Cost and price; or, The product and the market, an analysis of the nature of costs and an inquiry into the origin of purchasing power and credits, showing their limit in paying the price of products and the ever increasing necessity for municipal and industrial bond issues

Front matter

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Chapter I — Our Factories 11 II— The Market 14

III — Origin of Purchasing Power " 20

^ IV— Mixed Ideas Defined 30

V— Funds and Their Use 51

VI— The Credit Fu^d 64

VII— The Nature of Costs 81

VIII — Deductions from Inquiry 92

BOOK II Cost Effects of Land Values Chapter I — Costs and Profits 104

• II — Rise in Land Values 117

III— Trusts 130

IV— A Sample Trust 150

V— Our Foreign Trade 162

VI — Money and Panics 179

VII— The Drift of Humanity 204

VIII— The Danger to Civilization 214

BOOK III Proposed Remedies Considered Chapter ' I — Criminal or Justifiable 244

II — Government Control 262

III — Measures of Control 277

IV — Application of Government Control 292

V — Government Control by Inhibition 307

VI — Unbalanced Banking 328

VII— Elastic Credit Money 347

VIII— The Money Trust 366

IX — Redeemable Credit Currency 378

X-^— Physical and Moral Economics 397

XI— The Sentiment of Economics 409

XII— The Price of the Land . . , 414

'f HE BROADENING VIEW

"Therfe are flittiilg thoughts that come to the mind

While doing our task through the day, And they come again in the evening time

But we firmly put them away; Put them away as unfitting our faith

And what we were taught in our youth, But find them again in the garnered stores

We have gleaned from the fields of Truth.

They are far from what we wish they could be.

So we put them to every test, As they weave a weft without cleft or loop,

In the thoughtful hours of our rest.

They come to us first as unwelcome guests

And we bid them to go their way, But they broaden our mind to God and man

And the part in life we must play.

Book I

An Inquiry into tho Origin and Use op Funds and the Nature op Costs.

Chapter I.

OUR FACTORIES.

We pride ourselves on our eivilization, a civilization that more completely reaches and inspires all the people of its time, than any civilization of the past. We have this reason for our pride, not that it is we and our day, but that we have accomplished more than any of our predecessors. By our inventive ingenuity we have evolved from the resources of Nature such an increase of production as should frighten the Malthusian nightmare into the shades of oblivion. But it must be evident to all fair-minded people that modern civilization, look at it as we may, is based upon the modern factory. While the farm still feeds civilized man, civilization is not a matter of food alone, since food is as necessary to the savage and the brute as to the highest civilized being. While inventive genius and applied science have lifted civiliza= tion to its present height, it is by developing the modem factory that they have enabled productive forces to multiply their output until the average homfe is equipped and furnished in a manner that would have been luxurious iot the earlier modern kings. The factory is not only the source of our finished products, but it is the employer which generates and pays to us the wage fund that enables us to buy its products. Turn where we may to earn our living, it is the factory which, directly or indirectly, employs us either in supplying it with raw material, in manning its machinery, in doing its clerical work, in superintendency and management, in selling its output, or in supplying its employees with what they may need for their material wants or their pleasures. The railroads that line the maps of the world are factory products in their every part, and, while they assist factory extension, it is the factory which makes the railroad possible and profitable. Even farm produce, it may be asserted, is factoryproduced; for without modern farm machinery, furnished by the factory, farming would be limited to the physical lug and haul of olden times. Look where we will to supply our needs and satisfy our tastes, the factory has anticipated our wants and piled up its abundant variety for our selection, and stands ready to satisfy our most fastidious and most frivolous demands. Our modern cities are also factory products in all their material of construction. Is is for the factory and its dispensing benefits that business-pushing towns raise a bonus, and for which suburban land-owners vie in presenting a site, because of the prospect of an increasing population which shall bring a larger volume of trade to the merchant, a better market for the farmer, higher rents to the house - owner, and put higher selling prices on vacant lots. There is no other form of property which gives so much of value to its neighbors, in addition to what it pays out in wages, as the factory, while it never bribes the city council for valuable franchises and seldom infringes upon public rights.

Biit, to continue and increase its output, to employ labor and pay out wages, to add to the population of the town and to add value to other property, the factory must have a market for its products; and modern civilization is the greatest market the world has ever known. The real difference between ancient and modern civilization

OVU FACTOBtES H

can well be measured by factory production and market consumption. The real quality of civilization can b^ measured by the quality and quantity of what people ^ buy and consume. To educate a people in buying and consuming is to give to them a higher degree* of civilization and to add to their ability to earn and pay the price. Under present-day conditions, to practice old-fashioned frugality would not be economy, since it would check production and reduce both what the people have and their ability to buy. ^

To consider the market strictly from the viewpoint of selling our factory output, and to consider the sale of the factory output strictly from the viewpoint of giving employment and paying wages to labor, is but to arrive at the conclusion that extravagance in buying is what gives employment and what develops the wages.

/'Double your industry and frugality,'' was Dr. Franklin's prescription for '*hard times," and it was certainly applicable to the economic condition of his day, when the meager product of long hours at physical labor must be conserved in the most frugal manner; but to apply that idea literally to the conditions of today would mean to produce twice as much and consume half as much as usual, or to double output and buy and consume onequarter of it. While extravagance in the expenditure of earnings can not be commended, real economy is in free and judicious, rather than frugal, buying, since the object of production is to have and enjoy the fruits of labor. It can be safely asserted that it is the extravagance of the people in buying and consuming that, by furnishing a market for their products, gives them employment; but it is the judicious expenditure of earnings and incomes, not frugality, which builds toward a higher civilization.

Consumption of the product is logically as necessary as production. A market is necessary to the P^^^V^^/JjAlp

12 COST AND PBiCB

market implies sales, while sales imply buying. Production, marketing, buying and consuming form a complete economic ring. The demand for goods is the life of the market; it is also the measure of the factory output and the sum of the wage fund which gives to the community its purchasing power.

For a number of years there has been a condition— :now a growing condition — which manifests itself as a surplus of goods on one hand and as a shortage of purchasing power on the other. A commission appointed by the governor of one of our states to investigate **the high cost of living, ^^ reported that there appeared to be no real surplus of goods, since the needs of the people were not fully supplied, but, rather, a shortage of purchasing power among the people with which to buy for consumption. This was, in their opinion, the result of higher prices.

Another body of learned men found, after investigation, that wages had advanced relatively with prices, thus leaving no advantage to manufacturers and dealers over wage-earners and the general consuming public. But, investigate as different interests may, the higher costs of manufacturing can not be asserted out of existence. The cost is there and, if the factory continues to employ labor and turn out a product, the cost must be covered in the selling-price. Nor does machinery improvement longer appear able to stem the tide of rising costs; and it may even be questioned if we have not already passed our boasted **age of discovery and invention.*' Our latest improvements in machinery are not covered by ** basic" patents. The new is but the old made heavier and of stronger material, the semi-automatic made fully automatic and with a combination of principles borrowed from expired patents. Even with the best and latest improved machinery, costs have tended upward and profits downward to points never reached with the use of the poorer

OVB FACTORIES ^ Ig

tind lighter machinery of twenty-five years ago, which could be used only at a loss if it were to be used to supply the needs of today.

The civilized world is undergoing an economic change and the process is but well under way; the end is not yet in sight.

14 coisT AifB PEicn

Chapter II. THE MARKET

'*Home Market!'' Few people fully realize the full meaning of the term **home market.'' In a commercial sense it means the opportunity for the sale of goods within our national boundary, where a protective tariff is the rule. But let us consider the real **home market" — the household home and its substitutes: hotels, boardinghouses, rooms and restaurants. It may seem untenable to assert that fully ninety per cent of all our prodilction is ultimately consumed in the household homes of our country, and the listing of such constructions as steamboats, locomotives, machine-shops and farm machinery for household consumption may, at first thought, seem rash to the point of idiocy. But what is the ultimate object of their being? True, mowing-machines never enter the household, nor does the hay which they help to harvest, and rarely does the cow that eats the hay; but the meat, the milk, and the butter, the ultimate objects of their being, are of every-day household consumption. The mowingmachine and the factory that made it, together with other factories and the machine-shops and foundries which equipped them with machinery, and the locomotives and freight cars necessary in the transportation, are all used and finally worn out in supplying the necessaries, the comforts, and the luxuries of our homes. And their cost, as they wear out, is all added in minute fractions to the price of what enters the home for ultimate consumption and ultimate payment. Indirectly all the products of the world are for the home, since the home is the begiiming and the

TEE MARKET 15

end of life; and in a direct manner all other costs are finally included in the price of those commodities which enter the home.

Since the homes of civilization are the real market, the better way of developing a market for all our products is to investigate the home-life of our toiling masses, with a view to finding there the incubus that thwarts the better influences of a higher civilization. That which will bring about a better home condition among our masses will also create a market for all that we can produce, and at profitable prices.

But we hear much of **the foreign market" as a profitable prospective receptacle for any surplus products which we do not or cannot afford to assimilate. While this is not the idea of those who are agitating and advocating the value of a foreign market, yet it must be so in effect if we find foreign relief for our surplus.

In this consideration of the foreign market, it should be borne in mind, that we are in no way discussing the natural commercial distribution of what Nature has apparently scattered so unevenly over the surface of the earth. Some localities, home and foreign, are favored with some natural deposit of utility value, while in other localities there is a shortage of this and an abundance of something else which has a commercial value. To distribute and equalize these deposits through the medium of foreign commercial exchange is natural and should be profitable. But to work off a factory surplus on a foreign market is very different.

Some of our eminent men, to judge by their writings and sayings, seem to believe the foreign market to be an uncertain, inanimate, and plastic condition which can be manipulated in such a manner as to absorb our products and exude gold, or, if we are not very alert, it will exude goods and absorb our gold. They seem to fear it and yet would court it> as one might pat a properly muzzlecUdo^ ,

16 COST AND PEICE

But the foreign market, as it really exists, is a condition relatively similar to our own market situation. There is a sameness in the mental and physical tendency to produce a surplus, and with it a relative shortage in purchasing power; and, as with us, a very proper desire to unload the surplus on a foreign market.

As the prime object of production is to have and to use all that which will give us a degree of satisfaction, how can we be the gainers by exporting more in value than we import and consume? To assume that any foreign people can assimilate our surplus in addition to their own production is equivalent to the admission that their economic condition is better than ours. But that condition of unbalanced foreign trade which compels us to send abroad each year several hundred million dollars more in value of goods than we receive in return is the result of a cause, foreign in its nature to the commercial exchange of products. This cause, the effect of which is to unbalance foreign trade, is the same cause as that which unbalances the home market, with a resulting surplus. The reason for this will develop as we proceed.

In searching for a market, or in planning to create a 4demand for products, assurance of satisfactory payments is of more importance than locality. To send goods to a foreign market and receive nothing but gold in return would tend to diminish the ability of our customers to buy as the margin of their supply of gold diminished. When their supply of gold had diminished to the margin of premiums, our supply of products would have reached the margin of loss — ^unless these customers chanced to be producers of gold and our economic condition had need of gold; then we should have come to a profitable exchange of products* A satisfactory market must imply a continuous ti'ade conditito, sihcfe those engaged, both capital and iabor, have continuous needs to be supplied. A fluctaatihg mari^et, with largie margins^ may be satisfactory^

THE MABKET 17

to the capital engaged, but not so to the labor employed, the needs of which are continuous. Nor do the needs of the people — their direst needs — create a market. Famines in India and China do not attract the surplus farm-products of other lands, nor has their scarcity of manufacturing capital attracted much labor-saving machinery, or, rather, labor- and wage-producing machinery. In a full sense, a market implies satisfactory payments; and one will observe that the countries whose people buy most from us are the greatest producers of those commodities which are building toward a higher civilization.

The more a people can produce and sell, the more they can buy and consume. The exchange of products more nearly balances in the scale of production when the earnings of the people are at the maximum. While it might seem that a shortage in production would stimulate a market demand, the reverse is true because buying and selling is but the exchange of products. This must be viewed in the broad sense of a rule governing the great volume of products and not of an exception which might apply to some perishable product that might be doubled in volume or cut to halLby weather conditions.

But there is one idea, an assertion made by wage-earners, which contains too much of truth to be passed without notice. It can be mentioned here, but can be analyzed only in another connection.

Our wage-earners believe that an increase of wages would give them the necessary purchasing power to buy and consume the apparent surplus which clogs the market and smothers production. Without attempting to answer this fully now, we will consider some discrepancies.

That there is no shortage of purchasing power, as some eminent investigators have reported, is evidenced by the simple fact that there are sufficient loanable funds not only to purchase the mslrket surplus but to employ all idle iabori That loanable funds are piirehdsitig power c^

lOogTe not well be controverted ; that they are not used in purchasing the factory output is evident; but it must be observed, that these funds do not belong to the employers of labor, to be paid out in wages. It must also be observed that employers of labor are now heavy borrowers of these funds and that their bond issues are tending to an increase rather than toward payments. Therefore, if employers of labor are to pay higher wages, under present economic conditions, they must become heavier borrowers of loanable funds, increasing their encumbrance, or raise prices so as to leave wage-earners with no gain in relative purchasing power. The employers of labor stand midway between the parties who, owning the purchasing power and not needing goods, make loans, and the parties who do need the goods and would use the purchasing power if they had it.

Labor cost in manufacturing is far from the entire cost, especially with manufacturers of finished products whose raw material carries a heavy royalty cost in its natural state. Labor has no recourse for obtaining better wages other than a demand upon the employer; the employer has no recourse between first costs (costs before labor is employed) and the price that the market will stand unless he borrows funds or reduces profits, and profits are now such that reduction of indebtedness is practically impossible. To exact o'f employers a sufficient wage increase to enable wage-earners to buy and consume the market surplus and maintain a market balance would be to burden them with all the inequalities of our economic system and compel them to make good all shortage in available purchasing power. To use wages as a regulator or governor of market sales they must, necessarily, rise and fall in inverse ratio to the sales; falling with increasing sales and rising with increasing surplus, since to rise with increasing sales would tend toward increased output

TM^ MARkMT 19

and higher prices, while to fall with increasing surplus would only increase the surplus.

That labor has no recourse in demands for higher wages does not in any way assist the employer in obtaining the funds with which to meet the demands; nor does recourse to strikes and lock-outs in any way tend to settle or equalize an economic condition over which neither the employer nor employee has any control. That many employers can well afford to pay much higher wages is a matter of little doubt; but for the few to raise wages to the highest point that their business could stand would be an injustice to those who are now at that limit, since it would result in greater dissatisfaction with no general benefit.

If economic embezzlement, to coin a term, exists, it can not be found in our factory system; nor can we find any foreign market which can absorb what we cannot afford to assimulate; yet this would be necessary if relief were to be found abroad. That present wages are inadequate to maintain our standard of workingmen is beyond dispute, but the question is, where are the funds with which to increase wages?

The effect of a condition in any object is most manifest in the weaker portions of the surface, but the cause is among the roots. If Mount Vesuvius could be shoveled away and dumped into the deepest part of the sea, the eruptions which bring panics and destruction would not cease; for the cause which created the mountain itself lies far beneath.

^ :C08T AND PBICM

Chapter III. ORIGIN OF PURCHASING POWER

Purchase : — I'o acquire by any means except descent or

inheritance. — Blackstone.

Power: — Capability of producing art effect, whether physical or moral. — Webster."

Purchasing power, in the broad meaning of the two words combined in the term, means 'ability to acquire. In the economic sense in which it has been used in several political campaigns, it means the acquired substance — money or produce — of which people are possessed and which has a recognized exchange value. But in this work the meaning is not strictly limited.

Since the habit of thought among all classes of people, when in need of necessary commodities, turns toward money, and as they measure and express their incomes and expenses in terms of money, it seems difficult or inconvenient for them to distinguish between money and purchasing power. But purchasing power precedes money as effort precedes results. Purchasing power endows money with value and it is with purchasing power that money is obtained. Purchasing power implies something to be purchased as well as something to purchase with, while money will fail in environments where there is nothing for sale.

In a broad sense, purchasing power might be defined as any substance or moral force which the possessor can successfully offer or tender in exchange for any, other substance or moral force. This would constitute an exchange of recognized values, each value having purchased and paid

for the other. But in the exchange of moral force for moral force, fortune-telling for fortune-telling, and good advice for good advice, the parties making the exchange, it will be well to observe, do not consider values as when they traffic for money and commodities, or as do those who exchange substance for substance, in barter or by money payment.

Commercially, purchasing power implies a dual condition, two parties being necessary to an exchange of values. Therefore, while one party, by value rendered or by persuasion, may induce the other party to accept moral force in exchange for valuable substance, it must be, in fact and logic, that the value of the substance was the desideratum of the exchange. Thus, no matter what may be tendered on one side, there must be a material substance of recognized value on the other in order that purchasing power may be operative. Commercially, in logic and in fact, there can be no purchasing power, operative or exiatent, where there is no material substance of recognized value in form for active exchange. On one side there may be moral fc force, personal suasion, physical compulsion, or the price of privilege, but the other side must ** deliver the goods. *' In every- purchase or barter exchange one side, at least, must present or tender a material substance of recognized value, containing human cost, before purchasing power can be operative, and to obtain such material substances it is necessary that human cost be applied in productive effort with a resulting increase. The substance of the increase, coming of applied human cost, can pay for liberty, can pay for privilege^, and can pay for money; since the object of bondage and obstruction and of hoarding money is to obtain of the products of applied human cost.

Purchasing power has its origin in productive effort and its volume is the market value of the increase coming of the applied effort. A man may receive wages for hMe efforts — his labor — ^yet it is not his efforts but the resulting increase of material things coming of his efforts which evolves, through exchange, into purchasing power; since his efforts, while entirely satisfactory to his employer, may have been expended in personal service where no increase could result, and what he receives comes from some other and previous effort which was applied in producing an increase. An increase of material substance, evolved from the resources of nature by human cost and having recognized value, is absolutely essential in generating purchasing power. While physical force may threaten, while the possessor of a natural resource may demand, and the owner of accumulated wealth may exact, threats and demands and exaction can only result in pain and oppression and denial if their object — a portion of material increase — is not forthcoming. Theirs is but the power to distress and deny, while the increase has the power to make payments and relieve. The increase is the object and the origin of purchasing power.

But increase does not, necessarily, mean material enlargement; the growing value of development toward use is real economic increase. To locate a suitable pine-tree in the forest adds nothing to its material bulk, but it is an* addition to its value in the development of a needed spar for a ship. The cutting, the slabbing, the scoring, and the hewing, while reducing the bulk, are adding still more to the value by the human cost of development toward use. The hauling, the shaping, and the hoisting into position are adding more human cost and recognized value until, complete in itself, it becomes a part of a finished product — the ultimate object of which is yet to come. The ship, an economic increase, a finished product within itself, is the pay within itself for all the human cost in its development. The finished ship is the exchange value for all the material and supplies which entered into its construction. The materials and the food supply of the

ORIGIN OF PURCHASING POWER 23

workmen were all of human cost and were all purchasing power, and the ship is what they purchased. The question of ownership after completion is entirely foreign to the principle under discussion, being a matter of equity between man and man.

Economic increase, which generates purchasing power, is a process and not an act; inception, planning, execution and appropriation, all requiring time, are human costs which must be covered in the price which measures relative values. An article may be mechanically complete and not commercially complete, an increase of price being necessary to cover costs of shipping, booking, storage, retailing, handling in final delivery, together with the interest on the necessary capital to carry it from the initiative of its origin to the ultimate consumer. All costs must be covered in the selling-price if each party contributing to the finished product receives his share of the purchasing power which the finished product generated during its process of evolution from inception to ultimate consumption. The selling-price, being the recognized purchasing power of the product, will measure the value of what it will buy of other products which are offered for sale on. the market. The epitome of buying and selling is direct exchange, nor does the longer process where several deals are necessary — each deal adding to costs — change the involved principle of paying for product with product in ultimate consumption. The principle is only obscured and not changed by the use of money, since products buy money and money buys products.

Money, no matter what its intrinsic value, is but a space-filler between effort and satisfaction, a receipt for the value of what a man has parted from and the evidence of what value he is entitled to receive. Gold is an increase in the season of its production and never can generate more purchasing power than its recognized value at that time. Wheamver it buys a product it is bought ^^ a product, and the product being the object of the transaction it is the product which generates the real purchasing power. Nor can the money buy the product when the owner of the product has greater need of the product than of the money, while the need of the product makes the owner of money more anxious to buy.

While purchasing power has its beginning from the incentive to produce an increase it has its ending in the satisfaction coming in the use of the increase. The ship was all increase until it became a finished product in itself. Every part of its construction was paying wages and profits which were buying what those engaged in furnishing material and labor might need, but on completion this all came to an end. As a finished product, it has no further need for more material or more labor, and those who have been engaged in supplying these needs must now turn to something else to obtain purchasing power, since the ship has undergone an economic change and can generate no more purchasing power. By consuming all the material and labor necessary to its construction it has consumed itself, since its entire construction is but consumed constituent parts. Each constituent part, complete in itself and having a purpose and a value which has generated purchasing power, is taken from the market and loses its identity and individuality in the concretion of the ship. Each part being consumed by concretion in the ship, the ship itself becomes consumed in concretion by inurement to ownership and dedication to purpose. As a product it gave employment which generated purchasing power equal to the wages paid and the profits on the hiatlBrial consumed; but completed it becomes a tool of febmmierciie and mtlst assist in producing an increase in ordier tb makiB itsfelf profitable to its owner. But the ship dofes hot pay thie profit on its cost; it is the increase which it assists in producing that generates the purchasing power whick pays to its owner a profit bn the cost of his ship<