression for the love of the things 
 in life which are bought and sold. Money is 
 the general form in which desires express 
 themselves and temptations present themselves. 
 But human needs and desires are the source 
 of all well-doing, equally with all ill. If we 
 wanted nothing we should do nothing. The 
 evil is in the improper direction and insuffi- 
 cient restraint of desires. Money is helpful 
 because it enables us easily and conveniently 
 to make exchanges of goods. Barter would be 
 inconvenient and impracticable. 
 
 3. This brings us to the difference in mean- 
 ing between the terms "value" and "price." 
 Value and This difference is important in 
 
 Price. Political Ecouomy, though it is 
 
 not always observed in common speech. When, 
 in the technical use, we speak of the value 
 of the thing, we mean what it is worth of 
 other things ; when we speak of the price, we 
 mean its value measured in terms of money. 
 Thus a horse may be worth two cows, a cow 
 five sheep. Put in terms of price, we should 
 say that the horse was worth, for example, 
 fifty dollars, the cow twenty-five dollars, and 
 the sheep five dollars each. 
 
SCOPE OF THE SCIENCE 7 
 
 4. Political Economy is, in a general way, 
 an investigation of tlie manner in which men 
 think and act in the business affairs Poetical Econ- 
 of life, — a study of their activity omy defined. 
 as related to the things which are bought and 
 sold. Thus we are set to inquire about farms 
 and crops, factories, stores, railroads, banks, 
 wages, interest, rents, values, and prices, and 
 the countless facts and influences bearing upon 
 matters of this sort. Political Economy is not 
 merely the tariff question or the money ques- 
 tion, as many beginners are apt to believe, but 
 a great deal more than this, and much of it of a 
 great deal higher importance. Perhaps the fol- 
 lowing will answer as a fairly accurate statement 
 of the scope of our subject : Political Economy 
 treats of men in their commercial and industrial 
 activities from the standpoint of markets and 
 values. 
 
 SUGGESTIVE QUESTIONS 
 
 Define, as far as you now can, the terms " value " and 
 " price." 
 
 If things were all doubled in price, what effect would 
 this have on values ? 
 
 Mention some relations of Chemistry to Medicine. Of 
 Mathematics to Physics. Of Geology to Zoology. 
 
 From the point of view of how many sciences can you 
 discuss a stick of wood ? 
 
CHAPTER II 
 
 MAN AND ENVIRONMENT 
 
 Why is the polar bear white ? 
 
 Why are many snakes striped? 
 
 Why are some forms of life able to change in color to 
 fit the color of the background ? 
 
 Why have northern animals heavy coats of fur ? 
 
 As far as we can see, is the world adapted to the forms 
 of life upon it, or are the forms of life adapted to the 
 world? 
 
 Illustrate your answer from Botany and Zoology. 
 
 What becomes of such forms of life as fail of adapta- 
 tion ? What of the forms best adapted ? 
 
 What is the " struggle for life " ? 
 
 What influences limit or tend to limit the numbers of 
 buffalo, trout, flies, rats, squirrels, men ? 
 
 Are similar influences at work in the vegetable world ? 
 How? 
 
 The cultivated strawberry set in the field reverts to the 
 type of the wild berry. Why? 
 
 What influence would bring it back to the garden 
 type? Why? 
 
 Explain the fact that orchard apples have much pulp. 
 
 Of what utility is the pulp to the wild apple ? 
 
 Mention some kinds of seeds distributed by animals. 
 
 How may color help toward distribution ? 
 
 What is Natural Selection ? 
 
 What is Artificial Selection ? 
 
MAN AND ENVIRONMENT 9 
 
 What is Correspondence to Environment? 
 
 Why are tropical races dark? Northern races vigor- 
 ous and industrious? 
 
 Mention such different elements of success in life as 
 you can. 
 
 On what does the raising of a good crop depend? 
 
 Has a good chance in life much to do with success ? 
 
 Why not raise bananas in Canada ? 
 
 Could Shakspeare's plays have been written in the 
 Sioux language ? Thought out in a Sioux civilization ? 
 
 Are there any millionaires in Greenland? Why? 
 Where are they found ? Why ? 
 
 Is an opportunity to get a good education to be re- 
 garded as part of yourself or part of your surroundings ? 
 
 When you have obtained the education, which is it? 
 
 Mention such necessary conditions as you can to the 
 prosperity of a great silk factory. 
 
 Apportion these elements into two classes, (1) those 
 which are human in their character, (2) those which are 
 not. 
 
 Apportion these elements into, (1) those which pertain 
 to the owner, (2) those which pertain to his surroundings 
 and opportunities. 
 
 Describe the social conditions necessary to the exist- 
 ence of a great silk factory in (a) public tastes, (6) trans- 
 portation, (c) machinery and mechanical skill, (d) motive 
 power, (e) social security and morality, (/) laws, (g) in- 
 ternational relations. 
 
 5. Polar bears are found to be white ; snakes 
 which live in the grass are green Adaptation to 
 or striped; races of men living in ^™7/opr 
 hot climates are generally dark, porttmity. 
 We say that these things are due to the condi- 
 
10 ELEMENTARY ECON 03110 S 
 
 tions in Avliich these different orders of animal 
 life have lived. Bees taken to a climate of 
 continual summer are said to lose their habit 
 of accumulating honey. The fish in Mam- 
 moth Cave are without eyes. 
 
 Not only in animal life, but in vegetable life 
 as well, similar facts are observed. Large trees 
 grow in fertile soil and fostering climate, the 
 finest vegetables in rich and Avell-tilled gardens. 
 On the other hand, the cultivated plant set in 
 the poor soil of the field to make its way against 
 grass and weeds reverts to the type of its wild 
 ancestor. 
 
 Botany and Zoology should already haA^e 
 taught the student this great law of adaptation 
 in its two aspects of correspondence to environ- 
 ment and of survival of the fittest. Lack of 
 correspondence means disadvantage in the 
 struggle for growth and life. This principle 
 holds for man as well as for the lower orders. 
 Human life and human society must be studied 
 with constant attention to the conditions which 
 surround and limit activity and development. 
 Lidividual success in the contests of social life 
 is not purely a question of pluck and brain; 
 something^ must be allowed for education and 
 opportunity. Good legs and a fair field are 
 
MAN AND ENVIRONMENT 11 
 
 both needed for fast running. So in economic 
 relations both actor and opportunity require 
 examination. 
 
 6. Thus the human race in its relations to 
 its environment, and the individual of the race 
 in his relations to an environment 
 of which the other members of his 
 race are themselves a part, are the subject 
 matter of all economic and social study. Man, 
 as one term of the science, is regarded as stand- 
 ing over against an outside world of fact and 
 circumstance. He is neither entirely the mas- 
 ter of his fate, nor yet entirely the puppet of 
 the forces by which he is surrounded. He is 
 himself a force, a centre of energy and activity. 
 He is one of the facts in the complex interplay 
 of human with natural energies. If he re- 
 ceives, he gives; if his environment rains its 
 influences upon him, he puts forth his own 
 efforts in adapting self to environment or en- 
 vironment to self. He strives and resists and 
 reacts. George Eliot has put the case help- 
 fully, when, in supplement to the half-truth 
 " Our deeds are fetters which we forge our- 
 selves," she adds, "A3'e, but I think it is the 
 world that brings the iron." The history of 
 human development is the story of what cir- 
 
12 ELEMENTABY ECONOMICS 
 
 cumstance has done for man and man for cir- 
 cumstance — the play of outside forces upon 
 him and his reactions thereupon. There are 
 thus two forces in the problem of history, — 
 man and nature. The resultant is the direc- 
 tion of human development. 
 
 7. This is not a difficult notion. As has 
 already been stated, it is merely one aspect of 
 that which men of science call the law of adap- 
 tation 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 the face of our sur- 
 roundings and opportunities. Give Crusoe his 
 island, what will he do with it? This is in 
 part a question of Crusoe and in part a ques- 
 tion of his island. Likewise for races the 
 problem is on one side a matter of character 
 and capacity, on the other, of surroundings 
 and opportunity. 
 
 8. It is unnecessary for the purposes of 
 Political Economy to push the question into 
 
 an inquiry as to which of these 
 
 No matter now ^ '^ 
 
 wMch is pri- two forces in human development, 
 
 ^^' if either, is the primary fact and 
 
 which the derivative. We may, for example, 
 
 regard coral polyps as a product of the sea ; it is 
 
MAN AND ENVIRONMENT 13 
 
 none the less true that once existing they not 
 merely suffer but work the processes of sea 
 change. It constantly occurs that a result 
 becomes in turn a cause, — as, for example, 
 in Chemistry, where a product of combination 
 or decomposition furnishes a basis for a new 
 series of chemical changes, or in Physics, where 
 in a row of blocks one falls as the result of an 
 impact received, and by delivering its impact 
 causes the next to fall, or again in Chemistry 
 where combustion liberates gases which them- 
 selves furnish material for further combustion. 
 
 Economic science is not, however, greatly 
 concerned with the history of human develojD- 
 ment; the main purpose of our discussion is to 
 fix clearly and definitely the first important dis- 
 tinction in economic theory — the division of 
 its subject matter into the two terms of man 
 and environment, the human and the non- 
 human elements in the problem. Taking man 
 as he is in relation to his environment as it 
 exists. Political Economy treats of him in his 
 commercial and industrial activities as viewed 
 from the standpoint of markets and values. 
 
 9. The production of wealth by man, so far 
 as it does not rest with the character of the 
 actor himself, must therefore find its expla- 
 
14 ELEMENTARY ECONOMICS 
 
 nation in the nature of his environment, — in 
 Production of the elements, in the varying condi- 
 ra a) man^^ ^ tions of temperature, rainfall, snn- 
 (2) opportunity, shine, humidity, healthfulness, etc. 
 — in the soil, or, more accurately, in the land, 
 its fertility and workability, its mineral re- 
 sources, its convenience for industry 
 
 Environment. 
 
 and commerce; m the varying sum 
 of natural forces more or less within the control 
 of man, such as winds, tides, electricity, gravi- 
 tation, and steam. This enumeration is of 
 necessity both incomplete and inexact. Clim- 
 ate cannot be definitely distinguished from 
 winds, electricity, and light, nor can natural 
 forces be treated apart from questions of navi- 
 gation and convenience for commerce. Light, 
 which may be used as a natural force for power 
 or for the purposes of chemistry or art, is, from 
 another point of view, an important factor in 
 the fertility of the soil. But it is important 
 merely to hold in mind that wealth depends 
 upon the correspondence of two factors, — 
 (1) man himself, (2) the conditions surround- 
 ing him. He may, in large measure, modify 
 surrounding conditions. But it will still 
 remain true that the arctic regions and the 
 tropical deserts do not offer favorable oppor- 
 
MAJSf AND ENVIRONMENT 15 
 
 tunities for liis wealth-producing activities. 
 He may adapt himself in some degree to an 
 unhealthful climate. But, in some measure, 
 an unhealthful climate must exercise an un- 
 favorable influence on his powers. He may 
 make for himself artificial lines of communi- 
 cation, but rivers, lakes, and seas will retain 
 an economic importance for this purpose. He 
 may exist making small use of the opportuni- 
 ties offered by natural forces, but it will remain 
 true that in these rest the possibility of the 
 greatest efficiency and the largest field for 
 economic progress. 
 
 10. Turning to a closer examination of the 
 factor, man, we find wide differences between 
 different races of men, and between ^^^ ^^ ^^^^^^^ 
 different men of the same race, ty euvironment. 
 We need not assert that all of these differences 
 are due to environment; clearly enough, how- 
 ever, some of them are. The human race ex- 
 hibits the effects of correspondence otherwise 
 than in color and physical power. Not only 
 have men been profoundly influenced by their 
 surroundings in health, strength, and stature, 
 but also in habits, character, and intelligence. 
 The student need only call to his aid his 
 knowledge of Geography to find this many 
 
16 ELEMENTARY ECONOMICS 
 
 times verified. Civilization is too difficult a 
 problem in the frigid zones for any race yet 
 fully to have solved it. The problem of mere 
 existence in the tropics is so over-easy as to 
 have degraded man, through stagnation and 
 ignorance, into an incapacity for civilization. 
 
 11. The student should now be able to ap- 
 preciate the truth that wherever there is found 
 a hipfh stage of civilization, or g^reat 
 
 How explain . 
 
 high and low prosperity, or a high average pro- 
 ^^^^^ duction and consumption of wealth, 
 
 the explanation must always lie in the charac- 
 ter of the people under examination or in the 
 character of the country in which they live. If 
 the people in China have less per capita to con- 
 sume than the people in France, it is because 
 the Chinese produce less per capita than do the 
 French; and the explanation of this must be 
 found in the lower vigor, or skill, or energy, or 
 intelligence, or scientific attainments of the 
 Chinese, or in the unfavorable character of the 
 opportunities in which they live. If Ameri- 
 cans are more prosperous and live better than 
 Europeans, it must be that Americans are better 
 producers, — more active, more inventive, more 
 enterprising, — or that the soil and climate and 
 other natural resources of America offer more 
 
MAN AND ENVIRONMENT 17 
 
 advantageous opportunities for production. 
 No one has great difficulty in understanding 
 this principle as illustrated in tlie affairs of 
 everyday life. Long ago it was remarked that 
 not even the most skilful workman could make 
 bricks without straw. Bad tools place the best 
 of mechanics at disadvantage. Men do not 
 gather grapes of thorns or figs of thistles. It 
 takes more than a good farmer alone, or than a 
 good farm alone, to make a good crop; this 
 needs both farm and farmer. Only opportunity 
 improved is success. 
 
 12. It is obviously true that the producing 
 powers of men are, in large measure, matters 
 of physical strength and endurance. Man in energy 
 Perhaps an equal measure of im- ^^^ ®^°^*' 
 portance should be ascribed to agility and 
 intensity of effort. The German economist, 
 Wilhelm Roscher, writes in this regard: — 
 
 "According to the reports of English manufacturers an 
 English workman produces on an average ahiiost twice 
 as much as a Frenchman ; the latter in turn more than 
 an Irishman. An English wage-earner who had worked 
 in a French factory speaking before the Parliamentary 
 Committee gave his opinion of the French as follows : It 
 cannot be called work they do ; it is only looking at it and 
 wishing it done. Thus, for example, a good English spin- 
 ner with an eight-hundred spindle machine could produce 
 
18 ELEMENTARY ECONOMICS 
 
 daily sixty-six pounds of yarn ; a Frenchman only forty- 
 eight pounds. . . . The report of an Agricultural-interest 
 Commission places the North American workman above 
 the English in good conduct, fidelity, and interest. A 
 Berlin woodcutter accomplishes as much in ten days as an 
 East Prussian in twenty-seven days. (Hoffman.) English 
 planters on the Hellespont prefer to pay Greek laborers 
 ten pounds sterling a year and their keep rather than 
 Turkish laborers three pounds. So the Malay field- 
 laborer gets two and a half dollars per month, the Mala- 
 bar four, the Chinese six." 
 
 Perhaps equally important in production are 
 the distinctively moral qualities of men, and 
 the social and moral conditions in which they 
 live and for which they are largely responsible. 
 
 Under modern conditions every corner of the 
 
 world does business with almost every other. 
 
 Business affairs are complex, of 
 
 Moral qualities. . _ i i . i n 
 
 enormous magnitude, and highly 
 centralized. Great factories, employing thou- 
 sands of men, sell goods all over the world. 
 Their force of officers, clerks, and agents is 
 necessarily large. The system of buying and 
 selling on credit is widespread. Business 
 must therefore be largely done on terms of 
 trust and confidence. A high moral develop- 
 ment in certain directions is essential to the 
 success of this system, and any society lacking 
 in this respect must suffer thereby. Not only 
 
MAN AND ENVIRONMENT 19 
 
 this, but under present conditions most men 
 must be wage-earners serving under employers. 
 The productive effectiveness of society must 
 therefore largely depend upon the good faith of 
 the employees. 
 
 No advanced society can reach its highest 
 possibilities in production if men are not free 
 to work for their own benefit and, 
 if they so desire, under their own 
 direction. Labor must be voluntary or it will 
 not be vigorous and care-taking. Slavery or 
 any other form of severing reward from effort, 
 weakens the springs of motive, while at the 
 same time relaxing the energy of those who 
 wrongly profit thereby. Feudalism in the 
 middle ages suffered by this defect. 
 
 Likewise, no society which, through disorder, 
 crime, war, or over-taxation, unsettles the con- 
 nection between industry and reward, 
 can fail of enfeebling its productive 
 forces. Security of life, property, and invest- 
 ment is essential to high economic efficiency. 
 
 Again, in no society in which people lack in 
 forethought for the future will work go on, un- 
 less under stress of immediate need. 
 The ability to wait, to see ahead, 
 and to provide for the far-off want, drains the 
 
20 ELEMENTARY ECONOMICS 
 
 land, clears the forests, plans the machinery, 
 builds the railroads, and constructs the fac- 
 tories. 
 
 But most important among the characteristics 
 
 of man as producer are his intellectual powers 
 
 and acquirements. If we compare 
 
 Intellectual 
 
 powers and modern industrial processes with the 
 
 acquirements. J_^ ^ £ • j. j_* j. 
 
 ^ methods oi ancient times, we get 
 
 some notion of the importance of science and 
 art in production. Especially in the world of 
 economics is it true that knowledge is power. 
 The savage made an enormous step forward 
 when he acquired the knowledge of the bow and 
 rod. Tools increase by many fold the effec- 
 tiveness of human energies. But when, by the 
 use of machinery, man has harnessed to his aid 
 the forces of nature, the field of progress is in- 
 finitely widened. By spindle and loom he mul- 
 tiplies his product by hundreds. Steam and 
 electricity, the printing press, the cotton gin, 
 and the countless contrivances which make of 
 every county fair a collection of marvels, and of 
 every world's exposition a display of miracles 
 — these are the fruits of that civilization into 
 which each one of us is born as to a free heri- 
 tage. And remember that behind the art and 
 the skill in all these processes and methods. 
 
MAW AND ENVIRONMENT 21 
 
 there is a world of pure science. No one has 
 grown more grain than the chemist. The dif- 
 ficult problems of industry are wrought out in 
 the laboratory of the specialist. The investiga- 
 tors and the inventors have revolutionized the 
 opinions and the organization of the modern 
 world. The ruling forces of civilized life are 
 the intellectual forces. The moral code of 
 eighteen hundred years ago left, indeed, not 
 much to be added. Laws, governments, insti- 
 tutions, science, art, invention, and discovery, 
 — these are the facts which measure the dis- 
 tance between civilization and savager}^ In 
 these directions the progress of mankind is 
 seemingly without limit. 
 
 SUGGESTIVE QUESTIONS 
 
 To what zones is civilization mostly confined ? Why ? 
 
 Where did it originate ? Why ? 
 
 In which direction, north or south, has it moved? 
 Why? 
 
 What physical reasons do you find for the lead which 
 western Europe has taken in civilization ? 
 
 What is the trouble with the polar regions in this re- 
 gard ? With the tropics ? In (a) human needs, (6) ease 
 of satisfaction? 
 
 What determines the character of industries in Can- 
 ada? In Colorado? In the Southern States ? 
 
 What natural resources have made England the lead- 
 ing manufacturing country of the world? 
 
22 ELEMENTARY ECONOMICS 
 
 ■ Explain by natural advantages England's commercial 
 and maritime supremacy. 
 
 In what sense was the American Rebellion a question 
 of climate? 
 
CHAPTER III 
 
 UTILITY AND WEALTH 
 
 Can matter be destroyed? Or created? How about 
 force ? 
 
 What is the law of the conservation of energy ? 
 
 What do we mean wlien we say that coal has been 
 produced ? 
 
 AVhat change is wrought by combustion ? By decay? 
 By digestion ? 
 
 In what respects do human needs coincide with the 
 needs of the brute creation ? 
 
 In what respects are there differences ? 
 
 Do brute needs expand greatly in scope or intensity? 
 
 Why do men produce wealth ? 
 
 Do you think of any attribute common to all things 
 which are desirable ? 
 
 If you had ten dollars to spend what would you do 
 with it? 
 
 Would you probably buy one thing or several ? 
 
 Which thing would you choose if you had the money 
 to buy but one ? 
 
 Are things of unvarying desirability to all men ? Of 
 all nations ? In all seasons ? In all ages ? Give exam- 
 ples. 
 
 What conditions must exist (a) as to men, (5) as to 
 the thing, in order that it be useful ? 
 
 Books are not useful to savages. Why? But are 
 useful to civilized men. Why ? 
 23 
 
24 ELEMENTARY ECONOMICS 
 
 Is this a material difference ? 
 Is usefulness a quality or a relation ? Why ? 
 What are the two terms in the relation ? 
 What is matter ? What is it made of ? 
 What is an atom ? How do you know that there are 
 any? 
 
 13. The French economist, Gide, neatly ob- 
 serves that "The concern of the economist is 
 Desires and ^ith the wants of men, — of the 
 utility. lawyer, with his rights, — of the 
 
 moralist, with his duties." Man is a creature 
 of needs and desires. Primarily, and as a con- 
 dition to his mere existence, he requires food, 
 commonly also clothing and shelter. He has 
 appetites for art, music, philosophy, cigars, and 
 yice. He desires comforts and luxuries, pro- 
 tection from the violence of nature, from the 
 wrongs of men, and from the attacks of beasts 
 and microbes. He wants his steak broiled and 
 his clothes brushed. He likes to be preached 
 to and sung to. He wants books and boats and 
 race-horses, laces, parks, theatres, and eye- 
 glasses, chairs, balloons, railroads, panoramas, 
 fortune-tellers, phrenologists, and humbugs. 
 In a secondary way he wants the machines and 
 inventions and tools and processes by which his 
 primary wants are helped towards satisfaction. 
 Look at the price-currents, the tariff schedules, 
 
UTILITY AND WEALTH 25 
 
 the inventories of stocks in trade, or the adver- 
 tising pages of the daily paper, and you get 
 some notion of his manifold desires. He wants 
 also love and pity and respect and place, and 
 sometimes these also are bought and sold upon 
 the market. All these things he wants because 
 they minister to his desires — that is to say, 
 because they are, in his opinion, useful to him. 
 The one characteristic common to all objects of 
 human desire is this quality of service to a 
 human requirement. This attribute of service- 
 ability the economists term utility. That is, 
 the term utility is used in economics to mean 
 desirability in relation to a person who desires. 
 The thing or fact possessing this attribute of 
 utility is called a good. Wealth includes all 
 .material goods that have value. 
 
 14. Note that the commendable character of 
 the desire in question or the good sense of its 
 satisfaction is not suggested in the utility is not a 
 economic use of the word utility, moral question. 
 Men put forth effort and undergo privation for 
 the possession of whiskey, cigars, and burglars' 
 jimmies, as well as for food, or statuary, or har- 
 vest machinery. As long as men are influenced 
 by evil purposes, or by ignorance, to buy and 
 sell foolishness and evil, so long the student 
 
26 ELEMENTARY ECONOMICS 
 
 must recognize these desires as economic facts, 
 and the commodities as of market standing. 
 Whether we like it or not, utility, as an 
 economic term, means merely adaptability to 
 human desires. 
 
 15. To produce is not to create. So far as 
 we know, neither matter nor force can be created 
 
 or destroyed. The law of the con- 
 Men do not 
 
 create but scrvation of energy appears to be 
 rearrange. ^^ universal validity. Waste and 
 decay are the mere breaking apart of matter — 
 the taking on of new forms — the undergoing 
 of new distributions. Motion may be changed 
 to heat, heat to electricity, but the equivalence 
 is constant if all wastes and leakages are al- 
 lowed for. 
 
 Economic production is the putting of things, 
 into places, combinations, or times so that the 
 things take on or increase their usefulness — 
 that is to say, acquire fitness for satisfying 
 human needs and desires. The growing of 
 wheat, for example, is merely a process of se- 
 lecting and combining materials already exist- 
 ing in the earth and the air. Dirt may be 
 roughly described as the right thing in the 
 wrong place. A drop of syrup on the floor or 
 on the tablecloth is filth; in a dish it is food. 
 
UTILITY AND WEALTH 27 
 
 So, to change the location of a thing, the 
 mere act of transportation — for examjDle, rais- 
 ing iron from the mines or bringing soda from 
 the plains — is an act of production. Likewise 
 mere preservation may, through lapse of time, 
 serve as production, as in the keeping of ice 
 from winter to summer. 
 
 16. Thus to measure wealth in any degree 
 in terms of material existence is misleading. 
 There is no more matter in the 
 
 There is no ma- 
 
 world at present than there was a teriai measure 
 thousand years ago; but matter has ° ^®^* ■ 
 been modified so as better to answer human 
 needs. The house which was mere clay or 
 stone, the cloth the material for which was not 
 grown but was in the earth or the air, are now 
 wealth to mankind. Work produces no new 
 matter, no new forces. The applicability of 
 matter and force to human uses does change. 
 The iron in the earth mined, melted, freed from 
 impurities, hammered and fashioned, forms a 
 pocket knife. Nothing has been added to the 
 matter of the earth; something has been added 
 to the wealth. 
 
 Thus as human needs, desires, and know- 
 ledge expand, there is, by that very fact, room for 
 an increase in wealth. "Of the one hundred 
 
28 ELEMENTARY ECONOMICS 
 
 and forty thousand species of vegetable life we 
 How wealth in- ^^^^ ^^^7 three hundred of sufficient 
 creases. value to Cultivate ; and of the thou- 
 
 sands of species in the animal kingdom we make 
 use of but about two hundred " (De Candolle). 
 
 17. Wealth therefore develops along two 
 lines: (1) by changes which man impresses 
 upon the outside world in making it more fit 
 for his uses ; (2) by changes in man himself — 
 in strength, in knowledge, in desires — by 
 which he becomes better able to make use of 
 the outside world. Pianos could not be wealth 
 in a society lacking musical tastes, or books 
 wealth to savages. That a mineral becomes 
 wealth presupposes a human use to which it 
 may be put, an ability to mine the mineral, and 
 a knowledge to adapt it to use. It is this 
 capacity of service, this attribute of utility, 
 which marks all objects of desire and brings 
 them within the broad classification called ^oo6?s. 
 
 18. There are, however, goods which are 
 ^ . commonly termed not wealth but 
 
 How services '^ 
 
 differ from scrviccs. A book is Wealth, or a sheet 
 of music, or a piano. These afford 
 us pleasure or advantage. They may be pre- 
 served, handled, possessed. That is to say, 
 they are fixed and embodied in matter. But 
 
UTILITY AND WEALTH 29 
 
 we are equally and as truly served by the 
 advice of the physician, by the efforts of the 
 singer or the actor, by orators, preachers, and 
 teachers. These goods, which are termed by 
 the economists services, are very important 
 facts in life, and furnish the occasion for a 
 large share of our expenditures. On the street 
 car or the railroad we pay for being carried. 
 The policeman, the judge, and the lawyer 
 supply us, in security, direction, and advice, 
 with things we acutely need. From house- 
 hold servants we purchase attention, care, and 
 attendance. In truth, it is sometimes hard to 
 draw the line between services and commodi- 
 ties. We eat the broiling of our steak as truly 
 as our steak. Thus the performance of a ser- 
 vice must be accounted an act of production, 
 since it is the creation of utility. 
 
 SUGGESTIVE QUESTIONS 
 
 What do you mean by intrinsic or extrinsic utility? 
 
 Intrinsic or extrinsic value ? 
 
 Are charms and rehcs now greatly prized? Have they 
 changed their intrinsic qualities ? 
 
 Are color and taste intrinsic qualities ? 
 
 Did Niagara roar before there were ears? What is 
 sound ? 
 
 Is heat a quality of an outside thing, or a mere effect 
 upon the senses ? 
 
30 ELEMENTARY ECONOMICS 
 
 Is the difference in value between winter and summer 
 ice an intrinsic or an extrinsic matter ? 
 
 Why not call singing wealth? or acting? or preaching? 
 
 A dog has been trained to guard sheep; is this an 
 increase in wealth? Is it a material or an immaterial 
 increase ? 
 
 Is the ability to sing wealth ? 
 
 Define services. 
 
 UTILITY AND WEALTH {Continued) 
 
 Is food wealth ? 
 
 Is the strength which comes from it wealth ? 
 
 Is medicine wealth ? 
 
 Accurately speaking, can any one's face be his fortune ? 
 
 Suppose that A devotes a year to clearing the land for 
 a farm ; B to constructing a locomotive ; C to perfecting 
 an invention ; D to the study of a profession ; which of 
 these are cases of wealth-production ? 
 
 Are intellectual acquirements wealth ? 
 
 Is health wealth ? Eyesight ? A good voice ? Strong 
 muscles? Inherited character? Oar digestive apparatus? 
 Our bodies ? Our minds ? 
 
 19. A distinction must be made between 
 those things in the outside world which are 
 Man, and things "Liseful to man and those things 
 outside man. which, in the last analysis, are a 
 part of man himself. Bread, for example, is 
 clearly enough an outside good, an external 
 thing adapted to human needs. How after it 
 is eaten ? We say that it has been consumed. 
 
UTILITY AND WEALTH 81 
 
 It no longer exists as bread. Its service has 
 been rendered in maintenance of life or increase 
 of strength. But how shall we regard this re- 
 sult, this strength? In the primary division of 
 economic facts into man and environment, does 
 bread fall into one classification and strength 
 into another? The thing was bread; it is now 
 life or strength. Is it now something possessed 
 by man, or is it a part of man himself ? Is it 
 subject or object, possessor or possessed, man or 
 environment ? 
 
 Man is the beginning and the end of produc- 
 tive effort. The creation of utility is purposed 
 by him for his consumption. He puts forth 
 effort that he may enjoy its rewards. The 
 economic cycle begins and ends in him. He 
 works that he may live. He is the producer 
 and not the thing produced. The more 
 strength the better producer — later 
 
 ° Only the outside 
 
 the larger product ; but the strength things are goods 
 is not product. So the mixtures 
 prepared by the chemist, and the doctor's com- 
 poundings of medicinal gums, fall within the 
 class goods, while my good health to resist 
 contagion and your good sense to avoid it are 
 ranked as human attributes. 
 
 Note, however, that Avhile the knowledge 
 
32 ELEMENTABY ECONOMICS 
 
 which avoids disease is a human attribute and 
 is not wealth, the outside fact from which this 
 knowledge is obtained, the book, or the advice 
 of the physician, is either wealth or service. 
 The mental power of the physician, his know- 
 ledge, however, is not wealth ; it is the source 
 of his ability to do a useful thing, to speak a 
 word or write a prescription which shall be 
 of advantage to another human being. This 
 knowledge is a part of the physician's equip- 
 ment for the production of utility. When this 
 equipment shall come to service the result will 
 be a good. As equipment, however, it is not 
 utility or good but physician. 
 
 QUESTIONS 
 
 Define utility. 
 
 Why is not knowledge wealth ? 
 
 Are all outside goods wealth ? 
 
 How about services ? What is the line of distinction ? 
 
CHAPTER IV 
 
 THE FACTOES IN PRODUCTION 
 
 In what respects has man changed his environment to 
 suit his purposes? Give instances. 
 
 What things would you need when going into wheat 
 raising? Into piano making? 
 
 What different reasons might one have for saving 
 money ? 
 
 What for hiring money ? 
 
 What for hiring land ? 
 
 20. Suppose that there is a demand for some 
 commodity, fish, for example. Given this de- 
 sire for fish as motive force, we have . 
 
 Are man and 
 
 now to inquire what other condi- opportunity 
 tions are essential to obtaining the 
 commodity. In the simplest possible case two 
 facts must concur, — there must be a fisher and 
 a place for fishing, — man and environment. 
 
 But ordinarily something more than the 
 primitive environment is necessary; in most 
 cases of production some sort of tools or appli- 
 ances must be had. Suppose it to be raw cot- 
 ton that one wants to produce. There must at 
 
34 ELEMENTARY ECONOMICS 
 
 least be seed ; there ought to be various appli- 
 ances to be used in the process of cultivation. 
 But now suppose that the cotton is intended to 
 be made into cloth. In this case there must 
 certainly be more than worker and opportunity 
 to work ; there must also be something to work 
 with. 
 
 Mankind has a world in which to live and 
 work, land to cultivate, streams to make his 
 wheels turn, water to convert into steam, and 
 coal with which to convert it. But something 
 more is needed. Even the primitive fisherman 
 finds it desirable — often indeed necessary — 
 to have poles, lines, and nets. Farming would 
 not greatly prosper with nothing for the case 
 but a farmer and the natural opportunity. The 
 farmer needs tools and machinery; he must do 
 some "getting ready " or some one must have 
 done it for him. 
 
 The weaver requires still other and more 
 complicated appliances. At least he must have 
 his hand spinning-wheel and his loom. His 
 work gains enormously in effectiveness when he 
 is able to work in a factory with great power 
 engines to help him, and with the spindle and 
 loom of modern industry. 
 
 21. Between man and nature there is, then, 
 
THE FACTORS IN PRODUCTION 35 
 
 a kind of intermediate term, that which we 
 call capital. The things which are Tools and ma- 
 called capital are not a part of man, cMnery capital, 
 they are a part of his surroundings, and yet 
 differ from land or nature in this, that they are 
 the result of man's activity; they are an addi- 
 tion to the original condition or opportunity. 
 Ultimately speaking, capital is nothing but 
 stored-up labor. ^ When one wishes to bring 
 about some particular result, it is often best to 
 take a roundabout method. If, for example, a 
 man intends to dig up stones, it may be best, if 
 he has much of it to do, first to make a lever 
 or crowbar with which to apply his strength 
 or multiply its effectiveness. If he intends to 
 raise wheat he will ordinarily find it best first 
 to adapt his land to his purposes by clearing, 
 ploughing, and manuring, or by improving it in 
 some other way, or by obtaining work-animals 
 to aid him in his task. This labor of preparation 
 
 1 The student is not to regard this statement as a definition, 
 hut as an account of the origin of capital. A machine is a typi- 
 cal example of capital. Ordinarily a machine is produced in 
 some measure by the aid of machinery already existing — that 
 is by capital. So again, the wood work of the machine was pro- 
 duced by the land. But it is none the less true that, traced far 
 enough back, all that which is not due to the original environ- 
 ment is due to the effort which has been applied to that environ- 
 ment. Strictly defined, capital is all wealth, other than land, 
 used to aid in the production of wealth. 
 
36 ELEMENTARY ECONOMICS 
 
 is sometimes enormous, as when the giant 
 factory is erected, with all the machinery and 
 appliances which it contains ; or when, instead 
 of carrying things upon the back, men build 
 costly roads and bridges, rear beasts of burden, 
 and construct wagons and drays ; or, going still 
 further, construct great railroad or electric sys- 
 tems with all their costly and intricate arrange- 
 ments of tracks, cars, locomotives, and stations. 
 All these extensive preparations for production 
 are really the same thing as the loom or the 
 plough: they are savers or multipliers of human 
 power. We call them labor-saving appliances ; 
 they are forms of capital. 
 
 Thus within his environment man thinks 
 and acts, works, manages, and contrives. He 
 has his own energies to work with, land and 
 nature to work through and upon ; with the help 
 of these he fashions and prepares his different 
 appliances which we call capital. 
 
 Factors in production -| ~~" r capital. 
 
 [ environment -j 
 
 [ land. 
 
 22. The advantages derived from machinery 
 in production are commonly due to the fact that 
 the machine brings into more effective co-opera- 
 
THE FACTOBS IN PRODUCTION 37 
 
 tion with man the forces of nature. This truth 
 is expressed clearly in the familiar 
 
 . . In what lie the 
 
 distinction between hand-labor and advantages of 
 machine-labor. It is probable, how- '^^'^^''^'^ 
 ever, that we fail to realize to the full the 
 wonderful possibilities and meaning of ma- 
 chinery for mankind and human civilization. 
 The trip-hammer and the pile-driver strike the 
 blows of gravity. Water power is the pressure 
 of gravity harnessed to the service of men. 
 Niagara is about to turn the wheels of industry 
 for half the cities of the East. The tides and 
 the winds are not yet fully tamed to our uses, 
 but long ago were discovered the treasures of 
 power where the sun has stored up its heat in 
 the deposits of coal. We may yet learn to 
 gather the energy of heat rays directly, as we 
 are now rapidly finding out how to turn to our 
 service the pulse and throb of electric energy. 
 But even ages ago the farmer had learned to 
 plant his seed and wait for the sun and the 
 rain to mature the harvest, while the wind was 
 set to pump the water and grind the corn. 
 
 SUGGESTIVE QUESTIONS 
 
 Mention some of the great inventions. Show whether 
 they have benefited mankind and how. 
 
38 ELEMENTARY ECONOMICS 
 
 Mention cases in which scientific knowledge lias modi- 
 fied the processes of production. 
 
 What effect does machinery have on the aggregate 
 social product (social dividend) ? On average consump- 
 tion of goods ? 
 
 Does capital help the borrower? How? Society? 
 How? 
 
 Does the land produce the crop ? Does man produce 
 the crop ? Has capital any share in it ? 
 
 WAGES, PROFITS, RENTS, AND INTEREST 
 DEFINED 
 
 Does the wage-earner in the factory produce the cloth ? 
 
 Who else help ? 
 
 How about the designer of the patterns ? The chem- 
 ist who compounds the dyes? The investigator who 
 worked out the formulas? The capitalist who furnishes 
 the machines? The office-clerk who keeps the books? 
 The foreman w^ho oversees ? The owner who directs ? 
 
 Who produced the building? 
 
 Who produced the food for the carpenters and the 
 masons while they worked ? 
 
 Who paid for the food ? Where did he get the where- 
 with to pay ? 
 
 Why does the owner want men to work for him ? 
 
 Why should not the men prefer to do something else? 
 
 Why does the owner consent to pay interest ? 
 
 Would you call interest received on a note profit ? 
 
 Rent of a house ? 
 
 A dividend on bank stock ? 
 
 Salary received and spent ? 
 
 Salary received and put by? 
 
 Wages received and spent ? 
 
 Wages received and put by ? 
 
WAGES, PROFITS, RENTS, INTEREST 39 
 
 23. It is commonly true that useful things 
 are produced by the union, in varying pro- 
 portions, of the different productive agents. 
 Often, however, it is true that the capital be- 
 longs to one man and the land to another. It 
 is often true, also, that one man hires other men 
 to work for him. Suppose, for exam- 
 
 What factors 
 
 pie, that you start a market garden, co-operate in 
 renting land, borrowing your tools, P^° ^°*^°^ " 
 or the money with which to buy them, and hir- 
 ing a man and a boy to work for you. You must 
 pay to the landowner something for the use of 
 his land, — to the man who supplies the tools 
 something for his capital, — to your employees 
 something for their work. What is left after 
 your different expenses are covered goes to you 
 as the reward of your individual effort — your 
 thinking, your planning, and your risk. 
 
 These different compensations are given dis- 
 tinctive names in Political Economy. 
 
 Your own reward is profit. 
 Your laborers' reward is wages. 
 The landowner's reward is rent. 
 The capitalist's reward is interest. 
 
 Productive 
 
 agents 
 
 r wages. 
 man, remunerated in -! 
 
 [ profits. 
 
 r capital — in interest, 
 environment \ 
 
 I land — in rent. 
 
40 ELEMENTARY ECONOMICS 
 
 24. There is room for confusion with regard 
 to this term profit. 
 
 The word is used in ordinar}^ affairs with per- 
 plexing indefiniteness. One man means by 
 Necessary to profit that surplus which remains 
 use the word ^^ ^^^ ^^^^^ charging, against the 
 
 pronti 9<ccTi" 
 
 rateiy. gross gain, interest and rent and 
 
 a fair compensation for his own services. 
 Another, a storekeeper, owning his own store- 
 building worth 15000 and carrying a stock of 
 goods worth $10,000, makes a gross gain per 
 year on his sales of 14000. This $4000 is 
 merely the difference between the cost price 
 and the selling price of the goods he has sold. 
 It is not unusual to find this whole $4000 
 included in the term profit. A second mer- 
 chant would insist upon deducting interest on 
 the capital invested in land and stock, say $900, 
 and would regard the residue of $3100 as profit. 
 Another would deduct also the value of his own 
 time and effort, say $1500, and would allow 
 but $1600 to stand for profit. Yet another 
 would look at his inventory of wealth at the 
 end of the year as compared with the beginning, 
 and would regard as profit whatever increase 
 had been made, treating his living expenses as 
 part of his expenses of business. 
 
WAGES, PROFITS, BENTS, INTEREST 41 
 
 Were one to ask a real estate speculator what 
 profit he had made upon a lot costing him $1000 
 which he had held for one year and sold for 
 $1500, he would answer either |500 or |500 
 minus interest, and if asked what he had done 
 with the profit, he would have no hesitation in 
 replying that he had used it in his living ex- 
 penses, nor would it ever occur to him in fixing 
 his profit to deduct the wages of his own super- 
 intendence. His business is to make profits 
 and to live off them as a wage-earner lives off 
 his washes. So with the trader in m-ain or live 
 stock. And in no one of all these cases would 
 it ordinarily occur to charge up anything for 
 risk of loss. 
 
 Crusoe, if asked at the close of his harvest 
 season what the season's work had profited him, 
 or what wages he had made, would probably 
 interpret the question as an inquiry into the 
 effectiveness of his season's labor after deduct- 
 ing his outlays of seed and the wear and tear of 
 his primitive appliances. If he could have 
 done better on another piece of land, or with a 
 different crop, he would not find it unnatural to 
 say that another course would have been more 
 profitable. In this sense evidently all j)roduc- 
 tive effort is profitable as compared with idle- 
 
42 ELEMENTARY ECONOMICS 
 
 ness. Different lines of production are only 
 relatively, never absolutely, unprofitable as 
 long as anything remains above expenditure. 
 
 25. The sense in which the term is used 
 
 in this Crusoe illustration, is the economic 
 
 sense extended and developed to 
 
 Profit may be 
 
 absolute or apply to the complex relations of 
 reative. ^j^^ business world. In this view 
 
 profit is one form of remuneration for labor — 
 for human effort. 
 
 The existing industrial system is a competi- 
 tive system organized upon lines of division of 
 labor and exchange. Social life adds important 
 factors to the Crusoe problem. Division of 
 labor becomes possible only on terms of possible 
 exchange of products. We will suppose, for 
 illustration, that a man needs or desires ten 
 different sorts of commodities which he may, if 
 he will, produce for himself. If he finds that 
 by producing some few or one of these com- 
 modities in large quantities, and obtaining the 
 others of the ten by exchanging for them some 
 portion of his product, he can thereby obtain in 
 the aggregate a greater sum of satisfactions 
 than by the other method of direct production, 
 he will make use of the opportunities afforded 
 by exchange. In this he simply follows the 
 
WAGES, PROFITS, BENTS, INTEREST 43 
 
 prospect of the greater profit, and if the out- 
 come justifies his expectation his labor is rela- 
 tively profitable. Even if the outcome is 
 disappointing, his labor may be absolutely 
 profitable. 
 
 The further development in the exchange 
 system by which the producer employs not 
 only his own activities, but the activities of 
 others, ■ — immediately in the form of services, 
 or remotely in the form of commodities, — does 
 not involve any essential modification in the 
 nature of profit. 
 
 26. Profit is perhaps best regarded as one 
 form of the remuneration of labor, and as essen- 
 tially in strict parallel with wages. Distingmshed 
 Had usage so decreed, the two terms ^^°°^ wages. 
 might well have been merged in the one term 
 wages.^ But as the terms are established in use, 
 profit points to remuneration without the inter- 
 
 1 The student should be warned that the economists do not 
 agree in the definition of the term profit. The earlier econo- 
 mists considered it to include interest and pay for risk as well 
 as pay for time and care. It is now more commonly thought 
 that the returns on capital, as such, should be excluded, being 
 covered by the term interest; though it is not always easy in 
 practical business to separate interest from profit. 
 
 Accurately the term profit seems to mean the wages of him 
 who takes the risk — on whoso wealth or credit the hazards of 
 the business rest, and to whom the gains of good management 
 or good fortune are to go. If the profit maker is a borrower or 
 an employer, he guarantees fixed sums in interest and wages. 
 
44 ELEMENT ABY ECONOMICS 
 
 vention of an employer, — where the laborer is 
 himself the projector (imprenditor, undertaker, 
 entrepreneur, Unternehmer) of the enterprise. 
 Wages indicate the intervention of an employer. 
 Profit may be conceived as a form of wages re- 
 ceived from society as employer. Rightly con- 
 sidered, all individual workmen, other than 
 wage-earners, are imprenditors. That enter- 
 prise promises to be relatively profitable which 
 affords the prospect of a better return to the 
 imprenditor than with equal sacrifice he may 
 
 I^enders and wage-earners have no care of the outcome of the 
 business. 
 
 The real difficulty is in what to do with this risk share of 
 profit-maker's return. If men take chances of loss, they 
 naturally look for the greater gain, if the enterprise succeeds. 
 Is this gain a part of profit or something outside ? In practical 
 business it is hard to separate this risk share from the rest, just 
 as it is hard to divide interest into payment for the use of wealth 
 and payment for the risk of not getting it back — that is, into 
 pure or net interest and risk interest. The best way on the 
 whole, it seems, is to divide gross profit into pure profit and risk 
 profit. 
 
 The objection to this is that, just as when one lends his capi- 
 tal, he charges something extra for risk and calls it interest, so 
 when he puts his own capital at risk in his own business, it 
 seems by analogy that he should reckon his risk-gain as part of 
 his interest on his invested capital. Particularly is this a tak- 
 ing view when we recall that the losses of any enterprise must 
 really be paid out of the operator's wealth. Profit-makers pay 
 losses, when losses come, in their capacity of wealth owners and 
 not of mere operators. 
 
 From any point of view the risk question is an awkward 
 thing to handle ; but as we shall use the word, pure profit is 
 merely an aspect of wages. This use seems desirable as follow- 
 ing out the distinction between man and environment. 
 
WAGES, PROFITS, BENTS, INTEREST 45 
 
 reasonably expect in another line of activity. 
 And if no line of activity promises profit, as 
 compared with wage-earning or with produc- 
 tion for direct personal consumption, the im- 
 prenditor can, without sacrifice, betake himself 
 to one of these courses. 
 
 27. In the present form of social organiza- 
 tion, that life which excludes exchange and 
 any form of industrial interdependence with 
 one's fellows, is practically out of the question. 
 We may therefore safely consider that some 
 one of the different forms of wage-earning 
 furnishes for each man that form of activity 
 from which the comparative profit of any other 
 activity is to be estimated, and to which, meet- 
 ing elsewhere with unsatisfactory rewards, he 
 may betake himself as a last resort. 
 
 From this point of view, the intimate asso- 
 ciation of wages, profits, and interest becomes 
 manifest. If wages are anywhere found to be 
 high, profits may also be expected to be high, 
 — in any event as high as wages, — since 
 otherwise employers and self-directed laborers 
 would tend to become wage-earners. Also 
 where labor is productive of large results in 
 goods, capital, which is an indirect application 
 of labor to like ends, may normally be expected 
 
46 ELEMENTARY ECON 031108 
 
 to be liiglily productive of goods, and therefore 
 to command a high rate of interest. 
 
 SUGGESTIVE QUESTIONS 
 
 Does nature produce anything? Does it produce every- 
 thing ? 
 
 Is man a producer ? 
 
 What do you call his productive activity ? 
 
 Is labor the only productive thing? 
 
 In what different forms is labor remunerated ? 
 
 What aids does man have in production? 
 
 Does he consume immediately all that he produces? 
 Why not? 
 
 What do you call that part of this residue which is 
 used as an aid in production? What do you call its 
 compensation ? 
 
 Is a lawyer a producer? A minister? A cook? A 
 factory hand ? The employer of a factory hand ? A school 
 teacher ? 
 
 What do you call their respective remunerations ? 
 
 A farmer has a farm worth $1000, machinery and 
 stock worth $1000, hires a man at $300 per year, works 
 himself, gets $1000 worth of crop. Apportion this into 
 wages, interest, rent, and profits. 
 
 A carpenter takes the contract for the carpenter work 
 on a building at $1000, works six months himself and 
 pays his men $800. It cost him $300 to live during the 
 six months. He might have worked by the day, receiving 
 $400 in wages. What is his profit ? 
 
 Is it possible to have absolute profit and relative loss? 
 
 " Every misery that we miss is a new blessing ; there- 
 fore let us be thankful." (Isaac Walton.) Criticise this 
 doctrine. 
 
CHAPTER V 
 
 VALUE 
 
 If employees insist upon wages more than equalling 
 the market price of their product, what will the employers 
 probably do ? 
 
 If wages, together with interest and other outlays, 
 leave no balance for profit, what result is probable ? 
 
 What motives would induce you to hire laborers at 
 the ruling rates of wages, or to borrow money at the 
 ruling rates of interest ? 
 
 Is labor valuable in itself ? What fact gives it value ? 
 
 Does this reasoning apply equally to ca^^ital and in- 
 terest? To land and rent? How? 
 
 Why do some producers stop producing when prices 
 fall? 
 
 What do they do then? 
 
 What commonly fixes the price which the country 
 storekeeper pays for eggs ? 
 
 When one hires laborers, borrows capital, or rents land, 
 on w^hat basis is it decided how much he shall em]3loy of 
 any one of these? 
 
 Why raise beef instead of mutton, or wheat instead of 
 flax? 
 
 28. When you hire land, employ laborers, 
 and borrow capital for the purpose of raising 
 garden "truck," your payments of rent, wages, 
 
 47 
 
48 ELEMENTARY ECONOMICS 
 
 and interest are made or promised in antici- 
 pation of the products which you sell. The 
 Relation be- amounts which you will consent to 
 tween selling pay in the total must fall inside the 
 
 price and wages, 
 
 rent, and inter- amount which jou expect to receive 
 ®^*" from the sale of your product. What 
 
 you have left above your outlays is your own 
 pay, or, in technical language, your profit. If 
 by your own estimate you could have done 
 better in some business other than market gar- 
 dening, you would not have tried this line of 
 production. Thus your products must be ex- 
 pected to cover not only your total expense, 
 but as well an indemnity to yourself for not 
 having done something else. 
 
 There is, then, in all cases of production the 
 question of what men — capitalists, landlords, 
 wage-earners, and employers — are to share in 
 the result, and in what proportion. What fixes 
 how much you shall pay in wages to your 
 laborers in order to get their aid in your under- 
 taking? What determines in what measure 
 the landlord or the tool-owner is to share in 
 the product toward which each has contributed ? 
 In a general way of course you pay as much as 
 you must; they make you pay as much as they 
 can. But how much? 
 
VALUE 49 
 
 What you can at the outside pay depends of 
 course upon what you receive for the product. 
 It is time then to analyze the processes by 
 which market prices and values are fixed. 
 
 29. In most lines of production men know, 
 before they produce a thing, pretty nearly what 
 they can sell it for after it is pro- Outlays are 
 duced. The stores are filled Avith pation of selling 
 goods and there is every day a fairly P"°®' 
 definite price for them. These prices change 
 somewhat, but not ordinarily very widely or 
 very rapidly. We all know in a general way 
 about how much most things are worth. Even 
 with such things as crops, people know months 
 or seasons ahead about what it is reasonable to 
 expect in prices, and each farmer plants accord- 
 ing to his "guess." Taking an average of 
 years, wheat or potatoes or hay will be found 
 to command a fairl}^ definite price. 
 
 This is a surprising fact, when you come to 
 think of it, that everything has its reasonably 
 definite price to-day, and that we Possible to 
 can count with reasonable certainty ^stimat°es^of 
 upon the prices of the future. At selling prices. 
 all events the future is so far to be depended on 
 that men are willing to enter this or that line 
 of business, or to undertake this or that line of 
 
50 ELEMENTARY ECONOMICS 
 
 production, receiving at the end the prices 
 which rule when the product is ready to be 
 sold. The prices which rule -to-day mostly 
 furnish the basis for estimating what the prices 
 will be. One knows approximately what it 
 will cost him to produce a given article. He 
 can tell what he could get for it if it were 
 ready now. He can foresee roughly what he 
 can get for it when, after a few days or months, 
 it shall be ready. All things are produced for 
 prices as they are or as they are expected to be. 
 If it were otherwise — if there were no basis 
 for hope, no place for reasonable expectation — 
 very little would be produced, for almost all 
 production takes time, and most of the expenses 
 have to be incurred before the product is ready 
 for sale. How much one shall pay per day 
 in wages, what he can afford to invest in 
 machines or lands or buildings or raw materials, ' 
 how high interest it will do to promise, and 
 how much capital it is worth while to borrow, 
 all of these questions must depend on what the 
 product can be sold for when the producer is 
 ready to market it; and it is only by basing 
 his estimates upon the selling price which is to 
 be, that any man will become renter, borrower, 
 investor, or employer. 
 
VALUE 51 
 
 30. It is evident that people produce things 
 because there is a demand for them — because 
 they will sell — that is, will exchange on de- 
 sirable terms for other things. One expects 
 to get money for his product and with this 
 money to buy such other products as 
 
 People produce 
 
 he needs. Each man produces be- because there is 
 
 11 !• , ,• r i^ demandi 
 
 cause he has desires to satisiy, and 
 produces that which will supply the demands of 
 others, expecting thereby to obtain from them 
 the wherewithal to supply his own desires. 
 Desire or demand lies back of all production. 
 The ruling market prices are the expression of 
 the demand as it exists. Thus, if we are to 
 understand the forces which lie behind produc- 
 tive effort, if we are to comprehend the way in 
 which demand causes and directs production, 
 it is again evident that we shall have to under- 
 stand the way in which prices are fixed; we 
 must study the processes by which market 
 values are determined. 
 
 SUGGESTIVE QUESTIONS 
 
 Is the laborer commonly paid out of the very products 
 he has helped to produce ? 
 
 Is the payment of wages commonly deferred till the 
 sale of the product, so that the laborer gets a share of 
 the very money for which his product sells ? 
 
52 ELEMENTARY ECONOMICS 
 
 In what sense is the value of the j)i'oduct the source of 
 wage, rent, and mterest payments? 
 
 At the end of the week's or month's work has the em- 
 ployer received his equivalent for the wages paid, even 
 though the product is still in the warehouse ? 
 
 In what sense is the employer a daily purchaser from 
 his employee ? 
 
 Trace the parallel between the relation of farmer to 
 egg-merchant, and of wage-earner to employer. 
 
 Is the farmer paid out of the value of his product? 
 In what sense? 
 
 Does any man live out of the value of his product? 
 In what sense? Is this as true of wage-earners as of 
 other persons ? 
 
 VALUE {continued) 
 
 Would any system of Political Economy be possible 
 for a man alone on a desert island ? 
 
 Is there any sense in which Crusoe could be said to 
 buy one thing with another or to exchange things ? 
 
 Mention Crusoe's probable wants. 
 
 Which would be the more pressing? 
 
 What would he set himself to obtain first ? Secondly ? 
 Thirdly? 
 
 What would determine him to change from first to 
 second? 
 
 What would be the reason for his working ? 
 
 Why do men in society work ? 
 
 Do we live to eat or eat to live ? 
 
 Do we live to work or work to live ? 
 
 Why does water sell for less than wine? Iron than 
 gold? Wool than silk? 
 
 Does a clerk in a candy shop eat much candy? A¥hy? 
 
VALUE 53 
 
 Why bring wood or hay to town ? Is this bringing an 
 act of production ? What does it produce ? 
 Is this increase in vahie intrinsic ? 
 
 31. It is a commonplace fact that if you are 
 going to sell things at a very high price, you 
 will not sell many of them. While t 
 
 •^ Lower prices 
 
 bananas are ten cents each, most mean larger 
 people purchase in limited quan- 
 tities. If. I am exceedingly hungry for bana- 
 nas I may buy one at this price. As the 
 price falls my desires express themselves in 
 larger numerical volumes. While my wants 
 have not in truth enlarged, there have new 
 conditions arisen in which banana appetites of 
 lower intensity come into play, as one may 
 imagine to himself the gradual subsidence of a 
 lake or sea, and the appearance one after another 
 of reefs, and bars, and islands. 
 
 It does not follow, however, that with in- 
 creasing plenty and falling price I shall enlarge 
 my consumption without limit. No 
 
 But there is a 
 
 matter how cheap bananas get, there limit -desires 
 must come a point at wdiich I 
 shall consume no more. Apples sometimes rot 
 upon the ground or in the cellar, because we 
 have more than we want. That is to say, use- 
 ful things may exist in such abundance as to 
 
54 ELEMENTARY ECONOMICS 
 
 have no value; you cannot sell them or even 
 give them away. Water, for example, may be 
 worth nothing — not that any particular amount 
 of water has become less capable of satisfying 
 human needs, but because the supply of water 
 outruns the total need. Some part of the total 
 stock is thus absolutely without utility. This 
 is simply another manner of saying that human 
 desires and needs are not infinite in any par- 
 ticular direction, and this again means simply 
 that needs and desires become less intense with 
 partial satisfaction. One does not ordinarily 
 care as much for a second glass of water as for 
 the first. Were this not true our work could 
 bring us no great good, eating would leave us 
 always hungry, and our wealth would afford us 
 no comfort or content. 
 
 The same principle is illustrated in our daily 
 expenditures, and explains how we come to 
 make them as we do. No one applies his entire 
 income to the purchase of food or shelter. 
 Food is the primary necessity, but clothing is 
 more acutely required than is a second dinner. 
 We supply our wants in the order of their in- 
 tensities. When one has purchased himself a 
 reasonably large wardrobe, the fact that he 
 makes no further purchases of this sort does not 
 
VALUE 55 
 
 prove that he has no further desire for clothing, 
 but that he has a stronger desire for something 
 else. He follows the line of least sacrifice. So 
 the purchase of apples at ten cents each would 
 mean to you or me the lack of other things 
 which we desire more intensely than we do 
 apples. 
 
 So, again, if one is picking and eating wild 
 berries, it is certain that somewhere he must 
 tire. The first berries are well worth climbing 
 ledges for. Finally there comes a berry equally 
 large and juicy which is just worth the bother 
 of picking. The next berry does not get picked 
 at all. Remember for future purposes that the 
 last berry picked and the first berry not picked 
 are technically called marginal berries. They 
 lie on either side the line of choice. The direc- 
 tion of least resistance changes at this point 
 from picking to not picking. 
 
 32. In a certain fashion all the phenomena 
 of exchanges are comprised in the above exam- 
 ples. A castaway upon a desert ^ 
 
 "7 . Crusoe could 
 
 island has no one to trade with, and exchange 
 yet can essentially trade one thing ^^^^' 
 for another, and manifests in his own life a 
 complete cycle of economic activities. So far 
 as Crusoe's work was rationally planned he was 
 
56 ELEMENTARY ECONOMICS 
 
 constantly turning liis efforts to that undone 
 thing, the doing of which was of leading im- 
 portance. At a certain point fishing was aban- 
 doned for game ; more fish were refused in the 
 interests of more game. The game cost fish or 
 the fish bought game, since the work which 
 would produce either fish or game was applied 
 to game and withdrawn from fish. 
 
 The English economist, Marshall, excellently 
 illustrates this principle as follows : — 
 
 " The primitive housewife, finding that she has a 
 limited number of hanks of yarn from the year's shear- 
 ing, considers all the domestic wants for clothing, and 
 tries to distribute the yarn between them in such a way 
 as to contribute as much as possible to the family well- 
 being. She will think she has failed if, when it is done, 
 she has reason to regret that she did not apply more to 
 making, say, socks and less to vests. That will mean 
 that she has miscalculated the points at which to suspend 
 the making of socks and vests respectively ; that she has 
 gone too far in the case of vests, and not far enough in 
 that of socks, and that, therefore, at the points at which 
 she actually did stop, the utility of yarn turned into socks 
 was greater than that of yarn turned into vests. But if, 
 on the other hand, she hit on the right point to stop at, 
 then she made just so many socks and vests that she got 
 an equal amount of good of the last bundle of yarn that 
 she applied to socks, and the last she applied to vests." 
 
 33. If a man has only one bushel of beans to 
 sell he may be able to find some one willing td 
 
VALUE 57 
 
 pay, if necessary, a very high price for them. 
 If there are one hundred bushels to „ , ^ . ^ 
 
 To what point 
 
 be sold, the price will probably have does large sup- 
 to be lower, in order that purchasers ^ ^ °^°^ ^"''^ 
 may be found for all. Large supplies of product 
 must be marketed at low prices, else some share 
 cannot be marketed at all. In fact, for the 
 entire supply the price will fall as low as the 
 price at which any share must be sold. 
 
 It is not always easy to see how this works 
 out. At best it can be illustrated only by 
 taking artificially simple and, in some measure, 
 unusual conditions. We have, for example, to 
 assume perfect competition — a condition which 
 rarely exists — and a degree of care and accu- 
 racy on the part of purchasers which is not 
 always found. But the general reasonings of 
 the illustration hold, and greatly help to an 
 understanding of demand and supply as they 
 work in the mass in actual markets. 
 
 Suppose you have one hundred bushels 
 of beans. One man desires beans sufficiently 
 to be willing to pay a dollar for one bushel. 
 If he were going to buy a second bushel, he 
 would pay, we will say, only 99 cents therefor, 
 98 for a third bushel, and so on. If you are 
 a sharp trader, you may make him think that 
 
58 ELEMENTARY ECONOMICS 
 
 you have only one bushel, and sell him that at 
 $1.00. Then if you can convince him that 
 you have only one bushel more, you may get 
 99 for this, and so on. But evidently if you 
 offered to sell him three bushels at $1.00 each, 
 he would not take them. That third bushel he 
 cares for only to the extent of 98 cents. If you 
 offered to sell him as many bushels as he wanted 
 at 90 cents a bushel, he would take just eleven 
 bushels [1 (100) 2 (99) 3 (98) 4 (97) 5 (96) 
 6 (95) 7 (94) 8 (93) 9 (92) 10 (91) 11 (90)]. 
 But he would not pay 95 per bushel for the 
 whole eleven ; he would rather go without five 
 of them — unless, indeed, he had to pay 95 per 
 bushel for the whole eleven in order to get 
 any (which, in fact, is often the actual case). 
 If the price is really a per bushel price for as 
 many as he wants, he will buy such a quantity 
 as to leave no bushel costing him more than he 
 cares for it. Make the price 80 cents per 
 bushel, and he will take twenty-one bushels; 
 nor will he pay a higher rate per bushel, if he 
 has any choice in dividing the quantity — if he 
 can throw out any. 
 
 34. And likewise if one hundred bushels are 
 offered, not to a single purchaser but upon the 
 general market, the price will fall to one cent 
 
VALUE 59 
 
 each, if, in order to sell all, one bnsliel mnst be 
 sold to some one who would rather .j,'^^^^ -g ^ ^^^_ 
 go without than pay more than one ^^^ P^^^^- 
 cent for it. True, if there were only one seller, 
 he might try to trade with the purchasers sepa- 
 rately, charging one a dollar, another 99 cents, 
 a third 98, etc. Still, if one purchaser knew 
 that others were buying at a loAver price, he 
 would know that he himself could obtain the 
 lower price by holding out. There cannot be 
 several prices where buyers and sellers all 
 know, in a general way, what is going on, — 
 where there is what is called by economists a 
 perfect market. 
 
 This is easier to see in the ordinary case of 
 a large number of sellers as well as of buyers, 
 as, for example, where there are a hundred dif- 
 ferent offerers of beans, each with a bushel for 
 sale, the buyers remaining as before. The 
 prices must be fixed at one cent per bushel, else 
 some one willing to sell as low as one cent will 
 not be able to make a sale, and will be crying 
 his beans about at this price where other people 
 are trying to sell at twice or half-a-dozen times 
 as much. The price would thereby necessarily 
 be brought to his mark. 
 
 Undoubtedly in the case of one producer or 
 
60 ELEMENT ABY ECONOMICS 
 
 one mercliant or a combination in control of the 
 
 The market ^""^''^^ '^'PP^3^' ^^ ^^^^^^ ^® ^^^^^^^ 
 
 price is the mar- profitable to destroy or keep back 
 gma price. ^q-^j^q p^j.^ ^f j^j^q supply rather than 
 
 to accept a price low enough to market it all. 
 Cases of this sort are indeed becoming familiar 
 in connection with trusts, monopolies, and 
 combinations. But where, as is ordinarily the 
 case, there are competing buyers and sellers, 
 it can rarely be of advantage to any one seller 
 to withdraw or destroy his share, or any part of 
 it, in order to hold up the market price for all 
 sellers. The price therefore falls to the level 
 of the weakest, or, as it is called by many 
 economists, the final or marginal demand. 
 
 35. We must now allow for differences " in 
 the prices which the sellers Avill consent to take. 
 The process of ^he wholc process of adjustment 
 adjustment. ^j^^^j i,q illustrated as follows : 
 Suppose there are offerers of hats disposed to 
 sell, if necessary, at prices ranging at unit inter- 
 vals from 120 down to 100, what will the price 
 be ? One might guess 110. But this must 
 depend on the kind of people who want to buy. 
 If there are full twenty of them willing to pay 
 120 rather than not purchase, the price may 
 stand at 120 for all. If there are not over 
 
VALUE 61 
 
 nineteen of this disposition there must be one 
 hat unsold at 120. The price will therefore 
 have to be lower. But with lower prices fewer 
 hat owners will sell. This is merely to say 
 that high prices bring more goods and fewer 
 buyers. Now, if we assume that the buyers' 
 desires range from 110 to 130, where will the 
 price be fixed ? It will not do to take averages. 
 If the price were 130 only one man would buy 
 and all hat-owners would be eager to sell. At 
 125 six men would be disposed to buy and 
 twenty to sell ; at 118 two hat-owners would 
 refuse to sell, eighteen still consenting. But at 
 118 only thirteen men will buy. The price 
 must fall nearly to 115, where fifteen men 
 will sell. Yet sixteen would buy at this figure. 
 At 116, on the other hand, sixteen would sell 
 and only fifteen buy. The price must then be 
 somewhere between 115 and 116, and the num- 
 ber of hats sold fifteen. 
 
 36. This case is typical of all market adjust- 
 ments, except where there are combinations or 
 some other sort of imperfect compe- 
 
 -Kx ■ 1 1 • '^^^ margins. 
 
 tition. JNotice now that at the point 
 of equilibrium between demand and supply — 
 the price point — there are sellers upon the point 
 of refusing to sell with any fall in price, and 
 
62 ELEMENT ABY ECONOMICS 
 
 other holders on the point of consenting to sell 
 with any rise in price. These men are called the 
 marginal seller and the marginal excluded seller; 
 Likewise there is a buyer on the point of with- 
 drawal if price goes higher, and a possible buyer 
 who will appear if price goes lower — the mar- 
 ginal buyer and the marginal excluded buyer. 
 
 It is evident from the above illustration that 
 many sellers receive a price higher than that 
 necessary to induce them to sell ; while at the 
 same time many buyers make their purchases 
 at a price lower than that which they would 
 pay if necessary. Thus in a certain sense 
 buyers as well as sellers make profits on the 
 market. These profits or differentials are (by 
 many economic writers) termed respectively 
 buyers' and sellers' quasi-rents. The terms 
 are helpful. Fix them and their meanings 
 thoroughly in mind. 
 
 The commodity sold to the marginal buyer 
 or sold by the marginal seller may be called 
 marginal commodities.^ 
 
 1 While the student is required to make himself thoroughly- 
 familiar with this doctrine of margins, and with the differential 
 quantities called quasi-rents, he is at the same time warned that 
 both the doctrines and the terms are of comparatively recent 
 appearance in economics, and are not universally accepted 
 among economists. In the opinion of the author, however, this 
 doctrine of margins is the very heart of economic theory. 
 
VALUE 63 
 
 37. A few other points require attention. 
 We have treated the hats as sold for money. 
 We might as well have taken the vake is an as- 
 example of cattle sold for wheat, or pect of sacrifice. 
 sheep for cows. But sheep and cows do not 
 divide readily in trading, and these cases would 
 therefore be awkward to handle. But ask your- 
 self why the marginal buyer refuses to pay a 
 higher price. It is not that because of a higher 
 price he would no longer desire the article in 
 question, but that at this price he would rather 
 buy something else ; in other words, he would 
 go without something that he wanted more; he 
 would sacrifice more than he obtained. Things 
 are not commonly to be had for nothing in this 
 world. Whatever has what Ave call market 
 value is to be had only on terms of sacrifice; 
 something has to be given for it, or done for it, 
 in order to get it. Where so much is required 
 as to overweigh in importance the thing to be 
 got, we refuse to make the sacrifice required. 
 Thus we see that in all questions of value things 
 have to be compared with other things. To 
 take one, no matter which, is to refuse another; 
 to enjoy one thing of value is to sacrifice another 
 for it. 
 
 38. If useful things were to be had in 
 
64 ELEMENTARY ECONOMICS 
 
 unlimited quantities and without effort, tliey 
 A certain antag- would bear no value. Value comes 
 vahie anr'"" ^^^ut Only wliere there is resistance 
 utility. to be overcome, — where there is a 
 
 disproportion between desires and the means of 
 satisfaction. Value, then, is more nearly the 
 measure of the scarcity of useful things than 
 of their usefulness. It is not the measure of 
 utility, but the measure of the sacrifice involved 
 in obtaining utility. The value of any particu- 
 lar thing is the measure of its potuer of com- 
 manding the sacrifice of other things. And note 
 carefully that even for marginal buyers or 
 sellers, where the slightest unfavorable change 
 in price would prevent the trade, value does 
 not stand as the measure of the absolute utility 
 of the commodity in question, but only of the 
 utility of it relatively to the utility of that 
 which it is necessary to forego. 
 
 It is evident, for example, that the poor man 
 goes without what the rich man purchases, not 
 Value is mar- because the poor man needs the 
 &Vr-mIr- ^^i^g less, but because he needs 
 ginal sacrifice, something else more. A pound of 
 meat may be many times more useful to the 
 poor man than to the rich, but to the poor man 
 to have the meat means to lack for bread, while 
 
VALUE 65 
 
 the choice for the rich man lies between bread 
 and a cigar or a theatre ticket. So, again, one 
 may forego the bread to-day which he would 
 have purchased a week or a year ago, though 
 no less hungry to-day. The strength of the 
 desire for other things is a necessary element 
 in the decision. The marginal case is, then, a 
 case of marginal relative utility — that is, of 
 marginal sacrifice. A given case is marginal 
 simply because the utility gained and the 
 utility sacrificed are equal. 
 
 39. When one wants a barrel of flour, it may 
 be possible to obtain it at the store by working 
 a few days for the proprietor, or 
 
 Production is a 
 
 perhaps by exchanging garden truck purchase from 
 or eggs for the flour, or by paying ^^^^^> 
 the price of the flour in money. But in this 
 last case that which is really sacrificed for the 
 flour is not the money but the things which the 
 money will buy. Again, it would be possible, 
 that instead of buying the flour one set to 
 work to produce it. In this last case, instead 
 of paying money or truck for the flour the 
 payment is made with labor or effort. All 
 cases of production really trace back finally to 
 exactly this case. If one does not produce the 
 flour directly, he produces the garden truck or 
 
6Q ELEMENTARY ECONOMICS 
 
 the eggs, or he earns in some way, through 
 labor or service, the wealth or money with 
 which to make the purchase. Thus production 
 may be helpfully and rightly viewed as a pur- 
 chase of utility from nature at the price of 
 effort. 
 
 But it is none the less true in any case, that 
 each thing of value costs something else, since 
 , . , the labor which produced one thing- 
 
 but IS none the . ^ 
 
 less an exchange might have been applied to the pro- 
 ^^^^' duction of another. And so we re- 
 
 turn again to the fact that all value is attended 
 by sacrifice, and that were there no sacrifice 
 there would be no value. 
 
 QUESTIONS 
 
 Find the market price in the following problems : 
 
 Boys desh^e base balls according to the following 
 scale : 100, 95, 94, 87, 82, 78, 60, 55, 53, 48, 47, 45, 39, 36, 
 31, 26. With only 6 base balls in the market, what will 
 be the price? With 9? With 12 ? With 15? Let the 
 above scale represent the falling intensity of one boy's 
 disposition to buy base balls ; will this afEect the results ? 
 
 Sellers' minimum prices are as follows: 36, 35, 33, 31, 
 30i, 29|, 28 ; buyers' maximum payments as follows : 40, 
 38, 36, 34, 33, 32. Find price. 
 
 Sellers' 19, 18, 17, 14, 12, 7, 6, 5, 4, 3 ; buyers' 1, 2, 3, 4, 
 5, 6, 7, 8, 9. Find price. 
 
CHAPTER VI 
 
 COST OF PRODUCTION 
 
 Suppose yourself to have a pear and a peach ; some 
 one tries to take them from you. You can retain one, 
 the peach, by letting the other go. What has the peach 
 cost you ? 
 
 If one offers you a ride or an evening at the theatre, 
 and you choose the ride, what does the ride cost you ? 
 
 If your work will produce for you two bushels of corn 
 or one bushel of wheat, and you raise corn, what is the 
 cost of production of the corn per bushel ? 
 
 If with a dollar you have decided to buy either a 
 book or a jDocket knife, and finally buy the book, what 
 does the book cost you ? 
 
 Why do men work ? 
 
 When they stop does this indicate that they want no 
 more product ? 
 
 If you were picking berries to eat, when and why 
 would you stop picking? 
 
 If you were given one hundred dollars to spend would 
 you probably buy one thing or several? 
 
 Would your purchase of a second or third variety of 
 goods show that you did not care at all for more of the 
 first? AVhy not limit your purchases to one thing? 
 
 40. You have learned in your study of 
 Physics that force always follows the line of 
 least resistance. Water seeking an outlet 
 67 
 
68 ELEMENTARY ECONOMICS 
 
 breaks through the weakest point in the barrier ; 
 the chain gives way at its weakest 
 
 All men act on . , 
 
 lines of least Imk ; when two opposing tendencies 
 resistance, n^eet the weaker is overbalanced. 
 The line of least resistance includes as well the 
 line of the greatest pull ; the stronger attraction 
 prevails. So men in choosing between different 
 pains or discomforts, refuse the greater, sub- 
 mitting to the less ; in choosing between pleas- 
 ures they select the greater, following always 
 the line of least motive resistance. That is to 
 say, the line of human action is the line of least 
 sacrifice. Accurately speaking, one cannot act 
 contrary to his choice. Men always do the 
 thing which they prefer. If the thing done 
 were not the preferred thing, another thing 
 would be done. The choice may be between 
 several evils ; in that case the choice of the least 
 is none the less a choice. 
 
 Do not, however, make the mistake of sup- 
 posing that men always act selfishly. One has 
 but not sel- ^^^^J ^^ remember his home and his 
 fisUy. parents to know that this is not 
 
 true. Nor, indeed, is it always true in matters 
 of business. The world is full of people who 
 refuse to do wrong for gain, as it is of men who, 
 in business or outside, do kindnesses for the 
 
COST OF PRODUCTION 69 
 
 pleasure of doing tliem. In determining the 
 line of least sacrifice we have to take account 
 of human sympathy and conscience as well as 
 of human frailty. Inside ourselves are the 
 strongest forces of temptation and of restraint. 
 The mother sacrifices health and strength for 
 her child, because the greater pain is in the 
 other course. 
 
 41. In buying and selling commodities men 
 likewise exchange the less desirable for the 
 more desirable commodities. When ^]^^^^ sacrifice 
 one has money to expend he buys measures value? 
 the things he wants most. We commonly say 
 that the hat or the suit of clothes costs this or 
 that number of dollars. This however is not 
 a full or an accurate statement of the case. 
 The money is not valuable merely for keeping. 
 Had you not bought the hat or the clothes 
 you would have bought something else. And 
 now note that the thing, which you desire next 
 to the thing which you actually buy, shows 
 what the thing you buy really costs you. 
 
 Thus if you would pay a dollar for a hat 
 you would with still greater readiness pay any 
 smaller sum. Your greatest sacrifice shows 
 most nearly how highly you prize the hat. 
 
 If you have the opportunity of going to the 
 
70 ELEMENTARY ECONOMICS 
 
 theatre or to a picnic or for a walk, and prefer 
 theatre to picnic and picnic to walk, your love 
 of the theatre is better measured by your pic- 
 nicking than by your walking inclination — by 
 the most you will sacrifice rather than by the 
 least. 
 
 If for a bicycle you would give your gun or 
 your Irish setter or even your pony, your pony 
 best indicates the degree in which you desire a 
 bicycle. 
 
 If with your next month's wages you decide 
 to buy either a new coat or a tennis set, not 
 your month's work but the coat measures what 
 the tennis set costs you. 
 
 It has been said that greater love hath no 
 man than this, that he should lay down his life 
 for his friend ; if so, not the smaller services 
 of kindness, but the very love of life itself 
 measures man's highest devotion to his fellow. 
 
 42. In attempting to estimate the cost of 
 production of commodities, we commonly say 
 that such or such a thing cost so many days' 
 work, or so much outlay in wages, rent, and 
 interest. But just as the money paid out in 
 wages,, rent, or interest is unimportant, other- 
 wise than for what it would obtain if expended 
 differently, so the labor applied to the produc- 
 
COST OF PRODUCTION 71 
 
 tion of a j)articular commodity is unimportant 
 otherwise than as bearing upon what it might 
 elsewhere have been made to pro- ,t ^ ^ ^ 
 
 ^ Not rent and 
 
 duce. Labor has no vahie in and interest, but 
 of itself. Wages are really never cost of produc- 
 paid for labor. The value of a *^°^' 
 saw or plane depends upon the help it may 
 afford to the mechanic. What the field is worth 
 depends upon what it will produce — the cow 
 upon the milk it will give or the meat it will 
 furnish. So the value of labor depends upon 
 what can be got out of it. Nobody wants labor 
 as such. Mere motion, simple activity, is void 
 of value. Only for product and in proportion 
 to product can labor command a price. Ulti- 
 mately the employer purchases not labor, but 
 the goods which labor produces. 
 
 Man produces that he may consume ; labor is 
 a process of value creation. He labors because 
 this is the condition on which his 
 
 which IS first 
 
 enjoyment of certain goods depends, cause, value or 
 Labor is not the cause of the utility 
 — the utility is the cause of the labor. So 
 utility is the cause of value — the scarcity which 
 compels effort being a mere condition. Product 
 is the return upon effort. Labor has value merely 
 in the sense that the value of the product may 
 
72 ELEMENTARY ECONOMICS 
 
 be ascribed to the labor which will produce the 
 product. It is therefore not logical to measure 
 the value of the product by the value of the 
 labor ; the labor is measured in value by the 
 product. 
 
 43. The value of a thing has been shown to 
 
 be fixed by the sacrifice which it commands 
 
 in exchang-e for other commodities. 
 
 Cost of ^ , . 
 
 production Cost of production is to be stated in 
 similar terms. As to any particular 
 article, cost of production is the sacrifice of other 
 possible values producible by the same produc- 
 tive energies. 
 
 Each man seeks for himself that line of pro- 
 duction which seems to him to offer the most 
 _, . favorable opportunities. Some men 
 
 Wnose cost is ^ ^ 
 
 epal to market could not, or would not, unless at 
 a very great change in the selling 
 price of their products, change their direction 
 of activity. Others, on the other hand, are near 
 to the margin of change to another line of pro- 
 duction. The market price considerably more 
 than remunerates some producers ; it barely 
 remunerates others, — that is to say, barely in- 
 duces them to continue in their present line of 
 production. A producer is often not merely a 
 laborer, or an employer of labor; more often. 
 
COST OF PRODUCTION 73 
 
 indeed almost of necessity, he is an employer 
 of capital and land as well. If by a fall in 
 market prices the returns become inadequate, 
 many producers tend to drop out of this line 
 of production, and to seek other lines. As the 
 price falls, the producers nearest to changing 
 their employment fall out earliest. These men 
 are called marginal producers. If wages fall in 
 any particular employment wage-earners like- 
 wise tend to desert this line of employment. 
 On the other hand, when profits or wages in 
 any employment tend to increase, increased 
 production tends to follow. Fewer goods re- 
 sult from a fall in price, more goods from a 
 rise. Thus unusual advantages or unusual dis- 
 advantages in production tend to be cancelled 
 by resulting changes in the supply of goods. 
 It thus comes about that the market price of 
 each commodity is on the average high enough 
 to induce a supply which is ordinarily sufficient 
 for the market, and that this average price 
 is the same as the marginal cost (sacrifice) of 
 production. In this sense it is true, and in 
 this sense only, that marginal cost of produc- 
 tion fixes market price. The relative strength 
 of the demand for other products fixes the 
 value of any particular commodity, and fixes 
 
74 ELEMENTARY ECONOMICS 
 
 as well the amount of it wliicli will be produced. 
 For example, if a given amount of wheat will 
 exchange for a hat, but can be produced with 
 less labor than the hat, wheat production will 
 increase or hat production decrease, till this 
 advantage in selling is cancelled by a fall in 
 the price of wheat relative to hats. 
 
 To make this clearer let us ask why a given 
 producer withdraws from production when the 
 The cause of price falls. From his point of view 
 lioT ittT i^ i« sufficient to say that further 
 relative matter, production is a matter of no profit 
 or of absolute loss ; but the ultimate answer is 
 that his productive powers can be elsewhere 
 employed to better advantage. If, working 
 elsewhere, he can produce products of more 
 value, he changes his occupation, not because 
 cost of production is too high absolutely, but 
 too high relatively. To continue production 
 in the old direction would be to sacrifice a 
 greater value possible in another direction. 
 The difficulty is not that cost of production 
 is too high in the first employment, but that 
 for an equal effort a higher remuneration is 
 obtainable elsewhere. 
 
 44. The student should now be prepared to 
 see that from every change of a producer from 
 
COST OF PRODUCTION 75 
 
 one line of employment to another two results 
 folloAV. The producer makes the 
 change in view of a change in mar- 
 ket values, but the change in employment tends 
 to cause a rise in the value of the commodity 
 which he abandons, and a fall in the value of 
 the commodity which he sets himself to pro- 
 duce. In the beginning his change was the 
 result of market conditions ; but that which 
 is primarily an effect often becomes in turn 
 a cause, and works to counteract the original 
 cause. This indeed is almost always the case 
 in economic questions. 
 
 The physical sciences excellently illustrate 
 social forces in this respect. Water flowing 
 from one receptacle to another sets ^ 
 
 ^ iDteraction of 
 
 its own limit to the process. Freez- cause and 
 ing brings an end to the solidif3dng 
 process through a self-manufactured protection 
 against the cold. The brisk fire finally smothers 
 itself in ashes. A spring hard pushed increases 
 its resistance to a new point of equilibrium. 
 Chemical reactions themselves bring about new 
 equations. Likewise in human affairs: wars 
 bring the peace of exhaustion ; satisfaction of 
 desire results in satiation ; continued labor 
 makes ever shriller the cry for rest. 
 
76 ELEMENTARY ECONOMICS 
 
 Market values indicate a shifting point of 
 adjustment between the opposing forces of 
 demand and supply, both, however, taking 
 their origin in the primary fact of demand. 
 
 SUGGESTIVE QUESTIONS 
 
 What was the utility to Crusoe of a day's labor ? 
 
 Would the utility have been something else had his 
 island been another island ? 
 
 Do you think the value of a man's working powers 
 depends upon what it has cost to raise him? 
 
 Why don't you study Hebrew ? Do you think it alto- 
 gether useless ? 
 
 What do you expect to do for a living? Why not 
 something else ? 
 
 What is the reason that all farmers in your neighbor- 
 hood do not raise rye exclusively? 
 
 Why not produce silk in the United States ? 
 
 Does the marginal producer's or seller's sacrifice fix 
 price? Or is it the marginal purchaser's sacrifice? Or 
 is it the equation of demand and supply ? Which is the 
 primary force ? 
 
 Why does the nearest excluded buyer not buy? I^ear- 
 est excluded seller not sell? 
 
 AVhy do some producers stop producing when price 
 falls? 
 
 What do they do then ? 
 
 Why do others continue to produce? 
 
 Do producers expect to determine price by their sac- 
 rifice ? 
 
 Would it be well for most of them if they could ? Or 
 
COST OF PRODUCTION 77 
 
 do they adapt production to price? How does your 
 answer apply to monopoly producers? 
 
 Are wages fixed by demand and supply, or by produc- 
 tiveness of labor, or by both? How may you reconcile 
 affirmative answers ? 
 
CHAPTER VII 
 
 KENT OF LAND 
 
 If you were renting land for farming would you pay ' 
 more for some lands than you would for others ? Why ? 
 
 How much do you think you could handle advantage- 
 ously without hiring men ? 
 
 Why not get along with half as much ? One fourth 
 as much ? Twice as much ? Four times ? 
 
 From 320 acres do you think two men in diversified 
 farming could get twice as much as one ? Four twice 
 as much as two? Eight as four? Sixteen as eight? 
 Where would this stop, if ever? 
 
 Would it matter for this purpose whether the crop 
 were strawberries or wheat ? 
 
 Would the advantages of increase of numbers ever 
 cease in the case of strawberries ? 
 
 Can two men harvest more hay or wheat than one? 
 Two times as much ? Three times as much ? 
 
 If you were renting land for building would you pay 
 more for one town lot than for another ? Why ? 
 
 45. The producer, estimating as best he may 
 the price which he will be able to obtain for 
 The market bis proclucts, lias before him the 
 value of the problem of how to produce most 
 
 crop IS the -■- ^ 
 
 primary fact, cheaply the products in question. 
 Suppose, for example, that he undertakes the 
 
 78 
 
RENT OF LAND 79 
 
 production of wheat. He will need land, capi- 
 tal, and laborers. But is it best to till much 
 land, or shall he take less land and employ 
 more laborers, or shall he rather increase the 
 amount of machinery and fertilizers used ? 
 The selling price of his product fixes the out- 
 side limit of his expenditures. Out of this sell- 
 ing price he must get back the interest, rent, 
 and wages, and derive whatever is to remain 
 to him as the remuneration for his superin- 
 tendence, risk, and effort. He finds the rate 
 of wage payment practically fixed, for example, 
 at 11.50 per day. He will increase his number 
 of men as long as he believes that his product 
 will thereby increase so as to justify the larger 
 outlay. His demand for labor is evidently 
 a demand for the results of labor — for the 
 commodities which it produces. His demand 
 for labor must then find its limit at the point 
 where the wage payments approach equality 
 with the increase in the value of the product 
 due to 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 prod- 
 uct. We shall later see that, through the op- 
 portunity open to laborers of producing upon 
 
80 ELEMENTARY ECONOMICS 
 
 their own account, and through the competi- 
 tion of employers seeking profit from the ser- 
 vices of employees, the actual wage payment 
 commonly does not fall very far short of this 
 maximum. 
 
 Our wheat producer finds also that capital 
 is worth a certain per cent per year ; that is, 
 he finds an established rate of interest. How 
 much capital he shall employ must depend 
 upon the amount of it which he can advan- 
 tageously apply, while retaining for himself a 
 balance of profit over the cost of production. 
 
 46. But with wages and interest and market 
 prices as tliey are or are expected to be, he 
 Lands differ discovers great differences in the de- 
 greatiy. sirability of different lands. One 
 
 piece but scantily remunerates the application 
 of labor and capital, producing, we will say, 
 ten bushels of wheat to the acre. Under con- 
 ditions of cost and price as they exist, this 
 land is therefore barely worth changing from 
 pasture to tillage, and is barely worth hiring 
 at a rental sufficient to induce the change. 
 Lands which, with the same expenditure of 
 capital and labor will produce more bushels 
 per acre, command a proportionately high 
 rental — approximately the value of these 
 
BENT OF LAND 81 
 
 extra bushels. Just as men pay different 
 
 prices for different qualities of machines, 
 
 tools, horses, or pianos, they rent or purchase 
 
 different pieces of land at different rental or 
 
 purchase prices. 
 
 47. So far then there is nothing peculiar or 
 
 striking in land or rental questions. But if 
 
 we turn to consider the effect upon 
 
 . -^ Effect of in- 
 
 rent from increasing population, or crease in popu- 
 
 from increasing demand for agri- 
 cultural products, we shall find that some im- 
 portant tendencies become manifest, which are 
 peculiar to questions of land and rent. 
 
 These tendencies are all explained by the 
 fact that the effectiveness of labor in agricult- 
 ure suffers severely if the supply of land is 
 inadequate. How much land one man may 
 advantageously work depends, of course, upon 
 what crop he is going to raise. But one cannot 
 ordinarily raise as much from five acres as from 
 ten, nor can one ordinarily, by doubling the 
 labor and capital on his ten acres, thereby 
 double the product. Were it possible continu- 
 ally to double product by doubling the expenses 
 of cultivation, there could never come any need 
 of more cultivated land, no matter what increase 
 might take place in the demand for agricultural 
 
82 ELEMENTARY ECONOMICS 
 
 product. As it is, however, a larger demand 
 for product is met in part by cultivating more 
 land. 
 
 Evidently, if population were sufficiently 
 sparse, only the best land would need to be 
 cultivated, and were land of the best quality 
 unlimited in supply, no rent would have to be 
 paid by any one, since if rent were demanded 
 the cultivator would have his choice of other 
 land equally good. But as population should 
 increase, lands of inferior quality or lands at in- 
 convenient distances would have to be brought 
 under cultivation, and rent would then be 
 paid for the land of better quality. So when 
 third-quality land was brought into use, the 
 second-quality land would command a rental 
 and the first-quality a still higher rental. 
 
 48. Note now that this application of labor 
 and capital to poorer and poorer lands must 
 There come a involve a constant tendency toward 
 Senrand *^^^ lowering of wages and interest, 
 higher rents. siucc there is necessitated a con- 
 stantly decreasing product in proportion to 
 the labor and capital applied. True, there 
 is an increase in product, but there is not an 
 increase proportional to the increase in the num- 
 ber of claims against it. But all the while as 
 
BENT OF LAND 83 
 
 poorer lands are brought into cultivation there 
 results a larger volume of rent receipts ; that 
 is to say, an increasing share of the product 
 goes to the landlords as payment for the oppor- 
 tunity to cultivate the land. 
 
 In view both of the difficulty and of the im- 
 portance of this principle, further explanation 
 seems desirable. It is clear that The results are 
 wages must somewhat fall, since the |^^°^arffinai 
 total harvest — the dividend — di- doctrine, 
 vided by the number of cultivators, gives a 
 lower quotient — a lower per capita of product. 
 But it is also true that this lower aggregate 
 product and lower individual share of the quo- 
 tient does not measure all the fall. We have 
 seen that to sell one hundred apples the price 
 must go low enough to take the last one, the 
 marginal purchaser marking the price level for 
 all other purchasers. So when men are being 
 hired, no one of them will be paid more than 
 would be lost in product if he did not work. 
 Thus each advance of cultivation to poorer 
 soils lowers wages all along the line. The 
 laborer can receive as wages only what he 
 adds to product. Therefore what is paid for 
 labor in the most unfavorable of the oppor- 
 tunities used, limits the wage payment for 
 
84 ELEMENTARY ECONOMICS 
 
 labor of similar quality and effectiveness else- 
 where employed. 
 
 In a similar manner less and less productive 
 opportunities in the employment of increasing 
 capital tend to reduce the interest paid upon 
 capital used in any employment. 
 
 In the case of the apples, it was not the aver- 
 age demand but the marginal demand which 
 explained the price of apples. In the case 
 of land, it is not the productiveness of the best 
 land or of average land, but of the poorest 
 land in cultivation, which gives the rate of 
 payment for the productive energies — labor 
 and capital — applied thereto. Thus the very 
 causes which serve to increase rent work at the 
 same time to lower wages and interest. 
 
 49. This tendency of agriculture toward 
 diminishing product relative to increased labor 
 and capital applied, is easy enough to under- 
 stand, if we think of farming or gardening as 
 any one of us mav see it round about 
 
 The law of '^ 
 
 diminisMng him. You Cannot double the product 
 re urns. ^^ your garden indefinitely by doub- 
 
 ling the care and fertilizers. If a farmer has 
 a farm of reasonable size, he will not get ten 
 times the grass or wheat from it by multiply- 
 ing by ten the number of hired men. This 
 
BENT OF LAND 85 
 
 tendency toward lower returns in agriculture 
 is called in Political Economy tlie law of 
 diminishing returns. By this law is in part 
 to be explained the fact, that in densely popu- 
 lated countries, like China and Japan, wages 
 are low and the standard of living depressed. 
 When average production is small, average 
 consumption — that is to say, the average 
 reward of effort, wages — must be correspond- 
 ingly small. Where low average productive- 
 ness results from insufficient land, it comes 
 about that the better lands bear high rents and 
 command high prices; that is to say, a large 
 share of the product goes to landowners in the 
 form of rent or of interest on landed invest- 
 ments. Bad environment brings small pros- 
 perity. The newer countries, like America 
 and Australia, have the advantage in this re- 
 spect over old and thickly populated lands, like 
 those of Europe. Where the land is adequate, 
 the rents are low. 
 
 QUESTIONS 
 
 Compare the Chinese and the English in point of 
 (a) intelligence, (5) strength, (c) activity, (d) progres- 
 siveness, (e) scientific knowledge, (/) inventiveness, 
 (g) freedom, (h) hopefulness, (i) ambition. 
 
86 ELEMENTARY ECONOMICS 
 
 Compare the respective environments in (a) climate, 
 (b) mineral resom^ces, (c) fertility, (d) adequate supply 
 of land. 
 
 URBAN LANDS 
 
 50. Accessibility to market is also a matter 
 of very great importance in fixing the value of 
 Travel or pay 1^^^' ^^'^r example, you might be 
 money. willing to pay a good sum for the 
 
 privilege of drawing water from a spring near 
 by your own home, rather than obtain the water 
 gratis from a distant spring. In the case of 
 the second spring your walk is a sort of rent 
 — you pay in effort instead of in money. 
 
 The matter of location becomes of over- 
 shadowing importance in the case of city rents, 
 where convenience, health, beauty, and social 
 advantages are the leading subjects of interest. 
 As with agricultural lands, so with urban lands 
 there are locations of vanishing value which 
 are nearly marginal and therefore almost non- 
 rent-paying. The better locations command 
 rent in the measure that they are more de- 
 sirable than the marginal locations. Rent is 
 therefore the measure of the difference in de- 
 sirability between better lands and marginal 
 lands. The word differential is a common 
 and useful term in describing any form of 
 
URBAN LANDS 87 
 
 rent — whether land rent or the different quasi- 
 rents. 
 
 SUGGESTIVE QUESTIONS 
 
 Assume an island with lands ranging in productive 
 quality from 28 to 20 as shown by the diagram. Consider 
 that with each 100 of population a 
 new tract has to be cultivated and 20 20 20 20 20 20 
 that the diagram covers all the land 21 21 21 21 21 21 
 to vvhich the society has access. 99 99 99 99 99 99 
 What will be the sum total of rent Z. ^ Z Z 9^ o^ 
 with a popidation of 900? 1,300? " "* " " 
 
 1,800? 2,300? 2,500? 2,900? 25 26 26 26 26 26 
 
 Assume also that the fertile lands 27 27 27 28 28 28 
 are nearer the market, and that each 
 
 grade of more distant land must pay one bushel as trans- 
 portation charge to reach the market. How are your 
 foregoing answers modified? 
 
 Assume again that it is the poorer lands which are 
 nearest the market, the better lands being subject to trans- 
 portation charges. Revise your answers to fit this case. 
 
 What effect, other things being equal, does population 
 have on aggregate rents ? 
 
 Suppose the State owned the land, should we pay any 
 rent? 
 
 Do we now in any way pay what amounts to a land 
 rent to the State ? 
 
 What does a perpetual lease without rent amount to ? 
 
 If you were a tenant, and the landlord remitted your 
 rent, would you have to, or would you, sell your products 
 at lower prices ? 
 
 Suppose all land rent were released ; how would this 
 affect prices? 
 
 What effect would the general forgiving of rents have 
 
88 ELEMENTARY ECONOMICS 
 
 on the demand for products ? On the supply of products ? 
 On amount of land cultivated ? On prices ? 
 
 What effect from a percentage tax on rents ? 
 
 Would it force any land out of cultivation? 
 
 If tenants were required to pay more rent what would 
 they do ? If consumers were charged higher prices what 
 would they do ? 
 
 On whom then would the tax fall ? 
 
 If a large body of fertile land — a new continent for 
 example — were discovered, what effect would it have on 
 rents in Europe? 
 
 Rents and land values, rural, have largely fallen in 
 Europe. Why? 
 
 What would be the tendency of rents on the new con- 
 tinent ? 
 
 What effect on supply of products ? 
 
 On margin of utility of land ? 
 
 On social dividend ? On average comfort ? 
 
 If the land of the world were all owned by one man 
 or company, could rents be raised profitably for the 
 owner ? 
 
 Is there any reason why landowners cannot combine ? 
 
 Would some land be thrown out of use? Why? 
 
 Who would lose the rent on this ? 
 
 If a large amount of land were taken from agriculture 
 for parks, etc., what effect would this have on the aggre- 
 gate of rents ? On prices of products ? 
 
 Is it the increase of rent or the decrease of supply 
 which causes prices to advance ? 
 
 What will the tenants do if prices fall? 
 
 Will all tenants do this? 
 
 Which ones ? 
 
 If you were a farmer with a large farm, would you 
 hire men to work for you? Why? How many? 
 
 When and where would you stop ? 
 
URBAN LANDS 89 
 
 Could you fix prices of products ? Wages of employees ? 
 Rents ? 
 
 What bearing has productivity of marginal land on 
 agricultural wages ? 
 
 What bearing have wages in other employments on 
 agricultural wages ? 
 
 An increased demand for agricultural produce exer- 
 cises what effect on the margin of utility of land ? On 
 rents ? On prices V On agricultural wages ? On wages 
 generally ? 
 
 Is the wages question the solution of the fraction 
 social dividend over socicd divisor ? 
 
 Interpret the following : 
 
 social dividend — rent — interest 
 
 wages = 
 
 wage-earners 
 
 What would you do with taxes in this formula? 
 
 What makes a town lot valuable ? 
 
 Who made it valuable ? 
 
 Who gets the advantage ? 
 
 What do you mean by the unearned increment? 
 
 In what sense are the interests of landowners opposed 
 to the interests of all other classes of society ? 
 
 Read in the encyclopedia articles on Malthus and Mal- 
 thusianism. 
 
 Prove that rent does not commonly add to price. 
 
 In justice ought the tenant to pay rent upon the im- 
 provements which he himself has made upon the land ? 
 
 How may he be compelled under free competition 
 (rack rent) to do this. 
 
 What effect on the condition of farmers? 
 
 What effects upon the habits of husbandry ? 
 
 What relation do you perceive to the history of Ire- 
 land? 
 
 What effect on rents from improved machinery? 
 
90 ELEMENTAEY ECONOMICS 
 
 What effect on rents from improved methods and 
 science in cultivation? 
 
 What effect on rents from improved transportation ? 
 
 What effect on social dividend from improved ma- 
 chinery? 
 
 What effect on social dividend from improved methods 
 and science ? 
 
 What effect on social dividend from improved trans- 
 portation ? 
 
 RENT AND PRICES 
 
 When and why is there an increase in the amount of 
 cultivated land ? An abandonment ? 
 
 When prices rise for products is this a cause of higher 
 rent or a result ? 
 
 If increased quantities of cloth are made and marketed 
 will the price per yard rise or fall ? Why ? 
 
 What effect from higher prices on amount produced? 
 Will these higher prices last? 
 
 What effect from higher prices on agricultural prod- 
 ucts ? Will these higher prices last ? 
 
 Is the supply of land equally as flexible as that of cloth ? 
 
 On what terms in point of cost can agricultural prod- 
 ucts be increased. 
 
 When will poor land find occupiers? Why? 
 
 What effect on the rental value of better land ? 
 
 51. We now approach a more difficult prob- 
 lem. Evidently as poorer lands have to be 
 cultivated the prices of agricultural products 
 will tend to rise. Shall we say that the rise 
 in prices results from the cultivation of the 
 
BENT AND PRICES 91 
 
 poorer land, or that cultivation results from 
 the rise in prices? 
 
 The student will do well to stop here and 
 think this out for himself. 
 
 Clearly enough the necessity of cultivat- 
 ing poorer lands explains the rise in prices. 
 But no individual cultivator would ^ 
 enter upon this poorer land other- prices, or prices 
 
 jtp-n + g v 
 
 wise than as induced so to do by 
 the higher prices. Producers accejDt the offer 
 held out to them by market values. Increas- 
 ing demand for agricultural products is the 
 primary force which makes these higher mar- 
 ket prices possible. Increasing resistance from 
 nature, that is to say, a higher necessary sacri- 
 fice in production, is ±he fact which, added to 
 the demand, makes these higher prices neces- 
 sary. When you push hard upon a sjDring, the 
 resistance of the spring is the result and the 
 counterpart of the force with which you press 
 it. When snow packs hard before the ]3lough 
 of the locomotive, it is in reality the snow which 
 is getting packed by the force directed against 
 it. In all cases where action and reaction meet 
 in equilibrium, it is the action and not the reac- 
 tion which is the primary force. And so with 
 the cultivation of poorer land and the attendant 
 
92 ELEMENTARY ECONOMICS 
 
 rise in prices. Increasing difficulty is the oc- 
 casion of tlie rise in prices — the condition — 
 while increasing demand is the cause. Thus 
 we again face the fact that utility alone — 
 demand — does not explain value. Value is 
 the measure of the resistance — the sacrifice at- 
 tendant upon obtaining the utility and satisfy- 
 ing the demand. Value increases as goods move 
 farther and farther from the condition of pure 
 bounties of nature. 
 
 52. The land which is just upon the point 
 of not being cultivated if prices fall, or Avhich 
 Margin of cuiti- would uot be Cultivated if a rent 
 i::rX^i higher than the value of the land 
 explains rent, for pasture or forestry were im- 
 posed, is called land at the margin of cultiva- 
 tion. Cost of production on this marginal 
 land and the market value of the product 
 are equal. The cultivation of this land is a 
 result of market value, and cost and value on 
 this land are commensurate, just as, in the bean 
 or hat illustration, price was the outcome of 
 demand, and the marginal demand was found 
 to be the equivalent of price. 
 
 We say truly that value is always the re- 
 sultant of demand and supply, the point at 
 which they are in equilibrium, — but it is still 
 
BENT AND PRICES 93 
 
 to be remembered that supply comes about as 
 the result of demand. Price is high because 
 resistance is high. Where resistance would be 
 greater than the price, production will not take 
 place. 
 
 53. Now note that grain produced on land 
 better than the marginal land could be pro- 
 duced profitably if prices were lower, on better land 
 A surplus remains after the outlays ^i:^^:,^;: 
 of production are covered. Who rent is paid, 
 gets the benefit of this surplus ? It is due to 
 the superior quality of the land. If the culti- 
 vator is a renter, he must turn it over to the 
 landlord. Otherwise the landlord will rent 
 to some one else. At any rental payment less 
 than this advantage, cultivators of marginal 
 land would be eager for this better land. This 
 surplus in the market value of the product of 
 the better land over the outlays of labor and 
 capital in its production, is the fund from 
 which rent is paid. Rent, therefore, like wages 
 or interest, is drawn from the selling price of 
 the product. 
 
 It thus appears that rents are the result of 
 market prices and not the cause of them. The 
 rents paid in excess of marginal rent clearly 
 cannot affect market prices. They are merely 
 
94 ELEMENT ABY ECONOMICS 
 
 a question between landlord and tenant as 
 to liow much each shall get out of the 
 Eents do not market value of the product. As 
 affect prices. long as poor land must be culti- 
 vated to supply the demand, so long prices 
 must be high enough to compensate the pro- 
 duction on this poor land. To cancel the rent 
 on the better land would affect neither the 
 market supply of products nor the demand; 
 it would merely transfer to the tenant the 
 advantages which must attach to superior 
 land. Increasing demand pushes cultivation 
 upon poor soil, where the resistance to pro- 
 duction is greater. Eent, therefore, is the 
 outcome of increasing resistance to produc- 
 tion. Were there no necessity for cultivating 
 poorer land, that is to say, were there no in- 
 crease in resistance, there could be no increase 
 in rent. But this is not to say that low 
 rents bring low prices and high rents high 
 prices, but merely that the conditions of de- 
 mand and supply which bring low prices bring 
 low rents, and that conditions which bring high 
 prices bring high rents. 
 
CHAPTER VIII 
 
 INTEREST 
 
 What different motives might one have for laying 
 aside money ? 
 
 Do people commonly get interest on money deposited 
 in national banks? 
 
 Would you ever pay for having your travelling bag 
 guarded ? Why ? 
 
 Why not pay the banker for keeping your money? 
 
 If charges for keeping money were common would any 
 saving still take place ? 
 
 What different motives might one have for borrowing 
 money ? 
 
 If for use in farming what would determine the rate 
 which one could pay ? 
 
 Could a starving man afford to borrow at 100 per cent 
 per annum? 
 
 Is bread alwaj^s of the same utility to the consumer ? 
 
 Does the borrower get an advantage from borrowing ? 
 How? 
 
 The lender from lending ? How ? 
 
 What effect upon the social dividend from fertilizers? 
 
 What effect from improved methods of transportation ? 
 From opening up of new supplies of land ? 
 
 What effect from better farm machinery? Better 
 skill in working land ? 
 
 95 
 
96 ELEMENTARY ECONOMICS 
 
 What effect from more effective machinery in the 
 factory ? 
 
 Does the laborer work for his own benefit or for some- 
 one's else ? 
 
 Who consumes his wages ? 
 
 How is it with machines ? 
 
 Is machinery humanity's assistant or its competitor? 
 
 Does machinery sometimes turn laborers out of employ- 
 ment ? How ? 
 
 Who make the machines? 
 
 What effect from machinery upon the purchasing 
 power of other men's wages? 
 
 Would wages be higher if we had to use gas for light 
 instead of sunshine ? 
 
 If products can be produced at small effort will labor- 
 ers be well or ill rewarded in products ? 
 
 Is machinery the laborer's assistant or his competitor? 
 
 54. If one has to-day a great appetite and no 
 dinner, and will later have at his disposal two 
 Advantages of dinners with no increase of appetite, 
 borrowing. borrowing must be greatly to his 
 advantage, and if necessary he may pay enor- 
 mous interest rates without exhausting this ad- 
 vantage. Neither money nor wealth is of stable 
 utility to men, but varies in utility relatively 
 to their needs. So the young man rationally 
 borrows the money to complete his education, 
 counting upon paying at a more convenient 
 time. So a business man, in straits for means 
 to save his credit from injury or his property 
 
INTEREST 97 
 
 from forced sale, pays with advantage for the 
 right to await a better market or for time to 
 muster his resources. 
 
 These cases are typical of the rational demand 
 for loan funds. The demand for capital to be 
 used in aid of production is also a familiar 
 matter. There is, as well, an improvident de- 
 mand — the spendthrift near-sightedness which 
 burdens a needy future in favor of a luxurious 
 and wasteful present. 
 
 55. But for the most part the demand for 
 loans rests upon the fact that production can be 
 increased through the help of capital. 
 
 A farmer, for example, finds that with the 
 expenditure of flOOO in ditching, he can in- 
 crease by $200 the annual productiveness of his 
 meadow. If necessary, then, he can afford to 
 pay nearl}^ 20% for borrowed money with which 
 to effect this improvement. If the market rate 
 of interest is 6 % , he can profitably borrow more 
 than this flOOO. Suppose the gain in produc- 
 tiveness from added supplies of capital to be as 
 follows: — 
 
 Second |1,000 . . $150 Fifth $1,000 . . $70 
 Third 1,000 . . 120 Sixth 1,000 . . 60 
 Fourth 1,000 . . 90 Seventh 1,000 . . 50 
 
 With the rate of interest at 6 9^ he can afford 
 
98 ELEMENTARY ECONOMICS 
 
 to borrow at least $4000 additional. To borrow 
 yet a full flOOO more would profit him only as 
 much as the necessary interest payment. He 
 will therefore borrow say $750, at an increase 
 in productiveness of say 150. The account 
 then stands as follows : — 
 
 11,000 at $60 interest and $200 advantage. 
 
 1,000 at 
 
 60 interest and 
 
 150 advantage. 
 
 1,000 at 
 
 60 interest and 
 
 120 advantage. 
 
 1,000 at 
 
 60 interest and 
 
 90 advantage. 
 
 1,000 at 
 
 60 interest and 
 
 70 advantage. 
 
 750 at 
 
 45 interest and 
 
 50 advantage. 
 
 5,750 345 680 
 
 Note that his demand for capital at an estab- 
 lished rate finds its limit at the point where 
 usefulness falls to a level with interest pay- 
 ment. Were some more effective method of 
 ditching discovered, it would be advantageous 
 to increase his borrowings. 
 
 Note also, that the limit of his demand is not 
 at all affected by the amount which his pre- 
 ceding borrowings have already profited him. 
 Each addition of capital stands on its own 
 merits as a separate question. 
 
 The manufacturer, likewise, may find it of 
 great profit to increase the volume of his busi- 
 
INTEREST 99 
 
 ness, or to improve his processes of production. 
 He also stops at the point of disappearing ad- 
 vantage in view of the rates of interest which 
 he is compelled to pay. 
 
 bQ. It is evident in all these cases that some- 
 thing is borrowed on terms of a larger repay- 
 ment later. That is what interest 
 
 The value of 
 
 means. ^ This increased payment m- time with 
 dicates merely that for one reason ^^^^ ^ ' 
 or another men prefer to have a thing now 
 rather than a year from now. We can make 
 use of it during the year. The earlier we get 
 it and the longer we have it, the more benefit 
 we obtain from it. This is really why a note 
 payable in the future is subject to a discount. 
 The future dollar, or machine, or farm sells at 
 a disadvantage as against the present. If we 
 had the thing now we could be using it — add- 
 ing to it — making it a percentage larger at 
 the end of the term. So putting it the other 
 way, we say that the present thing is at a pre- 
 mium over the future thing. 
 
 57. Some part of the explanation of interest 
 is doubtless to be found in human shortsight- 
 
 1 Keep in mind that we are discussing pure interest, net in- 
 terest, and not tliis or tliat rate imposed or paid as a kind of 
 insurance charge against risli of loss of the principal. See note 
 to Section 26. 
 
100 ELEMENTARY ECONOMICS 
 
 edness and stupidity. Just as the object which 
 is near by appears to the eye larger than the 
 Irrational distant object, SO in the mind's eye 
 interest. ^he pleasure, or pain, or burden of 
 
 a year hence fails to impress us at its real im- 
 portance. We consume or Avaste to-day, not 
 realizing the want in the future, or the burden 
 of payment or of replacement. At the year's 
 end, likewise, the pleasure of to-day will look 
 insignificant, when placed by the side of the 
 needs and burdens of that time. Clear-headed 
 and far-sighted men do not make this mistake 
 to the same extent as the stupid people and the 
 spendthrift ; but almost all of us make it in 
 some measure ; most of us are prone to get into 
 unnecessary debt. It is characteristic of sav- 
 ages to make small provision for the future or 
 no provision at all. 
 
 58. What then shall we take as a definition 
 of interest? Is it a payment for the use of 
 
 Is interest a money, Or, as it is sometimes ex- 
 rent on money? pressed, a rent on money? Not 
 accurately, since what Ave commonly borrow is 
 really the things which money will exchange 
 for. This notion of interest as payment for 
 the use of money, is what is in the minds 
 of those people who believe that interest is 
 
INTEREST 101 
 
 morally wrong. Can ducats breed ? Keep 
 your gold pieces never so long, Avill tliey mul- 
 tiply ? If they will not increase in your hands, 
 why receive an increase from the hands of the 
 debtor who has borrowed them ? True enough 
 — but the sheep, which the money buys, breed ; 
 cows pay interest in the guise of milk and 
 butter, and the farmer cuts coupons of grass 
 and grain from his fields, with which to redeem 
 the interest coupons on his mortgage note. 
 
 Why not then say that interest is pajmient 
 for the use of capital ? But as we have seen, 
 not all wealth is capital. Only that 
 
 T . T .,,.,. Is it paid for 
 
 share is termed capital which is used the use of 
 as an aid in the further production ^^^^ ^ ' 
 of wealth. Interest, however, is paid on any 
 sort of wealth. As the famous Frenchman 
 Turgot wrote : " Men borrow with all sorts of 
 views and from all sorts of motives. This one 
 borrows to embark upon an enterprise which 
 shall make his fortune ; that to buy a tract of 
 land ; another to pay a gambling debt ; still 
 another to cover a loss of revenue due to acci- 
 dent; yet another to live until he nyiy earn 
 something by his labor. But all of these mo- 
 tives that influence the borrower are alto- 
 gether indifferent to the lender. This latter 
 
102 ELEMENTARY ECONOMICS 
 
 is concerned "but with two things, the interest 
 which he shall receive and the safety of his 
 capital. He takes no more thought of the use 
 to which the borrower will put it than does the 
 merchant of the use which a buyer will make 
 of the food supplies which he buys." 
 
 Interest is often defined as payment for the use 
 of wealth. For most purposes this is all that 
 or for the use of could be wished. But it does not 
 wealth? apply quite accurately where goods 
 
 are borrowed and are consumed instead of 
 being used and returned. If we speak in this 
 case of payment for the use of wealth, we must 
 have in mind a use which the borrower might 
 have made, but did not make. 
 
 59. We therefore adopt as our final state- 
 ment a definition which, in the absence of all 
 The accurate ^^^^ explanation and illustration, 
 definition. probably would not mean much : 
 
 Intey^est is a difference in value in favor of pres- 
 ent over future goods. This difference results 
 in part from the habit of underestimating the 
 needs of the future and of burdening the future 
 in aid ^ of the present; in part from the fact 
 that with the help of capital an increase in 
 product is possible. That is to say, the de- 
 mand for present goods on terms of a larger 
 
INTEREST 103 
 
 payment in the future, is clue in part to the 
 helpfuhiess of wealth in productive processes, 
 — in part to a desire for wealth for purposes 
 which are non-productive. This demand for 
 unproductive uses depends in part upon the call 
 for money to pay existing debts, in part upon 
 the disposition of men to discount the future, 
 in part, also, upon the fact that in some cases a 
 larger service is afforded by immediate consump- 
 tion of a given sum of values than will be sacri- 
 ficed by the later payment of a greater sum. 
 
 60. To say that the rate of interest is six 
 per cent per annum really means that 100 of 
 wealth can be sold to-day as^ainst 
 
 •^ ^ How is the 
 
 106 at a year from to-day ; men interest rate 
 pay a premium for the present 
 thing. At what rate of premium present 
 goods can be sold against future goods, is a 
 question of adjustment between demand and 
 supply. The process of adjustment is exactly 
 like the cases, already analyzed, of selling hats 
 or apples. The rate of premium must be low 
 enough so that supply and demand may be in 
 equilibrium. The helpfulness of wealth as an 
 aid in production occasions the larger share of 
 the borrowing demand. When the opportuni- 
 ties for employing capital are limited, or the 
 
104 ELEMENTARY ECONOMICS 
 
 increase in product from the use of capital is 
 small, the rate of interest must be low. 
 
 The rate of interest is, then, commensurate 
 with the marginal desirability of wealth — 
 speaking roughly, with the marginal produc- 
 tivity of capital. All borrowers, however, ex- 
 pect to make something more, and many of 
 them very much more, from the use of capital 
 than they pay as interest. Many of them in 
 fact do obtain this surplus, that is to say, 
 interest payments to lenders fall a long way 
 inside the usefulness of capital. If lender and 
 borrower, then, are benefited by the existence 
 of capital and the loaning of it, it is left to in- 
 quire whether any one is injured. 
 
 61. We have seen that with wages and in- 
 terest to be paid, the producer of commodities 
 . , , has the question before him whether 
 
 Are capital and _ ^ 
 
 laborers com- to hire morc men or to employ more 
 ^^ ^ °^^ capital. Shall he purchase labor- 
 
 saving machinery? Or shall he do his work by 
 hand labor? The factory owner is constantly 
 replacing employees by machinery. Type- 
 setting machines are displacing the printers. 
 Air-brakes take the place of brakemen. In 
 a certain sense, then, capital is the competitor 
 of the laborer ; which will do the work the 
 
INTEREST 105 
 
 cheaper decides which shall get the job. Yet 
 somehow we feel certain that labor-saving appli- 
 ances make for the general well-being, that the 
 riots of English and French workmen against 
 the spinning- jenny and the power-loom were ig- 
 norant mistakes. In trnth, the hostility of wage- 
 earners toward inventions is an error which is 
 fast fading from the world. All these new pro- 
 cesses and inventions are methods of increasing 
 the social dividend. They are savers and mul- 
 tipliers of human energies in production. 
 
 62. But suppose the wage-earner to answer, 
 "This may be true, but we don't get the in- 
 crease. It is caused by capital ; it goes to the 
 owner of the capital ; and we are driven from 
 our places to starve while the machines do 
 the work." Is this a fallacy? And how shall 
 we prove it a fallacy? 
 
 A full demonstration of it must await the 
 discussion of Profits and Wages in the next 
 chapter. But it is well in this connection to 
 recall again the origin of capital, r^j^g question 
 It is merely stored-up labor. Labor "g^% pl^^^^d. 
 is employed in creating it, and it continually 
 wears itself out and must be replaced by labor. 
 This is illustrated in the constant wear and tear 
 of machinery, in the consinnption of coal, and 
 
106 ELEMENTARY ECONOMICS 
 
 in the repair of factories, buildings, cars, and 
 ships. And not only does it require wage- 
 earners to make and repair the machinery, but 
 to oversee and operate it. Capital is a round- 
 about application of labor to production. It 
 would be odd if in the resulting increase of 
 product the stored-up labor should get all or 
 most of the advantage. Nor does it so in fact, 
 though Ave have as yet seen no reason to assert 
 that the laborer gets the advantage. It must, 
 however, be true that as capital increases, inter- 
 est, which measures the marginal desirability 
 of capital, must fall ; the borrower obtains the 
 services of capital more cheaply. The advan- 
 tage must then fall to either the laborer or his 
 employer. The case is, therefore, not one of 
 laborer against lender, but rather of laborer 
 against employer, — against the user rather 
 than against the owner. Are the benefits of 
 increased capital really somehow intercepted by 
 the employer or by some one else, so that they 
 fall short of reaching the Avage-earner ? 
 
 Doubtless it often happens that by falling 
 prices the market is so much Avidened that the 
 number of wage-earners is really increased, 
 Avithout reference to those employed in making 
 machines. This is ordinarily the case Avhen a 
 
INTEREST 107 
 
 small fall in prices brings about a more than 
 proportionate increase in consump- „ , . 
 
 ^ ^ _ ^ Macnines some- 
 
 tion, as, for example, in the case of times displace 
 books; but this is as clearly often 
 not true, as, for example, where agricultural ma- 
 chinery displaces hand labor ; no great increase 
 in food products can be marketed. Evidently, 
 if machines did not economize labor they would 
 not be used. An increase of product must result 
 from a given sum of expenditure. But whether 
 machines in any particular industry do or do not 
 take the place of labor, it will be made clear in 
 the next chapter that the wage-earner, in the out- 
 come, gets most of the benefits from the econ- 
 omy of effort made possible through machinery. 
 
 SUGGESTIVE QUESTIONS 
 
 In what case does a physician treat his horses as 
 capital? In what case as mere consumption goods? 
 
 Would an increased supply of money affect the crop 
 from any piece of land? The butter from any cow? 
 The ratio between the yearly output — dividend — and 
 the market value of any property ? 
 
 Assuming that doubling the currency w^ould double 
 the price of cows, sheep, and farms, would it do the same 
 thing for calves, lambs, and harvests ? 
 
 What effect, then, on interest rates ? 
 
 In what sense is interest a ratio ? 
 
 What forces determine this ratio? Which is ultimate? 
 
CHAPTER IX 
 
 WAGES AND DISTRIBUTION 
 
 Are machines productive ? In what sense ? 
 
 Are they productive alone? What must go with 
 them? 
 
 How were they produced ? 
 
 Is there any relation between high standards of living 
 and high efficiency ? 
 
 Does our higher standard of living make our wages 
 higher than European wages ? 
 
 What does make our wages higher ? 
 
 Has the fertility of our soil anything to do with it ? 
 
 What limits the employer's disposition (ability) to 
 pay wages? 
 
 Can the farmer increase the crop by being hungry? 
 If so, in what sense? 
 
 Can he increase his ability to pay wages by the fact 
 that his hired man has a large family ? 
 
 Can the hired man use this fact to increase his wages? 
 
 Do wages equal wants or wants wages? Which is 
 the nearer the truth ? 
 
 Are women's wages lower than men's because they can 
 afford to work for less ? 
 
 Why does not the employer have to pay them more ? 
 Why may he not pay tliem still less ? 
 
 Do employers make more by hiring women than men ? 
 
 If the population of the world should double, what 
 108 
 
WAGES AND BISTBIBUTION 109 
 
 effect on the aggregate production of commodities ? 
 Would the per capita production maintain itself? 
 Why? Discuss the effect (1) on agricultural production, 
 (2) on other production. 
 
 63. It cannot be too firmly held in mind tliat 
 in any investigation of economic facts we are 
 studying mankind in its relations 
 to its environment. Man is the Son qnt^-'"' 
 
 actor and the central fact. Neither *i°^s of corre- 
 spondence. 
 land nor capital serves for produc- 
 tive purposes, except as subordinate to man 
 and directed by him. Neither is productively 
 independent. The economic point of view 
 conceives of man as the actor, and of all other 
 things as raAV material at his hands. All pro- 
 duction takes place for his benefit, in response 
 to his demand, and goes to his benefit. Rent 
 is not paid to land, but to landowners, interest 
 not to capital, but to capital owners. The 
 national dividend is distributed among the 
 members of the producing society for consump- 
 tion by them, and not by land, or machines, or 
 wealth. True, the advantages do, in some 
 measure, go to particular members of society 
 by virtue of their possession of land or capital, 
 but it is none the less true that consumption 
 depends upon production, and that average 
 
110 ELEMENTARY ECONOMICS 
 
 consumption is the equivalent and outcome of 
 average production. 
 
 64. The question of wages is too often 
 treated as if what the wage-earners receive 
 
 Wagesaques- ^^^^^^ ^^^^ ^y what they need to 
 tion of product, Kye upon, instead of by what they 
 
 audnotof J J 
 
 standards of are able to produce. It is con- 
 ^^^^' stantly asserted that wages are gov- 
 
 erned by the standard of living. That people 
 live well is put forward as a reason that they 
 are well paid — as explanation for the fact that 
 they are able to live well. But in truth high 
 living has little to do with the case, otherwise 
 than as wholesome, healthful, contented living, 
 with good food and in healthful surroundings, 
 may aid in bringing about a high productive 
 efficiency. But the only way for society to 
 consume more, to establish a high average of 
 comfort, is to produce more. 
 
 Q^. The question of wages is confused, as 
 are many other economic questions, by a mis- 
 understanding of the meaning of demand and 
 supply. To say that the value of any com- 
 None the less i^iodity is fixed by the equation of 
 Lrantld^ demand and supply is a correct and 
 supply. a safe enough proposition. But to 
 
 suppose that the more laborers there are, the 
 
WAGES AND DISTRIBUTION 111 
 
 lower wages will be, or that the fewer hours 
 or the more lazily they work, the higher wages 
 Avill 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, or at 
 an amount of money which will buy the two 
 bushels. If operatives in a factory make each 
 but one pair of shoes a day, they are safe from 
 ever getting two pairs each for doing it. So 
 if the population of any one city or of the 
 world should double, wages would not fall by 
 a half, or at all, unless the average produc- 
 tiveness of labor fell as a result of the over- 
 crowding and of the attendant disadvantages 
 of opportunity. 
 
 QQ. But something remains to be said in 
 explanation of the wages of particular laborers 
 or of particular classes of labor- Wages in par- 
 ers. It is not to be inferred that tries, 
 the employer always pays all he can. He 
 employs men for the profit he gets out of it. 
 
112 ELEMENTARY ECONOMICS 
 
 He will not pay more than the value to him 
 of the labor or its product. How near he 
 comes to a full payment will depend upon 
 what the competition of his own or of other 
 industries compels him to pay. The practical 
 working of this competition will shortly come 
 up for further discussion. 
 
 Also it must be held in mind that precisely 
 because wages depend on product, wages must 
 be low if so many people work at one thing as 
 to compel a low selling price in order to sell 
 the entire product. We shall later see that 
 this largely explains the low wages of women. 
 
 Again, it is found that the same sort of work 
 is well paid in one country and ill paid in 
 and in different another. How explain, for exam- 
 
 countries. pjg^ j^^^q J^ig]^ wagCS of clomcstic 
 
 servants in America, and the relatively low 
 wages in Europe? Do not the European 
 servants do equally good work? Are not 
 the results as valuable to the employer? Or 
 is it true that Americans desire this sort of 
 services more strongly than do Europeans? 
 The difference is really in the demand. It is 
 doubtless true in a sense that the low wages 
 are a result of the large supply of laborers 
 in this particular industry. But how great 
 
WAGES AND DISTRIBUTION 113 
 
 this supply is depends on what wages other 
 industries offer, and how many laborers they 
 will take. That is to say the demand — the 
 competition — that bears upon wages in any 
 given industry or employment, is in largest part 
 the demand or competition of other industries 
 and employments. If domestic servants in 
 Europe earn less in other employments than 
 they can earn in these other employments in 
 America, it will be possible to hire them as 
 servants in Europe at lower wages than they 
 can obtain as servants in America. Their 
 producing powers as servants may be equally 
 high there, but their producing powers in 
 general are much lower there than in America. 
 They will therefore have to work there as ser- 
 vants at a lower marginal utility. In America 
 we have to pay high if we get them to w^ork 
 as servants. In Europe the employers might 
 most of them be willing to pay equally high 
 wages if they had to ; but they do not have to. 
 The proposition therefore stands, that produc- 
 tion fixes wages ; but we must look at the 
 entire range of productive employment. 
 
 67. It should now be clear and it is funda- 
 mental that the first 'concern of society in the 
 problem of distribution is to have the largest 
 
114 ELEMENTABY ECONOMICS 
 
 possible product to divide. While we may 
 „ „. ^ find reason in later discussions to 
 
 Conflicts of 
 
 interest in question how far human well-being 
 
 production. . -, -. • j i > i 
 
 IS bound up with the maximum com- 
 mand of wealth, the question of distribution is 
 evidently, for the various participants, a ques- 
 tion of how to obtain the largest share in the dis- 
 tribution. Behind distribution is production. 
 
 For each of the factors in production there 
 are but two possible methods of increasing its 
 distributive share — (1) by increase in the total 
 social output ; (2) by increase in one share at 
 the expense of one or all of the others. 
 
 Primarily the interests of all producers run 
 parallel in the attempt to attain the highest 
 possible social dividend. But in the distribu- 
 tive process it is equally clear that the interests 
 are adverse. When, for example, two boys 
 go fishing or hunting on shares, harmony is 
 probable until the time comes for dividing 
 the spoils ; then peace is less certain. So 
 partners in business are each as loyal to the 
 partnership interests as either would be were 
 the enterprise all his own ; against the busi- 
 ness world they stand united. But in the 
 division of the profit and in the settlement of the 
 partnership accounts they are not one, but two. 
 
WAGES AND DISTRIBUTION 115 
 
 Thus we must beware of the sweeping propo- 
 sition that the interests of all classes of produ- 
 cers are parallel, or that the interests of capital 
 (capitalists) and labor (laborers), or of em- 
 ploj^ers and employees, are one. They are never 
 so in distribution, and are not always strictly 
 so in production. This fact is strikingly illus- 
 trated in trusts, monopolies, and combinations. 
 It is to the interest of each that others should 
 produce as much as possible ; but it is often to 
 the interest of one producer that his own prod- 
 uct be materially limited, and the price thereby 
 increased. A small product may have a greater 
 market value than a large. It is better to 
 receive 50% of 75 than 30% of 100. At all 
 events, the saving through smaller expense in 
 wages and raw material generally outweighs 
 any decrease in the value of the entire product. 
 
 But excepting cases of this sort all producers 
 are concerned in bringing about the largest 
 possible production. 
 
 68. If there were no employers and each 
 man w^orked for himself, it is evident enough 
 that more and better tools and That macMnery 
 machinery, and more effective pro- qi^estiou. 
 ductive processes and falling rates of interest 
 on the use of capital would vastly benefit the 
 
116 ELEMENTARY ECONOMICS 
 
 producers. It would be for each producer like 
 a multiplication of his productive powers. 
 
 But is the same thing true in the system of 
 great employers and monster factories ? This 
 is the question left over from the last chapter 
 for discussion. We saw that the benefits of 
 advancing civilization in better processes, larger 
 capital, and improved machinery do not remain 
 with the owners of wealth and capital ; but do 
 they remain with the employers — the managers 
 of the capitalized wealth? 
 
 Evidently not entirely — for it is open to the 
 laborer to work for himself if he prefer. ^ Many 
 of them do this, and gradually themselves 
 become employers of labor. Other laborers, 
 again, find it more to their advantage to work 
 
 1 As a practical fact, of course, insufficiency of capital, even 
 for the simpler hand industries, makes an important limitation to 
 this statement. It is true also that the mechanic, trained to one 
 small part of an industrial process, is ill prepared to undertake 
 the complete process on his own hehalf . But it is none the less 
 true that if the position of wage-earner were not, on the whole, 
 more desirable than that of independent producer, men could 
 and would, as they once did, accept the methods and compensa- 
 tions of the independent system. The condition of employee is 
 imposed upon no one, otherwise than as it is self-imposed toy 
 those who have judged it to toe the more advantageous opening ; 
 and in large measure the decision is revocatole, if any one cared 
 to revoke it. That latoorers would so rarely consider to return 
 to the old method, no matter how readily open, is merely an- 
 other aspect of the fact that the modern system is not purely 
 for the toenefit of some one else than the latoorer. 
 
WAGES AND DISTRIBUTION 117 
 
 for an employer. Each follows his line of 
 greatest advantage or of least sacrifice. 
 
 The employer-class exist because of their 
 ability, by reason of the possession in peculiar 
 degree of capital loaned or hired, or by reason 
 of superior ability in management, or by reason 
 of economies in production possible only in in- 
 dustries conducted on a large scale, to procure 
 from labor larger utilities and to provide for it 
 a larger recompense, risks being considered, 
 than laborers could obtain from society without 
 the intervention of the employer. 
 
 The demand of the employer is an interme- 
 diate form of the demand of consumers for the 
 goods produced. The employer Employer as a 
 
 may be regarded as the agent or middleman is 
 
 'J c:> iD subject to corn- 
 
 representative of the social demand petition. 
 
 engaged in the purchase of the productive 
 power of labor, and compelled by competition, 
 if effective, to recompense laborers approxi- 
 mately in the proportion in which their ser- 
 vices have contributed to the selling price of 
 the product. No distinction in principle ex- 
 ists for present purposes between the goods 
 commonly termed services and those goods 
 fixed and embodied in matter commonly termed 
 commodities. 
 
118 ELEMENT ABY ECONOMICS 
 
 69. Before we proceed to theoretical analysis, 
 1-et us see how things go on in actual business. 
 
 One shoe manufacturer, A, has exceptional 
 ability of management ; he shows, we will say, 
 unusual skill in directing men so as to get the 
 most work out of them, or so as to make their 
 work the most effective, — or he has exceptional 
 skill in judging to whom to give credit, or in 
 advertising, or in buying supplies, or in obtain- 
 ing the top price for his goods. Evidently he 
 The supply of ^^n employ his men as cheaply as 
 employers. another employer, and sells his prod- 
 uct on the same general market. He is making 
 large profits, but not at the expense of wages 
 or by higher prices to consumers. 
 
 B, a competitor of less skill, finds it necessary 
 to pay the same rate of wages and to sell on 
 the same general level of prices. His inferior 
 ability shows itself in lower profits. Still a 
 third employer, C, has small skill in manage- 
 ment ; he would almost better keep out of the 
 race, — could make nearly as much by working 
 for A or B. C is a marginal manufacturer. 
 His outlays in wages and other expenses hold 
 his profits down to nearly or quite to the wages 
 mark ; if things get much closer with him, he 
 will go out of business. Now suppose that A 
 
WAGES AND DISTRIBUTION 119 
 
 decides to enlarge his trade by putting prices 
 down a little, or that X, a wage-earner in hat- 
 making, concludes to try his fortune at manu- 
 facturing. It is time for C to drop out. If 
 Y and Z enter the field, A and B will meet 
 an increase of competition which may further 
 force down prices and profits. Possibly B will 
 become marginal and be the next to give up 
 the struggle. A's profits suffer, but do not 
 entirely disappear ; prices, however, are falling 
 for consumers. 
 
 It is of no use for the employers to try to 
 hold up their profits by lowering wages. Even 
 if they combine, the success can be only tempo- 
 rary ; other industries will get the laborers, if 
 those employers fix their wages below the mar- 
 ket level. The only resource in the long run 
 for getting exceptional profits is to form some 
 sort of pool, or trust, or combination, and by 
 limiting the product to push up the prices. 
 We are now ready for the theory. 
 
 Relatively to society, employers stand as a 
 class of wage-earners whose remuneration, other 
 things being equal, is competitively determined 
 by the supply of them. As with other forms 
 of wages or profits, so with employers' profits ; 
 peculiar advantages in ability or capital will 
 
120 ELEMENTARY ECONOMICS 
 
 bring correspondingly large returns, the amount 
 of the profit being mostly determined by the 
 degree in which the employer is able to reduce 
 his expenses of production below those of the 
 marginal producer, whose profits are practically 
 of equal importance with the wages he could 
 earn in working as wage-earner. A tendency 
 toward a fall in the profits peculiar to ability, 
 analogous to the tendency toward a fall in rents, 
 exists as the differential advantages of ability 
 become, by increase in intelligence and educa- 
 tion, less marked. 
 
 70. The line which separates the independent 
 workman from the employer on the one hand 
 and the wage-earner on the other is easily 
 crossed. Wage-earners are continually chang- 
 ing to self-employment, as are the self-employed 
 to wage-earners or to employers. There are 
 marginal wage- earners and marginal indepen- 
 dent workmen — men who are upon the point 
 of changing to employers. There are em- 
 ployers whom any fall in profits will push into 
 wage-earning or independent production, — 
 marginal employers. It is then evident that 
 the profits of employers are never safe from 
 competition from the outside, and that wages 
 and profits, being in truth but different as- 
 
WAGES AND DISTRIBUTION 121 
 
 pects of reward for human activity, have a 
 normal and natural relation to each other. The 
 profits of the marginal employer are not greatly 
 larger than the wages of employees. Employers 
 of greater skill make proportionately greater 
 profits. They produce and sell upon the same 
 market conditions as does the marginal pro- 
 ducer, but are able to reduce their outlay of 
 production below his outlays. In the competi- 
 tion of different employers with each other, the 
 market price is the measure of the sacrifice of 
 the marginal producer. The larger profits of 
 other producers can, therefore, from no point 
 of view be regarded as forming an addition to 
 price. The marginal employer is driven from 
 business by the ability of his competitors to 
 achieve economies in production to which he 
 cannot attain ; prices go too low for him. 
 
 This competition of employers with each 
 other is sharp and effective. They bid against 
 each other for the services of capi- ^he competition 
 tal as well as of labor. As more of employers. 
 capital is offered and rates of interest fall, 
 these competing producers find it possible to 
 produce and sell at lower prices ; thereby by 
 competition they cancel for each other the 
 advantages of these lower rates of interest 
 
122 ELEMENTARY ECONOMICS 
 
 upon capital. That is to say, the benefits of 
 lower interest rates are passed along to con- 
 sumers under tlie form of lower prices. 
 
 71. It follows, then, that the increased social 
 product due to the larger use of capital in the 
 form of machines and labor-saving devices, is 
 not intercepted by capitalists under the form 
 of interest or by employers under the form of 
 profits, but goes for the benefit of humanity as 
 a whole, and is distributed among individuals 
 or classes in proportion to their consumption. 
 In their character of consumers, wage-earners 
 get their share through the increasing purchas- 
 ing power of their wages. As we have already 
 seen, it is the competition of employers to 
 obtain the services of laborers, which guaran- 
 tees to the laborers a compensation proportion- 
 ate to the services rendered. 
 
 SUGGESTIVE QUESTIONS 
 
 Who are ultimately benefited by lower rates of inter- 
 est following upon larger supplies of capital? 
 
 By lower rents ? 
 
 By lower profits ? 
 
 Do lower profits come about chiefly through payment 
 of higher wages or through fall in prices ? 
 
 How does the marginal law apply to employers? 
 
 Do wages and profits tend to preserve any general 
 relation to each other? (See Section 27.) 
 
WAGES AND DISTIilBUTION 123 
 
 Does the laborer get wages in proportion at all to the 
 profits of his employer ? 
 
 Ought he? 
 
 The wage-paying ability of what employer is commen- 
 surate with market wages ? 
 
 Is this fair to the wage-earner? 
 
 Can it be changed by trades-unionism? 
 
 Or in any other way? 
 
CHAPTER X 
 
 POPULATION; INCREASING AND DIMINISHING 
 RETURNS 
 
 Look up Malthus in the Encyclopaedia. 
 
 What bearing has density of population on rent? 
 
 On wages ? 
 
 Explain the law of the survival of the fittest as it ap- 
 plies to the lower orders of life. 
 
 Does it apply in equal degree to humanity in the com- 
 plex conditions of modern life ? 
 
 Do we let it apply ? 
 
 Have lower orders of life any standard of comfort 
 similar to that among men ? 
 
 Do their standards change ? 
 
 Do ours ? 
 
 72. During the earlier years of this century 
 the English Poor Laws were the subject of 
 The Poor Law i^^^ch discussion and criticism, 
 agitation. 'j^\jq provisions Under which help 
 
 could be procured by the poor were extremely 
 lax. As a practical fact all men so lacking in 
 energy as to refuse to work, and so lacking in 
 pride as to accept charity, found help waiting 
 for them through special taxes levied for this 
 124 
 
POPULATION 125 
 
 purpose and called tlie poor rates. These taxes 
 were assessed upon the cultivators of land. 
 In some cases the poor rates became so great a 
 burden as to bring about the abandonment of 
 cultivation. In any case the ability of the 
 cultivators to pay wages was seriously affected. 
 The resulting lower wages made a still greater 
 call for help from the rates. Industry and 
 energy were discouraged, and a premium placed 
 at their expense upon idleness and improvi- 
 dence. But the full effect of these injudicious 
 laws did not stop with this. Aid was given to 
 pauper families in proportion to the size of the 
 family. To the pauper this meant that the 
 more children he had the more help he could 
 get. As it became more difficult for the in- 
 dustrious man to support his famil}^ it became 
 more easy for the shiftless. A direct incentive 
 was given for the multiplication of the shift- 
 less, English agriculture was made to suffer 
 in order that English manhood might be de- 
 graded. 
 
 73. Most effective among the protests against 
 this system was the celebrated Essay upon the 
 Principle of Population^ written by the Rev. 
 Thomas R. Malthus, a clergyman in the Eng- 
 lish Church, who held, for a large part of his 
 
126 ELEMENTARY ECONOMICS 
 
 life, a professorship in Political Economy and 
 History in an educational institution belonging 
 to the East India Company at Haileybury, Eng- 
 land. 
 
 Malthus went much further than merely to 
 condemn the artificial stimulus to improvident 
 child-bearing. He elaborated two general 
 propositions of great importance. The first 
 was in substance what we have already stated 
 as the law of diminishing returns in agriculture 
 — the assertion that with increasing demand 
 for food products there is a marked increase in 
 the difficulty of procuring them. Over-popu- 
 lation is therefore linked with poverty. His 
 second proposition was that the tendency of the 
 human race is strongly toward over-population, 
 and that nothing but conscious and continuous 
 resistance can overcome this tendency. 
 
 74. Setting aside all investigation of what 
 tendencies are likely to develop with regard to 
 Production and population, wc are none the less 
 population. concerned to determine what effect 
 will come from an increase of population, should 
 such increase take place. The agricultural law 
 of diminishing returns is of especial importance 
 in this regard, by virtue of its bearing upon the 
 productive power of human labor. First we 
 
POPULATION 12T 
 
 must observe that over-sparseness of popula- 
 tion is unfavorable either to the production of 
 wealth or to the development of civilization. 
 Pushed by increasing numbers men swarm from 
 the parent hive somewhat as do bees. Migra- 
 tions to new continents, the development of the 
 variety of natural resources which different re- 
 gions present, the groAvth of international trade, 
 the exchange of the different products of art 
 and science and industry, and the accompanying 
 interchange of science, thought, literature, and 
 institutions, make powerfully for the material 
 and intellectual progress of the race. Hunting 
 or pastoral or purely agricultural types of 
 society are rarely progressive. Even upon the 
 farm, and still more noticeably in the shop, the 
 advantages of associated effort are apparent. 
 One man to pitch up the hay and another to 
 make the load are of mutual advantage. New 
 colonies often suffer acutely from lack of 
 numbers. 
 
 75. But just as on the farm there comes a 
 point at which an increase in the number of 
 laborers takes place only at a lower DimmisMng 
 per caiyita productiveness, so in a returns. 
 state or continent there may come about a con- 
 dition of over-population. The very fact that 
 
128 ELEMENTARY ECONOMICS 
 
 nations swarm is a proof of this. After a cer- 
 tain point is reached, the tendency of over- 
 population is toward a reduced productiveness 
 of labor, and therefore toward lower wages for 
 the laborers. This is the old law of diminish- 
 ing returns. 
 
 Proceeding in substance upon this law as a 
 basis it was urged by Malthus, and is still urged 
 Is overpopuia- "^y many economists, that the world 
 tion coming? jg unavoidably set toward poverty 
 — that the human race, like all other orders of 
 life, is certain to increase in numbers until 
 starvation sets a limit, unless, indeed, the 
 human race, unlike the lower orders, shall take 
 thought of its tendencies and set itself to 
 rational, purposed, continuous resistance. 
 
 76. All orders of vegetable life press hard 
 upon one another, and increase to the limit of 
 their opportunity. The weaker go to the wall 
 simply because the stronger are pushing for 
 place. Wherever fertility allows and condi- 
 tions permit, there life multiplies to the limit 
 of possibility. The stress never relaxes, or if 
 it relaxes gives only a short respite for a more 
 rapid increase. Vegetable life maintains itself 
 primarily upon the inorganic, or, as we com- 
 monly say, the mineral, and in turn furnishes 
 
POPULATION 129 
 
 the nourishment upon which the animal king- 
 dom is maintained. True, animal life may prey 
 upon itself, but its ultimate supply of nourish- 
 ment is found in the vegetable kingdom. In 
 this power of A^egetable life to assimilate inor- 
 ganic matter, and in the dependence of the 
 animal kingdom upon the vegetable, is found 
 the ultimate basis of the classification into the 
 three kingdoms. Vegetable life is distin- 
 guished from animal life by this power of 
 assimilation of inorganic matter. All flesh is 
 indeed grass, as the horse in the old song is 
 said to have pleaded in excuse for biting his 
 master. While one form of animal life is the 
 prey of another, it is only as an intermediate 
 form of grass. Although some day the scien- 
 tists may tell us how to obtain from the nitro- 
 gen in the air and the coal in the bin our 
 necessary food, it remains certain that till then 
 the number of human beings upon the earth 
 must be limited by the capacity of the earth to 
 bring forth its supplies of vegetable product. 
 
 All orders of brute life disclose the same ten- 
 dency toward increase which we have remarked 
 in the vegetable world. The limit is the limit 
 of subsistence, modified only by the measure 
 in which animal life jjreys upon itself. 
 
130 ELEMENT AUY ECONOMICS 
 
 But humanity is rarely the prey of other 
 orders, and war and murder do not, in modern 
 days, greatly affect the total of the world's 
 census. Famine is not common, epidemics are 
 mostly famine in disguise, and famine itself 
 is merely temporary insufficiency in vegetable 
 product. The world has made an unexampled 
 increase in population during the last two hun- 
 dred years. Where is it to stop, unless when 
 famine has become the normal and usual state 
 of man ? 
 
 We have not space to examine closely into 
 the correctness of this gloomy Malthusian fore- 
 cast, but only to bring clearly into view its dif- 
 ferent and difficult aspects. There is room for 
 question how far what is true of vegetable and 
 brute life can be assumed to hold with the 
 human race. If, as nations and individuals 
 prosper increasingly in resources, wealth, and 
 civilization, they come to bring into the world 
 and to rear fewer and fewer children rather 
 than more, there is need enough to worry, but 
 for an altogether different reason from that of 
 the Malthusian foreboding. What is your ob- 
 servation as to the homes which contain the 
 most children? Do the children indicate by 
 their number the relative wealth of parents, 
 
POPULATION 131 
 
 and their relative ability to furnish sufficient 
 bread and butter for the child appetite ? Is it 
 the rich or the poor who are prolific ? 
 
 77. At any rate, the law of diminishing 
 returns appears to apply chiefly to the agri- 
 cultural industries — the industries of raw 
 material. How far, if at all, it applies to min- 
 ing or to sea-fisheries is not so clear. And it 
 may happen that other industries disclose as 
 important tendencies toward increased produc- 
 tiveness. Such, indeed, is the fact. While 
 the race may find it increasingly harder to pro- 
 duce its food, it may have an increasingly 
 larger share of time and capital to apply 
 thereto. The tendency by which this becomes 
 possible is called the law of increasing returns. 
 
 In a sparsely settled country enterprise will 
 commonl}^ be found to busy itself for the most 
 part with the extractive industries „, , 
 
 ^ The law of 
 
 — the industries of raw material — increasing 
 since these are the industries which, 
 for the time, offer the highest remunerations 
 and require the smallest outlay of capital. 
 But these are the industries to which the law 
 of diminishing returns applies. As population 
 increases, this law tends to become increasingly 
 manifest, and the advantages of the extractive 
 
132 ELEMENTARY ECONOMICS 
 
 industries correspondingly less. On the other 
 hand, as population and capital increase, the 
 relative disadvantages of manufacturing and 
 kindred industries decrease. Manufacturing 
 industries soon gain a foothold; nor is this 
 entirely due to the tendency toward diminish- 
 ing returns in extractive industries; it is in 
 part due, also, to the tendency toward increas- 
 ing returns manifested in other industries. 
 It is easier to make ten hats after one pattern 
 than to make ten different patterns of hats. 
 This is true even with the methods of hand 
 industry, and more noticeably true in more 
 highly developed conditions. The larger the 
 market, the greater the possible economies in 
 production; the more extended the division of 
 labor, the more marked the advantages to be 
 derived from machinery, and the more im- 
 portant the economies possible in the use of 
 capital. Every improvement in transportation 
 which enables a larger number of customers to 
 be served from one centre of supply, renders 
 possible larger economies of production at this 
 centre. An increase in population acts in a 
 parallel manner. So manifest is this tendency 
 toward diminished proportional expense in 
 manufacturing industries, that it is rarely over- 
 
POPULATION 133 
 
 come by the tendency toward advancing ex- 
 pense characteristic of raw material, excepting 
 in cases where the manufacturing processes 
 have comparatively small part in the cost of 
 the finished product. It follows, then, that if 
 food comes to require more time and effort to 
 get it, the race will have more time and effort 
 to spare for that purpose. 
 
 78. It is not clear that, as usually stated, the 
 tendency toward increasing returns deserves 
 to be termed a law. The economies j^ ^i,,,, ^^^^ ^ 
 possible from larger markets and i^^- 
 increased division of labor give no indication 
 of being inexhaustible. But the tendency 
 toward increased productiveness, through the 
 development of man in tastes and desires, as 
 well as in the science and technique of indus- 
 try, is seemingly persistent. On this side 
 alone the law of increasing returns is open to 
 no question. 
 
 SUGGESTIVE QUESTIONS 
 
 Why have cities grown so rapidly within the last fifty 
 
 years 
 
 What kinds of business centre in cities? 
 
 Do improvements in agriculture tend chiefly to the in- 
 crease of the rural or of the urban population ? 
 
 Is the great growth of cities peculiar to the United 
 States? 
 
134 ELEMENTARY ECONOMICS 
 
 Are there proportionally more or fewer people em- 
 ployed in agriculture now than fifty years ago ? Why ? 
 
 Is this growth of cities likely to continue? 
 
 What effect will improvements in transportation have ? 
 Improvements in machinery? 
 
 What effect from improved suburban transportation on 
 the density of cities ? 
 
 What effect may the electric motor as power have on 
 the large-factory system? In what degree? 
 
CHAPTER XI 
 
 MONEY GENERALLY 
 
 Why is the value of gold more stable than that of coal 
 or iron? 
 
 In what sense is the value of gold fixed by sacrifices of 
 production ? Is this a quick or a slow process ? 
 
 In what sense can money be consumed ? 
 
 What do you intend to do with the next money you 
 get? 
 
 If a ten-dollar bill were given yon on the condition 
 that you should always keep it, would it be worth your 
 while? 
 
 If a hundred-dollar bill were given you, would this in- 
 crease the total wealth of the world ? 
 
 Would it increase your wealth? 
 
 Suppose each man's cash were increased by one hun- 
 dred dollars, would this increase the wealth of the world ? 
 
 If the money in the possession of each member of 
 society were doubled, would this increase the wealth of 
 any individual ? 
 
 Do you suppose that after this doubling, each dollar 
 would buy as much as before? 
 
 If there were no money, how would you go to work to 
 buy a book ? Would the bookseller be willing to take 
 hay in payment ? 
 
 Why would not iron make good money? Brass? 
 Wheat? Cattle? Hay? Diamonds? Tobacco? 
 
 So far as we now see, in what important respects do 
 135 
 
136 ELEMENTA B Y ECONOMICS 
 
 gold and silver differ in characteristics from the above- 
 named substances? 
 
 Mention some uses for gold and silver other than as 
 money. 
 
 Is paper money useful otherwise than as money? 
 
 Mention some of the advantages of division of 
 labour. 
 
 79. It was sufficiently explained in the open- 
 ing chapter that people want money only in the 
 sense that they want the things which money 
 will buy. When you sell something, your pur- 
 pose does not stop with getting the money. 
 That is only a half-way stage toward getting 
 the things you want in place of what you sell. 
 That is to say, the receipt of money marks the 
 half-way point in an exchange of goods. It 
 may of course be true that when you sell and 
 get the money you may not know what you are 
 going to buy, but if you were never to buy 
 anything, you would have preferred to keep the 
 thing you had. And so, as was said in Sec- 
 tion 2, when we speak of the love of money we 
 really have in mind the love of the things in 
 life which are bought and sold. Money stands 
 only as a general symbol. In substance it is a 
 power of purchase founded on the fact of a 
 prior sale or service. 
 
 80. The function of money is analogous to 
 
MONET GENERALLY 137 
 
 that of tools ; we do not desire these for them- 
 selves, but for the things they enable ^j.^^ use does 
 us to do; we do not desire labor for ^o^®y s^^^^"^ 
 itself, but for the things which it produces ; so 
 money is helpful because it enables us easily 
 and conveniently to make exchanges of goods. 
 Barter would be an inconvenient and imprac- 
 ticable way of carrying on exchanges. The 
 advantages of currency are best illustrated by 
 assuming the absence of it: suppose that A 
 desires to exchange hats for boots; B has boots, 
 but refuses to trade with A, because B himself 
 wants, not hats, but flour. If it turns out that 
 C, who has coats, wants neither boots nor hats 
 but potatoes, the three men can do nothing 
 with each other. A must hunt about until he 
 finds some one who has boots and wants hats; 
 
 B, some one who has flour and wants boots; 
 
 C, some one who has potatoes and wants coats. 
 And even if A finds a man having boots and 
 wanting hats, it may be impossible to trade 
 because of a difference in value between the 
 desired quantity of boots and the desired quan- 
 tity of hats. B and C may meet with similar 
 difficulties. Jevons gives the following illus- 
 trations: "Some years since. Mademoiselle 
 Zelie, a singer of the Theatre Lyrique at Paris, 
 
138 ELEMENTABY ECONOMICS 
 
 made a professional tour round the world, and 
 gave a concert in the Society Islands. In ex- 
 change for an air from Norma and a few other 
 songs, she was to receive a third part of the 
 receipts. When counted, her share was found 
 to consist of three pigs, 23 turkeys, 44 chickens, 
 5000 cocoanuts, besides considerable quantities 
 of bananas, lemons, and oranges. At the Halle 
 in Paris, as the prima donna remarked, this 
 amount of livestock and vegetables might have 
 brought 4000 francs, which would have been 
 good remuneration for five songs. In the So- 
 ciety Islands, however, pieces of money were 
 very scarce, and, as Mademoiselle could not 
 consume any considerable portion of the re- 
 ceipts herself, it became necessary, in the mean- 
 time, to feed the pigs and poultry with the 
 fruit. . . . When Mr. Wallace was travelling 
 in the Malay Archipelago, he seems to have 
 suffered rather from the scarcity than the super- 
 abundance of provisions. In his most interest- 
 ing account of his travels, he tells us that in 
 some of the islands where there was no projDcr 
 currency, he could not procure supplies for 
 dinner without a special bargain, and much 
 chaffering upon each occasion. If a vendor of 
 fish or other coveted eatables did not meet with 
 
MONEY GENERALLY 139 
 
 the sort of exchange desired, he would pass on, 
 and Mr. Wallace and his party had to go with- 
 out their dinner. It therefore became very 
 desirable to keep on hand a supply of articles, 
 such as knives, pieces of cloth, arrack, or sago 
 cakes, to multiply the chance that one or other 
 article would suit the itinerant merchant." 
 
 If trading were impossible, each of us would 
 have to produce everything that he consumed; 
 we should be Jacks at all trades, masters of 
 none. Under the opportunities of exchange, 
 individuals and nations follow the lines of their 
 greatest ability and advantage, and exchange 
 their surplus in product for the surplus of 
 others. Thus the aggregate social product is 
 increased, and thereby the individual share — 
 the quotient — is enlarged. Currenc}^ facili- 
 tates this specialization of labor, commonly 
 termed division of labor, by facilitating ex- 
 changes. Whenever we trade, it is because 
 the thing that we get we value more highly 
 than the thing that we part with. Money, or 
 more accurately currency, is a means of trans- 
 portation as truly as are railroads and steam- 
 ships. 
 
 81. It is important to understand what 
 qualities are essential in any material used for 
 
140 ELEMENTARY ECONOMICS 
 
 money. Primarily the money commodity must 
 be adapted to the needs of ordinary cash ex- 
 The necessary changes: great purchasing power 
 qualities. must be Contained in small bulk; 
 
 all specimens must be of equal quality; divi- 
 sion and combination must be possible without 
 loss of value ; the value must not be so great as 
 to render the medium over minute for small 
 transactions. Hay would be too bulky and 
 too variable in quality; diamonds too valu- 
 able, too variable, and practically not subject 
 to subdivision or recombination. The pin 
 and needle business would not flourish with 
 diamonds for money. Any material which 
 should answer these requirements would serve 
 acceptably as a medium of exchange, were it 
 not for the fact that exchanges are sometimes 
 a long while in completing themselves. When 
 you sell your hats you may not want immedi- 
 ately to purchase their equivalent; possibly 
 you do not yet know what you will purchase, 
 or, if you know, you are not yet in want of the 
 thing. Thus the money which you get must 
 be something which will not fall in purchasing 
 power by reason of chemical changes or by 
 reason of fluctuations in supply. Your money 
 is a note of demand payable by society in market 
 
MONEY GEN Eli ALLY 141 
 
 products. Wheat and hay would deteriorate in 
 quality, and are at one time abundant and at 
 another time in short supply. 
 
 82. Again, while not so clearly, yet ulti- 
 mately as truly, all cases of mortgages, notes 
 and bonds, bank deposits, and 
 
 . Credit is 
 
 credits m general are protracted protracted 
 instances of exchange. The whole- ®^^ ^^^®' 
 saler sells his groceries at three months' time. 
 Instead of receiving his pay immediately in 
 commodities, or in money with which to buy 
 commodities, the payment side of the trade is 
 postponed for a term of months. It is im- 
 portant, then, that the medium of exchange 
 shall not vary in purchasing power. When 
 you lend, you really sell the right to things; 
 when you are repaid, you get things in return. 
 Thus a loan is, in essence, a long-time barter. 
 When 3^ou have sold your hats, you allow X 
 to take the money for which they sell. It 
 is the same as if you had sold X the hats or 
 the goods which he buys with the money. 
 When he pays you, he really returns to you 
 your remuneration for the hats. If the pay- 
 ment is a fair one, the money in which he pays 
 must not have gained or lost in its control over 
 the means of satisfying human needs. Thus, 
 
142 ELEMENTARY ECONOMICS 
 
 money has to serve not only as a medium of 
 quick exchanges, but as a standard of deferred 
 payments — a means of effecting exchanges re- 
 quiring long periods of time for their com- 
 pletion. 
 
 83. Gold and silver approximate most nearly 
 of all commodities to these requirements. Nei- 
 ther is greatly subject to rust, decay, or chemical 
 action. Both are absolutely uniform in quality 
 wherever found, and are subject, without loss 
 of value, to division and combination. Both 
 comprise large value in small bulk. Not only 
 this, but the annual product of each is so small 
 in proportion to the entire supply, that rapid 
 fluctuations in value from supply causes are im- 
 possible. An amount of water which, poured 
 into a washtub, will noticeably change its level, 
 will not greatly affect the depth of a cistern. 
 
 84. Currency has, then, three distinct func- 
 tions: that (1) of facilitating ordinary ex- 
 changes; (2) of serving as a measure of value 
 in current business ; (3) of affording a standard 
 of deferred payments or a reservoir of savings. 
 
 85. Now while all agree that gold and silver 
 possess, in a remarkable degree, the qualities 
 desirable in money, no one will assert that 
 either can be regarded as an ideal money. The 
 
MONEY GENERALLY 143 
 
 failure chiefly lies in this third function — that 
 of serving as a standard of deferred payments. 
 It is sometimes argued that if one i^ there an ideal 
 has borrowed an ounce of gold, or J^ioi^ey? 
 a dollar of gold, or a pound of gold, he ought 
 to be willing to return an equal weight in paj^- 
 ment, just as if he had borrowed a ton of iron 
 or a barrel of flour. The iron or the flour 
 may have changed in value either by rise or 
 fall, but this is a risk v^hich each party to the 
 contract accepts and from which no agreement 
 to be performed in the future can be free. No 
 one is wronged; the contract is a fair one — 
 only it is in some measure speculative. So it 
 is urged with respect to gold ; one has borrowed 
 a pound — let him return a pound. No one 
 can expect either gold or silver to be absolutely 
 stable upon the market, relatively to other com- 
 modities — that is, to preserve an unfluctuating 
 exchange pov^er. Everybody knov^s that some- 
 times prices rise on the average and again they 
 fall — that is to say, gold increases or loses in 
 purchasing powder, and there seems to be no way 
 to help it. Gold is a commodity like other 
 commodities ; while it may fluctuate less than 
 others, it can hardly be expected to be free 
 from all fluctuation. How is the debtor 
 
144 ELEMENT AEY ECONOMICS 
 
 wronged, if, wlien the time of payment comes, 
 the gold will buy more than when it was bor- 
 rowed? Suppose the creditor not to have 
 loaned, or suppose the debtor to have kept in 
 hand the very gold coins which he borrowed; 
 why should the creditor be worse off for having 
 loaned or the debtor differently treated for hav- 
 ing spent? Would he likewise object to carry- 
 ing out a contract for flour or iron ? 
 
 But an ideal money would be a money that 
 did not fluctuate in purchasing power. Possi- 
 bly enough there will never be found an ideal 
 money ; probably there will not. It may be that 
 there is less of speculation in gold contracts 
 than in other contracts, but a perfect money 
 would not be speculative at all. When we 
 buy wheat, or cattle, or groceries, we commonly 
 promise to repay in money rather than in kind 
 precisely because we want to attain as nearly as 
 possible to an equality of purchasing power be- 
 tween what was received and what is returned. 
 If the standard of payment itself fluctuates, 
 this is in itself an evil. 
 
 We must remember also that one does not 
 borrow money for the purpose of consuming 
 it, but of spending it. So when the lender is 
 paid he uses the money for reinvestment or 
 
MONEY GENERALLY 145 
 
 for purchases, and not as a commodity to be 
 consumed. 
 
 86. The fluctuation of the purchasing poAver 
 of money is so slight that it does not materially 
 interfere with the ordinary day-to- „ 
 
 ^ ^ ^ How tnis bears 
 
 day business. It is only in long- upon the silver 
 time contracts that the question be- ^^^^ ^°^' 
 comes of great importance. As bearing upon 
 American political questions, it is now, for ex- 
 ample, of great interest to determine whether 
 gold has not in the past twenty or twenty-five 
 years considerably increased in purchasing 
 power, and if so, in what degree. The advo- 
 cates of silver coinage make it one ground of 
 attack upon the gold standard, that under it 
 the debtor is constantly put to loss to the corre- 
 sponding advantage of the creditor. In sup- 
 port of this they point to the general fall in 
 prices, which they assert to have taken place 
 for a number of years and to be still taking 
 place. The opponents of silver coinage meet 
 this attack in different ways. Some deny any 
 general or average fall in prices. Will this 
 denial hold? Others admit the fall, but insist 
 that this is not an increase in the value of 
 gold, but rather a decrease in the value of other 
 commodities, consequent upon the cheapening 
 
146 ELEMENTARY ECONOMICS 
 
 of the methods of production. Do you see what 
 they mean by this ? What is value ? ^ 
 
 87. We have seen that the utility of cur- 
 rency lies, for the most part, in its service in 
 The demand for facilitating exchanges. There is, 
 money. then, as truly a demand for money 
 
 as for any other commodity. The demand for 
 a medium of exchange is approximately meas- 
 ured by the volume of exchanges to be made. 
 
 1 The Silver Question. — From 1831 up to 1873 a certain 
 weight of gold or sixteen times this weight of silver was per- 
 mitted under the United States law to be coined as a dollar ; 
 any one in possession of either gold or silver was entitled free 
 of charge to have these stamped at the mint as money, a given 
 weight of silver making one-sixteenth as much money as a like 
 weight of gold. This is what is meant by free coinage of gold 
 and silver at the ratio of 16 to 1. Practically no silver was ever 
 coined under this law, because silver was too valuable relatively 
 to gold. Evidently if silver were of equal value with gold, 
 weight for weight, no one would have it stamped as money at a 
 ratio of 16 to 1. This would be to stamp sixteen gold dollars 
 worth of silver as worth one dollar. So if silver were at the 
 ratio of 15 to 1, that is, worth one-fifteenth of gold, no coining 
 of silver would be done at a valuation of one-sixteenth. The 
 reason that no coinage of silver was ever done under so-called 
 free coinage was that silver never came to be worth as little as 
 one-sixteenth of gold till 1873, and a little before this point 
 was reached the coinage right was withdrawn. Gold has since 
 remained the only metal freely coined for whoever may present 
 it. The silver which has been coined since that time, as well 
 as that coined before, has been bought by the government and 
 made into money, just as are nickel and copper, without any 
 attempt to make the bullion value equal to the face value. 
 
 The ratio of silver to gold is now about 33 to 1. It is asserted 
 by the opponents of free silver that as long as gold is worth 
 thirty-three times as much as silver, it cannot be coined or 
 kept in circulation if treated as only worth sixteen times as 
 much, — that silver would be coined in immense quantities. 
 
MONEY GENERALLY 147 
 
 We say approximately, since barter is always 
 possible, though ordinarily not of considerable 
 volume. 
 
 Clearly enough there would be no necessity 
 for money and no demand for it, if each of us 
 were to produce everything that he 
 
 . . Demand limited 
 
 consumed. it is equally obvious by division of 
 
 that division of labor becomes pos- ^ °^' 
 
 sible only on terms of possible exchange of 
 
 and the purchasing power of the dollar lowered to something 
 like one-half what it now is. They reason that gold would 
 entirely disappear from circulation as money, according to 
 Gresham's Law. 
 
 Of the advocates of free silver, one part believe that with 
 free coinage silver would be so raised in value by the increased 
 demand, and gold so lowered in value by the sui)plies set free 
 from use as money and thrown upon the market, that the ratio 
 would return to 16 to 1, and the two metals circulate side by 
 side as money. These are the National Bimetallists. Others of 
 these advocates admit that gold would be excluded from circu- 
 lation. These are the Silver Monometallists. The International 
 Bimetallists believe the co-operation of the European nations 
 necessary in fixing the coinage ratio. Some of these regard 16 
 to 1 as a practicable ratio ; others advise a higher ratio. 
 
 The extent of your investigations into the silver question 
 must rest with yourself and your teacher ; the subject is too 
 large for adequate treatment in an elementary course. The 
 writer may, however, remark in passing that he does not con- 
 cur in either of the methods, set forth in the text, of meeting 
 the silver argument ; that he believes that prices have consider- 
 ably fallen in the last twenty-five years ; and that this fall is 
 not entirely, or even in larger part, to be ascribed to temporary 
 disturbances in the way of crisis or panic. He is also disposed 
 to admit that had our government, in 1873, adhered to silver 
 as a standard instead of gold, the silver standard would have 
 afforded a much closer approximation to the ideal than has 
 gold ; and yet he does not favor a return to the free coinage of 
 silver in America alone on any terms. 
 
148 ELEMENTARY ECONOMICS 
 
 products. It now becomes important to note 
 that, population and per capita production 
 remaining the same, the volume of exchanges 
 increases as division of labor is more extended; 
 that the aggregate of exchanges is approxi- 
 mately limited by the degree in which division 
 of labor is extended; and that, therefore, the 
 advantages of exchange are exhausted when no 
 further economies in production are promised 
 by an increased division of labor. 
 
 88. But population and per capita pro- 
 ductiveness do not remain stationary; the 
 Demand is population of the earth is rapidly 
 increasing. increasing; the development, also, 
 of the sciences and arts, and of machinery and 
 trans]Dortation, not only stimulates the division 
 of labor, the specialization of industry, but 
 increases the per capita production of commodi- 
 ties. The ends of the earth now trade with 
 each other. 
 
 It ought, then, to be clear that the need for 
 currency is not proportionate to population 
 alone, or to wealth, or even to per capita pro- 
 ductiveness alone. It is the volume of ex- 
 changing to be performed which furnishes the 
 measure of the demand for currency. This is 
 largely a matter of degree of civilization and 
 
MONEY GENEEALLY 149 
 
 manner of industrial organization. In a gen- 
 eral way, the per capita requirement for cur- 
 rency is enlarging. No amount can be said to 
 be required per capita simply, but only per 
 capita in view of the average productive effi- 
 ciency and the established industrial methods. 
 A sufficient per capita for one country may be 
 entirely inadequate for another. 
 
 89. The value of the currency unit, the dol- 
 lar or franc or pound, is the point of adjustment 
 between the demand for currency ^he value of the 
 and the supply of currency. To ^^^^y "^^^■ 
 this extent, there is nothing difficult or pe- 
 culiar in currency principles. If the demand 
 increases without a correspondingly increasing 
 supply, money rises, that is, prices fall. So, 
 increases in supply tend toward higher prices, 
 that is, toward depreciation in the purchasing 
 power of the money unit. If the relation 
 between demand and supply changes, the value 
 of the unit changes to correspond. A perma- 
 nently insufficient currency is therefore an im- 
 possibility; prices must fall until at the new 
 unit value the supply is sufficient. So, if the 
 currency is redundant, prices rise until the 
 redundancy is cancelled. Currency is like a 
 gas which always fills its receptacle. A cur- 
 
150 ELEMENTARY ECONOMICS 
 
 rency out of equilibrium is always in process 
 of becoming sufficient. But this process of 
 becoming is rarely a comfortable one, and is 
 always attended with injustice, and commonly 
 with disaster, as will be more clearly seen in 
 our examination of commercial crises. These 
 fluctuations in prices are to be avoided if 
 possible. It is b}^ this test, then, that the 
 normal supply of money is best determined. 
 A supply sufficient in kind and quantity to 
 preserve unchanged the purchasing power of 
 the dollar would be the ideal condition for 
 all ordinary cases. 
 
 SUGGESTIVE QUESTIONS 
 
 Explain the analogy between exchange and transpor- 
 tation. 
 
 Outline inconveniences of doing business without a 
 medium of exchange. 
 
 Show that a sale for money is only half of an exchange 
 of goods. 
 
 Show that a loan and repayment of money really equal 
 an exchange of commodities. 
 
 What forces are working to increase the demand for a 
 circulating medium? 
 
 As far as you can see, is gold alone, or are gold and 
 silver together, increasing in volume with a rapidity cor- 
 responding to the demand ? 
 
 If not, what strikes you as a necessary result ? 
 
DEMAND AND SUPPLY OF CUBRENCY 151 
 
 What will happen if currency is in excess? Is insuf- 
 ficient? 
 
 Who are injured when prices rise? 
 Who, when prices fall? 
 
 DEMAND AND SUPPLY OF CURRENCY 
 
 What effect would falling prices have on the produc- 
 tion of gold ? 
 
 Would this result probably be sufficient fully to over- 
 come the tendency toward a fall in prices ? 
 
 What effect would an increased output of gold at the 
 mines have? 
 
 Suppose the output of this year to be double that of 
 last year ; would this double prices ? 
 
 Have you any gold about your person ? 
 
 Is it in the form of money ? In what forms ? 
 
 What effect would more plentiful gold have on its use 
 for other than currency purposes ? 
 
 Would this effect be sufficient entirely to prevent a 
 rise in prices ? 
 
 90. In a general way the nature of the 
 demand for currency is clear enough. This 
 demand rests upon the utility of currency in 
 permitting the division of labor, which divi- 
 sion of labor becomes possible only on condition 
 of possible exchange of products. With cur- 
 rency, as with all other commodities, value 
 marks the equilibrium point between demand 
 and supply. As the business to be transacted 
 
152 ELEMENT AUY ECONOMICS 
 
 becomes greater, the value of currency will rise, 
 that is to say, prices will fall — money will buy 
 more — unless at the same time the supply 
 of currency expands. If. the volume of the 
 currency increases, prices will tend to rise — 
 that is to say, a given amount of currency will 
 buy less goods. 
 
 91. As has been said, the demand for cur- 
 rency results from the disposition to trade — 
 
 „ , to exchange thinp-s. Now note that 
 
 The cause of the ^ ... 
 
 demand for this disposition to trade is strong 
 money. ^^^^^ .^^ proportion as there are ad- 
 
 vantages to be obtained thereby. Both buyer 
 and seller believe themselves to be benefited in 
 every trade, else they will not trade. The 
 quantities, therefore, which we have already 
 studied as buyers' and sellers' quasi-rents 
 explain the demand for currency. 
 
 92. But there are many things owned by us 
 which we would hardly sell at any price, or, at 
 
 all events, at anything which any 
 
 Should currency i i • -^r t • i 
 
 be equal to One would givc. You Ordinarily 
 wealth? ^^^ things because you want them 
 
 for use and not for re-sale. Whatever you sell, 
 you sell with a view to replacing it by another 
 thing which you want more. When you have 
 obtained this other thing, you commonly intend 
 
DEMAND AND SUPPLY OF CURRENCY 153 
 
 to keep it; that is why you bought it. Thus, 
 only a small part of the wealth of the world 
 goes to swell the demand for currency — only 
 that part which is being offered for sale at any 
 particular moment. Those people evidently 
 misunderstand the case who believe there must 
 be as much money as there is wealth, or who 
 fancy that the general welfare would be in- 
 creased by indefinitely increasing the number 
 of dollars. 
 
 93. We must now briefly examine some of 
 the sources of supply of currency. Almost all 
 peoples use, in some measure, either ■^]ieiice comes 
 silver or gold as money. Where *^® supply? 
 this is true, and where also it is true, as it 
 generally is, that anybody having the bullion 
 can have it stamped as money, the value of the 
 money will be equal to the value of the bullion 
 which it contains, and the purchasing power of 
 the money will equal the marginal cost of pro- 
 duction of the bullion. That is to say, if a 
 day's labor applied to gold digging will procure 
 more hats than will a day's labor applied di- 
 rectly to hat making, the production of gold 
 will increase until this advantage is cancelled. 
 Thus, any increase in the purchasing power of 
 money will tend to stimulate the production of 
 
154 ELEMENTARY ECONOMICS 
 
 the money metal, and after time enough has 
 elapsed, the value of the money will come to 
 equal the marginal cost of producing it. 
 
 94. Suppose, however, that a great increase 
 takes place in the product of the mines, richer 
 Effect of in- niines having been discovered or 
 creased supply, better processes of working them 
 devised. This will tend to enlarge the volume 
 of currency and thus to raise prices. But not 
 all the new product will be made into money. 
 Not all the gold already produced is used as 
 money. Increased supplies would lower its 
 value, and gold would come to be employed 
 for many new uses as well as in larger measure 
 for old uses. Only a part of the new product 
 would go to expand the volume of currency. 
 
 In the next chapter we shall examine the 
 ways in which paper and credit come, for some 
 purposes, to take the place of money. We 
 are, however, already prepared to note one im- 
 portant difference between a currency having a 
 real commodity value — a currency marketable 
 for ordinary use and consumption — and a cur- 
 rency made, for example, of paper, and having 
 no value, or an inappreciable value, for other 
 than currency uses. A considerable increase 
 in the supply of gold would not considerably 
 
DEMAND AND SUPPLY OF CURRENCY 155 
 
 affect the amount of gold used as money, if 
 the ordinary market demand were capable with- 
 out a great change in value of absorbing the 
 larger portion of the new suppl}^ At any 
 rate, to increase the world's supply of gold by 
 an amount equal to the volume used as money 
 would not be to double the amount used as 
 money. But with paper the case is different. 
 Paper put out as money will remain as money 
 unless it gets paid back to the government or 
 becomes so worthless as to be used for rags. 
 The supply adjusts itself to the demand only 
 by a fall in purchasing power — a rise in prices 
 — proportional to the increase in volume. 
 
 DIFFERENT KINDS OF CURRENCY 
 
 The following is the report of a typical coun- 
 try bank in the fall of 1894. A careful analysis 
 should be made of this report. Notice that the 
 bank has, of capital, surplus funds, and undi- 
 vided profits, about $76,000 invested, and has 
 with it upon deposit 1255,887.94 : — 
 
156 
 
 ELEMENTARY ECONOMICS 
 
 FIEST NATIONAL BANK 
 Chaeles City (Iowa), 1894 
 
 Loans and dis- 
 counts .... $237,600 40 
 
 Overdrafts ... 385 36 
 
 U. S. Bonds to se- 
 cure circulation 12,500 00 
 
 Due from other Na- 
 tional Banks . 32,713 04 
 
 Furniture and fixt- 
 ures 1,000 00 
 
 Due from State 
 Banks and bank- 
 ers 782 52 
 
 Due from approved 
 reserve agents . 24,888 90 
 
 Checks and other 
 cash items . . 1,649 79 
 
 Bills of other Na- 
 tional Banks . . 7,972 00 
 
 Fractional cur- 
 rency .... 93 63 
 
 Specie 10,035 50 
 
 Legal tender notes 8,000 00 
 
 Kedemption fund 
 with U. S. Treas- 
 urer 562 50 
 
 Total $338,181 64 
 
 Capital stock paid 
 in $50,000 00 
 
 Surplus fund 
 
 10,000 00 
 
 Undivided profits 
 less current ex- 
 penses and taxes 
 paid 16,533 70 
 
 National Bank 
 Notes outstand- 
 ing 5,760 00 
 
 Individual deposits 255,887 94 
 
 Total $338,181 64 
 
 QUESTIONS 
 
 Show what has become of this money. 
 
 How much in notes or overdrafts is due the bank from 
 borrowers ? 
 
 How much has been loaned to other banks by way of 
 deposits ? 
 
DEMAND AND SUPPLY OF CURRENCY 157 
 
 How much may this bank be called upon to pay on 
 any day ? 
 
 What are its immediate resom'ces for this purpose? 
 
 How much cash has it on hand ? 
 
 How much of this is gold or silver ? 
 
 How much of its resources are in the form of demand 
 rights against other banks ? 
 
 What has the bank, in fact, to show for this depositors' 
 money? 
 
 How are national bank notes secured? 
 
 In what payable ? 
 
 Get one of these notes and see what the bank agrees 
 to do. 
 
 Is it probable that all depositors will call for their 
 money at one time ? 
 
 What would happen if they did ? 
 
 Would there be much profit in banking if, for every 
 dollar left at the bank, the bank must keep a dollar on 
 hand? 
 
 95. Suppose that D gives to L an order upon 
 you for fifty dollars. L pays a grocery bill 
 with this, and the g^rocer brino-s „ 
 
 ' ° ^ How credit 
 
 it to you and discharges a claim serves as cur- 
 which you hold against him for ^^^°'^' 
 that amount; you tear up the order. A large 
 amount of business has been transacted by 
 the use of this order and without the need of 
 money. Credit has served as a substitute for 
 money. 
 
 So when you pay a debt by a check upon the 
 
158 ELEMENTARY ECONOMICS 
 
 bank, this check may pass through several 
 hands, clomg work similar to that of money, 
 permitting exchanges, making payments, etc., 
 and finally, when the check comes to the bank, 
 it is merely charged np to you and credited to 
 the person who deposits it. No money need 
 have been used in the entire series of trans- 
 actions. 
 
 We thus see that the circulating medium is 
 composed of different elements. The student 
 may have been puzzled by the use in one place 
 of the term "money" and in another of the 
 term "currency." Money and currency are not 
 equivalent terms. Currency includes all forms 
 of exchange media; money is but one form of 
 currency. We speak of coin, greenbacks, and 
 the like, as money. But the larger part of 
 business is transacted through credit substi- 
 tutes for these, — through drafts, bills of ex- 
 change, negotiable notes, and the check and 
 book-keeping devices of deposit banking. In 
 their origin, it is probably true that all cur- 
 rencies were composed solely of commodities, 
 with a well-defined utility for other than cur- 
 rency purposes. But with the development of 
 society, the use of substitutes has increased. 
 The bank customer thinks of his deposit in the 
 
DEMAND AND SUPPLY OF CURRENCY 159 
 
 bank as money, and it really serves him all 
 the purposes of money. The right to have the 
 money when desired is as good as the actual 
 possession of it, and is as readily and as ser- 
 viceably transferred. When the bank customer 
 wants to pay a bill, he draws a check or order 
 against his account. The receiver of the check 
 places it in the bank and gets credit for it, the 
 drawer is charged with it, and the transaction is 
 completed, no money having been transferred. 
 These deposit accounts in banks commonly 
 aggregate several times the cash resources of 
 the banks. These cash resources also are 
 largely made up of deposit claims against 
 other banks. London, for exam^^le, is the 
 banking centre not only for a large part of 
 the business of England, but also for a con- 
 siderable portion of the business of the world. 
 International interest payments and the trans- 
 actions of foreign exchange are effected by 
 drafts on London. Balances between Lon- 
 don banks are settled, not in money, but in 
 checks and book-keeping at the Bank of Eng- 
 land. It results that the enormous business 
 of the London banks, aggregating hundreds of 
 millions of dollars daily, requires the transfer 
 of only a fraction of one per cent in money. 
 
160 ELEMENTARY ECONOMICS 
 
 It becomes intelligible that the English people 
 are able to handle their business affairs upon 
 less than twenty dollars per capita of money, 
 while France employs over forty dollars per 
 capita, though doing a much smaller per capita 
 of business. One rarely comes across a bank 
 in French cities — deposit banking is scarcely 
 practised, checks unknown in ordinary affairs, 
 and even the Paris clearing-house, the only 
 one in France, is scantily patronized. Work- 
 ing people keep their salaries in their pockets ; 
 peasants their savings in their stockings; and 
 each merchant serves as his own banker. 
 
 96. Not only have business men invented 
 methods of convenience in doing business 
 Government which in effect are creations of cur- 
 issnes. rency, but governments and bank- 
 
 ing institutions have made large issues of 
 forms of money known as bills, bank-notes, 
 "greenbacks," and the like. We have seen 
 that all these substitute forms of currency per- 
 form the functions of bullion currency (coin) 
 in effecting exchanges, and therefore operate 
 in this regard as would an actual increase in 
 the supply of the commodity used as money. 
 
GEE SHAM'S LAW 161 
 
 SUGGESTIVE QUESTIONS 
 
 AVhen a merchant deposits in the bank, say $1000, is 
 all of this usually in actual money? In what else? 
 
 Suppose you have $1000 to your credit — on deposit, 
 as it is called — at the bank, is this money really there? 
 
 How much is probably at the bank to answer for your 
 11000? 
 
 If you desired to pay a bill, would you probably draw 
 money or make a check ? 
 
 'How could the merchant make the check serve him as 
 money without ever seeing the real money for it ? 
 
 What is a clearing-house? See a banker and ask him 
 to explain it to you. 
 
 GRESHAM'S LAW 
 The Cheaper Money Drives out the Dearer 
 
 As aluminum has become cheaper, what new uses 
 have been found for it? 
 
 What effect would a decrease in the exchange power 
 of gold have on its use as plate and gilding and orna- 
 ment? 
 
 When a piece of gold in your possession will make 
 for you a gold watch case or will buy you a second-grade 
 bicycle, we will suppose that you choose the watch case ; 
 now suppose prices change so that the gold will command 
 a first-grade wheel — what change would you probably 
 make in your application of the gold ? 
 
 97. Any expansion of the currency, whether 
 by credit or otherwise, tends to lower the pur- 
 chasing power of each money unit (dollar, 
 
162 ELEMENTARY ECONOMICS 
 
 franc, pound, etc.). This fall in the exchange 
 
 power of the money commodity, for example 
 
 gold or silver, makes it possible 
 
 Poor money /. i t t i 
 
 drives out lor the Commodity to be applied 
 ^°° ' to many new uses. So, as paper 
 
 money or credit comes to circulate as cur- 
 rency, there is some tendency toward disap- 
 pearance from money uses of that part of the 
 currency which can be used for somethi'ng 
 else. The gold flows out into other chan- 
 nels. So we say, in the terms of what is 
 called Gresham's law, that the cheaper money 
 drives out the dearer. But do not allow this 
 expression to mislead you. The expansion 
 of currency causes a fall in the purchasing 
 power of the unit. This fall releases the 
 gold or silver to the stronger pull of the 
 outside market — the market of art and in- 
 dustry. The dear money is not elbowed or 
 pushed out, but rather induced or beckoned 
 out. Cheaper money relaxes the currency de- 
 mand, and thereby releases, in some measure, 
 the currency which is the object of other kinds 
 of demand. In truth, expansion by cheaper 
 currency does not differ from expansion through 
 an increased supply of the original currency 
 commodity, except that, in the case of an 
 
GIIESHAM'S LAW 163 
 
 addition of cheap money, all the outflow is 
 confined to the dearer money, the cheaper 
 continuing in its currency use. 
 
 98. What we have already said as to Gresh- 
 am's law^ applies in any society, and would be 
 true were the society in question „ , . , 
 
 •^ ^ Gresnam's law 
 
 the only one in the world. But in international 
 
 commonly these domestic tendencies 
 are not of very great importance. Similar 
 tendencies are, however, to be remarked in 
 international trade. In domestic movements 
 of currency, Gresham's law means that inflation 
 (expansion or increase) makes some forms of 
 currency more desirable outside of the cur- 
 rency use than inside — more valuable for use 
 than for exchange. In international affairs 
 Gresham's law means that expansion makes 
 some forms of currency more desirable outside 
 of the country than inside — more desirable 
 for buying abroad than for buying at home. 
 
 Suppose, for example, that by some form of 
 domestic expansion — for example, by paper 
 money or by increased use of credit — prices 
 have been raised ten per cent; that Avhich was 
 originally 90 here and 100 abroad and was ex- 
 ported, now rising to 99 here ceases to be 
 exported; that which was 90 abroad and 100 
 
164 ELEMENTARY ECONOMICS 
 
 here and was imported, now rising to 110 
 here, is still more largely imported. That 
 part of onr currency which stands best abroad, 
 and upon which therefore the pull of the for- 
 eign market is strongest, will be exported to 
 pay the money balance which we come to owe 
 abroad. This tendency toward the export of 
 money will continue till we have cancelled 
 the difference between domestic and foreign 
 prices. While the export of our money tends 
 to bring our prices down, 'the import to for- 
 eign countries tends to raise the prices there. 
 99. Let it be supposed, in further illustra- 
 tion of international currency movements, that 
 the money circulation of the United States is 
 one billion five hundred millions, and that of 
 Europe ten billions; suppose, also, our billion 
 and a half to be all gold. If now an attempt 
 be made to double our money volume by the 
 issue of a billion and a half of paper dollars, 
 it is evident that our prices will tend to rise. 
 The result must be an increase in imports and 
 a decrease in exports. As long as we have the 
 gold to send, our unfavorable trade balance 
 will be settled in exported gold, and prices 
 will tend to rise abroad. When interna- 
 tional prices have reached their new level, the 
 
GRE SHAM'S LAW 165 
 
 case will stand as follows : the aggregate cur- 
 rency of Europe and America will have 
 increased from 111,500,000,000 to 113,000,- 
 000,000, and a general advance in prices of 
 13 % will therefore have taken place. Our 
 currency must, then, have increased from 
 $1,500,000,000 to (11,500,000,000 x 1.13) |1,- 
 669,500,000, —$169,500,000 of this being gold, 
 and the remainder of our gold having left to 
 swell the circulation of Europe. 
 
 An issue of two billions of paper by us 
 would give the following outcome: all our 
 gold would have departed for Europe; rise of 
 prices in Europe of 15%; our need for money 
 on this new gold basis, 11,725,000,000; our 
 actual circulation, $2,000,000,000; gold at pre- 
 mium of 15.9%; rise in prices as reckoned in 
 paper money, 33%. 
 
 100. Bearing these facts in mind, the futility 
 and danger of any local effort toward an in- 
 creased currency becomes evident. Attempts of 
 this sort can attain their purpose only in propor- 
 tion as the currency of the world is expanded, 
 unless the currency of the nation attempting 
 expansion wholly loses its commodity elements 
 — e.g. gold — and becomes a non-international 
 currency — e.g. fiat (irredeemable paper). 
 
166 ELEMENT ABT ECONOMICS 
 
 SUGGESTIVE QUESTIONS 
 
 Is it possible permanently to have exports exceed im- 
 ports ? 
 
 What effect on the volume of money abroad? On the 
 volume of money here? 
 
 What effect on prices abroad? On prices here? 
 
 What effect on further exports ? 
 
 What ultimate effect on exports must follow from the 
 prohibition of imports ? 
 
 Is it worth while to increase the domestic currency 
 and to expand prices by restricting purchases, unless 
 we expect later to increase our purchases? 
 
 What has this to do with protective tariffs ? 
 
 Is it true of nations that international division of 
 labor is possible only on condition of possible exchange 
 of products ? 
 
 Is division of labor well for people inside the same 
 country ? 
 
 Is international division of labor well? 
 
 Do you see any bearing of Gresham's law upon the 
 silver question? 
 
 In a commodity currency, where does the supply come 
 from? 
 
 What would measure value if the legislature fixed the 
 supply, for example in paper ? 
 
 Would paper or commodity currency best adapt itself 
 to demand? 
 
 Would an increased use of silver as money set free 
 any gold for commodity uses? Why? 
 
 How would the value of gold as commodity be af- 
 fected? 
 
 How would its purchasing power as money be 
 affected? 
 
COMMERCIAL CBISES 167 
 
 Would its purchasing power as money fall, unless its 
 value as commodity fell also ? Why ? 
 
 Is the purchasing power of gold as money given to it 
 by the fact that it is stamped by the government? 
 
 Does its purchasing power result in any degree from 
 the fact that it is used as money ? 
 
 May its use as money be effective in this regard, 
 though the government stamp is not effective? 
 
 Is it true that the stamped coin is worth exactly the 
 value of its contained bullion ? 
 
 If the stamp does no more than certify the weight and 
 fineness, who pays for the stamping? 
 
 What is seigniorage ? 
 
 COMMERCIAL CRISES 
 
 What kind of years generally precede panic times, as 
 to (a) prices, (b) wages, (c) speculations? 
 
 AVhat kind as to the creation of (a) capital, (b) the 
 building of houses, (c) of factories, {d) of railroads ? 
 
 Have the people been mostly at work, or have large 
 numbers been unemployed ? 
 
 Has the social product been large? 
 
 How about savings ? 
 
 If prices have been high and business large, what 
 must have been true as to the volume of currency ? 
 
 Has the volume of money increased? 
 
 Are flush times times of relatively large production of 
 the precious metals or times of unusually marked tendency 
 toward the coinage of accumulated stocks of precious 
 metals ? 
 
 How did these high prices become possible ? 
 
 101. We have already seen that a large 
 share of modern business is transacted through 
 
168 ELEMENTARY ECONOMICS 
 
 the use not of money, but of substitutes for 
 money — through different forms of circulat- 
 
 The great ^^^S Credit, Or through the book- 
 
 credit system, keeping devices of deposit banks 
 and clearing-houses. In local trade, checks 
 supply a large part of the currency demand. 
 Drafts and bills are the media of debt payment, 
 not only between city and city, but between 
 country and country. Only balances are paid 
 in money, and the clearing-house greatly re- 
 duces this latter employment. Bank balances 
 in London are paid by book-keeping in the Bank 
 of England. It is evident that all exchanges 
 completed without the use of money stand 
 with relation to the demand for money as if 
 they had not taken place. Not only this, but 
 more rapid transportation has shortened the 
 time of employment of money in the payment 
 of balances. These influences together have 
 worked powerfully to lessen, if not to cancel, 
 the tendency toward appreciation in the cur- 
 rency unit, due to enlarged demand for ex- 
 change media. The customer pays the retail 
 trader by check. The retailer pays the whole- 
 saler by draft. Railways and telegraphs have 
 almost cancelled the element of distance in 
 book-keeping and payment relations between 
 
COMMERCIAL CBISES 169 
 
 communities. Negotiable notes, bills of ex- 
 change, open accounts of debt and credit, all 
 contribute to the economy of money. In 
 England and America the credit system is 
 widespread, thoroughly organized, delicately 
 adjusted, swift, effective, and complicated. 
 It is carefully protected by guaranty or- 
 ganizations, by great trust companies, by 
 all-powerful and all-inquisitorial mercantile 
 reporting and collection agencies. In ad- 
 dition to these, there are the investment 
 companies, the savings banks, and the insur- 
 ance companies, all of which are intermedi- 
 aries for the gathering and distributing of 
 credit. Their business is to guard the credit 
 system with extreme watchfulness in protec- 
 tion of their legal guaranties. Thus the credit 
 system, resting upon infinitely intricate rela- 
 tions between manufacturers, jobbers, whole- 
 salers, retailers, and consumers, has for super- 
 structure the many-storied fabric of deposit 
 and discount banking, of stock investment and 
 collateral borrowing, of savings and insurance 
 investment, and of trust and mortgage guar- 
 anty companies. There are even companies 
 to guarantee the validity of titles and the good 
 faith of employees. 
 
170 ELEMENTARY ECONOMICS 
 
 102. Not all of these credit devices serve as 
 economies in tlie use of money. Where items 
 in open account offset each other, the economy 
 is manifest. Where credit circulates, the econ- 
 omy is manifest. But the mere granting of 
 credit, awaiting a later settlement, does not 
 lessen, in the outcome, the demand for mone^^, 
 but merely postpones it. Credit must be used 
 by transfer in payment of indebtedness before 
 it works as substitute for money. Neverthe- 
 less, this non-currency element in credit is 
 none the less credit, and in the making up of 
 disaster is as important as any other. For, 
 carefully inspected and supported as is this 
 credit system, it is the sheerest card-house. 
 Its contrivances for watchfulness and safety 
 are its most shifty and unstable features. No 
 fire-trap could be more skilfully planned for 
 purposes of destruction, with heavy supports 
 and girders of spontaneously combustible 
 timber. 
 
 103. The period preceding a financial crisis 
 is commonly a period of seemingly great jdtos- 
 , , . perity. There is a popular impres- 
 
 Ante-panic . 
 
 years are pros- siou that sucli prosperity is a mere 
 
 seeming, and that panic is in the 
 
 nature of a necessary collapse. It would be 
 
COMMERCIAL CBISES 171 
 
 going too far to claim that no bubbles are 
 formed in the course of business expansion, 
 or that these bubbles are not sources of finan- 
 cial danger; but, speaking generally, the pop- 
 ular impression is a mistaken one. The years 
 preceding a panic constitute a period of great 
 industrial activity and of great productiveness. 
 Wage-earners have been well employed; the 
 industries of distribution have been in smooth 
 and successful operation. At the close of the 
 period it will be found that the wage-earning 
 classes have rarely been as well housed, as well 
 clothed, or as well fed. They are exception- 
 ally well supplied with the smaller conven- 
 iences and comforts of life. Measured by 
 their own standard, the laborers are prosperous 
 in pleasant homes and large personal belong- 
 ings. In the aggregate, they represent a large 
 total of material wealth. It will be found true 
 of the farmer that his farm was never under 
 better cultivation, or his herds larger, his 
 buildings more substantial or in better repair, 
 or his home better furnished. Likewise of the 
 manufacturer and the merchant; never were 
 there larger stocks or more warehouses burst- 
 ing with merchandise. Never were factories 
 daily pouring forth more goods. Turning to 
 
172 ELEMENT ATiY ECONOMICS 
 
 general conditions, it will be found that these 
 prosperous years have rebuilt cities in brick, 
 interlaced states and even continents with 
 railroads, dotted the prairies with farmhouses, 
 beautified them with fields of grain, and 
 covered them with herds. The period has 
 been one of widespread plenty, of remarkable 
 industrial activity and efficiency, of boundless 
 energy and hope. It is strange, it is even 
 impossible, that extensive building operations 
 should, in themselves, result in houseless ex- 
 posure; that overflowing granaries and fatten- 
 ing herds should foster hunger, or that ware- 
 houses of cloths should be the sufficient cause 
 of nakedness. It is doubtless true that these 
 meshes of railroads, these cities of brick and 
 iron, these immense factories and fattening 
 herds, are largely the outcome of reckless hope 
 and borrowed capital ; yet it all counts in the 
 world as wealth; it is here. That the capital 
 is borrowed chips nothing from this fact. 
 
 104. The elements of danger are not to be 
 found in the industrial situation, which was 
 Where is the possibly never before so prosperous 
 difficulty? in thorough efficiency and organiza- 
 tion. The difficulty is financial. 
 
 We have seen that the volume of exchanges 
 
COMMERCIAL CRISES 173 
 
 is the measure of the demand for currency; 
 double the volume of currency without increas- 
 ing the number of exchanges, and you double 
 prices. To halve the currency is to lower 
 prices approximately in the same ratio. These 
 propositions are unquestionable; they hardly 
 reach the dignity of principles — they are mere 
 mathematics. Yet, strangely enough, as ap- 
 plied to the facts of industry they are seemingly 
 untrue. Prices almost uniformly rise with in- 
 creasing activity in business, and fall with 
 failing business. This is apparently to say 
 that the value of currency falls with an in- 
 creased demand, and rises with a failure of 
 demand. 
 
 The explanation is found in the fact that, 
 with expanding business, the currency also 
 expands, and, commonly, in a degree more than 
 proportionate to the demand for it. This in- 
 crease takes place not ordinarily in the legal 
 tender element, but in the credit element. 
 Reviving credit always characterizes reviving 
 business. Under existing systems, credit fur- 
 nishes for currency the only element of ready 
 adaptability. It furnishes, for ordinary con- 
 ditions, the guaranty of steady market prices. 
 It avoids an enormous application of human 
 
174 ELEMENTARY ECONOMICS 
 
 energies to the production of commodity cur- 
 rency. Without it, great expanding business 
 operations would carry with them their own 
 veto in falling prices and vanishing profits. 
 
 But these advantages are purchased at the 
 risk of enormous dangers. The commercial 
 crisis marks the period when money takes on 
 abnormal scarcity and abnormal value from the 
 fact that money substitutes — credit currency 
 — contract in volume. The very height of the 
 credit fabric measures the disaster of its fall. 
 It is at the full tide of prosperity that the 
 danger is greatest. If, then, for any reason, 
 whether of extravagance at some point, or of 
 over-production in some industries, or of fail- 
 ure of harvests in some districts, or of over- 
 speculation, or even of business prosperity 
 carried to the point of over-stringency in the 
 loan market, there sets in a contraction of 
 credit, trouble begins. The debtor can pay 
 only by calling in turn ■ upon his debtor. The 
 pressure for payment increases in almost geo- 
 metrical progression. Not only does credit 
 largely disappear from circulation, but the 
 burden of liquidating existing indebtedness is 
 thrown upon the legal tender and the un- 
 questioned elements of the currency. Panic- 
 
COMMERCIAL CIUSES 175 
 
 stricken marketings of commodities, and 
 panic-stricken or speculative withdrawals of 
 money from the channels of business further 
 complicate the situation. Endless ruin and 
 disaster follow; prices tumble; this is panic, 
 when even the rich seem poor, when business is 
 stagnant, exchanges are suspended, laborers are 
 unemployed and in want. Immediately preced- 
 ing it were the headlong rush and exultant 
 activity of prosperity, — when all men were 
 hard at work, though doubtless over-confident, 
 and possibly over-venturesome. And now fol- 
 lows the destruction of wealth. In the course 
 of ample credit, things had arranged themselves 
 in the hands of those who knew best how to 
 use them. Now ensues an enforced redistri- 
 bution. In the outcome one man finds him- 
 self with two houses, and can use but one; 
 or with two horses, and needs but one; and 
 with endless steam engines, and trumpery, and 
 stocks in trade of which he wants nothing. He 
 can only let the property grow old or rot or 
 rust. The wheels of the factory stand still; 
 industry has dropped its tools: and all this, 
 not because there was too little wealth, or too 
 much, but because what there was, was badly 
 arranged to withstand a flurry in credit. 
 
176 ELEMENT ABY ECONOMICS 
 
 105. It is clear enough that panic is an ebb 
 in credit, and that in proportion as the inter- 
 mixture of credit in currency is 
 
 Advantages, _ _ ■^ 
 
 disadvantages, large, is the disaster great. What- 
 
 and remedies. i ,i t , • 
 
 ever may be the ameliorations possi- 
 ble, the gravity of the case is not to be ques- 
 tioned. Here is the most noticeably weak 
 point in the modern competitive system. Any- 
 thing which shall offer a reasonable hope of 
 displacing credit from its enormous develop- 
 ment in modern business can hardly be other 
 than a good fortune. The money of ultimate 
 redemption is too small for the credit fabric 
 built upon it. It is like a cone resting on its 
 apex. This delicate and unstable equilibrium 
 is a condition fraught with constant danger. 
 
 Doubtless so long as credit works, it affords 
 desirable economies in the use of bullion cur- 
 rency and, in some measure, steadies prices. 
 England succeeds in managing a much larger 
 per capita volume of business than does France, 
 and with a much lower per capita supply of 
 bullion currency. But periodically, England 
 suffers acutely from the commercial crisis, 
 while France is relatively exempt. The losses 
 probably outweigh the gains. 
 
 106. That which most naturally suggests 
 
COMMERCIAL CRISES 177 
 
 itself as a remedy, is to enlarge the currency 
 basis, —to declare that more money j^ expansion a 
 of ultimate redemption is needed; remedy? 
 therefore start the printing presses or coin silver. 
 But remember that it is the shape of the pyra- 
 mid, and not the size of it, which is matter of 
 concern. Unless there is found to be some tend- 
 ency in silver coinage, or in any other form of 
 expansion, to lessen the volume of credit rela- 
 tively to money, the inflation argument fails. 
 
 There is no such tendency. Silver expan- 
 sion, or any other expansion, would be followed 
 by a rise in prices proportionate 
 
 , , , . , Silver coinage. 
 
 to the expansion, ihe degree in 
 which credit circulates depends upon the 
 methods of business and the organization of 
 industry, and not upon the kind of money. So 
 long as manufacturers find it advantageous to 
 borrow capital, so long as wholesalers take 
 credit from manufacturers, retailers from 
 wholesalers, customers from retailers, and all 
 deposit their funds in banks and pay through 
 checks and book-keeping, so long must the 
 intermixture of credit remain an element of 
 danger. In truth, the very bulkiness of silver 
 would, in itself, tend somewhat to increase 
 the inducements to deposit methods. 
 
178 ELEMENTABY ECONOMICS 
 
 Nor is there any great hope that these credit 
 methods will cease because of their dangers. 
 The advantages and convenience to the indi- 
 vidual business man are too pronounced. Here, 
 again, individual interests are not parallel with 
 the general interest. No one business man 
 could afford to stop unless all should stop, and 
 each would gain by violating the rule intended 
 for all. The remedy, if any is possible, lies in 
 the discovery of a currency effectively flexible 
 in time of need. 
 
 QUESTIONS 
 
 Would it prevent panic if money were all gold ? Or 
 diamonds ? 
 
 Do you see any way to prevent the granting of credit, 
 or the use of credit as currency ? 
 
CHAPTER XII 
 
 THE COMPETITIVE SYSTEM 
 
 107. Every year important discoveries are 
 made in science, and important improvements 
 and inventions are perfected in industry. The 
 great advance which has been accomplished 
 does not so mnch indicate that progress must 
 soon cease, as that progress is, by the very 
 nature of things, unlimited. It is, indeed, only 
 when we come to examine human institutions, 
 habits, laws, and customs, that we meet the 
 widespread conviction that no progress is in 
 store for the race. One man is jg ^-^^^.^ ^^^^ 
 sceptical of progress because he ^°^ P^°s^^ss ■ 
 believes that in a divinely ordered universe all 
 things are for the best; to assert that what- 
 ever is is right, seems to him to imply that 
 w^hatever is not is wrong. Existing conditions 
 therefore appeal to him as the best. He trusts 
 and is content. A second man believes in 
 natural law. He insists that it is ^^^ ^^^ 3^^,^ 
 useless to run counter to the nature anything? 
 of things. The suns blaze, the stars roll, the 
 179 
 
180 ELEMENTARY ECONOMICS 
 
 earth revolves, the tides flow, light and dark 
 succeed each other, the winds destroy or save 
 — and what can man do ? He is a mere spec- 
 tator. Set over against the universe and its 
 power, he is merely as is an insect; studied in 
 the light of science, he is the mere product of 
 his surroundings, like mould or scum; setting 
 himself to strive against the laws of the uni- 
 verse, he is the self-deluded maker of empty 
 motions. Whether things are best as they are 
 or not, they are as they are, and will remain so. 
 Do not meddle, let things pass as they must — 
 laissez faire^ laissez passer. 
 
 108. There is a third point of view, some- 
 what like the others, but with more of truth 
 
 Can men change ^^^ '^^' Thinkers of this third SOrt 
 
 themselves? know that man can do much, as he 
 has already done something, in adapting to his 
 needs the world in which he lives, and in sub- 
 jecting its forces to his service. He has tun- 
 nelled mountains, hollowed mines, dredged 
 rivers, reared dikes, spanned canons, cleared 
 forests, and planted them anew. Steam and 
 gravitation, Avind and tide, are harnessed to his 
 tasks. There is no problem which nature sets 
 for man, no difficulty with which it confronts 
 him, that man need fear to meet. But of the 
 
THE COMPETITIVE SYSTEM 181 
 
 problems which human nature and human char- 
 acter present, let him beware. Man has not 
 made himself, nor can remake. No one can lift 
 himself by pulling at his boot-straps, nor can 
 any man add one cubit to his stature. In mat- 
 ters of human nature and human society men 
 are not directors and governors, but mere ob- 
 servers. Man as he is, men as they are, these, 
 they say, are a fixed term, ■ — the known quan- 
 tity in the equation of human life. In the 
 years, or the centuries, human nature may be 
 changed, but it cannot change itself. Where 
 any social problem demands for its solution 
 another human nature or a new species of 
 human beings, it is as well to drop the problem 
 as insoluble. If the reformers' new millennium 
 awaits a regenerated humanity, the millennium 
 must be a weary distance ahead. 
 
 109. There is a trace of truth in each of these 
 views. It is clear enough that, as related to 
 man's environment, man is a force. 
 
 . Man is a force. 
 
 Assume, if you will, that he is the 
 product of his environment. He is not there- 
 fore necessarily inert and like a mere puppet of 
 the energies surrounding him. He may co- 
 operate or he may resist, just as children may 
 serve their parents or rebel. All talk about 
 
182 ELEMENTARY ECONOMICS 
 
 natural laws and social laws which fails to 
 take account of man as a force, or which regards 
 his share in the social on-going of things as 
 irrational or ineffective or unnatural, is a gross 
 perversion of both language and thought. In 
 the large view there are no unnatural things. 
 The sober common sense of mankind repudiates 
 the lazy optimism which denies all room for 
 progress, even as it condemns the lazy self-dis- 
 trust which concedes the need but despairs of 
 the remedy. Why should men search and 
 study and strive, if they are mere observers, 
 and there cannot possibly come any result of it 
 all ? Science, even, is good for something only 
 when it is good for something. 
 
 110. But notice that the thinkers of the 
 third class do not precisely assert the hopeless- 
 ness or futility of all human effort, 
 
 Men are forces 
 
 as related to but Only the helplessness of hu- 
 eac ot er. manity in face of the difficulties and 
 perplexities which human nature and human 
 character themselves present. But even this 
 much is not true. Just how we are not able to 
 see, yet somehow each of us is conscious of a 
 power Avithin himself of self-mastery, self-help, 
 and self-improvement. But even were this 
 consciousness a self-delusion, there remains to 
 
THE COMPETITIVE SYSTEM 183 
 
 man tlie power of one individual over another, 
 since in relation to each individual his fellows 
 are a part of his environment. The human race 
 is not a great indivisible unit, but a group 
 made up of distinct and separate units. One 
 can do something of good or ill in his relations 
 to his neighbor. Societies make laws, punish 
 criminals, and foster education. It is in the 
 power of each man to spread vice or virtue or 
 microbes. To deny this is to deny that good 
 and evil, esteem or condemnation, have any 
 place in human affairs. Society contains Avithin 
 itself the forces which may work for itself help 
 or harm. On any other terms the study of 
 society would be a fruitless exercise, the mak- 
 ing of laws a simple farce, the clash of armies 
 an empty parade, courts a sheer mummery, 
 police and fire departments a silly waste. 
 
 Thus, as we come to examine the present 
 social system as a whole, or the different aspects 
 of it in detail, we need to guard ourselves from 
 any kind of prejudgment or from ready-made 
 conclusions of any sort. 
 
 111. Not a few earnest and capable people 
 regard the present industrial system as in- 
 trinsically and irremediably bad. The private 
 ownership of property and free competition in 
 
184 ELEMENTARY ECONOMICS 
 
 business are the leading characteristics of the 
 existing social order. The critics of our pres- 
 Private prop- ©nt social system deny the justifi- 
 erty and free ability of the private ownership of 
 
 competitioa -^ ^ 
 
 attacked. property; they insist that free com- 
 
 petition is merely another term for chronic in- 
 dustrial warfare; that business has become a 
 bitterly cruel struggle for existence — a system 
 productive of antagonisms and destructive of 
 kindliness, where each is set to gain by his 
 neighbor's loss. It is, therefore, believed that 
 social safety can be found only in a system 
 which shall make men common owners in the 
 means of production, and conscious co-operators 
 in the business of producing. By making all 
 interests common and general, it is thought 
 possible to avoid the wastes of competition and 
 to still the hates and rivalries of self-interest. 
 
 112. Stated thus broadly, the proposal of the 
 socialists is an attractive one. It purports to 
 Is there a ^^^^ upon the brotlicrhood of man, to 
 defence? substitute unsclfishness for rivalry 
 
 and distrust, to make all men equal partners in 
 the general welfare.^ But this programme will 
 
 1 This discussion must not be understood to cover all aspects 
 of socialism or all schools of socialistic thinking. Not all social- 
 ists expect or desire to do away with rivalry and antagonism ; 
 not all insist upon the equal partnership principle ; not all give 
 
THE COMPETITIVE SYSTEM 185 
 
 not bear clpse examination. It is like those 
 large paintings wliose distant beauty changes 
 to danb on near approach. In the first place, 
 we observe that the rivalries and antagonisms 
 of competition have not resulted from legisla- 
 tion or agreement or any sort of compulsion. 
 They have not followed from any conscious 
 purpose or artificial arrangement. Competi- 
 tion and contest have not been enacted. They 
 seem certain to establish themselves unless so- 
 ciety consciously interferes to prevent. That 
 is to say, if all men, as men exist to-day, are to 
 work together in a scheme of brotherly love 
 and co-operation, and under some sort of wide- 
 spread, common ownership of capital and prod- 
 uct, they will have to be compelled thereto by 
 force. The other system is the system of free- 
 dom. Socialism is the system of compulsion. 
 
 113. On the side of the existing system it is 
 also to be urged that there is, in fact, obscurely 
 present in it a very large element of co-ojDcra- 
 
 much weight to the brotherhood of man as the basis of social 
 organization ; not all look to state compulsion as fundamental 
 to the social structure. Obviously, however, it is possible for 
 us to examine only the more typical ideas and tlie characteristic 
 traits of socialism as presented by the main body of socialistic 
 thinkers. Almost all agree upon the necessity of the ow^ner- 
 ship and operation by society of all land and capital, with some 
 manner of joint ownership of the product under some not very 
 specific way of sharing it. 
 
186 ELEMENTARY ECONOMICS 
 
 tioii, and this, co-operation of a purely yoI- 
 Present system untary character. The great stock 
 sciousCopera- corporations, like railroads, banks, 
 *^o^' and manufactories, the hre and life 
 
 insurance organizations and the great secret 
 benevolent orders, all point to a growing spirit 
 of association and co-operation in modern soci- 
 ety which seeks no aid from compulsion. 
 
 114. Not only this, but the present system, 
 whatever it may be in purpose, is in effect an 
 It is almost automatic system of voluntary co- 
 scilTs^L^o''pra- operation. Where division of labor 
 *i°^' exists, each man must, by some sort 
 
 of exchange, share his products with his fel- 
 lows. Division of labor means a mutual inter- 
 dependence of producers. Exchange of goods 
 takes place for the common benefit ; both buyer 
 and seller must believe themselves to be bene- 
 fited by trading, or they will not trade. It is 
 true that each is trying to get the greatest pos- 
 sible benefit for himself, but neither can reap 
 the whole of it. Each must, in some measure, 
 furnish a help to the other. It is not true that 
 one man necessarily or commonly gains by trade 
 at another's loss. Nor, indeed, is it true that 
 the rivalries of competition are necessarily or 
 commonly harsh conflicts of interest in which 
 
THE COMPETITIVE SYSTEM 187 
 
 the well-beingf of one is set over aofainst the sue- 
 cess and prosperity of his neighbors. True, each 
 is trying to undersell the other — to get the 
 trade, to gain the market, and to control it — 
 at the expense or even at the ruin of his rival. 
 This, however, proves, not that competition is 
 a rivalry between each member of society and 
 society as a whole, but only that it is a rivalry 
 between competing producers. It is a co- 
 operation between each competitor and society. 
 When one producer or seller prospers as 
 against another, it is by offering society the 
 better product or the lower price. ^ Viewed 
 therefore from the point of view of society, 
 competition is a rivalry in offering most for 
 least, — a contest in the rendering of largest 
 service, a war in well-doing — where success is 
 declared to the largest benefactor. 
 
 Trade, then, is a form of co-operation — 
 unconscious, it is true, but voluntary and effec- 
 tive. The East Indian laborer is not aware 
 that in result he works in order that an Ameri- 
 can laborer may consume, nor does the iron 
 miner in England realize that it is the demand 
 
 1 This statement must not be taken as without important 
 exceptions. Speculation, shoddy, advertising, and trickery are 
 not yet well controlled in the competitive system. 
 
188 ELEMENTARY ECONOMICS 
 
 of Australia which affords him employment. 
 But it may none the less be true. World- 
 wide competition has brought about world-wide 
 interdependence and co-operation. The indus- 
 trial brotherhood of man has already come. 
 
 Thus, the charge that competition is mere 
 conflict will not hold as a ground of criticism 
 of the present social order. Socialism does not 
 in this respect make good its case. But sup- 
 pose now that, for a moment, we put socialism 
 upon the defensive. 
 
 115. Men now work under the incentive of 
 want, incited and persuaded to effort by their 
 ^,„ , interest in themselves and in those 
 
 Will man work 
 
 without self- dependent upon them, — wives, chil- 
 
 interest? ^ i , • tp'itii 
 
 dren, relatives, anairienas. Incluae 
 all this activity under the head of selfishness, 
 though the term seems, in some measure, an 
 inapt one. But how insure that men shall work 
 strenuously, that society shall consume the 
 largest practicable amount of wealth, if for that 
 which we call selfishness there is substituted 
 an interest in the nation or a love of humanity 
 in general ? It will not remove the difficulty 
 to show that the interest of each is at one with 
 the interest of all. How shall any one find 
 strenuous effort to be for his own interest? 
 
THE COMPETITIVE SYSTEM 189 
 
 In America, for example, if he is able to per- 
 suade himself to work twice as hard and to 
 produce twice as much, his own share will be 
 increased thereby by one seventy-millionth. 
 Brother-love will not stand this strain. 
 
 The difficulty with the socialistic scheme of 
 things is that it does not take full account of 
 man as he is. Nothing will take the place 
 of interest in self or family as a motive for 
 effort; neither fear nor love of society in gen- 
 eral nor any mixture of fear and love will 
 stand the test. Slavery shows the insufficiency 
 of fear; the experience of the Pilgrims and 
 of the early Virginia colonists illustrates the 
 ineffectiveness of the motive of indirect self- 
 interest. 
 
 Roscher puts the case forcibly as follows : — 
 
 When Louis Blanc and Mably rely iipon the sentiment 
 of honour instead of personal interest as the spur of pro- 
 duction and the rein of consumption, and in respect to 
 effectiveness instance the army code of honour, they 
 forget, among other things, the thirty cases of capital 
 punishment provided in the military code. , . . Were 
 all burdens and pleasures of life equally distributed under 
 strict communism, and distributed equally, in line with 
 the concepts of the masses, men like Thaer, Arkwright, 
 and others, who now in library and laboratory produce 
 food for hundreds of thousands, would produce with 
 mattock and shovel, at the highest, enough for three or 
 
190 ELEMENTARY ECONOMICS 
 
 four men only. . . . General and equal popular educa- 
 tion as the communists demand it would practically work 
 out at this merely — that no one would attain to the 
 higher scientific development. ... "In place of the cur- 
 rent competition to produce the most and the best possible, 
 there would come about under socialism a competition as 
 to who could produce least and worst." . . . When the 
 first Virginia settlers in 1611 abandoned the system of 
 communistic labour and joint-stock methods, it came 
 about immediately that in one day there was as much 
 accomplished as before in a week, three labourers pro- 
 ducing as much as thirty did before. Even in E'ew 
 England, among strong men accustomed to labour, who 
 had made so great sacrifices in the interest of their faith, 
 communism was attended with continual famine; this 
 changed only in 1623, when private property was estab- 
 lished. — RoscHER, translated from System der Volkswiri- 
 schaftj Book II. 
 
CHAPTER XIII 
 
 POPULATION, EENT, AND SOCIALISM 
 
 116. Socialists and other critics of the com- 
 petitive system assert that the outlook of society 
 as at present orp-anized is hopeless ^ 
 
 ^ o -^ Is every uncom- 
 
 — that adopting the reasonings of fortable doc- 
 the current political economy the 
 
 lot of the race must become increasingly hard. 
 It is somehow inferred that the fault is rather 
 with the present social system than with the 
 theories upon which the conclusions rest, or 
 than Avith the fixed facts of the world in which 
 we live. In fact the socialists instead of 
 quarrelling with many of the established eco- 
 nomic theories assume the correctness of them 
 
 — including some which have been abandoned. 
 At the same time they have perfect confidence 
 that the human environment is sufficient for a 
 happy human destin}^ and that in fact the ul- 
 timate destiny of the race Avill be a happy one. 
 Therefore they reason that if the current eco- 
 nomic doctrines point to dismal conditions in 
 
 191 
 
192 ELEMENT ABY ECONOMICS 
 
 the future, the fault must lie in the social 
 system. 
 
 But there are two assumptions here, neither 
 of which is free from doubt: (1) the correct- 
 ness of the current economic dogmas ; (2) the 
 possibility of a generously prosperous life for 
 the race with the environment as it exists. 
 
 We must therefore determine how much of 
 truth is contained in these assumptions. In 
 what measure is the human outlook a hopeful 
 one ? Of what value are our economic doctrines 
 for purposes of prophecy? Are there any ten- 
 dencies in human life which need render the 
 student despondent of the future ? 
 
 117. When the pioneer enters upon a new 
 continent, with its wealth of new resources, its 
 DiminisMBff expanse of unexhausted lands, its 
 returns again, gtore of uucarcd-for fruits, its teem- 
 ing animal life for sport and food, he may well 
 hope for himself a life of ease and plenty. 
 Nature appears to be generous far beyond his 
 needs. The wide ranges of land do not, it is 
 true, offer unlimited opportunities and boun- 
 ties, but in comparison with his necessities the 
 supply far outruns the need. 
 
 And yet in truth the life of the pioneer is a 
 long way removed from ease and lack of care. 
 
POPULATION, RENT, AND SOCIALISE! 193 
 
 Food is easily obtained, but only for a part of 
 the year. Harvesting and storage are to be 
 provided for; shelter must be had, clothing 
 must be fashioned. Even if the chase could 
 satisfy the need for food and raiment, as for 
 civilized man it never can, there will remain 
 the need of hunting appliances and of powder 
 and ball. No man is sufficient for his own 
 necessities in any adequate measure. Fortu- 
 nately for humanity, men are in great measure 
 dependent upon each other. We must live 
 among our fellows or we must suffer. Too 
 sparsely inhabited countries are never prosper- 
 ous. The planting of a colony is a difficult 
 and hazardous undertaking, as the early his- 
 tory of America testifies. 
 
 Yet it is true that new countries do com- 
 monly offer favorable conditions as far as food 
 and raw materials are concerned. The insuffi- 
 ciency is in the products of machines and mines 
 and factories — in the commodities which de- 
 pend for their production largely upon human 
 association. 
 
 But as the new continent becomes more 
 thickly populated, the advantages of cheap food 
 tend to disappear. The gathering of wild prod- 
 ucts gives place to cultivation; stock-farming 
 
194 ELEMENTARY ECONOMICS 
 
 is substituted for the chase. Pastures must be 
 fenced; winter food must be provided for the 
 stock. Land is no longer to be had for the 
 taking; rents are charged. 
 
 We are again face to face with the old fact, 
 or, as we call it, the old law of diminishing 
 returns. After a certain early stage is passed, 
 it becomes more and more difficult, as popula- 
 tion grows more and more dense, to obtain a 
 living from the land. Rent is, indeed, as we 
 have already seen, the index of increasing 
 resistance to the increase of agricultural prod- 
 ucts — the measure of the extent to which 
 cultivation has been pushed to lands of lower 
 productive capacity. 
 
 In view of the fact that the population of 
 the world is rapidly increasing, this law of 
 diminishing returns has been shown to have 
 disquieting implications. Recalling also the 
 tendency, manifested by all forms of life lower 
 than the human, to multiply as far as food, ene- 
 mies, and climate will permit, we come in view 
 of the evidence from which Malthus inferred 
 that the human race tends strongly to over- 
 population. If over-population is inevitable, it 
 seems likewise inevitable that the human race 
 must one day meet the barrier of starvation. 
 
POPULATION, RENT, AND SOCIALISE 195 
 
 Malthus' dismal forecast is to be questioned, 
 if at all, not on the doctrine that over-po^^u- 
 lation means poverty — for this is not open 
 to question — but on the doctrine that over- 
 population is in fact inevitable. 
 
 118. Some short discussion has been had 
 (Sections 74-78) of the degree in which the 
 Malthusian forecast demands ac- is Malthus to be 
 
 , X 1 i. J.1 condemned, or 
 
 ceptance; now note what use the the economists, 
 socialist makes of the Malthusian ^' ^^^ '^ompeti- 
 
 tive system, or 
 
 doctrine. He attempts no condera- the facts? 
 nation of the economists generally, as if they 
 were to be held responsible for the facts 
 which they declare. All men must know, 
 even though some seem sometimes to forget, 
 that the economists have not fixed and es- 
 tablished the grain-bearing capacity of the 
 fields. The messenger who brings bad news 
 does not deserve to be choked therefor, nor is 
 the doctor to be hated because of his unfavor- 
 able diagnosis; even an undertaker may be a 
 kind-hearted, worthy citizen. Instead of con- 
 demning the economists, the socialist condemns 
 the present industrial system. This, however, 
 is not much more reasonable. The present 
 economic order is likewise not responsible for 
 the nature of the land or for the facts of agri- 
 
196 ELEMENTARY ECONOMICS 
 
 culture, nor would changing the system alter 
 the facts. Under socialism, as well as under 
 the present system, twenty men cultivating 
 one acre of land would find it exceedingly 
 difficult to make a living. 
 
 If the socialist regards the outcome of over- 
 population as a serious one under the present 
 social system, there is still no use in changing 
 to socialism unless socialism would somehow 
 help the case. Children now and then get 
 angry and break things out of petulant im- 
 patience. But this is childish. It is best 
 never to take medicine unless one knows what 
 it is for, and what effect is likely to come of it. 
 Where, as under socialism, the community as a 
 whole takes the burden of seeing every family 
 well provided for, the tendencies toward over- 
 population would probably not be less, and the 
 land would be no better.^ 
 
 The law of diminishing returns is a mere fact 
 with which every farmer shows himself familiar 
 in failing to reduce his field from twenty acres 
 to one and to apply all his labor and fertilizers 
 upon that one acre. Neither the human race nor 
 the social system can remedy this agricultural 
 
 1 One ought in fairness to add that there are socialists who 
 maintain that a socialized community can control the growth 
 of population as an individualistic community never can. 
 
POPULATION, BENT, AND SOCIALISM 197 
 
 fact, nor is any economic theory or theorist to be 
 charged with responsibility for it. The human 
 race is not able to make its environment to its 
 liking. Over-population may be far off ; better 
 knowledge of chemistry in its application to 
 farming, better choice of products, or better 
 varieties of products, or even the cultivation of 
 products now unknown, may for a long time 
 hold in check the harsh pressure of want. But 
 population cannot endlessly multiply, without 
 at some point meeting with resistance in les- 
 sened supplies of food products and of the raw 
 materials of industry. 
 
 119. But while the human environment lacks 
 in adaptability, there is (as we saw in Section 
 6) a large measure of adaptability i^^creasing 
 in man. In science, in art, in pro- returns again, 
 cesses, and in appliances, progress is continu- 
 ous. A pioneer population as it increases in 
 numbers finds that new methods of production 
 become possible. Division of labor, which 
 means the specialization of employments, 
 becomes practicable. With a large market, 
 economies in production become possible. 
 With still larger markets the use of machinery 
 is practicable. With increasing population 
 improved methods of transportation become 
 
198 ELEMENTARY ECONOMICS 
 
 profitable, and manufacturing centres are estab- 
 lished to buy and sell over a wide territory. 
 The economies of the great factory system fol- 
 low — the use of expensive machinery, the ad- 
 vantages of great steam- or water-powers, the 
 gains of scientific oversight, and of salaried 
 designing and inventing. Thus, with increas- 
 ing population and widening markets the field 
 of opportunity enlarges for invention and im- 
 provement. There was no room for great fac- 
 tories with their machinery and complicated 
 processes, until, with increasing population, 
 human ingenuity had placed at man's disposal 
 the modern methods of transportation. It is 
 true that cause and effect are hard to distin- 
 guish here. There is a complex interplay and 
 reaction, all things moving forward by the aid 
 of each and for the aid of all. 
 
 But all this progress in invention, transpor- 
 tation, and trade is human progress. It belongs 
 to the economic factor, man. There is then a 
 law of increasing returns for the human side 
 of the case as well as a law of diminishing 
 returns for the environment. It is possibly 
 true ■ — indeed it is probable — that the advan- 
 tages of division of labor and of larger factory 
 plants are even now approaching the limit of 
 
POPULATION, BENT, AND SOCIALISM 199 
 
 increase. But the advance of mankind in sci- 
 ence, art, skill, processes, methods, tastes, and 
 desires, is not subject to limitation. On this 
 side there is really a law of increasing returns. 
 
 So, even if it grows more difficult to obtain 
 the necessary supply of raw materials from the 
 earth, there may be, we repeat, at the same 
 time an increasing share of productive energy 
 which can be applied for this purpose. The 
 human race will not necessarily be the worse 
 off in the end. 
 
 It is, then, evident that too much may be 
 inferred in the way of evil forecast from the 
 tendencies known as the Ricardian Law of 
 Rent and the Malthusian Law of Population. 
 At any rate, to call these tendencies laws does 
 not make them subject to repeal through social- 
 ism, or justify condemnation of the present 
 economic system as if it had enacted them. 
 
 Remember, however, that to reject socialism 
 as a general remedy for all social ills is not to 
 deny that there are real evils in modern society. 
 It is merely to assert that these evils must be 
 considered and treated as distinct problems 
 rather than as one great problem awaiting one 
 sweeping solution. The social question is in 
 truth a cluster of questions. 
 
200 ELEMENTARY ECONOMICS 
 
 SUGGESTIVE QUESTIONS 
 
 How would socialism affect inventions, new processes, 
 the progress of science ? 
 
 What effect on literature, history, poetry, philosophy, 
 etc.? 
 
 On the per capita production of the mere necessities 
 of life? 
 
 Are there immaterial goods? Give illustrations. 
 
 Suppose several men to have worked together in dig- 
 ging a ditch : when the pay is to be divided should the 
 shares be equal ? Or according to the size of families ? 
 Or according to efforts ? Or to character ? Or to num- 
 ber of feet dug ? 
 
 Distinguish between justice and charity. 
 
CHAPTER XIV 
 
 SOME CUKRENT QUESTIONS IN ECONOMICS 
 SPECULATION 
 
 120. We saw in Section 31 that desires 
 grow less intense with partial satisfaction. 
 One does not become thirstier the Desires are not 
 more he drinks, or hungrier the j;f^^|^^/^^/^y 
 more he eats. It is possible, though direction. 
 it is not common, to have a good thing in 
 superfluity. There may be more food upon the 
 table than is wanted for that meal. So it is 
 within possibility that there should be more 
 food in the world than is wanted by the 
 people of the world. With pioneers in a new 
 country, and especially in a tropical country, 
 food supplies often exceed the necessities ; the 
 market is glutted, so to speak. And we have 
 seen that as men become more numerous the 
 bounties of nature become insufficient, so 
 that men must work in order to satisfy their 
 wants. When things are brought to market 
 201 
 
202 ELEMENTARY ECONOMICS 
 
 for sale, prices, as we know, must go low 
 enough so that the demand will absorb the entire 
 supply. It quite often happens in the cities 
 that ripe fruits are sold at almost nothing. 
 The reason for this is plain, when we reflect 
 that there is not an unlimited demand for 
 bananas or strawberries. At no matter how 
 low a price, you would not at one time buy 
 very many dozens of bananas. We are again 
 in face of the fact that value cannot exist in 
 the absence of some measure of scarcity. Un- 
 limited abundance would mean the absence of 
 value. Thus value is not to be taken as the 
 measure of well-being. Utility, and not value, 
 points directly to usefulness. Value indicates 
 some limitation upon utility by reason of scar- 
 city. (See Section 38.) 
 
 121. It is very important that the things we 
 
 most need, like food and coal, should be cheap. 
 
 , The human race can get alonp* well 
 
 Tmngs acutely ^ . . 
 
 needed we get enough with great scarcity and high 
 ^^^^^' value in diamonds. Those things 
 
 which the human race greatly needs are com- 
 monly easy to get, else there would be no human 
 race. In fact, the things which we most acutely 
 need — • space and air and water ■ — • we mostly get 
 for nothing, the supply of them being so great. 
 
SPECULATION 203 
 
 If the springs slionld dry up, drinking-water 
 might acquire value, as it does, in fact, on the 
 desert or in the cities. If the rains refused 
 to fall, we should have to replace them by 
 irrigation ditches ; but this would be no 
 cause for gladness. Gas and lamps in place 
 of sunlight would be more trouble to no bet- 
 ter results. 
 
 122. With many things — with food prod- 
 ucts especially — the consuming capacity of 
 the world cannot be greatly in- j^ ^^^ ^^^^ 
 creased. On the other hand, it is demand elastic 7 
 not possible largely to reduce consumption 
 without great suffering. We say of such cases 
 that the demand is inelastic. With many 
 commodities, however, a very large increase in 
 supply can be marketed with a relatively small 
 reduction in price, while if the price should 
 greatly advance, a large part of the demand 
 would be withdrawn. Books, pleasure trips, 
 sewing machines, and bicycles, are good ex- 
 amples of this second class. In these cases we 
 say that the demand is elastic. Where the de- 
 mand is elastic, the supply may increase much 
 more rapidly than the price falls ; so a decrease 
 in supply would not greatly raise the price. 
 But with food products prices rise out of pro- 
 
204 ELEMENTARY ECONOMICS 
 
 portion to the decrease in supply, and fall out 
 of proportion to the increase. 
 
 123. This explains much that is peculiar in 
 the movements of rents. As population in- 
 Eiasticity and creases, the poorer lands must be 
 rents. Cultivated ; going without the prod- 
 ucts is not practicable. So a small increase 
 in supply from the opening up of good lands 
 or from improvements in agricultural methods 
 will make possible the abandonment of poor 
 land at the margin of cultivation. 
 
 124. This question of elasticity of demand 
 being well understood, we are in position to 
 Elasticity and ^®® ^^^ with food products it comes 
 prices, about, not only that prices are high 
 with a short crop — for this is not strange — 
 but that the aggregate selling price of the crop 
 is higher for a short than for an abundant 
 crop. 
 
 This fact is stated by the English economist 
 Thorold Rogers, in the following words : — 
 
 " There is one law of prices which you must know and 
 understand before you can make the least progress in 
 interpreting the simplest problem. It is known to some 
 economists, I do not say all, for it is most unaccountably 
 neglected or obscured in most treatises on the subject, as 
 Gregory King's Law. We take it a defect in the harvest 
 may raise the price of corn in the following proportions : 
 
SPECULATION 205 
 
 Defect. Above the common rate. 
 
 One-tenth raises the price Three-tenths. 
 
 Two-tenths raises the price Eight-tenths. 
 
 Three-tenths raises the price .... Sixteen-tenths. 
 
 Four-tenths raises the price Twenty-eight tenths. 
 
 Five-tenths raises the price Forty-five tenths. 
 
 The price of any article in demand but at present in 
 defect rises in price by a different ratio from that indi- 
 cated from the ascertained amount of the deficiency ; the 
 price of any article in demand but at present in excess, 
 falls in price by a different ratio from that indicated from 
 the ascertained amount of the over-supply. The opera- 
 tion of the above law is always most dominant in articles 
 of prime necessity, in which no notable economy can be 
 made without suffering on the part of the people when 
 supply is short, and no notable increase of consumption 
 can be expected when the quantity is in excess of supply. 
 If the article is relatively perishable, the phenomena in- 
 crease in intensity on either side." 
 
 We may remark that, as applied to any one 
 cereal product, the figures above given are prob- 
 ably an over-statement. As applied to the total 
 of agricultural products, the error is probably 
 in the other direction. 
 
 125. Bearing in mind that food production 
 is, in large measure, periodic with the seasons, 
 we are now in position to under- Elasticity and 
 stand why price fluctuations are g^feSlon 
 especially characteristic of food an evil? 
 products, and why speculation especially busies 
 
206 ELEMENTARY ECONOMICS 
 
 itself with these. It is easy to denounce the 
 speculator for trafficking in the necessaries of 
 life, and for profiting at the expense of society; 
 but it is as cheap and shallow as it is easy. 
 We need attempt no justification of the mo- 
 tives of the speculator — they are probably bad 
 enough; but fortunately there are many cases 
 in this ♦world where men, seeking only their own 
 well-being, bring about the well-being of others. 
 The speculator does not commonly cause the 
 rise in prices, but merely brings it earlier than 
 it would otherwise come. If the supply of food 
 is short, prices will have to rise. It is well 
 that there are men who make it their business 
 to study the crops and the harvests, and who 
 give early notice of a coming scarcity, thereby 
 encouraging society to economize its supplies, 
 and compelling it to do so by forcing prices up. 
 Thus in times of seeming plenty, supplies are 
 set aside for times of later need ■ — ■ " a service 
 which has been well compared, by Archbishop 
 Whately, to that rendered by the captain of a 
 ship, who, taking account of the stock of pro- 
 visions at his disposal, and the length of his 
 intended voyage, adjusts to these conditions 
 the rations of his crew " (J. E. Cairnes). 
 
 126. The advantages of speculation to the 
 
SPECULATION 207 
 
 producer are equally evident. But the farmer 
 is prone to believe that the profits -q^^^ ^^^ 
 are made at his expense; he sees ducer suffer? 
 speculators, who own not one pound or bushel 
 of product, selling for future delivery vast 
 quantities, say of wheat, to buyers who have 
 neither the ability nor the intention ever to 
 receive the goods. Instead of actual delivery 
 of the goods at the date agreed upon, the opera- 
 tors fix the terms of settlement by comparison 
 of the actual market price with the stipulated 
 price. If, for example, wheat is selling at two 
 cents 23er bushel higher than the agreed price, 
 the seller pays this two cents per bushel to the 
 buyer and the transaction is closed; if wheat 
 has fallen, the seller wins. 
 
 It strikes the farmer that this enormous sell- 
 ing of wheat which does not exist must hammer 
 down the price. But for every selling there is 
 a buying. If the consumer should turn his at- 
 tention to the case, he would be equally justi- 
 fied in concluding that all this speculative 
 buying must greatly enhance the price. In 
 truth, these purely fictitious buyings and sell- 
 ings are in the long run of small importance 
 or of no importance to producers and consum- 
 ers, except as a part of the process by which 
 
208 ELEMENTARY ECONOMICS 
 
 prices are fixed. But tlie buyers who actually 
 take and store the product till the time of con- 
 sumption draws near, perform a great service 
 to both buyer and seller. If the farmer had to 
 sell his product in the fall at a price at which 
 ultimate consumers would consent to purchase 
 their year's supply, he would receive a con- 
 vincing object lesson of the advantage to him 
 of this speculative buying. Housekeepers will 
 not buy a year's supply of flour in advance, 
 unless at a very great saving. Many of them, 
 in fact, could not buy if they would. 
 
 127. It is only when the so-called corner is 
 brought about that speculation deserves the 
 Corners are Condemnation which it receives. 
 evil. T]^e motives and methods of the 
 
 speculators are, of course, quite another ques- 
 tion. In its ordinary working, speculation 
 increases the total usefulness of commodities 
 by postponing their consumption to the time 
 of greatest need. The effect of the corner 
 exactly reverses this process. If the supply can 
 be monopolized, the aggregate selling price 
 may be increased. Utility is sacrificed to raise 
 values. (See Section 38.) The postponement 
 of the consumption is at the expense of current 
 consumption. An immediate scarcity is fol- 
 
SPECULATION 209 
 
 lowed by a corresponding excess. It is true 
 that the speculator must, after the corner, sell 
 at low prices some share of the supply which 
 was taken from the market. But this falls far 
 short of cancelling his profits; he could per- 
 haps even have afforded to destroy it. 
 
 But in order to enjoy the profit from an in- 
 creased price, the speculators must have pur- 
 chased practically the whole of the market sup- 
 ply. This is a difficult matter and requires a 
 vast amount of capital, even where the volume 
 of the commodity to be cornered is not large. 
 The fact that many men, who have no share of 
 the supply on hand, offer to sell products and 
 agree to deliver them, greatly increases the dif- 
 ficulty. These offers are in one sense mere bets 
 upon the course of the market, but as long as the 
 offerer is responsible the offer must be accepted, 
 else it has the same effect to defeat the corner 
 as if it represented actual commodity. No cor- 
 ner can force prices up except by frightening 
 these offers out of the market, or by accepting 
 them. When now the corner has succeeded, 
 not only does it make the profit upon the sup- 
 ply which it has to sell, but also an oftentimes 
 enormous profit from the people who have agreed 
 to deliver and are not able to fulfil. 
 
210 ELEMENTARY ECONOMICS 
 
 COMBINATIONS AND MONOPOLIES 
 
 128. The theory of monopoly should now 
 occasion little difficulty. It is easy to under- 
 stand how it is often better to sell a little at a 
 large profit per piece, than more at a smaller 
 profit. As long as the monopoly controls the 
 supply, it can fix the price at the point where 
 the profit is greatest. It is better, for example, 
 to sell 500 at three cents profit each than 1000 
 at one cent profit each. Of course the mo- 
 nopoly has to keep in view the danger of arous- 
 ing competition, and the necessity of fighting 
 it if it comes. Thus it commonly is true that 
 the monopoly prices are kept somewhat below 
 mark of maximum profit for the immediate 
 time, and occasionally go very low, often much 
 below cost, in order to discourage or ruin com- 
 petitors. 
 
 Monopolies are probably, on the whole, inju- 
 rious to society because of their habit of sacri- 
 ficing utility to value ; that is to say, they force 
 up the selling price by creating scarcity, — 
 they increase the sacrifices while at the same 
 time diminishing the consumption, — they sub- 
 tract from utility to add to value. (See Sec- 
 tion 38.) 
 
TBABES-UNIONS 211 
 
 TRADES-UNIONS 
 
 129. The antagonism between utility and 
 value helps in the explanation of trades-unions. 
 Evidently if the number of producers in any 
 given line can be artificially restricted, the 
 product will be limited, the prices high, and 
 the possible wages correspondingly high. The 
 union, if it can control the labor supply, can 
 exact from the employer all the wages which 
 he can afford to pay. The effects may or may 
 not, in the price of products, extend to consum- 
 ers. It is in the effect on laborers seeking a 
 place of employment in the ranks of skilled 
 labor that the effects of the unions are chiefly 
 to be regretted. In this respect their methods 
 are open to the same criticism as are those of 
 other monopolies. The attitude of many 
 trades-unions toward apprentices is a leading 
 instance. The well-being of society demands 
 the maximum of intelligence among the la- 
 borers and, unless greater advantages in other 
 directions are sacrificed, the maximum of prod- 
 uct. The exclusion of laborers from employ- 
 ment of any sort, or the restriction of them to 
 the unskilled industries, strikes at social well- 
 being through a diminution of the social prod- 
 
212 ELEMENTARY ECONOMICS 
 
 uct, and rather increases than diminishes the 
 inequalities of distribution. 
 
 But trades-unions are more than associations 
 for the restriction of product: they are societies 
 for mutual education and mutual insurance. 
 These are praiseworthy objects, and tend to in- 
 crease the efficiency and the contentedness of 
 the laboring classes. As associations for pro- 
 tecting the individual laborers against injus- 
 tice and oppression by employers, and for 
 insisting upon proper conditions of sanitation 
 and safety in shops and factories, and upon 
 reasonable hours of labor, the unions are effec- 
 tive and commendable organizations. 
 
 SUGGESTIVE QUESTIONS 
 
 In what degree can the large concern outdo the smaller 
 in economies of production ? 
 
 Is this equally true of the great farm or the great 
 store ? 
 
 Ought society to get the benefit of these economies? 
 
 What are the natural limits in the growth of giant 
 industries ? 
 
 May these limits be enlarged by trusts and combina- 
 tions between different plants ? 
 
 How much has cut-throat competition to do with this? 
 
 In what sense do you regard the law of increasing re- 
 turns as a permai?.ent fact in industry? 
 
 How does transportation open the way to the giant 
 industry ? 
 
TEA BES- UNIONS 213 
 
 What benefits can you mention from competition? 
 
 How are honest manufacturers driven to doubtful 
 methods ? 
 
 Do you think it proper for the government to enforce 
 regulations in regard to sanitation ? Child labor? Adul- 
 teration ? Length of work day ? 
 
 Under our form of government would this fall to the 
 separate states or to the general government? 
 
 What bearing have protective tariffs on the ease of 
 combination ? 
 
 What is the harm in combination ? 
 
 Could anything be done by taxation to obtain for 
 society the benefit of cheaper processes, or to protect 
 society from artificially high prices ? 
 
 How about the justice of the thing? 
 
 Is it a moral wrong to attempt to wreck another's 
 business by selling goods under cost ? What should you 
 say of an action for damages in this case ? 
 
 Do you know of any instance of cut-throat competi- 
 tion ? Who suffer ? Who gain ? 
 
 In case of street railways, city water works, gas works, 
 electric light works, does the public suffer most from 
 competition or from combination? 
 
 What do you think of city operation of these industries ? 
 City ownership and leasing ? City taxation ? 
 
 What effect do these industries have on city politics ? 
 What effect would come under city ownership ? 
 
 What effect would national railways have on poli- 
 tics ? 
 
 Is national ownership practicable while there is private 
 ownership in the land? What is the connection? 
 
 Do the sam.e considerations apply to telegraph or postal 
 service ? 
 
 To what extent do you regard railway discriminations 
 as responsible for monopolies ? 
 
214 ELEMENT ABY ECONOMICS 
 
 In what senses are laborers' interests parallel with em- 
 ployers' interests ? 
 
 In what sense adverse to employers' interests ? 
 
 Is the laborers' contest a contest against capital? Is 
 it an attempt to lower rates of interest ? 
 
 Can anything be done by labor unions to lower rents ? 
 
 Does the contest concern wages as against interest, 
 or wages as against profits? 
 
 ' In what degree are profits obtained by unfair treat- 
 ment of individual workmen ? By unwholesome or un- 
 sanitary conditions for work ? 
 
 By labor of children and women ? 
 
 By adulteration and lying ? 
 
 From which of these do laborers suffer ? 
 
 What can labor unions do in regard to each of these 
 evils ? 
 
 If unskilled laborers all work, what determines their 
 wages ? 
 
 What effect from a combination which should raise 
 the wages? Could as much product be sold? Could 
 as many men be employed ? What would the out-of- 
 works do? 
 
 Is combination among unskilled laborers likely to be 
 effective in raising wages ? In protecting members from 
 oppression by employers ? 
 
 Inquire among employers, and see whether they find 
 the labor unions a convenience in adjusting disputes. In 
 avoiding disputes. 
 
 Is combination among employers possible for regu- 
 lating wages ? Probable ? 
 
 Did the Chicago railroads practise it in 1894? 
 
 Would travellers and shippers ultimately get a benefit 
 from these lower w^ages ? 
 
 Do strikes commonly succeed ? If not, does this prove 
 the failure of strikes to benefit the workmen ? 
 
THE EIGHT-HOUR DAY 215 
 
 Does the armed peace of Europe tend to prevent war ? 
 
 What do you think of government ownership of rail- 
 roads from the wages aspect of the case? 
 
 Can skilled labor through combination get higher 
 wages ? 
 
 Must there be methods of excluding competition? 
 
 Is this desirable ? 
 
 If as many men work for as long a time, can wages be 
 changed ? 
 ^ If the number of workers or the length of the day be 
 
 THE EIGHT-HOUR DAY 
 
 130. Recalling that wages, though fixed by 
 the adjustment of supply and demand, are de- 
 termined by the productivity oi ^ ^^,^^i,^ ,^ , 
 labor as the source of the ability P^'o'l^ct. 
 to pay wages, — that therefore wages must be 
 drawn in the long run from product, and that 
 competition tends to fix interest and profit at 
 the level of marginal services, — it is clear that 
 the effect of the eight-hour day on wages must 
 be determined by its effect on the social divi- 
 dend. All attempts to obtain high wages by 
 making labor scarce, or its aggregate product 
 small, rest upon sheer fallacy, unless the restric- 
 tion be limited to one industry and that indus- 
 try be one in which the monopoly principle may 
 be applied. Even here, not employers, but con- 
 
216 ELEMENTABY ECONOMICS 
 
 sumers, must finally pay the costs of the arti- 
 ficial rise. Employers pay wages as fixed by the 
 selling price of their products. Shorter hours 
 and a relatively high compensation for laborers 
 in a given employment, would quickly recruit 
 the ranks of wage-earners from agricultural or 
 other laborers. 
 
 The question thus remains twofold: (1) Will 
 the aggregate production be lessened by the 
 change to an eight-hour day? (2) If so, is the 
 change desirable? 
 
 131. (1) A twenty-hour working day, if it 
 should prove physically possible, would mean 
 weary, stupid, ineffective labor. Better results 
 in product would be obtained with fewer hours 
 and longer rest. In most industries it is prob- 
 able that a twelve-hour day is, in the long run, 
 and purely as a question of product, undesir- 
 able, as compared with ten hours. But this 
 shortening process may go too far. That six- 
 teen hours is an improvement on twenty, or ten 
 on twelve, does not conclusively recommend the 
 eight-hour day as against the ten. Much de- 
 pends upon the nature of the industry, much 
 also upon the national characteristics of the 
 laborers. Probably, on the average, productive- 
 ness would fall with a change to eight hours. 
 
THE EIGHT-HOUB BAT 217 
 
 (2) Is this necessarily an evil? Is leisure good 
 for anything? On what conditions? How 
 about health and content? Morals? 
 
 THE SWEATING SYSTEM 
 
 What fixes the wages of employees in sweatshops? 
 
 Do the employers make unusually large profits or is 
 competition probably fully active among them ? 
 
 Do the merchants make large profits in the handling 
 of goods from sweatshops, or is the margin one of close 
 competition ? 
 
 With so many dozen shirts to sell, is it possible to 
 maintain higher prices and yet sell all the shirts ? How 
 arrange to get higher prices per shirt. What must be 
 the effect on the laborers if only as many shirts are sold 
 as can be sold at high prices ? 
 
 What effect (1) on employers, (2) on laborers, if wages 
 are increased without increasing the price of products ? 
 
 Is the purchaser of sweatshop products doing a benefit 
 or an injury to the employees ? What if the shirts could 
 not be sold ? 
 
 132. The conditions of bad sanitation, bad 
 water, bad food, ignorance, vice and disease, 
 characteristic of the sweatshops, 
 are well known. Merchants find 
 it convenient and profitable to let the mak- 
 ing up of fabrics to the lowest bidder. These 
 successful bidders, the sweaters, undertake to 
 find the necessary laborers. The work, under- 
 
218 ELEMENTARY ECONOMICS 
 
 taken at starvation figures, must be placed 
 among people compelled to work at starvation 
 wages. The fabrics are therefore distributed 
 for making among the ignorant and vicious, in 
 quarters of cities foul with stench, filth, and 
 disease. The labor is performed in garrets and 
 cellars, or in sick-rooms among sufferers with 
 all sort of contagious ills, where the uncom- 
 pleted garment may serve as the pillow or cover 
 of fever, cholera, or smallpox. On the count- 
 ers of the great wholesale and retail establish- 
 ments these sweatshop garments furnish the 
 material for great bargain sales or attractive 
 trade discounts. 
 
 The notion is held by many people that 
 the only thing necessary to cure this great 
 
 What can be ^^'^^ ^^ ^^^' ^^^® State to prohibit let- 
 done? -(^ij-^g Qp receiving work at these low 
 figures. It remains, however, to ask what 
 these ignorant and inferior workers will do if 
 prevented from earning these small wages. 
 Were something better open to them, it would 
 be unnecessary to prohibit this line of employ- 
 ment. Or, again, it is urged that purchasers 
 should refuse to buy garments made at starva- 
 tion wages. How would these starved labor- 
 ers be better off then? Unless their product 
 
LABOR OF WOMEN AND CHILDREN 219 
 
 can be sold for little, it cannot be sold at 
 all. 
 
 It may be, however, that as a measure of 
 public health, the State should attempt super- 
 vision and regulation of the sweatshops. It 
 is probably true that the inmates might in 
 many cases do better-paying work if they could 
 find it, and would often find it if they were 
 aware in a general way of its existence, or if 
 they were not wanting in energy and self-direc- 
 tion. Something is possible here through 
 charity and education. But in any event the 
 remed}^ will have to begin with the laborers. 
 Uninformed denunciation of the system, or of 
 the merchant, or of the intermediate employer 
 will do little good; nor will the accompanying 
 schemes of remedy serve. For this class of 
 laborers the choice is between sweatshops and 
 something worse. 
 
 LABOR OF WOMEN AND CHILDREN 
 
 133. Courts and lawyers have established the 
 rule that in case a parent is shown to be affir- 
 matively unfit to care for a child, a 
 
 T 1 ' j_ ^ ' ^ • CMldren. 
 
 guardian may be appointed m his 
 
 place. Merely as a matter of protection to the 
 
220 ELEMENTARY ECONOMICS 
 
 child, it becomes justifiable, in some cases, to 
 limit or suspend the usual authority of the 
 parent. 
 
 The labor of children in shops or factories is 
 injurious both positively and negatively — posi- 
 tively, in weakness and stunted growth from 
 over-arduous tasks, negatively in loss of oppor- 
 tunity to prepare for the more important tasks 
 of later life. These conditions of disadvantage 
 tend to reproduce themselves. When the child- 
 laborer matures, he in turn finds himself unable 
 to give his children proper care and education. 
 Thus, in justice to the unborn children as well 
 as to the living, some sort of restriction upon 
 child labor is desirable. If parents are unable, 
 under present conditions, properly to prepare 
 their children to live, there is the clearer 
 necessity that the next generation be not worse 
 equipped. 
 
 General considerations, therefore, favor state 
 interference in these matters. Any rule must, 
 however, be very flexible in application. Par- 
 ents or even whole families are in some cases 
 in considerable measure dependent upon the 
 services of children, where state aid could not 
 be recommended and would not be received. 
 The self-respect which goes with independence 
 
LABOR OF WOMEN AND CHILDREN 221 
 
 is a valuable quantity. Authority should exist 
 to handle these cases after their exceptional 
 character; otherwise the protection of children 
 may result in tyranny for both parents and 
 children. 
 
 134. The labor of women stands economi- 
 cally and socially upon other grounds. Where 
 women's labor in shops or factories 
 
 Women. 
 
 is necessary to a wholesome plane 
 of living, it is perhaps to be regretted. But 
 that it is to be regretted makes it not the less 
 necessary. Especially for married women are 
 the effects bad in lower physical tone and in 
 neglect of important home duties. 
 
 Whether in any case a woman's labor is neces- 
 sary is probably best left to her own decision, 
 or that of her family. They best know the 
 facts and are most interested in the decision. 
 There is small occasion for the state to inter- 
 fere otherwise than, as for other laborers, to 
 prescribe conditions of good sanitation, light, 
 heat, and safety. These latter matters are not 
 well left to ordinary methods of adjustment. 
 Competition without regulation works out in 
 this regard in higher wages for recklessness 
 and higher profits for inhumanity. 
 
 The necessity of wage-earning by women 
 
222 ELEMENTARY ECONOMICS 
 
 may well be regretted; but the active oppo- 
 sition to it rests upon the pernicious fallacy, 
 already many times remarked, that the compe- 
 tition of women reduces the wages of men by an 
 amount equal to the wages of the women, and 
 possibly by more. It is assumed that wages are 
 a fixed quantity and the social dividend inelas- 
 tic, instead of depending upon the effectiveness 
 of productive forces. If women's labor adds 
 to the social product, it necessarily adds to the 
 aggregate of wage receipts for wage-earners as 
 a whole. Obviously, however, if the compe- 
 tition of women centres in some one or some 
 few industries, the wage level therein may be 
 seriously lowered, and, conceivably, the wage 
 aggregate decreased. Value may suffer by the 
 mere fact of abundance. Utility and value do 
 not run parallel. (Section 38.) Wages are 
 derived from value. 
 
 WAGES OF WOMEN 
 
 135. It is familiar that wages depend finally 
 on the value of the product. What employers 
 can sell their product for will determine how 
 much the marginal employers are able to pay as 
 wages, and how much competition will compel 
 employers in general to pay. Thus in the 
 
WAGES OF WOMEN 223 
 
 measure that women are less quick, less in- 
 genious, less intelligent, or less versatile, their 
 wages will suffer. 
 
 As bearing upon the question of efficiency, 
 it must be remembered that for some employ- 
 ments women are distinctly inferior . 
 
 ^ Are women 
 
 to men in endurance and muscular equally valu- 
 
 ,, T ^ able employees ? 
 
 strength. In many cases, also, 
 women do not expect to remain long enough 
 at wage-earning fully to prepare themselves 
 therefor or to enter into their work with the 
 maximum of interest. But it is still true 
 that Avomen are not commonly paid in propor- 
 tion to their productive possibilities. They 
 could and would produce larger values, were 
 they employed where their work is most 
 productive. Wages in particular Eeiativeiy large 
 employments may be permanently ^crmealTw 
 low, if by force of public opinion or Pre- 
 law, or by lack of aptitude for other employ- 
 ments, certain large classes of workers are re- 
 stricted to fcAv employments. This, taken in 
 connection with their inferior productive ener- 
 gies, is the explanation of the strikingly low 
 average wages of women. If countless women 
 go into shirt-making, they must get, per shirt, 
 wages corresponding to the low price at which 
 
224 ELEMENTARY ECONOMICS 
 
 shirts must be sold in order to market the 
 whole product. Prices for shirts fall to the 
 measure of the marginal shirt, and wages for 
 all shirt-makers come to be fixed at this same 
 margin. There appears to be no remedy except 
 to decrease the number of shirt-makers, or to 
 find a way to induce people to buy the same 
 number of shirts at higher prices. Higher 
 prices, if possible, would then induce the pro- 
 duction of still more shirts. 
 
 TARIFF, PROTECTION, FREE TRADE 
 
 Write a definition of cost of production. 
 
 What is the employer's ground for asking protection ? 
 
 Why cannot he hire laborers at low wages ? 
 
 If an employer refused to pay reasonable wages what 
 would the employees do ? 
 
 Does protection cause high wages or result from high 
 wages ? 
 
 Why are Australian wages higher than East Indian? 
 Compare as to man and environment. 
 
 What fixes average wages ? 
 
 Why not raise bananas in Canada? 
 
 136. It must ordinarily be best for men to 
 follow the lines of employment for which they 
 Division of lator ^re bcst adapted. This course con- 
 is good, duces to the maximum social divi- 
 dend and to the maximum average command of 
 
TARIFF, PROTECTION, FREE TRADE 225 
 
 wealth. So it is best for communities inside a 
 nation, or for nations inside the community of 
 nations, to direct their energies to those lines 
 of production to which they are best suited. 
 To prevent any nation from doing this, or to 
 prevent any part of the people within a nation 
 from doing this, requires some kind of special 
 interference, or inducement, or compulsion. In 
 any country in Avhich the material advantages 
 are great, or the average productive powers of 
 the population high, the wages will be high 
 in the average, and it will require a system 
 of bounties or special privileges to induce any 
 one to follow an industry of relatively low 
 productiveness. 
 
 137. Protected industries find their cost of 
 production to be too high, in the sense that 
 they are unable to pay the wages What is a high 
 
 1 . 1 ,^ ■ -, , . -.xri cost of produc- 
 
 whicli other industries pay. When ^^0^7 
 the foreign competitor can hire equally good 
 men at low figures, this means that competing 
 industries in his country do not offer the labor- 
 ers better opportunities for production than his 
 industry can offer. Where this is true, it is 
 evidently impossible for an industry in the 
 country with a higher wage level to maintain 
 itself under free competition. This does, in 
 Q 
 
226 ELEMENTARY ECONOMICS 
 
 fact, prove the necessity of pTotection if the 
 industry is to exist, but it also proves that the 
 industry ought not to exist. Why can it not 
 pay the ruling rate of wages ? Simply because 
 other industries can pay more than it; they 
 produce, per laborer, a greater sum of values. 
 When we say that cost of production is high, 
 this is exactly what we mean. The cost of any 
 article is the displacement of other values pro- 
 ducible by the same productive energies. A 
 high cost of production is a high displacement. 
 Protective tariff is usually a method of wasting 
 energy by compelling the production of that 
 which could better be purchased, and the aban- 
 donment of that which would better be produced. 
 It is an attempt to thwart the international 
 division of labor. In effect it denies the profit- 
 ableness of trade. It suggests that it was a 
 mistake to make the world so lars^e. It foro^ets 
 that wages flow from product and are limited 
 by product, and assumes instead, that they can 
 be increased by legislation and legal shuffling. 
 In forgetting that wages are a result of product, 
 it is assumed that high wages mean a higher 
 cost of production reckoned by the piece, and 
 low wages a low cost, when in truth cheap labor 
 is very often found the dearest labor. 
 
TARIFF, PROTECTION, FREE TRADE 'I'll 
 
 138. Protection also commonly overlooks 
 the fact that peculiarities of environment 
 afford special opportunities for par- p^ . ^ 
 ticular lines of industry. Far- eels advantages 
 
 . , - , , .,, , of environment. 
 
 Sighted business sense will work 
 the forests and the fields, when these are ex- 
 cellent, to the exclusion of iron mines which 
 are poor. Other nations will work their mines, 
 allowing their relatively unprofitable agricult- 
 ure to languish. Each people should make 
 the most of itself and of its environment. 
 
 In rough outline this covers the entire tariff 
 question, though we shall see that there is some- 
 thing to say for protection under peculiar con- 
 ditions and as a temporary policy. But first 
 there are some minor aspects of the question 
 which require discussion. 
 
 139. Many people have the impression that 
 high prices are a good thing in themselves. 
 This opinion probably rests upon ^^^j^i^i^p^i^gg 
 the fact that in good times prices desirable? 
 are commonly high; it is therefore inferred 
 that the high prices make the good times — 
 very much as children sometimes believe that 
 the swaying trees make the wind blow. As 
 we have seen, however, the expanding credit of 
 good times accounts for the higher prices. 
 
228 ELEMENT ABY ECONOMICS 
 
 To assume that high prices are in themselves 
 a good thing is to look at the case from the 
 point of view of the producer or seller, without 
 thought of what he can buy with his money. 
 Are low prices There are also people who think low 
 desirable? prices an excellent thing, because 
 then money buys so much. These people look 
 at the case solely from the consumers' point of 
 view, forgetting that the first thing is to get 
 the money to buy with. In truth, commodities 
 cannot all be relatively high, any more than 
 every tree of the forest can be higher than the 
 others. 
 
 It is neither a good thing nor a bad thing 
 for prices to be permanently high or low. This 
 is purely a question of the volume of currency, 
 relatively to the amount of commodities to be 
 exchanged. So when the protectionist goes to 
 work deliberately to bring about high prices 
 generally, he is proceeding upon fallacious 
 reasoning. 
 
 140. But he sometimes has not precisely this 
 purpose in view. He has in mind a scheme 
 
 Is it well to sell '^•'^^^^^ ^^®^ ^^^ ^^^^ tend to raise 
 without buying? prices, but this is only incidental; 
 it is not his main purpose. He hopes to 
 arrange things so that people shall not buy so 
 
TABIFF, PROTECTION, FREE TRADE 229 
 
 largely from abroad and therefore will keep 
 their money at home. He expects to export 
 as much as before, but to import less. His 
 error is in failing to see that, if what was 
 before imported is now produced at home, there 
 will be correspondingly fewer people to produce 
 for export. But should you suggest this diffi- 
 culty to him, he would probably reply that his 
 plan would give employment to the unemployed 
 laborers, so that exports would not suffer. 
 Somehow he seems to believe that a smaller 
 proportion of unemployed laborers is to be 
 found in protected countries than in free -trade 
 countries. This is simply not the fact. 
 
 141. But were there anything in this argu- 
 ment, his scheme would nevertheless fail wo- 
 fully for another reason. Imports ^ .^ .,, ^ 
 
 •^ -L Is it possible to 
 
 are not paid for in money but in ex- sell without 
 ports. It is only the balance that 
 has to be paid, now to one country and now to 
 the other, in money. So far as one nation suc- 
 ceeds in exporting more than it imports, there 
 must come about an inflow of money. This 
 strikes the protectionist as very advantageous. 
 This importation of money is just what is 
 desired. You may object that this will raise 
 prices. Possibly enough so — and the protec- 
 
230 ELEMENTARY ECONOMICS 
 
 tionists will be still better satisfied to find that 
 prices will rise. The people who like to see 
 prices going up will be glad too. This .looks 
 like a model system; let ns export some more 
 goods and get some more money and some more 
 rise in prices. 
 
 But there is a difficulty. As fast as domes- 
 tic prices rise, it becomes more difficult to mar- 
 ket goods abroad. And all the while, as we 
 get the foreigners' money, their prices must 
 tend to fall as money becomes more scarce 
 with them. Our system of selling without 
 buying turns out to cut off international trade 
 altogether. In fact the money, when we have 
 got it, is of no particular help to us unless 
 sometime later we expect to send it abroad to 
 buy things with. If we sell to foreigners we 
 must buy from them. If we refuse to buy from 
 them, and produce our own supply instead, we 
 shall have little or nothing to sell to them; 
 and if we had something to sell, they would be 
 unable to buy because of lack of money, or we 
 to sell because of surplus of money. 
 
 SOMETHING ON THE OTHER SIDE 
 
 142. What has been said against protective 
 tariffs should not be taken to apply to all forms 
 
SOMETHING ON THE OTHER SIDE 231 
 
 of taxation upon imports. It is necessaiy to 
 raise revenue for the expenses of Tariffs as 
 
 ry^ , . . method of 
 
 government. laxation m some taxation. 
 form or other is unavoidable. So long there- 
 fore as duties are collected, not for the purpose 
 of excluding foreign goods from our markets, 
 but for the purpose of deriving a revenue from 
 such goods as come in, a tariff system may 
 afford an excellent method of taxation. 
 
 143. But it is a mistake to suppose that by 
 this method the foreign manufacturer or im- 
 porter can be made to pay our taxes when tariff is a 
 for us.' This is rarely the result in tax who pays it? 
 any considerable degree. In truth, the importer 
 is as likely to be a citizen of our own country 
 as to be a foreigner. But in either case the 
 duty paid is in larger part added to the selling 
 price of the goods, and is finally collected from 
 the domestic consumer. 
 
 144. But admitting this, there are some im- 
 portant advantages in this method of collecting 
 taxes. The tax is easy of collection and the 
 expense is not large in proportion to receipts. 
 There is also the advantage that the is tax better 
 taxpayer is usually unconscious of ^'^f^y ;, ^^. 
 the fact that he is being taxed. This, consciously? 
 however, is not an unmixed advantage, since by 
 
232 
 
 ELEMENTARY ECONOMICS 
 
 the very fact that the taxpayer is not aw^re of 
 his burden, he is the less interested to see that 
 the government resources are carefully and eco- 
 nomically expended. That there is danger of 
 extravagance and need for watchfulness may 
 be inferred from the course of our national ex- 
 penditures in the last one hundred years. The 
 following table shows the net ordinary expen- 
 ditures of the government, excluding interest, 
 together with the population and the per capita 
 of expenditure : — 
 
 Year. 
 
 Population. 
 
 EXPENDITUKE. 
 
 Pee 
 
 Capita. 
 
 1800 
 
 5,308,483 
 
 $7,400,000 
 
 1.39 
 
 1810 
 
 7,239,881 
 
 5,300,000 
 
 .75 
 
 1820 
 
 9,638,822 
 
 13,100,000 
 
 1.36 
 
 1830 
 
 12,866,020 
 
 13,200,000 
 
 1.01 
 
 1840 
 
 17,069,452 
 
 24,100,000 
 
 1.41 
 
 1850 
 
 23,100,876 
 
 37,200,000 
 
 1.60 
 
 1860 
 
 31,443,321 
 
 60,000,000 
 
 1.91 
 
 1870 
 
 38,258,371 
 
 164,400,000 
 
 4.25 
 
 1880 
 
 50,155,783 
 
 169,090,000 
 
 3.39 
 
 1890 
 
 62,480,540 
 
 261,637,000 
 
 4.18 
 
 1892 
 
 64,000,000 
 
 321,700,000 
 
 5.04 
 
 1895 
 
 66,500,000 
 
 383,900,000 
 
 5.77 
 
 145. So long as the tariff works purely as a 
 measure for revenue, not greatly interfering 
 
SOMETHING ON THE OTHER SIDE 233 
 
 with the course of foreign trade, and particu- 
 larly so long as the tariff does not, ^^^.^ ^3 ^^^^^ 
 by excluding foreign goods, necessi- iiarmM? 
 tate the existence of industries which waste- 
 fully apply our domestic powers of production — • 
 that is to say, so long as the tariff is a tariff for 
 revenue, and not a tariff for protection — there is 
 little room for criticism. England has for many 
 years collected by tariffs upon tobaccos and 
 alcoholic drinks the larger part of its revenue. 
 It is only when goods do not come in and there- 
 fore pay no tax that free-traders are greatly in- 
 clined to object. 
 
 146. And even here the free-traders do not 
 have all the advantage in the theoretical argu- 
 ment. It is not true that protection ^^ ^^ ^^^^ ^^^^^_ 
 fails in theory and works in prac- warily harmful? 
 tice. Just the contrary is true. For certain 
 definite ends, and strictly limited in time, 
 protection is tenable in theory, although it 
 commonly, if not invariably, fails in prac- 
 tice. The argument for protection, based upon 
 the desirability of stimulus to industries in 
 their experimental stages, is not a novel one, 
 and has long been admitted by many free-traders 
 to be theoretically valid. The difficulties inci- 
 dent to providing machinery and plant for a 
 
234 ELEMENTARY ECONOMICS 
 
 new industry, to establishing sources of supply 
 for raw materials, to operating the plant with 
 labor at first unskilled, to organizing market 
 connections and attracting consumers' demand, 
 are so great that, though the industry may ulti- 
 mately demonstrate its practicability and profit- 
 earning capacity, it may also never requite the 
 pioneers for their exceptional outlay. These 
 original projectors have no monopoly of the pos- 
 sible success, but only of the probable failure. 
 In its most important bearings the experiment 
 is of social rather than of individual interest, 
 and during the period of experiment society 
 may fairly be called upon to stand behind, in 
 some measure at least, as guarantor. On any 
 other terms it is very possible that capable pro- 
 jectors will not undertake the experiment. 
 
 147. But on grounds of experience the advo- 
 cates of free trade seem fairly to have turned the 
 Practically and argument. To admit that the State 
 X'rotttion "lay profitably interfere is far from 
 fails. admitting that the interference is 
 
 commonly profitable. American history and 
 European history unite in convicting the State 
 of exceeding stupidity in selecting the experi- 
 ments in which it shall co-operate, — in indicat- 
 ing that the unsuccessful experiment commonly 
 
SOMETHING ON THE OTHER SIDE 235 
 
 fails of abandonment when abandonment is 
 due, and that the successful experiment com- 
 monly receives greater protection in nearly the 
 proportion that it ought to receive less, — in 
 short, that the system inaugurated to overcome 
 the inertia and loss incident to planting a new 
 industry, inevitably develops b}^ the dark ways 
 of politics into a persistent attempt to maintain 
 in existence an energy-wasting failure, or into 
 grotesque solicitude for industries grown vigor- 
 ously independent. But the theory stands. 
 
 Note. — The ordinary student enters upon the study 
 of Political Economy under the impression that the tariff 
 question is the main part of it. He has probably by this 
 time come to see that the tariff makes no very large share 
 of the subject. He ought also to be prepared to appre- 
 ciate that in its purely economic aspects the tariff ques- 
 tion is of minor practical importance. No very exhaustive 
 examination is necessary to establish this fact. 
 
 The number of employees in the leading industries 
 affected by protection is as follows (the figures are taken 
 from the report of the census of 1890) : — 
 
 Wool 219,132 
 
 Cotton 221,585 
 
 Silk 50,913 
 
 Dyeing and finishing 20,257 
 
 Iron mining 38,227 
 
 Iron and steel manufacture .... 175,506 
 Fuel for mining and smelting (esti- 
 mated) 15,000 
 
 Total 740,620 
 
236 ELEMENTARY ECONOMICS 
 
 The number of bread winners in the country is 
 22,756,000. If then we compute the product of these 
 protected industries as nothing — as all waste — we shall 
 have the national dividend reduced by 22HU00 o^' H 
 per cent. 
 
 In fact, however, the cotton industry almost entirely, 
 the coarser grades of wool, and the mining interests of 
 the interior States are now independent of protection. 
 It is a liberal estimate to regard one-half of the laborers 
 in these industries as dependent for their present employ- 
 ment on tariff. Moreover, of the laborers who are really 
 held at their present employment by the artificial adjust- 
 ments of protection, not 25 per cent of the labor energy 
 is wasted, — that is to say, the present product is fully 75 
 per cent of what the labor could be made to produce 
 under free competitive conditions. 
 
 1 of i of 3^ per cent= | (.406) of 1 per cent. 
 Estimating the average per capita income at two dollars 
 per day, free trade in these leading industries would 
 carry this income to something short of 2.01 (in purchas- 
 ing power) . 
 
 SUGGESTIVE QUESTIONS 
 
 What effect does the tariff system have on the use of 
 money in elections ? 
 
 On the bribery of representatives ? 
 
 On the wholesome character of popular thought as to 
 the sphere of government ? 
 
 On the purity of politics generally V 
 
CHAPTER XV 
 
 TAXATION 
 
 The right of taxation has been called the essential fact 
 of sovereignty. Why ? 
 
 What was the main difficulty with the Articles of Con- 
 federation ? 
 
 What is the usual cause for revolution ? How was it 
 in American history ? 
 
 Where does the food come from which the judge and 
 sheriff eat ? The wool that they wear ? Who pay for 
 these ultimately? 
 
 In what sense are all taxes taxes on consumption ? 
 
 What is a tax — not in terms of money but in terms of 
 labor or product V 
 
 Why ought a good citizen to be willing to pay taxes ? 
 Does he get his money's worth? More? Is it a good 
 investment ? 
 
 Do you think even a poor government better than 
 none? Mention the different ways in which the ex- 
 penses of government return to us in services. 
 
 Discuss as to each of these suggested ways whether the 
 rich man is more benefited than the poor man. 
 
 Ought the rich to pay more taxes than the poor? 
 Why? 
 
 Should taxes be proportioned to wealth ? Suppose A's 
 wealth to be in a picture gallery ; B's in unoccupied town 
 lots ; C's in a livery stable ; D's in mortgages ; E's in fac- 
 237 
 
238 ELEMENTARY ECONOMICS 
 
 tories ; F's in tenement houses : should taxation apply- 
 to all proportionately ? 
 
 Ought taxes to be proportioned to income ? 
 
 Should it matter that one has ten children to educate 
 while another has none, or that one spends his income in 
 charity and another in luxury or vice ? 
 
 Should taxes rest especially on luxuries and vices ? 
 
 Should taxes bear on that portion of one's income 
 which goes into living expenses rather than on that 
 which goes into savings and factories, or vice versa ? 
 
 Do you regard abilities or benefits as the proper basis 
 of taxation? 
 
 Who ultimately pays the taxes on a stock of goods ? 
 On imports? On factories? On machines? On mort- 
 gages ? On wages ? Incomes ? Land rents ? 
 
 Which is the better method, direct or indirect taxa- 
 tion ? Mention different considerations. 
 
 Should churches be taxed ? Schools ? 
 
 What moral right has society to compel the unwilling 
 to contribute? 
 
 By what sort of taxes does the city get its revenue ? 
 The State? The nation? 
 
 Do you approve of inheritance taxes ? 
 
 Should litigants pay all the expenses of court proceed- 
 ings ? 
 
 148. Almost all of the mistakes of govern- 
 ment in modern days are questions of the 
 Taxation is the mis Collection or the misapplication 
 
 moTritw- °^ P"^^^° """^^y- The point at 
 rnent, which government and the people 
 
 come vitally and seriously in contact is on this 
 question of what it all costs. The tyranny of 
 
TAXATION 239 
 
 military despots with the violence of armed 
 hirelings, has mostly given place to the regular 
 processes of law and custom. If the State now 
 collected its money well and spent it wisely, 
 there would be little occasion to ask more of it.^ 
 This power to tax is the central fact in govern- 
 ment, its source of life, its chief power for ill or 
 good. If governments would but pay their own 
 expenses they might do almost anything they 
 pleased. The citizen is rarely sensitive or in- 
 terested or watchful or angry except as public 
 questions are somehow tax questions. The 
 State would be an empty abstraction, as harm- 
 less as useless, if it could raise no money. 
 Taxes are its breath and life. When, under 
 the Articles of Confederation, it was attempted 
 to create a government without the power to 
 tax, the result was a pitiful failure. 
 
 The State is a great system of compulsory 
 co-operation. Some people who -^ 
 
 -^ ■'--'- G-overument is 
 
 dislike compulsion go as far as to compulsory co- 
 deny the right of compelling people 
 
 1 The writer has not in mind to attempt any discussion or 
 limitation of the proper functions of the State, hut merely to 
 indicate the feeling and attitude of the public as a whole and 
 of the taxpayer in particular toward the actual administration 
 of public affairs. Whether, as matter of broad policy or theory, 
 the limits of State activity should be widened or narrowed is a 
 question which the writer does not intend in this place either to 
 ask or to answer. 
 
240 ELEMENTARY ECONOMICS 
 
 to support the government. These are the 
 anarchists. It is a sufficient answer to them 
 to say that the right to tax and the right to 
 exist are one. Society cannot get along with- 
 out government or government without taxes. 
 
 149. But the fact that the revenues of the 
 State are obtained by compulsion should per- 
 haps have some weight in deciding what use 
 we should make of them. If the taking is jus- 
 tified by the necessity, it is not far- 
 fetched to say that the government 
 
 should take and spend only where necessity 
 exists. A voluntary organization like a club 
 may do some things with its dues which the 
 State in good conscience ought not to do with 
 the taxes. 
 
 150. Many people fail to see that whatever 
 the government spends must be procured at the 
 Taxes come out ©xpense of somebody. In an indis- 
 of somebody, tinct and hazy way the idea is abroad 
 that the government has some Aladdin's lamp 
 or miracle-box by the aid of which, behind the 
 curtain, it can mysteriously create wealth. It 
 would perhaps be well for us if this hocus- 
 pocus method were really possible, but it is bad 
 to believe in it, and have it tried, when it 
 really will not work. Some one must pay for 
 
TAXATION 241 
 
 all reckless attempts at wealth-creating and 
 wealth- wasting. 
 
 151. This is another case where the use of 
 money obscures the real facts. The mere pass- 
 ing of money from hand to hand is whatever is 
 
 destroyed is so 
 
 to 
 
 not important. The wastes of kings ^^^^' 
 and princes, with their armies of consume. 
 retainers and their parades and their wars, 
 do no good in making money circulate, but 
 dissipate the labor-energy of the armies, and 
 destroy vast supplies of food, clothing, equip- 
 ment, and stores. In parallel wise, the spend- 
 thrift, or idler, or parasite is a public pest. 
 
 Thefts from the public treasury by shifty 
 politicians, fat profits on contracts, the army 
 of hangers-on, loafers, heelers, and ward poli- 
 ticians thrive not by miracles of wealth-making, 
 but by the hard toil of the taxpayers. It is 
 equally true that the judge, the policeman, the 
 fireman, the legislator, the State and county 
 officials, though all render good service for 
 their salaries and are worthy of their hire, live 
 from what is taken from the living of the tax- 
 payers. The flour which the official eats will 
 never make bread for the contributor; what 
 cloth the judge and sheriff wear out is so much 
 less to clothe the rest of us; the brick and 
 
242 ELEMENTARY ECONOMICS 
 
 mortar in the public buildings will never build 
 into a house for you or me. Even a poor gov- 
 ernment is better than none; taxes are the 
 most profitable part of every man's investment; 
 officials must be had and paid, and if good must 
 be adequately paid; but governments cost — 
 and the poorest often cost the most. 
 
 152. The question still remains as to how to 
 collect the funds which the State must have. 
 How impose Should the tax be levied per capita, or 
 the tax? should it be proportioned to wealth, 
 
 or to income, or to expenditure? If upon 
 property or wealth, upon what kinds ? Should 
 the home, the church, and the factory be 
 equally subject to taxation ? 
 
 It is impossible to make general rules which 
 shall fit peculiar and special cases. It is mani- 
 festly an inequality of burden to tax the father 
 of a large family equally with a bachelor, sim- 
 ply because the two men are equally wealthy. 
 The one may readily spare much, while the 
 needs of the other may press him hard. The 
 man who rears and educates a large family is by 
 this very fact a heavy contributor to society. 
 It is not ideal that the wealth, the income of 
 which goes to works of charity and philan- 
 thropy, should be taxed equally with that which 
 
TAXATIO]}^ 243 
 
 serves for the maintenance of extravagance and 
 vice. Schools and churches also render public 
 service under other forms than money. We 
 shall, however, find in later sections a method 
 by which most of these inequalities may be 
 adjusted. 
 
 153. (1) As a practical matter, it is evident 
 that the subjects of taxation and the 
 
 . , T 1 , T 1 1 -I ' ^ Practical rules. 
 
 methods selected should involve a 
 
 moderate cost of collection in proportion to the 
 
 revenues obtained. 
 
 (2) As little opportunity as possible should 
 be given for shrewdness or dishonesty to avoid 
 the tax. This rule applies with especial force 
 to some forms of income taxation, to taxes 
 levied upon inventories made by the taxpayer, 
 and to ad valorem taxes upon imports (duties 
 levied by percentage on value). 
 
 (3) Taxes should be levied, as far as possible, 
 so that they may not shift. A tax is said to 
 shift when the person who seems to pay the 
 tax does not in reality pay it, but shoulders it 
 off on some one else. For example, there used 
 to be a stamp tax on each bunch of matches, as 
 there is now on every box of cigars. The 
 manufacturer advanced the tax in cash to the 
 government, but later, under the form of sell- 
 
244 ELEMENTARY ECONOMICS 
 
 ing price, shifted the tax for the most part 
 upon the consumer. Legislators often blunder 
 in attempting to tax one class of people, and 
 in reality taxing another. This rule against 
 shifting is the most difficult of application in 
 the entire subject of taxation. It is evident 
 that a tax on production will in some meas- 
 ure — and generally for the most part, though 
 rarely entirely — be paid by consumers. Taxes 
 on interest are in some small part paid by 
 the borrowers, but mostly by the consumers of 
 the commodities supplied through the aid of the 
 borrowed capital. Likewise taxes on any form 
 of capital rest chiefly upon consumers, since 
 taxes of this sort work like taxes upon produc- 
 tion. 
 
 These cases illustrate the most important 
 principle in the theory of taxation — that any 
 tax which modifies the market price of products 
 will, in some measure, shift. Only those taxes 
 which, not disturbing the relations of demand 
 and supply, fail to produce any effect upon 
 market prices, are safe to remain where placed. 
 
 154. Taxes levied directly upon consump- 
 Do taxes on con- tion, or in proportion to consump- 
 snmption shift? tion, are sometimes of the non- 
 shifting and sometimes of the shifting class. 
 
TAXATION 245 
 
 In fact, as we have already seen, all taxes are 
 ultimately taxes on consumption, since taxation 
 is in substance the transfer of the right to con- 
 sume ; but taxation may be laid upon the 
 whole income silent for consumption or upon 
 particular articles consumed. Where the tax 
 is levied in proportion to the entire income, 
 there is no way for it to shift; but if laid upon 
 particular commodities, the consumption of 
 these commodities is in some measure discour- 
 aged and the demand restricted. Values are 
 disturbed through disturbance of demand and 
 supply, and some measure of shifting becomes 
 inevitable. For the most part the consumer — 
 but commonly in some measure the producer 
 also — will be compelled to bear the tax. 
 Taxation upon monopolies does not shift, since 
 the monopoly has already fixed upon the most 
 profitable market price, and the imposition 
 of the tax would therefore have no effect to 
 modify the price. 
 
 155. Taxes on rents, or quasi-rents of any 
 sort, do not shift, since they affect neither the 
 demand nor the supply of products. ^^ ^^^^^ ^^ 
 
 The best illustration of this princi- rents and qnasi- 
 
 rents shift ? 
 
 pie, and the most important appli- 
 cation, is found in taxes upon land rents. 
 
246 ELEMENTARY ECONOMICS 
 
 Land at the margin of cultivation pays no 
 rent, or at all events, an inconsiderable rent. 
 The selling price of agricultural products — if 
 produced at all on marginal land — is approxi- 
 mately the cost of production on this marginal 
 land. Therefore to tax rents would drive no 
 land from cultivation, would attract no land 
 for cultivation, and would modify in no meas- 
 ure the demand for products or the supply of 
 them or the price of them. It is largely upon 
 this reasoning that the taxation of land rents 
 has been urged by different economists, among 
 whom Henry George is perhaps the best known. 
 It is argued that the value of land results mostly 
 from the growth of population and from the 
 progress of society, in railroads, schools, social 
 privileges, markets, etc. It is denied that the 
 owners or cultivators of land have done or can 
 do much to enhance the value of their respec- 
 tive holdings. It is granted — indeed it is 
 urged — that so far as the increase in value 
 is due to improvements on the land, as, for 
 example, buildings, or clearing, or drainage, 
 taxation is not desirable, but it is asserted that 
 the unearned increase — the share of its value 
 not due to the owner or his predecessors — 
 should be appropriated by society through taxa- 
 
TAXATION 247 
 
 tion. Under this system the State would not 
 become landlord — ownership would be pre- 
 served to individuals — but taxation would 
 absorb for the State the larger part of the reve- 
 nue of ownership. It goes without saying that 
 as taxation lowered the owner's revenue, the 
 market value of the land would proportionally 
 fall. 
 
 This does not strike one as fair or honest 
 with regard to the present values of land. No 
 matter what their origin may have been, in- 
 vestments in land now represent savings from 
 all forms of human effort. Society would pos- 
 sibly have done well in reserving these values 
 to itself, had it started early enough. It 
 would probably now do well, if it is practica- 
 ble, to take steps to secure to itself any future 
 increases in land values, and particularly the 
 increases which take place in urban lands (city 
 lots) ; but wholesale appropriation of accrued 
 values is wholesale robbery. 
 
 156. It has been shown that taxes on inter- 
 est mostly shift to borrowers or to consumers. 
 By virtue of this shifting process, Taxes on inter- 
 taxes of this sort often result in ^^^'7^*^^^^^' 
 
 investments, 
 
 extreme injustice. Commonly, in- etc. 
 
 deed, the very people are burdened who are 
 
248 ELEMENTARY ECONOMICS 
 
 intended to be favored. A possessor of five 
 tliousand dollars of property, owing four thou- 
 sand dollars, is Avorth, in fact, but one tliousand 
 dollars, and yet may have to pay taxes not 
 only upon his five thousand dollars worth of 
 property, but to some extent, by way of in- 
 creased interest, upon the indebtedness against 
 it. Recalling to mind that for every debit 
 there is a credit, and that cancellation of this 
 credit relationship would work no change in 
 the aggregate of social wealth, taxation upon 
 interest is seen to be in effect double taxation 
 upon wealth, since it is taxed once in the gen- 
 eral wealth and again in the credit system. 
 
 157. Taxation proportioned to the benefits 
 derived from government would in great part 
 Sh Id t f 1- 6^6™P^ ^^^ ^®^y people best able to 
 low benefits or pay — those bcst able to dispense 
 with the aid or protection of the 
 State. The millionnaire is not benefited a thou- 
 sandfold more than the humble householder. 
 The pauper is greatly benefited and yet pays 
 nothing. Taxation necessarily avoids the very 
 poor, else that which is taken under the form 
 of tax must be returned as public charity. 
 
 Taxation according to ability to pay would 
 require careful examination of the properties 
 
TAXATION 249 
 
 owned, whether income paying or otherwise, 
 and would require careful account of the 
 family and social obligations recognized and 
 fulfilled by the contributor. As we have 
 already seen, the father of a large family does 
 not stand, for this purpose, on a level with 
 the bachelor. 
 
 158. And yet, on the whole, the collection 
 of taxes according to ability to bear the tax, 
 recommends itself as the best ap- income tax is 
 proximation to fairness and practi- ^^ ability tax. 
 cability. Burdens are thereby proportioned to 
 strength. Upon this line of reasoning the 
 income tax is commonly regarded as the ideal 
 tax, to the extent that it can be made practi- 
 cable in operation. A progressively higher 
 rate of taxation is commonly advised with 
 increasing income. Here, again, the difficulty 
 presents itself of making allowances for the 
 different uses to which incomes are put. 
 
 Proceeding, however, upon the basis of in- 
 come — of taxation according to ability — a 
 rational and practicable system is within reach. 
 
 Let it be recalled that all taxes are, in ulti- 
 mate incidence, taxes on consumption (Sec- 
 tion 151), that no one gets any benefit of his 
 wealth — otherwise than in the mere power and 
 
250 ELEMENT ABY ECONOMICS 
 
 pride of possession — till he comes to use it. 
 If, now, all taxes were drawn from that por- 
 tion of income which goes to the consumption 
 of the contributor, no philanthropist would 
 stand under penalty for his charities. There 
 is no occasion to tax savings as long as they 
 are represented by factories or until they are 
 turned by the owner to his own benefit. Seed 
 at the time of planting is best exempt; wait 
 for the harvest. If the owner of wealth is 
 taxed prior to the time of consumption, he is 
 taxed for that which has not yet served him and 
 may never come to service. This tax, also, is 
 certain, in some measure, to shift. 
 
 159. Incomes then should be taxed not by 
 the measure of receipts, but by the measure 
 Outgo tax is of expenditure — not by income but 
 ideal tax. j^y outgo. This principle has been 
 
 put in successful operation by the French. 
 The dangers of perjury, the premiums upon 
 dishonesty, and the general impracticability 
 which have attended all attempts at income 
 taxation in America, as well as the injustices 
 and the shifting which mark income taxation 
 when proportioned to receipts, are all avoided 
 by adjusting the tax levy in accordance with 
 outside indications of expenditure, for ex- 
 
TAXATION 251 
 
 ample, upon tlie rental value of the home, the 
 amount of furniture, the number of servants 
 and of horses. Undoubtedly the system re- 
 quires skill in the selection of leading facts and 
 in the apportionment of their relative weight, 
 but amounts in effect to a tax on that portion 
 of income expended for personal uses. 
 
 Clearly, however, this system is not ideal if 
 no allowance is made for the exemption of 
 incomes at or below the strict requirements of 
 life, or if no provision is made for progres- 
 sive burdens upon larger expenditures. With 
 these modifications provided for, this form of 
 income tax burdens the wealthy in proportion 
 to their ability to bear the burden. Nor is it 
 to be condemned on this ground as unjust, in 
 view of the fact that society as a whole fur- 
 nishes the organization and the civilization in 
 which alone great wealth becomes possible. 
 
 160. If, however, the rich are to be taxed in 
 the measure of their capacity, so should the 
 poor. Whatever is spent for vice ^^^^^ ^^^ ^^ 
 or luxury in any stratum of society, the poor accord- 
 is by that fact proved not indispen- 
 sable. Here is an opportunity to tax the poor 
 to their benefit, or at all events, to no great 
 injury or burden. Here is the theoretical and 
 
252 ELEMENTARY ECONOMICS 
 
 practical justification for exceptionally higli 
 taxes levied in England and America on alco- 
 holic drinks and tobacco. All of these taxes 
 may be avoided by abstention from consump- 
 tion. Should taxation of this sort seem to 
 savor too much of paternalism and sumptuary 
 legislation — if it is objected that there is too 
 great room here for mistaken, or extreme meas- 
 ures — the answer is that the State must follow 
 what light it has. Taxes must be collected; 
 they fall of necessity upon one sort of con- 
 sumption or another; the State is in duty 
 bound to collect its revenues with as little 
 harm as possible. 
 
 161. Succession or inheritance taxes have 
 been much discussed of late years. Upon the 
 death of a rich man his property passes to those 
 who have not earned it, whose usefulness in 
 society is not certain to be increased by the 
 receipt of it, and whose claim to it as against 
 Inheritance society is not entirely clear, in view 
 taxes. of ^]^g f^Qf^ ^i^^j^ society has had a 
 
 much larger share than the}^ in the creation of 
 it. It is an added advantage that the tax is 
 not felt as a great burden by those whose gains 
 come to them as pure good fortune. There is, 
 of course, danger that the tax be placed so high 
 
TAXATION 253 
 
 as to stimulate evasion by gifts before death. 
 Partly in view of this, it is generally advised 
 to fix the rate low for cases where the property 
 goes to wives or children, and higher as the 
 amount is greater or as the property goes to 
 more distant relatives. 
 
 This method of taxation would be produc- 
 tive of large revenues and appears to have 
 many advantages. It is, however, by many 
 thinkers vigorously condemned (1) as weaken- 
 ing the motives for saving; (2) as interfering 
 with the owner's right to do as he will with 
 his own; (3) as partaking of class legislation 
 or of socialistic tendencies. 
 
 162. Under our form of government, income 
 taxes should probably be collected by the 
 national government, as should also taxes on 
 alcoholic drinks and tobacco, as far as they are 
 levied under the form of tariff or of taxes on 
 production. Inheritance and land taxation, 
 and all forms of taxation upon consumption 
 by license methods, are probably best placed 
 with State and local governments. 
 
 It is worth noting, as a matter of experience, 
 that taxation upon personal property, as admin- 
 istered in America, is impracticable, consis- 
 tently with justice, and commonly fails, for 
 
254 ELEMENTARY ECONOMICS 
 
 the most part, of enforcement. In almost all 
 communities, and especially in the newer 
 communities, land taxation affords nearly the 
 entire revenue. Unfortunately, however, no 
 distinction is made between land and improve- 
 ments. 
 
 SUGGESTIVE QUESTIONS 
 
 Compare the tax bill with that of the grocer. 
 
 Ought the right to vote to depend in any way upon 
 property or to be influenced by it? 
 
 How does taxation differ from robbery ? 
 
 Why do anarchists object to taxation ? 
 
 What was Rousseau's theory of the social contract ? 
 
 Ought public funds to be used for Fourth of July 
 celebrations ? 
 
 What is a poll tax ? 
 
 Are taxes better direct or indirect ? 
 
 Is it wise to assist private educational institutions with 
 public funds ? 
 
 Suppose A has $100,000 all invested -in real estate 
 mortgages, upon how much is he taxed ? 
 
 Can he shift this, in part, upon some one else? 
 
 Suppose he himself owes $10,000 to the bank ; will this 
 be deducted from the amount upon which he is taxed ? 
 Ought it? 
 
 Suppose you own a farm worth $5000 and owe A $4000 
 toward the purchase price; what is your net wealth? 
 On how much do you pay taxes, — $1000, $5000, $8000, 
 or $9000? 
 
 Are all who are taxed citizens ? Ought all to be ? 
 
 Are criminal courts of service to those who never have 
 litigation? How about civil courts? 
 
TAXATIOI^ 255 
 
 What harm in taxing the grain which makes the flour ? 
 Why better tax the flour ? 
 
 Is tariff taxation sufficiently near to the point of con- 
 sumption ? Is it economical of collection ? 
 
 Does it place unusual premiums on dishonesty? 
 
 Does it bear in desirable proportions upon rich and 
 poor ? 
 
 On what classes does taxation on whiskey or tobacco 
 fall? 
 
 Is this better than an income tax ? 
 
 On what classes does the income tax mostly fall? 
 
 What do you say of the expediency of limiting taxa- 
 tion to two forms, — an income tax for the rich, a luxury 
 and vice tax for both rich and poor ? 
 
 Would you add to this a land tax, or, more properly, 
 a rent tax ? 
 
 Is an income tax best levied on the basis of income re- 
 ceived or of income expended ? 
 
 The French assess their income tax on the basis of a 
 few leading indications of the expenses of living, — rental 
 value of house, amount of furniture, number of servants, 
 etc. ; what do you say of this ? 
 
 Is it true that " tariff is a tax " ? 
 
 Is it true that the foreigner pays the import duty ? 
 
 Do producers or consumers pay charges of transpor- 
 tation ? 
 
 Do producers or consumers pay the profits of specula- 
 tors ? 
 
 Do lenders or borrowers pay for the risk element in 
 the loan ? Do consumers ultimately pay any part of this ? 
 
 Does a tax on land by the acre fall on landlords? 
 Ten ants ? C onsumers ? 
 
 Who would pay a percentage tax on rents ? 
 
 On whom does a tax on residence property fall? 
 
 Where does a tax on a factory finally fall ? A tax on 
 
256 ELEMENTARY ECONOMICS 
 
 mortgages? On railroads? On dividends? On rail- 
 road stocks? 
 
 What do you think of a succession tax (tax on inheri- 
 tances) ? 
 
 Should taxation on incomes be progressive ? 
 
 Should taxation on public franchises be progressive ? 
 
CHAPTER XVI 
 
 CONSUMPTION, STANDARDS OF LIFE, AND 
 FASHION 
 
 163. In ancient times it was a question 
 earnestly discussed by the logicians whether 
 chickens came before eggs or eggs before chick- 
 ens. Something like this puzzle is met in try- 
 ing to decide whether demand precedes supply 
 or supply demand — whether desire goes before 
 production or production before desire. It 
 seems, on the one hand, to go without saying, 
 that no one would set himself to produce a 
 thing unless he wanted it when produced. He 
 might of course produce it to sell, but would 
 care to sell only as he cared for the thing which 
 he would get in return. 
 
 164. But, on the other hand, how shall one 
 come to desire Avhat he has never had? Use 
 must precede habit. It is easy to wMcii is pri- 
 go without that which one has ^^7 ['^''' 
 
 ° production or 
 
 never learned to Avant. One gets consmnption? 
 enmeshed in the same sort of logical tangle 
 s 257 
 
258 ELEMENTARY ECONOMICS 
 
 in attempting to decide which existed first, 
 labor or capital. Fortunately it doesn't much 
 matter. So with demand and supply; they 
 are not precisely inseparable, but never very 
 widely part company. Which came first in 
 the beginning of human life we need not ask. 
 For modern men it is true that that which we 
 are accustomed to we desire, and finally come 
 more or less acutely to need. We desire also 
 better things of the sort we have had, and more 
 of them, and we find our desires extending to 
 still other and different things, if only they are 
 not too different. But inasmuch as men gener- 
 ally have to work for what they get, and early 
 or late in the day find work a drag or a burden, 
 it comes about that we stop work before all our 
 wants are fully satisfied. Our desires thus 
 always outrun our supplies, wherever supply 
 does not come as a free and unlimited gift. 
 Men work till the pain of more work out- 
 weighs the pain of unsatisfied want. It is 
 therefore only desire that induces effort with 
 its resulting product; but this resulting prod- 
 uct is in turn a cause, fixing the desire and 
 slowly establishing the need, while it also 
 slowly opens the way to a wider sweep of need 
 and desire. 
 
CONSUMPTION 259 
 
 Evidently enough, consumption must adapt 
 itself to production, though it is equally clear 
 that consumption furnishes the motive for pro- 
 duction. That the savage in the African bush 
 is a man of few desires and simple necessities is 
 the larger part of his good fortune. His sur- 
 roundings might possibly suffice for a larger 
 life, if he had the physical and mental equip- 
 ment to turn his opportunities to his advantage. 
 Lacking the different forms of inner power, he is 
 fortunate in his lack of desire. But in the last 
 analysis it is the lack of ability to satisfy the 
 desire which explains the absence of the desire. 
 
 The broad proposition toward which all this 
 tends is that desires are strong ajDproximately 
 as realization is within the horizon of possibility. 
 In more common j)hrase, the standards of living 
 or of comfort in any society will be fixed by its 
 productive efficiency. 
 
 165. We shall shortly return to examine this 
 proposition more closely in its relations to the in- 
 dividual. But societies, at any rate, ^he expansive- 
 do not greatly desire what they have ^^ss of desires. 
 never had. The existence of the desire is the 
 evidence that its satisfaction is not unknown. 
 Patagonians are said to sleep naked on frozen 
 ground with hoar frost for blankets. Harsh 
 
260 ELEMENTAEY ECONOMICS 
 
 conditions grow bearable by use. This is 
 merely another aspect of correspondence — of 
 adaptation to environment. And yet, as we 
 have seen, all this is consistent with expan- 
 siveness in needs and desires. The Patagonian, 
 having accustomed himself to cold nights with- 
 out bedding, would doubtless find himself 
 uncomfortable under heavy blankets, yet would 
 take kindly to light coverings, if they were to 
 be had for the asking, and, once accustomed to 
 these, would be glad of more. There is always 
 this unsatisfied margin of desire. If the blan- 
 kets become sufficient in quantity, there is 
 indefinite room for expansion in quality. Each 
 fulfilment brings its new margin of demand. 
 The need for protection rises by successive 
 stages from huts, straw pallets, and coarse furs, 
 to palaces, canopied couches, and eider-down 
 covers. 
 
 Keep constantly in mind, however, that this 
 process of development is slow. Desire and 
 satisfaction are bound closely together, each 
 gaining by littles through the other. Demand 
 grows only by what it feeds upon, like potatoes 
 or fire or opium-eating. There is no utility 
 until there is a corresponding need; and with 
 any society the ability to enjoy never gets very 
 
CONSUMPTION 261 
 
 wide of the ability to produce. A few years 
 ago the United States government built each 
 brave of the Pawnee nation a house. Each 
 brave set up his teepee by the side of the 
 house, put his ponies in the house and himself 
 in the teepee. The government asked too much 
 of the Indian's expansiveness of desire; it 
 overshot the mark. A little better teepee 
 would have been a better present. These 
 things do not move by large leaps. 
 
 In the expansiveness of human desires is 
 found, for the temperate zones, the certitude of 
 human progress and the security against stag- 
 nation of effort; in the slowness of expansion is 
 discovered the secret of the indolence and inef- 
 fectiveness characteristic of human life in the 
 tropics, where the bounty of nature so far out- 
 runs desires as to discourage effort. The same 
 explanation applies in reverse order to the polar 
 regions, where the disproportion between effort 
 and its rewards often discourages all activity 
 other than that essential to mere existence. 
 
 166. But is all of this true for individuals 
 as well as for races? Yes, and no. ^^ ^.. , 
 
 ' Does this apply 
 
 It is true of the primary, the physi- to the individ- 
 
 cai requirements — the need oi lood, 
 
 clothing, and shelter. Expansiveness is espe- 
 
262 ELEMENTABY ECONOMICS 
 
 cially slow here. It is true even in the higher 
 desires, in the realm of mind and thought — of 
 music, poetry, and art, Avhere satiation does not 
 come and appetites do not fail, but rather grow 
 with use. But what are we to make of the fact 
 that, as applied to men separately, many com- 
 modities are prized not merely in proportion to 
 their scarcity, but because of their scarcity — 
 diamonds, for example? That which becomes 
 common often seems to lose its savor; perhaps 
 we should feel the loss, but it is somehow our 
 harsh case that we realize the value only in the 
 want. In daily life you and I appear to desire 
 most vigorously that which we cannot have, 
 and yet to care wondrous little for the thing if 
 we finally get it. This is bad — looks bad for 
 our theory, too. 
 
 Something more needs to be said. It is the 
 penalty of any unworthy desire, not only that 
 its pleasures endure but for a season, but also 
 that in each attainment there is hidden its own 
 peculiar disappointment. The pleasure is not 
 what we thought it would be ; only the skin of 
 the apple had the glowing color; there was 
 more advertised on the show bills than was ex- 
 hibited in the tent. All goods which get their 
 value to us merely by virtue of the fact that 
 
STANDARDS OF LIFE, AND FASHION 263 
 
 others have them, or have them not, or think 
 we ought to have them, are of this delusive 
 sort. 
 
 167. Human desires may be broadly classi- 
 fied accordingly as they have to do primarily 
 and directly (1) with self or (2) j^-^^^^^^^,^^ 
 with fellow beings. We may term and non-disap- 
 
 . pointing desires. 
 
 these desires (1) personal, (2) so- 
 cial. There is a lower and a higher in 
 each. 
 
 Within the personal class must be included 
 the desires for food, shelter, and clothing — the 
 needs which go with the protection of life and 
 to which we are subject through our physical 
 necessities. These are the needs, differing 
 only in degree, which we share with all animal 
 life. Within this class also are the desires 
 which go with the distinctively higher and 
 human development in intellect — the thought- 
 ful aspirations and interests, the literary, scien- 
 tific, artistic, and musical tastes and loves. 
 These endure not for a season merely. " Other 
 interests are not suited to all times and seasons 
 and places, but these serve as the grace of youth 
 and the consolation of old age, as ornament for 
 prosperity, as refuge and solace in ill fortune, 
 a delight at home and a refreshment in the out- 
 
264 ELEMENTARY ECONOMICS 
 
 side turmoil ; these are with us always — in our 
 nightly vigils, in our wanderings, at our country 
 firesides " (Cicero). We have no need to con- 
 demn the everyday life of bread-winning, its 
 needs and interests and rewards. All better 
 living depends upon being able to live, and for 
 all higher personal and social ends it is funda- 
 mental that we live honestly and by the right 
 of effort. But in the things of thought there 
 normally goes no disappointment, failure, or 
 waste — ^no limit upon appetite — no disgust 
 from satiation. 
 
 In the, desires which primarily regard others 
 there is likewise a lower and a higher, which 
 we will term (1) the social and (2) the non- 
 social, in the sense of the helpful and the non- 
 helpful. With these also there go on one 
 side decay and disappointment, on the other, 
 increase and abiding joy. Whatever brings 
 pleasure at another's loss or pain, hides within 
 itself its own limitation and its ultimate de- 
 struction. It is like the rose with a worm at 
 the heart. It is only the pleasure of doing 
 good which surprises by its greatness and com- 
 pleteness. And so Ave return with a new 
 meaning to our earlier words: "Those goods 
 which, get their value to us merely by virtue of 
 
STANDARDS OF LIFE, AND FASHION 2G5 
 
 the fact that others have them, or have them 
 not, are of this delusive sort." 
 
 168. The most important application of this 
 principle is to the consumption of wealth in 
 ostentation and display — in what may be 
 broadly termed competitive show. After the 
 neat and comfortable is attained, expenditure 
 in style, or fashion, or elegance, 
 
 ,. ., . •,! • Ostentation. 
 
 ordinarily carries with it no great 
 gratification, otherwise than in the unworthy 
 consciousness of being admired or envied. 
 Socially this outlay is waste or worse than 
 waste. Each expends because others expend, 
 and no one is the gainer. Thus material 
 progress in the way in which we use it, — 
 material progress, so far as it is directed to 
 competitive show, — cancels itself in a strife 
 for precedence; thereby we not only waste the 
 product of our own energy by an automatic 
 method of cancellation by averages, but in 
 wasting our own share of product, we make, 
 by comparison, our neighbor's share poor and 
 mean and insufficient. We rob ourselves and 
 yet filch from him. There is no share of gain 
 in it for any one that does not stand for dis- 
 content and envy for some one else. 
 
 The first law of ostentation is, then, this — ■ 
 
266 ELEMENTARY ECONOMICS 
 
 that all ostentation is waste; the second law, 
 that the luxury of the rich not merely, in 
 some slight degree through waste, causes, but, 
 through discontent and by the method of com- 
 parison, is the poverty of the poor. 
 
CHAPTER XVII 
 
 CONCLUSION 
 
 169. With the increase of knowledge in the 
 modern world, with its advance in intellectual 
 acquirement, its multiplied powers over the 
 resources of nature, its new methods and new 
 arts, its inherited wealth of achievement and 
 unlimited promise of progress, there have 
 grown up the new needs and the new desires 
 which attach themselves to human life as the 
 capacity for fulfilment increasingly falls within 
 human reach. That the desires of men are 
 safe to outrun their accomplishment ^, 
 has been sufficiently shown. It is ^^^i does the 
 
 . world offer to 
 
 thereiore certain that there never the young man 
 has been or can be a surplus of °^y°^^J 
 
 ^ woman ? 
 
 production over the ability to con- Are all things 
 
 overdone ? 
 
 sume. In the long adjnstment 
 markets will never fail the factory ; new inven- 
 tions and more effective machinery must for- 
 ever remain the welcome auxiliaries of hu- 
 man effort — the facile servants of new wants. 
 267 
 
268 ELEMENTARY ECONOMICS 
 
 Each human being born to the world adds a 
 further demand to its markets as well as an 
 increase of energy to its productive power. 
 There may be over-production in some one 
 or some few directions, but only in the sense 
 that the production is disproportionate to the 
 output of other commodities, and thereby 
 entails a loss upon those producers who have 
 been mistaken in their estimates. Low prices 
 to the producer mean cheap consumption to 
 the consumer. When, as a result of finan- 
 cial disturbance, or flurry, or panic, factories 
 close and men fall to idleness and want, the 
 evil in its very nature is one of need and not 
 of surplus. That nation or that individual 
 whose normal condition is want, and whose 
 chronic disease is poverty, suffers by the very 
 fact that in the environment as it exists, and 
 with the abilities possessed, it is impossible 
 adequately to solve the problem set by neces- 
 sity. There is not too little but too much 
 work to do. Wages are low because of small 
 per capita product. 
 
 It follows that to suppose that there is in- 
 creasing difficulty in finding a place and obtain- 
 ing a foothold in the world, is to misunderstand 
 the conditions of modern society, and to misin- 
 
CONCLUSION 269 
 
 terpret the opportunities of modern life. The 
 opportunities are yearly not less but more, the 
 demand not smaller but greater, the remunera- 
 tions not increasingly meagre but increasingly 
 generous. When we are told, as we constantly 
 are, that the professions are crowded and busi- 
 ness everywhere overdone, that the clerkships 
 will not go around, and that the applicants are 
 more than the places, we may safely judge 
 that, in so far as this is true, it means that the 
 things which men most desire to do are not the 
 things most desired to be done. It is possible 
 to have too many doctors, lawyers, ministers, 
 and teachers. Until half the demand of the 
 world is for doctoring, preaching, teaching, and 
 advising, it Avill not be possible for half the 
 population of the world to be dignified mem- 
 bers of the learned professions. The salesmen 
 in the shops and the commercial travellers on 
 the road must bear some sort of proportion to 
 the goods which are to be marketed. So long 
 as every lad especially voluble or quarrelsome 
 believes himself to be set apart for the law, 
 every quiet and earnest youth for the ministry, 
 and all boys wanting in noticeable qualities of 
 any sort for the medical profession or for teach- 
 ing, it is certain that some of these professions 
 
270 ELEMENTARY ECONOMICS 
 
 will be overdone. The supply in these lines 
 readily outruns the demand. 
 
 There need be no lack of hope or effort 
 because of this — there is always demand for 
 the best; but it is well to face the fact that 
 the demand is a limited demand, and that the 
 places of social glitter and learned dignity 
 cannot suffice for every high school graduate 
 and every holder of a college degree. There is 
 room for every worker only on condition that 
 he is willing to do the work which is waiting 
 to be done. In the breaking down of caste and 
 class distinctions, in the popular institutions 
 of this modern era with its wide and free com- 
 petition, there is abundant place for ambition 
 and ability and unlimited room for lives of use- 
 fulness; but it does not follow, and it is not 
 true that, with the rising level of popular intel- 
 ligence, and with the magnificent offer to rich 
 and poor alike of advanced and thorough edu- 
 cation, there can go with every case of liberal 
 training a place of precedence and fortune. 
 There is no lack of demand for skilled laborers 
 and capable artisans. There is plenty of room 
 for honest and respectable service, but not for 
 choice or elegant service. 
 
 This truth holds for riches as for position. 
 
CONCLUSION 271 
 
 The possibility of a reasonable competence, in 
 the sense of independence and freedom from 
 want, exists for each and all. Wealth, how- 
 ever, is relative, and is therefore in its very 
 nature exceptional. 
 
 170. There is danger that from the almost 
 exclusive attention of Political Economy to 
 the phenomena of wealth-production ^, , . 
 and wealth-distribution, the truth are best wortli 
 
 ^ ^ T 1 1 getting? 
 
 may come to be obscured that the 
 jDurpose of living is something more and some- 
 thing better than either position-getting or 
 wealth-making. It must be constantly held 
 in mind that wealth is at best only a means 
 to an end. Political Economy does not pur- 
 port to be the whole science of living. A 
 full, symmetrical life rightly lived is the 
 rational purpose of all effort. Political Econ- 
 omy makes many important additions to our 
 knowledge of social relations and social duties. 
 But that you have learned something of the 
 methods and laws of trade and legislation does 
 not involve the proposition that human life, its 
 values, its purposes, and its success, are to be 
 subjected to trade standards or measured by 
 them. 
 
 The best things in life are not found in the 
 
272 ELEMENTARY ECONOMICS 
 
 markets — cannot be bought and sold. Success 
 in life is not merely to die rich. "Wealth is 
 only one of the good things, it is not the best 
 thing; it may, indeed, not be a good thing. 
 Made to measure success or to furnish the basis 
 of social precedence, wealth may vitiate all 
 social progress. That land fares ill in which 
 materialism has become the social faith, in 
 which politics has become a great game of 
 business, where great fortunes command politi- 
 cal victory and where victory commands great 
 fortune. The scramble for wealth may become 
 a disease and multiply diseases. Individual 
 contentment, social safety, and race survival 
 do not lie of necessity and always along this 
 line. Material progress is a good thing only 
 when it serves for higher ends, never when it 
 displaces them. To forget this truth in the 
 pursuit of wealth is "as if a man journeying 
 home and finding a good inn upon the road, and 
 liking it, were to stay forever at the inn. Man, 
 thou hast forgotten thine object; thy journey 
 was not to this but through this " (Epictetus). 
 
 This outlook upon life is not a hopeless one ; 
 but even were it so, truth is truth, and clear 
 thinking will face it. That in the commercial 
 sense, and according to prevailing standards, 
 
CONCLUSION 273 
 
 most of us are born to fail, finds its consolation 
 in the fact that life's highest purposes and 
 sufficing pleasures lead us otherwhere. 
 
 In truth, if well-being were only to be found 
 in wealth, if plain living and high thinking 
 could not suffice for happiness, the lot of man 
 would be indeed a harsh one. The places of 
 leadership are of necessity few; commanders 
 are such only as there are followers. "Power 
 finds its place in lack of power." These things 
 are relative; there are a hundred privates for 
 one captain, hundreds of wage-earners to one 
 factory-owner. It is not in the nature of 
 things that the many lead; it would then be 
 an ill world in which only the leaders could 
 be glad. 
 
 171. It follows from all this that your years 
 of study are not rightly to be devoted to a 
 preparation for getting rich, or for what is the pur- 
 acquiring honors of profession or pose of culture ? 
 place, but rather to acquiring fitness for what- 
 ever duty or opportunity may present itself. 
 Make yourself ready for usefulness. Do not 
 allow the zeal to be earning something to lead 
 you half-educated into a position as clerk or 
 errand-boy; this is to gain unfitness for the 
 more enduring tasks and the greater oppor- 
 
274 ELEMENTARY ECONOMICS 
 
 tunities to come. Distrust all schemes of edu- 
 cation which are called practical. Only in the 
 broader and higher sense should school train- 
 ing be useful — never in a narrow meaning of 
 trades and book-keeping and shorthand. See 
 to it for yourself, and see to it one day for 
 your children, that the money-chasing mania 
 does not cast its blight over all the years and 
 discipline of youth. No matter how hard we 
 may strive that it be not so, the interests of 
 bread-winning and of socially imposed place- 
 hunting are certain to occupy us overmuch. 
 
 A new notion of the meaning of education 
 needs to be adopted, and a saner measure of the 
 importance and advantage that attach to it. 
 With this new perspective there may come about 
 for pupils and instructors a more rational spirit 
 in education. If the schools succeed in fixing 
 upon the student a false estimate of his sphere 
 and duty in life, if the student emerges from 
 the school with a distorted estimate of his indi- 
 vidual importance, with a sense of unfitness in 
 attempting the common lines of bread-winning, 
 with distaste therefor and with certain discon- 
 tent therein, he is not well but ill prepared for 
 the life which he must lead, and society will 
 almost surely suffer in the outcome. Educa- 
 
CONCLUSION 275 
 
 tion should be a fitting and not an unfitting. 
 Educated do-nothings and make-nothings had 
 better have been left uneducated. They recruit 
 the army of discontent — the livers by w^it 
 and device — the social outlaws, detected or 
 successful. 
 
 We need join in no wholesale condemnation 
 of education. The best things in the world 
 come with it; but its promises and advantages 
 are misconceived and the motives Avith which 
 it is sought require amendment. To suppose 
 that only the professional man needs to be well 
 educated is a gross mistake. There is no cult- 
 ure too thorough for the ordinary bread-winner, 
 while the doctor and the lawyer, if content to 
 be commonplace hacks in their profession, can 
 readily dispense with advanced training other 
 than that of the special and professional schools. 
 It is elsewhere than in the field, the shop, or 
 the office, that complete and healthful living 
 requires full mental and moral equipment and 
 well-rounded intellectual powers. It is equally 
 true that to the intelligence of the farmers and 
 artisans and day-laborers and not to some saving 
 power outside, must society look for its safety. 
 
 The schools should teach us how to use the 
 wealth which we may later gain. The edu- 
 
276 ELEMENTARY ECONOMICS 
 
 cated man has no great advantage over the un- 
 cultivated in the art of getting dollars, but only 
 in the art of making dollars worth having when 
 once they are gained. To get the best out of 
 money is a secret which goes only with refined 
 tastes and thoughtful interests. Education 
 must indeed be a preparation for life, but a 
 preparation in the art of living it — a period 
 of acquirement of purposes, tastes, and aspira- 
 tions, of broad, earnest, generous interest in 
 the things of thought. 
 
 With the right things studied in the schools 
 — rightly taught and rightly learned — intel- 
 lectual life will not cease with the years of 
 school attendance. The development afforded 
 by the active life of politics and money-getting 
 is one-sided and inadequate; the inner life 
 suffers. The better part of education must 
 then lie in the creation of an effective, abiding 
 interest in the things worth knowing. School 
 has essentially missed its purpose if it has 
 failed to fill you with questionings, and 
 doubts, and interests, whereby all the phenom- 
 ena of nature and society may stand to you 
 for interrogation points, and every incident 
 and experience furnish its fund of suggestion 
 for thought and its stimulus for growth. 
 
INDEX 
 
 (Eeferences are to Sections) 
 
 Ability. See Taxation. 
 
 Abstinence. See Interest. 
 Adaptation, law of, 5. 
 Agriculture. See Land and 
 
 Rent. 
 Alcoholic drinks . *S'ee Taxation. 
 Apprentices, See Trades-unions. 
 
 Banks, statements. See Cur- 
 rency. 
 Barter, 79, 80. 
 
 Bills of exchange and drafts, 95. 
 Bimetallism. See Currency. 
 Birth and death rates, 76. 
 See Population. 
 
 Cairnes, John, 125. 
 Capital, 
 
 advantages of, 22, 54, 55. 
 
 creation of, 21. 
 
 defined, 21, note. 
 
 intellectual, 19. 
 
 See Interest. 
 Child labor, 133, 134. 
 Coin. See Currency. 
 Combinations. See Monopolies. 
 Commercial crises. See Cur- 
 rency. 
 Communism. See Socialism. 
 Competitive system, 
 
 criticised and defended, 107. 
 
 Consumption of wealth, 163-178. 
 Co-operation, 114. 
 Corners. See Speculation. 
 Corporations, 114, 
 Correspondence, law of, 5. 
 Cost of production, 40-44. 
 
 analysis, 43. 
 
 the marginal doctrine, 41, 
 44, 52. 
 Credit. See Currency. 
 Crises. See Currency. 
 Cultivation, Margin of. See 
 
 Rent. 
 Currency, 
 
 necessary qualities in money 
 commodity, 81. 
 
 credit is exchange, 82. 
 
 credit currency, 95. 
 
 standard of deferred paj^- 
 ments, 85. 
 
 division of labor makes 
 utility of money, 80, 87. 
 
 silver question, 86. 
 
 value of the unit, 89. 
 
 demand and supply of 
 money, 90-94. 
 
 paper money, 96, 100. 
 
 Gresham's law, 97-100. 
 
 crises, 101-106. 
 
 remedies, 106. 
 
 banks, 95. 
 
 277 
 
278 
 
 INDEX 
 
 Currency, 
 
 bank-statements, 94, 95. 
 qualities of gold and sil- 
 ver, 81. 
 Customs tariff. See Interna- 
 tional trade. 
 
 Decreasing returns. See 
 
 Land and Rent. 
 Demand, the primary fact, 13. 
 expansiveness of desires, 
 
 165, 166. 
 See Value. 
 Desire. See Demand. 
 Diminishing returns. See Land 
 
 and Rent. 
 Distribution, 63-71. 
 tendencies, 69-71. 
 primarily a question of 
 product, 63. 
 Division of labor, 
 
 helps production, 106. 
 relation to currency. See 
 
 Currency. 
 See International trade. 
 
 Economics, 
 
 scope of, 1-4. 
 
 definition of, 4. 
 Economic motive, 40. 
 Education, 
 
 advantages, 12. 
 
 IDurpose of, 171. 
 Eight-hour day, 130, 131. 
 Employer. See Imprenditor. 
 Entrepreneur. See Impren- 
 ditor. 
 Environment. See Man. 
 Exchange is productive, 15, 80. 
 
 *See Currency. 
 
 Factors in production, 20- 
 22. See Wages, Profits, 
 Rent. 
 
 Fashion, 178. 
 
 Free silver. See Currency. 
 Free trade. >See International 
 trade. 
 
 George, Henry. See Taxa- 
 tion of rents. 
 Gide, Charles, 13. 
 Gold and silver. See Currency. 
 Goods, 
 
 defined, 13. 
 
 are outside facts, 19. 
 
 *See Utility. 
 Government. See Taxation. 
 Gresham's law. >See Currency. 
 
 Import duties. See Interna- 
 tional trade. 
 Imprenditor, 
 
 function, 67. 
 
 profits, 69-71. 
 
 relation to wage-earner, 67. 
 Income taxes. See Taxation. 
 Intellectual capital, 19. 
 Intelligence, importance in pro- 
 duction, 12. 
 
 is it capital ? 19. 
 Interest, 
 
 definition, 58, 59. 
 
 determination, 60. 
 
 tendencies, 48. 
 
 See Risk. 
 
 See Capital. 
 International trade, 
 
 is division of labor, 136. 
 
 infant industries, 146, 147. 
 
 prices and currency move- 
 ments, 141. 
 
 general examination of 
 tariff question, 136-147. 
 
 protection vs. free trade, 
 136-147. 
 
 King, Gregory, law of, 124. 
 
INDEX 
 
 279 
 
 Labor. See Wages. 
 Labor, 
 
 has value, how? 
 
 unions. See Trades-unions. 
 Land, 
 
 diminishing returns, 49. 
 
 tax on. See Taxation. 
 
 See Rent. 
 Liberty, advantages of, 12. 
 Loans. See Interest. 
 Luxury. See Ostentation. 
 
 See Taxation. 
 
 Machinery, 
 
 effect on wages, 22, 61, 62. 
 Malthus, 73. 
 Man, 
 
 the centre of economics, 4, 
 
 6-8, 63. 
 qualities as a producer, 12. 
 and environment, 9-11, 165. 
 Margin of cultivation. ;See 
 
 Rent. 
 Marginal doctrines. See Cost of 
 production. See Value. 
 Marshall, Alfred, 32. 
 Money. See Currency. 
 Monometallism. See Currency. 
 Monopolies, 69, 128. 
 Morality, advantages of, 12. 
 Motive in economics. See 
 Economic motive. 
 
 Nature. See Man and Envi- 
 ronment. 
 
 Ostentation, 178. 
 
 Panics. See Currency. 
 
 Paper money. See Currency. 
 
 Political economy. See Econ- 
 omies. 
 
 Population and rent. See 
 Rent. 
 
 Population, 
 
 Malthusian law, 73, 117. 
 Price. See Cost of production. 
 
 and rent. See Rent. 
 Profits, defined, 24, 26. 
 
 tendencies, 69-71. 
 
 determination, 69, 70. 
 
 distinguished from wages, 
 24-26. 
 
 See Risk. 
 
 See Imprenditor. 
 Protection. 
 
 See International Trade. 
 
 Quasi-rent, 36, 90-92. 
 consumers', 36. 
 producers', 36. 
 
 Rent, of land, 45-52. 
 
 differences in land, 46. 
 
 poj)u]ation and, 47, 117. 
 
 diminishing returns, 48, 49. 
 
 urban lands, 50. 
 
 price and, 51-53. 
 
 margin of cultivation, 52. 
 Revenue. See Taxation. 
 Risk, 26, note. 
 
 See Speculation. 
 Rogers, Thorold, 124. 
 Roscher, Wilhelm, 115. 
 
 Sacrifice, line of least. 
 
 See Economic motive. 
 Salaries. See Wages. 
 Savings. See Interest. 
 Selfishness. See Economic 
 
 motive. 
 Services, 18. 
 Silver. See Currency. 
 Slavery, effect on production, 
 
 12, 115. 
 Socialism examined, 115. 
 Speculation, 120-127. 
 
 corners, 127. 
 
280 
 
 INDEX 
 
 Speculation. See Risk. 
 
 Standard of living, 163-166. 
 
 Standard of deferred pay- 
 ments, 86. 
 See Currency". 
 
 Succession taxes. See Taxa- 
 tion. 
 
 Supply, See Value. 
 
 Tariff. See International 
 
 trade. 
 Taxation, 
 
 the central fact in govern- 
 ment, 148. 
 as bearing on expenditures, 
 
 149. 
 all taxation falls on con- 
 sumption, 151. 
 shifting, 153, 154. 
 taxes on rents, 155. 
 Henry George, 155. 
 taxes on interest, 156. 
 taxes on income, 158. 
 taxes on luxury and vice, 
 
 160. 
 taxes on inheritances, 161. 
 taxes on personalty, 162. 
 Tobacco. See Taxation. 
 Trades-unions, 129. 
 apprentices, 129. 
 Trusts. See Monopolies. 
 
 Undertaker. See Impren- 
 ditor. 
 
 Unearned increment. See Tax 
 
 on rents. 
 Unions. See Trades-unions. 
 Urban lands. See Rent. 
 Utility, 
 
 defined, 13. 
 
 antagonism with value, 38. 
 
 marginal, 36, 44, 52. 
 
 See Goods. 
 
 Value, defined, 3'8. 
 
 determination, 33-36. 
 
 and cost. See Cost of pro- 
 duction. 
 
 antagonism vrith utility, 38. 
 
 is marginal relative utility, 
 38. 
 
 Wages, 
 
 how fixed, 67-70. 
 
 of women, 66, 135. 
 
 relation to rent, 48. 
 
 eight-hour day, 130, 131. 
 
 relation to cost of produc- 
 tion, 28, 29. 
 
 sweating system, 132. 
 Wealth, 
 
 defined, 14. 
 
 materiality, 16. 
 
 growth of, 18. 
 Women. See Wages. 
 
 labor of, 133, 134. 
 
OUTLINES OF ECONOMIC THEORY. 
 
 BY 
 
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 THE AMERICAN COMMERCIAL POLICY. Three Historical 
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 ECONOMIC HISTORY OF VIRGINIA IN THE SEVENTEENTH 
 
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