HF 
 
GIFT OF 
 
GIFT 
 FEB 14 1918 
 
 The Meaning of 
 Business 
 
 OR- 
 
 The Science of Service 
 
 Published by 
 
 TLe American Credit-Indemnity Co. 
 of New York 
 
 With the permission of the Author. 
 
Copyrighted 1918 
 
 by 
 
 The American Credit-Indemnity Co 
 of New York 
 
The Meaning of 
 Business 
 
 -OR- 
 
 Tlie Science or Service 
 
 Published by 
 
 The American Credit -Indemnity JCo. 
 of New York 
 
 With the permiMion at the Author. 
 

THE ESSAY BEGINS ON PAGE 9 
 
 Economics, or Political Economy, is viewed generally 
 as a dull and ponderous subject, except by Professors. 
 The reason doubtless is, that some Political Economists 
 seem to have the notion that they are writing always to 
 other Political Economists, and thus sacrifice simplicity 
 and clearness for "scientific analyses/' 
 
 Political Economy is a very simple exposition of 
 Successful or Scientific Service, following causes to their 
 effects upon the pursuit of wealth. 
 
 As efficiency of service is the measure of success, and 
 as this Essay on the Meaning of Business, or The Science 
 of Service, tells so simply what efficiency is, we publish 
 it for complimentary distribution. 
 
 It was written by a man of rare attainments, who has 
 had an unusually successful career. 
 
 We feel confident you will find pleasure and profit in 
 reading it. Additional copies may be had, upon request, 
 although only a limited supply has been printed. 
 
 THE AMERICAN CREDIT-INDEMNITY CO. 
 
 Of New York E. M. TREAT, President 
 
 CREDIT INSURANCE 
 
 HOME OFFICE ST. LOUIS, MO. 
 
 1918 
 
 371342 
 
People must hate sense enough to understand what they 
 do and why they do it. 
 
 The man who understands that he must serve in order to 
 thrice will know what to do and what not to do. 
 
 To do an unuseful thing is to fail; to do a useful thing is 
 to thrive. 
 
 Do what the community needs to have done. 
 
 A man makes what he sells and buys what he needs. The 
 wise thing to do is to make, in abundance^ what people need. 
 
 No man can help himself without helping others. 
 
 Business is a profitable beneficence. 
 
CREDIT INSURANCE. 
 
 ITS SERVICE TO BUSINESS. 
 
 |HE object of the writer of this pamphlet was to 
 show that men thrive by mutual service and not 
 by mutual spoliation. He justifies the prosperity 
 of those engaged in making or distributing goods 
 by showing the contribution of each to the general welfare. 
 The American Credit- Indemnity Company accepts the 
 challenge conveyed by his argument and offers for the 
 consideration of business men the following vindication of 
 its usefulness. 
 
 The problems of business are numerous and perplexing. 
 The seller and buyer seldom stand face to face. The seller 
 must rely in marketing his goods upon capital and credit 
 ratings which in the nature of things cannot be so accurate 
 as to preclude mistakes. The unexpected is always happen- 
 ing. A buyer may be prosperous today and bankrupt 
 tomorrow; and however efficient a credit department may 
 be, losses on sales are inevitable. The aggregate liabilities 
 of firms which have become bankrupt in a single decade 
 in the United States have amounted to about two billion 
 three hundred million dollars. 
 
 Failures are due to all sorts of causes: to inexperience, 
 insufficient capital, over-buying, false credit, speculation, 
 fraud, a violent fall in prices, seasonal changes, crop 
 failures, neglect of business, extravagance, competition, 
 endorsing for others, or a commercial crisis; and any 
 shocking disaster of any sort, or any sudden derangement 
 of commercial affairs from any cause may arrest a tide of 
 prosperity. Mortality in business is constant, if variable. 
 The percentage of failures among those engaged in 
 
 5 
 
business is greater than the mortality among men. No 
 man is wise enough to guard against all the risks which 
 he must assume. 
 
 Because a merchant must assume these risks, the 
 American Credit- Indemnity Company was organized for 
 his protection. The company affords indemnity for all 
 losses incurred on goods sold within the period covered by 
 its bond in excess of those which are normal and expected, 
 and thereby gives to mercantile affairs a stability and 
 security which otherwise they must lack. 
 
 It does more. It helps the merchant to sell goods 
 wisely, by telling him where he is likely to lose and where 
 he is relatively safe. It helps to reduce his normal loss; it 
 helps his credit department; it assists with past-due 
 accounts; it obviates friction between him and his delin- 
 quent customers; and it affords to him a mass of 
 information which he will find of great use in his business. 
 
 If you ask how it does these things, it replies that its 
 records cover a period of twenty-five years and contain 
 not the experience of one merchant engaged in one busi- 
 ness, but the experience of many thousands of merchants 
 engaged in all sorts of business in every part of the country. 
 The claims filed with it growing out of unpaid accounts 
 since its business was established now aggregate more 
 than two billions of dollars. It has sifted these records and 
 from them derived useful information with respect to the 
 causes of various failures at various times under various 
 circumstances. From them it has derived experience 
 tables which show the actual risks in selling, what the 
 average loss is on credit ratings A, B, and all others. The 
 premiums of the company are adjusted to these risks, and 
 by the emphasis of the charge upon each, we warn against 
 the greater risks. We help the credit department to under- 
 
 6 
 
stand what to do, by showing the merchant where his 
 losses occur; and we help all business by compelling it to 
 be more prudent where prudence is requisite. We mitigate 
 the friction which results from an attempt to enforce the 
 collection of an overdue account by intervening between 
 the merchant and his customer; and we reduce the mer- 
 chant's normal loss by collecting in time not after but 
 before failure. 
 
 We carry into business a promise of indemnity against 
 the unexpected, and thereby afford comfort and serenity 
 and security at a cost which is far less than the benefit 
 conferred and far less than the losses avoided. We per- 
 form in fact for commerce the same sort of service that 
 military discipline does for young men. The average 
 mortality among men between twenty-one and thirty-one 
 is eight thousand in a million each year; in the army it is 
 expected to be within four to six thousand in a million. 
 The average business mortality is about ten thousand in 
 each million; among those who comply with the terms 
 and instructions of our policy it will be reduced in the 
 same proportion. 
 
 We have a collection department operated under the 
 provisions of the policy, which provides that past due 
 covered accounts shall be delivered to us for collection 
 within a stated time; and we agree that the filing of such 
 accounts shall have the effect of proving them against our 
 liability under our bond. We instantly proceed to collect 
 these accounts as soon as possible, and before the embar- 
 rassment of the customer has become too serious to be 
 coped with ; and in this manner we protect the seller against 
 loss and ourselves against liability. In a single year we 
 have so collected many thousands of dollars which our 
 policy-holders were unable to collect. We have saved them 
 
 7 
 
that much and at the same time helped their customers to 
 be prompt and understand the sanctity and binding effect 
 of a promise. 
 
 These services we offer in return for a charge which is 
 less than their value and less than we save for the man 
 who pays it. 
 
 Our business is also serving, and our serving is not 
 capricious and unintelligent, but a scientific service based 
 upon reliable and very numerous data which are con- 
 stantly sifted for information and suggestion. Our 
 resources show our strength and our policies show the 
 service from which those resources are derived. 
 
 We do a general good and a special good. We are grad- 
 ually teaching buyers to be prompt in payment and we are 
 attempting at the same time to show sellers what is 
 prudent and what is imprudent selling. 
 
 Business, as the writer of the pamphlet shows, concerns 
 itself with the making and distribution of goods. We 
 furnish a very important aid to distribution: we prevent 
 waste; we indemnify against loss; we diminish loss; and 
 because we help both producer and consumer of goods, 
 we share with the business man in the fruits of his benefi- 
 cence. We diminish the cost of distribution. 
 
 The American Credit-Indemnity Co. 
 of New York 
 
 By E. M. TREAT, President 
 
The Meaning of Business 
 
 OR 
 
 The Science of Service 
 
 | HE peace and good will of society depend upon 
 tradition, and that tradition upon experience; 
 but the connection between tradition and exper- 
 ience is not always evident. We perceive the 
 value of marriage, but cannot always vindicate it; we 
 feel the need for a State, but cannot justify its encroach- 
 ments; we tolerate manners and institutions not because 
 we understand and approve them but because we are 
 accustomed to them. 
 
 Among the institutions of society, none is more fre- 
 quently attacked and none is harder to defend, than 
 private property. We think it is indispensable but we 
 cannot explain why. We have no answer ready for him 
 who questions the justice of an uneven distribution of 
 wealth; we cannot tell why this man should be rich 
 and that man poor, nor even explain how one man can 
 become rich save at the cost of his neighbors. When 
 we speak of wealth, or taxes, or capital, or wages, or 
 profit, we use the words in a vague sense and no two 
 men mean the same thing. Yet we should agree with 
 respect to these things. They are right or wrong, good 
 or bad. If they are good, they should be so clearly 
 justified as to convince those who are perplexed; if they 
 are wrong, they should be got rid of. Civilization today 
 rests upon private property. Men co-operate to produce 
 it. Some men have more, some less. Why? 
 
 9 
 
Political economy concerns itself with such problems. 
 For some reason, difficult to discover, it has fallen into 
 disrepute. Men say witty things of it, as that it is a dismal 
 science and the gospel of selfishness; and few attend to its 
 instruction. Yet it has occupied the thought and time of 
 many very able men. Its doctrine is simple and intelli- 
 gible: it deals with familiar facts; and what it says is inter- 
 esting and helpful. I have tried to understand why so 
 useful an instruction is disregarded and have been led to 
 believe that the busy man has no time to give to the refined 
 and discriminating thinking of one whom he deems theo- 
 retical and sophistical. Each has a peculiar vision and a 
 special experience; and neither can quite understand the 
 other. In common parlance, every word is freighted with 
 experience and that experience is shared by those who use 
 it. The political economist begins by inventing new words 
 or twisting old ones into a strange significance in order that 
 he may express and fix a notion which is peculiar to him- 
 self. We are too impatient for such instruction. It oc- 
 curred to me that I might extract from the literature of 
 political economy certain of its salient and most useful 
 doctrines and translate them into language which should 
 be intelligible to every man; and this essay is the result 
 of that consideration. 
 
 At the outset I must say a few words in explanation of 
 the objects and pretensions of the science. It is not and 
 does not pretend to be a moral science. It does not teach 
 duty nor inculcate philanthropy, nor concern itself with 
 the benevolent and most worthy motives of private con- 
 duct. It is concerned with business only, with that which 
 men do in order that they may live; with the production 
 of wealth and its distribution. It observes, analyzes and 
 explains. It assumes nothing. It deals with known and 
 
 10 
 
familiar facts. If it offers an explanation of those facts, 
 it offers one which is consistent with all of them, and 
 attempts to show their mutual relationship and influence. 
 Its value is found in the broadness of its view. It con- 
 siders not one fact only, but every related fact: effect as 
 well as cause, cause as well as effect; use and function, 
 purpose and consequence; exception and rule. What then 
 are the facts with which it is concerned? 
 
 This is a busy world. Men move to and fro incessantly, 
 each intent on his own affairs. A vast majority of them 
 work continually. They differ in character and capacity, 
 and perform various labors. Somehow, they have divided 
 themselves into groups: we have farmers and millers, 
 miners and blacksmiths, tanners and shoemakers, mer- 
 chants and carriers, bankers and brokers, each of whom 
 does some special work. No one seems to work for him- 
 self, but everybody for somebody else. What one makes 
 he sells; what he needs he buys. All are engaged either 
 in the production or distribution of wealth, and the labor 
 of all is a co-operative labor. Each depends upon the 
 other: the maker upon the consumer, the seller upon the 
 buyer, the borrower on the lender. The product of a joint 
 or co-operative labor is distributed in a conventional way 
 to each in accordance with some rule or practice which 
 has grown up among us: one receiving wages, another 
 profits and another interest. Trade is everywhere. We 
 have established markets and exchanges where we get 
 what we need and dispose of what we have. In some 
 manner the right articles are brought forward in the right 
 quantities, and no need of a luxurious people remains 
 unsatisfied. There is work for everybody willing to work. 
 The prosperity of one man does not seem to diminish the 
 goods of another. Poor people are continually forging to 
 
 11 
 
the front. Riches are soon dissipated. We co-operate not 
 because we must but because we choose to do so: yet by 
 his work the individual seeks not another's good but his 
 own. Everybody seems selfish in the sense that his motive 
 is selfish. If he serves, he serves for pay; if he sells, he 
 sells for profit. These are the facts which confront us: 
 the selfishness of mankind; the spontaneous division of 
 labor; the co-operative character of all industry; the 
 mutual dependence of men; the unequal distribution of 
 wealth; and with these facts political economy is con- 
 cerned. What is its explanation? 
 
 Assuming, as it must, that all men are selfish, and 
 allowing the operation of this motive free play, how has it 
 served to bring about the co-operative organization of 
 industry which we now observe? Men are selfish and free: 
 what influence has bound them to mutual service? 
 
 Let us begin at the beginning and endeavor to trace 
 the evolution of industry. Society as we know it is rather 
 a growth than a creation. Our ancestors were barbarians 
 who moved about in search of food until they were com- 
 pelled to settle by stress of circumstances. They had 
 neither social, political nor industrial organization of any 
 sort. Game and fruits were abundant, and every man by 
 slight exertion might have enough. War was their serious 
 occupation. When however, population increased in this 
 or that favorable locality, a change was inevitable. The 
 hunter became the herder, the gatherer of wild fruits the 
 cultivator of the soil; and after a time settlements were 
 formed which prospered or languished according to the 
 habits of the people and the resources of the country they 
 inhabited. If they thrived, others envied them and disorder 
 ensued which compelled the adoption of means of defense. 
 So places of refuge were established and in the course of 
 
 12 
 
time these places became walled towns, or castles. Men 
 were forced into closer union and mutual dependence by 
 constant stress from without; and to meet these new 
 conditions industry had to be modified. The dweller in a 
 town was unable to produce his food and was therefore 
 compelled to earn it in some other manner. Observing the 
 needs of the country-man, he set himself to making tools, 
 or weaving cloth, or dressing leather; and these products 
 he exchanged for what he wanted. In a little while the 
 advantages of a divided labor became evident. Better 
 clothing and better leather were the results of acquired 
 skill, and the farmer, being relieved from the trouble of 
 making these things, produced more grain. Communities 
 therefore thrived and increased in power, and order was 
 extended farther and farther. Little states and communi- 
 ties began to trade with each -other, each availing itself of 
 its own resources and devoting its energies to the work 
 it could do best. The South traded with the North, the 
 East with the West, and the argosies of commerce en- 
 circled the known world. 
 
 In the light of history it is evident that selfish men 
 began and continued to co-operate because they found 
 co-operation to be advantageous to themselves. They got 
 more for themselves by producing goods for others than 
 they could get by working for themselves only. Let us 
 understand this result clearly. Its explanation is simple. 
 
 No man can be good at all trades. Practice makes 
 perfect. The skilled workman can produce more in a given 
 time than the unskilled. If a man can make a hat and a 
 pair of shoes in one day, he will be enabled by the practice 
 of one or other trade to make three hats or three pairs of 
 shoes in the same time. Where therefore A makes shoes 
 only and B hats only, the daily product of their divided 
 
 13 
 
labor should be three pairs of shoes and three hats as 
 against two pairs of shoes and two hats. By exchanging a 
 hat for a pair of shoes each will have what he needs and a 
 hat or a pair of shoes besides, which he may use to gratify 
 other wants. Specialization without trade is fruitless; with 
 trade it is beneficial precisely in proportion to the increased 
 product resulting from a divided industry. 
 
 Selfishness pushed men into co-operation. Its influence 
 was inexorable. Men seemed free but they were not so. 
 Formerly they were compelled to do what seemed advanta- 
 geous to their masters; some were forced to fight and some 
 to furnish food. The Romans assumed that the state 
 could not safely leave to every man the choice of his 
 occupation, and therefore compelled each to follow the 
 trade of his ancestor. A blacksmith's son was bound to 
 be a blacksmith. By the law of England, men were serfs 
 or villeins or artisans according to the accident of birth. 
 In the cities guilds were established and exclusive privi- 
 leges were conferred upon them in order to encourage 
 crafts deemed useful to the state. Slowly and unconsciously 
 in the course of a long period of time, as the result rather 
 of the stress than the instruction of experience, we were 
 forced away from slavery into the system which now 
 prevails. Today men are constrained by economic laws. 
 We allow them freedom because we no longer fear it. 
 Try as they may, they cannot thrive save by co-operating 
 with their fellows. Meaning to work for themselves alone, 
 they must work for others. 
 
 The evolution of a co-operative industry is inevitable. 
 Society is as selfish as the individuals who compose it. 
 It will not let any man thrive who will not serve. It 
 depends upon labor for all that it needs, and therefore 
 encourages efficient labor and discourages inefficient. Where 
 
 14 
 
two are engaged in the same business and one can produce 
 easily and cheaply and the other with difficulty and at 
 great cost, the former is more useful to the community: he 
 can sell for less. So it encourages him, and discourages 
 the other, by buying from him. If it were not for this 
 correction, industry would fall into decay. The cost of 
 goods must be less than the price paid for them in order 
 that a selfish man may be induced to make them; but the 
 goods must be worth to the community more than the cost 
 of making, in order that its resources may not be wasted. 
 He who spends ten dollars in making goods worth eight, 
 has wasted two dollars and hurt both himself and others. 
 He has in fact become a consumer rather than a producer 
 of goods. Competition and the selfishness of the community 
 prevent this waste by continually operating against ineffi- 
 cient labor. 
 
 Trade, which distributes goods, is guided by like in- 
 fluences. Money does not obviate all the inconveniences 
 of trade, for notwithstanding its use the producer and 
 consumer must still be brought together. The merchant 
 is the marketer of goods: he knows where they are cheap 
 and where dear, where abundant and where scarce. The 
 more diversified industry is, the greater the need of trade. 
 New England is a manufacturing community; Kansas 
 raises corn. A merchant transports grain to the manu- 
 facturer and shoes and clothing to the farmer; and in order 
 to do so profitably must be familiar with the needs of each 
 locality. His success depends upon his intelligence. If he 
 carries dear goods to a cheap market, he does no good to 
 the community and its punishment is relentless. Where 
 several engage in the same trade, he who offers goods at 
 the lowest price is preferred to him who charges more; 
 and so by its discriminating buying society compels effi- 
 
 15 
 
cient service and brings about an advantageous distribu- 
 tion of goods. Trade like production is regulated by the 
 law of supply and demand and controlled by competition; 
 and all of those engaged in it must render a needed service 
 at least cost in order to thrive. 
 
 So men choose their own occupations, manufacturing 
 or trade as they prefer, but their prosperity depends 
 always upon the need for and efficiency of their service. 
 Competition is incessant, and under its constant stress 
 every man is forced to do what he can do best. 
 
 Such in brief, is the origin and evolution of our present 
 plan for distributing the work of the world and rewarding 
 industry. It is by no means a perfect plan, since it depends 
 upon the intelligence as well as the selfishness of men and 
 not all men are competent to do all sorts of work. Never- 
 theless the plan is superior to any that could be devised 
 by the wit of man. It allows opportunity to ability, stimu- 
 lates industry by rewarding it, induces thrift, and so pro- 
 motes the welfare of the individual. It tends also to 
 cheap production and just distribution of the right sorts of 
 goods and therefore promotes the welfare of the commu- 
 nity. It is not only profitable to the worker and the 
 community, but it is better suited to our free and inde- 
 pendent character than those enforced methods of co- 
 operation which were formerly tried. But being free, we 
 must accept the consequences of our own infirmities, and 
 we will be apt to accept them without repining if we remem- 
 ber that the needs of the community are paramount and 
 that we should yield the better job to the better man. 
 If the system does involve an uneven distribution of 
 goods, it is because men vary in intelligence, in zeal and 
 in industry and that rewards are apportioned in such 
 manner as to encourage the best rather than the worst sort 
 
 16 
 
of service. If men suffer under it, their afflictions are the 
 result of their own demerits and are imposed not by any 
 tyrant but by a universal law which is benign, corrective 
 and indispensable. There is no captain of industry with 
 arbitrary power. The employer is an humble servant of 
 society, forced to do its will and promote its prosperity by 
 compelling influences which cannot be evaded; and so is 
 the employe. By these laws, private selfishness is com- 
 pelled always to be subservient to the general good. 
 
 The effects of such a free plan upon the prosperity of 
 those engaged in industry can be inferred from what has 
 been said. Yet as a particular explanation of a special 
 fact is apt to be more instructive than a general explana- 
 tion of many, it is proper that I should discuss wages, 
 profit and interest, and endeavor to show how the products 
 of a particular co-operative industry are distributed among 
 those engaged in it. 
 
 The laborer is free to choose his job, but cannot fix his 
 compensation. What law or influence fixes his wages? Is 
 it an error to assume that the employer cannot arbitrarily 
 pay what he chooses; is the theoretical freedom which 
 I have described a myth and must one man obey and 
 another govern and reward according to his caprice? These 
 questions lie at the root of the dissatisfaction which has in- 
 duced the formation of unions. They should be clearly 
 answered. 
 
 The factors of wealth are the workman, the director 
 or employer, and the machine which may for convenience's 
 sake be called capital. That their united prosperity 
 depends primarily upon the results of their co-operation, 
 upon the amount of wealth produced by it, ought to be 
 evident. If a hundred men live upon an inaccessible island 
 and depend upon what they produce for existence, their 
 
 17 
 
prosperity must depend upon what and how much they 
 produce. If they produce little, they will have little; if 
 the common stock is great, they will have more collec- 
 tively. How the stock should be distributed is a question 
 by itself; but unless enough is produced there will not 
 be enough to go round, however the distribution may be 
 effected. Wages cannot be high, however they may 
 be fixed, if the wealth or fund out of which they must be 
 paid is small. 
 
 The laborer therefore is as much concerned as the 
 employer in promoting by every means within his control 
 the efficiency of the industry in which he is engaged. 
 Such efficiency depends not only on himself but upon the 
 intelligence of the employer and upon the capital resources 
 which he can command. The employer must study the 
 markets and ascertain what the community needs, how 
 much the goods cost and what he can sell them for. The 
 capitalist provides the tools and machinery, the raw 
 material and the wages which must be paid during the 
 making and distribution. Each factor is indispensable and 
 helpful. So far as the actual production is concerned, 
 capital is more influential than either of the others. With- 
 out a machine a man can make so much; with it he can 
 make five times as much. Quantity is of first importance. 
 
 How, in the light of these considerations, should the 
 fruits of the joint enterprise be distributed? Justice 
 requires that each factor should be paid in proportion to 
 its contribution to the result. The distribution of goods 
 is roughly accomplished under the free and spontaneous 
 plan which is now established. Its actual operation is 
 controlled by what is called the law of supply and demand, 
 but back of that law is a subtle and abiding principle which 
 I shall presently explain. 
 
 18 
 
Wages, profit and interest depend then primarily upon 
 the abundant production of the right articles. To produce 
 little or to produce the wrong articles is to impair at once 
 the prosperity of the community, the workman, the 
 employer and the capitalist. Every one has observed that 
 men seem to be prosperous and depressed at the same 
 time: the factories are busy when trade is brisk, and trade 
 is brisk when wages and profits are high. 
 
 Wages, profits and interest are therefore earned and 
 paid by the industry, and except they be so earned they 
 cannot be paid. Assuming that all are earned, what con- 
 trols the relative part of each? Laborers think the em- 
 ployer pays and fixes wages; and the employer thinks the 
 labor union fixes them. The truth is that neither can 
 control. Where a man can get five dollars a day he will 
 not work for three, and where an employer cannot make 
 a profit at the wages demanded he will stop his enterprise. 
 Neither controls the other, each is subject to the same 
 compelling influence. Neither can make more than he 
 earns, nor less. However benevolent the employer may be, 
 he cannot raise wages above those earned. If he tries to 
 pay high wages without some compensating service, he 
 must charge high prices, and these the community will 
 not tolerate where the goods may be bought for less. 
 Neither can the employer pay less than the general rate, 
 for he cannot compel free men to accept less than they 
 are worth and can get elsewhere. The case of the "sweater" 
 is peculiar. Each year many ignorant foreigners land at 
 the port of New York who know nothing of our language 
 and industrial conditions. They must work in order to 
 live, and they offer their services in competition with each 
 other to the special trades for which they are fit, such as 
 sewing and garment making. They are in fact never free 
 
 19 
 
and afford not a refutation of the law under consideration 
 but an example of the pathetic condition of the incompe- 
 tent. Those crafts which require the highest skill are best 
 paid. A few years ago an automobile manufacturer tried 
 a significant experiment which seemed to show that the 
 employer might pay such wages as he desired. He an- 
 nounced that he would pay not less than five dollars a day. 
 His subsequent success was due however not to his benevo- 
 lence but to the character of the special workmen whom 
 he enlisted in his service. The wages offered were so high 
 that he was free to choose the best, and he rigorously 
 exacted of them one condition, namely, that each must 
 earn his wages. He could not have so increased the wages 
 of incompetent men. He increased the efficiency of his 
 factory by stimulating the zeal of selected mechanics and 
 by means of their co-operation realized a greater output 
 at less cost than ever before in a like industry. His men 
 earned their wages. 
 
 Let me assume what we so rarely observe: that an 
 employer is excellently wise, that he knows trade and his 
 business, that his credit is good because deserved, that he 
 is emancipated from all injurious restraints, that he is 
 surrounded by skillful workmen eager to assist, and com- 
 mands the best machinery known to the craft. What 
 must be the consequences? Will not the goods produced 
 by such zealous and intelligent co-operation fulfill all the 
 conditions of success as we have outlined them: quantity, 
 the right sort, cheapness? Will not such an enterprise, so 
 conducted, drive to the wall all competitors who lack 
 similar advantages, or force them to equal efficiency? 
 Will not such competition tend to the welfare of the whole 
 community, and ultimately realize for everybody engaged 
 in industry a corresponding advantage in the abundance 
 
 20 
 
and cheapness of all goods? And will not the laborer get 
 his share in the ease with which he may satisfy his wants? 
 Goods are made for his consumption, and he cannot fail 
 to profit by their abundance and cheapness. By con- 
 tributing much to the welfare of others, he promotes his 
 own; and so men thrive by mutual service. 
 
 Why one man gets more pay than another is of easy 
 solution. The hatter who makes one hat a day is paid less 
 than he who makes two: the man who rakes the fires, less 
 than he who controls the engine. The superior work gets 
 the better wages, and by superior I mean not less un- 
 comfortable but more difficult and more needed or more 
 productive. 
 
 The sum of these considerations is this: wages depend 
 upon the product of labor, and that product upon the 
 efficiency of labor and the intelligence of the manager. 
 If you wish to find a prosperous country where high wages 
 are paid, seek that which uses most machines and employs 
 the highest intelligence. America is that country today, 
 not because we have protective laws and labor unions, but 
 in spite of them. We produce more wealth per capita than 
 any nation in the world and therefore have more to 
 distribute. 
 
 Profits depend upon like considerations. In order that 
 they may be earned the factory must produce goods at a 
 cost which is less than the market price. The employer 
 must compete with all others in the same business, and his 
 success depends upon his ability, all other things being 
 equal. The risks involved in the enterprise rest on him; 
 he must pay wages and interest whether they are earned 
 or not. In time of prosperity he must accumulate enough 
 for adversity. If his income seems at times great, his 
 losses are sometimes great. His fortune will ever depend 
 
 21 
 
upon his intelligence and resources and be proportionate 
 to his service. He cannot be overpaid nor underpaid, in 
 the long run. If in a special industry he earns too much, 
 others have an inducement to compete with him. If he 
 earns little, he will receive little. If he is unfit for his job, 
 nothing can save him. That on the whole he earns what he 
 gets is evident to everyone who considers the co-operative 
 experiments which are from time to time tried. No in- 
 dustry controlled by a committee of workmen has ever 
 been able to long survive. 1 1 cannot compete, lacking the 
 requisite guidance. 
 
 Interest is that part of the output of a factory which 
 is paid for the use of the capital employed. The lender as 
 a rule exacts security of some sort, and as his risk is small 
 his reward depends upon the average cost of capital in 
 the money market, or on what is called the supply. The 
 credit of all men is not equal. One deserves more than 
 another, but every borrower is dependent in some degree 
 on the money market, and so is every lender. Interest 
 rates fluctuate from time to time in response to a fluctu- 
 ating demand. An active trade requires more capital than 
 a dull trade, and earns more. Rates are therefore low 
 when business is dull and high when it is active. They 
 are still higher in time of trial, as when business is perilous 
 and unusual risks are to be confronted. In order to pay 
 interest, the industry must earn it. Interest is governed 
 by the influences which control wages and profit. Capital 
 embarked in an unuseful enterprise cannot earn and 
 cannot pay a return. One capitalist must compete with 
 another, and the results of this competition are felt in the 
 money markets. No one can arbitrarily fix interest rates. 
 
 It seems therefore that wages, profit and interest cannot 
 be arbitrarily fixed by anybody. All are controlled by 
 
economic influences which none can disregard. Primarily 
 the welfare of the community depends upon the abundance 
 of goods needed. If everybody is intelligently employed 
 and the right goods are produced abundantly at little cost, 
 the community thrives and everybody in it thrives who 
 will do his part. Wages and profit will be high because the 
 rewards of all industry are abundant and cheap. Interest 
 will be low because capital will be cheap. If on the other 
 hand few goods are produced at great cost in human effort, 
 the community and all comprising it will languish in 
 poverty. There will be few goods, and wages and profits 
 will tend to a minimum while interest will tend to rise. 
 The fruits of a co-operative labor are not distributed 
 arbitrarily but in accordance with a just and useful economic 
 law which secures to each worker a reward which corre- 
 sponds with his service. 
 
 We are now brought face to face with that private 
 property which we set out to consider. It appears from 
 what has been said that wealth is now produced by a 
 divided but co-operative labor, yet that its distribution is 
 unequal. There is a widespread notion that such dis- 
 tribution is unjust because it is unequal. The social 
 unrest which afflicts us results from the conviction that 
 somehow one man has received more and another less than 
 is due to him. That there are rich men and poor men; 
 that the workman receives less than the employer; that 
 some men enjoy large incomes without doing any labor; 
 no one can deny. Do these facts justify the dissatisfaction 
 which is so frequently expressed? 
 
 The question involves moral as well as practical con- 
 siderations. If what seems right results in wrong, it 
 cannot be justified on moral grounds. Private property 
 rests upon tradition. From the beginning it has been 
 
 23 
 
assumed that men have a natural right, that is, an obvious 
 and just claim, to goods produced by their own efforts. 
 If I make a hoe, it is mine by the common opinion of 
 mankind. My ownership can result in injury to none. 
 Is this the case which confronts us? Are men now claim- 
 ing what belongs to them by natural right; is their parti- 
 cipation in the fruits of a co-operative labor proportionate 
 to the actual contribution of each to the production of 
 such goods; is inequality just in the sense that my having 
 more does not result in another's having less; or are some 
 poor because others are rich; these are the questions 
 which must be answered. 
 
 I have endeavored to fully explain the advantages of 
 co-operation and to trace these advantages to the increased 
 efficiency of the specialized or divided labor which now 
 characterizes all industry. Men work for each other 
 because it is more profitable to do so than to work for them- 
 selves. By dividing labor they make more goods, and the 
 increment in the output is shared by means of trade. I 
 have altogether failed in this essay if it is not obvious that 
 workers thrive in proportion to their service. If this be 
 true, then the wealth which a man derives from his work, 
 is his own by the common opinion upon which every sort 
 of property must ultimately rest; and he can do what he 
 wishes with it: for we cannot allow him a property in the 
 goods he creates and deny him a property in those which 
 another creates and gives him in exchange for his own. 
 
 Reason however has very little to do with our notions 
 of property. If we envy a man of greater ability, it is 
 natural to deny his superiority; if we have less than another 
 by deserving less, we may still question his right to more. 
 The dissatisfied part of the community will ever find an 
 excuse in an accusation. In the present instance however 
 
 24 
 
the accusation is fortified by plausible considerations which 
 even a just man finds it hard to be rid of. We have recently 
 invented an ugly word "profiteer" which contains such 
 considerations. Men hate another's profit instinctively 
 because they believe it involves a loss to themselves. No 
 one greets the seller with the cordiality which he shows to 
 the buyer. Nations fear what is called an adverse balance 
 of trade, not because it can be an evil to have an income 
 in excess of an outgo, but because they wish a profit which 
 they assume is to be derived from selling more than they 
 buy. The persistence of this error is so remarkable that 
 it is necessary to understand its origin in order to refute it. 
 
 What then is trade; what does it involve; what does it 
 result in? If I exchange a pair of shoes for a hat, I am 
 trading; if I sell a pair of shoes and buy a hat, I am trading. 
 The two transactions are identical: in the former I barter 
 one commodity for another and in the latter I do the same 
 thing by means of a medium of exchange called money. 
 That the trade, however conducted, involves a profit or 
 advantage to both parties, ought to be evident; yet while 
 men admit the mutual profit of barter, they deny that 
 such profit is mutual where goods are bought and sold. 
 
 Let us consider the two cases. By a divided labor 
 more hats and more shoes are produced than where both 
 articles are made by one man. Where, as in the case 
 assumed, three hats and three pairs of shoes are made 
 by A and B respectively as against a hat and a pair of 
 shoes which each might have made independently, A may 
 have two hats and one pair of shoes and B two pairs of 
 shoes and one hat by trading a hat for a pair of shoes. 
 If we assume that a hat is worth a pair of shoes, each is 
 better off to the extent of that worth as the result of 
 specialization and trade. To such a trade neither can be 
 
 25 
 
regarded as buyer or seller, for each is both, and both 
 realize the same profit. 
 
 Now let us assume that the hatter and shoemaker use 
 money and sell and buy instead of bartering their goods. 
 Each starts with say $5.00 and three articles, and each 
 buys from the other a hat or a pair of shoes for $5.00. 
 After such a trade has been effected, each will have $5.00 
 and precisely what he would have had if the shoes had 
 been bartered for the hat; in other words, the profit realized 
 by buying and selling is precisely the profit realized from 
 barter. 
 
 In the case assumed, hats and shoes are reckoned at 
 equal value. If a hat cost $3.00 and a pair of shoes $4.00, 
 the problem is a little confused, but the result is the same. 
 If each starts with $5.00 and the goods produced by 
 himself, after selling and buying a hat or a pair of shoes 
 the hatter will have two hats, a pair of shoes and $4. CO; 
 and the shoemaker will have two pairs of shoes, a hot 
 and $6.00; or to express the account in dollars only: 
 
 Hatter's Account. 
 
 Before trading. Cr. 3 hats costing $3 each = $9. 
 
 Cash on hand 5 . 
 
 After trading. Cr. 2 hats costing $3 each = $6. 
 
 1 pair of shoes at $4.00 4. 
 
 Balance of cash 1 . 
 
 Price received for hat 3 . 
 
 $14. $14, 
 
 26 
 
Before trading. 
 After trading. 
 
 Shoemaker's Account. 
 Cr. 3 pairs of shoes at $4. 
 
 Cash on hand 
 Cr. 2 pairs of shoes at $4. 
 
 1 hat, costing $3. 
 
 Balance of cash 
 
 Price of shoes 
 
 $12. 
 5. 
 
 $8. 
 3. 
 2. 
 4. 
 
 $17. $17 
 
 Let us now assume that each values his commodity at 
 $1.00 more than it cost, and sells at that profit. 
 
 Before trading. Cr. 
 After trading. Cr. 
 
 Hatter's Account. 
 3 hats at $4. = 
 Cash on hand 
 2 hats at $4. = 
 1 pr. of shoes costing $5. 
 Price received for hat 
 
 $12. 
 5. 
 
 $8. 
 5. 
 4. 
 
 $17. $17. 
 
 Before trading. 
 After trading. 
 
 Shoemaker's Account. 
 Cr. 3 prs. of shoes at $5. = 
 
 Cash on hand 
 Cr. 2 prs. of shoes at $5. = 
 
 1 hat costing $4. = 
 
 Balance of cash 
 
 Price received for shoes 
 
 $15 
 5 
 
 $10 
 4 
 1 
 5 
 
 $20. $20. 
 
 These examples show that barter itself does not increase 
 nor diminish the wealth of either party in any real sense. 
 In the case last assumed, the shoemaker created a greater 
 
 27 
 
value, measured in money, than the hatter; but after 
 trading each had precisely as much as he started with. 
 They exchanged one sort of goods for another, but the 
 values exchanged were equivalent. Each got what he 
 needed in exchange for what he made; and this is the 
 whole advantage involved in the trade. 
 
 The nominal profit as distinguished from such an 
 advantage, which seems to result from trade, is deceptive. 
 In order that this fact may be distinctly understood, let us 
 assume that each of the traders sells the whole of his goods 
 to the other at a profit: 
 
 Hatter's Account. 
 
 Before trading. Cr. Cash $15. 
 
 3 hats cost $3. valued 
 
 at $4= 12. 
 
 After trading. Cr. Cash from 3 hats $12. 
 
 3 pr. shoes costing $5. = 15. 
 
 $27. $27. 
 
 Shoemaker's Account. 
 
 Before trading. Cr. Cash $15. 
 
 3 pr. shoes cost $4. valued 
 
 at $5.= 15. 
 
 After trading. Cr. Cash from 3 pr. shoes $15. 
 
 3 hats valued at $4. = 12. 
 
 Cash balance 3. 
 
 $30. $30. 
 
 We are deceived by what seems a profit because the 
 shoemaker and the hatter rarely do business together. 
 Each sells in the open market and buys in the open market. 
 The business of the merchant is to assemble goods in order 
 
 28 
 
that they may be exchanged, and if we assume that the 
 merchant makes nothing out of his service the results of 
 a trade made through him seem to be as follows: 
 
 Hatter's Account. 
 
 Before selling. Cr. Cash on hand $15. 
 
 3 hats cost $3 = 9. 
 
 After selling. Cr. Cash on hand $15. 
 
 3 hats sold at $4. = ]2^ 
 
 $24. $27. 
 Profit $3. 
 
 Shoemaker's Account. 
 
 Before selling. Cr. Cash on hand $15. 
 
 3 pr. shoes cost $4. 12. 
 
 After selling. Cr. Cash on hand = $15. 
 
 3 pr. shoes sold at $5. = 15. 
 
 $27. $30. 
 Profit $3. 
 
 Each therefore seems to have made a profit of $3.00. 
 The transaction however is incomplete, for in the case 
 assumed each buys the other's goods. 
 
 Hatter's Account. 
 
 Before buying. Cr. Cash $15. 
 
 Proceeds of 3 hats 
 
 sold at $4. 12. 
 
 After buying. Cr. 3 pr. shoes bought at $5. $15. 
 
 Balance of cash 12. 
 
 $27. $27. 
 29 
 
Shoemaker's Account. 
 
 Before buying. Cr. Cash $15. 
 
 Proceeds 3 pr. shoes at $5. 15. 
 After buying. Cr. 3 hats bought at $4. $12. 
 
 Balance of cash 18. 
 
 $30. $30. 
 
 It will be observed that as a result of the completed 
 transaction the hatter has lost $3.00 of his cash and the 
 shoemaker has added $3.00 to his. The transaction seems 
 therefore to have been profitable to the shoemaker and 
 unprofitable to the hatter; yet it is quite evident that 
 neither is worse or better off than at the start. The hatter 
 started with $15.00 of cash and 3 hats worth $4 each, or 
 $27.00; he ended with $12 of cash and 3 pairs of shoes 
 worth $15, which equal $27.00. The shoemaker started 
 with $15 of cash and 3 pairs of shoes worth $15; he ended 
 with $18 of cash and 3 hats worth $12, which make $30.00. 
 In other words, the shoemaker started with more than the 
 hatter, and ended with more. The difference between the 
 assumed value of three pairs of shoes and three hats was 
 $3.00, and as the hats and the shoes were exchanged, the 
 hatter paid to the shoemaker $3.00 to settle the difference, 
 but the hatter lost nothing by such exchange; neither did 
 the shoemaker gain anything, except the advantage of 
 getting what he wanted by exchanging one sort of wealth 
 for another. I mean no more than that trade can result 
 in nothing but the substitution of one value for another 
 equal value. The prosperity of every producer of goods 
 depends not upon something derived from another, but 
 upon something produced by himself. As between two 
 hatters, he who produces twice as many hats in a given 
 time as the other, will have twice as many to exchange for 
 
 30- 
 
what he needs. His income cannot be greater than his 
 outgo, nor less. Trade does not enrich a producer of 
 goods: he is enriched by his own industry and zeal and 
 intelligence and in proportion as these faculties are em- 
 ployed in production. 
 
 Up to this point the problem has been simple. We 
 now reach a new perplexity which must be disposed of. 
 In the case put the shoemaker produced $3. more of what 
 we call value than the hatter. This excess value may be 
 due to either of two causes: the shoemaker may work 
 harder, or he may produce an article for which there is a 
 less supply. In the latter event his greater prosperity 
 seems to be due not to his own industry, but to another's 
 need. Assuming this to be true, is his prosperity unfair, 
 does it involve an injury to the consumer? Obviously 
 not. To make what no man needs is to serve nobody: to 
 add to an abundant supply other articles of the same 
 sort is to render an unneeded service: to supply what is 
 necessary and lacking is to render the best sort of service 
 and to deserve a corresponding reward. The value of every 
 article depends upon the demand for it. If I create a 
 value for which there is a great demand, I create a greater 
 value than he who produces that which is less needed. 
 I do more good than he, and my prosperity represents not 
 another's loss but the good I do him. I am still paid 
 according to my service. It is never true that profits are 
 derived from trade by one man at the expense of another. 
 Each gets what he gives, and gives what he gets; and the 
 word "profiteer" contains in a general sense a general 
 delusion. 
 
 I have been discussing barter only, as that sort of selling 
 and buying which results in immediate exchange, in order 
 to show what it involves and what good results from it. 
 
 31 
 
Trade however is never so simple as in the cases assumed. 
 Where labor or industry is minutely divided as at present, 
 one producer of goods rarely deals directly with another. 
 All goods are marketed by intervening instrumentalities 
 which serve not to bring producer and consumer together, 
 but to enable them to exchange goods without such con- 
 tact. The most important of these instrumentalities is 
 money. 
 
 Money is a commodity precisely in the sense that wheat 
 is a commodity, but it differs from every other commodity 
 in one important particular, namely: the owner can ex- 
 change money for any commodity whatever; every other 
 commodity is exchangeable for money only. For this 
 reason we first barter what we make for money and then 
 barter the money for what we need. It is obvious that by 
 such mediate barter, which we call selling and buying, we 
 neither add to nor diminish the value of what we give 
 and get. We exchange one value called goods for another 
 equal value called money, and then exchange the money 
 for another equal value in goods of another sort. As 
 however money is apt to confuse commercial transactions, 
 I shall attempt to ignore it wherever possible. 
 
 Money does not avoid all the difficulties of trade. The 
 producer of goods must still find some one who needs them. 
 As a rule he is too busy to search out the consumer, and 
 this task is entrusted to one who makes a business of 
 trade. The merchant buys from the producer and sells to 
 the consumer. As his service is a necessary one, he makes 
 what is called a profit by performing it. 
 
 Let me assume that the hatter and the shoemaker are 
 unknown to each other and conduct their trading through 
 a merchant. The hatter sells his hats to the merchant, 
 and the merchant sells one hat to the shoemaker, another 
 
 32 
 
to the blacksmith, etc., at a profit. At the same time the 
 shoemaker sells his shoes to the merchant and the merchant 
 sells a pair to the hatter, etc., at a profit. Whence come 
 these profits, who pays them? Does the merchant get rich 
 at the expense of others? His profits are paid by the 
 hatter and the shoemaker in one sense, but they represent 
 a service to each and not an injury. The need of the 
 shoemaker was a hat and the need of the hatter a pair 
 of shoes. Neither was able to get what he wanted without 
 the intervention of another. The merchant is helpful to 
 both and is paid by each because he helps each. Both 
 are better and not worse off as the result of his service. 
 
 At this point we are again confronted with a fact to 
 which I have already referred: one merchant makes a 
 greater profit than another. The explanation is identical 
 with that already offered. The merchant who sells in a 
 cheap market, performs a less service than he who sells in a 
 dear market. To transfer goods from a market where they 
 are little needed to one where they are greatly needed is 
 to deserve a corresponding reward, and this reward is 
 proportionate not to the harm but to the good done. 
 
 Such is the service rendered by the merchant. What 
 of the banker? Trade cannot be conducted without 
 money, and money is sometimes hard to get. The great 
 merchant rarely has enough of his own to conduct his 
 business. He must therefore borrow from one who has 
 money. The banker is the lender. To induce him to 
 lend, the merchant must pay part of his profit to the 
 banker, and this part is called usury or use money. To 
 the imagination nothing is more odious than usury. What 
 service does the banker perform? What he lends does 
 not belong to him. People who have no use for it deposit 
 money in the bank, and the banker, who cannot use it, 
 
 88 
 
lends to another. Is not his charge unjust; does he not 
 get rich without service; does he contribute anything to 
 the goods of the world; does he distribute them? 
 
 These questions also should be answered so clearly as 
 to leave no doubt. Usury has always been hateful. Christ 
 drove the bankers from the temple. For many centuries 
 the Church forbade usury. By the common opinion of 
 man it has been deemed hateful and hurtful. "The usurer 
 is the great Sabbath breaker; his plow goeth on Sunday." 
 The Church was right. During many centuries usury was 
 an unmixed evil. Men in distress borrowed so much, 
 spent it and were then required to pay more. Today 
 however usury is quite a different thing. The borrower 
 gains by the use of money and shares his gain with the 
 lender. The service rendered by the banker is very great. 
 He must safeguard the funds left with him, honor all 
 checks and keep accounts. If he lends trust funds, he 
 lends at his own risk. He must know not only the character 
 of the borrower and his resources, but understand the 
 business he is engaged in. If he lends for an unprofitable 
 enterprise, he will lose his advance. He enables the 
 borrower to do what he would otherwise be unable to do. 
 If I, being a merchant and lacking money, borrow the 
 money, buy goods, move them to a good market and sell 
 them at a profit, I can pay my debt and interest and 
 have something left for myself. The banker by becoming 
 a partner in my service, earns and deserves part of the 
 fruits of that service. He does not hurt me, he helps me; 
 and I in turn help both the producer and consumer of 
 goods by enabling them to exchange what they make for 
 what they need. The maker of goods, the merchant who 
 markets them and the banker who helps the merchant, 
 share alike in the fruits of a divided industry. 
 
 34 
 
In this instance also there is a difference between 
 individuals: one banker makes more than another, but if 
 he does, it is because he renders a better or more needed 
 service. He who lends a merchant money to buy corn in 
 New England for sale in Kansas will not get so rich as he 
 who lends money to buy corn in Kansas for sale in New 
 England. No banker can thrive who does an unuseful 
 thing. If he does or helps to do a useful thing, he earns 
 the fruits of his service, and his profit is derived not from 
 hurting but from helping another. 
 
 The uneven distribution of wealth is due to salutary 
 and useful laws. It is necessary for the welfare of society 
 that men should have an inducement to do good and not 
 to do evil: to do that which helps along rather than that 
 which retards progress. That welfare depends upon the 
 plentiful production of the right articles at least cost, and 
 their just distribution. Society helps itself by rewarding 
 men proportionately to the good they do; and as one 
 man does more good than another, it lets him become 
 richer than another. The increase in one man's riches 
 cannot deprive another of the fruits of his own industry. 
 We get rich at the same time. Every man's zeal helps all 
 the others. There is no limit to the amount of wealth that 
 can be produced. What one produces, he gets. The 
 prosperity of one cannot diminish the goods of another. 
 
 The accumulation of wealth by individuals is indis- 
 pensable to the community. Accumulated or unconsumed 
 wealth is capital, and capital, as I have already explained, 
 is most necessary to industry. It affords the tools to work 
 with, the machinery, the factory, the raw material and 
 wages pending the completion and sale of goods. It does 
 vastly more good than it earns in the way of interest. 
 If I lend a reaper to a farmer, charging for its use, I save 
 
 35 
 
him an immense amount of labor and increase his profit 
 on his crop. If I lend a machine to a workman, I increase 
 his output five or tenfold and receive but a small part 
 of such increase for my help. 
 
 The appropriation of capital by individuals cannot 
 tend to cripple industry, for it is worth nothing to the 
 capitalist unless he employs it for the general good. If 
 there are many capitalists, and capital is abundant, one 
 must compete with another in his charges, and business 
 always goes to him who will lend for least. The right use 
 of capital requires very high intelligence: that sort of 
 intelligence which is requisite for a banker. To put capital 
 into a foolish enterprise is to hurt at once the capitalist 
 and the community. It cannot be accumulated without 
 service nor preserved without service. The man who 
 hoards money is called a miser. He is miserable because 
 he serves neither himself nor others. An incompetent 
 man who employs it cannot retain it. It is a maxim of 
 experience that there are but three generations between 
 shirt-sleeves and shirt-sleeves. 
 
 Private property cannot therefore of itself be an evil. 
 It enables the possessor to live in comfort and confidence 
 and injures no man unless its possession gives one man 
 an unfair advantage over his fellows in that relentless 
 competition which I have described. Without capital 
 labor lacks two-thirds of its capacity. A man with a 
 machine can outstrip it in the race. Have we destroyed 
 the equal opportunity to which we should at least aspire, 
 by permitting one man to own the earth and appropriate 
 all its fruits? How can the newcomer live: what is left 
 for him? 
 
 A ready answer to this question may be found in what 
 everybody observes: the man with property is continually 
 
losing it and the man who lacks it is ever acquiring it. 
 The country boy who abandons the farm and comes to 
 the city thrives because he finds there better opportunities.^ 
 
 The economic answer rests upon the principle that 
 neither personal nor real property can be profitable to 
 the owner unless it be made of service to the community. 
 We sow crops to sell and thereby feed the community. 
 Property is like labor in the respect that it is the servant 
 and not the master of society. The man who owns it, 
 willing or not, must use all that part which is not necessary 
 for his own need for the good of others. Morever, property 
 is not more necessary for labor than labor is for property. 
 Each is dependent upon the other and the mastery is 
 with neither. 
 
 The fundamental error of socialism lies in the assump- 
 tion that one man will sow what another may reap. Ex- 
 perience is wiser. We allow private property in land and 
 goods because we know that only in such fashion can they 
 be made available for the general good. The owner who 
 seeks his own welfare must do good to others in order to 
 accomplish his object. 
 
 I have entered upon all of these considerations to 
 show that the free and spontaneous organization of industry 
 at which we have arrived after centuries of experiment is 
 upon the whole an excellent and beneficial system; as just 
 to those engaged in it as to those who depend upon it. 
 I have tried to explain why labor became specialized, what 
 results followed, how its increased efficiency enured to 
 the advantage of the laborer and the community, and in 
 what manner those advantages were distributed. I have 
 tried also to prove that the prosperity of every class 
 engaged either in the production or distribution of wealth 
 must be the direct and necessary result of the service it 
 
 37 
 
has performed: to justify private enrichment by the use- 
 fulness of capital: and to show that there can never be 
 too little wealth to go round because one man accumulates 
 more than he needs. 
 
 I cannot conclude without mentioning the causes of 
 the prevailing discontent which we are apt to overlook. 
 Men assume, why I cannot tell, that wealth consists of 
 money. Nothing could be farther from the truth. The 
 gold of the United States constitutes perhaps one-fiftieth 
 of its wealth. Money is wealth, but it is wealth in the same 
 sense that a hoe is wealth. It is a tool of exchange, a con- 
 venient measure, an instrument of trade. It contains a 
 definite and unfluctuating amount of what we call value, 
 with which we measure other values; but wheat and iron 
 and every other commodity also contain value, and they 
 and other commodities constitute ninety-eight per cent 
 of the wealth of the community as against the two per 
 cent contained by money. It is true that if one man locks 
 up money, he will diminish the general stock, as gold 
 cannot be produced as wheat is produced, But it is not 
 true that an increase in one man's general wealth dim- 
 inishes the wealth of another. Every one is free to pro- 
 duce as much as he can, and what he produces for himself 
 does not affect what another produces for himself. 
 
 Our industrial freedom is justified by its utility. We 
 are free, but free only to serve. If we fail to serve we are 
 punished relentlessly; if we serve, we are rewarded. What 
 we save is useful to ourselves and to others. Wealth is 
 unequally divided because all men are not alike. Some 
 know what to do and how to do it and are willing to work. 
 Others are ignorant or incompetent or idle; and each reaps 
 what he sows. 
 
 A slavish system would be altogether less profitable to 
 
the individual and to the community. If we say "to each 
 one according to his need and from each according to his 
 power," we make the bad to be tyrant over the good, 
 diminish the product of industry and impair the prosperity 
 of all. What I will not do freely for myself I cannot be 
 compelled to do efficiently for a master. 
 
 If we use these general considerations to test the utility 
 of the various expedients which are from time to time tried 
 for the redress of grievances, we shall observe that most 
 of them are not only hurtful to the promoters but to 
 everybody else. 
 
 The labor union, while it has many worthy objects, 
 commits a grievous blunder when it attempts to curtail 
 production in order to provide places for more men. Let 
 us assume that a proper output of shoes per day is five 
 pairs: to compel a man to make no more than three is to 
 reduce his wages; for wages, as we have seen, depend upon 
 the amount of wealth produced. Trade adds nothing to 
 the value of such product. Restricted output involves the 
 inversion of the present industrial system. We now divide 
 labor in order that it may produce more. If after dividing 
 it we produce less, the advantages of specialization will 
 be impaired or lost. A restricted production cannot be 
 good for the community unless to lack what we need be a 
 blessing. 
 
 The laborer is deceived by the apparent results of re- 
 stricting output. He observes that more men are required 
 to do the same amount of work and thinks that therefore 
 the laboring class is better off. This delusion is as old 
 as ignorance. The Chinese still cherish it and earn 
 about seven cents a day. Wages are paid in money. If 
 they seem high, men are satisfied. Yet they may seem 
 high and be low. Wages are earned by labor and paid in 
 
the fruits of labor. If labor be efficient and there is much 
 to go round, wages will be high. If we produce little, we 
 can get little. Money wages are always deceptive. To 
 receive $10 a day in money and be able to buy for it but 
 $2 in value, is not to prosper. Cheap goods mean high 
 wages, dear goods low wages. If all labor shall zealously 
 produce as much as possible at least cost, the exchange 
 value of labor measured in goods will be high. If all 
 scamp their jobs and make as little as possible, the exchange 
 value of labor measured in goods will be low, however high 
 the money wages may seem. The common stock of goods 
 being large or small as we make it, so shall we have much 
 or little as we choose. Something can never be got for 
 nothing; more cannot be got out of less, even through the 
 intervention of money. 
 
 All efforts to raise wages in disregard of economic law 
 must result in failure. An industry can pay so much and 
 no more. If it earns so much and wages demand the whole, 
 the employer will not work and the capitalist will stop 
 lending. The most effective check upon abnormal wages 
 is that which results from the injury they attempt to 
 inflict upon the community. Earned wages represent a 
 service rendered; unearned wages, a wrong done. No 
 man can compel another to pay what that other cannot 
 afford. If I get for my labor $5.00 a day, I cannot pay 
 another $10.00 a day. Rising prices kill trade, and ab- 
 normal wages tend to high prices. A boom always collapses, 
 and wages must ultimately conform to the economic law. 
 
 The Union seems unable to understand the mutual 
 dependence of all classes engaged in co-operative industry. 
 The man who makes shoes will not remember that others 
 are engaged in making hats, and that neither can gain an 
 unfair advantage without hurting him on whom his own 
 
 40 
 
prosperity depends. The hatter needs shoes, the shoe- 
 maker hats; and each must deal fairly with the other, or 
 not at all. Economic selfishness which seeks the rewards 
 of service is quite a different thing from that disorderly 
 selfishness which attempts spoliation. The Union may 
 secure an immediate advantage, but such advantage will 
 be temporary. 
 
 The employer is sometimes as foolish as the laborer. 
 He too tries by restricting output to control prices, or to 
 artificially maintain them by pools and conspiracies; but 
 it is as impossible for him to succeed as for the laborer, 
 and for the same reason. The community which earns so 
 much can pay so much and no more. What is called over- 
 production deceives us. It does not mean that too many 
 goods have been produced but that the public cannot pay 
 the price demanded. A manufacturer may make too 
 many $5 hats, but he cannot make too many hats while 
 men need them and will pay $2 for them. 
 
 The general propensity of every industry and of all 
 engaged in it to regard its welfare as something special 
 and apart from that of others has defeated and perhaps 
 always will defeat the plainest doctrine of political economy 
 and lesson of experience. Laws are still in force which 
 pretend to satisfy this universal craving They are called 
 ingeniously "protective" laws. They protect A against B 
 and B against A, and both are satisfied. 
 
 Perhaps the most interesting manifestation of this 
 delusion is to be found in the opinion of the business world 
 with respect to foreigners and to what is called the balance 
 of international trade. People say the balance is "favor- 
 able" when more goods are sent out than are brought in. 
 What nonsense! What is trade? Is it not the exchange of 
 goods for goods? Is the balance "favorable" when more is 
 
 41 
 
given for less? The truth is, the balance must be even: it 
 cannot be either favorable or unfavorable. I do not deny 
 that for a century the United States has sent more goods 
 to England than it has received from England; but is the 
 balance therefore uneven? Certainly not. We have been 
 for a century a debtor nation: we have borrowed England's 
 capital to help our industries. We therefore ship her goods 
 for goods and also goods for the use of her capital. The 
 balance has always been even. 
 
 The vague notion back of the words "favorable" and 
 "unfavorable" is an apprehension inherited from our 
 ancestors that if we buy more than we sell we shall lose 
 money. One simple fact should expel this delusion. Not- 
 withstanding that our exports to England have exceeded 
 our imports from England by a great sum during a whole 
 century, England has lost no money by this "adverse" 
 balance: she has, on the contrary, during the whole of 
 that time been the money market of the world. How can 
 this fact be reconciled with the prevailing delusion? Eng- 
 land has become and remained rich because her income 
 has been greater than her outgo not because it has been 
 less. The United States has also been prosperous not 
 because her outgo has been greater than her income, but 
 because the capital borrowed has been employed in in- 
 dustry and we have not only paid for its use but profited 
 by its use. 
 
 It is true that under certain circumstances an adverse 
 balance of trade must be corrected by the export of money; 
 but what is money for? If we send it out, it is because we 
 wish something we purchase with it. Does disaster there- 
 fore threaten us? No, because as soon as the export of 
 specie tends to deprive a country of a necessary medium of 
 exchange, the value of money for domestic exchange must 
 
 42 
 
rise; that is, its purchasing power in the exporting country 
 must increase, and the direct and necessary result of such 
 advance will be to draw money from abroad. Money goes 
 to its best market as instinctively as wheat or any other 
 commodity, and it is incredible that it shall long be lacking 
 in a commercial country where it will buy most. 
 
 One other obsession which works great mischief in the 
 world deserves consideration. The poor man is pleased 
 when heavy taxes are imposed upon the rich; and the 
 whole art of government now consists in predatory taxa- 
 tion. What is a tax; who pays it? It is a toll levied upon 
 industry, and it is paid by labor. Although collected in 
 what is called money, yet the money is immediately spent 
 for goods and the goods so bought are withdrawn from the 
 general stock and consumed by the tax-gatherer. It can- 
 not be advantageous for the poorer members of the com- 
 munity that many goods should be consumed by those 
 who produce nothing. The hive may support so many 
 drones, but it cannot be a blessing to the worker bee to 
 endure such a burden. If we assume that one half of all 
 the wealth produced by everybody is appropriated by 
 the State, is everybody or anybody better or worse off as 
 the result of such spoliation? When we tax, we appropriate 
 goods. Goods must be produced by labor. Who then 
 pays the tax ultimately? It may fall first upon a bank 
 account, but in the end it falls upon the producers of 
 wealth. 
 
 Money may or may not be the root of all evil, but it is 
 certainly the root of much bad thinking. From a false 
 notion of its character and function flow many delusions: 
 as that "protection" protects; that trade can have an un- 
 favorable balance; that the seller makes something out of 
 the buyer; or that one man's riches cause another man's 
 
 43 
 
poverty; and it is hard to be rid of these obsessions. We 
 must remember constantly that industry is divided because 
 a specialized labor is most productive; that the benefits 
 of specialization cannot be realized save by trade; that 
 trade is good for the buyer as well as the seller; that it 
 involves the exchange of goods for goods, or services for 
 services; that what interferes with trade impairs prosperity; 
 that money is a convenient medium for the exchange of 
 goods and nothing more; that what we carry into trade we 
 get out of trade; and that the prosperity of all classes 
 depends upon the industry of all classes and cannot be 
 otherwise realized. 
 
 Private property is not the fruit of wrongdoing, but of 
 service and self-denial. Its accumulation hurts no one: 
 it helps every one. It provides comforts and luxuries, 
 which all men should wish to have. It provides also the 
 capital without which industry would be reduced to 
 penury. The hate which it inspires is undeserved. 
 
 I fully realize that this brief discussion of a great sub- 
 ject cannot convince the unthcughtful man, but it may 
 be useful to those who seek to understand what is con- 
 fused. There are bad men in industry, captains whom we 
 may justly call buccaneers, and these I have not discussed. 
 I have confined myself to the normal sort of industry and 
 not to thieving, because the latter is too fugitive and 
 various for discussion. There are degrees of selfishness. 
 That sort which I have treated is the sort which is common 
 to all men, and I have tried to make it respectable by 
 showing the good it does and must do in order that it 
 may prosper. 
 
 In conclusion I venture to reiterate the propositions 
 which I have endeavored to establish. 
 
 44 
 
The object of industry is to produce abundantly and 
 cheaply the goods of which society has need. 
 
 In the accomplishment of this object each individual 
 may produce all of his own goods, or specialize his labor 
 and produce particular goods to be exchanged for what 
 he needs. 
 
 Of these two methods specialization is better because it 
 conduces to skill and efficiency and therefore to greater 
 production. 
 
 The organization of industry may be either arbitrary 
 or free; the State may direct labor and distribute goods 
 arbitrarily, or each individual may be permitted to do 
 what he likes and trade where he likes. 
 
 The free system is preferable because selfishness is a 
 better spur to industry than altruism; freedom is better 
 than slavery, and private intelligence is more trustworthy 
 than official supervision. 
 
 The free system cannot result in injury to anybody, 
 because it is controlled by economic laws which none may 
 disregard. Under it, selfishness can thrive only by doing 
 good. The man who makes in order to sell must make 
 what someone else needs and offer it on satisfactory terms 
 for what he himself needs. The selfishness of all guides 
 corrects and restrains the selfishness of each. 
 
 Where industry is divided, it is advantageous to all 
 individuals that all goods should be abundant and not 
 scarce; for the purchasing power of special goods depends 
 upon the abundance of all other goods, that is upon the 
 price which must be paid for them. 
 
 Trade, which is indispensable to a divided industry, is 
 beneficial to all engaged in it, although each gets from 
 trade what he carries into it and no more. All share in 
 
 45 
 
the fruits of a divided labor, but none gets any advantage 
 at the cost of the other. Trade should therefore be free. 
 
 The worst enemy of society is he who strives to make 
 goods scarce and high or to curtail the markets for them. 
 
 Private property is property produced by work and 
 accumulated by self-denial. It is useful to the owner only 
 when employed in aid of industry. It is the source of the 
 capital, or tools, machinery, etc., which are indispensable 
 to industry. Land is given to individuals in order that it 
 may be made productive. 
 
 The prosperity of one individual cannot impair the 
 prosperity of another, for a man can become rich only by 
 helping and not by hurting others; and his enrichment 
 cannot diminish their riches. 
 
 The free industrial system under which we live is ex- 
 cellent because it tends to the production of much wealth; 
 to the distribution of such wealth to each according to his 
 contribution; to zealous industry; to fair trade; and to 
 mutual service. 
 
 Political economy is in reality the science of service. 
 
 46 
 
UNIVERSITY OF CALIFORNIA LIBRARY 
 BERKELEY 
 
 Return to desk from which borrowed. 
 This book is DUE on the last date stamped below. 
 
 
 
 MAR 23 1948 
 
 REC'D LD 
 OCT 2 2'64-12M 
 
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 JUN23 1982 
 
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 UNIVERSITY OF CALIFORNIA LIBRARY