cr Rnnlc fS^r CoBiightN?.. 3M. Copy 'Z- CflPXRIGHT DEPOSm ' AMERICAN ECONOMIC LIFE •The THE MACMILLAN COMPANY NEW YORK • BOSTON • CHICAGO • DALLAS ATLANTA • SAN FRANCISCO MACMILLAN & CO., Limited LONDON • BOMBAY • CALCUTTA MELBOURNE THE MACMILLAN CO. OF CANADA, Ltd. TORONTO 'AMERICAN ECONOMIC LIFE In Its CIVIC AND SOCIAL ASPECTS / HENRY REED BURGH, Ph.D. CO-AUTHOR OF AMERICAN SOCIAL PROBLEMS HEAD OF DEPARTMENT OF HISTORY AND COMMERCE WEST PHILADELPHIA HIGH SCHOOL FOR BOYS PHILADELPHIA Weto gork THE MACMILLAN COMPANY 1921 All rights reserved U^n^ Copyright, 1921, . By the MACMILLAN COMPANY. ^ Set up and electrotyped. Published March, 1921. MRR 23 1921. J. 8. Gushing Co. — Berwick & Smith Co. Norwood, Mass., U.S.A. ©CU611279 ^ L« "y f CO f.*N THE SPIRIT OF ABIDING AMERICANISM THIS BOOK IS DEDICATED PREFACE This book, a restatement of Elements of Economics, is an attempt to present in problem form the more im- portant phases of American economic Hfe. Based as it is upon twenty years of teaching experience in the gen- eral field of the social sciences, the writer hopes that it may prove not only teachable, but that its material may be found to be especially adapted to the needs of the elementary student of social science. With this end in view, every effort has been made to secure simplicity of thought and clarity of expression. The material is carefully organized by means of the chapter outlines, while the topics arranged at the close of each chapter are intended to reenforce and illuminate the matter previously presented. This matter, since it is entirely elementary in character, is largely descriptive and illustrative. Although economic theory is duly recognized whenever it touches vitally the problem at hand, the main emphasis is always placed on the con- crete problem, for the comprehension of which a knowl- edge of the theory is essential. Not theory, but economic life itself, is the objective in view. Of even greater importance in determining the value of this work in secondary education is its emphasis upon everything truly American in the formation of national character. While the book is built around the industrial and economic factors in American civilization, its civic viii Preface and social aspects are everywhere recognized. In fact, every economic problem is approached from the civic and social standpoint. So interwoven are these phases of national development that no adequate treatment can be given any one of them without recognizing their close relationship and interdependence. Accordingly, this book is intended to appeal primarily to all those who believe that true training in American citizenship can be secured only by a properly correlated knowledge of the economic, civic, and social factors in American civihzation. H. R. B. Philadelphia, Pa., March i, 1921. TABLE OF CONTENTS PART I INTRODUCTION CHAPTER PAGE I. The Basis of Economics i II. The Goal of Economics 9 III. Economic Ideals 17 IV. Prosperity 28 PART II PROBLEMS OF CONSUMPTION V. The Consumption of Wealth 38 VI. The Problem of the Standard of Living . . 47 VII. The Problem of Income 57 PART III PROBLEMS OF PRODUCTION Section I. The Factors of Production VIII. The Production of Wealth . IX. Natural Resources of the United States X. Land Reclamation XL Forest Conservation .... XII. Water Possibilities XIII. The Nature of Labor .... XIV. The Labor Force of thk United States 71 81 93 lOI 109 120 129 Table of Contents CHAPTER XV, Economic Aspects of Immigration XVI. The Risks of Labor . XVII. Problems of Industry XVIII. Social and Industrial Education XIX. The Nature of Capital , XX. The Increase of Capital . XXI. Capital and Surplus Wealth . Section II. Production in the United States XXII. American Agriculture XXIII. The Problem of Soil Fertility XXIV. New Forms of Plant and Animal Life XXV. Early American Industry XXVI, Large Scale Production , XXVII. Business Organization XXVIII. The Industrial Army XXIX, Transportation Agencies XXX. Regulation of Railroads XXXI, Efficiency in Production PAGE 148 170 180 190 200 209 219 226 243 253 265 273 284 297 PART IV PROBLEMS OF EXCHANGE XXXII. Value and Price 315 XXXIII, Price and Monopoly 325 XXXIV. Money Problems 336 XXXV. Credit and Banking 349 XXXVI. Modern Finance 362 XXXVII. International Trade 372 XXXVIII. Taxation 385 Table of Contents XI PART V PROBLEMS OF DISTRIBUTION CHAPTER XXXIX. A Survey of Distribution XL, The Theory oe Rent XLI. The Theory of Wages XLII. The Theory of Interest XLIII. The Theory of Profits XLIV. The Outlook for Labor PAGE 408 419 442 453 PART VI PROBLEMS OF ECONOMIC REFORM XLV. Experimental Programs 463 XL VI. The Program of Labor 476 XL VII. The Program of Regulation .... 488 XL VIII. Programs of Nationalization .... 500 XLIX. Economic Reform and Social Progress . .516 Index 527 AMERICAN ECONOMIC LIFE PART ONE INTRODUCTION CHAPTER I The Basis of Economics I. Meaning of economics 1. What it studies 2. Kinds of wealth : a. Material wealth b. Immaterial wealth II. Characteristics of material wealth 1 . It is exchangeable 2. It satisfies human wants 3. It involves labor III. Free gifts of nature and economic goods 1. Meaning of free gifts 2. Meaning of economic goods 3. Position of money 4. Conclusion Meaning of Economics. — The commanding position of economics in the world to-day and its vital connection with American Hfe make it highly desirable for what it all wide-awake people to understand something studies, of this subject and to grasp clearly the basis upon which it rests. Economics arises from the study of material wealth 2 American Economic Life and investigates the problem of welfare. Welfare, from the standpoint of material well-being, is not possible with- out material wealth. Therefore, in order to understand the concrete basis of economics, we must have a clear con- ception of the meaning of wealth. Wealth may be either material or immaterial. For example, houses, factories, food, and clothing are articles _ ^ ^j of material wealth ; while health, capacity, and wealth: character are illustrations of immaterial wealth. Material and Both kiuds of Wealth posscss value, but im- material differs from material wealth in that it cannot be subjected to the process of exchange; that is, immaterial wealth cannot be bought and sold like food and clothing. It is needless to say that immaterial wealth is of greater value than anything else in life. However, a study of this kind of wealth does not properly belong to the field of economics, but is a legitimate part of the science of education, or of psychology, or of ethics, or of some similar study'. Nevertheless, when immaterial wealth is productive of material wealth, economics becomes indirectly interested in the solution of some of its problems. For example, if education produces efficiency and if efficiency results in the production of material wealth, economics acquires an indirect but vital interest in the growth of education. That is, just as wealth is a means of promoting welfare, so may education increase the amount of wealth produced by society. Characteristics of Material Wealth. — Since economics is primarily concerned with material wealth, it is imperative It is ex- for the student of economic problems to have a changeable, (^jgg^j. conception of its essential characteristics. In the first place, material wealth may be bought and sold ; 27/c Basis of Economics 3 that is, its ownership may be transferred from one in- dividual to another. We have just seen that this char- acteristic distinguishes material wealth from immaterial wealth. The strength of a Hercules, the genius of a Shakespeare, or the honesty of a Lincoln can never be transferred from one person to another. On the other hand, the palaces of kings, the paintings of old masters, or the products of a steel mill may easily pass from the hands of one into the possession of another. It is always possible, therefore, for material wealth — no matter what its character or how high its value — to be exchanged for some other commodity of equal value. But material wealth possesses something more than this element of transferability or exchangeability; it possesses the quality of satisfying human wants. Some j^ satisfies things are easily transferred from one person to human another, or from one place to another, and yet do not satisfy any individual want. For example, the dirt of the street is only too easily brought into the home, but it is not material wealth because it satisfies no one's want. However, this same dirt, needed by the contractor in large quantities, would satisfy an individual want and would in this case be regarded as material wealth. This want-satisfying quality possessed by material wealth is called utility. While degrees of utiHty possessed by different articles may vary greatly, yet all forms of material wealth must possess some utiHty. It may readily be seen that the necessaries of life, such as food, housing, and clothing, possess the greatest possible utility ; that is, they satisfy wants that are most intense and universal in all mankind. On the other hand, automobiles, books, or fine pictures satisfy wants that individuals have gradually 4 American Economic Life acquired, but that are not absolutely essential to life itself. In both cases, however, these different forms of material wealth possess utility ; that is, they all satisfy, in a greater or less degree, the wants of mankind. In addition to the qualities of exchangeability* and utility, material wealth must possess still another characteristic. It involves The wealth with which economics is primarily labor. concerned must involve human effort. Loco- motives, footballs, chemical apparatus, maps, textbooks, clothing, and thousands of other commodities are all produced by man's conscious industrial effort ; that is, they are all " economic goods." In the same manner, in the production of commercial coal and iron and in the work- ing up of other raw materials of industry, man's labor is an essential element in the process required for developing the finished product. When this element is lacking, the goods are not economic but free. Free Gifts of Nature and Economic Goods. — When in- dividuals appropriate gifts of nature, such as forests and Meaning of minerals, they transform them through their free gifts. industrial effort into economic goods. On the other hand, such free gifts of nature as air and sunshine cannot easily be appropriated, and, although they possess the highest possible utility, their existence is not the result of any human effort. Air and sunlight are not manu- factured; therefore, we cannot properly regard them as economic goods. Water, on the other hand, while a free good in primitive society, becomes an economic good in the modern city, because human effort has been expended in building aqueducts, laying water mains, and in other- wise providing machinery for a water supply. Free gifts of nature tend to become economic goods ; but, so long as The Basis of Economics 5 they remain " free," they do not constitute a part of that wealth with which the study of economics is primarily concerned. The main interest of the student of economics is, therefore, in economic goods. From our previous analysis of wealth it may be seen that material wealth is a term applied to all economic goods ; that is, to all those goods (i) which possess the power of exchangeability or the quality of trans- economic ferability of ownership, (2) which possess utility ^°° or the power to satisfy human wants, and (3) which involve human labor or industrial effort. They are distinguished from free gifts of nature chiefly by reason of the fact that human labor has been expended upon them. But when man acquires ownership in natural gifts and expends labor upon them, they become economic goods because their ownership may be transferred from one person to another. This is at present the case with land in all highly civUized societies. Furthermore, the term economic goods is some- times made to include not only commodities, such as wheat and petroleum, but personal services, such as those rendered by physicians, lawyers, and teachers. These personal services are treated by the economist as economic goods because, while they are not actually transferable, they may be offered for sale in every business community, that ife, they may be exchanged for money. The beginner in the field of economics must bear in mind not only this concept of economic goods, but he must also clearly understand the relation between Position of wealth and money. One of the first errors into ^o'^ey- which he is likely to fall is the belief that these two are synonymous, and that, therefore, a study of economics is merely a study of " How to make money." Such a 6 American Economic Life misconception should be immediately corrected. Material wealth includes infinitely more than money, and the study of economics is therefore infinitely broader than an ordinary lesson in money-making. The popular misconception of the importance of money arises from the simple fact that money is employed by civilized societies as a standard for measuring the value of all economic goods and as a means of exchanging one form of wealth for another. Gold and silver, from which money is coined, are forms of material wealth ; but so are iron and coal, furniture and clothing, food and drink, books and pictures, and countless other economic goods. It is, therefore, just as absurd to think of money as inclusive of all wealth as to think of one individual as embracing the human race. Material wealth, then, is the concrete basis of economics. Without material wealth no science of economics would be possible. But a knowledge of wealth, in and Conclusion. of itself, IS not the highest aim subserved by a study of economics. Wealth is but a means to welfare, and the real purpose of the study of economics is to under- stand how welfare may be promoted through the medium of wealth. Accordingly, in our treatment of American economic life, we shall discuss (i) the ideals necessary to attain this goal of welfare ; (2) the means of promoting welfare through the consumption, production, exchange, and distribution of wealth ; and (3) the organized efforts of men to attain the economic goal for which society is striving. QUESTIONS FOR RECITATION 1. What is economics? What is its distinctive characteristic ? 2. Explain the difference between material and iriamaterial wealth. Is the gap between them impassable? The Basis of Economics 7 3. In what two respects are material and immaterial wealth alike? 4. Give two examples of immaterial wealth which might legiti- mately command the interest of the student of economics. Explain clearly. 5. Describe the characteristics of material wealth. Give an example of each. 6. What is the difference between free goods and economic goods? Give illustrations. 7. What is the relation between material wealth and money? Which is the more important? Why? 8. Discuss the relation between wealth and welfare. Which, if either, of these two ideas is more beneficial to society? Show by citing examples of each. 9. Must material wealth always possess the three characteristics mentioned in the chapter? Why? 10. Why are houses regarded as economic goods? Can they be transferred ? 11. Why are economic goods sometimes made to include personal services? Are they exchangeable? PROBLEMS FOR DISCUSSION 1. Compare the physical sciences with the social sciences, giving examples of each group and showing wherein the two groups differ. 2. Distinguish, by giving examples, between the problems of: a. Economics and history, b. Economics and civics, c. Economics and sociology. 3. Discuss the effects of the World War upon the study of eco- nomics. 4. Explain clearly which of the following are, and which are not, economic goods : a. Fish in the sea. g- Air in the classroom. b. Manhattan Island. h. Air in a submarine. c. Dandelion on the lawn. i. A school building. d. A prison. J- CHmate. e. Opium. k. A barber's services. /. Niagara Falls. I. Poison gas. 8 American Economic Life 5. Discuss the relative importance of money, roads, and food. Which could a nation do without the better ? Why ? 6. Name an American preeminent in wealth production ; name another whose life has been devoted to the promotion of welfare. Discuss the services rendered by each to the community. 7. Is knowledge transferable? Is it material or immaterial wealth ? What has the teacher for sale ? 8. Explain the meaning of utility. Discuss its relation to ma- terial wealth. Is everything that possesses utility an economic good? 9. Name some things which are economic goods at one time, but not at another time. Tell why in each case. 10. Why is industrial effort a necessary characteristic of economic goods ? SUPPLEMENTARY READING Clark, J. B. The Philosophy of Wealth, Chaps. I and III. Clay, H. Economics for the General Reader, Chap. XXIII. Ely, R. T. Outlines of Economics, Chaps. I and VII. Gide, C. Principles of Political Economy, pp. 1-43. Seager, H. R. Introduction to Economics, Chap. I, pp. 1-2. Thompson, C. M. Elementary Economics, Chap. I. CHAPTER II The Goal of Economics I. What is our goal ? 1 . In play : a. Success b. Achievement 2. In life : a. The production of wealth b. The promotion of welfare 3. The old view and the new II. How to attain this goal 1 . Through opportunity : a. Its meaning b. Its possibilities in America c. Its real significance : (i) The older attitude (2) The newer view (3) An example 2. Through adjustment : a. Its meaning b. Its existence in nature c. Its never-ending character d. Conclusion What is Our Goal ? — ^ A football team may aim to pile up a big score, or it may aim to play a good game. The big score is success ; the good game is achieve- in piay : ment. The team that aims to pile up big Success or . '.^ 1 J. achievement. scores wants games with weak opponents ; but the team that aims to play a good game desires in its 9 lo American Economic Life adversaries equal, if not greater, skill. The " big-score " team triumphs, while the " good-game " team learns. The latter may lose every game of the season, and yet attain a proficiency in football far above that of the former team. It is thus entirely possible to play ball for scores, or to play for the love of a good game. Exactly the same In life- The possibilitics present themselves in the economic production world, cxccpt that the choices are rather more of wealth. -. , -tt numerous and complex. Here a man may strive for money, the counters of the economic game, and, like the miser, hoard them and gloat over them. Or he may overlook the counters and work for the things which the counters represent, — the wealth of society. In his struggle for the accumulation of this wealth, he may disregard the rights of others and put to shame his own ideals. His one aim may be to amass a great fortune, to possess great riches. If his purpose is merely to produce vast wealth, simply for the sake of that wealth and without regard for the rights of others, he is on the same moral plane as the ball player who is determined to win the game at any cost, even to the " spiking " of his opponent. Many men, however, have as the chief object in life the attaimnent of progress, — a forward movement of the y,^^ entire group to which they belong. If a large promotion group is Striving for progress, civilization will be advanced and the welfare of each member of the group will be promoted. Of course, in order to attain this welfare, it will be necessary to use money and wealth in order to satisfy the wants of the individual ; yet there is just as wide a difference between working for wealth and working for welfare as there is between playing ball for scores and playing to play a good game. In the The Goal of Economics ii first case man works for counters ; in the second, for development. Economics is not merely " the science of wealth," but is becoming more and more " the science of welfare." The early idea of economic writers was that The old view economic goods are the logical end of economic and the new. endeavor ; that the nation which is producing economic goods in great abundance is a successful nation, irrespective of any other test. The newer view holds, on the other hand, that true advancement lies, not in the production of goods, but in developing the lives of men and women ; and that, while this end may sometimes be achieved through the production of wealth, the production is merely incidental to the development of manhood and womanhood. Produc- tion is not an end in itself, but merely a means to welfare. How to Attain This Goal. — Since the attainment of welfare — individual and social well-being — is the end of economic endeavor, it becomes the duty of society to provide the means to attain this end. Many conditions are needed to realize the goal of welfare, but there are two requisites of progress which appear fundamental. In order that man may attain that for which he is striving society must (i) provide opportunity for the individual, and (2) make the adjustments necessary for his progressive development. Opportunity is an equal chance given to the members of each generation to become unequal. Far from signifying equality, opportunity involves only the thought Through that each person shall have an equal start, opportunity: The " starter," who shoots the pistol for the ^^' """"''''■ mile run, does not make the runners equal when he insists that each start at the same time from the same mark. On 12 American Economic Life the contrary, he gives the contestants a fair chance to show how unequal they are. Those who urge the necessity of opportunity are doing no more than the " starter," — insisting that each contestant in the race of Hfe shall start, fully prepared, with an equal chance to do good work. As a nation, America to-day presents rare opportunities. Contrast, for a moment, the conditions of the eighteenth century with those of the twentieth. In 1700 Its posst- _ "^ ^ , ^ ' unties in capital was scarce, living was precarious, and, merica -^^ order to secure even the bare necessities of life, men, women, and children were forced to work hard and continually. To-day, however, the inhabitants of the United States have stored-up capital and a well-developed system of wealth production. The bare necessities of life and some of the comforts as well, can be supplied in an eight-hour working day for adults, while the children attend school. In 1700 the possibilities for opportunity were limited ; to-day they have increased a hundredfold. The real significance of this new opportunity is made clearer by the modern view of man's possibilities. Modern Its real sig- sciencc justifies the belief that, within racial nificance. hnes, most men are born approximately equal and normal; hence opportunity is the chief factor in human development. But this view was not always held. Even to-day some people believe in total depravity. Under this hopeless view of the human race, some men are depraved, sinful, wicked; others are shiftless, lazy, in- efficient, and poor ; while only the fortunate ones are wise, capable, and efficient. During the centuries when this view was prevalent, birth was looked upon as the deter- mining factor in human development. This attitude toward life was an attempt to justify existing conditions ; The Goal of Economics 13 it led to submission and despondent resignation. It was all but fatalistic. In the course of time, however, thinkers arose and proclaimed the doctrine of man's natural capacity. Such men talked of the right to life, liberty, and the pursuit of happiness, and asserted that all men are created free and equal. Equalize opportunity, proclaimed these " free and equal " thinkers, and, to a great extent, you equalize achievement. Birth — heredity — was no longer the key to the situation ; this was now to be found in opportunity and environment. This view of human life is full of prom- ise and inspiration, transforming men from fatalists into enthusiastic workers. According to its teaching, perhaps nine-tenths of all men and women, in a given grade of civilization, are born with about the same capacity to do good work. Take, for example, two boys of equal ability, born on the same day. In the course of their lives, one is sent to high school and college and does splendid work in the world ; the other is badly fed, poorly clothed, and sent into a cotton factory at an early age. The first boy, because he had a chance, developed in exactly the same way that the second boy would have developed had a chance been given to him. An overwhelming majority of people, like these two boys, are normal at birth and, if given an oppor- tunity, will lead normal, happy lives. To make opportunity more effective, society must make certain changes in ideas and conditions that have been inherited from a far distant past. This process Through of changing past conditions so that they will adjustment: meet man's present needs is called social adjust- ^^^ meaning. ment. For example, it is not sufficient that society pro- 14 American Economic Life vide young men and women with an opportunity for edu- cation. This education itself must suit the needs of the present-day individual. If the education offered is out of harmony with the needs of the time, the opportunity pro- vided fails of its real purpose. Under such circumstances society must make an adjustment in education; that is, it must change, for this work-a-day world, the old idea that education must always take the form of pure culture and learning. In other words, our educational system must be reorganized if it does not meet the requirements of the new age. This is accomplished by the process of social adjust- ment which aims to bring about a normal relation between man and his social environment. However, it is the environ- ment, not the individual, which suffers this change. The aim of social adjustment, therefore, is to change unfavor- able conditions so that men and women may be free, when provided with opportunity, to realize life's full possibilities. The phenomenon of adjustment is seen in nature as well as in society. A river, for example, adjusts itself to the lis existence changcs in earth formation. If a mountain tn nature. range is thrown up, the river wears down its bed until, flowing at a normal gradient, it has created a canon of the Colorado. But the river is not content. It continues its work, cutting away the surrounding hills, until it flows through a great plain Hke the Mississippi Valley. Society, hke the river, seeks to adjust itself to the changing contour of the environment by wearing it away, and smoothing it down, until a normal relation is established between men and their surroundings. It accomplishes its purpose by means of men and women all working together, cooperating to remove the obstacles in the path of progress. The Goal of Economics 15 The process of adjustment is continuous because the normal is always changing. The unattainable of one age is the attainable of the next. Through science, , Its never- invention, education, and the creation of surplus ending char- wealth, the dreams of the past, — the abohtion of "'^''^''' slavery, freedom from overwork, from cold and hunger, from famine and pestilence, — become the realities of the present. Thus the possibilities of human life are ever widening. Men and women, therefore, who have the welfare of society truly at heart are continually striving to shape social conditions so that every one may be . Conclusion. happiest and most effective. If enough people work for such an end, the full possibiHties of society will be realized and th'e normal for that community will be attained. But to arrive at this goal of economic life — • to reaHze individual and social welfare — society must not only secure adjustment, but it must also provide opportunities for all its members. QUESTIONS FOR RECITATION 1. Do you want your school teams to win at any cost? Ex- plain your answer. 2. Is it possible to attain both success and achievement ? How? 3. Explain the difference between the production of wealth and the promotion of welfare. Show how the former is necessary to the latter. 4. What has economics to do with the promotion of welfare? Was this view always held? 5. Define opportunity. 6. Give original examples of opportunity. 7. Explain the possibilities for opportunity in the United States. What has the United States yet to accomplish in this direction? 8. Why do modern views of life enhance the importance of op- portiuiity ? Explain clearly. 9. Define social adjustment. Give examples. 1 6 American Economic Life 10. How is it accomplished ? 11. How does Nature bring about physical adjustment? Give examples. 12. Show clearly why the process of social adjustment is never- ending. 13. At what periods in our history have we had the most important social adjustments ? Why ? PROBLEMS FOR DISCUSSION 1. Discuss life's true goal. Give examples from great men of history. 2. What good does the miser do society? The tight-fisted business man ? The public-spirited worker ? 3. What choices in life are open to you? Which will you take? Give your reasons. 4. Would you, or would you not, be willing to take an easy job with a big salary ? Why or why not ? 5. What great industrial leader appeals to you ? Why? 6. Contrast your present opportunities with those that would have been open to you had you been born in China. 7. Should any limit be placed on opportunity? State your reasons. 8. Would not the opportunity of the few be limited if opportunity were provided for the many ? Explain. 9. Contrast individual with social adjustment. Give examples. 10. Explain the most important social adjustments needed in America to-day. 11. Contrast India with the United States in regard to social adjustments. Give examples. 12. How do you regard prohibition and womjan suffrage ? Why? SUPPLEMENTARY READING Clay, H. Economics for the General Reader, Chaps. XXIV-XXV. Devine, E. T. Social Forces, Chaps. I, V, and VI. Jenks, J. W. Governmental Action for Social Welfare, Chap. I. Pigou, A. C. Wealth and Welfare. Ross, E. A. Sin and Society, Chap. VI. Seager, H. R. Social Insurance, Chaps. I and VI. CHAPTER III Economic Ideals I. Efficiency 1. Its meaning 2. Its importance : a. To the employer : (i) Examples (2) How measured h. To the worker : (i) Grades of workers (2) A great danger c. To the nation : (i) Why necessary (2) An example d. To the family : (i) Why important (2) The new movement 3. How secured II. Conservation and thrift 1. Meaning of conservation 2. Its threefold aspect: a. Conservation of natural resources (i) Forests (2) Minerals and water power h. Conservation of industry c. Conservation of vitality : (i) Health (2) Life 3. Thrift: a. Meaning and necessity h. The great gain 4. Conclusion 17 1 8 American Economic Life Efficiency. — Efficiency is the capacity to secure a maximum return for a minimum outlay. Hence, one man is more efficient than another if, with a given Its meaning. . . , , expenditure of energy, time, and material, he can produce a larger or better result than the other. For example, where two men are making Belgian blocks, one produces sixty, while the other, during the same period of time and without putting forth any additional effort, makes a hundred. The first man is clumsy with his hammer; the second makes every blow count. The second man is therefore more efficient than the first. Every progressive employer is interested both in his own efficiency and in that of his workmen. In fact, the ,, . efficiency of his employees is a measure of his Its impor- -^ , r J tance : To own Capacity ; for, unless he secures a maximum teempoyer. j-g^^j-j^ {qj- ^ minimum outlay of administrative ability, he himself is inefficient. If he has a man soldering lanterns who makes ten motions to the lantern, while the job can be done in eight, he is losing some product every hour of the day through this man's inefficiency. Or, if he is using old, out-of-date machinery when more effective machinery can be secured, or if his business has not been scientifically systematized, he is inefficient because he is failing to secure a maximum return for a minimum outlay. So important has become this principle of efficiency that the success of the business man is measured in terms of this principle. The term " scientific management of industry " is employed to denote the extent to which this principle is recognized in the management of large undertakings. The old haphazard way of doing business has disappeared from all progressive establishments. Large sums of money are paid for the services of "efficiency experts," whose duty Economic Ideals 19 it is to devise the most effective methods of conducting the business and turning out the product. Workers themselves are tested by tracing their curves of efficiency, so that production may reach its greatest volume. Indeed, in modern large-scale production, one of the chief functions of the head of a great organization is to find " the right man for the right job " in order that the best and the great- est industrial results may be achieved. The worker is no less interested in efficiency than his manager, because his welfare is equally dependent upon it. Workers are divided into groups, whose xo the boundaries are measured in terms of efficiency. '^'"■*«''- At the bottom are those who are living on the ragged edge of existence, who are always losing their positions because of their inefficiency. Then come those who " stick," who retain their positions but never rise. Next come those who advance, but slowly. Finally, at the top, are those workers who are always advancing and progressing because they are always increasing their efficiency. It is well here, however, to remember that the ideal of efficiency, like many other desirable principles, may be subverted to wrong purposes. This occurs in what is known as the " speeding up " process, in which the health of the workers is sacrificed for increased production. Efficiency secured at the cost of human health and happiness is not efficiency at all. By breaking down the worker and thus ultimately curtailing his power of production, such so-called efficiency defeats the very purpose for which the true ideal exists. The immediate product, therefore, is not always the true test of real efficiency. Efficiency may also be considered from the standpoint of the nation. Uncle Sam may well ask, " Is this country 20 American Economic Life efficient? Are all our industries doing efficient work? Are our railroads efficiently managed? Is our school system an efficient one?" But why these questions? Because, in the general reorganization of international industry necessitated by the changes of the World War, To the it is imperative for the United States, if she would nation. realize the full possibilities of the new era, to stand first in national efficiency. In the struggle for world markets and in the demand for increased production, the United States can attain the commanding position, which her natural wealth justifies, only by insisting upon the highest ideals of national efficiency. Production must reach the largest volume consistent with national well- being ; goods must be efficiently distributed through the arteries of commerce ; foreign trade must be organized in the most effective manner ; and industrial education must reflect the ideals of the new period. Many good illustrations of what has been accompHshed through national efficiency may be taken from American industries which have really reached the stage of inter- national organization. One of the greatest of these is the United States Steel Corporation. In this business, indus- trial efficiency has attained such a high degree of develop- ment that world markets have been provided for its prod- uct. American steel rails not only compete with the English product, but at times drive that product from its home market. But here again, we should remember that such a dominating position ought not to be attained through false efficiency that disregards the best interests of the labor employed in the industry concerned. Finally, we may look at efficiency from the standpoint Economic Ideals 21 of the home. If it is necessary that the father be able to produce efl&ciently in order to support his children, it is no less necessary that the mother buy and keep to the house efficiently, in order that the income of /<''»*'>• the father may be used in the most advantageous manner. Efficiency in the home is just as important as efficiency in the factory, — more so, perhaps, in view of the many bad digestions and spoiled dispositions that have grown up with inefficient home management. Many evidences are seen to-day of attempts to secure this efficiency in the home. In our educational system the movement extends all the way from the primary system to the institutions of higher learning. In the elementary schools we find courses in cooking and sewing ; in the high schools, domestic science courses ; and in the colleges and universities, courses in chemistry, food-values, and allied subjects. Household budgets are studied so that limited funds may be spent to the best advantage, while among social workers special attention is paid to giving informal instruction to families of the poor in " household efficiency." No matter, therefore, from what standpoint we view this question we see its far-reaching importance ; and it acquires this importance because social welfare depends largely on efficiency. When a nation is effi- efficiency , 1 • J 1. 1 J ■! is secured. cient, producmg many goods cheaply and easily, it creates the possibility of universal prosperity in which all may share. How, then, may this efficiency be secured? An analysis of this problem will show that education alone can make certain the reahzation of this ideal. Here, however, it may be necessary to revise our ideas of educa- tion. Certainly the efficiency for which we are striving cannot be secured from that traditional idea of education 22 American Economic Life which exalts culture at the expense of useful knowledge. By education for efficiency we mean that technical and speciaHzed training which every individual must possess in order to discharge life's imperative duties. Conservation and Thrift. — Conservation means wise use. It is the complement of efficiency. Efficiency is ,, . , measured by a maximum of results ; conserva- Meanmg of ^ \ ^ conserva- tion, by a minimum of waste. For example, in former days, when business was conducted on a small scale, each establishment had a certain amount of waste product that was discarded as useless. Now the giant corporation utilizes wisely this former waste, so that, by proper conservation, it is converted into valuable by- products of industry. In the public mind, however, conservation is most closely associated with our natural resources. Here it was Its three- that Theodore Roosevelt ideaHzed this move- fold aspect: ment in American life. He saw at once the"" great danger to the nation that would result from the wanton waste of natural resources and from their exploita- tion for private gain. He brought the nation to a reahzing sense of the great danger confronting it and, thereby, saved it from becoming victimized to extravagant waste and private monopoly. But the term conservation may be applied not only (i) to natural resources, such as minerals, forests, and water power, but also (2) to industry, and (3) to vitaUty. The conservation of natural resources began with the care of forests, which were so ruthlessly destroyed from ., . colonial times to the end of the nineteenth cen- ConservaHon of natural tury. Forests had been literally " butchered," resources. n j. n i i i • — all trees, young as well as old, bemg cut or destroyed. Then, too, forest fires of terrible proportions Economic Ideals 23 raged every year throughout different areas, destroying lives and property, as well as completing the forest de- struction which the timber butchers had begun. Gradually, as the forests disappeared and the price of lumber rose, it became apparent that, unless the forest waste was stopped, a time would come, and that very shortly, when there would be an appalling shortage of lumber. Although the idea of conservation of natural resources related originally to forests, it has been expanded until, to-day, the nation is fully aroused to the necessity of con- serving all of its natural wealth. Forests, even if per- manently destroyed, might be replaced, but minerals are not replaceable ; and water power, upon which industry must more and more depend as coal rises in price, may be monopoHzed and taken out of the hands of the people. Everywhere, therefore, conservation is essential. Industry, too, offers opportunities for the conservationist. For years, mining companies threw carelessly aside the finer bits of anthracite coal which have since conservation proved of such value in making steam for office "j mdusiry. buildings and factories. The refuse from slaughterhouses, formerly thrown away, is now converted into a score of different kinds of products in great packing houses that " use every bit of a hog except the squeal." Hoofs, horns, hair, bristles, bones, blood, sinews, fat, hides, intestines, — all have some destination ; while the refuse which remains is converted into fertiUzer. New inventions, perfected devices, new processes of manufacture, all help in the conservation of industry. Most important of all is the conservation of human Hfe. Long ago Ruskin pointed out that men and women are a nation's greatest asset. So long as children are sacrificed 24 American Economic Life to factories, so long as men and women toil at the expense of health and rightful development, and so long as the Conservation publlc health is sacrificed to ignorance, man will of vitality. nevcr attain the goal of welfare. Hence, if a nation would be truly efficient and happy, it must use wisely the men and women of each generation. This conservation of vitality may take the form of conserving health or of conserving life. If sick people cannot do their best work, a nation of sick people can scarcely be described as efficient. In the United States, it has been estimated that the average adult is sick in bed four or five days during each year ; while headaches, colds, and such minor ailments keep him from work another three or four days. If, then, there are thirty million adults at work and each one loses seven days a year, the total loss, irrespective of the loss of health and the cost of drugs and medical attendance, is two hun- dred and ten milhon working days each year. If half of this sickness is preventable, the nation is deHberately losing more than a hundred milHon working days annually because of its failure to adopt the simplest health pre- cautions, such as clean water, pure milk, clean streets, and airy houses. In the same way, the average length of life might be greatly increased by preserving health and preventing accidents. Perhaps half of the deaths occurring annually in the United States are preventable and would be pre- vented if a wise conservation policy were adopted. At present, the average length of life in the United States is from thirty-five to forty years. It might be seventy. Another form of conservation is found in the ideal of thrift. With the advent of the World War in 1914, this Economic Ideals 25 ideal came to occupy a prominent place in American economic life. As the struggle progressed, it became in- creasingly evident that the United States would , r , 1 1 Thrift: have to send food and other necessary supplies to Meanin those European nations that were fighting to ««<^ maintain the supremacy of democratic ideals. ^ ^ ^" To do this, it was necessary for the nation to practice economy and to use wisely its abundant wealth. Every- where was seen the slogan " Food will win the war." The nation learned anew how to save by practicing economy and by submitting to voluntary rationing. When the war was won, the depletion of the world's re- sources further emphasized the need of thrift. The neces- sity to " work and save " became still more apparent to all thoughtful men. The great gain to the American people from this lesson of war was found, not only in curbing social extravagance, but also in the general discovery of the practical The great value of the power of substitution. Heretofore, ^""'• men had become accustomed to use such staple articles of food as wheat, beef, and sugar, and to feel that no other foods could serve as substitutes for them. With continued practice, however, they soon came to reahze that corn could be substituted for wheat, pork for beef, sirup for sugar, and rice for potatoes. From this general survey of efhciency, conservation, and thrift, the student of American economic hfe must see the tremendous importance of individual action x^e con- in promoting social welfare. It is not sufhcient elusion, for society to provide men and women with opportunities ; nor yet to make the adjustments, in order that the oppor- tunities offered may meet the needs of the present time. 26 American Economic Life These are only the first steps toward the attainment of social welfare. The individual himself must hold to high standards of efficiency ; he must insist upon high ideals of conservation ; and he must practice economy and thrift. In spite of all that society may do for him, if man is inefficient, extravagant, or wasteful, he will never attain the goal of economic welfare. QUESTIONS FOR RECITATION 1. Define efficiency. 2. What is meant by a "maximum return"? 3. What is the difference between true and false efficiency? 4. Give examples of false efficiency. 5. Give examples of true efficiency. 6. Explain the importance of efficiency to : a. A raUroad president. b. A salesman. c. The modern housewife. d. The national government. 7. Define conservation. Name three kinds. 8. Why is conservation needed? 9. Give examples of conservation. a. In natural resources. b. In vitality. c. In industry. 10. If conservation benefits the future only, how can it be justi- fied? 11. What is thrift? 12. Is the miser thrifty? Explain. 13. Why is thrift necessary? PROBLEMS FOR DISCUSSION 1. Discuss the relative importance of different economic ideals in the United States to-day. 2. Compare idealism with materialism as a factor in national development and in world politics. Give examples from history. Economic Ideals 27 3. Compare British efficiency with American efficiency. Give examples. 4. Discuss the idea of German efficiency before the World War. 5. Give the history of the conservation movement in the United States. 6. Discuss the evils of the private monopoly of mineral lands and water-power sites. 7. Apply the principle of conservation to mankind. 8. Compare France, Holland, and the United States in regard to the practice of thrift. Give illustrations. 9. Discuss the importance of thrift to : a. The family. h. Industry. c. The nation. 10. Theodore Roosevelt said, "Thrift is common sense applied to spending." Apply this to your own everyday expenditures. SUPPLEMENTARY READING Annals of American Academy of Political and Social Science, The New American Thrift, January, 1920. Annals. The American Industrial Opportunity, M-^y, 191 5. Carver, T. N. Principles of Political Economy, Chaps. VI and IX. Taylor, F. W. Principles of Scientific Management. Van Hise, C. R. The Conservation of Natural Resources in the United States, pp. 1-14, 359-379- CHAPTER IV Prosperity I. Nature of prosperity 1. Its meaning 2. Its dangers 3. Its twofold character II. National prosperity 1. China and United States : a. Population b. Race c. Natural resources d. Industrial development e. Transportation facilities /. Tradition g. Control over environment ; (i) In regard to rivers (2) In regard to food 2. Surplus wealth : a. Its meaning b. Forms III. Individual prosperity 1. Its importance 2. An example 3. Conclusion Nature of Prosperity. — Material wealth is the basis of national well-being. A people who are inadequately Its mean- nourished, poorly housed, improperly clothed, "^2- and denied the legitimate means of securing health and recreation, cannot be said to enjoy material 28 Prosperity 29 well-being. This condition can be brought about only through the medium of prosperity. Prosperity, therefore, signifies an abundance of economic goods. It is an indi- cation of welfare ; just as fame and honor are signs of great achievement. In this sense, it is an ideal to be reahzed in exactly the same manner as efficiency and conservation. In the attempt to attain a condition of prosperity, as well as in its actual realization, man is often exposed to certain grave dangers. Just as a false efficiency , , , , , , Its dangers. may be secured at the expense 01 the worker, so an unbalanced prosperity may be attained at the cost of individual well-being. Prosperity may be confined to the few, while poverty engulfs the many. Furthermore, when this prosperity is once attained it may be made to serve wrong purposes ; it may even result in moral degenera- tion. In great moral crises, a nation must never think simply in terms of material wealth. A prosperous nation must be a nation of strong moral fiber, willing to undergo temporary sacrifices for the sake of abiding principles. Prosperity, therefore, should not be regarded as an end in itself ; it is merely an instrument for the betterment of the human race. Hence, it is important to its twofold distinguish between national prosperity and character, individual prosperity. The true material happiness of a people depends upon individual prosperity. It is not sufficient that a nation's exports increase in volume, and that its competitors be driven from foreign markets. The wealth of the nation must be absorbed by the masses themselves up to the point necessary for their material comfort. First of all, therefore, we shall discuss the basis of national prosperity, because from it should naturally flow individual prosperity. 30 American Economic Life National Prosperity. — The meaning of national pros- perity may be more clearly grasped by a contrast between „. . , China and the United States. The first is a China and United land of wants ; the second, a land of plenty : the states • . • one is a nation of deficit ; the other, a nation of surplus. Here are two countries — China and the United States — equally endowed by nature and yet differentiated by the extremes of poverty and prosperity. What has brought about this wide divergence? Why has one nation been denied, and why has the other almost attained, the goal of welfare? To solve this problem, we shall examine briefly these two countries from the stand- point of their population, their natural resources, their industrial development, and their ideas and beliefs. In China there are four hundred million people, or almost four times as many as there are in the United States. If the whole population of the United States and forty Population millions more were to move into the State of Texas, they would be about as close together as are the people in the Yang-tse-kiang Valley of China. It would not be right, therefore, to charge China's lack of prosperity to a scarcity of labor. The Chinese belong to the Mongolian race. They are physically smaller than the Caucasians of our own land ; but the experience of the last fifty years in the development of Japan, whose people are ad- mittedly not above the Chinese in capacity, has shown that intellectually the Mongolians are at least the equals, if not the superiors, of Western races. Within a genera- tion the Japanese acquired a knowledge of industry and science that the Western races labored two hundred years to develop. In the Russo-Japanese war, the Japanese Prosperity 31 loss through disease was almost nothing ; while among the Russian troops in that war, the American troops in the Spanish- American War, and the British troops in the Boer War, the death roll from disease was appalling. This is only one instance in which the Japanese have bettered their instruction and thereby proved the inherent capacity of the Mongolian race. China possesses natural wealth equal, if not superior, to that of any like area in the world. The country is magnificently watered. The Yang-tse-kiang, Natural three thousand miles long, is navigable to ocean- ''"''"'■"^• going vessels for eleven hundred miles. The Hoang-ho, two thousand six hundred miles long, is connected with the Yang-tse-kiang by the Imperial Canal ; and these two rivers and the canal form one of the finest water systems in existence. The climate of China is very similar to that of the United States. Minerals exist in abundance. It is believed that the bituminous and anthracite coal fields of China contain as much coal as those of all the other countries of the world combined. China's poverty, there- fore, cannot be attributed to a lack of natural resources. In Chinese manufacturing, machinery has not generally replaced human energy ; consequently only those things which will sell at a high price, — such as silks industrial and fabrics of various kinds, — are generally development. made. In spite of the fact that the people are apparently so naturally capable and numerous, and the natural re- sources so abundant, the industries of China are practically undeveloped. Despite its native abundance, iron is im- ported, although proper methods could produce iron in China as cheaply as in any other place in the world. Coal is mined in very limited quantities and by the use of appli- 32 American Economic Life ances so costly and inadequate that only the rich can afford to buy it. In her industrial development, there- fore, China is immeasurably inferior to the United States. Chinese transportation facilities, except on the water- ways, are so inadequate that a bulky commodity, like coal, Transpor- Cannot be shipped for any distance before its taiion price has become prohibitive to all except the very wealthy. This constitutes an important factor in China's poverty. For here is a land full of cap- able people, abounding in natural resources, but without industry and transportation, and therefore in constant danger of want. Crop failure in a district remote from water transportation means starvation. There are few rail- roads ; the roads are bad. People suffer from hunger within a few hundred miles of an abundant supply of food, because there are no means of transporting bulky commodities. It is, therefore, true that the backward condition of China is due to a lack of organized industry; but the absence of this industry itself is due, in large Tradition. it, , . r .. ..? measure, to a blmd worship of custom. My father used this tool " is a conclusive argument in the ears of the son, and he uses the same tool without question. The people of the United States, however, have always developed industry irrespective of tradition, because they know that only through the breaking of tradition can progress sometimes be made. Because of the powerful influence of custom and tradi- tion upon the Chinese people, national progress and pros- ^ ^ , perity have not been attained. In the United Control over ^ -^ environ- States exactly the opposite condition prevails. ^^^' By discarding tradition, the American people have developed their resources and controlled their en- Prosperity 33 vironment ; the Chinese have not. Instead of letting nature dominate them, the people of the United States have learned, in a large measure, to dominate nature. If the Mississippi overflows its banks, as it sometimes does, the people are not drowned by the tens of thousands, because, long before the break occurs or the water reaches a town, the news of the coming flood has been sent over telegraph wires and the people are prepared to meet it, or else have left for places of safety. As a rule, however, the Mississippi is not allowed to overflow its banks, al- though it is in somewhat the same position as the Hoang-ho, flowing in a channel which in many places is above the level of the surrounding country. The control of Americans over their environment may be seen in another direction. The Chinese depend upon one crop — rice. If the rice crop fails, the Chinese starve. The people of the United States, however, do not depend upon one crop. A great part of their food is derived from wheat ; but through the development of the milling industry, the beef industry, the canning and preserving industry, and the use of corn, it has been possible to live successfully through a national crisis without being in immediate danger from starvation. This was clearly demonstrated during the period of the World War, when so much American wheat was shipped abroad. The net result of this power over the physical environ- ment — this control of natural resources — • secured by discarding age-long traditions is the creation in surplus the United States of a vast quantity of surplus wealth: wealth. Whereas, throughout the centuries, ^^'^'^'^'"^■ China's traditional methods have barely produced sufficient wealth for current consumption, America's enlightened 34 American Economic Life processes of production have created, over and above what is needed for present use, vast quantities of economic goods for future consumption. That is, in the United States, all the products of industry are not consumed at once — part is set aside for future needs or for aiding future production. This constitutes surplus wealth and guarantees national prosperity. The development of surplus wealth is one of the great steps in civilization. America, as contrasted with China, has vast masses of this surplus wealth stored up in the form of railroads, factories, machine-shops, ships, automobiles, food products, and canned goods. These things, accruing year after year, serve to increase the productive efficiency of the people and to render them more capable of supplying themselves with the goods they desire. Not only does this surplus, stored up and added to year after year, guarantee the nation against starvation and want ; but, in addition, it supplies men with the comforts and pleasures of life. Mechanical inventions, one form of surplus wealth, have enormously broadened man's possibilities of life. Individual Prosperity. — Since the true end of national prosperity is individual prosperity, national wealth is of Its impor- little real value unless it is distributed among tance. ^j^g individuals composing the nation. The United States is immensely wealthy; great quantities of additional wealth are produced each year ; and increas- ing capital enlarges the possibilities of future wealth pro- duction. But it is not enough to state that the country is rich. What becomes of these riches? If a considerable proportion of this wealth is concentrated in the hands of a relatively small group of people, the average individual Prosperity 35 may be no better off than if this vast surplus of wealth did not exist. The nation must pass prosperity around. Charles Dickens draws a sharp contrast between national and individual prosperity. In " Hard Times," Mr. Mc- Choakumchild, the schoolmaster, who is teaching 1- . 1 ^^ ^T I'll An example. political economy, says: Now this school- room is a nation and in this nation are fifty millions in money. Girl number twenty, is not this a prosperous na- tion, and ain't you in a thriving state? " And girl number twenty, the daughter of a circus rider, replies that she cannot say whether or not it is a prosperous nation, and whether or not she is in a prosperous state until she knows who has the wealth and whether any of it is hers. The United States cannot be truly prosperous and we as individuals cannot be well off, unless all of us share in the national prosperity. The real test of prosperity The must be, not national wealth, but individual conclusion, welfare. The goal of economics cannot be attained until each individual in society is consuming a sufficient quantity of goods to insure him health and productive capacity ; that is, until his income is sufficient to maintain a standard of living consistent with good health and efficiency. There- fore, in order to test the extent of individual prosperity in the United States, we shall now turn our attention, in the succeeding chapters, to the problems of wealth con- sumption. QUESTIONS FOR RECITATION 1. Compare China and the United States in regard to their similarities. 2. Contrast their differences. 3. What is the fundamental reason for the poverty of the one and the prosperity of the other ? 36 American Economic Life 4. Explain the dangers of national prosperity. 5. What is surplus wealth ? 6. State clearly the relation between surplus wealth and national prosperity. 7. Give several forms of surplus wealth in the United States. 8. What are its good results? 9. How does it originate? What is the relation between thrift and surplus wealth ? 10. Define prosperity. Explain the two kinds of prosperity. 11. What does national prosperity primarily desire — wealth or welfare ? 12. Why is individual prosperity so important ? 13. How may individual prosperity be attained? 14. Why should a nation desire prosperity ? PROBLEMS FOR DISCUSSION 1. Discuss the changes taking place in China to-day. 2. Show the relative importance of man and nature in creating national prosperity. Give illustrations from typical nations. 3. Show the relation between national adversity and the "one crop system." Discuss Ireland in this connection. 4. What accounts for the backwardness of the Mediterranean countries ? 5. Discuss the effect of war upoB surplus wealth. 6. Discuss the effects of the Industrial Revolution from the standpoint of surplus wealth. 7. Explain surplus wealth in terms of production and con- sumption. 8. Discuss the relation between individual prosperity and the problem of the distribution of wealth. 9. Why, for centuries, has China been called a static society? 10. Are there any advantages a static society enjoys over a pro- gressive society? If so, name some. 11. Is the world to-day in a static or a dynamic condition ? What are the dangers as well as the advantages of this condition ? Prosperity 3y SUPPLEMENTARY READING Carver, T. N. Principles of Political Economy, Chap. VI. Ely, R. T. Outlines of Economics, Chaps. V-VI. Patten, S. N. The New Basis of Civilization, Chaps. I and II. Ross, E. A. The Changing Chinese. Shaler, N. S. Man and Nature in America, Chaps. V-VIII. Smith, J. R. Commerce and hidustry. Part I and Chap. XXXV. PART TWO PROBLEMS OF CONSUMPTION CHAPTER V The Consumption of Wealth I. The economic life 1. Its ideal 2. How to measure this ideal : a. Through the consumption of wealth (i) Its importance in childhood (2) Its continuous character b. Through the production of wealth : (i) Why production is vital (2) The economic life two-sided II. Nature of consumption 1 . Meaning of consumption 2. Kinds of consumption : a. Productive consumption : (i) Meaning (2) Examples b. Unproductive consumption : (i) Meaning (2) Examples 3. Effect on economic life III. Importance of consumption 1 . How it varies 2. Rules of consumption: a. Consumption should be regular b. Consumption should be varied : 38 The Consumption of Wealth 39 (i) Disadvantages of sameness • (2) Advantages of variety c. Conclusion The Econoniic Life. — It must now be clearly evident that life has a distinctly economic background. Food, clothing, shelter, and recreation, upon which life so inti- mately depends, are the products of economic effort. All life is not economic ; there is more than the economic in life ; and yet all life is dependent upon the econoirdc for its continuance. When, therefore, we speak of the economic life we mean that life which strives for the attainment of welfare through economic means. Welfare may be social or indi- • 11 1 • • Mil 1 ^*s ideal. vidual, and it is possible that the two may not always harmonize. We have seen that a country may give evidence of great national prosperity, but that this prosperity may not be suflEiciently individualized. It is, however, just this very ideal of individual welfare that the economic life is intended to embody. True social welfare should be thought of as including the welfare of all members of society. There are, perhaps, two measures of this welfare. The first, a measure in terms of the consumption of wealth, conceives of welfare as resulting from the satis- How faction of economic wants. The second, a meas- measured: ure in terms of the production of wealth, conceives of wel- fare as resulting from surplus wealth. The consumption of wealth is the using of economic goods to satisfy human wants. Each child is a consumer. For a period ranging from ten to twenty-five j^fi^g^^^f, years, the children born into American homes are consump- not producing economic goods at all. During this entire period of youth they are maintained through 40 American Economic Life the surplus created by the other workers of the com- munity. Every adult, while preparing to produce, has passed through this era of consumption. When this con- sumption stage is prolonged, when the child's preparation for life is very complete, when efficiency has been assured by a sufficient supply of economic goods during the forma- tive period, individual welfare is conserved^ and social wel- fare promoted, because the long period of consuming without producing results in more efficient production in later Ufe. If youth has been wisely spent, the years of adult life should show a large surplus of production over consump- tion. This surplus, which the individual owes to the com- munity for his early years of maintenance, is used to support the children who, in the next generation, devote many years to productive training and thus guarantee their own efficiency in manhood. For adults, also, the economic life is possible only so long as an adequate supply of consumption goods is provided. Consumption provides the basis for youth and development, but it is no less essential to efficiency in adult life and to comfort in old age. Goods cannot, however, be consumed until they are produced. Men cannot eat without working. Children Through cannot be kept in school until they are eighteen, production, consuming constantly but never producing, unless some of the adult producers are creating more wealth than they themselves are consuming. The economic life on its productive side, therefore, presupposes that the producing members of the community are producing enough, in addition to the amount that they actually consume, to enable the immature members of the com- The Consumption of Wealth 41 munity, and those beyond the period of active work, to maintain themselves. Differently expressed, each pro- ducer must create a surplus over the amount which he consumes. The economic life is much more than consumption. It is consumption plus production. While human wants are satisfied directly through consumption, it is through production that consumption is made possible. There is in this concept of the economic life no place for idlers. Every normal adult man or woman must be a producer as well as a consumer, because the individual who accepts a return where no service has been rendered fails in his duty to society. Each member of an economic society must, therefore, render the community such service as he can render, receiving in return from birth to death at least enough consumption goods to maintain life and effi- ciency. In this way the ideal of the economic Ufe will be approached. Nature of Consumption. — The consumption of wealth is a far better measure of welfare than the production of wealth, because the amount of consumption can jyigauiu ^^ be more effectively determined in the individual consump- case. The student, therefore, must clearly grasp the meaning of consumption. In economics, the consumption of wealth means the using of economic goods to satisfy human wants. This using up process may extend over a short or over a long period of time. Food is consumed at once ; clothing is worn out gradually ; while houses are used up over long periods of time. In other words, some goods satisfy wants immediately and directly, while other goods serve their purposes gradually and indirectly. 42 American Economic Life Consumption not only varies according to its duration, but it also varies according to the character of the wants ^. , J that it satisfies. That is, consumption may consump- satisfy desirable wants, or it may satisfy un- desirable wants. Hence, consumption is spoken of as being productive or unproductive. The distinction between the two is not hard to grasp, for it rests upon the simple distinction between that which is beneficial and that which is harmful to production. From the standpoint of welfare, this difference is easily discernible. Productive consumption is that consumption of goods which is beneficial to the individual and to society. When „ , ,. such consumption takes place, the consumer be- ProducHve ^ . . consump- comes a better producer either immediately or eventually. If the wants that are satisfied are those which contribute toward greater productive power in the individual, the consumption is productive. Such consumption makes the consumer a more efl&cient pro- ducer. For example, a good diet, proper clothing, ade- quate housing, necessary recreation and amusement are all forms of productive consumption. Unproductive consumption produces the opposite effect on the individual. It either does not add to the produc- u i> od c ^^^^ capacity of the consumer, or it actually de- tive con- creases his productive efficiency. It therefore sumption. , i .• ,' ^ -j^- i decreases production negatively or positively. The wants that are satisfied by such consumption are un- necessary or harmful to the consumer's power of increased production. Their satisfaction results in extravagance or in actual harm. For example, the wearing of jewelry and ostentatious clothing is mere extravagance, which does not add at all to the power of production. On the The Consumption of Wealth 43 other hand, over-eating and excessive smoking are forms of unproductive consumption which actually decrease the consumer's efficiency and productive capacity. This contrast between productive and unproductive consumption shows clearly the relation between consump- tion and welfare. The economic life cannot be ^„ . Ji.nect on attained by those whose consumption follows un- economic life productive channels. Only through productive consumption can individual welfare be attained. In this connection it is well to remember that the whole pro- hibition movement aims at the removal of one great source of unproductive consumption. The consumption of alco- holic liquors was the greatest single deterrent to productive efficiency in American life. Importance of Consumption. — Wants are thus satisfied through the consumption of economic goods. The im- portance of consumption, therefore, will depend How it upon the number, character, and variety of varies, wants. In primitive times, when wants were few and simple, the consumption of the uncivilized man was limited to his elementary wants for food, shelter, and clothing. With the progress of civilization, wants are constantly increasing ; and the problems of consumption, therefore, become correspondingly complex. The increase in number and variety of wants, which has accompanied advancing civilization, results in greater and more varied consumption, provided a system has been established which simulta- neously increases production. The rules of consumption should therefore play an important part in American economic life. Society is slowly learning that to receive the highest benefit from the consumption of wealth, the individual 44 American Economic Life must consume regularly. Primitive man, depending on hunting and fishing for his livelihood, starved one day and gorged the next. Modern man, depending on a Consu'mp- well-organized system of industry, is fed and Hon should clothed from day to day, and does not spend one be regular. day in misery and the next m happiness. In this way, by maintaining a constant rather than an inter- mittent supply of consumption goods, men are made more efficient producers. The first step in progress was to make certain a steady supply of consumption goods : the next step was to render that supply more varied. This idea of variety in Consump- . Hon should Consumption may be best seen by calling to mind e vane . again one point of difference between China and America. The Chinese have practically no variety in their consumption of food. Rice is their staple ; and their dependence upon this single article of food has two (distinct disadvantages. In the first place, workers get no particular pleasure out of this monotonous diet ; and, in the second place, the nation starves if the rice crop fails. America, on the other hand, is not dependent on one staple. The exclusive diet of rice, or wheat, has been re- placed by a varied diet of fresh meat, eggs, butter, sugar, canned vegetables and fruits, bread and bread products, and fresh, salt, and canned fish. This variety in con- sumption has a double advantage. It means, first of all, that if one crop or one source of food-supply fails, the nation will not starve. It means, further, that this varied diet contains food elements which will give the individual more pleasure in his consumption and will therefore in- crease his welfare. Thus the American workman, whose food consumption includes meat, vegetables, fish, sugar, The Consumption of Wealth 45 bread, butter, and the like, lives a more enjoyable life and is a far more efficient producer than the Chinese laborer whose diet consists solely of rice. With stability and variety in consumption comes the basis for economic welfare, provided this stability and variety exist throughout the various classes in ... Conclusion. the community. Hence, m order to determme the extent of welfare in the United States, it becomes im- portant to inquire what standards of consumption are maintained generally throughout American society. QUESTIONS FOR RECITATION 1. What is the economic life? Would you be an idler, if you could? 2. What two measures of welfare are there ? Explain each. 3. Show the relative importance in early and later life : a. Of consumption. b. Of production. 4. Explain how the economic life is two-sided. 5. Define consumption. 6. Show clearly the difference between productive and unpro- ductive consumption. 7. Give five examples of each. 8. Are our wants wholly under the control of our reason? Do we always desire those things which are beneficial? Can you give illustrations from your own life ? 9. Explain the effect of prohibition on the economic life. 10. Explain what you mean by regularity in consumption. Give examples from primitive and modern man. Of what advantage is it ? 11. What are the chief advantages secured by varying your con- sumption ? Give examples. PROBLEMS FOR DISCUSSION 1. Discuss the chief obstacles which hinder the American people from living the economic life. 2. Judged by a standard they would admit to be morally sound, 46 American Economic Life do people actually expend their incomes so as to receive maximum benefits ? Give illustrations. 3. How varied is your own diet? Test by keeping a schedule for a day. 4. What advantages have nations whose consumption is varied over nations whose consumption is unvaried? Give examples from the world of to-day. 5. Discuss the effects of varied consumption on production. 6. Show the benefits that have resulted from the consumption of the following goods : a. Tropical fruits and vegetables. b. Breakfast foods. c. Sugar. 7. Suppose you had a hundred dollars to spend, would you spend all of it at once ? What would you buy ? Would you buy the same things at all times and under all circumstances ? 8. Are you able to satisfy all your wants? Which wants are most intense ? Why ? 9. Contrast the life of the country dweller with that of the city dweller. 10. Does "the economic life" mean a parsimonious or a narrow life? Why not? SUPPLEMENTARY READING Carver, T. N. Principles of Economics, Chaps. XXXVIII-XL. Ely, R. T. Outlines of Economics, Chap. IX. Fetter, F. A. Principles of Economics, Chaps. IV and XL. Patten, S. N. Dynamic Economics. Patten, S. N. The Consumption of Wealth. Seager, H. R. Introduction to Economics, Chap. IV. Urwick, E. J. Luxury and Waste of Life, Chap. III. Watkins, G. P. Welfare as an Economic Quantity, Chaps. I-IV. CHAPTER VI The Problem op the Standard of Living I. The standard of living 1. What it means 2 . What it depends upon : a. The wants of individuals : (i) Meaning and kinds (2) Meaning of utilities (3) Law of diminishing utility h. The cost of living c. The income of workers II. Elements in a standard of living 1 . What the elements are : a. The chief items h. The minor expenditures 2 . How the cost varies : a. In city and country : (i) Rent (2) Food (3) Clothing (4) Fuel (5) Incidentals h. In different cities c. The conclusion The Standard of Living. — The actual test of individual welfare is found in the standard of living enjoyed by all the members of the community. The standard of what it living simply means the amount of economic ™ea°s. goods which an individual consumes. If he consumes 47 48 American Economic Life merely an amount sufficient to satisfy the bare necessities of life in regard to food, shelter, and clothing, an individual is said to have a low standard of living. If, in addition to these necessaries of life, man is able to enjoy its comforts and luxuries through the consumption of various other eco- nomic goods, he is said to have a high standard of living. The standard of living varies, therefore, with the amount of economic goods consumed. The consumption of these goods, which measures the standard of living enjoyed, depends upon three factors. Wh t it ^^ ^^^ ^^^^ place, an individual would not con- depends sume goods unless there existed in him the desire upon. j^^ these goods. A man of very limited wants could never attain a high standard of living. In the second place, assuming that the goods are already pro- duced, he could not consume them unless his income or wage was sufficient to satisfy these wants. Finally, the actual amount of goods he can purchase on a given income will depend upon the prices of the commodities he desires, that is, upon the cost of living. Hence, wants, income, and prices must all be considered in determining an individual's standard of living. Wants vary with the individual ; so that the supply of economic goods which would suffice in the case of one The wants individual, or family, would not suffice in the case ofindi- of another. If a man is fond of good pictures, his wants are extremely expensive ; 11 he likes books, they are only less so ; but, if he is satisfied with magazines and newspapers, they are cheaply supplied. Likewise, food varies from individual to individual and from family to family ; as does also the desire for clothing and housing. A standard of living, therefore, depends sub- The Problem of the Staitdard of Living 49 jectively upon the number and character of wants, which become more and more complex as civilization advances. Wants necessarily play a large part in shaping American economic life. A want is a desire for a " good " ; a good is an object or commodity which can be used in consump- tion. A want may be either elementary or acquired. Elementary wants are natural ; and man, in a greater or less degree, shares these wants in common with animals. Acquired wants are part of our social heritage ; that is, they have come down to us as a result of the process of civihzation. Among them are included the wants for bathtubs, furniture, paved streets, and automobiles. The natural wants are desires for the necessaries of life ; the acquired wants are desires for its comforts and luxuries. All economic wants, whether elementary or acquired, are satisfied by goods. Each good has the capacity to satisfy a particular want. Food satisfies hunger ; drink quenches thirst ; coal provides warmth ; shelter furnishes protection. These qualities in economic goods which satisfy human wants are called utilities. Utility must not be confounded with usefulness ; for it is perfectly possible for a commodity to possess utility without being useful. A diamond pin may not be useful, but it may satisfy one's desire for show. In economics, the word utility signifies the presence of some want-satisfying quality. After utihties have been created or augmented in a good, this good does not possess the same want-satisfying quality under all conditions. As the want becomes gradually satisfied, its intensity diminishes and the utility of the good consumed decreases. This variation in utility gives rise to the formulation of the law of diminishing utility, which states that additional units of a good mean a decreasing 50 American Economic Life utility in each unit consumed. Suppose, for example, that you have been taking a long tramp and are strolling along a hot country road. You are tired and thirsty, and long for some luscious fruit to refresh you. The thought of an apple comes into your mind and you feel an intense want. If you could get just one apple, it would possess very great utility for you. As you trudge along you find, quite unexpectedly, that your longing is about to be satis- fied. A farmer hails you, and, being loaded down with apples, offers you one. You thank him and eat the apple with extreme satisfaction. He offers you another, and still another, and by this time your want has been almost satisfied. You have enjoyed each apple, but in a less and less degree, because every additional apple affords less sat- isfaction than the preceding one. Finally, after you have eaten five or six apples, you have no desire for any more, — so far as you are concerned they cease to possess utility. In fact, if you were to persist in consuming apples, pain and distress would ultimately result ; that is, to you, apples which a few moments before possessed utility would now possess actual disutility. This fact of diminishing utility is important because it affects the determination of the price you are willing to pay for the commodity you desire. The price of commodities, or the cost of living, is another important factor upon which a standard of living depends. The cost When prices are high, a given income will evi- ofhvtng. dently purchase less than when prices are low. In fact, when prices are very high a man receiving com- paratively good wages may not be able to purchase as many goods as a man with a smaller wage can buy at a time when prices are low. For example, the man with a $2000 income, who pays eighty cents a pound for butter, The Problem of the Standard of Living 51 is not so well off as the man with a $1500 income who buys the same butter for forty cents a pound. The purchasing power of income is therefore a very important factor in determining the standard of living. Finally, income itself is of \dtal importance in deter- mining the amount of economic goods that an individual may consume. When wages are extremely low xhf. income. and prices are normal, it is impossible to maintain °^ '•^^orkers. a high standard of living. So obvious is this, that low wages in this country are almost synonymous with low standards. Labor organizations, therefore, fight with all the might of their great power to keep wages at a high level, in order that the workers may be able to maintain a standard of living high enough to include not only the necessaries of life, but also the goods that are needed to satisfy the higher wants that men have developed. Elements in a Standard of Living. — A standard of living to accomplish its purpose of securing individual welfare and maintaining efhciency should provide ^j^^^ ^^^ for : (i) the necessaries of life, including housing, elements food, clothing, fuel, light, and transportation ; (2) recreation facilities, including proper provision for health and hygiene, amusements, and books ; (3) voluntary subscriptions for insurance, clubs, "trade unions, and regular savings ; and (4) unusual expenditures for medi- cines and physicians, as well as funds required for house- hold furniture and incidentals. Almost all the expenditures of a workingman's family are made for the necessaries of Hfe, of which housing and food are by far the most important in a modern The chief city. The investigations that have been made ^^^""• into this subject have been based upon the normal family 52 American Economic Life of five persons, including the father, mother, and three children under fourteen years of age. The families and wages considered are those of workingmen. It has been found that such a family spends from eighteen to twenty- five per cent of its income for rent, the percentage varying according to the income received. It has also been shown that the largest single factor in the family budget is food, the expenditure for which amounts to from forty to forty- five per cent of the income of workingmen's families. Clothing was found to constitute a relatively small item in the budget of a city workingman's family, the amount The mino spcut for such purposc averaging only about expendi- thirteen per cent of the income. The expendi- tures for fuel and light are comparatively small, varying from four to six per cent of the family income ; while the amount spent for transportation in large cities averages about two and one-half per cent of the income. Expenditures for recreation vary considerably. In the lower income groups they are very small, but they rise rapidly with the increase of income. The same thing is true of the voluntary disbursements and the unusual expenditures. In this discussion of the elements in a standard of living and of their relative importance in the family budget, it is important to remember that only city condi- cost varies : tions and workingmen's families have been here In city and investigated. To estimate the relative expendi- country. tures for these different items for a family living in the country, it is necessary to take into consideration the difference between city and country conditions and the consequent difference in the cost of living in city and country. A particular element in the standard of living, The Problem of the Standard of Living 53 such as clothing, may not possess the same importance to the country family as to the city dweller. Furthermore, the cost of living as a whole may be considerably lower in the country than in the city ; so that, on a given income, a higher plane of living may be attained by living in the country rather than in the city. Take, for example, the question of rent. For a given sum, which in the tenement district of a great city would suffice only for one or two rooms, a family may secure in the country a fairly comfortable four- or five-room wooden house. Thus, in regard to housing, a higher plane of living, on a sum allotted to rent, may be maintained in the country than in the city. Again, the price of food, the most important item in maintaining a proper standard of living, varies in city and country. Although the price of meat is about the same in both places, vegetables are usually lower in the country, the price paid for them being the equivalent of the city price with the cost of freight, the charge of the commission merchant, and the profits of the retailer de- ducted. However, the prices of canned goods, bread, cakes, and crackers differ little in city and country districts. Things which are produced in the country are much lower in price there than in the city; while things which are produced in factories are about the same price in city and country. In the country the item of clothing is not so important as in the city. Perhaps the cost of clothing would not vary so greatly in city and country districts were it not for the presence in the city of rich people who dress extrav- agantly. The standard of dress which they set becomes the conventional or fashionable standard, and it must be 54 American Economic Life followed by all who would be " in style." The result is an expenditure in the city for trumpery and cheap finery which is unknown in the country. Another important item in the city is the expenditure for fuel ; but in the country fuel is almost a negligible quantity because wood, which is very generally burned, can be easily and inexpensively secured. Hence, the fuel supply is much more cheaply provided in country districts and small towns than in larger cities where coal is so expensive. Finally, the country districts do not furnish so many opportunities for spending money as do the city districts. There is little carfare to pay, and the temptation to buy in stores is greatly lessened by the absence of display adver- tising in shop windows. Therefore, less will be spent in the country for incidentals. Again, the cost of living varies in cities themselves, and individual items of expense are much greater in some Indifferent cities than in others. For example, a great cities. metropolitan city, like New York, may require a much higher expenditure for housing than is made necessary by living in a smaller city. While one item may offset another, these differences must be taken into account when estimating the cost of living in different cities, and the standards of living attainable in them on a given income. Furthermore, it is well to remember that many of the investigations concerning standards of living have been conducted in great metropoHtan cities, and that, therefore, it may be necessary to revise our conclusions when the results of such investigations are applied to smaller cities. From this discussion of the standard of living it will be seen just how dif&cult it is to come to definite conclusions The Problem of the Standard of Living 55 regarding it. In forming our judgments we must take into account (i) the wants of individuals, which them- selves must be differentiated ; (2) the cost of liv- The ing, which itself is found to vary in different <^ondusioti. localities, and (3) the income of workers, which is required to purchase the goods needed for consumption. In order to arrive, therefore, at a more definite conclusion regarding the actual standards of living enjoyed by American workers, it is now our purpose to inquire into the wage received, and the wage required, to maintain such a standard of living as will insure individual welfare and guarantee industrial eflSiciency. QUESTIONS FOR RECITATION 1. Define "standard of living." 2. What are the effects of maintaining a reasonably high standard of living ? 3. What are the three determinants of a standard of living? 4. Explain the meaning and kinds of wants. 5. Show the relation between wants and utilities. 6. Explain the law of diminishing utility. 7. Enumerate the fou^ elements in a standard of Uving. 8. Show the relative proportions of income spent for food, shelter, and clothing among workingmen's families in industrial centers. 9. What are the minor expenditures? How are they relatively distributed ? 10. Compare the cost of living in city and country in regard to : a. Rent. b. Food. c. Clothing. d. Fuel. e. Incidentals. 1 1 . Why does the cost of living vary in cities ? 56 American Economic Life PROBLEMS FOR DISCUSSION 1. Discuss the effects of differences in cost of living upon stand- ards of living. 2. In you^r opinion, what are the most fundamental reasons for maintaining a proper standard of living in a community ? 3. Do economic wants increase more quickly than the stand- ard of living ? Give examples. 4. What woxild be the effect upon standards of the poorest third of our city populations moving on to farms ? Discuss and illustrate. 5. Is it possible in the United States to provide a uniform mini- mum standard of living for all? State your reasons. 6. Discuss the ultimate effect on the individual of Uving below the normal standard. 7. Why should the community at large be interested in main- taining a reasonably high standard of living ? 8. What are the forces most to be relied upon to maintain a proper standard of living ? 9. Analyze the standards of living maintained in your own community. If they vary, explain the reasons. 10. Of the three factors determining the standard of living, which do you regard as the most important ? Why ? 11. What is meant by a normal, reasonable, or proper standard of living ? SUPPLEMENTARY READING Carver, T. N. Principles of Political Economy, Chap. XLII. Chapin, R. C. The Standard of Living among Workingmen's Families in New York. Devine, E. T. Economics, Chap. V. More, L. B. Wage Earners' Budgets. Patten, S. N. The Consumption of Wealth. Streighthoff, F. H. The Standard of Living among the Industrial People of America. CHAPTER VII The Problem of Income I. Wages of workingmen : 1 . The problem stated 2. Pre-war times : a. The wage paid h. The wage required 3. Post-war times : a. The wage paid b. The wage required : (i) The reason (2) The amounts c. The conclusion II. Wages and prices 1 . The relationship 2. Money wages and real wages 3 . How prices affect wages 4. Recent fluctuations 5 . When prices rise : a. The sufferers h. The causes : (i) Increased supply of money (2) Decreased production (3) Relation of supply and demand (4) Defects in government 6. When prices fall 7. The conclusion Wages of Workingmen. — In order to maintain the standard of living necessary for health and efficiency, the 57 58 American Economic Life worker must receive wages sufficiently high to purchase the goods required for consumption. The problem now The problem before US is to find out what actual wages are stated. p£^i(j workingmen ; whether they are sufficient to meet the requirements of a proper standard of living ; and, if not, to inquire what wages should really be paid them. To answer these questions it will be necessary to indicate the general level of wages throughout the com- munity, to show the effect of prices on wages, and to realize at the outset that the statistics deahng with incomes are constantly changing, and that, therefore, no con- clusions as to relative poverty and prosperity can be valid for long periods of time. A number of important investigations have been made by individuals and Government Bureaus into the wages of laborers and the incomes of American families. Pre-war times: The The United States Bureau of Labor issues fre- wage pat . q^gj^^ Bulletins embodying the results of its investigations into this field. Reports issued at the close of the first decade of the twentieth century revealed some interesting conditions that existed at that time among workers in industrial sections in the northeastern part of the United States. This survey reflected normal conditions that prevailed before the world was plunged into the war that dislocated its entire economic system. The results of these investigations, therefore, may be taken as representative of typical conditions existing in certain industrial sections of America before the World War. The statistics compiled showed that, at that time, half of the adult males working in these sections of the United States received less than $6cxd per year ; that three- quarters received less than $750 aniiually ; and that nine- The Problem of Income 59 tenths earned less than $1000 per year. These figures were approximate estimates and were not strictly accurate because they did not make allowance for unemployment. At the same time that these statistics were being com- piled, other investigations were being made into the actual income required to maintain a reasonable stand- The wage ard of living among industrial workers. A '■«9"'''«<^- study of the families of workingmen living in Buffalo, New York, and Pittsburgh showed that a normal family of five could maintain a proper standard of living only on an annual income ranging from $750 to $1000, according to the locality. This amount was required to provide the necessaries of life for the parents, and to furnish the children with nourishing food, warm clothing, decent housing, elementary education, and a legitimate amount of rec- reation. It was therefore evident that a great discrep- ancy existed between the wage paid and the wage required to maintain efficiency. For, at that time, according to these statistics, three-fourths of the industrial workers in certain sections were receiving less than the minimum, and nine-tenths less than the maximum income required to maintain a proper standard of living. With the World War, and thereafter, came great changes both in the wage paid workers and in the income required to maintain a normal standard of living. It is p^g^.^ar safe to say that, as a result of the changes times: The wrought by this world cataclysm, the wages of many workers doubled and even trebled during this period ; so that those formerly receiving annual wages of $750 or $1000 then received $1500 or $2500. Particularly was this true of the skilled and semi-skilled laborers, al- though many unskilled workers profited by the general 6o American Economic Life increase. In the skilled trades it sometimes happened that wages were not only doubled, but even trebled. The income of men receiving fixed salaries, however, did not rise correspondingly. The rise in wages during the war was attested by the income tax returns of 191 7, which showed that, in approximately seventeen per cent of the 20,000,000 American families, some one indi\ddual reported an income of more than $1000. If we take into account (i) the fact that these returns did not include family incomes totaling $1000 made up of individual incomes of less than that amount, and (2) the fact that they did not include the rental value of the home owned, and (3) the fact that they did not include the incomes of those exempt from the pay- ment of the tax, as well as those who actually evaded making income tax returns, it is not at all improbable that, instead of seventeen per cent, twenty-five or thirty per cent of American families at that time received incomes in excess of $1000. Thus, as contrasted with the pre-war conditions, perhaps seven-tenths, not nine-tenths, of families in the United States earned less than $1000 annually. This general increase in wages following the World War was necessitated by the higher income required to maintain The wage the standard of living essential ta individual required. ^jid social welfare. The standard of living itself had not necessarily advanced, but the income required to maintain the old standard had greatly risen. This fact was clearly shown by various investigations of the cost of living in different cities of the United States. For example, in Philadelphia, the Bureau of Municipal Re- search issued an exhaustive report in 1919 showing that the normal workingman's family, consisting of two adults The Problem of Income 6i / and three growing children, required a minimum annual income of approximately $1800 in order to maintain the standard of living enjoyed before the World War on an income of $1000. This position was supported by the official index numbers of the Federal Bureau of Labor statistics, which gave the increase in the cost of living in the shipbuilding centers of the United States during the five years of the World War as eighty per cent. In other words, a man receiving an annual income of $1000 in 19 14 required an income of $1800 in 1919 to maintain his pre- war standard. Statistics issued by the Federal Bureau of Labor in 1920 showed that the average increase in the cost of living had jumped from ninety-six per cent at the beginning of that year to one hundred and nineteen per cent toward the close of that year. The Philadelphia report was based upon a detailed study of the home budgets of two hundred and sixty typical families living, for the most part, in the industrial districts of the city. The annual expenditures of the average family were allotted as follows : for food, $674 ; for rent, $300 ; for clothing, $346 ; for fuel and light, $84 ; for trans- portation, $35 ; for miscellaneous expenditures, including those for cleaning supplies, health, furniture, dues, rec- reation, and amusement, $361. The report did not regard these expenditures as fixed or as ideal, but considered them as fairly representative of the amount needed for working- men to realize a reasonable standard of living in times of high prices and general transition. For other cities, these individual items and the sum total of income varied accord- ing to local conditions. In some cases the minimum set was considerably lower than $1800; while in New York, in the garment industry, the workers placed the minimum in- 62 American Economic Life come required for a reasonable standard of living as high as $2500. This contrast between conditions prevailing in 19 10 and in 1920, with regard to the wages paid and the income The required to maintain individual and social wel- conciusion. {^ixe, makcs it evident that no fixed figures can be given either for the wage paid, or the wage required, for the normal workingman's family. To predict what wages and standards will be in future decades, is the task of the prophet, not the economist. But, in attempting to fore- cast the future, it is well to bear in mind the prolonged abnormal situation following the Civil War, when it re- quired more than a decade to restore the old equilibrium between wages and prices. However, the half century elapsing between these two great wars wrought vital national changes which make comparisons difficult. The Federal Reserve Act, for example, passed before the out- break of the World War, diminished the possibility of panics in times of crises by means of its system of regional banks, which displaces the old centralized control of finances. War's aftermath, however, is usually the same ; underproduction, overconsumption, speculation, inflation, debt, and depression. In the end, the bubble of exorbitant prices bursts and production once more becomes normal. When the supply of goods is adjusted to the demand, prices decline and wages fall. If this transitional period is a gradual one, the necessary adjustments may be made without panics and industrial crises. If men do not work and save, however, no critical economic period can be successfully passed. Wages and Prices. — This discussion of wages brings out the intimate relation that exists between wages and The Problem of Income 63 prices. A study of wages of itself would tell little of the condition of the worker. A study of prices alone would be equally ineffective. The two together con- xhe reia- stitute complementary sides of the same ques- tio°ship. tion. Wages are not an end in themselves; they are merely a means to the consumption of goods. The really important point is not how many dollars a man receives, but how many goods he can buy with these dollars ; and this in turn is determined by the prices of the goods. In this manner, the purchasing power of wages is the real determinant of a standard of living. Hence it is highly important to bear in mind the distinction -^^ between money wages and real wages. Money wages and wages are wages actually paid in dollars and cents ; while real wages represent the purchasing power of that money. The problem of income, therefore, centers about real wages, for it is that which determines the worker's standard of living. Not money wages, but the goods which the money will buy, is the factor of vital importance in our study of workingmen's incomes. In that study the effect of prices on wages has already been indicated. This effect was made evident to all by the course of the World War. But before that h^^ p^ces event, it had been frequently overlooked ; affect . , . wages. especially by the immigrant to this country, who was attracted by the lure of what appeared to be high wages. As compared with what the immigrant received in his native country, the wage he received here was two or three times as great. This difference in wages strongly appealed to him ; but when once here he found that prices had advanced in an equal, if not a greater, proportion. Thus it was quite possible for his real wages to be less in 64 American Economic Life his new home than in his old. To offset this, he fre- quently maintained an exceedingly low standard of living. On the other hand, when, after the World War, prices advanced and production declined abroad in a greater ratio than wages advanced, the immigrant again cast longing eyes to America where the rise in prices and wages had been more proportional. Fluctuations usually occur in both wages and prices. The United States Labor Bureau frequently pubUshes _ . bulletins contrasting the wages of labor with the J\.6C6Ilt fluctua- cost of living. A study of these bulletins shows .**°"^' that since 1890 there has been a very great change in both wages and prices. Both fell heavily dur- ing the financial depression of 1893-94, and then both rose regularly until 1907, when there was another sharp decline. This was followed by a slight rise in both until 1914, when there began the tremendous rise which con- tinued throughout the World War, when a downward re- action again set in. The question of whether, in these fluctuations, prices have risen more than wages, or wages more than prices, is a vital one. It may not be possible to deter- When pnces ^ -' ^ _ rise: The mine this point with mathematical accuracy sujjerers. ^^^ ^^ occupations and for all classes of people. But one fact seems apparent, — prices rise for all who consume the goods in question, but wages rise propor- tionately for only a part of the workers who consume these goods. Hence there is little doubt that, in these fluctua- tions, the real wages of many individuals do not advance, but that in many cases they actually decline. This situa- tion becomes particularly acute among those who receive crystallized wages, or salaries, ranging from less than $1000 The Problem of Income 65 to $3cxx5 annually. The studies of wages and the cost of living include the wages of wage-earners only. Were like investigations made for the large class of salaried em- ployees, it would probably be found that while, in times of great economic changes, prices rise as much as one hundred per cent, salaries may rise only thirty or forty per cent. What are the causes of rises in prices? Many attempts have been made to answer this question, and it is possible here only to indicate briefly the main factors to ^ . •' ^ •' Causes of be considered in a discussion of this question, rise in The World War, more than anything else, stimulated inquiry in this direction and brought to general attention the paramount significance of certain funda- mental economic principles at work in American life. These may be summarized under the effects of (i) the increased supply of money, (2) the decreased amount of production, (3) the relation of supply and demand, and (4) the defects in government which permit individual gain at the expense of social welfare. In addition to these, there are many other contributing causes, the investigation of which is far beyond the scope of this inquiry. Prices may be considered from two points of view: (i) from the value of money on the one side, and (2) from the value of goods on the other. Prices, therefore, may rise because gold, which represents money, has decreased in value ; or because goods, other than gold, have increased in value. When money is more plentiful, a unit of it is worth less and, therefore, a greater number of units is required to make up a given value. During the period of the World War the amount of money in the United States was enormously increased. This increase was brought 66 American Economic Life about in two ways: (i) through the inflow of gold from abroad to pay for the huge quantities of food, munitions, and supplies exported to Europe ; and (2) through the issue of bonds and Federal Reserve notes which had the effect of currency inflation. Through inflation, therefore, the value of money was decreased, and prices accordingly rose ; that is, it required more dollars to purchase a given quantity of goods. Prices may also rise because goods have increased in value. Just as there may be an over-supply of gold, so there may be a shortage of goods ; and, when both these circumstances occur at once, the effect is twofold. During the World War, vast quantities of goods were sent abroad, while few goods were being shipped to this country. This decreased the amount of goods left for home consumption. At the same time, two million workers were withdrawn from production for military purposes ; so that there resulted not only a decreased production, but an increased cost of production due to the scarcity of labor. Thus it happened that the value of goods rose enormously. The war, draining us of goods and flooding us with money, caused goods to rise in terms of money. Only with increased production, or with scarcity of money, is an equilibrium restored. Again, we may look at the problem from the standpoint of the relation between supply and demand. An increase in demand tends to raise price, while an increase in supply tends to lower price. Since the price of a good is deter- mined by the demand for, and the supply of, that good, it is an easy matter to see the effect of this relationship upon prices during and right after the World War. Goods were in great demand, while their supply was limited; hence The Problem of Income 67 prices were high. On the other hand, gold was not in such great demand, and its supply was relatively plentiful. Hence the price of gold, its value in terms of goods, was low. Aside from these economic laws, other considerations may enter into the determination of prices. Under the conditions noted above, prices of goods are bound to rise or fall ; but, because of inadequate governmental regu- lation, or because of individual shortcomings, it is quite possible in modern society for prices to rise beyond the limit required by economic laws. The mere statement of this fact AArill bring to mind the evils from which society suffers. So long as natural resources are monopolized by individuals for private gain, so long as men are allowed unrestrained to fix prices for their own enrichment, and so long as extravagance — not thrift — determines man's consumption, society cannot hope to attain that individual welfare in which normal prices play an im- portant part. Prices fall with the reversal of the conditions previously described. To bring about the fall of prices it is first necessary to increase production. Goods must when become more plentiful so that their value may p"*^®^ *^- decline. While this process is taking place, deflation must also occur. That is, the value of money must become greater by limiting its supply. This may be accomplished by retiring paper currency, and by increasing import trade. When imports exceed exports, the amount of money in a country decreases through the shipment of gold abroad to pay for the unfavorable balance of trade. In this manner the quantity of money decreases, its value rises, and prices decline. Of course, this increased production of goods and 68 American Economic Life decreased supply of money must be accompanied by a decline in extravagant living and by a return to normal habits of work. With this chapter we close the discussion of the problems connected with the consumption of wealth. Whatever may be the ultimate conclusion regarding the Conclusion. . . amount of wages required to meet the varying cost of living, the fact still remains that it is society's duty to see that a sufficient income be provided the worker to maintain a reasonable standard of living. Families — men, women, and children — require a certain minimum of the necessities of life. Such a minimum, whatever it may cost, should, in the interest of welfare and efficiency, be assured every member of the community. In the United States, our study of wages shows that individual prosperity, through the distribution of social income, is much nearer realization than in the older European civili- zations. QUESTIONS FOR RECITATION 1. Compare the wages of workingmen now with the wages paid them before the World War. 2. Compare present-day wages with the wage received after the World War. 3. Compare workingmen's wages just before and just after the World War. 4. What accounts for these fluctuations in wages? 5. Is the wage paid usually equal to the amount required to maintain a normal standard of living ? Prove your position. 6. What constitutes a "normal family"? What amounts are required to-day to maintain them in health and efficiency? Do they receive the sum total required ? 7. Explain the difference between money wages and real wages. 8. How do prices affect wages ? The Problem of Income 69 9. Why is the actual amount of the money wage unimportant ? 10. Explain the causes of a rise in prices. 1 1 . Who suffer the most when prices rise ? 12. When do prices fall ? 13. Who gain the most when prices fall? PROBLEMS FOR DISCUSSION 1. Discuss the relative distribution of wealth throughout the United States. 2. Is it true that, as America becomes wealthier, the masses become poorer? Give reasons for your conclusion. 3. Discuss the relation that should be maintained between wages and standards. 4. When there is a discrepancy between wages and standards, what remedial steps should be taken ? 5. Do high wages mean a high standard of living? Why not? 6. When do wage increases become necessary? When may wages be lowered without lowering the standard of living ? 7. Show what wages should be to-day and what they actually are. 8. Make up some typical family budgets. 9. Compare the fluctuations in wages and prices that occurred after the CivU War with those that occurred after the World War. 10. How may an adjustment be effected between wages and prices ? 11. Discuss Engel's laws of expenditure. 12. Do you believe in minimimi wage laws? To what extent may they be employed ? What evils may result from them ? SUPPLEMENTARY READING Burton, T. E., and Seldon, G. C. A Century of Prices. Chapin, R. C. The Standard of Living among Workingmen's Families in New York. Commons, J. R. Distribution of Wealth, pp. 252 et seq. King, W. I. The Wealth and Income of the People of the United States. 70 American Economic Life Parlin, C. C. Basic Facts of Prosperity in ig20. Reports of Federal Commission . on Industrial Relations, 1915 to date. Reports of Philadelphia Bureau of Mimicipal Research, 1919 to date. Streighthoff, F. H. The Distribution of Incomes, Columbia Uni- versity Studies, Vol. Ill, No. 2. United States Bureau of Labor Bulletins, PART THREE PROBLEMS OF PRODUCTION CHAPTER VIII The Production of Wealth I. Nature of production 1. Meaning of production 2. Kinds of utilities : a. Natural utilities h. Form utilities c. Place utilities d. Time utilities e. Possession utilities 3. Factors of production : a. What they are h. Their relative importance II. Part played by natural resources I. In ancient times In modern times In India and China In the United States The conclusion Welfare may be measured not only in terms of con- sumption, but also in terms of wealth production. In fact, the whole process of consumption is conditioned upon that of production. It is, therefore, our purpose now to inquire into the nature of production, to analyze 71 72 American Economic Life the basic factors of production, and to study the develop- ment of the productive process in the United States, in order to ascertain how far the production of wealth has administered to the welfare of the American people. The Nature of Production. — Production is the process of creating or of increasing utilities in goods, that is, of Meaning of Creating want-satisfying qualities in the raw production, materials of nature which supply the basis of all economic goods. According to the theory of the inde- structibility of matter, man can neither create nor destroy a single unit of matter. However, it is perfectly possible for him to change the form of this matter, or to otherwise alter its condition, so that it will satisfy some definite want. This process, taking place everywhere and at all times, results in the creation of utilities in economic goods. Man's efforts in the field of production consist, therefore, of all his activities which lead to the creation of utilities of one kind or another. In economics, the word utility signifies, as we have seen, the presence of some want-satisfying quality. There Kinds of will, therefore, be as many kinds of utilities as utilities: there are ways in which goods may satisfy human wants. Goods may satisfy wants either because of their nature, or form, or place, or time, or possession. Hence there are five kinds of utilities: (i) natural utilities, (2) form utilities, (3) place utilities, (4) time utilities, and (5) possession utilities. Natural utilities are those existing in goods because of their inherent nature. Coal, for example, though embedded Natural in the vein, possesses utility. To be sure, this utthties. utility cannot be made available without an intermediate process called mining; but the coal, Hke The Production of Wealth 73 many other gifts of nature, possesses in itself the power to satisfy human wants. Form utilities are those created by a change in the form or in the inherent qualities of goods. For example, a chair in the furniture factory possesses a greater want- pg^^ satisfying capacity than the boards in the lumber «'«^»'»"- yard, or the trees in the forest. The clay in the clay pit will not satisfy nearly so many wants as the clay pressed into bricks, baked and ready for building operations. Form utilities are the creations of manufacturing processes, and we therefore usually think of manufactured goods when we speak of this kind of utility. Place utilities are those created by changes in the loca- tion of goods, whereby such goods are taken from a place where they are not especially needed to a place piace where they are in great demand. Occasionally, «^»'»'»«*- cotton in certain parts of the South and corn in certain parts of the West are of such low utility that they are sometimes burned for fuel ; but the transportation of either commodity to Massachusetts greatly enhances its want-satisfying quality. The utilities in the goods have been increased by transportation, because cotton or corn will satisfy more wants in Boston than in Texas or Kansas. Transportation has created place utihty in these goods. Time utilities are those created by holding economic goods from the time when they are not wanted till the time when they are wanted. Ice, in January, is Time seldom wanted and possesses little utility, but the «'»^»'»"- same ice stored until July is very much in demand, and therefore possesses great utility. This increase in utihty due to the lapse of time is called time utility. 74 American Economic Life Possession utilities are those created through changes in ownership. By an act of exchange, a good may pass from Possession the hands of one who does not greatly desire it, to utilities. another who feels the need of it intensely. To its new owner it acquires additional utility. This kind of utility is especially perceptible in acts of barter, whereby exchanges are made that directly benefit both parties. The added utility that comes through change in ownership is thus called possession utiUty. In modern life, real estate brokers, for example, are engaged in giving goods this kind of utility. In various ways, therefore, man is engaged in acts of production ; that is, in increasing or creating utilities in goods in order that human wants may be satisfied. Production, which furnishes the material basis of welfare, depends upon natural resources, labor, and capital. Natural resources are gifts of nature, Hmited in Factors of ... . production : extent ; labor is industrial effort ; capital is an What they ecouomic good used to assist in production. Every modern productive operation requires these three factors. Land furnishes the raw material; labor, the effort ; and capital, the tools which are to assist in the act of production. Thus, specifically, the tree stand- ing on the hillside is a natural resource. A man approaches the tree and begins chopping it with an ax. The man is labor ; the ax is capital. The felling of the tree, which has brought it one step toward its final form of chairs, let us say, is one act in an operation which will enable the wood to satisfy human wants. Therefore, the entire opera- tion is an act of production. No modern productive act takes place without these three factors. To-day, the production of material wealth, The Production of Wealth 75 in whatever form imaginable, has become so highly or- ganized that it is impossible without the participation of land, labor, and capital. The necessity for the _, . Their participation of all three factors, however, did relative not originally exist, because nature and man — ^*nporiance. land and labor — were the primary forces at work in civili- zation. Nor would this necessity exist to-day, if we could reproduce primitive conditions. A modern Robinson Crusoe, with only natural resources and his own labor to rely upon, would be obliged to create his own capital. Capital is thus the offspring of land and labor. It is the secondary factor in production, while land and labor are the primary requisites of production. However, this dis- tinction, to-day, is of comparatively little importance, because capital is just as essential to modern production as either land or labor. In order to realize to what extent a nation may attain economic greatness, it will be necessary to examine carefully the part played by each of these factors in production. First we shall examine the part played by natural resources. The Part Played by Natural Resources. — Natural re- sources may not make a civilization, but without them civilization would be impossible. A study of the in ancient great civilizations of the past shows that, without *^™®^- exception, the basis of their greatness was an adequate supply of natural resources. Babylonian, Egyptian, Car- thaginian, and Roman civilizations were all established in fertile valleys, or with a nucleus of fertile land. In an age when agricultural land was almost the only resource avail- able, civilizations were necessarily founded in fertile agri- cultural districts. This truth was in the mind of the preacher who publicly gave thanks to Heaven for making 76 American Economic Life great rivers flow beside the big cities. Although his eco- nomics was defective, he was grasping at an important geographical principle. Natural resources are more important to-day than they were in any historic period, because modern civilization In modern IS founded on mineral as well as on agricultural re- times, sources. What, then, are the present resources of the world? Where do we find the physical possibilities for the development of great modern civilizations? The retarded development of the African continent is the out- come of its vast desert, great heat, regular coast line, and few navigable rivers. South America has its Amazon basin, but the tropical location and dense vegetable growth prevent that region at present from realizing its full possi- bilities; while the southern portions of the continent are too restricted in extent to furnish the basis for an exten- sive civilization. In Europe, where the fertile basin of the Danube provides a really adequate physical background for this purpose, racial and political handicaps stand in the way of economic development. In a similar manner, Australia, while great in extent and situation, is retarded by a regular coast line and the restrictions of vast stretches of barren territory. There remain three other regions abounding in natural resources, and furnishing a physical basis for marvelous In India economic development. Two of these are in and China. Asia, and each is the seat of ancient power and empire. Both India and China enjoy physical resources equal to those of any world power, although the semi- tropical climate of the former partly militates against its success as the home of a dominant civilization. These regions, however, are, as we have seen, hide-bound by tradi- The Production of Wealth 77 tions which stand in the way of utilizing the vast resources at the command of the native peoples. Thus, labor is inefficient and capital is inadequate to develop the natural resources which form the basis of national greatness and prosperity. The remaining and greatest of these areas for world power and civilization is the United States. Here abound those natural resources which are at the foundation of , xu In the production, and upon which all civilizations rest. United Here also is an abundant supply of capital, amassed by the breaking of tradition, and an efficient labor force, independent and self-respecting. The United States, with its Mississippi Valley, its variety of climate, its agri- cultural and mineral resources, its great rivers, and its broken coast line, has spelled opportunity to millions of civilization-makers, and promises in the future even greater economic and spiritual development. So vital is the part played by natural resources in the production of wealth that industrial supremacy is de- pendent upon their utilization. To attain eco- xhe nomic greatness a nation must command the use conclusion, of such resources, if it does not actually possess them. Thus England not only reHes upon the advantages of natural position and the rich mineral deposits of her own land, but draws as well upon the vast stores of natural wealth supplied by the British Empire. France depends not only upon her rich agricultural resources, but looks for the full restoration of her coal and iron deposits. Ger- many, in her insatiable desire to secure dominant control of land and minerals, warred upon civilized mankind. Thus the world witnessed the titanic struggle for economic supremacy based upon the control of natural resources. 78 American Economic Life On the other hand, the failure to develop the resources of the land, when they exist freely in nature, accounts for industrial backwardness and national retardation. China's failure in this respect has already been noted. In Europe, the neglect of Russia to develop adequately the vast re- sources of the land accounts for her failure thus far to attain that commanding economic position which her natural wealth justifies. With efficient labor, with in- creased capital, and with a highly organized productive system, the twentieth century holds out untold possibili- ties for those civilizations possessing adequate natural resources. QUESTIONS FOR RECITATION 1. When may production be a measure of welfare? When is it not ? 2. Define production. What is the test of a productive act ? 3. Define utility. How do utilities and wants differ? 4. Name and define the five kinds of utilities. 5. Give an example of each kind of utility. 6. Tell, with your reason, (i) whether each of the following possesses utility, and (2) whether each is material wealth : a. Water. b. Diamonds. c. Sunlight. d. Candy. e. Air. /. Tobacco. 7. When do goods reach the margin of utility? What effect has the point of satiety upon consumption ; upon production ? 8. Name and define the factors of production. 9. Explain the relative importance of the factors of produc- tion. 10. Can there be any modern productive act without the partici- pation of all three of these factors ? Prove your answer. The Production of Wealth 79 11. Explain the natural advantages enjoyed by the United Stales in regard to the possibilities of wealth production. Contrast her position with that of Germany. 12. Explain the difference between natural resources and economic goods or wealth. 13. Do natural resources possess utility? What kind? PROBLEMS FOR DISCUSSION 1. Compare the relative parts played by consumption and pro- duction in your own life. Give various illustrations. 2. What connection has the theory of the indestructibility of matter with the principle of production? Do these two principles conflict ? 3. Show whether utility is synonymous with usefulness. Prove your position by giving examples. 4. Show the relation between the law of diminishing utility and the theory of price. 5. Discuss the importance of production to civilization. 6. Show the part played by each factor of production in the making of : a. Hats. h. Locomotives. c. Bread. d. Shoes. e. Books. 7. How were ancient civilizations dependent upon natural re- sources ? Give examples from history. 8. Why are modern civilizations still more dependent upon natural resources? Prove your point. 9. Are natural resources sufficient to guarantee economic great- ness? What evidence is there for your statement? Give illus- trations. 10. Contrast the factors of production with the characteristics of material wealth. Give examples of your meaning. 11. Discuss the difference between natural wealth and material wealth. 12. Account, on the basis of natural resources, for the present economic position of the more important European civilizations. 8o American Economic Life SUPPLEMENTARY READING Clay, H. Economics, Chap. III. Ely, R. T. Outlines of Economics, Chap. VIII. Marshall, A. Principles of Economics, Book IV, Chap. I. Mill, J. S. Principles of Political Economy, Book I, Chap. I. Seager, H. R. Introduction to Economics, Chaps. VI and VII. Taussig, F. W. Principles of Economics, Vol. I, Chaps. II-V. CHAPTER IX Natural Resources of the United States I. Importance of land 1. What "land" means 2. How it determines activities 3. How it aids man II. How nature favors the United States 1. In soil and climate 2. Importance of soil : a. Law of diminishing returns : (i) The law stated (2) An example (3) Effects of this law h. America's advantage III. Minerals of the United States 1. Their importance 2 . Kinds of minerals : a. Coal : (i) Supply and consumption (2) Kinds and uses h. Petroleum and gas : (i) Supply and consumption (2) A future problem c. Iron and copper d. Other minerals e. The outlook 3. The conclusion Importance of Land. — In economics, the word " land " is used synonymously with natural resources. It is taken 81 82 American Economic Life as typical of all natural resources because it is so representa- tive of nature. Land includes not only the materials of nature, such as forests and minerals, but also What ' " land " the forces of nature, such as the power of water- means, ^^jj^ ^^^ ^^^ fertility of the soil. Again, land includes not only fields and meadows, but also rivers, lakes, bays, fish, forest, wild game, mines, and wells. In short, land includes all the gifts of nature, Hmited in extent, which exist in their present form without the expenditure of human labor. Most of this natural wealth is converted by productive operations into raw materials of industry. The character of natural resources determines the lines along which people direct their energies. Could Columbus, „ ., for example, when he first reached American How it JT 7 determines shorcs, havc Seen the vast continent with all its latent possibilities, he might have predicted many of the transformations which have since taken place. Along the barren New England coast with its sharp, forested hills, thin soil, rivers, creeks, and bays, he would have observed the possibility of developing lumbering, ship- building, fisheries, commerce, and manufactures. In Pennsylvania, he would have seen that the pioneer would eventually employ coal, iron, and oil, and from these con- struct the new industry. Again, could he have traveled over the fertile valleys of the South with its congenial climate, he would readily have foretold that here was a basis for extended agricultural development. Natural resources assist in the development of civihza- tion chiefly in four ways : (i) soil and climate furnish How it the basis for agricultural development ; (2) min- aids man. qj.q\ resources furnish the basis of industry ; (3) forests provide wood and conserve rainfall ; and (4) Natural Resources of the United States 83 water resources furnish transportation and power. Each of these will now be discussed at some length in this and in succeeding chapters. How Nature Favors the United States. — Nature has been free in her gifts to the United States, but perhaps no- where more so than in the wide range of climatic in soil and and agricultural conditions which she has climate, afforded. The fertility of the soil is remarkable. The land, stretching fifteen hundred miles north and south, makes possible a wide range of climate, further diversified by altitudes ranging from sea level to elevations of several thousand feet. The most southern part is parallel with the great Sahara, while the northern limits, exclusive of Alaska, are in the latitude of Germany. Most parts of this vast area, about the size of Europe, will support a variety of crops. Even where the amount of rainfall is inadequate, natural obstacles may often be overcome by irrigation. If varied climate is an aid to varied agriculture, there is no other section of the world in which a more effective combination of climatic and agricultural possi- bilities exists ; for, it must be remembered, climate is a basic resource which cannot be destroyed or materially altered by human wastefulness. Modern world powers have their homes in the temperate zone ; and it is fair to assume that, so long as the present forms of civilization prevail, cold, invigorating winters with warm, short sum- mers will combine to produce the greatest vitality and the most enduring energy. Soil itself is of such fundamental importance that we commonly refer to it as " mother earth." All organic and inorganic forms of life either spring from the earth, or are dependent upon it for existence, or are found within its 84 American Economic Life bosom. Soil is the crust of the earth, its surface, and that which immediately lies beneath the surface. Soil is thus Importance o^ly a part of the earth, but it is that part which of soil : jg Qf greatest significance to civilization. If it is fertile, life will flourish; if depleted and exhausted, life will be difficult and precarious ; and if barren, life will wither and fade away. Soil productivity, therefore, is the foundation of civilization. Since this principle of fertihty or productivity is at the basis of progress and prosperity, it becomes important to ^^^ inquire whether there is any economic law accord- diminishing ing to which the soil yields its return. It will be found that there is such a law, and that it applies not only to the surface of the earth, but to the wealth deeply embedded within the earth itself. This law, as applied to the soil, shows that, after a certain point has been reached in its cultivation, land will yield a smaller and smaller return in proportion to the labor and capital applied to it. This law is known as the law of diminish- ing returns from land and may be stated as follows : after a certain point has been reached in the cultivation of a given piece of land, it will be found that doubhng the labor and doubling the capital applied to that land will not double the return from it. Take, for example, the case of a typical farm in the wheat- growing section of the country. We know that all pro- duction requires three factors : land, labor, and capital. Let us apply successive " doses " of labor and capital to a unit of this land and observe the effect upon the wealth produced, that is, the number of bushels of wheat which it will yield. The first unit of labor and the first unit of capital applied to this unit of land will yield, let us say, Natural Resources of the United States 85 eight bushels of wheat. Two laborers and an additional unit of capital, in the form of more effective agricultural implements, will yield an additional twelve bushels of wheat, or twenty bushels altogether. It will even be found that, if we apply three units of labor and three units of capital (a rich fertilizer being added to the capital already in- vested) to this same land, it will produce sixteen additional bushels of wheat, or thirty-six bushels in all. So far, therefore, the results obtained from this application of labor and capital to the land may be represented by the following table : Land + Labor + Capital = Wheat I + I + $ 40 = 8 bushels T + 2 + $ 80 = 20 " I + 3 + $120 = 36 " It will be observed from this table that we have succeeded, first, in doubling the original labor and capital and in more than doubling the original yield ; and, secondly, in tripling the original labor and capital and in more than tripling the original yield from the given unit of land. That is, in each case, the return from the soil has increased in greater proportion than the increase in the labor and capital applied to it. But here we reach the peak of production. If we apply another dose of labor and another dose of capital to this land, its return may increase, but not pro- portionately to the previous increasing returns from the land. The return may be increased absolutely, but not relatively. In fact, the time will come when it will not pay the farmer to attempt to produce more wheat from the acreage under cultivation. His land will, therefore, yield a proportionately diminishing return at some point in 86 American Economic Life its cultivation. This decreasing ratio may be represented by the following table : Land + Labor + Capital = Wheat + 4 + $i6o + 5 + $200 + 6 + $240 49 bushels 57 " 59 " Thus agriculture is subject to the law of diminishing returns, the consequences of which are far-reaching. To realize the full significance of this law, it must be remem- bered that it applies not only to the soil, but to mines, fisheries, water power, and other natural resources. When, therefore, a civilization begins to feel the effects of its operation, a dechne in prosperity follows, unless forces counteracting its operation are discovered. The crumbling of ancient empires and the decline of Eastern and Mediter- ranean civilizations have been accounted for on this basis. But this law has been stated here chiefly for its historical significance, and in order to make us realize more forcibly America's the trcmeudous advantage enjoyed by the advantage. United States in this respect. Here and there, undoubtedly, one may observe the operation of this law in America. For example, in certain mining industries the return has declined in proportion to the labor and capital applied; and in specific agricultural districts, because of inadequate soil conservation, the yield has decreased in proportion to the labor and capital applied to the soil. But these are only isolated instances which, indeed, it is most important to bear in mind when considering the necessity for conservation in our national life. When, however, we consider the remaining undeveloped natural resources of the United States, its still fertile soil and un- Natural Resources of the United States 87 touched mineral deposits, we realize more than ever the advantage which this nation enjoys, as compared with the civilizations of the Old World, in regard to the operation of the law of diminishing returns. Furthermore, American inventive genius is always struggling to counteract this law wherever its operation is noticeable. Minerals of the United States. — If, now, we look under the surface of the earth, we shall find that nature has equally endowed the United States with rich Their im- mineral deposits. This kind of resource has portance. always been of value to mankind, but it is only with the advent of modern industry that it begins to assume its greatest importance. In primitive civilizations, stone, bronze, iron, tin, zinc, gold, silver, and other minerals were used for ornaments, for weapons, and for like purposes. In advanced civilizations, however, minerals determine largely the direction of national progress and the extent of national prosperity. For convenience of discussion, minerals may be divided into two groups : fuels and ores. Of the fuels, coal is by far the most important. As a factor in pro- -^^^^ ^f moting prosperity, it is second to none of the minerals; minerals in its threefold function of providing heat, light, and power. One hundred years ago the nation had a supply of coal paralleled only by that of China. To-day, however, some authorities tell us that, at our present rate of increase in consumption, the available supply of anthracite coal may be exhausted in fifty years and the available beds of high-class bituminous coal in about one hundred and twenty-five years. In striking contrast to this alarming prediction, the United States Bureau of Mines estimated in 1920 that the supply of 88 American Economic Life minable coal in the United States amounted to 3,553,673,- 100,000 tons, or enough to last seven thousand years at the present rate of consumption. It is probable that both of these estimates are exaggerated. Coal exists in three forms : anthracite, bituminous, and lignite. Anthracite coal contains the highest percentage of carbon and is the most valuable as fuel. The avail- able fields of anthracite, located in Pennsylvania, are being gradually exhausted. Bituminous coal, which con- tains less carbon and is less desirable for domestic consump- tion, can be used for almost all commercial purposes. Furthermore, it exists in nearly all parts of the country. The third form of coal, known as lignite, consists of vege- table matter which has undergone chemical change and is much less valuable commercially. Vast fields of this lignite have been found in the Northwest. If its use can be made commercially profitable, it may be the coal of the future. The other mineral fuels, petroleum and natural gas, which have been discovered in connection with most of the Petroleum coal fields, are being rapidly utilized. Already and gas. abundant supplies in Pennsylvania have been depleted. Ohio, Indiana, Illinois, and West Virginia are failing to increase their supply ; and the time may soon come, perhaps within a quarter century, when the better forms of petroleum and natural gas in this country will be commercially unusable because of their scarcity and high price. In fact, in 1920, it was estimated that only 7,000-, 000,000 barrels of oil were remaining in the United States, or enough to last eighteen years at the present rate of con- sumption. However, in the Southwest, many new forms of petroleum have been discovered which may, with the Natural Resources of the United States 89 advance of chemistry, replace and supplement the better grades now in use. This question of the diminution of the fuel supply pre- sents a serious problem. When men first hved in the temperate zone, they depended upon wood and peat for fuel. As civilization advanced, coal and oil came into use. With the exhaustion of these fuels, the temperate dwellers will be face to face with the problem of keeping warm in winter. Without some form of artificial heat, life in the temperate zone is impossible. What, then, shall civilization do? Furthermore, since modern industry is dependent upon power, mechanically produced, the future must discover some substitute for the vanishing mineral fuels. Though the immediate future is by no means certain, water power may ultimately prove an ade- quate substitute ; while solar and tidal energy are as yet unknown quantities. Among the mineral ores, iron and copper are by far the most important, and the apparent supply of these minerals is far larger than the available supply of coal, iron and Originally, bog ore was taken from the lowlands '^"PP^''- of New Jersey and Virginia and converted into iron and steel products. This bog ore industry was then displaced by the ore mines of Pennsylvania, which, in turn, have been supplanted by the ore fields of the Lake regions. In these latter fields, the ore hes on the surface and is fre- quently shoveled by means of steam power into cars, in exactly the same way that a gravel bank is removed. Gold, silver, tin, lead, zinc, cement, brick clay, and stone are also produced in considerable quantities other throughout the United States. While less im- ''"■"^'■<''^- portant than iron, they nevertheless play a leading part in go American Economic Life determining the progress of an industrial civilization. Especially is this true of cement, brick clay, and stone, all of which are particularly valuable in structural operations. These mineral ores together with the mineral fuels consti- tute the most exhaustible form of natural resources. A forest which is burned away may be replanted The outlook. Till c ^ • i-i» and replaced, but each ton of coal or iron which is mined is irreplaceable. It has disappeared, and, although some substitute for it may be found, the coal or the iron itself will never, at least in historic times, be replaced. Too much emphasis, therefore, cannot be laid upon the necessity for conserving minerals. When the coal is mined, all of the coal in the mine should be removed. The policy frequently followed of removing the easily mined coal and then permitting the mine to fall in, thus sealing up millions of less desirable fuel, is disastrous. Mineral resources are at the basis of every modern industrial society, and the welfate of both industry and society demands conservation. We have seen, from this brief review of our soil and mineral resources, that, so far as they are concerned, The con- nature has amply endowed the United States elusion. with the basis of progress and prosperity. Her great extent of territory, her fertility of soil, her variety of climate, her great mineral wealth still capable of conserva- tion, all lead us to this conclusion. QUESTIONS FOR RECITATION 1. Define land. Give examples. 2. Show how land has affected the division of occupations in the United States. 3. What are the four chief ways in which land aids man? Ex- plain each. Natural Resources of the United States 91 4. Why is climate so important ? Compare it with other natural resources. 5. Explain the relation between climate and efficiency. 6. Why do we speak of "mother earth"? 7. Explain the importance of soil. 8. Explain the law of diminishing returns from land, giving examples. 9. Is this law in operation generally throughout the United States? Defend your position. 10. Name the chief minerals of the United States in what you regard as the order of their importance. 1 1 . What are the minerals most essential to industry ? Why ? 12. Show why the conservation of minerals in the United States is absolutely imperative. 13. Explain the different kinds and uses of coal. 14. What mineral is coming into greater prominence ? Why? 15. What problem does the future have in store for us ? In what ways may it be solved ? PROBLEMS FOR DISCUSSION 1. What is meant by the "economic interpretation of history"? 2. What physical reasons account for the greatness of Holland? Of Japan? Why did the former nation develop earlier than the latter? 3. When do natural resources cease to be free gifts of nature and become economic goods ? Give examples. 4. What relation exists between the shape and location of land masses and man's development ? 5. Why did civilization begin in semi-tropical regions and then move northward? 6. What other force, besides nature, is essential to the develop- ment of national life and character? Give examples to show its vital importance. 7. What are the chief natural resources of the United States? In respect of what resources is the United States preeminent ? 8. Of what use is land to the lumberman ? to the manufacturer? to the shopkeeper ? to the traveling salesman ? to the fisherman ? to the aviator? 92 American Economic Life g. Why are iron and coal called the foundation stones of industry ? 10. Discuss the evil effects of the law of diminishing returns from land. Show by historical allusions. 11. Explain the forces counteracting this law. 12. Give specific instances of the operation of this law in the United States. 13. Should we or should we not emphasize this law in our teach- ing of economics ? Why ? SUPPLEMENTARY READING Annals American Academy of Political and Social Science, Conser- vation of Natural Resources. Patten, S. N. The New Basis of Civilization, Chap. I. Proceedings of the Conference of Governors (1908). Reports of National Conservation Commission. Shaler, N. S. Nature and Man in America. Smith, J. R. Commerce and Industry, Chaps. VII-IX, XV. Van Hise, C. R. Conservation of Natural Resources in the United States. CHAPTER X Land Reclamation I. Reclamation by means of irrigation 1 . How accomplished 2. First projects : a. Work of the Pueblos h. Work of the Mormons c. Operations in California d. The Horace Greeley project 3. Recent development : a. Extent and value h. The Act of 1902 : (i) What it provides for (2) How expense is borne (3) Future possibilities (4) The work undertaken 4. Advantages of irrigation 11. Reclamation by means of drainage 1 . How carried on 2. The swamp lands : a. Their extent and character h. The proposed work c. The Florida Everglades d. The Dismal Swamp e. Other swamp lands 3. The problem before us Not only is it possible, by increasing the efficiency of labor and the productivity of capital, for progressive 93 94 American Economic Life civilizations to delay the operation of the law of diminishing returns, but it is even possible, through the application of labor and capital, to reclaim for cultivation land which is apparently useless. In other words, soil fertility may be increased, not diminished, by scientific methods of con- servation. This reclamation may take the forms of irri- gation and drainage. Reclamation by Means of Irrigation. — Irrigation is accomplished by the very simple process of transferring Howaccom- water from a place where it is not needed to a piished. place where it is needed. Water is thus given place utiUty. Practically any stream or body of water, which is properly situated, may be utiHzed for irrigating arid land ; or the water necessary may even be pumped from artesian wells. In this manner, vast stretches of parched territory may be brought under cultivation. Provided, therefore, there is somewhere available an ade- quate supply of water which may be transported through canals, irrigation is always possible wherever there is a shortage of rainfall. The first irrigation in America was undertaken by the Pueblo Indians and the Cliff Dwellers who lived in New First Mexico and Arizona. While their methods projects: were of the crudest nature, their work was of Pueblos and such a Substantial character that farmers still Mormons. ^gg somc of their irrigation ditches. Scientific irrigation replaced these cruder methods when the Mormons under their great organizer, Brigham Young, began their conquest of the Utah desert. Starting just before the middle of the nineteenth century, the irrigation work of the Mormons has spread until it covers tracts in Utah, Wyoming, Idaho, and Arizona. Land Reclamation 95 A further step in the development of irrigation was made during the gold rush to California. The miners built sluices to carry water for their mining. Some- , operations times, when these sluices passed through fertile in land, they were tapped either by the miners or ^'''*-^'"''"<'- by the farmers. In this accidental way, the ultimate value of irrigation was conclusively demonstrated and the foundation laid for the irrigation systems which have helped to make California one of the garden spots of the world. The Horace Greeley Irrigation Colony, named after the man who was most interested in promoting it, was started in 1870 in Greeley, Colorado, and furnished the norace CiTCclcy nucleus of the irrigation '' boom " of the eighties, project. During this boom hundreds of miles of canals were con- structed at a cost of milHons of dollars. Since 1870 the growth of irrigation in the West has been rapid. In that year there were 20,000 acres irrigated ; in 1880 the number of acres had increased to „ Recent 1,500,000; in 1890, to 3,631,000; and in 1900, growth: to 7,539,000. Of this irrigated land, eighty per ■£•*•'««< '»«<^ cent was devoted to the raising of crops and twenty per cent to pasture land. While the total cost of providing the irrigation for this seven and a half million acres was $67,770,000, the value of the crops in 1900 was $86,860,000, or a return in one year of about twenty-five per cent more than the total cost of irrigation. The greatest real gains, however, have been made since the passage of the National Reclamation Act of 1902, which provides for the construction of irrigation ^ . ° Act of 1903. works under the direction of the Secretary of the Interior. Such works are to conform to state laws and 96 American Economic Life to be developed in accordance with local conditions. In order to prevent the concentration of ownership of irrigated lands in the hands of a few individuals, holdings under the Act are limited to 160 acres for any one person. Under this Act of 1902 the expense of the construction and improvement of an irrigation system must be met from the sale of public land. In this way the work was started. The settlers who take up irrigated lands are required to pay to the government, in ten equal yearly installments, the cost of irrigation ; so that at the end of ten years the government has returned to it an amount of money equal to the amount spent the previous decade on the irrigation system. In order to insure a democratic method of administration, the irrigation plant is turned over to the community as soon as it has been paid for. Thus the responsibility for the successful management of the system rests on the local community rather than on the authorities at Washington. In the aggregate, the seven and a half million acres of irrigated land sounds like a great amount ; but, when compared with the possibilities of developing systems of irrigation, it is only a small beginning. There are approxi- mately seventy million acres of arid or nearly arid land which may still be irrigated. The work already done, therefore, covers a little over one-ninth of the irrigable land of the country. Since the passage of the National Reclamation Act of 1902, the government has undertaken the construction of irrigation projects which will irrigate about five million acres of land, or an area equal to the present total acreage of crops in Connecticut, Massachusetts, New Hampshire, and Florida. Land Reclamation 97 The advantages of irrigation are best seen by a com- parison of the conditions under which farmers in the East and in the West are obHged to work. An Eastern 1 1 • • 1 r 1 xxT Advantages man, who recently \isited some of the Western of irrigated lands, was asked on his return what "^^ation. he thought of the Eastern agriculture as compared with that of the West. " Oh," said he, " it is a poor substitute for irrigation." Continuous sunshine and a sufficient water supply, furnished when wanted and in exactly the right quantities, form a sharp contrast to the fickle climate of the East. Reclamation by Means of Drainage. — The reclamation of land by drainage, which constitutes a main feature of the Act of 1902, is in no sense less important How car- than the work of irrigation. The eight million "®** °°- acres of land which have been drained up to the present time have been reclaimed chiefly through private State initiative. The national government has done practically nothing in this direction. In the United States there are over sixty million acres of swamp or overflowed lands. The notable thing about swamp land is that it is frequently of very high Swamp quality. Take, for example, the swamp lands lands: along the Mississippi. They consist of rich, E.xie7U and deep soil that has been deposited by the river throughout the ages. This soil is formed of the finest silt, the scourings of many different kinds of rocks carried down from the headwaters of the Mississippi and its tributaries. When, in contrast to this, one considers that in certain sections of the country farmers are attempting to raise crops on poor soil eight or ten inches in depth, it will readily be seen that swamp lands when drained will present 98 American Econo^nic Life opportunities far superior to those now offered by the average farm land. At the session of 1 905-1 906, Congress appropriated $15,000 for the purpose of surveying the swamp lands on The pro- the Ceded Chippewa Indian reservations in posed work. Minnesota. The report on the survey shows that it is possible to drain 267,000 acres of land and to im- prove 135,000 additional acres. The total cost of this work is estimated at slightly over $1,000,000, while the cost per acre will vary from $1.62 to $3.23. Since this is a region in which drained lands are worth from $12 to $15 an acre, the government can readily afford to invest in the project. Perhaps the two best known swamps are the Florida Everglades and the Dismal Swamp of Virginia. The The Florida Evcrgladcs is a swamp during the wet season Everglades, only, and even then there are stretches of prairie. These, however, are rendered inaccessible by the water runs. Some private attempts have been made to drain the Everglades, and these have been singularly successful. The soil, consisting of silt and decayed vege- table matter, ranges from three to fifteen feet in depth and is remarkably rich. The Everglades cover more than three million and a half acres, a large portion of which is drain- able at reasonable expense. The Dismal Swamp is covered by patches of water which are seldom more than two or three feet in depth. The Dismal Like the Everglades, the Dismal Swamp pre- Swamp. sents no serious engineering difficulties. It is merely a big project which must be handled on a large scale and which consequently must not be left to in- dividual or state authorities. In Louisiana near New Orleans, in Minnesota, in North Land Reclamation 99 Dakota, in the Red River Valley in Oklahoma, and in parts of California, considerable draining has been pri- vately undertaken and has met with great sue- oihcr swamp cess. But reclamation projects, like those of ''^"'^*- irrigation, must be undertaken on a scale which is too vast for individual enterprise and which can be most justly and equitably administered only by an agency of the Federal government. There are over 70,000,000 acres of land available for cultivation and wonderfully rich in productive power, if only water can be supplied to them in sufficient -,. ^ . quantities. On the other hand, there are an- lem before other 60,000,000 acres which will become won- derfully productive, if they can be properly drained. The problem of supplying the water in one case and of remov- ing it in the other is intricate, demanding careful study, highly specialized mechanical appliances, and vast outlays of capital. It is therefore apparent that such conditions can be best met, not by individual or state action, but only by the effective power and authority of the central govern- ment. QUESTIONS FOR RECITATION 1. Define land reclamation ; irrigation. 2. Why is land reclamation important? 3. How may irrigation be accomplished? 4. What was the earliest irrigation project in America ? 5. Explain the later projects of tJie nineteenth century. 6. Give the provisions of the Act of 1902. 7. What are the advantages of irrigation? 8. Where are the principal swamp lands of the United States? 9. How has the drainage of swamp lands heretofore been chiefly provided for ? 10. What problem confronts the United States with regard to both phases of laad reclamation? loo American Economic Life PROBLEMS FOR DISCUSSION 1 . What does irrigation show us in regard to man's control over his environment ? 2. Is the government interfering with a "divine plan" when it irrigates barren land ? 3. In what sense is Eastern agriculture "a. poor substitute for irrigation"? 4. Why was irrigation not taken up by the government earlier in the history of the country ? 5. What is yet to be accomplished by means of irrigation ? 6. Is it better to irrigate the land of the United States or to go over into Canada and take up the "free land"? 7. Has the purpose of the Act of 1902 been accomplished? 8. Why are swamps so rich? 9. Why are they not more extensively drained and used? 10. On what grounds can the national government justify its activities in the reclamation of land ? 11. Show what has been accomplished in Europe in regard to lan,d reclamation. 12. Discuss the relation between rainfall and density of popula- tion. 13. Discuss the relationship existing between land reclamation and the law of diminishing returns. SUPPLEMENTARY READING Annals American Academy of Political and Social Science, Conser- vation of Natural Resources. Harwood, W. S. The New Earth, Chap. XIH. Proceedings of the Conference of Governors (1908). Reports of National Conservation Commission. United States Census Reports on Irrigation. Van Hise, C. R. Conservation of Natural Resources in the United States. CHAPTER XI Forest Conservation I. The forests of the United States 1. Their importance 2. Groups of forests : a. The Northeast Forest > b. The Southern Forest / c. The Lake State Forest V d. The Rocky Mountain Forest e. The Pacific Coast Forest 3. Consumption of wood II. The destruction of forests 1 . The causes : a. Effect of early attitude b. Forest fires 2. The effects : a. On the wood supply b. On freshets and floods c. On washouts d. On droughts e. On water power 3. The remedy Forests of the United States. — Forest resources, when properly conserved, constitute one of the greatest sources of national prosperity and social welfare. Al- jheir im- though forests are usually thought of as sources P«»^°ce. of lumber supply, their greatest value lies in the part they play in the conservation of soil moisture. While lumber is I02 American Economic Life important and production at times depends upon it, substitutes for wood may be found. But for soil moisture there is no substitute ; every crop of grain, vegetables, and fruit depends upon it. Its conservation, therefore, is a matter of utmost importance. In addition to maintaining soil moisture, forests, by insuring a regular stream flow, guarantee constant water power and regular water trans- portation. Considering, therefore, their direct and in- direct value, forests serve as many useful purposes as any other natural resource. A forest survey of the United States shows that five groups of states embrace the naturally timbered areas Groups of of the country, — the Northeastern States, the forests: Southern States, the Lake States, the Rocky Mountain States, and the Pacific States. In the Northeast district the present stand is mainly spruce, and second growth of white pine, hemlock, and The North- hardwoods. For many years the most char- east Forest, acteristic tree of this forest was the white pine, a tree that has long enjoyed great commercial importance. The chief district where this tree grows in marked abun- dance is in the confines of northern United States. This white pine is soft, light, easily worked, suitable for the cabinetmaker, joiner, carpenter, and pattern maker. Formerly this wood was used for general construction to a greater extent than any other wood in the United States. But white pine is now becoming so scarce that the best grades have risen in price enormously. In this North- eastern Forest another tree is worthy of special mention, — the spruce, which is extensively used for wood pulp. In the South are found four types of forest, which, broadly speaking, may be said to divide the land among them Forest Conservation 103 according to elevation above sea level. The swamp forests of the Atlantic and Gulf coasts and the bottom lands of the rivers furnish cypress and hardwoods. The xhe South- remainder of the coastal plain from Virginia *''" ^<"'«^'- to Texas was originally covered with Southern or " yellow " pine, — the trade name under which the lumber of several pines is marketed. The plateau encircling the Appalachian range and the lower part of the mountain region itself support a hardwood forest, while the higher ridges are occupied by conifers, — mainly spruce, white pine, and hemlock. The Lake States still contain many hardwood forests in their southern portions. In the north the The Lake coniferous forest includes, besides the rapidly ^^'^^^ Forest. dwindling pine, considerable tamarack, cedar, and hemlock. The forests of the Rockies occupy isolated mountain chains separated by grazing lands, deserts, or cultivated valleys. The location of these isolated patches ^, „ , •^ _ ^ ^ The Rocky of forests is determined largely by the degree Mountain of moisture and the extent of forest fires. The chief timber trees of this belt are Western yellow pine, a species of spruce, and the red fir. The last great stretch of woodland is the Pacific Coast Forest, extending along the coast west of the Rocky Moun- tain Forest, and running through the states The Pacific of Cahfornia, Washington, and Oregon. This Coast Forest. forest is the most densely timbered of any in the country, perhaps in the world. The characteristic trees of the district are of the fir species, especially that known as the Douglas fir. Other trees found in addition to the Douglas fir are the Western hemlock, Western yellow pine, red- wood, and cedar. Thus the forest areas of the United I04 American Economic Life States contain a wide range of both conifers and hard- woods. The United States was endowed originally with rich forest resources ; but, like a spendthrift, the nation has consumed these riches in an extravagant fashion. Consump- _ ° tion of According to government figures the population '*^°° ■ of the United States from 1880 to 1900 increased fifty-two ger cent, while the increase in lumber cut during the same period was no less than ninety-four per cent. Our present annual consumption of wood in all forms is more than three times as great as the annual growth of our forests. So great has been this increase in the consumption of wood that the source of supply has steadily shifted west- ward, until to-day the product of the Pacific States furnishes a large proportion of the total output of the country. Destruction of Forests. — Because so many forest tracts have been cut over and left desolate, the United States has now reached a point where its remaining Causes: . ^ , . ° £jg^^ ^y forests are vitally important. This forest early destruction may be said to have resulted origi- aititude. nally from the effect of our early attitude toward forests. To the American settler the forest was an enemy. Not only did it stand in the way of the develop- ment of agriculture, but it sheltered Indians and wild beasts. Therefore, the early settler naturally said, " Why take care of an enemy ? " Accordingly, he began, as rapidly as possible, to clear the land of forests and to devote it to the purpose of sustaining life. In this way a habit of mind was engendered that has had its logical outcome in the ac- tion of the " timber butcher," who clears the land of everything " ten inches through and eighteen inches from the ground." Forest Conservation 105 Another cause of the destruction of forests is the spread of forest fires, against which Httle, if any, scientific means of prevention has been taken. This loss from fire has been estimated at fifty million dollars an- nually. In unsettled districts the sparks from locomotives start these fires, which, unchecked, except by adverse wind and natural barriers, gain good headway before they are discovered, and burn over thousands of acres of forest land. This was the case in 1893 with the Hinckley fire in Min- nesota, which destroyed millions of dollars' worth of prop- erty and hundreds of lives. This fire smoldered for two weeks before a high wind came and drove it fiercely through the forests. At any time during these two weeks, an efifort on the part of skilled foresters could have extinguished the fire and saved the lives and property later sacrificed. What, now, are the effects of this willful destruction of forests? Naturally the first result of the ruthless cutting and destruction of timber is to deprive the com- Effects: On munity of its supply of wood. Experts tell us ■^'ood supply. that, at our present rate of consumption, our supply of commercial timber will last but another generation. This problem, while very serious in itself, might be solved through the importation of wood, or the gradual replanting of forest areas. There is, however, another phase of this question still graver in aspect. When a mountain range is cut clean of timber, the brush and limbs are left scattered over the bare tract. A dry season comes and a passing hunter drops a on freshets match, or a locomotive throws a spark, among <^»d floods. this brush. The consequence, as we have seen, is a forest fire. The fire, supplied with the most combustible materials in the way of dried branches and leaves, burns fiercely. io6 American Economic Life Most of the vegetable matter is removed from the top of the ground, and the surface of the earth is baked hard. Then comes a rain, which, instead of soaking into the ground as it ordinarily does in a wooded district, runs off rapidly into the streams, causing a freshet. If the rain has been extensive enough and has covered a large tract of deforested country, the result is a flood of serious pro- portions. Again, in agricultural districts where the timber has been cut from the top of hills, a heavy rain, running off rapidly, washes the soil from the slopes down On washouts. . , ,^ r^ e ^ 11 into the valleys. One of the great problems which mountain farmers, who have allowed their timber to be removed, now face is that of preventing washouts on the sloping fields. There is still another phase of the problem. As it exists in nature, the spongy vegetable matter in the forests holds the water which falls in rainy seasons, On droughts. . i n n- • and allows it to filter gradually off into the springs and streams during the drier times. Where forest areas have been destroyed, drought is becoming a serious problem in many agricultural regions during the late summer months. In districts where forests have been removed, men are surprised to find that springs and streams dry up in the summer. Finally, the results of deforestation are not all direct. The industries of the country are depending more and On water more upon water power as a motive force. In power. districts where turbines have been set up and water power is being converted into electricity, low streams in the dry summer months force the factories to close tem- porarily. One of the greatest drawbacks to generating Forest Conservation 107 power on small streams, therefore, is the fact that they are flooded with water in the spring and empty in the fall. If there were timber land at the headwaters, both condi- tions would be obviated. Thus we see that a shortage of timber supply, with a consequent rise in the price of lumber, disastrous freshets and floods, the washing away of sloping lands, and the failure of springs and streams are all phenomena resulting from deforestation. These evils can be remedied only by a vigorous policy of conserving our existing forests, and by entering upon a national campaign of reforestation. If, at xhe our present rate of consumption, the timber remedy, supply of the country will last but a generation, it is absolutely necessary that every stick of it should be guarded ; that it should not be wantonly destroyed through forest fires or timber cutting ; and that proper provision should be made for replacing every tree consumed. To meet this situation state action is inadequate ; a compre- hensive national policy is imperative. The United States must follow the example of European countries and insist upon a rigid policy of conservation of its remaining forest areas. QUESTIONS FOR RECITATION 1. Explain the importance of forests. 2. Describe the chief groups of forests in the United States. 3. What are the uses of white pine ? Where is it found ? 4. What woods have the widest use commercially? Where are they found ? 5. Where are the largest trees found in the United States? Of what use are they? 6. Compare our yearly consumption of wood with the annual growth of trees. io8 American Economic Life 7. Show the necessity of conserving our forests, 8. What was the attitude of the early settler toward forests, and what was its effect ? 9. Show how forest fires originate and the harm they accom- plish. 10. Discuss the chief effects of the destruction of forests. 11. Describe the remedy for the evils of deforestation. PROBLEMS FOR DISCUSSION 1. Contrast two regions in the United States, — one where forests have been destroyed, the other where forests have been conserved. 2. Discuss what scientific forestry means. 3. Describe the forestry service of France or Germany. 4. What would scientific forestry do for the United States ? 5. What steps have thus far been taken? 6. Apply the law of diminishing returns to forests. 7. Discuss the work of Gifford Pinchot. 8. What justification can be advanced for government forest reserves ? 9. Outline the chief points in a comprehensive policy of forest conservation. 10. Outline the economic advantages of preserving the forests. 11. Describe the work of your State University in forestry. 12. Draw a map locating the great forest areas of the United States. SUPPLEMENTARY READING Annals American Academy of Political and Social Science. Con- servation of Natural Resources.. Harwood, W. S. The New Earth, Chap. X. Pinchot, G. A Primer of Forestry. Smith, J. R. Commerce and Industry, Chap. X. Van Hise, C. R. Conservation of Natural Resources in the United States. CHAPTER XII Water Possibilities I. Water as a source of power 1 . Its early use 2. Why used to-day 3. Method of utihzation 4. Examples of utihzation : a. At Niagara Falls b. On the Pacific Coast c. In the future 5 . The resulting problem 6. The attempted solution II. Water as a means of transportation 1 . Our inland waterways : a. Their great extent h. Their early importance c. Why valuable to-day d. Effect of Panama Canal e. Water transportation cheap 2. Problems of the Mississippi River : a. The cutting of the banks : (i) The cause (2) The remedy h. The flooding of the river: (i) The cause (2) The remedy c. The cost of conservation 3. General conclusion Water as a Source of Power. — One of the resources which the early colonists found in comparative abundance 109 no American Economic Life was water power. Throughout New England and in cer- tain parts of the South, there were innumerable streams Its early whlch had a high gradient and from which "^^- considerable water power could be developed. Therefore, when manufacturing was begun in the colonies, the power used was naturally water power. The water wheel was set down directly in the stream, a race was constructed, and the revolving wheel was connected by belts and shafts with the machinery in the mill. However, the discovery of coal, the application of steam to industry, and the development of steam-propelled Why used machinery, which came between 1750 and 1825, to-day. completely revolutionized the source of power utilized in American industries. When the great coal beds were discovered, there was an immediate rush to exploit them ; and during the nineteenth century the United States occupied itself in mining coal as fast as it could be used in industry. With the advent of the twentieth century, however, a change occurred which very materially altered the situation. Coal, particularly anthracite coal, rose in price to figures which became almost prohibitive in certain industries. The situation was also aggravated by labor troubles which rendered the coal supply at times un- certain. In addition to this, experts declared that the available supply of coal in the United States might be exhausted in from fifty to one hundred and twenty-five years. At the same time, it was estimated that the development of water power in the United States would produce an equivalent of 780,000,000 tons of coal a year. Under these circumstances attention was directed toward the utilization of water as a source of power. The develop- Water Possibilities in ing knowledge of electrical appliances made possible a revolution in the methods of using water power. The old waterwheel was abandoned ; electrical tur- Method of bines were installed at the stream ; the water utilization, power was converted into electricity, and this was com- municated over wires for great distances. The most noteworthy instance of this conversion of water power into electricity is seen at Niagara Falls. Here are situated two plants. The one below the Falls Examples- on the American side is located in the Gorge. Niagara The water for its use is drawn from the upper ^'^"^^ Niagara River ; it then runs through the city of Niagara Falls and is discharged near the first Suspension Bridge. This plant is so situated as to be able to utilize a fall of two hundred and fifteen feet of water. However, it has certain obvious disadvantages. First, its buildings dis- figure the Gorge ; and, in the second place, the plant is difficult of access. The power plant above the Falls is a rather novel one. To construct it a pit one hundred and fifty feet deep is dug in the solid rock, and at the bottom of this pit the turbines are placed. The motion generated in the turbines is returned to the electric generators at the surface by means of steel shafts. The power generated at the Falls supplies not only the industrial plants in the immediate neighborhood, but the electricity is carried to Buffalo, where it is used as a source of power for trolley cars, for street and house fighting, grain elevators, and factories. While this is the most notable example in the country of the development of water power, the Pacific Coast also presents instances of its utilization. The important thing about Niagara Falls is the volume of its water. On the 1-12 American Economic Life Pacific Coast there are no bodies of water so large, but the fall which is secured is very great. For example, a On the Pa- P^-rt of the clectric power used at San Francisco cific Coast, jg supplied from a plant located at the foot of a hill five hundred feet high, down which the water for the generation of the electricity is carried in steel tubes. The velocity of the water when it reaches the power plant is stated at fourteen thousand feet per minute. After the power has been generated in this plant, it is carried one hundred and fifty miles, at a pressure of from forty thou- sand to eighty thousand volts, with a loss of about one- fourth of the power. There are many other sections of the country where in the future the use of water power may become general. jn ifig The falls at Sault Ste. Marie between Lake future. Huron and Lake Superior have a drop of only twenty feet, and yet the volume of water is so enormous as to make possible the development of a great amount of power. Likewise, the innumerable small rivers along the Atlantic Coast furnish in the aggregate a considerable source of water power. Again, those who propose regu- lating the flow of the Mississippi River by the construction of reservoirs at its headwaters estimate that from these reservoirs about fifty million horse power may be developed. The real impetus to the use of water power in modern industry was given in the last decade of the nineteenth The result- century, when it was found that, by means of it, ing problem, electricity might be cheaply generated and then carried great distances for commercial purposes. Indeed, the possibilities of water power have become so great that many conservationists who are working for the proper care of natural resources have shifted their emphasis from Water Possibilities 113 the conservation of forests and minerals to that of water power. This they have done because they realize that individuals and corporations, through a monopoly of water power sites, might secure an unshakable grip on one of the most valuable natural resources of America. For the purpose of protecting these sites and at the same time to make possible the utilization of water power resources, Congress in 1920 enacted a water ^j^^ power bill which permits the leasing of water attempted power sites by the Federal government. In this manner the solution of this vexatious problem is attempted. Under the provisions of this law a commission, consisting of the Secretaries of War, Agriculture, and Interior, is empowered to lease, up to fifty years, the water power rights on all pubHc lands, forest and Indian reservations, and on navigable streams. With the lapse of the lease, the government has the option of taking over at an appraised valuation the plants that have already been constructed, or of re-leasing them, or of leasing them at the appraised valuation to any company the commission may choose. Thus the property rights remain with the government, and the water power commission is authorized to specify the royalties to be paid the government under the leases. In the West, where water power sites are plentiful, the appKcation of this law is especially valuable to social development. Water as a Means of Transportation. — Quite a different problem is presented by water transportation. Here, there is no danger of monopoly, since the ownership of the transportation facilities already lies in the government. In the United States, therefore, the problem of water trans- portation is solely a problem of wise use and development. 114 American Economic Life Nowhere in the world is there a duplicate of the inland waterways of the United States. On the north lie the Great Lakes, which provide eighteen hundred waterways: miles of navigable water; on the east and west Their great coasts are numerous small navigable streams. extent. . , . . in the heart of the contment, reachmg mto twenty-two of the states, is the Mississippi River System, which is navigable for more than a thousand miles. Al- though the twenty-two states reached by the Mississippi River System furnish by far the greater part of all the exports of the United States, the bulk of the agricul- tural products, and more than half of the manufactured products, the river system is but little used for trans- portation. The early colonists depended upon water transportation, as they did upon water power, because of the abundance Their early of Water and also because there was no other importance, ^^^y means of getting from place to place. The few roads that existed were wretched. Therefore the streams became the highways of trade and travel, and settlements were made either on the coast or along the rivers. The application of steam to industry led to the gradual abandonment of both water power and water trans- Pj7^ portation. In both cases, however, the time valuable has uow been reached when steam power will no longer suflSce ; and, in order to maintain our industrial efficiency, it has become necessary to fall back upon natural power. In both cases, likewise, the diminu- tion of the coal supply has played a leading part in the utilization of water. In the case of transportation, how- ever, there is another factor of perhaps greater importance. Water Possibilities 115 In prosperous years the railroads of the country are unable to handle the freight traffic. Some other means of trans- portation is therefore imperative. The value of our inland waterways has been enhanced by the opening of the Panama Canal and by the develop- ment of trade with South America. This com- __ , ^ Effect of bination of circumstances makes the Gulf the Panama natural outlet for a great amount of the produce of the Mississippi Basin. If to this fact is added the ease with which heavy freight may be shipped by water, it is plain that logically a great portion of the Mississippi Basin's heavier products will go to the Gulf by water. The system of inland waterways and the network of regional canals combine to produce a vital effect upon the cost of transportation. Some idea of the „, ^ _ ^ _ Water trans- relative cost of shipping by water and by rail portation may be gained by a comparison of the rates charged for the transportation of iron ore in the Great Lakes region. Between Pittsburgh and Lake Erie there is a commerce, composed chiefly of iron ore and coal, amount- ing annually to about 30,000,000 tons. The ore is carried by. boat from Duluth on Lake Superior to Ashtabula on Lake Erie, a distance of one thousand miles, for about eighty cents per ton. ' The ore is then loaded on cars and carried to Pittsburgh, a distance of one hundred and thirty- five miles, for ninety cents per ton, so that it costs ten cents more to ship a ton one hundred and thirty-five miles by rail than it does a thousand miles by water. While these rates are constantly changing with cost of operation, it is always true that it costs much less to transport goods by water than by rail. The great danger here, however, lies in the fact that railroads endeavor to eliminate the ii6 American Economic Life cheaper competitor by taking the water routes under their own control. Thus water transportation possesses inherently a de- cided advantage over land transportation. To realize the full possibilities of transportation by water, Mississippi however, we must make many improvements in the Mississippi River. In fact this river presents some serious problems. It is a stream of bad habits, the worst of which are the cutting of its banks, the formation of sand bars in its channel, and the severity of its floods. The cutting of the banks is due to curves, technically called " meanders," and to the river's digging under the Cutting of bank on the outside of the curve, particularly the hanks. during flood timcs. Sometimes this cutting amounts to one hundred or one hundred and fifty feet a year. Since the channel is necessarily on the outside of the curve, and since grain elevators, docks, and other instruments of traffic must be reached by means of this channel, it is obviously impossible to carry on commerce satisfactorily if the river is undercutting the docks and elevators at the rate of one hundred feet a year. The river can never be successfully prevented from cutting its banks until it is straightened. This may seem almost impossible ; but several European rivers which were particular offenders in this respect were made narrower, the change resulting in a higher gradient and a more rapid current. Besides straightening the river, we must control its seasonal floods. Spring floods and summer droughts are Flooding of due in great part to the deforestation of the the river. mountainous country at the headwaters of rivers. Great areas of land at the headwaters of the Water Possibilities 117 Mississippi and its tributaries have been practically de- forested. Consequently, in rainy seasons, the water rushes off from the soil into the streams and causes flood damage farther down. Reforestation would eliminate much of this danger. The work may be further facilitated by the building of storage dams, which will check the floods and allow the surplus water to flow gradually down through the lower courses of the river. The straightening of the Mississippi, the reforesting of the hills at its headwaters, and the building of storage dams on its principal tributaries to control floods may ^ . cost two hundred or even three hundred million conser- dollars ; but, if the full possibilities of the Mississippi Basin are to be realized, sooner or later these changes must be made. The development of water trans- portation will involve in the United States, as it has in- volved in Europe, a great outlay of capital ; but, if the experience of England and Germany furnishes any basis for judgment, the outlay, even though it be a great one, will be more than justified. We have now completed our survey of the first factor of production, — the land of the United States. We have examined the typical resources of the nation, General its fertile soil, its varied climate, its great conclusion, mineral deposits, its forest resources, and its water possi- bilities. We have seen that nature has been prodigal in her gifts to America, and that man has often been equally prodigal in his use of these gifts. Conservation, in the form of irrigation, wise use, and thrift, is therefore essen- tial to national well-being. But, through the efforts of the proponents of this ideal, the awakening of the social conscience has been accomplished in time to fulfill its ii8 American Economic Life purpose. So far as the natural resources of the United States are concerned, it is therefore possible for the Amer- ican people to achieve national prosperity and individual welfare. QUESTIONS FOR RECITATION 1. Why was water power used extensively by the early colonists? 2. What led manufacturers to replace water power by steam? 3. What has caused the present tendency toward the increased use of water power? 4. Describe the modern method of utilizing water power. 5. Give examples of modern utilization of water power in the United States. 6. What problem has arisen from the modern use of water power ? How has Congress attempted to solve this problem ? 7. Describe the largest inland water system in the world. 8. Why was water transportation originally of special im- portance ? 9. Why is water transportation important to-day? 10. Explain the effect of the Panama Canal upon inland water transportation in the United States. 11. Show why water transportation is cheaper than land trans- portation. 12. Discuss the problems of the Mississippi River. 13. What method should be followed in solving these problems? Why? 14. What conclusions do you draw from a study of the natural resources of the United States ? PROBLEMS FOR DISCUSSION 1. Discuss the advantages of modern water power over modern steam power. 2. What advantage has steam power over water power? 3. In what respect does a reversion to water power show progress ? 4. What steps must be taken to secure the most economic use of water power? Water Possibilities 119 5. How important were inland waterways before 1830? 6. Contrast the relative merits of the railroad and the inland waterway. 7. Why are the people of the United States laying new em- phasis on inland water transportation ? 8. Name the leading inland waterway systems of the United States. 9. Apply the law of diminishing returns to water power. 10. Discuss the reasons for the conservation of water power sites in the United States. 11. Discuss the effects of the Panama Canal upon world com- merce. 12. How may water and other natural resources be developed and, at the same time, the interests of the public be protected? 13. Does conservation of the vast resources of Alaska mean a locking up of these resources ? Explain. SUPPLEMENTARY READING Annals American Academy of Political and Social Science. Con- servation of Natural Resources. Johnson, E. R. Ocean and Inland Water Transportation. Smith, J. R. Commerce and Industry, Chaps. IX, XVI, and XL VI. United States Census Reports. Water Power. Van Hise, C. R. Conservation of Natural Resources in the United States. CHAPTER XIII The Nature of Labor I. Labor as a factor of production 1 . Importance of labor : a. In production b. In the city c. In the country d. In modern industry 2. Meaning of labor : a. Examples b. The moral element c. The final test II. How labor's productivity may increase 1 . Increase in efficiency : a. Why important b. How effected : (i) Negatively (2) Positively 2. Increase in numbers : a. Through natural increase : (i) The Malthusian Law (2) Checks on population b. Through immigration 3. The conclusion Labor as a Factor of Production. — While there are three factors of production, — land, labor, and capital, — two of these are called primary because they are the original requisites of production. The first of these primary requi- sites is land ; the other is labor. The United States The Nature of Labor 121 abounds in resources. To convert these resources into economic goods labor is required. Although the American Indian inhabited this continent for centuries, its , Its im- vast resources were practically worthless because portance : the Indian was not naturally a laborer. Labor ^.» produc- is one of the foundation stones of production. Without labor, natural resources would be useless. Labor, therefore, bears the same relation to land that mortar does to bricks ; it brings natural resources together into a per- manent structure. Labor has changed the face of the earth and nowhere is this more noticeable than in the city. Indeed, the modern city is almost wholly the product of labor. In /„ ^^g primitive societies, where men live by hunting "'y- and fishing, nature supplies nearly everything. Even in the country districts to-day the trees, the grass, the flowers, the rich soil, the springs, the waterways, the clear sky, and the clean air are nature's gift. But in the city, natural things have been altered. The trees, the flowers, and even the grass are artificially placed and protected by warning signs. Water can no longer be secured from a near-by spring. It has been pumped through an aqueduct to meet the city's needs. Even the sky and air are polluted by smoke and dust. In short, the man who comes to the modern city and looks at it analytically will discover that natural things are at a premium. Labor has shaped every- /„ i^g thing within sight. But evidences of labor do <:o^ntry. not appear in cities alone. The man plowing his ten-acre lot is laboring. The farmer's reaping machine, his house and bam, his macadamized road, his asparagus bed, his peach orchard, — all represent an outlay of labor. 122 American Economic Life Again, modern industry is based on labor cooperation. The chair upon which you are sitting is the direct or indirect In modern result of the labor of thousands of men, women, industry. ^^^ children. It was cut as standing timber in the woods of Michigan with axes and saws made in New England factories. It was hauled to a sawmill on bobsleds, the bolts of which were made in Philadelphia, while the steel runners were manufactured in Pittsburgh. It was sawed by a band saw which in turn was produced in a great factory employing several thousand men. Then, in the form of sawed lumber, this chair was shipped to a furniture mill over a railroad employing a hundred thousand men. When it reached the furniture factory, the lumber went through a great number of processes until it was converted into a chair ; and each tool in each process was manufac- tured in a different city in a different part of the country by a different set of employees. Finally, the finished chair was shipped on a great railway system to the city, where it was handled by a trucking company, delivered to the wholesale house, sold to the retail house, and eventually purchased by the present owner. In this pro- cess labor has evolved from the form of simple cooperation to that of division of labor and minute speciaKzation in industry. In economics, when we speak of labor, we do not mean merely manual labor, but all effort either mental or physical Meaning of whichis expended in producing economic utilities, labor: That is, labor is industrial effort. The man Examples, ^^lo works with a pick and shovel is a laborer ; so is the woman who works with a needle ; so is the man who works with the pen ; so is the man who works with a brush ; so is the man who spends his time in directing the The Nature of Labor 123 energies of others in order that they may assist in produc- tion. All of these persons are " laborers " in the economic sense because the laborer is one who expends physical or mental effort in the creation of economic utilities. But there is also a moral element in labor. While labor manifests itself in physical and mental activities, there is, nevertheless, a moral background to these activ- The moral ities. For example, the honest laborer is a better eie^^cm. and more efficient producer than the dishonest worker ; the temperate are more productive than the intemperate ; and the laborer of good moral standards is a more effective producer than one of loose morality. The adage " Hon- esty is the best policy " shows the economic value of a moral quaHty. Another important point to bear in mind is the fact that labor cannot always be measured by immediate re- sults. It is easy to see that the carpenter is a The final laborer because the result of his labor is visible '"^• and tangible. But what about the labor of the poKceman, of the clergyman, of the lawyer, of the teacher? Such labor may extend over months of effort and yet bear no tangible form. Shall we say, therefore, that their labor is unproductive? Not if it can be shown that such labor has, either directly or indirectly, aided in the creation of material wealth. The creation of economic utilities is the final test of labor and these may be arrived at indirectly as well as directly. If the policeman protects life and property, and thereby indirectly aids in the production of material wealth, his effort is industrial effort and he is a productive laborer. Likewise the teacher, by increasing indirectly the power of the student to produce material wealth, himself becomes a productive laborer. 124 American Economic Life How Labor's Productivity May Increase. — Since labor in all its forms is an essential element in the production of wealth and in the maintenance of welfare, every Increase m t ^ ^• ^ • • • efficiency: effort should be directed toward mcreasmg its Why im- productivity through the principles of conserva- tion and efficiency. Since the conservation principle demands that the things of the present be used wisely and handed on to the future in the best possible condition, it may be applied to labor in exactly the same way that it is applied to natural resources. If men and women are overworked, badly fed, poorly housed, their efficiency will be lowered and hence their ability to produce will be lessened. As the family standard is low, the stand- ard of their children will be low from birth. Thus the inefficiency and low standards of one generation will be reflected in decreased efficiency and lower standards in the next generation ; so that the evil conditions, which play so large a part in making men and women evil, will be perpetuated. Hence there arises the necessity of adopting some policy of conserving the labor force of the country and of increasing its efficiency. Both the welfare of the community and the efficiency of labor depend upon labor conservation. How, then, ^ow iiia-y this conservation be effected? Chiefly in efected. ^^q ways, — either through negative or posi- tive measures. On the negative side, certain factors, like bad living conditions and insanitary or dangerous working conditions, must be corrected by purely repressive legis- lation. For example, laws are needed which will regulate the length of the working day ; which will insure abundance of air and sunUght in both houses and factories ; which will protect women and children against industrial risks The Nature of Labor 125 and accidents. This, however, is only one side of the question. It is no less desirable that the positive factors in the problem be considered. Welfare and efficiency depend upon education. Men in ignorance of modern working methods cannot do good work ; and, since work to-day requires intelligence, it follows that the educated man will be the best worker. Furthermore, modern work, besides being arduous and monotonous, is wearing ; hence some form of recreation and relaxation must be provided in order that efficiency may be maintained. The productivity of labor may be advanced in the fore- going manner (i) by increasing the efficiency of each unit of labor, and (2) by increasing the total number of units of labor. That is to say, the labor force numbers: of a nation may have its productivity increased Natural , , , rr - increase. either through improvmg its efficiency, or through increasing its numbers. The increase in numbers may be from within or from without. When the increase takes place within, it is a natural increase brought about by an excess of births over deaths. For example, if each family contains four children, population will double itself every generation, and the labor force of the nation will be likewise doubled. If this increase occurs every gener- ation, population will increase geometrically and the num- ber of laborers may far outstrip the means of supporting them. This was the well-known view of Mai thus, who pro- pounded his theory in England at the close of the eighteenth century. Malthus thought that, because land yielded its returns in a smaller ratio than labor multiplied, man's future would be gloomy and dreary. He pictured population as out- stripping the means of subsistence. This situation did not 126 American Economic Life come to pass, however, because man has delayed the oper- ation of the law of diminishing returns from land and, at the same time, has overcome the tendency of population to increase in geometrical ratio. Population has been checked by positive and negative means. On the positive side, wars, famines, and disease have kept population down ; while on the negative side late marriages, prudence, and restraint have lowered the birth rate. In fact, to-day, in many places conditions are just the reverse of what Malthus pictured. The labor force of a country may also be increased by additions from without, that is, through immigration. Were it not for this method of increase, the labor Through immigra- forcc of the United States would not be nearly so ^^°^' large as it is. As the nineteenth century ad- vanced, the native white birth rate declined. This decline, however, was often forgotten in the tremendous increase in the sum total of our population brought about by the vast influx of European immigrants into this country. This immigration furnished America with an ever-increas- ing source of labor supply from the beginning of its history up to the second decade of the twentieth century, when the World War temporarily interrupted the rolling tide of immigration to this country. When the war was over, however, this tide again set in. Labor, then, is one of the primary productive elements. In importance it is co-equal with land or natural resources. The con- It includes every phase of human activity which elusion. directly or indirectly adds to the sum total of material wealth produced in the world. As a factor of production its power may be enhanced by reason of an im- provement in its quality or by an increase in its quantity. The Nature of Labor 127 Only through wise means of conservation and proper methods of education will the efficiency or quality of labor be improved. On the other hand, the quantity of labor may be increased (i) through the natural increase of popu- lation brought about by a rising birth rate or a falling death rate, and (2) through the medium of immigration into the country of vast hordes of laborers. QUESTIONS FOR RECITATION 1 . To what extent is labor essential in production ? 2. Explain the relative importance of labor in the city and in the country. 3. Describe the part played by labor in modern industry. 4. Define labor. Give examples. 5. What is the difference between the American Indian and the white man ? What effect had this upon America ? 6. Explain the different elements in labor. 7. What is the final test of whether man's effort is labor or not? Give examples. 8. Tell why the effort of each of the following is or is not labor : a. The physician, b. The stock broker, c. The card gambler. d. The stock manipulator, e. The philanthropist. 9. In what two ways may labor's productivity be increased? 10. Why is efficiency in labor important? In what two ways may it be secured? Explain each. 11. Why is the number of laborers important? In what two ways may the number be increased ? 12. Explain the natural increase of population. What was the Malthusian law of increase ? Is it operating in America to-day ? 13. Explain how the labor force of a country may be increased from without. PROBLEMS FOR DISCUSSION 1. Discuss the relation between the amount of labor expended on an article and its selling price. 2. Should labor be the sole element in determining the cost of an article ? Explain your position. 128 American Economic Life 3. Has labor become more or less important with the develop- ment of machinery ? Why ? 4. Does the average street laborer work hard? Give your reason. 5. Of the street laborers that you have observed, which race works hardest ? Prove your point. 6. What environmental advantages have American laborers over laborers in Europe ? 7. Which do you consider more important : conservation of human energy or conservation of natural resources ? Why ? 8. What conclusions were drawn by the classical economists from their laws relating to land's increase and labor's increase ? g. What has interfered with the operation of these laws in the United States ? What is the result ? 10. May a distinction be made between the original labor force of the country and the group of immigrants at present coming to the country? Explain and give examples. 11. Is all effort labor ? Defend your answer. 12. WTiat is meant by "division of labor"; "specialization in industry " ; " territorial division of labor " ? SUPPLEMENTARY READING Carver, T. N. Principles of Political Economy, Chaps. VIII, IX, X. Clay, H. Economics, Chaps. II and III. Ely, R. T. Outlines of Economics, Chap. VIII. Gide, C. Principles of Political Economy, pp. 108-124. Mill, J. S. Principles of Political Economy, Book I, Chaps. I and II. Seager, H. R. Introduction to Economics, Chap. VII. CHAPTER XIV The Labor Force of the United States I. The early settlers 1 . Their origin : a. The New England colonists : (i) Their characteristics (2) Their similarity (3) Their occupations h. The Middle colonists : (i) Elements in the population (2) Their characteristics (3) Why they developed industry c. The Southern colonists : (i) Their characteristics (2) Why they developed agriculture (3) Why slavery flourished 2. The conclusion II. The later elements 1 . From Northwestern Europe : a. The Irish h. The Germans c. The Scandinavians 2. From Southeastern Europe : a. The Italians h. The Slavs c. The Russian Jews d. Other groups 3. The resulting problem The Early Settlers. — Since the American Indian has never become a consistent industrial worker, American 129 130 American Economic Life labor is wholly of foreign origin. From the beginning of the seventeenth century until the present time, America has been recruiting its labor force from various parts of the world. In the early New England colonies the Puritan element predominated. Stern ideas of living, an abhorrence of The New pleasure, and a strong sense of the holiness of England work characterized this group. The Puritans came largely from the cities of England, where they were artisans and tradespeople. Their religion gave them deep convictions and high moral standards, and they were persistent in their efforts to achieve any end upon which they bent their energies. They adapted themselves easily to the new surroundings, forming a strong and persistent type of man and woman well calculated to over- come the difficulties incident to the conquest of a wilder- ness. Because of their independence in religious and political matters, they developed into strong individualists. These early immigrants from England, together with those who came later from Scandinavia and north central Europe, made up a population whose home institutions and racial ideals were so nearly alike that there was little difficulty in welding them into a homogeneous group. Each new element which arrived from Europe was readily assimilated and formed an integral part of our early popu- lation. This New England population very readily conquered the adverse conditions of northern geography and climate. They built ships because shipbuilding materials and har- bors were abundant. They traded with the West Indies because the fish which they caught all along the coast formed an exchangeable commodity when salted and trans- The Labor Force of the United States 131 ported into the southern countries. They carried on manufacturing because the numerous rivers suppHed much valuable water power. In short, the New England popu- lation measured up to the demands of the new surroundings and utilized them in a manner beneficial to the growing nation. While the people who came to New York, Pennsylvania, New Jersey, and Delaware were of a somewhat different group, the basic elements of this population were The Middle the same as those of the New England settlers. '^'''''""'•^• The Quakers of Pennsylvania, New Jersey, and Delaware came largely from England. They were joined by groups of Germans, Swedes, and Scotch-Irish, who settled on the land, developed the agricultural resources, and paid some attention to the establishment of manufacturing. In New York the Dutch were the first settlers, but they were later reenforced by groups of English and Germans. Therefore, it may be seen that the general characteristics of the New England settlers were distributed pretty freely throughout the Middle Atlantic colonists. The people of this group were soUd, industrious, intelHgent, and God-fear- ing. Many of the newcomers came to America because they believed in a political or religious principle, and were willing to make sacrifices for it. If to these qualities are added the perseverance and adaptabihty for which the New England colonists have also become justly famous, a reasonable picture of this middle group is presented. The people of the Middle colonies, like those of New England, developed industry rather than agriculture for two reasons — first, because their agricultural land was inferior in quality to that of the South ; and, secondly, because the opportunities for developing industry were so 132 American Economic Life abundant. Not only could ships be built, but fishing could be carried on profitably. It was later discovered, too, that the deposits of iron ore could be worked, that hides could be manufactured, and that the textile industry was not only possible but lucrative. • In the South, the character of the early settlers was somewhat different from that of the Northern colonists. The South- The Southem colonists came to America largely em colonists, from motives of gain. Here they expected to find gold and riches, and to recruit their falling fortunes. They also came to America to escape political and religious troubles, for many of them were royaHsts and members of the Established Church. They were an aristocratic and pleasure loving set, who desired to begin Ufe anew on large and fertile plantations. Many representatives of the gentry and middle class were also among these early colo- nists. Since, however, hard physical labor had to be per- formed by some one, the upper classes imported to the new land many indentured servants and supported the trafiSc in slaves which had already been established. In the Southern colonies, agricultural land was abundant and fertile. Then, too, the climate was suited to the pro- duction of tobacco, rice, indigo, and cotton. While indus- trial resources were slightly developed, the South devoted a great portion of its energy to agriculture, because from that occupation the greatest gains could be secured. Then, too, the land in the North was divided into small holdings, while in the South the land was laid out in large plantations worked by the indentured servants and slaves. Slavery did not prevail in the North because there was no economic way in which the slave could be used. Slav- ery is desirable only when a large number of men can be The Labor Force of the United States 133 worked together under the charge of an overseer. In industry this is not possible. But since it is possible in agriculture, large groups of slaves were used profitably throughout the South. Thus the labor force of the North was composed almost exclusively of people working for their own advancement, while that of the South consisted chiefly of three classes, — the landowners, the indentured servants, and the slaves. The early population of the United States was drawn almost exclusively from Africa and northwestern Europe. With the exception of the slaves, nearly all of xhe con- those who came to America were members of elusion, one of the Baltic stocks. They had all developed their ideas and ideals in the same general part of the world and along the same general lines. In the North these settlers were therefore easily assimilated and developed into one compact group. In the South, however, the presence of a body of people who could not assimilate with the whites made the development of a homogeneous group more difficult. The Later Elements. — The nineteenth century was characterized by three phases of immigration. In the first place, the old immigration of the eighteenth . 1 . 1 1 r From north- century was carried over into the early years of west the nineteenth century; secondly, there oc- ^""""p^^ 1 • n • A • r -r ' 1 r-A ^^^ Irish. curred a great influx into America of Irish, Ger- mans, and Scandinavians during the middle of the nine- teenth century ; and, thirdly, after 1880, a great change came over the racial character of the immigrants to this country. Just before the middle of the century, in 1847, occurred the great Irish famine brought about by the fail- ure of the potato crop. This resulted in the immigration 134 American Economic Life of millions of Irish to America and in the partial depopu- lation of the Emerald Isle. As a consequence there are as many Irish in the United States to-day as in Ireland itself. These people have become well assimilated into our population and have risen, both numerically and na- tionally, to a position of considerable importance in our political life. From an economic standpoint, the Irish, though sometimes unsteady, are bright, cheery laborers of considerable intelligence and natural capacity. While at first they were largely confined to the group of unskilled workers, they later attained great success in higher posi- tions of an executive and professional character. About the same time that the Irish came to this country in large numbers, great migrations of Germans to America likewise took place. The year 1848 was sig- nahzed by political revolutions throughout Europe and, in Germany, when they broke out, they were suppressed with great severity. This resulted in the exodus from Germany of vast numbers of people who sought po- litical freedom in the New World. As the century wore on, this tide of immigration became so vast that over five millions of Germans came to this country. Because of their difference in language, these people were sometimes not so easily assimilated into our population as were the Irish and the English. In fact, during the World War, it was feared for a time that this group might place alle- giance to their native country above that which they owed to their adopted land. But, happily, events disproved this position so far as the great body of Germans was concerned. Scandinavians from Norway, Sweden, and Denmark also came to America in large numbers so that to-day there The Labor Force of the United States 135 are over a million of these elements in our population. The Germans have settled not only in large cities where they have become tradesmen and artisans, but scandi- also in agricultural communities in Pennsylvania ^avians. and the Middle West. Similarly, the Scandinavians have settled in agricultural districts in the great Northwest, where they have engaged not only in farming, but also in the lumbering and transportation industries. From an economic standpoint, both the Germans and Scandinavians are steady, intelligent, careful, provident, and adaptable workers who have often risen from positions of minor im- portance to places of great power and influence in American life. Since 1880 the source of immigration to this country has been gradually shifting from northwestern Europe to southeastern Europe. Besides the European From shift, bringing Mediterranean peoples to our 2*^^^^^^^* land, a number of French Canadians have also 7-^^ come into New England. While, therefore, the ^'<^i^'^"^- Baltic countries of Europe furnished the early labor force of America, the south central and southeastern European countries are responsible for most of those migrating to this country since the closing decades of the nineteenth century. Foremost among these groups are Italians, Slavs, Russian Jews, Hungarians, and Eastern peoples. The Italians migrate to this country chiefly for economic reasons. So hard has the soil of their native country been worked, that Italians look with longing eyes to America, the land of opportunity and riches. Here they settle largely in the North and Middle Atlantic states, showing a frequent tendency to group themselves in the congested districts of large cities. They also settle in agricultural 136 American Economic Life communities and become small producers of fruits and vegetables. They are frugal and industrious workers, but are often handicapped by their ignorance of the English language. They vary also in disposition, according to their southern or northern racial characteristics. The Slavs from the old empire of Austria- Hungary con- stitute another new element in our population. These r people are of various racial stocks and are diffi- Slavs, Jews, ^ ^ and other cult to assimilate because of language as well ^^°^ ^' as racial differences. Because of their illiteracy they are chiefly unskilled laborers, working in the mines of Pennsylvania and in other industrial regions. The Russian Jews are naturally intelligent and show a re- markable ability for advancement. They settle largely in cities, where they engage in commerce and the trades, which they prefer to agriculture and manual labor. Their family life is strong, while their racial characteristics are highly developed. The Hungarians, like the Slavs, settle in mining districts, or in their own little groups where they maintain many of their national characteristics. Finally, from the East come Greeks, Turks, Armenians, and Syrians, each of whom adds his quota to the development of our labor population. It may thus be readily seen that, as contrasted with our early population, a vital change has come over the character ^jjg of the people migrating to America. Such a resulting change is fraught with great possibilities for good or for evil. Millions of American wage- earners were born abroad in lands whose economic and political ideals are far removed from our own, and millions more were born in this country of foreign parentage. Thus, a large portion of our labor force is made up, not of native The Labor Force of the United States 137 Americans, but of foreigners or the children of foreigners. If we are to maintain the efficiency of labor, the problem which we are now confronting is to instill into this labor population the capacity for work, the power of application, the intelhgence, the energy, the perseverance, and the adaptability in developing natural resources which charac- terized the early settlers. QUESTIONS FOR RECITATION 1. Why is the labor force of the United States wholly of foreign origin ? 2. Were the early American settlers immigrants? Explain your answer. 3. Contrast the original labor force of New England with that of the South in regard to : a. Their industrial characteristics. b. Their occupations. c. Their moral ideas. 4. Describe the characteristics and occupations of the settlers of the Middle colonies. 5. Did the Middle group more nearly resemble the Northern or Southern group ? Why ? 6. Summarize the condition of the labor force of the United States as it existed at the beginning of the nineteenth century. 7. Contrast that labor situation with the conditions existing at the opening of the twentieth century. What factors were respon- sible for the change? 8. What elements came into our labor population towards the middle of the nineteenth century? Describe each group. 9. What has been the prevailing character of immigration to this country since 1880? 10. Describe the character of each of the later labor groups mi- grating to America. 11. What great problem has the change in later immigration given rise to ? Explain fully. 138 American Economic Life PROBLEMS FOR DISCUSSION 1. Show how nature and man — land and labor — harmonized in the development of North and South in colonial days. 2. Discuss the salient characteristics of the early labor force of this country. 3. Has the Anglo-Saxon race any peculiar economic character- istics? Explain your answer. 4. Upon what grounds do Anglo-Saxons base their claim to political leadership ? 5. Explain the great fluctuations of the movement of immi- grants to the United States since 1820. 6. What change in the prevailing character of our immigrants has occurred within the last generation ? 7. Will this recent immigration be of ultimate economic ad- vantage to the United States ? Why ? 8. What traits do these immigrants possess that are not pos- sessed by native Americans ? 9. What steps should the United States take to Americanize immigrants ? 10. Show how the law of the increase of population has been affected by immigration. SUPPLEMENTARY READING Commons, J. R. Races and Immigrants in America. Fairchild, H. P. Immigration. Hall, P. F. Immigration. Reports United States Immigration Commission. Riis, J. A. Making of an American. Ross, E. A. The Old World in the New. Steiner, E. A. On the Trail of the Immigrant. Steiner, E. A. The Immigrant Tide. CHAPTER XV Economic Aspects of Immigration I. Causes of immigration 1 . The object in view 2. Military and industrial reasons : a. The European need b. The American need 3. Political and religious aspect : a. The early cause of immigration b. How it reappears to-day n. Effects of immigration 1 . From a social standpoint : a. The groups of immigrants b. The character of the immigrants : (i) Difference between North and South Eu- ropean peoples (2) Why Northern races are preferable (3) A possible danger (4) What the new elements may bring 2. From an economic standpoint : a. The labor affected b. Effect of immigrant's standard c. Findings of the commission d. The restrictions imposed e. The conclusion Causes of Immigration. — The peaceful migration of great numbers of people from one nation to another is a modern phase of an old problem. In ancient object in times, if a land flowed with milk and honey, ^'®^- kings led their armies against it, enslaved or drove out the 139 I40 American Economic Life inhabitants, and took possession of the fields and cattle. Under such circumstances, the movement of a few thou- sand men from one state to another constituted a menace to social welfare. But, in modern times, millions of per- sons move from one nation to another without attracting more than passing notice. This movement, instead of being warlike, may take the form of a peaceful conquest of natural resources. However, it must also be remem- bered that " land " plays such a mighty part in national development as to cause nations, in our own day, to make relentless war upon each other for its possession and utiH- zation. The governments of the Old World, in order to insure the permanence of a large emergency army, wish to keep at home as many of their subjects as possible. and This necessity of military service has been one mdustnai Qf ^j^g great causes of emigration from Europe, reasons. . On the other hand, in America we do not usually emphasize an increase in our military forces, but we do look continually for an increase in our industrial army. It is upon industrial recruits that we depend, just as Euro- pean countries depend upon military organization. The immigration of a group of strong, intelligent men and wo- men, therefore, makes a welcome addition to the ranks of American labor. Religious and political persecution furnish another motive for emigration. The best elements among the early colo- nists left the Old World because they could not and secure there a reasonable toleration of their reUgious political or religious views. They were pro- gressive thinkers, — men who had such great faith in their convictions that they were willing to leave Economic Aspects of Immigration 141 their mother country and make a new home in a new world. A study of recent immigration shows that some people, notably the Jews, are still coming to America for the same reasons. Effects of Immigration. — In order to understand clearly the effects of immigration upon our institutions, we must know first the character of the immigrants who -pTom a have come to America. The three groups of social stand- ° ^ point: European races, — the Baltic or Northwestern Groups of races ; the Alpine or Central European races ; immigrants. and the Mediterranean or Southern races, — differ con- siderably in their so ial and economic characteristics. From the Baltic races have come the Scandinavians, the Germans, the English, and allied groups ; from the Central European races, the Slavs, Russian Jews, Austrians, and Hungarians ; while from the Mediterranean countries have come the Italians, the Greeks, and the Syrians. With the change in the source of immigration from the northwest to the southeast of Europe there has been a corresponding change in the character of the character of immigrants themselves. The early Baltic immi- ^^^fntgrants. grants were more highly educated, more easily adaptable to new surroundings, and, in addition to these two valuable characteristics, furnished a large number of skilled artisans and mechanics. In contrast with these, the later Alpine and Mediterranean immigrants show a high percentage of illiteracy and are prepared to do little except unskilled work. Whether one of these racial groups is inherently more ejB&cient than another we are not prepared to decide. It is apparent, however, that the immigrants of northern Europe are more highly educated and better adapted to our standards than the immigrants of southern Europe. 142 American Economic Life The north Europeans are more in sympathy with our poHtical and industrial methods because their institutions approximate more closely to ours than do the institutions of southern Europe. The presence of a large group of unassimilated immi- grants, whose ideals and habits of thought are far removed from ours, presents to America the possibility of grave danger in the development of national character. This difference in attitude is not only political, but also economic and social, extending to central as well as to south European races. The World War disclosed, for a time, the menace of divided political allegiance brought about by difference in national ideals. Old World poHtical traditions are out of harmony with American ideals, and the United States does not need the importation of any political or economic panacea sprung from the soil of oppressed Europe. Fur- thermore, the illiteracy, the poverty, and the low economic standards of southeastern Europe must not be reproduced in America. Hence, there arises in this country the neces- sity for a complete and thoroughgoing process of Americani- zation of foreign immigrants that must be conducted through the schools, the churches, the press, the public forum, and the government itself. On the other hand, it is questionable whether the later groups of immigrants are not at times bringing to this country something which it really needs. For example, the Polish race is essentially musical and its aesthetic stand- ards are very high ; the Jews are highly intellectual ; and the Italians are bringing to America artistic ability of a high order. If these various qualities, which have been more highly developed in some countries than in others, can be combined with the industrial efficiency of the Amer- Economic Aspects of Immigration 143 ican, the result may be a race of people more advanced than the world has ever known. Apart from the racial contribution which the central and south European immigrant makes to this country, what is his effect upon the wage-working part From an of our population? Disregarding the children sta°nd™inf of the immigrant, who enjoy the benefit of the The labor public school system, and considering only the '^■ff^'^^^'^ untutored immigrant himself, it is clear that the mass of immigrants from southeastern Europe can have little or no economic effect except upon semi-skilled and unskilled labor. This is true because such immigrant labor is dis- tinctly different from that of northwestern Europe. It is usually unskilled in technical knowledge, handicapped by lack of education, and often capable of performing only the hardest kind of physical tasks. The Russian, Hungarian, or Italian immigrant has come from a country where the standard of living of the working population is low. To him, windows and Effect of doors are often luxuries. In some places in immigrant's . 1 n • • 1 1 standard. Russia even a wooden floor is considered a luxury. Consequently, to many of the immigrants, the tenement house of our great cities is a desirable home. The immigrant will work for a low wage because he is accustomed to poor food and a small amount of clothing. The presence of large numbers of immigrants in any com- munity will therefore result in a temporary lowering of the wage standard. In many localities this has often happened. As a result, it is rare in those localities to find American- born persons working as common laborers, because, accus- tomed to a high standard of living, they are unable to exist on the wage which the immigrant will accept. 144 American Economic Life The Immigration Commission, appointed before the pas- sage of the present immigration law, made its report to „. ,. , Congress after an extended inquiry into the Ftndtngs of ° '■ •' the Com- various sources, character, and effects of immi- mtssion. gration during the early part of the twentieth century. It concluded that the immigration of that time was detrimental to the best interests of the United States. Modern immigration, the Commission held, tends to lower social and industrial standards. The immigrant, a low- standard man in the country from which he comes, fails to grasp the significance of the higher American standards. He is willing to live in more congested quarters, to accept a lower standard of diet, and to work for less wages. The American, accustomed to higher standards, is unwilling to come down to the lower level. In the competition which follows he is inevitably beaten, because he must either lose his position or accept the standard set by the immi- grant. Accordingly, Congress set itself to the task of imposing new restrictions upon immigration. As far back as 1882 it had already passed a Chinese Exclusion Act. The re- ^ strictions This was made necessary because of the peculiar tmpose . racial, social, and economic characteristics of the Chinese laborers, who completely crowded out American labor in whatever competitive occupations they engaged. So low was their standard of living that no American could subsist upon it. Later, during President Roosevelt's administration, an understanding was arrived at with the Japanese government whereby Japanese immigration to this country was successfully restricted. Then, too. Con- gress, through its immigration laws, had already excluded various classes of undesirable immigrants, such as anar- Economic Aspects of Immigration 145 chists, criminals, paupers, certain mental, moral, and physical defectives, and contract laborers. Finally, in order to satisfy the labor unions. Congress, over President Wilson's veto, passed an act imposing the literacy test on all immigrants. According to this act, all those who are unable to read or write are excluded from our shores. How- ever, since there is a real need in America for a group of laborers who will perform the hard unskilled work to which the native American is averse, it is doubtful whether this test is the best that might be devised. It measures neither native abiUty nor biological fitness. Whatever may be the ultimate effect of immigration, its present influence is clear. In the future the immigrant, or at least his American-taught children, will The doubtless demand higher standards of life and conclusion. work ; but when, in normal times, hundreds of thousands or even a million annually leave the poorer districts of Europe and bring their low standards of life to the United States, the American laborer is confronted by a competition which will ultimately lower his standards and compel him to seek work elsewhere. It is evident, therefore, that from the standpoint of American labor, foreign immigration must be so restricted and regulated that the present stand- ard of living of the native American may be maintained. QUESTIONS FOR RECITATION 1. Explain two different methods of conquest of natural re- sources. 2. Describe the European impetus for emigration. 3. Why does the United States attract the immigrant? 4. What were the causes of the early immigration to America? Of the later immigration? 146 American Economic Life 5. Divide European peoples into groups : (a) according to terri- tory, (b) according to races. 6. Show clearly the differences among these groups. 7. Which group is more nearly like our early American stock? Why ? What is the consequence of this ? 8. What groups are most different from us? State the reasons and the consequences. 9. What good may result from this admixture of races in America ? Explain fully. 10. What great danger might result ? Give examples. 11. Outline a program for the complete Americanization of immigrants. 12. Explain clearly the chief economic effects of immigration upon American labor. 13. What has been done to protect American labor? Are these restrictions sufl&cient? 14. Contrast the American's and the Russian's standard of living. 15. Why are special restrictions imposed upon immigration from the Orient ? PROBLEMS FOR DISCUSSION 1. Point out the social and economic effects of immigration in the United States. 2. Would the American labor force be more efficient without the immigrant? Why? 3. How would heavy unskilled tasks be performed if the immi- grant were excluded ? 4. Account for the low standard on which the immigrant is will- ing to live. 5. Will Greeks, Italians, and Poles make good American citi- zens? 6. What is the underlying reason for permitting immigration into the United States ? Is it justifiable ? Explain. 7. Name the more important motives by which persons are (o) induced to leave the country of their birth, (b) attracted to other countries. Economic Aspects of Immigration 147 8. It is argued that cheap immigrant labor is Hke machinery — an added aid in production which reUeves the native laboring class from heavy and disagreeable toil. Is the analogy true ? 9. Is the manufacturer's argument for cheap immigrants valid from the point of view of society in general ? Explain. 10. Should immigration be restricted? If restrictions are im- posed, should they limit the number of immigrants, or fix a test of the quality of immigrants, or both ? Why ? 11. Would restriction of immigration be justified if the conges- tion of immigrants in cities and along the seaboard could be pre- vented, and the foreign elements distributed over the whole coun- try ? Explain. 12. State the arguments for and against immigration. SUPPLEMENTARY READING Antin, Mary. The Promised Land. Brandenburg, B. Imported Americans. Coolidge, M. R. Chinese Immigration. Hourwich, I. A. Immigration and Labor. Kawakami, K. K. Asia at the Door. Steiner, E. A. From Alien to Citiren. Warne, F. J. The Immigrant Invasion. Zangwill, I. The Melting Pot. CHAPTER XVI The Risks of Labor I.. Industrial accidents 1 . Kinds of accidents : a. Railroad accidents : (i) The causes (2) The remedy b. Mining accidents : (i) The situation abroad (2) The remedy c. Other accidents 2. Total annual number 3. The labor affected 4. Effects of accidents II. Dangerous trades 1. Chief source of danger 2. Danger from coal dust : a. Character of the lungs b. Effect on the lungs c. How preventable 3 . Danger from lead poisoning : a. Its effects b. How preventable 4. Other dangerous trades 5. Recent progress The risks to which labor is subjected in modern Industry may be grouped under two heads ; first, those involved in industrial accidents, and secondly, those arising from dan- gerous trades and occupations. 148 The Risks of Labor 149 Industrial Accidents. — Industrial accidents include those catastrophes which either temporarily or permanently destroy the efficiency of the wage-earner. They may be classified according to occupation ; as ^^ ^ : railroad, mining, factory, and building accidents. Of these, the first two constitute by far the greater number. The material regarding railroad accidents is compiled by the Interstate Commerce Commission and is furnished by the railroads as part of their reports to Railroad the Commission. No other American accident «'^<^»'^««'^- statistics are collected with such careful accuracy. A study of these statistics for the present century shows a steady increase in the number of such accidents. In one year alone 10,000 persons were killed and 100,000 injured in railway accidents (1907). Railroad casualties are not only appalling in number, but increasing in frequency. That there is no justification whatsoever for this increase is proved by conditions in foreign countries, where the infrequency of railroad accidents is in marked contrast to our own waste of human life. The causes of this waste of life through railroad accidents are found both in indi- vidual action and in corporate management. So long as individuals are careless, accidents will occur ; and so long as corporations fail to supply devices for the safety of their employees and passengers, the same result will follow. A remarkable proof of the fact that working conditions are largely responsible for these accidents is furnished by the beneficial effect of the federal law requiring automatic couplers. The passage of this act was followed by a reduc- tion in the number of coupling accidents from forty-four per cent of the total number of casualties among trainmen to nine per cent ; although, at the same time, the total 150 American Economic Life number of all railroad casualties was steadily increasing. Equally ejffective results would doubtless be secured by other forms of federal regulation concerning the length of runs, the character of signals, and similar protective meas- ures. Railway accidents are enormous in number ; but, by wise precaution and stringent legislation, they can be largely eliminated. Accidents in coal mines are the most common of the min- ing accidents. The record of coal mine accidents in the Mining United States is unsatisfactory because it con- accidents. gjg|-g merely of a collection of the reports of state mine inspectors whose work is not so careful as that of federal officials. However, it was shown that in a single year (1908) 2500 miners were killed and 6500 injured. From a comprehensive study of all the statistics available, it is fair to conclude that there has been a steady increase from year to year, not only in the actual, but also in the proportional, number of men killed in mining accidents. This increase cannot be accounted for merely by the growth of the mining industry. A recent bulletin on coal mine accidents dealing with conditions abroad before the World War proves this conclusively. It states : " In all the European coal-producing countries the output of coal has increased greatly during the last ten years, but the number of deaths per one thousand miners, instead of increasing as in this country, has undergone a marked and decided decrease. This decrease has been due to the effect of min- ing legislation in those countries for the safeguarding and protection of the lives of the workmen, and has been made possible by government action in establishing testing sta- tions for the study of problems relative to safety in mining, including the use of explosives." The Risks of Labor 151 The success of foreign governments in preventing mining accidents has been due primarily to their rules concerning the use of safety lamps and to their regulation of the charac- ter and use of mine explosives. Nothing could be more elementary or simple, and yet the United States has made but little effort to meet the problem in this way. It should be remembered, however, that the problem here, by reason of the dual character of our governmental system, is more complicated than the situation abroad. Turning now to accidents in manufacturing, we find that, because of lack of uniformity in the work of state factory inspectors, it is impossible to determine accu- other rately the total number of such accidents. How- '^'^cidents. ever, the best statistics of factory accidents have been compiled from the reports of the New York Bureau of Labor Statistics. If we take five typical years at the opening of the present century, we find that, in that state, 39,244 such accidents were reported. Of this number, 864 were fatal ; 6580 involved permanent disability ; and 32,722, temporary disability. The accidents in building trades have never been recorded except in fragmentary form. It is therefore impossible to state anything definite regarding them. The only accurate information that can be secured comes from the unions which pay benefits. The accident features of these unions furnish material from which may be made an estimate of the number of union men killed and injured in each trade. It is clear, however, from a study of all the available sources of information, that the total loss to the ^^^^j community, caused by accidents of one kind or annual another, is enormous. An estimate of this loss places the total number of men, women, and children 152 American Economic Life killed and injured each year through industrial accidents at five hundred thousand. This figure is as nearly accurate as possible, for it has been arrived at by five dift'erent methods of computation. It is not true, as it is currently supposed, that these accidents happen only to the careless, unskilled laborer, The labor the immigrant, and the American of low stand- affected. ^j.(^ -^Q^ Qjjjy jg ^Y^Q semi-skilled trainman a victim of the railroad accident, but also the conductor and the skilled engineer. A Pittsburgh investigation shows that of 440 men killed only forty per cent were lowest grade workmen. Thus the social cost of accidents is intensified by the fact that efficient as well as inefficient workmen are victimized. The burden of accidents falls on the family and on the community. The accident destroys the worker. The Effects of worker is the mainstay of the family, which is accidents. itself the basis of the community. Although children and old people may escape industrial accidents, the breadwinners upon whom they depend for subsistence are struck down at the rate of a half million every year. Industrial accidents, therefore, constitute one of the causes of industrial inefficiency. Of the half million persons annually killed and injured, the majority are wage-earners with families depending upon them. Their death or injury, therefore, affects the efficiency of the coming generation. Dangerous Trades. — Another danger to which labor is subjected results from the nature of the occupation. While, fortunately, not numerous, certain trades do exist where the death rate is several times higher than the death rate in the community at large. When a workingman The Risks of Labor 153 enters such a trade and accepts such work, he takes his own Hfe in his hands. The chief source of danger in these occupations arises from the presence of dust, which, entering the system through the lungs or alimentary canal, proves chief source injurious to the worker. Dust may also irri- °* danger, tate the skin, but its effects here, except in the cases of antimony smelters and arsenic grinders, are usually not serious. In cases where dust enters the ahmentary canal, stomach and intestinal troubles result ; when it enters the lungs, tuberculosis develops. Thomas Oliver, in his Dangerous Trades, says, " Were it not for dust, fumes, or gas, there would be little or no disease due to occupation, except such as might Dangerfrom be caused by infection, the breathing of air coal dust: poisoned by the emanations of fellow- workmen, and ex- posure to cold after working in overheated rooms." Dust, then, is the most prevalent source of danger ; and its most injurious effect is on the lungs. The normal lung is a hght, spongy mass, interwoven with minute bronchial tubes. Nature planned to exclude foreign substances from these tubes by placing character of hair in the nose and by guarding the whole pas- '^^ '"'^^^• sage way with the vocal cords and the cartilage plates. These devices prevent any ordinary amount of dust from reaching the lungs. But, in coal mines, there is more than an ordinary amount. A visitor, long after leaving a breaker in which coal is cleaned dry, will continue to expectorate dust or coal particles which have been arrested in the larger passages. A long exposure to dust, however, dulls the sensibility of the membranes ; efforts are no longer made to expectorate the dust, and the particles 154 American Economic Life enter the small tubes of the lungs and become embedded in the lung tissue. Again, Thomas Oliver says, " In a coal miner's lung there can be observed small masses of cells, deeply laden Effect on with carbou particles surrounded by a hardened the lungs. 2one of altered lung, numerous black streaks underneath the pleura or covering of the lungs, inklike dots in the walls of the small bronchi, and enlargement with pigmentation of the bronchial glands." The entrance of dust into the lung finally converts it into " a hard and almost solid organ, incapable of carrying on the work of respiration." A similar effect is produced by other forms of dust. Examinations show particles of grit embodied in the tissue How pre- Corresponding exactly to the dust grit of the ventabie. trade in which the victim worked. Therefore, the man who goes to work in a dusty trade prepares his lungs for a cordial reception to tuberculosis, or any other bacteria which attack weakened lung tissue. However, much can be done in the way of precaution and prevention. By screening the coal wet, the dust in the coal breaker may be reduced; and, by the use of suction wheels, blowers, and other mechanical devices, the dust in the factories may be rendered less dangerous. There are other occupations besides mining that are full of risk and danger. Certain substances used in industry are always injurious to life and health. Among Danger from . • i i i lead these substances none is more widely used, nor poisoning: j^Qj-e really dangerous, than lead in its various forms. Lead poisoning occurs in several trades, although it is most severely felt in the manufacture of white lead. Poisoning from lead may be acute or chronic. The Risks of Labor 155 The symptoms of both forms are colic, " wrist drop," loose teeth, and blue lines on the gums. Ventilation, an abundance of nutritious food, abstinence from all excess, especially alcoholic, the use of special hel- mets, together with short hours in the factory, sow pre- all assist in decreasing the dangers from lead ^<^»'''^'«- poisoning. There is no other industry in which the dan- gers are more acute, and where the necessity for precaution and preventive measures should be more emphasized. The production of phosphorus, mercury, and arsenic ; the chemical trades; rag sorting; wool sorting; work in compressed air chambers, — all involve dangers of varying degree. The reference to mining and dangerous the lead industry will, however, suffice to indicate the character of dangerous trades, their effects, and the possibiHty of remedying them through wise preventive measures. The recent progress made by the United States in the direction of social legislation is attested by the act of Con- gress which, in 1913, prohibited the use of poi- Recent sonous phosphorus in the manufacture of Progress, matches. The awakening of the public conscience was so general that, within three years, twenty-three states passed accident insurance laws or workmen's compensation acts. The act of Congress prohibiting the use of poisonous phosphorus in the manufacture of matches resulted in fifteen states adopting the bill of the American Association for Labor Legislation for protecting workers from several occupational diseases, and from lead poisoning in particular. Foremost among the general measures designed to relieve the distress caused by industrial accidents and dangerous trades is the Workmen's Compensation Act. This measure 156 American Economic Life is intended to furnish the injured worker automatically with the compensation specified in the act, and thus relieve him of the necessity of legal procedure with all the costs included in such action. Likewise, accident insurance and old age pension acts are coming to play an important part in our solution of this problem. In 1908 Congress enacted a law providing a system of compensation for accidents suffered by industrial employees of the Federal government. The example set by the national government was followed by the state governments, so that by 1914 a majority of the state legislatures had enacted laws providing compensa- tion for industrial accidents. QUESTIONS FOR RECITATION 1. Define industrial accidents ; dangerous trades. 2. Classify the chief industrial accidents in the order of their importance. 3. Which group is best studied? Why? Why cannot the other grovips be so effectively investigated ? 4. Discuss the causes and remedies of railroad accidents. 5. Compare mining accidents at home and abroad. How may they be lessened ? 6. Give an estimate of the total annual number of accidents in the United States. 7. Who suffer most from accidents ? 8. Name the chief dangerous trades and tell why each is dan- gerous. 9. Why is dust so dangerous ? 10. In regard to mining : a. Explain its dangerous consequences. b. Discuss the remedies. 11. Discuss lead poisoning : a. How it affects the system. b. How it may be obviated. 12. Name some other dangerous trades. The Risks of Labor 157 13. Why has the United States abolished the use of poisonous phosphorus in match making? 14. Describe the recent progress made in social legislation in the United States. PROBLEMS FOR DISCUSSION 1 . Are industrial accidents inevitable ? 2. In a case where persons are killed and injured in a wreck due primarily to a defective air brake, what should be the legal remedy? 3. To what extent is the community at large responsible for accidents? 4. Where does the ultimate burden of industrial accidents rest? Explain. 5. Should a manufacturer be held personally responsible for an accident due to unguarded machinery? 6. What would be the most effective method of preventing accidents ? 7. Discuss workmen's compensation acts as remedies. 8. Analyze the street accidents of your city, and develop a means of prevention. 9. Discuss the dangerous trades in your community. ID. Why is lead poisoning particularly disastrous? 11. What remedies exist for the dangers involved in dangerous trades ? 12. Are consumers justified in using the products of such trades? State reasons. SUPPLEMENTARY READING Adams, T. S., and Sumner, H. L. Labor Problems. Bulletins of United States Bureau of Labor Statistics, Nos. loi- 109, 126, and 155. Kelley, F. Some Ethical Gains through Legislation. Oliver, T. Dangerous Trades. OUver, T. Diseases of Occupation. Reports of State Bureaus of Labor Statistics. Rubinow, I. M. Social Insurance. Seager, H. R. Social Insurance, Chaps. II-III. CHAPTER XVII Problems of Industry I. Child labor 1 . Its English origin 2. Its extent in America 3. Its evil effects : a. On the child : (i) Physically (2) Mentally (3) Morally h. On family life c. On society d. On the product 4. Its regulation II. Women in industry 1 . The causes : a. Minute subdivision of labor h. Acceptance of lower wages c. Loss of home employment 2. Arguments against 3. Arguments in favor of 4. Regulation of the problem HI. Unemployment 1 . Causes : a. Personal causes h. Industrial causes 2. Effects: a. On the unemployed h. On the family 3. The remedy 158 Problems of Industry 159 Of the problems arising from modern industry, three are of recurring interest. These are the problems of child labor, women in industry, and unemployment. Child Labor. — The problem of child labor had its real origin in England in the last half of the eighteenth century when the factory system was first being de- its EngUsh veloped. Manufacturers were in great need of origin- unskilled labor to operate the new machinery, while poor- houses and orphan asylums were overcrowded with just this kind of labor. As a result, these institutions gave up their children to the manufacturers, who in certain cases even agreed to take one insane child with every twenty healthy ones. The children were quartered in barracks and worked in day and night shifts, the day shifts sleeping in the beds left vacant by the night workers. No provision was made for sanitation, and the children were fed on the worst kind of food. These conditions, culminating in an outbreak of disease and epidemics, resulted at the opening of the nineteenth century in the passage of an act for the regulation of the health and morals of apprentices. Then, in 1833, and later in 1847, niuch more comprehensive and effective laws regulating the labor of women and children in industry were passed. In our own day the English government has completed its supervision over industry and has passed much important social legislation. Child labor in the United States is thus a recurrence of an Old World phenomenon. At first, it appeared in New England, where industry was early developed, its extent but since the close of the Civil War, the South ^ America, has entered upon an era of industrial development, and thus the old problem of child labor reappears there to-day. i6o American Economic Life Again, in the industrial sections of the Middle West, and in the great agricultural West, thousands of children under fourteen years of age are engaged in industrial and agri- cultural work. A few years ago it was estimated that of the two million children employed in gainful occupa- tions, three-fifths of them were engaged in agriculture, one- sixth in manufacturing, one-sixth in domestic work, and the remainder in commercial and professional service. The largest number of children are, therefore, employed in agriculture ; but child labor is usually associated with manufacturing, for it is here that its worst evils are mani- fested. There is no doubt about the evil consequences of em- ploying children in industry. From whatever stand- Effects: point the problem is regarded, child labor is in- On the jurious. It is harmful to the child, to family chili. j-£g^ ^Q society, and to the industrial product. On the physical side, hard labor is injurious to young chil- dren because their bodies are still developing. Through activity the body of the growing child is developed most surely and most completely. The originalities of a child arise through action, struggle, and the trial of things for himself. But the child of twelve or fourteen who stands at the machine tying threads for eleven hours a day is not growing through expression. He is being narrowed by an unvarying, monotonous impression. He is losing the opportunity for the spontaneous expression of the new life that comes only through play. From a mental standpoint, child labor is a process of mind-stunting. First, the child is removed from the possibility of an education. He is taken from the school and placed in the factory, where he no longer has an Problems of Industry i6i opportunity to learn. Then he is subjected to monotonous toil for long hours, until his mind is dwarfed into the familiar form of the unskilled workman. The moral effects of child labor are also bad. Entering the workroom with adults of all types of morality and immorahty, the child ceases to be a child in matters of worldly knowledge, while he is still a child in ideas. There is no home influence or school influence to ward off the dangers ; no mother or teacher to point out the hidden rocks. The effects of child labor on family life are obvious. In many localities in the South, where industry is develop- ing for the first time, the children work in the r-^ ^^ ^ mill with their parents. If either parent stays family home, it is frequently the father. Under these circumstances, the mother has no opportunity at home to maintain family standards. Neither in their parents, nor in their homes, do the working children see those qualities which make the home the ideal of human happi- ness. It is equally clear that child labor injures society. By making of the boy an unskilled worker incapable of earning large wages, and by making of the girl a woman Efect on incapable of becoming a strong, normal mother, ^"'^'^^'y- child labor inevitably tends to undermine social life. Be- cause the boy is forced into the world too early in life and made to face its responsibilities, child labor promotes delinquency. The inmates of houses of correction were usually working boys when they were first arrested. The schoolboy is almost a negligible factor there. Both family and individual life are distorted by child labor. Finally, child labor affects the product of industry. i62 American Economic Life The treasurer of the Alabama City Cotton Mill wrote to his agent : " Every time I visit this mill, I am impressed Efect on with the fact that it is a great mistake to employ the product, gmall help in the spinning room. Not only is it wrong from a humanitarian standpoint, but it entails an absolute loss to the mill." Child labor is thus waste- ful to industry. Manufacturers everywhere are being forced to this viewpoint. Child labor is undoubtedly cheap labor, but the product is cheaper than the labor involved in its creation. Consequently, from every standpoint, child labor is undesirable. It decreases individual and social welfare „ , .. and lowers the standards of the future citizen, Regulation _ _ ' of child as well as the industrial standards of society. In view of these disastrous effects, numerous laws have been passed which aim to exclude from work children under fourteen, and to safeguard the working lives of chil- dren from fourteen to sixteen years of age. In recent years the public conscience has been so aroused in this direction that, in one year alone (1913), thirty-one states enacted legislation directly bearing upon child labor ; and the national government itself established a Federal Bureau of Child Labor. Women in Industry. — Another problem of growing importance is that of women in industry. A half century ago women played an insignificant role in indus- Causes: -c ./ o ^ trial life ; to-day there is not an important branch of industry where she is not found. The World War, by withdrawing millions of men from industry, resulted in the entrance of millions of women into the places made vacant by the exigencies of war. But, even in normal times, women are assured a place in industry, because that place Proble^ns of Industry 163 has already been established in modern industrial life. War merely served to accentuate the importance of women as workers. The causes of this advent of women into industry are obvious. First of all, the minute subdivision of labor has given rise to such a degree of specialization jj^^-^^^^g in industry that there are innumerable small subdivision operations that women can easily perform. For example, a girl may paste corners on paper boxes, or stamp out pieces of paper to make Christmas cards. Without previous training, she will, in a short time, learn to manage a machine. At first her efficiency will not be high, but she will earn at least enough to assure her future independence. Women, having only themselves to support, are willing to accept a much lower wage than men. Therefore, when they enter industries in competition with men, igyj^f. the latter are frequently forced out altogether. ^''S"- For example, men formerly rolled cigars for a wage sufficient to support themselves and their families. Now the same labor is performed by girls at a much lower rate. The most potent cause of woman's entering in- dustry, however, is found in her loss of home employ- ment. Formerly, women had so much to do at ^^^^ . home that their time was fully occupied. Spin- home em- ning, weaving, the manufacture of clothing, and the preparation of foodstuffs, all engaged their attention. But the seat of these operations has now been removed to the factory. Comparatively little sewing is now done in the home, and the cooking is decreasing rapidly. Cleaning is the only part of " woman's sphere " left her ; it is small wonder, then, that she goes to the factory to escape this drudgery. 164 American Economic Life As to the advisability of woman's entering industry opinion is divided. Those who are opposed to this tendency Arguments point out that the chief function of woman is to against. j^g ^ home maker and to bring up her children properly ; that this work still engages enough of her time to prevent her from undertaking outside employment; that factory labor injures women, and through them, their offspring; and that, finally, the presence of women in industry cuts down the wages of men. On the other hand, those who are in favor of this tendency make the following arguments : (i) that, because of the Arguments development of the factory system, there is com- m favor of. paratively little left for women to do at home; (2) that, because skill and dexterity are chiefly required, labor is not injurious to women physically ; (3) that, by entering industry, women are made independent and equal to men so that they need not be forced into unhappy marriages ; and (4) that it is not fair to force upon woman the drudgery of cleaning and cooking which constitute so large a part of the regular work of the household. However, no matter how divided opinion may be regard- ing the advisability of women entering industry, there can Regulation ^^ little doubt Concerning the necessity of regu- of the lating their labor. Woman, like every new ele- ment in industry, is easily susceptible of exploi- tation at the hands of the unscrupulous employer. Her necessity, her willingness, and her first contact with the problem, all combine to necessitate some form of pro- tection. As a result, the states have passed numerous laws restricting the hours of labor, the conditions of work- ing, and the night work of women in industry. The problem, too, is more easily handled than that of the labor Problems of Industry 165 of men, because the courts are not handicapped to the same extent in deahng with women, as they are with men, by the right of " freedom of contract." Unemployment. — The problem of the unemployed varies in importance with changing industrial conditions. In times of great prosperity or national exigency, when labor is in great demand, little attention is paid to this problem ; but, when the industrial or military necessity has passed, the army of the unemployed again assumes large proportions. Unemployment may be due to personal causes, such as malnutrition, sickness, and accidents ; or to industrial causes, such as industrial crises, labor troubles, causes: and seasonal and casual trades. That mal- Personal nutrition is a very real cause of unemployment '^'^"^^^• was well illustrated by an experiment made in England. An unemployed farm colony was started, and the unem- ployed from London were set to work on the land. During the first few weeks many of the men were so weak from lack of food as to be unable to do more than two or three hours' work a day, and that of the poorest sort. After being maintained for several weeks on good food, these same men were doing effective work. Just how extensive is the unemployment caused by sickness and accidents we have no accurate means of knowing. That sickness and accidents exist is certain, and that they cause unemploy- ment is obvious ; but, thus far, the lack of organized ma- terial on the subject will not permit more than a passing reference to them as factors in the problem. The industrial causes of unemployment may be grouped under the head of seasonal trades, industrial crises, labor troubles, and casual trades. Seasonal trades are common, 1 66 American Economic Life and they inevitably mean unemployment. For example, outside construction work offers employment only at Industrial Certain seasons of the year. The effects of in- causes. dustrial crises and labor troubles upon unem- ployment are also apparent. A chart of the coal industry shows that work is very slack whenever an industrial crisis occurs. For example, in 1902, because of the great coal strike of that year, the anthracite mines were worked only one hundred and sixteen days, — about thirty-eight per cent of the total number of possible working days. A very frequent cause of unemployment exists in certain trades known as casual trades, — those requiring labor a day here or a week there, but never regularly or systemat- ically. The effects of unemployment are twofold. In the first place, the unemployed himself is affected. Idleness leads Eff ts f ^° trouble and lawlessness. Perhaps, too, the unempioy- unemployed, in his attempt to secure work, may use freight trains as a means of getting from place to place. This happy-go-lucky life, once tasted, proves too attractive ; and the laborer, freed from all restraining influences, soon becomes a confirmed " tramp." If he is a skilled laborer, the unemployed will lose his " knack " of work ; if unskilled, his physical strength. In any event, this idleness will be a drain upon his re- sources and cause his efficiency to be lowered. But the effects of unemployment do not cease with the unemployed. They extend to his family. The irregular life of the father communicates itself to the children ; and the lack of food, resulting from a lack of income, means malnutrition for the whole family group. Thus the standard of social efficiency is lowered. Problems of Industry 167 To palliate the evils of unemployment some relief, so far as the personal causes are concerned, may be found in sickness, accident, and old-age insurance. This ,•11 , . T^ The remedy. policy has been pursued m many European countries, and has lately been followed by our own state governments. Along with the general movement for im- proving the social condition of the worker in regard to hours of labor, conditions of work, and the means of safe- guarding the health and life of the worker, the policy of protecting the workingman through sickness and accident insurance has steadily gained ground. But the most positive means of solving the problem of unemployment is to strike at its causes. If industrial stability can be secured, unemployment will cease to exist. This stability can be attained only by a comprehensive government policy that is planned to meet future needs and possibilities. For example, public construction works should be so planned that work upon them may be done in times when labor is plentiful and employment difhcult to secure. There should also be a national system of labor exchanges, whereby an oversupply of labor in one section may be utilized in another district where there is a shortage of labor. Again, seasonal occupations should be properly dovetailed so that there is no need for temporary idleness. All this can be accomplished only by interstate and national activities planned with great foresight on an extensive scale. QUESTIONS FOR RECITATION 1 . Is child labor a new problem ? Why not ? 2. Where, and in what occupations, is child labor found in the United States ? 3. Discuss the evils of child labor. 1 68 American Economic Life 4. Where is child labor most harmful ? Why ? 5. What is the remedy for child labor ? 6. What has your state done in regard to child labor? 7. Why are women entering industry? 8. What can be said in favor of this movement? 9. What reasons are advanced against women working? 10. Why should legislation be passed to protect working women? 11. Is unemployment an important problem at present? If not, why should we consider it? 12. What gives rise to unemployment, — individually? Socially? 13. What is the effect of unemployment on industrial efficiency? On social welfare ? 14. How may the evils of unemployment be remedied, (i) nega- tively? (2) Positively? PROBLEMS FOR DISCUSSION 1. Discuss the causes of child labor. 2. Is child labor necessary to the production of captains of industry ? 3. What is the effect on children of keeping them away from work until they are sixteen? Until they receive a college train- ing? 4. Who is the chief gainer from child labor? Who is the chief loser ? 5. Are parents responsible for child labor? 6. To what extent are the children themselves responsible ? 7. Is it justifiable for women to enter industry? 8. Would you permit your wife or daughter to take up a gainful occupation ? 9. Is the frequently made statement — "woman's place is in the home " — true ? Defend your position. 10. Is unemployment necessary? Explain your answer. 11. What is the English system of labor exchanges? 12. On what grounds should society seek to prevent unemploy- ment? 13. Is there any "right to work"? 14. Shovild the government guarantee work at all? Problems of Industry 169 15. On what ground can you justify governmental action in any of these problems ? 16. What has the national government done in these matters? 17. What must the government still accomplish in this direc- tion? SUPPLEMENTARY READING Abbott, E. Women in Industry. Adams, T. S., and Sumner, H. L. Labor Problems. Bevcridge, W. H. Unemployment. Burch, H. R., and Patterson, S. H. American Social Problems, Chap. XIV. Devine, E. T. Social Forces, Chap. III. ISIangold, G. B. Child Labor Problems. Reports of National Child Labor Committee. Richardson, D. The Long Day. Seager, H. R. Social Insurance, Chap. IV. Spargo, J. The Bitter Cry of the Children. CHAPTER XVIII Social and Industrial Education I. Educational ideals 1. In ancient times 2. In the Middle Ages 3. In modern times : a. The new ideal b. The changed conditions : (i) How met by higher education (2) How met by secondary education 11. Uniformity in elementary education 1 . Extent of uniformity 2. The consequences : a. " School mortality " b. Illiteracy c. Child labor d. Lack of preparation for life 3. The remedy — differentiation : a. For boys and girls b. For city and coufitry c. For head workers and hand workers d. For different trades 4. The outlook Educational Ideals. — Education is the most potent factor in the promotion of social welfare and in the develop- In ancient mcnt of industrial efficiency. It is the motive times. force of cjvilized society. While it has existed in some form or other from time immemorial, its ideals have gradually changed from one historic period to another. 170 Social and Ifidustrial Education 171 Among the ancient peoples of the East, where the rehgious ideal predominated, education was confined to the priestly caste and consisted largely of the memorization of sacred texts. The Greeks were the first to emphasize the liberal ideal in education and to give to the individual the op- portunity for self-development untrammeled by religious traditions. Men have never ceased to marvel at their intellectual and artistic attainments ; nor yet to imitate them. This process of imitation was first begun by the Romans, who, however, became more practical and legal- istic in their own development. With the establishment of Christianity throughout Europe, the religious ideal again dominated the spirit of education in the Middle Ages. While the old jj^^j^g learning and the rare manuscripts were preserved Middle in the monasteries; the liberal spirit itself was dis- placed by one of religious asceticism. With the Renais- sance, however, the liberalizing and individualistic spirit appeared once more. After centuries of inertia, freedom of inquiry was again stimulated and men reached out for the long lost culture of the past. At the same time, the spirit of inquiry penetrated into science and the world of life. As this period drew to a close, men were peering everywhere into all fields of human knowledge and, in addition, had restored the old culture of the Greeks and Romans to a dominating position in civilized society. The " classics " continued to hold this dominating position in our educational system until our own genera- tion. To-day, however, we are gradually wit- j^^ modem nessing the growth of a new ideal in education, times: The It is the ideal of social welfare brought about by individual efiiciency. No longer is education regarded as 172 American Economic Life the privilege of the few ; no longer is it monopolized by culture. Its aim is not merely to equip a small group of men with the highest culture of the past. It still per- forms this function ; but, in addition, it aims to furnish the masses with the means of promoting their welfare and efficiency. This new ideal is not aristocratic, but demo- cratic ; not merely cultural, but useful ; not purely indi- vidual, but largely social. This change in the educational ideal has been necessi- tated by the conditions of modern life. Since the great y^^ Industrial Revolution of the eighteenth century, changed the civilized world has become increasingly in- dustrial and social in all its relationships. Man's interests are no longer confined to any one type of culture. Because of the tremendous changes of the nineteenth and twentieth centuries in economic and social matters, the old learning fails utterly to equip man with the kind of knowl- edge necessary to solve the problems arising from the development of modern science, from the growth of industry, and from the spirit of cooperation. The new learning, therefore, emphasizes the importance of practical science, of industrial knowledge, of sociological information, and of vocational and professional training. The institutions of higher learning have been the first in America to make an attempt to meet these changed condi- tions. Realizing that education in its truest sense is prepa- ration for the work of life, these institutions have incorpo- rated into their curricula courses which have a direct bear- ing upon the life of the individual. Schools of engineering, of commerce and industry, of agriculture, of architecture, and of like character, are all striking examples of this new readjustment. Social and Industrial Education 173 This tendency to prepare individuals for practical life so that they may be given the basis of complete living may be observed also in secondary education. In addition to the classical high school, we now have, in most of our large cities, high schools with manual training, commercial, and vocational courses. It is true that much remains to be accompHshed in the direction of socializing secondary education; but too much credit cannot be given to the pioneers in this movement, who, seeing the evolution of modern Ufe, have attempted to make the educational system conform to its needs. Of the socializing movement in education, Edward T. Devine says, " Its end is practical, being the utihzation of whatever is usable in that which the student gets from history and literature and science, from disciplinary studies and from cultural studies, to en- rich his civic life, to insure his becoming a contributor to social welfare instead of its debtor, to make him less a parasite and more a creator of social values." Uniformity in Elementary Education. — It is in primary education that this tendency is last to appear. The course of instruction given the child in the elementary Extent of school is, in many cities, still largely traditional "iiiformity. and generally uniform. While it is true that, here and there, experiments and innovations are being introduced, the underlying principle still remains the same. The primary school is but a ladder to the high school; the high school leads to the college. There has been little attempt to make elementary instruction fit the child's individual needs and to provide for his future place in the social system. While it is true that this uniformity results in an equality of equipment for those completing the first years of school 174 American Economic Life life, it is nevertheless disastrous to those who do not survive the rigidity of the work. Since the prescribed course is distasteful, the beginner drops out of The conse- , , ° ^ quences: the race before it is fairly begun. Striking " School evidence of this fact is found in the high per- mortaliiy." t ,, m.i • centage of elementary school mortality. This mortality increases as the grades advance and would be appalling were it not for compulsory education laws. The extent of illiteracy in the United States is not generally realized. Its prevalence, however, is proved by Illiteracy. . . . ^ ^ ^ ^ r t census investigations and by the records of the World War, which revealed the presence of 7,000,000 adult illiterates in the United States. A census bulletin tells us that somewhat more than one-tenth (106 per 1000) of the population at least ten years of age is illiterate. The im- portance of this statement becomes particularly significant when a comparison is made between illiteracy in the United States and in European countries before the World War. Of every thousand inhabitants in Germany, Norway, and Sweden, one was illiterate ; in Switzerland, three ; in Denmark, five ; in Finland, sixteen ; in France, forty- nine ; and in England, fifty-eight. Another consequence of the school's inability to hold children because of its uniform curriculum is found in the existence of child labor. " The most potent Child labor. . . . i i m i • i reason, in my opinion, why children are in the factory is our school system." This statement by a fac- tory inspector of Louisiana voices the opinion of many social workers who point to the school as a frequent cause of child labor. There is little doubt that many children prefer the work of the factory to that of the school. Social and Industrial Education 175 Finally, the effect of uniformity in elementary educa- tion extends to a lack of preparation for life. Children leave school and go to work because the school . , ^ " Lack of system fails to prepare its pupils for the life of the preparation world. Seven-eighths of the school children of the United States never enter the high school. '' Yet," said a critic of our educational system, " one who goes out of the school system before the end, or at the end, of the elementary course, is not only unprepared for any vocation ' which will be open to him, but too commonly he is without that intellectual training which should make him eager for opportunity and incite him to the utmost effort to do just as well as he can whatever may open to him." What, then, should be done to make the school system more attractive and of greater service to the average boy and girl ? This question is not difficult to ^j^^ remed answer. The work of the school should be dif- — differen- ferentiated according to the needs of the indi- vidual and of the community. Different training should be provided for girls and boys, for city children and country children, for head workers and hand workers, and for workers in dift'erent trades. Life is so varied that no one training is suited to all. In the first place, there is no doubt that sex should play a part in determining the character of education. While it is true that during certain periods of life several por hoys millions of women are engaged in industrial pur- '^"'^ ^"■'^• suits, woman, nevertheless, is primarily engaged in the home. Just as the great majority of boys will grow up to use their hands, so the great majority of girls will grow up to be wives and mothers. It is perfectly evident, there- fore, that elementary instruction should provide one kind 176 American Economic Life of training for home makers, and another kind for bread- winners. A system of education which fails to recognize this principle is altogether inadequate to meet the needs of modern life. Likewise, another differentiation is equally fundamental. The training of boys and girls in the city should differ For city and essentially from the training of country boys and country. girls. Education, primary as well as secondary, should bear a direct relation to the adult Hfe of the child. City conditions are so totally different from country condi- tions that each set of conditions demands a training pecu- liar to itself. Industry is the keynote of city life and agriculture the basis of country life. Therefore, the train- ing of city people should be largely industrial and com- mercial, while that of country folk should be chiefly agri- cultural. It is equally obvious that in the city different training should be provided for head workers and hand workers. In general, the elementary curriculum in the workers and past has made provision simply for head workers. hand -g^^ perhaps three-fourths or seven-eighths of all workers. . . the boys and girls who go through city schools will be called upon to do work with their hands. An education which prepares for industrial efficiency will, therefore, make provision in the earliest grades for training in some form of hand work. The disappearance of apprenticeship from modern life has necessarily widened the scope of industrial training For different ^^ 0^1" public school systcm. Save in a few trades. trades, such as plumbing, the old apprentice form of training has passed away. As a result, a new duty has been imposed upon the school, and, in many Social and Industrial Education 177 large cities, we find educational authorities gradually recognizing this obligation. If this differentiation in training along the lines just indicated is carried out, the elementary school, by losing its uniformity, will be brought into closer harmony The out- with the conditions of modern life. A happy ^°°^- augury for the future is found in the fact that, in many of our larger cities, attempts are being made to bring about this closer relation between the work of the school and the work of life. For example, the introduction of sewing and cooking, the provision for elementary manual training, the introduction of the " Gary System," the establishment of trade schools for boys and girls, the junior high school movement, and the organization of vocational courses are all hopeful indications of a recognition of this principle. Preparation for life, which is the ideal of the newer educa- tion, will ultimately shape the work of the elementary schools, as it is molding that of the high school and the university. QUESTIONS FOR RECITATION 1. Discuss the early ideals of education. 2. Show the conditions that gave rise to these ideals. 3. Do these ideals persist in education to-day? Are they uni- versally accepted in America ? 4. What is the new educational ideal? Is it universally ac- cepted ? 5. Explain clearly how this new ideal has arisen. In your opinion, is it final or ultimate? 6. Why do educational ideals change? 7. What kinds of knowledge does the modern educational ideal emphasize ? Why ? 8. How is the new ideal reflected in our universities? g. How has the public high school met the conditions of mod- ern life? What is yet to be done in this direction? 178 American Economic Life 10. What is a distinguishing feature of elementary instruction in American public schools ? 11. What modifications of the uniform curriculum are necessary to bring about a better industrial and social training in the ele- mentary school ? Explain the necessity for each. 12. What are the disadvantages of the uniform curriculum of the elementary school ? Explain each. 13. Is America progressing in the right direction in shaping her public educational system? What reasons have you for so think- ing? PROBLEMS FOR DISCUSSION 1. What should be the purpose of education? 2. Should there be definite connection between school life and life in the world ? Why ? 3. What does the school in your community do to prepare boys for the work of life? 4. What life preparation does the school furnish for girls ? 5. Should some form of manual training be introduced in all grades between the kindergarten and the high school? How could this be done? Is the same true of commercial training? 6. Should the public school include domestic science training for girls? Why? 7. Is universal education desirable ? Explain your answer. 8. What advantages or disadvantages would accrue to the coun- try if free education were abolished ? 9. Would it be wise to make it possible for everybody to secure a college education? Why? 10. What has the college done to prepare men and women to meet the work of life ? 11. What is the economic basis of education ? The social basis ? 12. What difference is there between public and private schools in regard to educational policy and ideals ? 13. Discuss the work of Herbert Spencer in education. 14. What right has the student of economics to be interested in education? Social mid Industrial Education 179 SUPPLEMENTARY READING Devine, E. T. Social Forces, Chaps. VIII and XIII. Dewey, J. Democracy and Education. Dewey, J. Schools of To-morrow. Draper, A. S. American Education. Gillette, J. M. Vocational Education. King, I. Education for Social Efficiency. Spencer, H. Education. , CHAPTER XIX , The Nature of Capital I. Character of capital 1 . Its importance : a. In primitive times b. In modern times c. In capitalistic production 2. Examples and definition of capital 3 . Wealth may be consumed : a. Unproductively b. Productively c. The final consequence : (i) The diagram (2) The effect of war XL Money and capital 1. Is money capital? a. When it is b. When it is not 2. The newer viewpoint : a. Its advantage b. Its disadvantage 3. Capital goods and money capital 4. The conclusion Character of Capital. — Land, or natural resources, and labor, or human energy, are spoken of as primary essentials in production because both must be present at talce: /m ^,11 times in every productive operation. The primitive ^gj^ jj^ ^^le Stream, and the coal on the mountain hmes. side, cannot be converted into wealth, if there are no people to catch the one, or to pick up the other. 180 The Nature of Capital i8i In the same way, if there are no fish to catch and if there is no coal to mine, labor will be helpless and unable to produce wealth. There is, however, still another factor in production. While land and labor are the primary- essentials in any productive operation, there is a secondary essential, — capital. Capital is spoken of as secondary because it is the result of the apphcation of labor to natural resources. If all the capital in a community were de- stroyed, it could be replaced by the application of labor to land. In primitive times little, if any, capital really existed. What capital we now have, therefore, is the result of man's utilization of natural resources ; it is the offspring of land and labor. Modern industry, however, requires the presence of all three factors. To-day, capital is as essential to pro- duction as land or labor. It is impossible to /„ modern picture a present-day productive enterprise '"""• being carried on without the aid of capital. The old primitive methods have gone forever. The spectacle of a savage catching fish from the brook with his hands, i.e. without capital, has no modern counterpart. Hooks and nets, the products of past industry created by application of labor to land, have now become as essential to fishing as the fish and the man himself. Therefore, to catch fish, i.e. to produce wealth by creating utilities in the fish, capital is required. Thus, modern production is distinctly capitalistic production. By this we mean that man has inextricably introduced into production a third factor, which j^ cat>itai has become co-equal in importance with land istic pro- and labor. This capitalistic production has changed the old direct relationship that existed, in primitive i82 American Economic Life times, between man and nature. Instead of being simple and direct, production now becomes complex and indirect. In fact, capitalistic production is exceedingly roundabout, and becomes still more so with every advancing step of civilization. With the age of inventions and the develop- ment of machinery, the process of production has become so complicated and the importance of capital so tremendous that civilization itself is spoken of as being in the capitalistic stage of development. The new factor at times almost overshadows the original elements ; the child almost dominates the parents. Instead of depending upon primi- tive implements and crude tools, production now depends upon huge plants and factories equipped with costly machin- ery and other highly speciahzed products of past industry. There are a thousand ways in which the products of past industry aid man in producing wealth, and every such instrument constitutes a form of capital, and Under this term we may include : (i) improve- definition ments on land; (2) roads, railroads, telegraph and telephone lines; (3) tools, machines, and mechanical appliances; and (4) raw materials to be used in later manufacturing. All these constitute wealth, and all help man to produce additional wealth. Capital, therefore, may be said to be that part of wealth used to produce more wealth. It is the " tools " of production. All wealth is not capital. The test whether or not wealth is capital is the way in which it is used. If a nation or an individual has wealth and consumes it unpro- consumed: ductively, then this wealth is not capital. The Unproduc- man who dissipates a fortune prevents the lively. . employment of so much wealth as capital. The Pyramids of Egypt, although representing a vast The Nature of Capital 183 outlay of materials and labor, are not capital. Wealth used unproductively, whether by man or by society, is not capital. Wealth may, however, be consumed productively. The wealth represented by railroads, machinery, and buildings is capital because it is being used to Produc- produce more wealth. Capital, therefore, de- ^^^^^y- pends upon the productive use of wealth. A man with a fortune, instead of squandering it, may invest it in a business and thus convert it into capital. A nation with great natural resources may so direct its energies as to produce vast quantities of goods to be used in future production. Every individual possessed of wealth has, therefore, two choices open to him. He may use it productively or un- productively. If, through waste, luxury, and The final extravagance, man uses his wealth unpro- consequence. ductively, he not only destroys his own wealth, but also decreases the productive forces of the community. On the other hand if, by enlarging his plant and installing new machinery, he uses his wealth productively, he not only keeps his original wealth but adds to it through production. This principle may be illustrated by the accompanying diagram. When $10,000 worth of wealth is consumed along the Hne U, that is, unproduc- tively, it becomes completely dissi- pated. The individual, himself, loses it and its consumption, let us say, in the form of extravagant banqueting 184 American Economic Life and entertaining, results in lowering the efficiency of the productive forces of society. When, however, this same wealth is consumed along the line P, its consumption results in the production of $500 more wealth and the original $10,000, which is now capital, remains in industry. If, instead of consuming wealth in the form of extravagant and luxurious living, man invests his wealth in govern- ment bonds, in bank holdings, or in some other form of productive enterprise, he ceases to be a spendthrift and becomes thereby a capitalist. In this connection it is well to contemplate the effect of war upon capital. Nations, like individuals, may reck- lessly waste the wealth of society. When, like Germany before the World War, they are consciously organized for the promotion of war and conquest, they are known as militant societies, as distinguished from industrial so- cieties, where the governmental organization is directed toward the production of national wealth and the pro- motion of social welfare. The United States has always been organized politically along the line of industrial development. As a result, the accumulations of capital in this country are greater than in any other single nation in the world. On the continent of Europe, war has resulted in the destruction of billions of dollars' worth of wealth and capital. If it were possible to abolish war, all this unproductive consumption of wealth would be eliminated. If this is not possible, a nation's war machinery should be made secondary to its industrial life. In this manner, fleets and armies become a protective agency for the development of industry and national life. This is the American policy. Money and Capital. — One of the first questions that arises in a discussion of capital is the query, " Is money The Nature of Capital 185 capital ? " Money is a product of past industry and is used to assist in production. In order to prepare it for circula- tion, the mint, equipped with expensive capital, jg money has expended labor in turning the bullion into capital? its present form. Furthermore, money is an ^^^"^ *^ "• absolute necessity in productive operations. The grocer needs money to make change ; the manufacturer needs it to pay his employees on Saturday night ; the consumer needs it to purchase bread from the baker and milk from the dairy. In other words, money performs a very essential part in aiding modern production. If money, then, is the product of past industry and performs a part in production, it must be capital. But these arguments do not apply to all money. If a man should receive fifty dollars and should put them in a stocking behind the chimney, this money would pp^^g,, n not be capital because it would not be assisting " "^'• in production. It is, therefore, fair to conclude that, as with other commodities, money may be capital or it may not be capital. The question as to its status at any given time may be determined only by knowing whether or not the money under consideration is being used to assist in production. This statement represents one view of capital, accord- ing to which goods assisting in production, whether directly or indirectly, are included in capital. According The newer to another view, in order to be capital, a good viewpoint: must aid directly in production. The ax used by a wood- man to cut down a tree is capital, because it is the product of past industry and is being used directly to assist in future production. On the other hand, the breakfast eaten by the woodman assists production only indirectly 1 86 American Economic Life and therefore may not be capital. Economists are accept- ing the latter view more and more, so that money in order to be capital must assist directly in productive operations, — that is, it must be used by the grocer to make change, by the employer to pay wages, or by the producer to pur- chase raw materials. This newer view has the advantage of clarity of thought and directness of understanding. It is easy to determine, Its ad- in a- given case, whether an actual good is assist- vantage. jj^g jj^ production. The ax really does aid in the productive enterprise of lumbering; while the breakfast may not only not aid in production, but, by causing in- digestion, result in an actual loss of productive power. It is a simple device, therefore, to divide goods into " con- sumption goods " and " capital goods." Food, clothing, and shelter are obviously in the former class, while factories and machinery are in the latter group. However, it is questionable whether all goods can be disposed of so easily. Sometimes the consumption good Its disad- plays a most important, if indirect, part in the vantage. process of production ; in fact it is often essen- tial to the final act of production. Are we, therefore, on a mere technicality of definition, to deny such a good the right to the term capital? During the World War, for example, the production of ships at Hog Island in Phila- delphia was greatly delayed, and therefore decreased, by reason of the fact that proper housing could not be pro- vided the workers. A home for the worker was, in this case, just as essential to the production of ships as the tools with which he worked. The first aided indirectly, as much as the second aided directly, in the process of pro- duction. T^he Nature of Capital 187 As ordinarily used, the term capital refers to a more or less continuous and unchangeable thing. A business may be capitalized at fifty thousand dollars for twenty years. During this time, however, goods^and every tool and machine used in the work may ™oney •^ , -^ capital. have been replaced by new ones. The " capital " has remained the same, but the " capital goods " — the various elements making up the capital — have been worn out and replaced. In this fact lies an important distinc- tion. Capital is the intangible, continuous thing which represents the total money value of the particular wealth- producing products employed in the production of new wealth. Capital goods, on the other hand, represent the individual machines, engines, and other tools of production, which wear out in the course of time and are replaced. Capital is a constant factor. Capital goods are constantly changing. Throughout all these distinctions, however, the funda- mental nature of capital is apparent. As a first requisite, capital must be material wealth. Popular xhe con- writers and speakers are fond of referring to elusion. " brains " as capital and of using the phrase " capitalizing the intellect." But these expressions are merely figurative. Brains may be greater than capital, but they do not con- stitute capital in the economic sense, because they are not material wealth. In the second place, not all material wealth is capital. Only that part of material wealth is capital which assists in production. The part is not equal to the whole. Finally, this assistance is usually, if not always, a direct element in the process of production. i88 American Economic Life QUESTIONS FOR RECITATION 1. Contrast the importance of capital before the eighteenth century with its position after the eighteenth century. 2. Give some examples of capitalistic production. 3. Define capital. Give ten examples. 4. Is your fountain pen capital ? Explain fully. 5. Why do we put our wealth into railroads rather than into pyramids ? 6. Are the following capital: pig iron, a plow, candy in the store, tobacco in the laborer's pipe, coal? Tell why in each case. 7. If you had $1000 left you, would you take a pleasure trip or go to college ? Why ? 8. Show, by historical illustrations, the effects of war upon capital. 9. Is money capital ? Why ? 10. What is the most definite point of view to take regarding the way in which capital should aid in production ? Give an example. 11. What disadvantages has such a point of view ? Illustrate. 12. Show the difference between capital and capital goods. Give examples. PROBLEMS FOR DISCUSSION 1. Why is labor called " the mother of capital " ? Is it true? 2. What are the consequences of capitalistic production upon labor ? 3. Discuss the relation between the consumption of wealth and the creation of capital. 4. Show how you yourself may become a capitalist. 5. Distinguish between natural resources and capital; give examples. 6. Distinguish between wealth and capital ; give examples. 7. During the World War, did capital in the United States in- crease or decrease ? Explain this phenomenon. • 8. Does capital really produce ? How ? 9. Name some employment, if you can, in which labor produces without capital. The Nature of Capital 189 10. Are securities capital ? Explain your answer. 11. Explain the importance of banks to the community. SUPPLEMENTARY READING Ely, R. T. Outlines of Economics, Chap. VII. Fetter, F. A. Principles of Economics, Chap. IX. Fisher, I. The Nature of Capital and Income, Chaps. I, II. Marshall, A. Principles of Economics, Book IV, Chap. VII. Mill, J. S. Principles of Political Economy, Chaps. Ill, IV. Seager, H. R. Introduction to Economics, Chap. VII. Thompson, C. F. Elementary Economics, Chap. X. CHAPTER XX The Increase of Capital I. Origin of capital 1 . Capital results from saving : a. How men first saved b. How the habit spread c. How savings are capitalized : (i) By the bank (2) By individuals (3) By corporations (4) By other companies 2. Capital may result from efficiency 3. Capital increases with : a. The desire to save b. The amount that can be saved II. Kinds of capital 1 . The different forms : a. Circulating and fixed capital b. Specialized and free capital 2 . The dangers : a. From too much fixed capital b. From too much specialized capital c. From mismanagement of capital Origin of Capital. — When the savage of Australia found a whale, which had drifted ashore in a storm, he at once Ca itai summoned his friends and neighbors and had a results from banquet. Sometimes they ate for a week, and sometimes longer, and sometimes they died from overeating ; but they ate until all of the whale was 190 The Increase of Capital 191 gone, and then eked out an existence on berries and such food as they could find until the gods should send them another whale. Civilized man, however, has a different method of treating wealth. When he secures a large amount of food, or its equivalent in money, he does not eat it up at once, but puts by a portion for a " rainy day." Even within comparatively modern times society has possessed only a relatively small amount of wealth, most of which was needed for present consumption. How men In such times, therefore, capital could be accumu- fi''^^ •^'^^^'^• lated only by saving ; that is, instead of consuming all that he produced, man abstained from consumption and consumed but a small amount of what he would otherwise have used up. When he had saved sufficient wealth through this abstinence, he used it to secure some new tool, such as a windmill or a sailboat, that would increase his power to produce wealth. As a result of this early necessity for saving, the ideal of saving spread throughout the whole race by means of the teachings of the family, the schools, the How the churches, and other agencies of instruction. ^"■^^^ spread. The consequence of this education was the development of a strong desire to save. To-day this attitude is well illus- trated by the immigrant, who comes to the United States and subsists on a comparatively low standard of living in order that he may have a competence for his old age. Saving has thus become one of the virtues of civilization ; yet few who save really understand the connection between saving and capital, and the great service per- Howsav- formed by the bank in this respect. A child ingsare receives a five-dollar gold piece from its grand- mother and takes it home in great glee. Acting on the 192 American Econoinic Life advice of his parents, he puts the gold piece in the savings bank with the imphcit behef that the same five-dollar gold piece will be returned by the bank whenever the demand is made upon it. But the bank is not doing business in this way. The bank acts as a loan agent. For example, a pro- spective shoe manufacturer wishes to start business, and the bank, upon being furnished proper security, lends him fifty thousand dollars. The child's five-dollar gold piece, together with hundreds of similar deposits, goes to make up this loan. With the money or credit thus secured the manufacturer begins work. He builds his factory, em- ploys labor, and enters the shoe market, using his wealth to produce more wealth. At the end of a year he has done such a successful business that he has made fifteen per cent on his original investment. Out of this fifteen per cent he pays the bank six per cent for the use of its money or credit, and out of this six per cent the bank pays the child three per cent, or fifteen cents, for the use of his five dollars. In this way, every one engaged in this capitaHstic transaction has been the gainer. For many years this was almost the only method of capitalizing savings, and it is still the most usual means employed. The bank acted as a loan agent for any one who wished to secure money and who could furnish reliable security as collateral. Its loanable funds were secured from a large number of people in the community, each of whom wished to invest a small amount of money, but no one of whom was sufficiently well off to be able to lend a large sum such as a manufacturer would require. There were, to be sure, cases of individuals who had saved considerable sums; and, when Farmer Williams wished The Increase of Capital 193 to build a barn, he went to Farmer Jones and borrowed five hundred dollars on a mortgage. But this was an un- certain way of carrying on an enterprise. Every com- munity did not have a Farmer Jones. Besides, as industry grew, neither five hundred dollars nor five thousand dollars was enough to start a business. Even though he had it, no person wished to lend the large sum necessary to begin a modern business enterprise. To meet this contingency a new plan has recently been developed and perfected. The shoe manufacturer decides to begin business, but, instead of going to the bank with his collateral and borrowing fifty thousand dollars, he in- corporates his business ; that is, he secures a charter, a board of directors is appointed, and stocks and bonds are issued. These stocks and bonds are then sold to the people in the community who wish to invest their money and who do not wish to engage in business themselves. Thus, perhaps without the intervention of the bank and with the bank's profit eliminated, the business man secures his capital directly from the person who has saved it and who desires to invest it. At the same time, no one is called on to invest a large amount. A company may be capitalized for ten million dollars, but an individual, by buying merely one share, needs to invest only fifty or one hundred dollars in the enterprise. Trust companies, insurance companies, and, in a limited sense, building and loan associations likewise exercise the functions of the bank and act as loan agents for investors and borrowers ; but, in recent years, the corporation, by selling stocks and bonds and paying good rates of interest, has sometimes taken the place of the intermediary banking establishments and gone directly to the individual saver. 194 American Economic Life When wealth is scarce and Hving precarious, man must scrape and save in order to put something aside for the ^ . , future. But the problem of capital may be Capital may '■ ^ •' result from looked at from another standpoint. To-day, e ciency. -^y^here Wealth is plentiful, man's abiHty to accumulate capital may depend not only on saving but also on efficiency. For example, a man earning thirty dollars a week, and desiring to become a capitalist, has two courses open to him. He may lower his standard of living, and, by consuming less than he requires, save ten dollars of his weekly wages. Or, by hard work and additional training, he may increase his efl&ciency so that he now has an earning capacity of forty dollars a week. This extra ten dollars then forms a fund for investment and starts him on the road of the capitalist. The increase of capital, therefore, depends upon two elements. In the first place, man must develop the dis- Capitai position to save. It is here that the ideal of mCTeases thrift assumes its greatest importance. So long Desire ^^ individuals are wasteful and extravagant, to save. little if any capital can be accumulated. In fact, under these conditions the capital in existence will quickly disappear. This desire to save, too, is a measure of the individual's stage of development. Civilized man is thrifty, and places the future above the present, the un- seen above the seen. Primitive man is improvident, and places the present above the future, the seen above the unseen. So long as such wasteful qualities prevail, no progress can be attained. The people of Holland and France are typical examples of civilized societies that show what may be accomplished through the development of thrift in industry. The Increase of Capital 195 But the desire to save is in itself not sufficient for the development of capital. Capital will not increase merely- through a desire to save ; there must be some- Amount thai thing to save. The greater that " something," ^«» ^'^ "''''^• the greater will be the possibilities for the increase of capital. Here it is that the idea of efficiency becomes important. The amount of wealth produced increases with the efficiency of the worker. So long as a people are inefficient and backward in production, just so long will they fail to accumulate a large fund of capital. This has been China's great drawback throughout the cen- turies. On the other hand, the American system of pro- duction is so efficient that the fund from which capital is drawn is constantly increasing. Professor Friday of the University of Michigan estimated that the capital in the United States increased from $4,522,000,000 in 1913 to $21,510,000,000 in 1918. He further maintained that " in 1918 approximately thirty per cent of our national income " was saved. Kinds of Capital. — We have yet to examine the different kinds of capital and the problems arising from them. Capital is described as "circulating" or p^^^^. " fixed," and as " specialized " or " free." circulating Circulating capital is capital which is de- and fixed ° ^ ^ capital. stroyed by a single use, such as coal, and other raw materials immediately consumed. In contrast to this, fixed capital is capital which can be used for a con- siderable length of time without being destroyed. Ex- amples of fixed capital are locomotives, factories, and ships. Again, capital which is molded into a form which can be used only for a particular purpose is called specialized 196 American Economic Life capital. The degree of specialization may be great or moderate. For example, a press which will stamp out specialized twenty-dolkr gold pieces is an extreme form capital. Qf specialized capital, because there are but a few places in the world where twenty-dollar gold pieces are stamped. A crane built to carry fifty tons is a less specialized form of capital. The crane may be of service in any one of several industries, while the coin press can be used in but one. In contrast to this, capital is said to be free when dt exists in a form that may be used in a large number of industries. For example, pig iron is free capital. Free capital. . . 1 .n It can be converted into carnage sprmgs, drills, car wheels, and hundreds of other things. The ordinary machinist's lathe is somewhat specialized, but it would be considered almost free in contrast with a lathe made to turn a ten-thousand-pound shaft. When capital is usable in only a few ways, it is specialized ; when it is usable in many ways, it is free. One of the great problems in the development of capital is to determine how much capital should be utilized in the ^ form of fixed, and how much in the form of Dangers: From too circulating, capital. Wealth in the form of much fixed fixed Capital cannot of course be converted imme- capital. T , . . , . . , diately into circulating capital, and the progress of the community may thus be seriously hampered by the lack of a sufficient amount of circulating capital. For example, one of the causes of the panic of 1873 was the conversion of a large amount of the wealth of the community into fixed capital in the form of railroads. As it turned out, too great a proportion of the country's wealth was put into this form of capital and a business tie-up resulted. The Increase of Capital 197 In the same way, if too large a proportion of capital is turned into specialized goods, it is clear that industry will suffer because of a lack of capital which can be diverted into the kinds of production muchsll- that will meet the changing demands of modern "^"^*J^^ society. In the early part of the nineteenth century an enormous amount of wealth was converted into canals, — a form of fixed specialized capital. Many more canals were built than the traffic warranted, and the wealth sunk in many of the canal projects was completely lost. The present mobility of capital in the United States, that is, its ability to change from one use to another, is shown by the marvelous growth of the automobile industry. So long as capital is sufficiently mobile to flow readily from one industry to another, or so long as there is sufficient wealth to form capital for new industries, the industrial conditions in the community are sound. Since modern production is so intimately connected with the maintenance of capital, the question of its management is of vital importance. Capital is brought to- gether in a corporate form by a great aggregation manage- of small investments. If, therefore, this capital »"«»/"/' ^ capital. is managed, not in the interest of stockholders, but in the interest of officers of corporations, the whole community will be in danger, because the loss due to mis- management will fall on the rank and file of industry as well as upon the stockholders. The welfare and prosperity of the United States are intimately dependent upon wisdom and integrity in the management of capital. 198 American Economic Life QUESTIONS FOR RECITATION 1. Describe the life of primitive man so far as it affects the ac- cumulation of capital. 2. Give some examples of modern counterparts in this respect. 3. Why did man in his early history continually have to practice abstinence ? Why does he still have to ? 4. Is it possible to satisfy all our wants? If we cannot, which wants should be left unsatisfied ? Why ? 5. Explain how the habit of saving has spread. 6. Through what modern agencies are savings capitalized? Explain how each operates. 7. Why are individual savings nowadays inadequate separately to capitalize modern business ? What modern devices are employed to overcome this difficulty? 8. Trace the history of a ten-dollar bill after it is deposited in the bank. 9. Show the part played by efficiency in the accumulation of capital. 10. Upon what does the increase of capital depend? Explain each factor. 11. Show why capital is either scarce or plentiful in : o. Mexico. c. China. e. Spain. b. United States. d. France. /. Holland. 12. Name four kinds of capital; explain and give examples of each. 13. Show the danger that may result from "tieing up" too much capital. 14. How may capital be mismanaged? What evils may result? What should be the proper method of management ? PROBLEMS FOR DISCUSSION 1. What prompts the average man to save? 2. Why do Americans sometimes look down upon immigrants who maintain a low standard of living in order to save ? 3. Is it better for a man to maintain a high standard of living, or to save by lowering his standard? What other course is open to him? The Increase of Capital 199 4. Is the spender or the saver more advantageous to the com- munity ? Explain fully. 5. Is it wise to increase the amount of capital in the United States? Why? 6. Is the effective desire of accumulation stronger in Central or South America ? Why? 7. Distinguish between saving and hoarding, and the effect of each. 8. Is the miser or the spendthrift the more useful member of society ? Why ? Who is more useful than either ? Why ? 9. Speaking of the Galveston flood, a writer said : "Fortunately, such events are not unmixed evils. Employment will now be found for many laborers, and this benefit should not be forgotten or mini- mized by us." What do you think of the statement? 10. Is a football celebration which results in the breaking of $200 worth of windows advantageous to the cause of labor? Apply the principle here involved to society in general. 1 1 . What would happen if there should be too much saving ? 12. Criticize the following : "Doubtless the best thing to do about the spendthrifts is to do nothing — not even to worry about their waste of money. Their waste of money, in fact, is the least silly thing they do, for the money is in constant flux, and serves its pur- pose." SUPPLEMENTARY READING Carver, T. N. Principles of Political Economy, Chap. XIII. Clay, H. Economics, Chap. V. Ely, R. T. Outlines of Economics, Chap. VIII. Fetter, F. A. Principles of Economics, Chaps. XX, XXII. Fisher, I. The Nature of Capital and Income, Chaps. V, VI. Marshall, A. Principles of Economics, Book IV, Chaps. VIII, IX. Mill, J. S. Principles of Political Economy, Chap. V. CHAPTER XXI Capital and Surplus Wealth I. Nature of surplus wealth 1 . Its meaning : a. Individual surplus h. Social surplus 2 . Its causes : a. Cooperation : (i) The early method (2) The present method h. Growth of population c. Advance of civilization 11. Effects of surplus wealth 1 . When unduly centralized 2. When widely distributed: a. On goods and prices h. On education c. On leisure d. On recreation e. On city life /. On capital 3. The conclusion Nature of Surplus Wealth. — Intimately connected with the subject of capital is the problem of surplus wealth. In fact, surplus wealth is the starting point of Its meaning: capital. In order that wealth may produce Individual more Wealth, part of the original wealth must surplus. . 1 r !• e 1 • be set aside for purposes of future production. The difference between the wealth produced and the wealth Capital and Surplus Wealth 201 consumed is surplus wealth. All of tliis surplus, however, may not be devoted to future production. Part of it may later be wasted, or be finally used up in some un- productive manner. The residue of the surplus which is actually used to assist in future production constitutes the fund from which capital is drawn. The individual surplus is that part of the total surplus which has been accumulated largely through the individual's own labor in conjunction with the other two factors of production. In primitive times, for example, practically all the surplus wealth created was an individual surplus, because land was largely free and whatever capital existed was extremely crude. But, where primitive peoples lived communistically, even this individual surplus was socially appropriated. In modern times the conditions of production have altogether changed. The simple relationship between man and nature no longer exists, and, in addi- social tion to this fact, large masses of capital are ^"■^P^'^^- already accumulated. Men now work together in large groups, so that most of the wealth created can no longer be said to be the result of merely individual labor. Modern wealth is. distinctly social in character; the group, as a whole, plays a predominating part in its production. Therefore, just as primitive man by individual effort may produce a surplus of goods over and above what he requires for daily life, so society, through some form of social action, may produce a vast surplus of goods beyond what is needed for present consumption. Hence this surplus of products, the result of social rather than individual action, may be said to be a social surplus. Not all of this social surplus is capital, however, because only part of it may be used to aid in future production. 202 American Economic Life In the creation of surplus wealth society plays its part either through cooperation, or through the growth of Its causes: population, or through the general advance of Cooperation. civiHzation. In the first place surplus wealth is the result of cooperation. Men working together can produce vastly more than men working singly. An example of this may be seen in the production of any ordinary commodity, such as nails. Formerly, each nail was hammered out on an anvil by the strong arm of an artisan ; now, a long wire runs into one end of a machine and comes out of the other in the form of a finished nail. This change in method has had a marvelous effect on the output. Fifty years ago one man might hammer out a hundred nails an hour ; to-day, by changing the method of production, a swift-moving machine produces thousands of nails in the same time. This change in method is based on cooperation. Men work together in groups and then these groups work to- gether. One set of men make iron ore into steel ; another set make iron and steel into the nail-making machine ; another make the belts, the screws, and the gears ; still another transport these products to one central place, the factory ; and now, all being ready and a million hands having assisted in bringing the steel wire and the machine together, the machine produces a flood of nails which find their way into the home, the office, and the factory. All this has been accomplished because of the principle of cooperation, which asserts that two men working together can produce more than twice as much as each man working separately. In the second place, surplus wealth results from an in- crease in value brought about by social action in the form Capital and Surplus Wealth 203 of the growth of population. This is clearly seen in the oase of land values. The value of land rises with the growth of population and the consequent demand crowih of for land and its products. The lot in the heart popui''»'»»«• amount of garden produce. As " jack of all trades and master of none," he sometimes fails to produce large or 214 American Economic Life valuable returns. For this reason the general farm is gradually giving way to some more specialized form of agricultural work. Of these specialized agricultural pursuits, the production of cereals is by far the most important. These include Production com, wheat, oats, barley, rye, rice, and buck- oj cereals. wheat. Of thcse the most important are corn and wheat. The United States produces twice as much corn as all the rest of the world put together. Its region of greatest production stretches from Ohio to Kansas, and from Kentucky to Wisconsin, although it is grown in the whole area from the Gulf of Mexico to the Great Lakes and from the Atlantic Ocean to western Kansas. While wheat may be generally grown in various parts of the United States, its area of greatest production is found in the upper Mississippi Valley, in the Middle West, and in Washington and Oregon on the Pacific Coast. The belt of greatest importance stretches from Texas north through Oklahoma, Kansas, Nebraska, the Dakotas, and Minnesota into Canada. The World War stimulated enormously our production of both wheat and corn, and, by causing us to send vast shipments of wheat abroad, taught us the value of corn for table purposes. Stock raising is an industry largely confined to the middle Southwest. Cattle are raised on the ranches of Arizona, stock transported to Kansas, and there fattened on ratsmg. ^j^g ^qj.^ lands. Then they are taken to St. Louis, Omaha, or Chicago, where they are slaughtered, converted into various packing-house products, and shipped finally to all parts of the world. On the Kansas farms, hogs also are fed with the cattle, fattened on the corn, and then shipped to the packing houses. American Agriculture 215 Dairying, which sometimes accompanies stock raising, is usually confined to the neighborhood of great cities. The necessity of producing dairy products within 1 r 1 • • -11 -1 Dairying. easy reach 01 the city is particularly seen in the case of milk, since milk cannot be transported properly for a greater distance than one hundred miles. Butter, how- ever, is transported from the Middle West to all parts of the country. Western fruit growing was originally developed to fur- nish return freight for the emptied refrigerator cars. The great packing houses in the Middle West, ship- p^^if ping their products in cars to the Pacific Coast, srowing. were unable at first to secure for them any suitable return cargo. However, they soon discovered that this coast was peculiarly suited to the growing of showy fruit. Thus an industry was developed which provided the empty meat cars with a splendidly paying return shipment. Then, too, apples and Tokay grapes proved to be good paying crops and were rapidly introduced from Oregon and Southern California. Fruit has, of course, always been grown on a small scale in all agricultural districts. Market gardening has developed at a phenomenal rate during the past thirty years. Originally, farmers grew their products and hauled them in wagons to Market the near-by towns. Now, spinach, lettuce, g'"''iening. tomatoes, and other green vegetables are grown in the Southern states all winter long and shipped by fast freight to the North. These products not only bring reasonable prices to Southern farmers, but they provide city con- sumers with green vegetables throughout the whole year. Meanwhile, hothouses have been constructed in the North in which lettuce, tomatoes, cucumbers, beans, and other 2i6 American Economic Life green products are grown with considerable profit. The rapid increase of city population has thus been followed by the development, all along the Atlantic seaboard, of market gardening on a large scale. During the last half century the American people have developed and perfected so many new agricultural methods Agricultural that agriculture itself has been placed on the training. basis of modern industry. In bringing about this result, the agricultural school has played an important part. Formerly, the farmer was an untrained man. The knowledge he possessed was inadequate and traditional. To-day, however, on the farms of the Middle and Far West there are many thousands of men who have taken technical courses in agriculture. These men are trained in the modern science which has revolutionized agriculture as well as industry, and are equipped with a knowledge of business methods. Upon men of this character depends our future agricultural progress. QUESTIONS FOR RECITATION 1. Explain why the North is not preeminently agricultural. Why it is preeminently industrial. 2. What does the South produce? Why? 3. Why was slavery profitable in the South, but not in the North? 4. Why did not the cotton gin decrease the need for slave labor ? 5. What factors developed agriculture in the West? Explain each. 6. Explain early methods of agriculture in the United States. 7. Show the importance of modern agricultural machinery. 8. Name the chief products of the East, South, and West. 9. Why is agriculture a basic industry ? 10. Name the chief kinds of agricultural work in the United States. Explain what you mean by each. American Agriculture 217 11. Why is the general farmer turning more of his attention to specialties ? 12. Name the chief areas of corn and wheat production in the United States. 13. What parts of the country are most interested in stock rais- ing? 14. Where is the center of dairying? Of fruit growing? Of market gardening? 15. Why is agricultural training important? PROBLEMS FOR DISCUSSION 1. What causes make it possible for the percentage of our popu- lation engaged in agriculture to decrease ? 2. Why have many people left the farms for other pursuits? Is this migration likely to continue? 3. Agricultural experts tell us that by using present amounts of labor, land, and capital according to the most effective plans of agricultural production already known, the productive efficiency in this industry could be doubled in a year. Why is this not done? What forces are working in this direction? 4. Why should the forces of custom, habit, and inertia be stronger in agriculture than in other pursuits ? 5. What functions do you think the agricultural colleges per- form? 6. When good means of transportation opened up markets for the produce of the Western pioneers, what changes took place in agricultural production ? 7. Under what conditions are we apt to have diversified farm- ing? Single-crop farming? 8. What is the difference between extensive and intensive agri- culture ? 9. Why is agriculture in Europe more intensive than in the United States? 10. If you were to take up agriculture as a profession, what branch would you select ? Why ? 11. What was the effect of the World War upon our agricultural development ? 2i8 American Economic Life 12. What danger did agriculture face when this war was over? 13. Is agriculture to-day yielding a diminishing return? SUPPLEMENTARY READING BviUetins. United States Department of Agriculture. Bulletins. State Agricultural Departments. Harwood, W. S. The New Earth, Chaps. IX, XI, XII, XIX, XX. Smith, J. R. Commerce and Industry, Chap. I. Warren, G. F. Elements of Agriculture, Chaps. VII, XVI, XVII, XVIII. CHAPTER XXIII The Problem of Soil Fertility I. How the soil is exhausted 1. Why fertihty is important 2. Causes of soil exhaustion : a. The "one crop" system: (i) Examples (2) Evil results b. Lack of "humus" c. Waste of manure : (i) Examples (2) The estimated loss 3. The result II. How fertility may be restored 1. The essential elements 2. Means of soil conservation : a. The fertilizers : (i) Chemical fertilizers (2) Animal products (3) Barnyard manure h. Cover crops : (i) Their meaning (2) Their purpose (3) Value of "legumes" 3. The outlook How the Soil is Exhausted. — Intimately connected with the subject of agriculture is the problem of soil fertility. We have seen that land is inherently subject to the law of diminishing returns, and that, consequently, the longer the soil is worked the less is likely to be its 2ig 220 American Economic Life fertility. Hence the question of maintaining the produc- tivity of the soil becomes of paramount importance. Man ^, must combat the tendency of land to yield a de- fertmty is creasing return. But, in spite of this necessity, little attention has been given, until recently, to the conservation of soil fertility in the United States. In this country rich soil has been so abundant that man, rather than spend time and effort upon the conservation of a particular soil, has simply moved from land of diminish- ing fertility to one of increasing return. Through carelessness or ignorance, the American farmer has often unnecessarily exhausted the fertility of the soil. Causes of This exhaustion has resulted chiefly from the soil ex- " one crop " system, from the lack of " humus," ^, „ ' and from the waste of manure. The one crop The one ^ _ ^ ^ crop " system, used for years in the South, is disastrous system. ^^ ^^jj fertility. There, the same piece of land, year after year, was used for growing tobacco or cotton, and, when the planter began to notice a decreased return, he simply moved to another fertile spot which he likewise devoted to the exclusive production of one crop. If, instead of confining his production to this crop, the farmer had practiced scientific rotation of crops, the soil might have retained its fertility almost indefinitely. The one crop system has two evil results. In the first place, it causes the soil to be exhausted of that particular element required to grow the special crop, so that even- tually the cultivation of the crop on that land will have to be abandoned. In the second place, the insect enemies and bacteria, which prey upon that crop, will multiply to an alarming extent and ultimately prove disastrous to its cultivation. The Problem of Soil Fertility 221 Again, soil exhaustion has resulted from the lack of " humus." Humus is decayed organic matter. It is essential to fertihty because it loosens the soil, ^^^^ ^y permits the entrance of air and sunhght, holds " ^«'««^" moisture, and finally furnishes food elements for plant growth. This humus has been provided by nature through the leaves of trees and other natural products. By cutting down trees and destroying plant life, man has often removed the source of humus. Another reason for soil exhaustion is found in the waste or disuse of manure. Sometimes, when manure piles become so large as to be in the way, a farmer waste of simply removes his barn, the thought of using '««««'■«• the manure as fertilizer never entering his head. In the abandoned farms of New England, we find a less ex- treme but, unfortunately, more general instance of the failure to utilize manure properly. For generations, the New England farmer planted his crops, — hay and grain, — cut them, fed part of them to his cattle and horses, and shipped the remainder to town. The part which he fed to his stock was returned to the land in the form of stable manure. But this manure, while piled up in the barnyard for several months of the year, was depleted of its Hquid portion and of that portion which leached out. Thus the farmer each year returned to the soil less than he had taken from it. Some idea of the loss entailed by this waste may be gained from an estimate made by the United States Department of Agriculture. This department estimated that $250,000,000 represented the annual loss resulting from the failure to utilize manure efficiently. This loss might be prevented simply by conducting the liquid to 22 2 American Economic Life cement pits on cement floors, instead of permitting it to run off into the barnyard. As a result of this carelessness or ignorance of the Amer- ican farmer, the soil of the United States, in certain sections of the country, is being unnecessarily exhausted The result. . "^ . . . . of its natural fertility. This exhaustion has been taking place rather rapidly in the plantations of the South, and more slowly in the farms of New England. To- day, as evidence of this, great stretches of land lie unused in both districts. In these regions, therefore, the law of diminishing returns from land has been in actual operation, simply because man has not cultivated the soil in accord- ance with the principles of scientific farming. How Fertility May Be Restored. — In addition to the practice of scientific farming and the proper maintenance of humus, soil fertility depends chiefly upon J. 116 csscn-* tiai eie- the presence of three chemical elements, — men s. nitrogen, phosphorus, and potassium. Of these three elements, potassium, which is found generally in clay soils, is most easily obtained. Nitrogen is secured chiefly through ammonium compounds, while phosphorus exists in bone meal, guano, and phosphate rock. The mainte- nance of soil conservation depends, therefore, largely upon the presence of these three elements in the soil. To maintain these essentials either chemical fertilizers, animal substances, or barnyard manure may be applied Means of to the soil ; or green cover crops may be plowed soil con- under to act as fertilizer. Chemical fertilizers, servation : ' Theferti- such as nitrate of soda, muriate of potash, and Hzers. ^^^^ phosphate, furnish the needed chemical elements without providing the required humus for the soil. On the other hand, fertilizers which are animal products, The Problem of Soil Fertility 223 like ground fish and dried blood, do contain organic matter which decays in the soil. Of especial value, however, are stable manure and green crops used as fertilizers. These possess not only chemical elements, but are particularly valuable for their humus. While stable manure is very effective, its high price may prevent its use from becoming general. On the other hand, green or cover crops are cheap and equally effective. A cover crop is a crop sown with the avowed purpose of plowing it under when it ^ ■^ ^ X u Qg^,gf. crops. reaches the proper stage. The farmer sows this crop in the late fall and lets it cover the ground all winter, because he knows that something is bound to grow on his land during the late fall and early spring. He prefers to have a crop which he may use for purposes of fertilization, rather than a mass of weeds which will stand in the way of cultivation. Then too, in midsummer, when he ceases to cultivate corn, the wise farmer, instead of allowing weeds to grow unchecked, plants a cover crop between the rows of corn. These crops not only protect the ground from the fierce rays of the sun and thus help it to hold moisture, but they also develop a good growth of stalks and leaves that will prove invaluable as green manure when they are plowed down and left to rot. Of these cover crops the most valuable are " legumes," — peas, beans, clover, vetch, rape, and alfalfa, — on the roots of which appear small bulbous formations containing ammonium compounds from which nitrogen is derived. These nodules are the product of bacteria which turn air nitrogen into soil nitrogen. Through few, if any, other plants can the free nitrogen of the air be converted into nitrogen that may be utilized by plants themselves. These 224 American Economic Life legumes, therefore, not only furnish splendid stalks and leaf growths for humus, but, in addition, fix that most expensive of the fertility elements, nitrogen. Thus it may be seen that, in America, the problem of soil fertility is not difficult of solution. While it is true that The out- many sections of the country, through ignorance look. Qj. carelessness, have suffered the effects of soil exhaustion, it is equally true that these same regions, by wise care and management, may be restored to their former fertility. It is likewise evident that there is no necessity whatsoever for the soil enjoying present fertiHty to be exhausted of its fertile quahties. Scientific farming, good judgment, and increased knowledge are the factors essential to a successful solution of the problem. The agricultural school to-day attempts to supply the farming population with this increased knowledge. QUESTIONS FOR RECITATION 1. Why is the question of soil fertility becoming increasingly important ? 2. Can you give any examples of the one-crop system in the United States to-day? State its evil effects. 3. What is humus? What are its uses? 4. Explain how manure is wasted. 5. By what methods may manure be more efifectively used? 6. What are the results of soil exhaustion? 7. Upon what chemical elements does soil fertility depend? State where each is found. 8. Name some animal products that are good fertilizers. 9. Why are manure and cover crops especially valuable as fertilizers ? 10. What are cover crops ? When and why are they planted ? 11. Name the legumes. Explain their value to the farmer. 12. What is meant by "scientific farming"? The Problem of Soil Fertility 225 PROBLEMS FOR DISCUSSION 1. Contrast the soil of the United States to-day with the condi- tion of the soil in the early nineteenth century. 2. What does soil exhaustion involve? 3. Discuss the remedies for soil exhaustion. 4. Explain the principle of rotation of crops. 5. Describe the means that nature provides for the maintenance of humus in the soil. 6. How have men thwarted nature's means of humus conser- vation ? 7. Describe an abandoned farm and explain fully how you would restore its fertility. 8. What does your own state do to maintain or improve its SOU fertility ? 9. What does the United States do in this direction? 10. Contrast the care taken of the soil in this country with the work in this direction in France or Holland. 11. To what extent would you say the law of diminishing returns is at work in the United States? Explain fully. 12. Is this tendency likely to increase or decrease in this country? Why? SUPPLEMENTARY READING Annals American Academy. Conservation of Natural Resources, Parts III and IV. Hall, B. A Little Land and a Living. Harwood, W. S. The New Earth, Chaps. I, II, III, V, XVIII. Hunt, T. F. How to Choose a Farm. Warren, G. F. Elements of Agriculture, Chaps. IV, V, VI, IX. CHAPTER XXIV New Forms of Plant and Animal Life I. The process of selection 1 . Artificial selection : a. Meaning and example h. How accomplished 2. Natural selection : a. Meaning and example h. The final result 3. A fundamental difference 11. How man utilizes selection 1 . In changing animal life : a. The transformed hog h. Different types of horses c. The modern hen 2. In changing vegetable life : a. The new variety of wheat h. New varieties of corn c. New fruits and vegetables 3. The conclusion Another problem connected with agriculture is that furnished by the conscious production of new forms of plant and animal life. Formerly, such a change in the natural order would have been regarded as evidence of witchcraft, and the person possessed of this power promptly burned at the stake. To-day, however, this is rightly regarded as one of the triumphs of modern agriculture. 226 New Forms of Plant and Animal Life 227 The Process of Selection. — Selection is either artificial or natural. Artificial selection is the process by which men perpetuate or destroy certain desirable or un- desirable characteristics in animals and plants, selection: For example, the cat, belonging to one of the Meaning most ferocious families in the animal kingdom, '^J^ampie. was originally fierce and wild. To-day, it is so gentle and quiet that it loves to be played with and caressed. It has, indeed, become the plaything of children. How has this wonderful transformation been accom- plished? Simply by a process of artificial selection. For centuries, man has not permitted any but the How ac- gentlest cats to live. In this manner, the <^omphshed. quiet and docile cats, generation after generation, trans- mitted their gentle characteristics to their kittens, until to-day we have the domestic pet at our fireside. By a similar process other domestic animals were transformed from wild into tame creatures. Man selected in the parents those qualities he desired in the offspring, and thus deter- mined the character of the coming generation. In natural selection man plays no part. Natural con- ditions determine those that are to survive, and their qualities are thus transmitted to their off- Natural spring. For example, in the wilds of India, ^®®*=*^°^- ferocity is essential to the dat family. Survival atid depends on this quality. Hence, the ferocious '^"■^P^^- tiger survives, while the less ferocious is easily killed or starves to death. In this manner a rigorous process of natural selection destroys the gentle and perpetuates the fierce qualities required in the tiger. By the process of natural selection, those forms of Hfe best able to escape enemies in their particular locality 228 American Economic Life adapt themselves to it, and survive. But thousands of others, not so well adapted to their environment, are The final killed in their struggle for existence. A good result. sized cod lays from thirty to fifty milHons of eggs, but only a few of those that are hatched ever survive to adult life. The remainder are destroyed by the cod's enemies either before or after hatching. Thus, in the course of centuries, this " survival of the fittest " produces a creature best adapted to its own environment. Natural and artificial selection differ in one fundamental respect. The former is unconscious ; the latter, con- Afunda- scious and deliberate. Natural selection occurs mental Unknowingly, without the intervention of any conscious will, while artificial selection takes place with a deliberate end in view. The cod's young are accidentally destroyed by their hungry enemies who have no thought of developing a strong type of codfish. On the other hand, the fierce, wild cats are deliberately killed by man in order to produce a quiet, gentle type of cat. How Man Utilizes Selection. — Through artificial selec- tion men have changed, and are still changing, various . , forms of life coming within their power. This In animal f ^ ^ life: may be seen both in the animal and vegetable The trans- world. Southdowu shcep and the two-minute formed hog. .-.,,. trotter are products of artificial selection just as much as the thornless cactus and the Burbank potato. In fact, artificial selection has revolutionized animal life. A striking instance of this is seen in the transformation of the hog. The wild mountain hog, with his sharp back, raw-boned body, and long legs, was little suited to the pork market. The hog breeder, therefore, proceeded to change this scrawny, razorback creature into a fat, edible New Forms oj Plant arid Animal Life 229 animal. This he did by selecting from each generation the short-legged, fat, quiet hogs to be the parents of the next generation. In this manner, after the process had continued many years, a type of hog satisfying all the requirements of the market was produced. With horses this same process of selection has been carried on. Some horses must be fast, others suited to light work, and still others capable of drawing ^^-^^^^^^ the heaviest loads. In response to these types of demands, horse breeders, by proper mating, have finally developed fast race horses, all-around work horses, and draught horses of great bulk and strength. Chickens have likewise been transformed. The hen, in her wild state, laid a few eggs a year and hatched them all. The modern hen — the product of careful The modem artificial selection — lays ten times as many ''"^■ eggs in the course of a year and may even be induced to refrain from setting. The value of this increased egg supply is obvious. While the cost of raising chickens remains the same, the additional eggs furnish the farmer with increased profits. Recently, however, the most remarkable results from artificial selection have been attained in the development of vegetable rather than of animal species, invege- Students of plant Ufe, during the later nineteenth *^^^^ ^® = The ftciv century, created many new vegetable types, variety 0/ Consider, for example, the work of the govern- '^'^^'^^■ ment experiment stations in developing a new variety of cereal capable of resisting disease. The gravest foes of the farmer during late years have been bhght, scale, and similar forms of plant disease. An attempt was therefore made to develop a species of wheat that would not succumb 230 American Economic Life to blight. Experiment after experiment was made with this end in view, and men were sent all over the world to look for kinds of wheat that would resist blight. Such a type of wheat was finally evolved. At the same time, experiments were being made on the dry lands of the West, where the rainfall is only one-third of that along the Atlantic plains. Here, the land being fertile and the water scarce, a kind of wheat capable of resisting drought was produced. Eventually, by careful selection, there was further developed a variety of wheat not only requiring Httle moisture, but also comparatively free from blight. The corn belt in the Middle West furnishes another interesting example of the results of selection. The manufacturers of corn oil desired a corn con- New varieties taining a high percentage of oil, while the manu- '^^'■"- factures of certain corn food found a low per- centage of oil desirable. To meet these different demands, experiments were made on a certain variety of corn con- taining six per cent of oil. As a result, this same corn in the course of a few years was made to produce one variety containing nine per cent of oil, and another containing two per cent of oil. In the same manner the principle of artificial selection has been utilized to produce new kinds of fruits and vege- New fruits tables. Burbank displaced the red potato by and the artificial white one, and thus reaHzed the vegea es. pj^ture of a potato he mentally patterned in 1873, — " A potato with a better flavor, one with a rela- tively larger amount of sugar, one that will be a larger size and all of the same uniform shape and size, and one that will better resist diseases and be a larger 5delder than any potato now known." Through the same means. New Forms of Plant and Animal Life 231 the splendid market tomato has been evolved from a weed ; the luscious Baldwin is the descendant of the thorn apple ; and Burbank, in the near future, promises a seedless strawberry. Artificial selection has thus proved one of the most potent forces at the disposal of the agriculturist. Through it he has been enabled to revolutionize his xhe industry, and to place upon the market multi- conclusion, tudes of nutritious vegetable and animal products. In industrial life, through the domestication of animals and the gradual development of beasts of burden, artificial se- lection has exercised an equally potent influence. QUESTIONS FOR RECITATION 1. Define the process of selection. 2. Explain the difference between artificial and natural se- lection. 3. Give examples of each kind of selection. 4. Show how each kind of selection is accomplished. 5. Explain the meaning of "the survival of the fittest." Give examples. 6. What is the purpose of artificial selection? 7. Why is a knowledge of artificial selection useful to the modern farmer ? 8. Explain in detail what artificial selection has accomplished in the animal world. Give illustrations. 9. Show how it is of value in the poultry business. 10. What has artificial selection done for the production of cereals? 11. What has it accomplished in the fruit and vegetable world? PROBLEMS FOR DISCUSSION 1. Discuss the meaning of evolution. 2. Apply the doctrine of evolution to the development of man. 3. What kind of selection is most dominant in the evolution of primitive man ? Of modern man ? Why ? 232 American Economic Life 4. Discuss some of the important contributions of artificial se- lection to agriculture ; to civilization. 5. Can you cite any local instances of the selection process? 6. Show how the process of selection operates in your own school life. 7. Explain the process of the domestication of animals. 8. Discuss the meaning of eugenics. 9. What may eugenics accomplish for the human race? 10. What are the limitations of the principle of artificial selection when applied to human beings ? SUPPLEMENTARY READING Conklin, E. G. Heredity and Environment. Darwin, C. Origin of Species. Harwood, W. S. The New Earth, Chaps. IV, VI, VIII, XVII. Schmucker, S. C. Meaning of Evolution. Warren, G. F. Elements of Agriculture, Chaps. I, II, VIII, XI- XV. CHAPTER XXV Early American Industry I. Origin of American industry 1 . Kinds of industries 2. The colonial policy : a. Meaning and application h. How carried out : (i) By industrial restrictions (2) By commercial regulations c. Effect of this policy 3. Condition after the war : a. The new danger h. The proposed remedy 4. Effect of War of 181 2 II. The Industrial Revolution 1. The ''domestic system" 2. Inventions: a. Their importance h. Their effects : (i) On mechanical power (2) On transportation facilities (3) On labor-saving de\ices 3. The "factory system" : a. Its essential features h. Its advantages : (i) In production (2) In consumption c. Its disadvantages Another form of wealth production which developed marvelously in the nineteenth century is found in the 233 234 American Economic Life realm of industry. An examination of American economic life will show that, not only in agriculture, but also in manufacturing, is the United States realizing its latent possibilities. Origin of American Industry. — The American colonists found open to them three kinds of industries. In the 'Kinds of ^^st place, they might engage in the primary industries, industries, such as lumbering, mining, and quarrying, which are concerned in converting natural resources into the raw materials of industry. In the next place, they might engage in the secondary industries, which work on the raw or semi-finished products, such as ship- building, iron manufacturing, and the manufacture of woolen goods, hats, clothing, and similar articles. Finally, the American colonists might engage in another form of industrial activity, — commerce. The harbor facilities, the proximity of the West Indian markets, together mth the development of industry and of agriculture, afforded every opportunity for an easy exchange of commodities. Had the colonists been content to engage only in the pri- mary industries, involving the production of raw materials, _,, they might have escaped coming into economic colonial conflict with England. According to the general ^° ^^'. colonial policy of the seventeenth century. Meaning • ■> i- and colonies existed for the good of the mother appicahon. Q^Q^Yitxy. It was their function to supply raw materials for the home country to manufacture and sell back to them. England attempted to apply this theory by requiring the colonies to produce only raw materials, by transporting these raw products in her own ships to be manufactured at home, and by carrying back in her own vessels the finished products to be sold in America. In Early American Industry 235 tliis way, the English manufacturer and merchant made several intermediary profits. To carry out this policy effectively, England resorted to many devices. Since manufacturing involved the use of machinery, the home government passed acts How carried prohibiting the exportation of machinery to the ""'• colonies. But, despite this discouragement, the colonists journeyed to the English factories, imported some labor, brought in an occasional drawing or pattern, and, above all, proceeded to invent their own implements. England also discouraged American industry by passing acts for- bidding the colonies to manufacture certain goods produced in England. This prohibition was particularly severe on the New England colonies, where every effort had been made to encourage industry. To accomplish its end, Parliament further passed, toward the close of the seventeenth century, the Navigation Acts regulating and restricting commerce. Under these acts, the monopoly of English trade was to be held by Eng- lish ships and English subjects. As the colonists began shipbuilding at an early date, these acts struck a hard blow at a rising American industry and a growing American commerce. The effect of this policy, which, it must be remembered, was the general colonial policy of all European nations at that time, was to accentuate the gradually ^^g^/ of growing differences between the colonies and the '^" policy. mother country. The North suffered most severely from the effects of this narrow policy and objected most stren- uously to its enforcement. It denied to the inhabitants of this region their logical occupations, — shipbuilding, manu- facturing, and commerce. This denial, added to the denial 236 American Economic Life of political rights to the colonists, intensified the coming struggle for political independence. So often do we em- phasize the political side of this struggle, through the battle cry of '' taxation without representation is tyranny," that it is well here to bear in mind the economic factors at work in the separation of the colonies from the mother country. While the Revolutionary War was in progress, national industry was really beginning. The English blockade. Condition following the declaration of war and continuing after the throughout the Struggle, forced the colonists The new themselves to manufacturing. But when peace danger. ^^g declared, American industry faced a new peril. For years, European manufacturers had been stocking up goods at home. When the war was over, these goods flooded the American market. Handicapped as the American manufacturers were by crude machinery and relatively high-paid labor, they were unable to com- pete successfully with their foreign rivals. To meet this situation, the American manufacturer naturally turned to some form of legislative protection, j,^^ This was first afforded by the Tariff Act of proposed 1 789. Soon after, Alexander Hamilton, Secre- reme y. ^^^^ ^^ ^^^ Treasury, made a strong plea for protection in his famous report on the status of manu- factures. In this report, he took the position that " cus- toms duties " must be levied, if the " infant industries " of America were to compete successfully with the estab- lished industries of Europe. As a result of his recommen- dation, the rates in the Tariff Act of 1789 were increased in 1790, and again in 1792. In this manner was inaugurated that policy of protecting American manufactures, which, with slight interruptions, has continued to the present day. Early American Industry 237 Another factor of considerable importance in the early- development of American industry was the situation brought about by the War of 181 2. This Effect of struggle had the indirect effect of stimulating WarofiSiz. manufacturing in the United States. At that time America was still largely dependent upon England for the bulk of needed manufactured articles. When war suddenly cut off this supply, the young nation was forced to depend more and more upon her own industrial activities. In this manner home manufactures were stimulated, just as one hundred years later the World War forced the United States in much the same way to develop new dye and chemical industries. The Industrial Revolution. — Before the middle of the eighteenth century, industry in whatever form it existed, both at home and abroad, was conducted along extremely simple lines. Its seat was in the " domestic home, where it was closely linked with the life ^^^ ^™' of the family. The primitive spinning wheel and the old- fashioned hand loom were the chief tools of production, while the labor employed was made up of members of the family supplemented by a few outside laborers called in for special purposes. Goods were manufactured at home, by hand, with the assistance of a small group of family laborers. This method of manufacture has, therefore, been called the " domestic system " of industry. As contrasted with this early method of manufacture, we find that, to-day, industry is highly organized and extremely compHcated. This change has been inventions: wrought by the Industrial Revolution of the Their im- latter half of the eighteenth century. In ^'"■'««"- effecting this change, inventions have been of paramount 238 American Economic Life importance. In fact, without the inventions of the last one hundred and sixty years, men would still be working singly and inefficiently. Modern industry is founded on inventions. Through them machinery has come to the aid of man, who has learned that, by working cooperatively with the help of machinery, industrial miracles may be accompHshed. Steam and electric power are slaves, wilHng and eager to do the work of man. Inventions are the means whereby man directs and utilizes these forces of nature. The effect of inventions may be seen cliiefly in three directions. In the first place, through inventions, Xheir mechanical power has been utilized to direct effeas. industry. Man's physical strength is in- finitesimal. Mechanical power was therefore appHed to the wheels of industry. A series of famous inventions, beginning with the work of Hargreaves, Arkwright, and Watt, first taught man how to apply the forces of nature to the field of industry. Water power, steam, and elec- tricity, each in succession has been substituted for human energy. To-day we even witness the harnessing of Ni- agara Falls, and the almost miraculous utiHzation of the vibratory forces of nature. Inventions have, in the second place, revolutionized means of communication. As soon as men discovered that the wheels of industry could be driven more cheaply and efficiently by mechanical power than by human energy, they applied this knowledge to improving their transportation facilities. The increased supply of economic goods could, thus be transported cheaply between distant places. The development of the railway, the telephone, the telegraph, the trolley car, and the commercial automobile Early American Industry 239 have all contributed vastly to industrial development. In the future the possibilities of the airship are yet to be realized. Inventions have finally exercised a wonderful influence on labor. The Yankee is noted for doing nothing by hand that may be done more quickly or cheaply by machinery. As a result, more labor-saving devices have been invented in the United States than in any other country. Examples of such machinery are found everywhere. In Ufting and carrying hea\'y masses of iron and lumber, great cranes now do the work once done by human muscles. The old hand press of Benjamin Franklin's time has been replaced by the huge printing machines of the present day. By the in- vention of labor-saving machinery, the Yankee has caused his head to save his hands. The logical outcome of these new conditions brought about by inventions was the advent of the ".factory system" of industry. It has already been xhe "fac- pointed out that during colonial times American *°|^ f^^' industrial methods and processes were simple j^^ essential and easily performed. The home was the seat of featwes. industry. Here was done the work of spinning, weav- ing, and cloth making. But, with the advent of the new inventions of the latter half of the eighteenth century, industry required entirely new conditions. Complicated machinery could not be installed in the home ; it must be separately housed in the factory. Things were thus no longer hand-made and home-made, but machine-made and factory-made. Labor, too, instead of consisting of a small family group was now made up of great groups in large factories. In this manner, the nineteenth century wit- nessed the development of the factory system of industry. 240 American Economic Life The advantages of this system are seen primarily in the production of wealth. The great quantities of goods Its ad- produced by the factory make possible a de- vantages. crease in the cost of manufacturing. In con- trast to agriculture, which is subject eventually to the law of diminishing returns, manufacturing is subject to what is known as the law of constant returns. That is, the value of the product turned out increases, more or less regularly, with the cost of manufacturing. If, then, the cost of production can be reduced, while the demand for the product remains the same, the possibility of providing goods more cheaply becomes steadily greater. Inventions, by eventually reducing the cost of production, especially in the field of labor, normally result in a larger, cheaper, and better output of goods. From the standpoint of consumption, the advantages of the factory system are no less evident. Things which were formerly produced in the home with great care and ex- pense are now supplied by the factory. Hosiery firms in one week turn out ten thousand dozen pairs of stockings, while factories deluge the housekeeper with manufactured breakfast foods and canned fruit. Because the factory can do all this more cheaply than the home, man's con- sumption has become more varied. The factory system of industry has some disadvantages also. These were felt chiefly in the period of transition, Its disad- when large numbers of skilled laborers were vantages. forced out of work by the introduction of machinery. However, after an adjustment to the new conditions had been effected, this evil was in part removed. A more present evil is found in the fact that individuals, living and working under the factory system, are subjected Early American Industry 241 to the harmful conditions imposed by that system. In this connection attention has already been called to the evils of child labor, to the danger from unguarded machinery, from dust, high temperature, and lack of ventilation. Then, too, the massing of laborers in large cities near factories presents a serious problem. But after all, these conditions are transitory and may in the course of time be remedied. QUESTIONS FOR RECITATION 1. Explain the kinds of industries open to the colonists. 2. Why did they wish to develop secondary industries? 3. What was the English colonial policy and how was it carried out? 4. Was this policy beneficial to England? To the colonies? Why? 5. Were the colonists justified in objecting to the British re- strictions on their manufacturing and commerce ? 6. Had the American manufacturers no alternative, in 1789, but to ask for a protective tariff? Does this necessity exist to-day? 7. Explain the effect of the War of 1812 upon American in- dustries. 8. Explain the domestic system of industry. Can you cite any instances of this to-day? 9. Describe the origin of the factory system. Explain its meaning. 10. Discuss the importance and the effects of inventions to society. 11. Describe the advantages of the factory system. 12. What are the chief evils of the factory system? 13. Can the evils of the factory system be separated from it? If so, how ? PROBLEMS FOR DISCUSSION 1 . Contrast the economic with the political causes of the Revo- lutionary War. 2. What important influence did the division of industries — 242 American Economic Life agriculture in the Southern, and manufacturing and commerce in the Northern colonies — have upon the later history of the United States? 3. Can any parallel be drawn between the English colonial policy of 1700 and the American colonial policy of 1900? 4. Was Hamilton correct in assuming that a nation should be self-supporting through the production of all the necessaries of life? 5. What factors made possible the rapid advance of American manufactures after 181 5? 6. What advantage had the early American over the European manufacturer? What disadvantage? 7. Where do the benefits of inventions go ? Explain fully. 8. What is the most effectual way of encouraging inventors? 9. Is the factory system essential to civilization ? Why? 10. Are there any ways in which the factory system may be super- seded ? 11. Has the increased amount of goods produced under the factory system made up for the loss, individually, which has been the lot of many? SUPPLEMENTARY READING Bogart, E. L. Economic History of the United States, Parts II and III. Cheyney,,E. P. Industrial and Social History of England, Chaps. VII and VIII. Coman, K. Industrial History of the United States, Chaps. Ill, IV, V, VI. Toynbee, A. The Industrial Revolution. Wright, C. D. Industrial Evolution of the United States, Parts I, n, IV. CHAPTER XXVI Large Scale Production I. Nature of large scale production 1. Its meaning 2. The old method 3. The present method : a. An illustration b. Its essential features c. How it has spread II. Effects of large scale production 1 . The advantages : a. Decreased cost of production h. Control of the product c. Utilization of by-products : (i) Meaning (2) Examples d. Specialization in industry 2. The disadvantages : a. Economic h. PoHtical 3. Other effects : a. On labor h. On capital 4. The conclusion Nature of Large Scale Production. — The logical out- come of the factory system is the system of large scale production. This system is applied to that its modern method of production which involves nieamng. (i) the use of colossal sums of capital, (2) the highest 243 244 American Economic Life efficiency of labor secured through complete organization and perfect equipment, and (3) the control of the re- sources necessary to the production of the finished article. When the factory system first developed, production was accomplished in a comparatively simple manner, and for that reason was known as small scale production. But with the marvelous machinery and the perfected methods of recent years, modern production has entered upon a large scale stage. Consider, for example, in the iron industry, the difference between the methods employed in the last century and The old those used to-day. When iron ore was dis- method. covered in the Lake Superior region, after the iron industry had been centered at Pittsburgh, the manu- facturers of iron wished to transport the ore to the coal district. To accomplish this, steamboats were employed to carry the ore down the Lakes to a point near Pittsburgh ; and then the ore was taken from the boats by means of hand tools, such as shovels and wheelbarrows. This simple method of performing the work was known as small scale production. In contrast to this to-day we have the methods of large scale production. The ore, dug from the ore fields with „, ^ steam shovels, is hauled to the lakeside and The present method: emptied on a high wharf. From this wharf Aniiius- the iron ore is dropped through chutes into the (ration. hold of an ore ship, which then proceeds to the lower Lake ports. Here special electrical machinery operates huge grab-buckets, which drop into the hold of the ship, grab from six to ten tons of ore at once, and transfer it to the cars waiting to convey it to Pittsburgh. By means of these grab-buckets, ten thousand tons of ore Large Scale Production 245 can be transferred from the vessel to the cars in a few hours. In all these processes it will be observed that crude ma- chinery and muscular energy have been replaced by highly perfected mechanical appliances. But these appliances are not secured for nothing. The unloading plant itself costs a quarter million dollars, — a sum greater than that represented by the ji^ essential entire plant of the small scale producer. Large /«<»'"''"• scale production, therefore, necessitates not only the most modern machinery and the most scientific methods of production, but it further necessitates the vast sums of capital required for these purposes. Again, this production cannot be carried on without an army of industrial workers with a highly perfected organization. Finally, the large scale steel producer requires control of the basis of his industry, — the raw materials of coal and iron. The development of large scale production in the United States from the last quarter of the nineteenth century has been phenomenal. By no manner of means howU has this method been confined to the iron and ^'^^ spread. steel industries. On the contrary, it has spread to the production of oil, of sugar, of tobacco, of foodstuffs, of electrical appliances, of locomotives, of ships, and indeed of practically all the leading industries of the country. Efifects of Large Scale Production. — This system of production has had a marked effect upon the industrial life of America. Its consequences have been ._, ^ ^ , Advantages: both advantageous and disadvantageous, with Decreased the balance in favor of the benefits derived '^"^^ "/ P''o- . duction. from this system of production. Foremost among these benefits is the possibility of decreasing the cost of production. We have seen that the natural con- 246 American Econofnic Life sequence of the factory system was to decrease the cost of production by reducing the amount, and, therefore, the cost of the skilled labor required under the old domestic system of industry. Large scale production, which is based upon the factory system, has greatly accentuated this tendency to reduce the cost of production by securing greater standardization in industry, by increasing the number of labor-saving devices, and by enlarging the economies of production. It must be remembered, how- ever, that decreased cost of production is not synonymous with lower prices. This distinction will be further em- phasized in discussing the evils of this system of pro- duction. Large scale production decreases cost of production, not only through the use of improved machinery, but „ , also through the control of raw materials, the of the utilization of by-products, and the specializa- tion of industrial processes. In the first place, this system of industry aims to place in the same hands the control of the product from the time it is raw material until it has been converted into a finished or semi-finished product. This fact may be well illustrated by the develop- ment of the Carnegie Steel Company. Andrew Carnegie, who originally controlled a small steel mill, wished to own also the raw materials, — ore and coke, — as well as the means of transporting them to his works. He there- fore proceeded to secure control, successively, of the Frick Company's coal and coke ; of extensive ore fields in the Lake region ; and, finally, of certain transportation lines running into Pittsburgh. In this manner, the Carnegie Steel Company secured control of steel from the ore bed to the finished rail. Since the result of this integrating Large Scale Production 247 process is to develop a tendency toward monopolization of natural resources, the consequences of this policy, if pursued in an anti-social manner, may be disastrous to society. However, when the interests of the community are properly safeguarded, the ultimate effect of integra- tion in industry is advantageous to society. Another striking advantage of large scale production is found in its utilization of by-products. By-products are the waste of industry, which by special pro- jj miration cesses are converted into economic goods. In ofhy- the packing houses of the West, for example, bones are made into many useful articles ; fats provide glycerine for the preparation of soap and toilet articles ; and the gray matter of calves' brains is turned into medicine for the treatment of nervous diseases. Through the aid of by-product utilization, the great Western packer is enabled to sell his main product at a price lower than that charged by his competitors, and, thereby, secure partial monopoly of his business. When the power of the large scale producer is used in this manner, it takes the form of " unfair competition." Other industries effect similar savings. Slag, or waste from iron furnaces, is now made into high-class brick. " Buckwheat " and " dust " coal were formerly thrown away as refuse after the larger sizes had been screened out. To-day, however, this coal is utilized in the production of steam. Perhaps the best-known utilization of by- products has come with the development of the cottonseed oil industry. In i860, cottonseed was garbage; in 1870, fertihzer ; in 1880, cattle food ; and in 1890, table food. Such striking transformations make us wonder what the future may bring forth. 248 American Economic Life Still another great advantage resulting from large scale production is found in specialization in industry. Al- si>eciaii''a though large scale production has brought a tion in large number of plants under one management, tn usry. ^^^ centralization is resulting in each plant's specializing in the manufacture of some particular product. For example, in manufacturing blacksmiths' supplies, one factory makes horseshoes ; another, horseshoe nails ; a third, drills ; and a fourth, bolts and nuts. In this manner industry is being constantly specialized ; and, of course, along with this industrial speciaHzation and minute subdivision of labor, great economies of production have been effected. Large scale production thus involves the possibilities of many advantages to civilization. However, as is usual The disad- with great contributions to industrial develop- vantages: ment, this System of production is at times Economic. accompanied by serious disadvantages to society. These evils may be economic, political, or social in character. On the economic side, the benefits resulting from the decreased cost of production, made possible by large scale production, may be enjoyed, not by the com- munity in the form of lower prices and higher wages, but by the great producers in the form of higher profits and lower wages. This situation is brought about by the unchecked monopoly power of the large scale producer, by means of which he may be permitted deliberately to crush his competitors. From the social and political standpoint, large scale pro- duction may result in equally potent evils to social welfare. An enormous amount of wealth, concentrated in Politicdl' . , the hands of a relatively small number of indi- viduals, gives this group of men extraordinary power over Large Scale Production 249 the community. This power may be used for the benefit or for the detriment of society. For example, by means of this power, large scale producers may secure " special privilege " from the constituted authorities, and thus form what has been called a " corrupt alliance between business and politics." To overcome these evil possibihties, society must be constantly on guard to check the growth of corpo- rate monopoly power. Some other consequences, which have made a deep impress upon our social hfe, result from the system of large scale production. In the first place, men other do not produce finished goods. This result was, effects: of course, first brought about by division of ^'^ ^'^*'"'- labor, but the great specialization of large scale produc- tion has rendered this all the more inevitable. Formerly a man made a shoe, or a hat, or a coat. To-day he per- forms but one operation required in the productive process. For example, a man may simply polish the oil cups of locomotives, which are eventually used to haul food across the continent for his table. He no longer produces food, but directs his labor toward the performance of one ordi- nary operation. This change has resulted in labor's being highly specialized and organized in the form of a great industrial army. On the other hand, the effects of this system of large scale production have been felt perhaps even more in the organization and management of capital. The old, simple methods of doing business are rapidly disappearing. Formerly a man with a small amount of capital engaged in business independently ; to-day he be- comes one of a thousand all engaged in large scale pro- duction. The small, single-handed capitalist has been re- 2sO American Economic Life placed by the huge, cooperative corporation, which is the form of business organization necessitated by large scale production. Whether the benefits of large scale production are to accrue to society collectively, or to men individually, will The depend altogether upon the relation maintained conclusion, between the large scale producer and the com- munity politically organized, that is, the government. If society permits large scale production to be carried on by powerful groups of individuals without regard to the public interest, the benefits of this system will be con- fined to the few who direct its operation. If, on the other hand, the government maintains, through properly con- stituted authorities, a wise supervision and a sound regu- lation of the activities of the great giant producers, the welfare of society will be promoted and the interests of the producers safeguarded. Like the factory system, the advantages of large scale production are permanent and increasing, while the disadvantages are transitory and remediable. QUESTIONS FOR RECITATION 1. Describe the evolution of large scale production. 2. What is the relation between the factory system and large scale production ? 3. Give the chief characteristics of large scale production. 4. Contrast the methods of small scale production with those of large scale production. 5. Give ten illustrations of large scale production in American industry. 6. Enumerate in outline form the effects of large scale pro- duction. 7. Explain how this system of production decreases the cost of production. Does it necessarily lower prices ? Why not ? Large Scale Production 251 8. Show the effects of this system upon the control of natural resources. Give examples. 9. What is the relation between large scale production and the use of by-products? Give examples. 10. Does the saving through by-products always benefit the consumer ? Why not ? 11. Show the relation between large scale production and spe- cialization in industry. Explain the effect of this upon labor. 12. What effect has large scale production had upon capital? 13. Explain the economic evUs resulting from large scale pro- duction. 14. Describe the political effects of large scale production. 15. Show clearly how the economic evUs of large scale produc- tion may be overcome. 16. How may the political evils be remedied? PROBLEMS FOR DISCUSSION 1. What effects have inventions had on large scale production? 2. Are the advantages of large scale production an integral part of, or are they merely incidental to, this system of production? 3. Could modern society exist without large scale production? Explain. 4. Discuss the economic effects on China of introducing a sys- tem of large scale production. 5. Discuss the importance of by-products to modern industry. 6. What has been the chief cause of the utilization of by-products ? 7. Are the advantages derived by the public from large scale production more important than the disadvantages ? Why ? 8. Is it likely that large factories wUl ever be devoted to portrait painting ? Give reasons. 9. For which of the following articles is large scale production appropriate : hand-made shoes ; machine-made shoes ; furniture ; nails; cut glass; orchids; millinery? Tell why in each case. 10. Do you understand that all business is destined to become large scale business? Give original illustrations. 1 1 . Show how large scale production may result in the monopoliza- tion of natural resources. Give examples. 252 American Economic Life 12. Show the limitations of government regulation of large scale production. SUPPLEMENTARY READING Clay, H. Economics, Chaps. VII-VIII. Ely, R. T. Evolution of Industrial Society, Chap. V. Ely, R. T. Monopolies and Trusts, Chap. V. Jenks, J. W. The Trust Problem, Chap. II. Moore, J. R. H. Industrial History of the American People, Chap. XII. Smith, J. R. The Story of Iron and Steel. Wright, C. D. Industrial Evolution of the United States, Chaps. XIII and XIV. CHAPTER XXVII Business Organization I. The usual forms of organization 1. The enterpriser 2. The partnership : a. Its advantages b. Its disadvantages 3. The corporation : a. Its nature b. Its advantages : (i) Great capital (2) Limited liability (3) Good management II. The trust form of organization 1. Its nature 2. Its different forms : a. The ''pool" b. The board of trustees c. The holding company 3. Its regulation : a. Why necessary b. How attempted : (i) Sherman Anti-trust Act (2) Clayton Anti-trust Act (3) Federal Trade Commission c. Influence of Supreme Court d. The outlook The Industrial Revolution, from the domestic system to the culmination of the factory system in large scale 253 254 American Economic Life production, is reflected in the world of business organization in a series of changes in industrial management. In fact, so important has this element of management become in modern industry, that it is now regarded as a new unit or factor of production. However, when this element of management is so regarded, it must be looked upon as a composite factor of production, that is, as a union of two or three of the original requisites of production — land, labor, and capital — upon which all wealth-producing operations depend. Usual Forms of Organization. — It was customary for many years past for business to be conducted and organized The enter- o^ ^ purely individual basis. A single employer priser. took charge of the enterprise, furnished the land, labor, and capital required for the undertaking, assumed the risks involved in the transaction, and suffered the loss or reaped the profit according to the outcome of the project. In fact, this method is still pursued to-day by the inde- pendent business man who ventures out upon an industrial undertaking. Because he undertakes the full responsi- bilities of the business, he is called an enterpriser. Curi- ously enough he is found in both extremes of business. He may be a humble peanut vendor, a struggling boot- black, or an organizing manager of a great capitalistic business that reaches out into every state of the union. In the former case, however, he furnishes his own capital and labor ; while in the latter case he relies, at least in part, upon the capital and labor, as well as the natural resources, of others who have intrusted the management of these business elements to his care and guidance. In order to give this enterpriser a distinctive name, the term " entre- preneur " has been appHed to him. Business Organization 255 When the factory system became firmly established it was soon demonstrated that the best results from business undertakings were not obtainable from the old- ^, " . ... The partner- fashioned organization of busmess under a single ship: employer. Hence arose the partnership form of ^^^ advan- busmess organization m which two or more indi- viduals enter business together. The single employer is re- placed by two, three, or more men who jointly and severally conduct the business, sharing its gains and losses. This method of doing business has a double advantage. Not only is the capital increased, but the work also is more ef- ficiently performed by reason of the fact that each partner is able to specialize in some particular direction. On the other hand, the partnership has two serious dis- advantages. The first of these lies in the fact that each partner is responsible, up to the value of his per- /^^ ^i^ad- sonal possessions, for all debts contracted by the ^««'fl«". other partners in pursuance of the business. A further disadvantage of the partnership is the limited amount of capital it controls. Although the amount is usually greater than that which a single business man commands, yet it falls so far short of the needs of modern times that other forms of business organization were devised. Therefore, to meet the necessities of large scale pro- duction, the industrial corporation came into existence. A corporation may be defined as " an association j^^ ^.^j.. of individuals, known as stockholders, who are poration: empowered by legal charter to elect annually a ^ ""^ "'^^' board of directors, and through it to act as one person in the conduct of the specified business." The corporation is thus a legal entity, existing only in the eyes of the law. Although it is an artificial creature, it possesses many 256 American Economic Life attributes of natural persons. For example, it has power to sue and to be sued ; to hold, purchase, and convey real and personal estates ; to appoint officers and agents ; and, above all, it is empowered " to have succession, by its corporate name, for the period limited in its charter, and when no period is limited, perpetually." This last feature of continued existence is extremely valuable to the corpora- tion because dependence upon the life of an individual en- terpriser, or partner, creates a most undesirable instability. Aside from its permanent character, the corporation, as a form of business organization, possesses other advan- its ad- tages. Chief among these is its ability to amass a vantages. great sum of capital. Thousands of individuals, through their purchase of stock in the corporation, con- tribute millions to its capital. This feature has already been referred to in connection with the effect of large scale production upon capital. The ability of the corporation to raise capital depends largely upon the principle of limited liability. According to this principle, stockholders are liable for the debts of the company only to an amount equal to the par value of their stock. If the business fails, therefore, a single stockholder can lose only the value of his stock. The exception to this general rule is in the case of national banks, where the Hability is double the amount of the par value of the stock subscribed. The corporation also possesses advantages from the standpoint of the management of its business. This form of business organization secures flexibility. Through the simple process of a stockholders' election a complete change in the management may be effected. Likewise, through the offer of high salaries, the corporation is able to secure the Business Organization 257 services of efficient men far beyond the reach of smaller concerns. Finally, the economies of large scale production, made possible by the resources of the corporation, con- stitute perhaps the greatest advantage of this form of business organization. Trust Form of Organization. — Just as the partnership was superseded by the corporation, so the single corpora- tion has been superseded in many fields of ac- . . , •!! 1 ' r 1 ^*s nature. tivity by a still larger unit of management, the trust. The trust, like the corporation, is a form of business organization devised to meet a definite economic need. Since it has taken on different forms, the trust is not capable of exact definition. However, it may be said to be a combination of corporations, and to have passed through three stages of development. The first form the trust assumed is popularly known as the " pool." In this form, independent producers in any one line of business make agreements to eliminate its forms : competition among themselves, either by restrict- '^f'e " pool." ing output or by fixing prices. This form of combination originated with railway companies. The pool is so named because, under such an arrangement, the receipts of the various companies are put into a common fund or " pool " and divided among them in a proportion already agreed upon. Not only has this system proved weak by reason of the outbreak of mutual jealousy and distrust, but such agreements have also been declared illegal. Therefore, the trust entered on its second stage of de- velopment. In this stage the various competing corpora- tions turn over their stock to a central board of The board trustees, which hands back " trust certificates " "-^ trustees. in exchange. This board, holding a majority of the stock 258 American Economic Life of the various constituent companies, maintains complete harmony among the companies and regulates output and price. This is the " trust " in the technical sense. It has been declared Ulegal. The third form of the trust, devised because the " trustee " trust was outlawed, is known as the holding The holding compauy. Under the holding company plan, company. gg^^,]^ Corporation entering the combination maintains its separate existence. To secure unity of action a central corporation is formed, empowered to hold stock of other corporations. The stock of the parent company is then exchanged for the stock of the various constituent corporations. This places under one central control the voting power of the stock of all combining companies, thus insuring uniformity of action and the maintenance of prices. This third stage resembles, in effect, very much the second, except that a board of trustees is illegal, and a corporation empowered to hold stock of other com- panies may or may not be illegal. The holding company, then, is the present form of busi- ness organization adapted to the needs of large scale pro- duction. But we have seen that this system Its regula- tion: of production sometimes enables the few men Why who organize it to exercise enormous power over necessary. . , , , . , , the community through their control over natural resources and their possession of vast sums of capital. By means of their monopoly power, the trusts are sometimes enabled to appropriate to themselves the benefits of large scale production by raising prices, Hmiting output, and by otherwise controlling production. Hence, to attain social welfare, it is necessary to exercise some form of public control over the trust organization of industry. At first, Business Organization 259 the states attempted to exercise this regulation. In 1889 Kansas took the lead by passing a law against business corporations, and was soon followed by other states in the movement to curb the power of the trusts. These laws usually struck at all combinations, regardless of whether they formed complete or only partial monopolies. They were so drastic in character that they were often declared unconstitutional. Furthermore, the laws of the different states conflicted in their provisions. But above all, state action proved inadequate because of the limited power of the states. In our dual system of government, the federal government alone has power over interstate commerce; and it is chiefly in this kind of commerce that the great corporations are engaged. Not state, but federal regula- tion, therefore, became imperative. In 1890 the demand for federal action became so general and insistent that Congress passed the Sherman Anti- trust Act. According to this act " every con- ^^^ at- tract, combination in the form of trust or other- tempted. wise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations " is de- clared illegal. Furthermore, this act makes it a misde- meanor for any person " to monopolize, or attempt to monopolize, any part of the trade or commerce among the several states, or with foreign nations." To make effective this measure, the federal courts are given jurisdiction in these matters. This act is so sweeping in its terms that it has been held to apply not only to industrial combina- tions, but also to railway combinations and labor unions. In fact, the language of this act is so inclusive as to render difficult its exact interpretation. In 1 9 14, however, the passage of the Clayton Anti- 26o American Economic Life trust Act modified and made clearer the terms of the original Sherman Act. This later act exempts labor unions from the provisions of the Sherman Anti-trust Act, pro- hibits one corporation from acquiring stock in another corporation with the purpose of substantially lessening competition between them, and makes illegal, under certain conditions, the system of interlocking directorates. In the same year, 1914, Congress established the Federal Trade Commission, composed of five members appointed by the President. This commission is not only endowed with large powers of investigation, but it also has the power to require special reports from interstate corporations whenever it believes such action is necessary to the public welfare. It may, upon the request of the Attorney General, investigate the activities of corporations that are suspected of violating the anti-trust laws, and make proper recom- mendations for the reorganization of their business. It facilitates the operation of the Sherman and the Clayton Anti-trust Acts by providing new and more effective methods of procedure. In this manner it is hoped that any tendency to monopoly will be checked in its early stages. In the last analysis the legality or illegality of the so- called trust, that is, the holding company, depends upon the ^ , , decision of the United States Supreme Court. Influence of ^ Supreme In iQio, this court handed down two vital de- °^^ ' cisions ordering the dissolution of the Standard Oil Company and the American Tobacco Company. In these cases it was conclusively proved that these corpora- tions were guilty of practices designed to secure a monopoly of trade and commerce in their respective industries. Through unfair competition and unreasonable restraint of Business Organization 261 trade, these combinations had developed, in their particular fields, a monopoly with power to fix prices, limit output, and determine quality. The legality of the industrial combina- tion, therefore, is to be tested on the basis of monopoly. If the effect of the combination is to create such a monopoly, it is illegal; if the effect is otherwise, the combination is legal. This point of view was carried out to its logical conclusion in the decision of the Supreme Court in 1920, dealing with the United States Steel Corporation. Here the court held that the so-called " Steel Trust " is not a combination in restraint of trade, because, in spite of its size, it does not form a monopoly of the steel business, and it is therefore declared to be legal. Thus it is possible for certain combinations to be de- clared illegal, and for others to exist within the law. When one form of business organization is declared The illegal, another in harmony with the law will be "w'^"^^- devised, because large scale production appears to be a necessary part of modern industrial civilization. The process of evolution is at work in industry as well as in society ; and large scale production is one of its products. This does not mean, however, that a trust organization of industry need develop at the expense of social welfare. It merely means that, through proper legislation, the economies of large scale production and the benefits of monopoly, whenever they exist, should be appropriated by the community as a whole rather than by any one group of individuals. If it is true that large scale production is a stage of industrial evolution, it is useless to attempt to stifle it, and it is inimicable to social welfare to allow it to develop free of all social restraints. Both the interests of the producers and the interests of the consumers must 262 American Economic Life be properly safeguarded by effective legislation. Per- haps the best method of accomplishing this end may be attained through industrial commissions which represent the interests both of the individual and of society. QUESTIONS FOR RECITATION 1. Explain the importance of the element of management, or business organization, in modern enterprises. 2. Is managing ability an original or composite factor of pro- duction ? Why ? 3. Describe the simplest method of conducting business. What name is applied to this method ? Why ? 4. Are the following entrepreneurs : a cobbler, a farmer, a con- sulting engineer, a banker, a railroad builder, the boss of a section gang ? Tell why in each case. 5. What is a partnership? What are its advantages and dis- advantages ? 6. Define a corporation. Why has it been called an "artificial person"? 7. Explain why the corporation is an advantageous form of business organization. 8. What is a trust? Why must the definition be general in nature ? 9. Explain the difference between the "pool" and the "board of trustees." 10. Explain how the holding company differs from either of the above forms of business organization. 11. What is the purpose of forming a holding company' ? 12. Explain clearly why it is necessary to control or regulate the trusts. 13. Name the acts by which this regulation is attempted. Give the chief provisions of each. 14. Explain the work of the Supreme Court of the United States in this direction. 15. What is the present form of the trust? When is it legal? When is it illegal? Business Organization 263 16. What happens when the court orders the trust to dissolve? 17. Do you behave that the trust organization of industry can be abohshed? Explain your answer. 18. If not, what effective remedy do you suggest for the control of the trusts ? PROBLEMS FOR DISCUSSION 1. Name the different forms of business undertaking. Discuss them from the standpoint of their relative strength and weakness. 2. What are the chief points of difference between a corporation and a partnership? 3. What advantages has a corporation as compared with a part- nership? Are there any respects in which a partnership has advan- tages not possessed by a corporation? 4. What is a holding company? What are the advantages afforded by this form of organization? 5. Is the growth of combination in accord with economic law? Why? 6. Is the movement toward combination still going on? Is it likely to continue in the future ? 7. Are all trusts monopolies? Are all monopolies trusts? 8. What social advantages and disadvantages do you see in the trusts? 9. Is there likely to be a world corporation formed, or a "great trust" in which every one will be a shareholder? 10. What are the arguments for and against full publicity? 11. On what basis should the amount of capitalization of a trust be determined? 12. What are the checks on the power of monopolies to raise the prices of their products? 13. What advantages and disadvantages do you see in monopoly? 14. Wovdd the abolition of the tariff result in the disappearance of the trusts? 15. Name some of the tendencies in the organization of natural resources. 16. Name some indications of increasing governmental activity in business. 17. State the conflicting views regarding the trust. 264 Am-:;-iccAi Economic Life SUPPLEMENTARY READING Carver, T. N. Principles oj Political Economy, Chap. XIV. Clark, J. B. The Control of Trusts. Ely, R. T. Outlines of Economics, Chap. XIII. Jenks, J. W. The Trust Problem, Chap. VII. Montague, G. H. Rise and Progress of the Standard Oil Company. Moore, J. R. H. Industrial History of the American People, pp. 428-438. Van Hise, C. R. Concentration and Control. CHAPTER XXVIII The Industrial Army • I. Labor cooperation 1. The stages of cooperation : a. Simple cooperation h. Division of employments c. Division of labor d. Specialization in industry 2. Advantages of cooperation : a. Concerning the product h. Concerning machinery II. The army of workers 1 . The organizer : a. Policies and subordinates h. Markets and methods 2. The manager 3. The foreman 4. The wageworker : a. The skilled worker h. The semi-skilled worker c. The unskilled worker 5. The conclusion The change in business organization brought about by large scale production has been accompanied by a similar development in the organization of labor. Formerly, industrial effort was largely individual and competitive ; to-day it is almost altogether social and cooperative. Labor Cooperation. — In the days of savagery, com- paratively httle industrial work was performed. The 265 266 American Economic Life men fought, hunted, and fished, while the women took charge of the primitive industries. Gradually, however, Its stages: military cooperation led to industrial coopera- Simpie CO- tion. Men who had worked together to kill a bear operation. rcsorted to the same method in throwing logs across a stream. Although no task was assigned to definite individuals, each man helped the other by taking part in the operation. This stage in the development of labor is described as simple cooperation. But simple cooperation at best is unsatisfactory. Some men like to do one thing better than another ; hence the r,. . . - development of the second stage of labor coopera- Division of ^ o f employ- tion known as the division of employments. In this stage, one group kills game, another builds boats, while the women carry on agriculture or weave cloth. Each produces a finished product, which is ex- changed for the product of some other group, and thus a certain degree of interdependence runs through early society. The next step in labor cooperation is division of labor. Formerly, in building a house one man would perform all Division of the parts of that operation. He would go into labor. ^j^g woods, fell the trees, and build the house. But gradually the different kinds of labor involved in the task of house building were divided among several individ- uals. One man would simply fell the trees ; another cut them into logs ; another haul the lumber ; and another build the house itself. In this case several men cooperate, but each performs a different part of the labor. Finally, this simple division of labor becomes complex through what is known as specialization in industry, — the fourth and present stage of labor cooperation. By means The Industrial Army 267 of this principle of specialization, each part of the labor already divided has again been further subdivided in the various processes necessary for the finally per- „, ... ^ -' J IT S peaahza- fected operation. For example, in the above Hon in illustration, the man who chopped down the tree " ^ — one part of the labor — was provided with an ax which was the result of the labor of scores of workmen, each one of whom performed some particular part in the process. In this manner, modern methods of production have re- sulted in minute subdivision of labor and great specializa- tion in industry. Cooperation has made this possible. By means of this form of labor cooperation, the product is not only increased in quantity, but improved in quality. Persons who cooperate in labor learn intimately Advantages • the special tasks they perform. Each one is able concerning to do his work much more effectively, therefore, ^^'^ Product. than he would be able to perform work involving a large number of separate operations. For this reason, a hundred socially organized workers in a shoe factory are able to turn out more shoes and better shoes than a hundred individual shoemakers. Another great advantage of this kind of cooperation is found in the fact that it makes possible the increased use of machinery. When an involved operation, concerning like shoemaking, has been minutely subdivided '»a<^^»««''y- into forty or fifty operations, the rougher work may be done more quickly and more cheaply by machinery than by human hands. Thus, the sewing machine, stitching through heavy leather, accomplishes a speedier and better result than the individual hand worker. In this manner, man's inventive genius develops labor-saving machinery to take the place of human energy. It is this high special- 268 American Economic Life ization in industry which furnishes the opportunity for man to invent and develop the machinery required for the special processes. The Army of Workers. — To-day, as a result of this high specialization in industry, all modern industrial labor The is cooperative. The American labor force is thus organizer: Jiig^y organized from top to bottom in the sem- subordi- blance of an industrial army. At the head of this nates. army of workers is the organizer, — the com- mander in chief of his particular industry. Like the miUtary commander, his duties are to determine broad poHcies and to intrust their administration to competent hands. The great organizer mobilizes the forces of labor and capital and applies them to natural resources in such a way that the smallest outlay produces the largest return. He is an executive and leaves all details of administration to his subordinates, for whose competency he is responsible. It is to his creative genius that we owe the trust organization of American industry, and to him has been appHed the phrase " Captain of Industry," as well as the term entre- preneur. The organizer must also have an intimate knowledge of the general markets. He must know what goods are in Markets and demand, and where and when this demand is methods. most activc ; that is, where prices are highest. He must likewise have a thorough knowledge of industrial processes and methods of production, so that by-products may be fully utilized and large scale production carried on efficiently. Next to the organizer in this industrial army is the manager. Like the colonel of a regiment, he executes the orders and carries out the plans of his superior officer. The manager, The Industrial Army 269 therefore, must be in closer touch with the details of the business. While the organizer directs from his New York office the policy of a whole group of estabhshments xhe throughout the country, the manager is respon- manager, sible for the successful management of only one of these plants. He must understand not only the local labor market, but also the possibilities of capital in his particu- lar branch of industry. It is his duty to bring these two together so that he may secure the greatest possible pro- duction. Below the manager is the superintendent, foreman, or " boss," corresponding to the captain, lieutenant, or corporal of a mihtary organization. It is the xhe duty of the superintendent to see that the men foremen, do the work that the manager has outlined. He is respon- sible for the management of his department, and for getting all the work possible out of the group under his charge. The foreman, as well as the " boss," requires special abihty to get along with the laborers, and to persuade them or compel them to work effectively. In the past, the Irish have made the best " bosses," but Italians and Slavs are now being used to direct the work of their own countrymen. We now come to the ordinary workers themselves, — the rank and file of this industrial army. Just as the successful execution of a general's orders depends, in the last analysis, upon the bravery and power worker: of the great mass of soldiers, so the real test of The skilled a nation's efficiency is found in the ability and character of its great body of wageworkers. For con- venience, the wageworkers may be divided into three groups, — the skilled, the semi-skilled, and the unskilled. The skiUed worker is one who does work that requires a 270 American Economic Life longer or shorter period of training or apprenticeship. In this class are included the typesetter, the blacksmith, the carpenter, the skilled clerk and bookkeeper, and a host of others who have received more or less special training in their respective lines of work. The semi-skilled worker is one doing work that may be learned with comparative ease by any newcomer who has ordinary intelligence and ability. Although it is skilled hard to give an accurate definition of the semi- skilled wageworker, the number of men in this class is quite large. For example, in this group are in- cluded the miner, the brakeman, the motorman, the me- chanic's helper, and numerous other laborers doing work which requires some little skill and intelUgence, but no particular period of apprenticeship. The unskilled worker represents a maximum of physical force and a minimum of mental capacity. The street laborer, the coal heaver, and the ditch digger The un- ' ' ^ ^'^ skilled are representatives of this class. The number of laborers in this group rapidly increased in the nineteenth century by reason of two circumstances. In the first place, thousands of immigrants to this country, who were unable to speak the English language, were forced into the ranks of unskilled labor regardless of their native ability. In the second place, the rapid introduction of machinery often deprived a skilled worker of his regular labor and forced him temporarily into the lower ranks, so that he was obliged to attend to the machine which displaced his own skilled labor. Large scale production has left as deep an impress upon labor as upon capital. This twofold aspect of modern American economic life presents some of the most strik- The Industrial Army 271 ing problems of individual and social welfare. Through cooperation, industrial efficiency has been secured and economic progress attained. This same principle xhe must be utilized to attain individual welfare and conclusion, prosperity in the rank, and file of the great army of industrial workers. QUESTIONS FOR RECITATION 1. Trace the development of labor cooperation. 2. Is it true that primitive man made woman do all the work? Explain clearly. 3. Explain the difference between the second and third stages of labor cooperation, and give examples of this difference. 4. Show how specialization in industry differs from division of labor. Give examples. 5. Show the development of all four stages of labor cooperation in the construction of bridges from primitive times to the present da3^ 6. Show the effect of cooperation on goods ; on inventions. 7. When industries were being organized on a trust basis, what new industrial leader arose ? What are his distinctive duties ? What service has he rendered to America ? 8. Why is this leader sometimes called an entrepreneur? How does the entrepreneur differ from the single employer of a hundred years ago ? 9. Explain the duties of a manager and his relation to the or- ganizer. Is this term ever misused? How? 10. State the lower grades of officers in the industrial army and their duties. 11. Classify the rank and file of industrial laborers. Describe the characteristics, and give examples, of each group. 12. Describe in detail the organization of some enterprise with which you are familiar, conducted on the basis of large scale pro- duction. 272 American Economic Life PROBLEMS FOR DISCUSSION 1. What is the relation between labor cooperation and economic progress? Explain clearly ; give examples. 2. Discuss the importance of labor cooperation in securing in- creased production. 3. Is labor cooperation increasing or decreasing in extent? How? 4. What is the relation between labor cooperation and large scale production ? 5. Is modern labor cooperation voluntary ? Explain. 6. Draw a diagram showing the organization of labor in modern industry. 7. What differences can be noted in the organization of labor in the early colonies and in the United States at the present time ? 8. Is the organizer necessary to modern industry ? Why ? 9. What service has the organizer rendered America ? 10. Is the supply of organizing ability limited? If so, by what? 11. Is the average school in America calculated to develop or- ganizing ability ? Explain clearly. 12. What is the relation between our school system and the wage- worker ? How can it be improved ? SUPPLEMENTARY READING Clay, H. Economics, Chap. II. Ely, R. T. The Labor Movement in America. Ely, R. T. Evolution of Industrial Society, pp. 74-98. Hobson, J. A. The Industrial System. Levasseur, E. The American Workman. Seager, H. R. Introduction to Economics, Chap. VIII. Veblen, T. Theory of Business Enterprise, Chaps. Ill, VI, VII. Webb, C. Industrial Cooperation. CHAPTER XXIX Transportation Agencies I. Railroad transportation 1. Its importance 2. Its rapid growth 3. Centralized control 4. Nature of the railroad business : a. The railroad a monopoly : (i) The reasons (2) Consequent problems h. The railroad a "quasi public" corporation: (i) Receives public aid (2) Possesses right of "eminent domain" c. The conclusion 11. Other transportation agencies 1. The telegraph 2. The telephone 3. Express companies : a. Their growth h. Their regulation : (i) Why necessary (2) What the United States has done 4. Electric traction : a. Urban transportation h. Rural transportation c. Electrification of steam roads 5. Water transportation 6. Progress attained Another distinct phase of American economic life appears in the development of transportation facilities. Foremost 273 274 American Economic Life among these facilities is the railroad ; but growing steadily in importance are other transportation agencies, such as the telegraph, the telephone, express companies, electric traction, and water transportation. Each of these demands separate consideration. Railroad Transportation. — Railroad transportation has made possible the American nation. Politically, it has Its im- performed an inestimable service by bringing the portance. diverse parts of the union within easy reach of each other. To-day, the city of Washington is nearer to San Francisco than it was, in early days, to Boston. From an economic standpoint, the service rendered by the rail- road has been no less profound. It has bound North and South, East and West into a gigantic economic unit, complete and self-sustaining in all important respects. This the railroad has accomplished by giving goods " place utility," that is, by transporting goods from one place where they are not needed to another place where they are in demand. The railroad has thus become the connecting link between the producer and the distant consumer. A sudden disturbance of this relationship would result in the paralysis of American economic life. The growth of railroad mileage in the United States has been astonishing. In 1830 there were, in this country, Its rapid o^^ly twenty- three miles of railroad; in i860 growth. there were over thirty thousand miles; in 1880, over ninety- three thousand miles ; in 1900, over one hun- dred and ninety- three thousand miles ; in 1910, two hundred and forty thousand miles, and in 1920, nearly three hundred thousand miles. This growth in railway facilities is without parallel in the economic history of any other people. Transportation Agencies 275 Accompanying this increase in mileage is the movement toward centralization of railroad control. Two hundred and ten independent roads, each with its own centraUzed president, in 1883, had been consolidated, by co^itroi. 1907, into jQity or less. This movement toward centraliza- tion has been so rapid that, if it continues unchecked, it is not idle to speculate on the day when four or five men, sitting around a table, will control all the important track mileage of the country. At present sixty per cent of the mileage of the United States is under the control of five large interests. During the period of government opera- tion, naturally all the important mileage of the country was under the control of one central authority. The true significance of railroad concentration becomes apparent only when one considers the nature of the rail- road business. The railroad is a partial mo- its nature: nopoly ; that is, it performs a service which few ^ monopoly. other agencies perform, the cost of which decreases with the increase in the volume of business. The initial cost of constructing a railroad is so great that, from a social point of view, it is an economic waste to construct another line to duplicate the work of the first road. Moreover, after the trackage, terminal facilities, and rolling stock have once been provided, an increase in the volume of business does not mean a corresponding increase in the expense of opera- tion. In fact, the unit expense diminishes as the business increases, and the railroad therefore benefits by what is called the " law of increasing returns." In spite of legal prohibition, railroads in the past have used their monopoly power unfairly. For example, the law declares that railroads, in transporting commodities, shall not discriminate between individuals, but shall offer 276 American Economic Life their services to all on equal terms. Nevertheless, because of the law of increased returns, the traffic manager is ever tempted to accept extra business at a lower rate. This conflict between railroad profits and public interests some- times leads to a violation of the principle of equal rates for equal service, and has resulted in the practice of grant- ing rebates to favored corporations. Another distinctive feature of the railroad is its close dependence upon the government. This close relation , ,, . between the railroad and the public has caused A quasi ^ public " the railroad to become a "quasi public " corpora- tion. In bringing about this situation two factors are chiefly responsible. In the first place, rail- roads from the earliest times have received financial aid from the states. In addition to this, the national govern- ment has not only advanced money, but also contributed thousands of acres of public land. Thus, railroads are especially indebted to the public, and are therefore clearly marked off from ordinary private economic activities. But of even greater public significance is the railroad's right of " eminent domain." According to this right, a state, upon the payment of just compensation, may take private property for public use even against the will of the owner. To facilitate the railroad in performing its service, the state has delegated this right to the transportation company and thus endowed it with extraordinary power. Railroads are peculiarly indebted to the public, and those who manage them should pay especial regard to public welfare. They are not free to charge what rates they choose, to decide what sections of the country shall prosper, or what private interests shall thrive at the expense of the public good. Transportation Agencies 277 Besides the importance which it derives from its quasi pubhc nature, the raihoad business is of tremendous magnitude. According to statistics of the Inter- xhe state Commerce Commission in 191 7 the labor conduston. employed in railroading numbered about 1,500,000; the capital invested approximated $20,000,000,000 ; and the gross earnings amounted to $3,000,000,000. Thus, in the number of laborers employed and in the amount of capital invested railroading is, next to agriculture, the greatest single business in the United States. Other Transportation Agencies. — While the railroad is by far the most important transportation agency in the United States, there are other agencies which play a great part in promoting national prosperity and efi&ciency. Chief among these are telegraph, telephone, and express companies, which, together with electric traction, constitute an exceedingly important group of transportation agencies. The telegraph developed along the lines of railway com- munication. With improvements in the railroad system, it became necessary to have some means of The tele- speedy communication, not only between rail- ^^p^- road stations, but also between signal towers. Since the telegraph was the earliest means of instant communica- tion, telegraph and railroad lines at first everywhere paralleled one another. With the opening of the present century, however, this community of interests was not always maintained. During the last quarter of the nineteenth century, the telegraph met a keen competitor in a new device — the telephone. Unlike the telegraph, which was Theteie- immediately used for long distance communica- p^°^^- tion, the telephone at first was employed only to communi- 278 American Economic Life cate within buildings, or to communicate between places within the same city. Gradually, however, the sphere of the telephone was broadened, until, to-day, a conversa- tion between New York and San Francisco is an ordinary occurrence. Despite the efforts of the telegraph companies to secure trade, through the introduction of the " night letter" and similar innovations, the telephone has largely supplanted the telegraph as a direct and effective means of short distance communication. Of quite a different character is the transportation fur- nished by express companies. While heavy commodities are transported by freight, small packages require companies: a speedier, easier method of transportation. Their Therefore, the express business was developed in the United States. Express companies developed side by side with the early railroads, until a strong com- munity of interests arose between them, and a close identi- fication of business relationships followed. At first, the express business was organized locally and conducted by a number of separate companies. Soon, Their r eg- howcvcr, this busiucss, while not under one uiation. formal unified control, was nevertheless com- bined into one great system operated on a business under- standing so effectual that territory was divided and rates agreed upon without a sign of competitive spirit. As a result of this understanding, express rates in the United States at the opening of the twentieth century were very high. As a means of obviating private extortion in the carriage of small packages, Europe was first to adopt the parcel post system. For a very low charge, the government carried packages of considerable size and thereby com- Transportation Agencies 279 peted with the private express companies. In the United States the private companies worked consistently, and, for a long time, effectively, against the passage of parcel post legislation. However, in 191 3, after long-continued agitation, a parcel post law was finally enacted. The rates under this law were so low that in the following year the United States Express Company, a private corpora- tion, was forced out of business. The form of transportation which, recently, has had the most rapid growth is electric traction. While electric cars were operated during the last two decades of the Electric nineteenth century, it was not until the very traction: close of the century that the " boom " in electric traction began. Since that time financiers have turned their atten- tion to electric traction operations. The electric traction problem has three distinct phases, — urban transportation, rural transportation, and elec- trification of steam roads. The concentration „ , Urban of population in large cities has made the prob- traris- lem of urban transportation most acute. While cities have grown greatly in extent, the business center has remained comparatively small. Therefore, the increased population of the outlying regions must have some means of rapid transit. With a maximum of speed and a minimum of expense in operation, the electric car offers by far the most effective means of transporting the city dweller to his place of work. At the same time that street railways have been electrified and extended, inter-city and rural electric Knes have been developed. As compared with steam roads, R^rai trans- the cost of installing and operating such lines is ponation. small. Consequently, electric traction facilities have 28o American Economic Life been afforded sparsely settled districts where steam trans- portation would have been unprofitable. Furthermore, a steam road, requiring a comparatively level bed, necessi- tates heavy cutting and filling. On the other hand, an electric car climbs almost any hill, and the cost of grading is thus reduced to a minimum. Hence, the rural electric line reaches many points not accessible by the steam rail- way. In this manner, electric traction has proved a real boon to the country dwellers. The third phase of electric traction — the electrification of steam roads now in use — has as yet barely begun. ^, , .r The New York Central road has electrified some Electrijica- tion of suburban lines running out of New York City with gratifying results, while the Pennsylvania Railroad has begun the work of electrifying all its suburban lines. Since such electrification is profitable in cases of growing suburban districts, it is more than likely that, during the next few decades, all the suburban steam roads running out of the larger American cities will be electri- fied. In considering agencies of transportation we must not overlook the possibihties of water transportation. In Water ^^ earlier chapter we have already pointed trans- out the unsurpassed system of waterways in the United States, and their great advantage to commerce because of the decreased cost of water trans- portation. The Panama Canal will prove to be especially stimulating to the American coastwise traffic, particularly if American ships engaged in this commerce are again accorded free passage through the Canal. Of even greater importance, however, is the question of a merchant marine. The World War gave to the United States a Trayisportation Agencies 281 merchant marine four times greater than it possessed before the outbreak of hostiHties. It created for the Ameri- can people a great ocean-going fleet of 10,000,000 tons at a cost of more than $3,000,000,000. Whereas, in 1910, only eight per cent of the imports and exports of the United States were carried in American vessels, in 1919 nearly twenty-eight per cent of American foreign trade was so carried. The problem that confronts us is to main- tain, and increase in the future, the American tonnage of ocean-going ships. This can only be done through some form of wise governmental action which will make it possible for the American shipbuilding industry to compete successfully with its European rivals. The means of transportation are the arteries of American business and social life. At the opening of the nineteenth century, the American people traveled on land Progress and water at the same rate that Julius Cassar attained, traveled centuries before. Since the Roman roads were so superior to our own, modern land transportation may have even been inferior to that of the ancients. But, during this one century, marvelous progress was made in the means and methods of transportation. Space and time were annihilated, distant places connected, goods and persons easily transported, and communication between distant places established. The future, too, holds out unknown possibilities for the automobile truck and the magic airship. QUESTIONS FOR RECITATION 1. Explain the importance to the nation of the raihoad (i) from a political standpoint, and (2) from an economic standpoint. 2. Trace the development of American railroads, both in mileage and in management, from 1880 to the present time. 282 American Economic Life 3. Give the distinct characteristics of the railroad business, contrasting it in these respects with the manufacturing industries. 4. Explain clearly why the railroad tends to become a monopoly and the consequences. 5. Explain the meaning of the law of increasing returns. 6. Show why the raUroad is a quasi public corporation. 7. Why has the state delegated the right of eminent domain to the raUroad? 8. Is agriculture or railroading more important ? Why? 9. Contrast the development, and the function, of the telegraph and the telephone. 10. Explain why it was necessary to regulate express companies, and what Congress has accomplished in this direction. 11. What are the three chief forms of electric traction? Explain why each is important. 12. Explain the importance of inland water transportation in the United States. 13. State the grov/th of the American merchant marine during the World War. Explain this growth. What do you think of its future possibilities ? 14. Contrast present day methods of transportation with those of ancient times. PROBLEMS FOR DISCUSSION 1. In what sense is transportation productive? 2. Why is transportation a greater and more difficult problem in the United States than in most countries of Europe? 3. How would the sudden cessation of all railroad traffic affect the life of the American people ? 4. If there were no railroads, would there be any "trusts"? 5. If one person rides on a pass, who pays for that ride? 6. How does the Pennsylvania Railroad differ from a large de- partment store in regard to its freedom in making rates or prices ? 7. What effect has the prosperity of the railroads on the steel industry ? Explain fully. On other industries ? 8. Have American railroads in general followed or directed the course of settlement of the country ? Why ? Transportation Agencies 283 9. Would private capital have been invested in railroad build- ing, if the chance of extraordinary gain had been greater in other industries ? Explain clearly. 10. Are local famines likely to be as serious in China in the future as in the past ? Why not ? 11. Has railroad transportation relieved or aggravated the prob- lem of congestion in great cities ? 12. Discuss the arguments for and against a governmental policy of granting ship subsidies. 13. Give the arguments for and against the free passage of Ameri- can coastwise ships through the Panama Canal. SUPPLEMENTARY READING Acworth, W. M. Elements of Railway Economics. Carver, T. N. Principles of Political Economy, Chap. XIX. Johnson, E. R. American Railway Transportation. Johnson, E. R. Elements of Transportation. Johnson, E. R. Ocean and Inland Water Transportation. Moulton, H. G. Waterways versus Railways. Smith, J. R. The Ocean Carrier. CHAPTER XXX Regulation of Railroads I. The early situation 1. Power of Congress : a. The original clause h. Why power was granted c. How first applied 2. Growth of railroads : a. How favored at first h. What evils crept in c. The changed attitude 11. The Interstate Commerce Act I . Main provisions Powers of Commission Why discriminations were prohibited Other results of the act The defects III. Later legislation 1. Effect of Anti- trust Act 2. Act of 1903 3. Act of 1906 . 4. Act of 1910 5. War-time regulation : a. Government operation h. Act of 1920 : (i) Commission's powers (2) Other provisions 6. Importance of regulation 7. The outlook 284 Regulation of Railroads 285 The Early Situation. — The Constitutional Convention of 1787 gave the national government the following power over commerce, — " Congress shall have power po^gr of to regulate commerce with foreign nations, and Congress: among the several states, and with the Indian ^^^ clause. tribes." The most significant point about this provision is its general and inclusive nature. The word " commerce " has proved to be so embracing that Congress has been enabled, with the lapse of time, to exercise powers over ac- tivities that could not have been foreseen by the framers of the Constitution. With the application of steam to industry and transportation, commercial activities have so widened that the national government, through this clause, has been able to exercise a restraining control over many anti-social tendencies in American economic Hfe. The necessity of giving the central government some power over interstate commerce was one of the leading reasons for framing the new constitution. The p^, conflicting interests that resulted from giving power was the individual states control over commerce ^'^'^"^ proved conclusively, during the regime of the Articles of Confederation, that some federal regulation of commerce was absolutely necessary. Therefore, when the new constitution was drawn up, Congress was given exclusive power to regulate interstate commerce. This new power of Congress was at first applied to the regulation of water transportation between different states, since waterways (aside from roads) were now first the earliest means of transporting goods and ^pp^^^^- persons from one place to another. But, with the im- petus given to railroad construction in the epoch fol- 286 American Economic Life lowing the Civil War, the regulation, not of water, but of land transportation became the absorbing prob- lem. At first, the railroad was encouraged because it proved a blessing to newly developing communities. Cities and . , states vied with one another in buying railroad Growth of . . . ... railroads: securities, in granting immunity from taxation, ^""^ and in affording every inducement for railroad favored. , . . . . construction. To these growing communities, the railroad afforded the opportunity to ship out the com- modities which they produced, and to bring in the goods which they needed. This enthusiasm was, however, short-lived. The rail- roads developed with even greater rapidity than had been What evils anticipated; and, with their development, crept in. came an increase in monopoly power upon which railroad enthusiasts had not counted. To be sure, the railroads had their advantages ; but the extortionate rates and the discriminations between shippers and towns more than offset the increased commercial facilities which the railroads afforded. Consequently, a storm of indignant protest was directed against railroad activities. Instead of encouragement, J,, they now received strong condemnation. By changed 1870, the cry against extortionate rates was com- mon in all parts of the country, but particularly in the agricultural states of the newly developing Middle West. Stringent state laws were passed; but, since the railroads were engaged in interstate business, they well knew that attempts of individual states to regulate their activities would prove ineffectual. Some form of federal regulation therefore became imperative. Regulation of Railroads 287 The Interstate Commerce Act. — In 1887 this situation culminated in the passage of the famous Interstate Com- merce Act, which was directed at interstate pas- Main pro- senger and freight traffic carried by railroad or ^sions. by railroad and water. This Act of 1887 includes five main provisions: (i) unreasonable or extortionate rates were prohibited ; (2) discriminations between persons, places, and commodities were made illegal ; (3) fares and rates were to be made pubhc ; (4) common carriers were not to charge or receive a greater rate in the aggregate for trans- porting passengers or freight under substantially similar circumstances and conditions, for a shorter than for a longer distance, over the same line, in the same direc- tion, the shorter being included within the longer dis- tance ; (5) pooling transactions between railroads were prohibited. In order to enforce this law, a Commission consisting of five members, appointed by the President with the consent of the Senate, was created. Subsequently the ^ ' ^ -' Comims- number of commissioners was increased to seven sion's and the term of ofiice fixed at seven years. The ^°^"" Commission was empowered to investigate rates and alleged discriminations, and, where necessary, to bring suit before the courts. Orders issued by the Commission were not binding, should the common carrier, against whom the orders were issued, choose to appeal to the courts. Where an appeal was taken, the Commission and the carrier went through the regular process of suing and being sued, and the decision of the court was final. The provision regarding unreasonable and extortionate rates was based upon the English common law against extortion. The discriminations between persons, places, 288 American Economic Life and commodities had grown up with the railroad industry. By charging lower rates to one shipper than to another, the railroad determined which of the two should criminations remain in business ; by giving more favorable were pro- rates to One town than to another, the railroad hibited. determined which town should advance com- mercially ; and by arranging the rates of two commodities, such as flour and wheat, the railroad determined whether wheat should be shipped from the wheat fields to Minne- apoHs and there ground into flour, or, whether it should be shipped from the wheat fields to the flour mills of the Eastern coast. In any one of these cases, the railroad was an arbiter possessed of despotic power. Had it proved a benevolent despot, all might have been well; but, unfor- tunately, the use made of this power was in many cases disastrous to the parties concerned. The publication of rates required by the new law gave all an opportunity to secure the same terms from the rail- other roads ; while the " long and short haul " clause results. -^g^g aimed against the abuse of granting a rate, from one city to the next city, lower than the rate between an intermediate small town and one of the cities in ques- tion. In an attempt to stimulate competition, pooling was prohibited. ' This last provision regarding pooling was perhaps the most difficult for the railroads to obey. Since so many restrictions had been imposed upon them, pool- The defects. . r' r 7 r- ing seemed to be the only method of agreement left to the railroads. When deprived of this, they were forced into combination. Another defect was the limited power given to the Interstate Commerce Commission. To remedy this, subsequent legislation was enacted. In Regulation of Railroads 289 all the subsequent acts, however, the principles underlying the original law have been generally maintained. Later Legislation. — In 1890, the Sherman Anti-trust Law was passed. Although the primary purpose of this act was to break up industrial combinations, -^q^^^ ^^ certain judicial decisions have been responsible Antitrust for applying this law, to a limited extent, to the railroads. When pooling was declared illegal in 1887, the railroads entered into certain associations for the pur- pose of making rate agreements. In 1897, the Supreme Court declared these agreements illegal because they vio- lated the Sherman Anti-trust Act of 1890. Again, in 1904, the Supreme Court, on the same grounds, ordered the dissolution of the Northern Securities Company, a holding company, organized for the purpose of holding the capital stock of the Great Northern, Northern Pacific, and Bur- lington systems, the first two of which were competing systems. Furthermore, in 191 2, a similar decision dis- solved the merger of the Union Pacific and the Southern Pacific railroads, because the former held indirectly forty- six per cent of the stock of the latter company. At the opening of the twentieth century, through the influence of President Roosevelt, Congress passed more specific railway legislation. In this manner, the Act of 1903, known as the Elkins Law, increased the effectiveness of the Interstate Commerce Commission by making a corporation as well as its agent liable to prose- cution; by increasing the penalties imposed under the original Interstate Commerce Act; by permitting the Commerce Commission to secure injunctions from the United States Circuit Courts ; and by directing the Attor- ney General to prosecute under the act. This law expedited 290 American Economic Life the work of the Commission by permitting an appeal, in interstate commerce cases, to be made more directly to the Supreme Court, A law passed in 1906 increased the administrative power of the Commission by permitting it to revise railway rates. Up to that time, the Commission could only Act of 1906. Ill . , , declare that a certam rate was unreasonable. Under the new law, it might state what rate was reasonable by fixing a maximum rate. In addition, its authority was extended to all express, sleeping car, and pipe line companies doing an interstate business. The law made further provisions which enabled the Commission to secure uniform accounting. In 1 9 10 additional railroad legislation created a special Commerce Court in which railroad cases were to be tried. Sometimes friction had prevailed between the Act of 1910. - . . , regular courts of justice and the Interstate Com- merce Commission; and the latter body, which had no status as a court, was subject to petty annoyances and delays. It was hoped that this new court would, therefore, facilitate the execution of the findings of the Commission. However, the painful experience of the short-lived Com- merce Court proved otherwise, and, in 1913, this Court was abolished. When the United States became involved in the World War, it was necessary to establish a unified control over the chief transportation agencies of the country, regulation: Accordingly, on January i, 1918, the President Government of the United States placed the railroads of the operation. , it • r t -r^' r^ nation under the direction of the Director Gen- eral of Railroads. For a period of twenty-six months the railroads were operated by the United States government. Regulation of Railroads 291 About the same time the government took over the control of the telegraph and telephone lines of the country. The exigencies of war made it absolutely necessary for the government to operate the roads in order that troops might be speedily dispatched abroad, and that priority of trans- portation might be given to such absolute necessities as wheat, coal, and ammunition supplies. During this period of government operation the railroads performed an heroic service for the nation; but, when it was accomplished, they found themselves sorely in need of capital to replace the rolling stock and freight facilities neglected during that period. On March i, 1920, the railroads were returned to private ownership under the provisions of the Esch-Cummins Act. According to this act the Interstate Com- i- , Act of 1020. merce Commission remains the keystone of the arch of railroad legislation, and is given still greater gov- ernmental control over the railroads. This is accomplished by centering further authority and responsibility in the Commission, by requiring this body, from time to time, to determine and publish what percentage of railroad property values, i.e. what dividend, constitutes a fair return for the investors, and to adjust rates so that the efficient roads at least will be able to earn that much for their owners and creditors. The act itself provided how much this " fair return " was to be for the first two years of private restora- tion, namely, five and one-half per cent, with the promise that the Commission might during that time allow, in its discretion, an extra one-half per cent toward capital ex- penditures. Furthermore, the Commission was instructed to formulate plans for the consolidation of the railroads of the country into a limited number of systems, so that 292 American Economic Life the financially weaker roads might profit by consolidation with the larger and more prosperous roads. The Com- mission was also given full powers regarding car service, joint facilities, new construction and abandonment of roads, priority and embargo regulations, and new methods of financing. The Act of 1920 provides further for the creation of a revolving credit fund of $300,000,000 ; it introduces the principle of profit sharing with the government, and in- cludes a complete system for the settlement of labor dis- putes, embracing local adjustment boards and a central Railroad Labor Board. The act introduces the principle of profit sharing by allowing the government half of the profits in excess of six per cent which the railroads may earn. The provisions regarding the labor boards are exceedingly important. The act specifically creates a Railroad Labor Board of nine members, representing equally the workers, the managers, and the public, appointed by the President with the approval of the Senate, from lists of six names each, in the case of workers' and managers' nominees, submitted to him by the parties of interest. The Railroad Labor Board not only deals with appeals, but also has powers of original initiative. It relies upon full publicity for the enforcement of its decisions. The problem of railroad regulation is doubly significant. It is necessary of solution not only for itself, but also for im ortance ^^^ purpose of showing the method of govern- of regu- mental procedure in regard to properly control- ling all forms of large scale production. Trans- portation agencies enjoy such a monopolistic position that they can practically determine the welfare of individuals, of communities, and of industries. Since it is antagonistic Regulation of Railroads 293 to social welfare that such great power should rest uncon- trolled in the hands of private individuals, society, through proper legislation, must protect its own interests while duly regarding the rights of its individual members. If, therefore, the nation succeeds in solving the rail- road problem, the experience so acquired may be ap- plied not only to the solution of questions relating to public utilities, but also to similar problems of monopolistic production. That the attitude toward business is tending in this direction is seen in the establishment of the Federal Trade Commission, and in the authority given to the The Interstate Commerce Commission, in 1914, to o>itiook. enforce the Clayton Anti-trust Act so far as it applies to common carriers. Further evidence of the intention of the goverimient to control monopoly is found in the exten- sion of the powers of the Interstate Commerce Commission not only over steam railways, but also over electric rail- ways, telegraph, telephone, and cable companies, and to some extent over water carriers ; in prohibiting interstate railways from having interests in competing water carriers ; and in forbidding railroad companies engaged in interstate commerce from transporting goods, other than timber and its products, which have been mined or manufactured under the authority of the railroad companies concerned. When we consider, therefore, the progress attained by the United States, since the opening of the twentieth century, in this direction alone, the eventual regulation of monopolistic pro- duction in all its forms seems assured. 294 American Economic Life QUESTIONS FOR RECITATION 1. Explain the power of Congress over commerce. Show its significance. 2. Why did the Articles of Confederation prove unsatisfactory? How was this defect remedied? 3. How did Congress first exercise its power over commerce? What effect had the invention of the steamboat in this direction ? 4. When the steam railroad first appeared, how was it favored? Why? 5. How did it afterward abuse its privileges? \^Tiat demand grew out of this abuse ? 6. State the main provisions of the Interstate Commerce Act. Show why each was necessary. 7 . What are rebates ? Why are such discriminations made illegal ? 8. State the original powers of the Interstate Commerce Com- mission. Show how these powers were successively enlarged by (i) the Act of 1903, (2) the Act of 1906, and (3) the Act of 1920. 9. When pooling was declared illegal, to what did the railroads resort and for what purpose ? 10. Explain clearly how the Sherman Anti-trust Act was applied to railroad combinations. Give at least two examples. 11. When railroad mergers are dissolved by order of the court, what are the practical results of such action? 12. Why was the Commerce Court abolished? 13. Why was it necessary for the United States government to operate the railroads during the World War? To whom was this operation intrusted ? 14. What were the effects of government operation ? Was this an experiment in socialism? 15. When and why were the railroads returned to private owner- ship and management ? 16. Explain the main provisions of the Esch-Cummins Act of 1920 in regard to (i) the powers of the Commission, (2) the "fair return" provision, (3) the government profit sharing plan, and (4) the method of settling labor disputes. 17. What restrictions are placed upon railroads with regard to (i) commodities transported, (2) shipping interests ? Regulation of Railroads 295 18. Why is the solution of the raUroad problem vital to national welfare ? 19. What is likely to be the future of big business in this country? State your reasons. PROBLEMS FOR DISCUSSION 1. Why does the question of the control of the railroads in the interest of the public present especial difficulties in America? 2. Has the government built and operated railroads successfully in any country? Give examples. 3. Do you think the United States government should own the railroads in this country now? Give reasons. 4. Who is responsible for the present large number of raUroad accidents — the railroad, the public, or the employee? Why? 5. Is federal control superior to state control of railroads? Ex- plain fully. 6. WHiat causes led to the passage of the Interstate Commerce Law? 7. Wliat were the leading advantages of the law? 8. In what respects was the law ineffectual? 9. How have the provisions of the original Act of 1887 been strengthened by later legislation? 10. Discuss the value of uniform accounting. 11. What is pooling, and why was it made illegal? 12. Would all rates be reasonable and just if made on the basis of distance only ? Explain your answer. 13. Has the Interstate Commerce Commission power to fix rates? 14. Give the arguments for and against government ownership of railroads. 15. To what extent has the Federal government control over com- merce within a state? 16. Of what offense was the old Standard Oil Company found guilty ? Why was this extremely anti-social ? 17. On what basis should railroad capitalization be determined? 18. What are the limitations of government control over "big business"? 296 American Economic Life SUPPLEMENTARY READING Ely, R. T. Outlines of Economics, Chap. XXVII. Hammond, M. B. Railway Rate Theories of the Interstate Co7n- merce Commission. Interstate Commerce Commission. Annual Reports. Johnson, E. R., and Huebner, G. G. Railway Traffic and Rates. Merritt, A. N. Federal Regidation of Railway Rates. Noyes, W. C. American Railroad Rates, Chap. IV. Vrooman, C. S. American Railway Problems. World's Work. April, 1920. CHAPTER XXXT Efficiency in Production I. Factors of production 1 . The factor of resources : a. America's advantages b. The great danger c. The law of diminishing returns d. The effect of war e. The remedy 2. The factor of labor : a. Character of the people b. Labor's rate of increase c. Labor's efficiency d. Effects of war e. The outlook 3. The factor of capital : a. Its early abundance b. Its law of increase c. Effect of war d. The solution 4. The factor of management : a. Its modern importance b. Its future development II. Kinds of societies 1. Retrogressive societies 2. Static societies 3. Dynamic societies Having examined the factors at work and the typical fields of industrial activity in the production of wealth in the United States, it is well to summarize now the condi- 297 298 American Economic Life tions of American production and to attempt to arrive at some conclusions regarding efficiency in American economic life. Factors of Production. — So far as the bases of produc- tion are concerned, we have long since seen that the funda- The factor mental thesis of the economist is that all pro- ofresources: (Juction depends, in the last analysis, upon the harmonious union of the requisites of productive enterprise, that is, upon the successful utilization of the land, labor, and capital resources of society. We have further seen that, in the period following the Civil War, the organiza- tion of industry in the United States attained such perfected development as to render the element of managing ability a vital factor in all the more complicated industrial wealth- producing activities of the American people. Although this last element depends upon some form of combination of the more fundamental factors of production, its separate treatment, in the more advanced stages of national eco- nomic development, is necessary to a complete compre- hension of the productive process. Just as managing ability and, before that, capital were the latest productive elements to appear in industrial society, so natural resources and labor were the primary and original factors of early production. These two are co-equal in importance ; for, without each, no creation of economic utilities is possible. From the standpoint of production, national prosperity is dependent upon the existence of those natural resources summed up in the word " land," and upon the application to this land of an intelligent and adequate supply of labor. What conclusions, then, may we draw, in these respects, regarding the possibilities of continued national prosperity in the United States? Efficiency in Production 299 America's advantage in the field of natural resources is well known. To realize again the significance of this truism, we have but to recall the great extent America's and variety of soil and climate enjoyed by the <^<^'"