Economics: Briefer Course

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Preface

Gkowino appreciation of the importance of economics is causing the subject to be introduced into a number of technical and professional schools. As a rule the course is shorter in such schools than the usual college course, and a briefer text-book is required. The following treatise has been prepared with special reference to this need. Although based on the author's larger Introduction to Economics, it is in essential respects an independent work. Not only are several topics there discussed entirely omitted, but the treatment of others is simplified as well as condensed. In general the qualities chiefly aimed at in the first, or theoretical, half of the book have been clearness and brevity, and those sought in the second, or practical, half, adequacy and up-to-dateness. The treatise is thus intended primarily for teachers who wish to give only that amount of attention to economic theory that is essential to the intelligent discussion of practical economic problems. Since this is the normal position of the busy man of affairs, it is possible that the book may be of interest to some readers outside the class-room.

The bibliographical note at the end of Chapter I. and the references for collateral reading appended to all of the chapters except the last are intended for the guidance of general readers. Asterisks (*) are used to designate the titles which are especially recommended.

Pbtsbboao, New Hamfshibb,

November 2, 1908.

Chapter I Preliminary Survey Op The Field Of

ECONOMICS

PAOI

1. Definition of Economics — 8. Relation of Economics to other Social Sciences— 3. The Motives to Business Actiyity--4. Characteristics of the Business, or ''Economic," Man — 5. Definitions of Common Terms — 6. Production and Consumption — 7. Work and Pay— 8. Property and its Earnings— 9. The Methods of Economics — 10. Economic Laws — 11. Outline of Book and Conclusion — Bibliographical Note • • • • 1

Chapter II

19. Qiaracteristics of Human Wants — IS. The Law of Diminishing Utility— 14. Present v». Future Goods— 15. The Law of Demand — 16. The Law of Variety — 17. The Law of Harmony — 18. The Law of Least Social Cost — 19. Economical Consumption — 30. Are Expenditures for Luxuries Justifiable? — 91. Saving V9, Spending — 99. Statistics of Consumption— 93. Two Aspects of Consumption 91

Chapter III

94. How Values in Use are Determined— 95. The Relation between Values and Costs — 96, Marginal Utility and Value in Industrial Society — ^97. Marginal Cost and Value in Industrial Society — ^98. Values in Use, Values in Exchange and Prices— 99. The Value of Money— 30. The Determination of Prices— 31. The Determination of Competitive Prices— 39. Market Prices and Normal Prices 38

VI CONTENTS

Chapter IV Production: Land And Natural Forces Page

S3. Definition of Production — 34. Nature and Man the Factors in Production— 35. The Productive Services of Land--36. Different Characteristics of Different Pieces of Land— 37. Differences in Expenses of Production due to Differences among Different Pieces of Land— 38. The Law of Diminishing Returns— 39. Differences between Different Pieces of Land due to Social Causes 60

Chapter V Production: Labor And Capital

40. Labor as a Factor in Production— 41. Qualities Determining the Productive Efficiency of Workers — 43. Capitalistic Production— 43. The Different Kinds of Capital— 44. The Law of Diminishing Returns for Labor and Capital— 45. Methods of Accumulating Capital— 46. Different Varieties of Capital Goods— 47. Capitalistic Production a Modem Phenomenon • 73

Chapter VI Production: Co-operation And Business

ORGANIZATION

48. The Importance of Co-operation of Workmen in Production —49. Qualities Necessary to Effective Co-operation — 50. The Advantages of Co-operation — 51. The Disadvantages of Cooperation — 59. Illustrations of the Advantages of Co-operation — 53. Business Organization and the Function of the Entrepreneur — 54. Different Forms of Business Organization — 55. Advantages and Disadvantages of the Corporate Form of Organization — 56. The Advantages of Large-scale Production— 57. The Representative Firm 91

Chapter VII

58. The Nature of Distribution — ^59. Connection between Prices and the Money Income to be Distributed — 60. Elements in the

CONTENTS vii

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Expenses of Production— 41. The Wages of Management— 63. The Normal Expenses of Production— (IS. The Shares Into which the Money Income is Divided 110

Chapter VIII Distribution: Competitive Profits

64. The Causes of Competitive Profits— 65. (1) Profits due to Fluctuations in the Prices of. Particular Commodities — 66. Speculation Tends to Steady Prices— 67. Profits due to General Price Movements — 68. (3) Profits due to the Introduction of Novelties — 69. (3) Profits due to Improvements in Methods of Production— 70. (4) Profits due to Variations in Climatic or other Natural Conditions — 71. (5) Profits due to the Exploitation of New Lands and Natural Resources — 73. (6) Profits due to Modifications in the Rates of Remuneration of other Factors in Production — 73. Conclusion • • . 133

Chapter IX Distribution: Monopoly Profits

74. Monopoly Contrasted with Differential Advantages in Production — 75. A Classification of Monopolies — 76. Limitations on Monopolistic Control over Prices — 77. The Law of Monopoly Price— 78. Methods of Concealing Monopoly Profits — 79. Current Misapprehensions in Regard to Monopolies — 80. The Influence of Monopoly Profits on other Sliares in Distribution 137

Chapter X Distribution: Rent

81. Definition of Rent— 83. The Different Grades into which Land may be Divided — 83. Causes Determining the Amount of Rent — 84. The Rent of Mines and Sources of Water Power — 85. Complications in Connection with the Determination of Rent — 86. Rent and Interest on Capital Permanentiy Embodied in Land — 87. The Relation between the Rent of Land and its Price — 88. Summary of the Explanation of Rent • • ,151 viii CONTENTS

QHAPTER XI DISTRIBUTION: WAGES

FAOB

89. The Wages Question and What it Involves— 90. Differences in Wages are Explained like Differences in Rents — 91. Complications in the Grading of Workmen — 99, The Explanation of Differences in Rates of Wages Generalized — 93. Influence of the Immobility of Labor on Wages — 94. Ck)mpetition Tends to Equalise Efficiency-Wages, not Time-Wages— 95. Other Causes of Differences in Money Wages — 96. Influence of Heredity and Education in Perpetuating Differences in Capacity — 97. Differences in Capacity Closely Connected with Differences in Standards of Living— 98. Inequalities in Educational Opportunities must be Removed by Community Action — 99. Relation between Wages and other Shares in Distribution 165

OH.

[AFTER XII DISTRIBUTION: INTEREST

100. The Interest Problem and What it Involves — 101. Explanation of the Reasons for the Payment of Interest — 103. Service of the Replacement Fund in Giving Mobility to Capital Goods — 103. Competition Tends to Bring Interest Rates to a Level — 104. Reasons for the Persistence of Differences in Rates of Interest — 105. Other Causes of Differences in Rates of Interest — 106. Relation between Marginal Wages, Marginal Interest and the other Shares — 107. Causes Determining the Size of the Joint Share of Labor and Capital at the Margin of Production — 108. How Marginal Wages and Marginal Interest are Determined • . • 184

CHAPTER XIII

109. Restatement of the Theory of Distribution— 110. Caution against Unwarranted Inferences from the Theory of Distribution — 111. The Growth of Population in the Nineteenth Century — 119. Population Theories — 113. The Economic Check to the Growth of Population — 114. Influence of Standards of Liy«

CONTENTS IX

PAOB

ing on the Growth of Population — ^115. Statistics in Regard to the Growth of Wealth and Capital— 116. Influences Controlling the Growth of Capital->117. The Ultimate Determinants of Distribution 909

CHAPTER XIV

MONEY AND THE MONETARY SYSTEM OF THE

UNITED STATES

118. The Nature and Functions of Money — ^119. Prices and the Value of Money Vary Inversely — 120. Qualities of Good Money — 121. Coinage and the Printing of Paper Money — 122. Gresham's Law — 123. The Adoption of the Gold Standard — 124. Monetary History of the United States — 125. Present Monetary System of the United States — 126. How the Parity in Value between Gold Coins and the other Kinds of Money is Maintained — 127. Defects in the Monetary System of the United States: Token Money — 128. Plans for Disposing of the Surplus Silver Dollars: Credit Money 223

CHAPTER XV

129. The Nature of Credit— 130. Book Credit— 131. The Banking Business— 132. The Check System— 133. Bank Deposits and Bank Loans — 134. How Banks Lend their Credit — 135. Interest on Bank Loans — 136. Reasons for Differences in Rates of Interest — 137. History of the National Banking System — 138. Defects in the System and Remedies — 139. Conclusion . 245

CHAPTER XVI

FOREIGN EXCHANGE AND SOME UNSETTLED MONETARY PROBLEMS

140. The Nature of Foreign Exchange— 141. Sterling Exchange and the Gold Points— 142. The Rate of Sterling Exchange— 143. Three-cornered Exchanges — 144. A Country's Gold Supply Regulates Itself— 145. The Value of Gold and Prices— 146. Hie Demand for Gold or Money— 147. The Supply of Gold^

CONTENTS

PAoa 148. How the Value of Money or Gold is Measured — 149. Price

Statistics and Changes in the Value of Gold — 150. International Bimetallism — 151. The Future of the Gold Standard — 159. The Multiple Standard 968

CHAPTER XVII

153. Foreign and Domestic Trade Contrasted— 154. The Tariff Question: Protection «#. Free Trade — 155. Arguments in Favor of Protection — 156. Protection in the United States since the Civil War— 157. The Tariff of 1897—158. Present Status of the Tariff Question in the United States— 159. The Future Tariff Policy of the United SUtes 988

CHAPTER XVIII

160. The Disadvantages of Wage-earners as Bargainers — 161. Nature of the Lahor Movement — 169. The Development of Trade-Union Law in the United Kingdom— 163. The Law in Reference to Labor Organizations in the United States — ^164. Collective Bargaining— 165. Strikes and Lockouts— 166. Plans for Avoiding Strikes — 167. Compulsory Arbitration — 168. Use of the Injunction in Connection with Strikes — 169. The Influence of Trade Unions on Wages — 170. Trade Unions are Sometimes Monopolies — 171. Educational Work of Trader^^ Unions— 179. The Regulation of Trade Unions . . • .305

CHAPTER XIX

THE LEGAL REGULATION OF LABOR

173. Reasons for the Legal Regulation of Labor— 174. The Constitutionality of Labor Laws in the United States— 175. Child-labor Laws in the United States — 176. Laws Regulating the Labor of Women — 177. Would a Universal Legal Eight-hour Day be Desirable?— 178. The Sweating Evil— 179. Remedies for the Sweating System— 180. The Regulation of Dangerous Trades — 181. Employers' Liability for Industrial Accidents — 189. Conclusion • • • • S30

CONTENTS

CHAPTBR XX LEGAL AND NATURAL MONOPOLIES

183. Importance of the Monopoly Problem — 184. Public Legal Monopolies— 185. Hie Patent System of the United Stateside. The System of Copyright— 187. Natural Monopolies in the United States — 188. Natural Monopolies of Situation: Hie Anthracite Coal Combination — 189. Natural Monopolies of Organisation: Water, Gas and Electricity— 190. The Street- Railway Monopoly — 191. The Telephone Monopoly — 193. The Solution of the Municipal Monopoly Problem — 19S. Methods of Emulating Municipal Monoptdies 351

CHAPTER XXI

THE RAILROAD PROBLEM IN THE UNITED

STATES

194. National Monopolies of Organisation — 195. Circumstances Making the Railroad Business Mon<^listic — 196. Progress toward Concentration in the Railroad Business in the United States — ^197. Discrimination in Railway Rates: Among Commodities — 198. Discrimination among Persons — ^199. Monopoly Profits from the Railroad Business in the United States— 900. The Interstate Commerce Act — 901. Amendments to the Interstate Commerce Act — 203. Arguments for and against National Operation of Express, Telegraph and Long Distance Telephone Businesses — 90S, Argun^ents for National Ownership and Operation of Railroads— 304. The Future of Railroad Regulation in the United States 374

CHAPTER XXII

THE TRUST PROBLEM IN THE UNITED STATES

905. Capitalistic Monopolies or Trusts in the United States— 906. Progress of the Trust Movement — ^907. Reasons for the Trust Movement— ^908. Financial Success of the Trusts — 909. Eccmomies Effected through the Trust Form of Organization— 910. Illegitimate Advantages of the Trusts— 911. The Tariff and the Trusts— ^19. Other Evils Charged against the Trusts— dia xii CONTENTS

PAOB

The Constitutional Obstacle to Legal Regulation of the Trusts — ^914. Anti-Trust Legislation — 216, The Bureau of Corporations— ^16. Plans for Obtaining Legal Control over the "[Hrusts —^17. The Future of the Trusts 395

CHAPTER XXIII

PLANS OP ECONOMIC REFORM

918. Four Plans of Economic Reform— ^19. Profit-sharing— 930. Labor Copartnersliip or *' Co-operation " — ^991. Difficulties in the Way of Successful Labor Copartnership — ^999. Land Nationalization— 993. The Present Land Problem— 994. The Single Tax— 995. Objections to the Single Tax— 996. Desirable Reforms in Present System of Land Ownersliip and Taxation —997. The Meaning of Socialism— 998. Advantages Claimed for Socialism— 999. Objections to Socialism— 930. The Socialism of Karl Marx— 931. Conclusions in regard to Socialism . 493

CHAPTER XXIV

939. The Nature of Economic Progress— 933. Progress in Consumption and Production — ^934. Progress in Distribution — ^935. Economic Justification of Profits — ^936. Rent and Interest — 937. Inheritance Taxes as Means of Lessening Inequalities in Wealth— 938. Progress in the Future— 939. Probable Course of Wages, Interest and Rent in the Future — 940. Economic Progress and the Moral Elevation of the Race • • • . 451

ECONOMICS

ECONOMICS

Chapter I Of Economics

z. Definition of ESconomics. — EconomicSf or political economy^ is the social science which treats of that porturn of human €u:tivity which is concerned with earning a living. It deals, on the one hand, with man's wants and, on the other, with the goods (i. e., the commodities and sendees) upon which the gratification of his wants depends. It analyzes wants, classifies goods with reference to them and considers all of the circumstances which affect the production and distribution, or sharing, of goods among the individuals who compose society. In discussing production and distribution economists treat the same problems that engage the attention of business men, but from a social rather thein an individual point of view. It is to emphasize this distinction that economics is styled a ^^ social science." A definition easy to remember is that economics is the social science of business.

2. Relation of Economics to Other Social Sciences. — Closely related to economics are the other social sciences — sociology, politics, law and history. By some writers sociology is made to include all of the social sciences, not excepting economics. Others define it as the science which treats of the beginnings of society and of the first principles of social organization. StiQ a third group understands the term to include problems connected with sod'

2 PRELIMINARY SURVEY OP THE FIELD

ety's treatment of Its dependent classes. Whichever of these definitions be accepted, the relation of sociology to economics need cause no confusion. The latter has to do primarily with contemporary conditions and with the relations between independent, self-supporting individuals and families and the goods upon which their well-being depends.

Politics treats of the political organization of society, and law is the aggregate of rules and regulations through which formal expression is given to the social will. Neither is likely to be mistaken for economics, although both influence largely the business institutions and practices with which economics is concerned. The poUtical organization determines what classes shall have a dominant influence in choosing the laws that are to be passed and enforced, and laws themselves establish standards to which all must conform. The solution of most of the practical economic problems which are discussed in later sections of this book will be found to hinge upon the repeal of imwise laws or the enactment of wise ones.

History, in the broadest sense, is the narrative of past events. To the economist, economic or industrial history, the narrative of past events touching relations between men and goods, is of special significance. Without some knowledge of economic history no clear understanding of contemporary economic phenomena is possible. This is because in the field of economic as of other social phenomena the present has grown out of the past and only in the light of the past are present practices and institutions comprehensible.

3. The Motives to Business Activity. — ^In the d^nition, *' economics is the social science of business," the last word is used in its broadest sense. It denotes activity entered into, not primarily for its own sake, but for the sake of some indirect return. Business is thus, in a sense, " work " as distinguished from " play," but must not be

MOTIVES TO BUSINESS ACTIVITY 8

thought of as necessarily disagreeable. It includes activity^ that is, pleasurable mental or physical exercise, as well as effort^ that is, exercise which involves some element of discomfort or pain. The rational man tries to arrange his work so that it will involve as little effort as possible.

The motives to business activity are too familiar to require extended analysis. Men are so constituted that their happiness, their existence even, depends upon their having command over certain material commodities and personal services. They must have food, shelter and clothing in order to live. Such things satisfy their primary, physical wants. Next come the more complex wants which distinguish the civilized man from the savage. Men now desire tools, machines, conveniences for travel and social intercourse and countless other things which contribute to the comfort of life. The chief object of business activity is to create or obtain these material and immaterial conditions to well-being. Primitive men went about the task directly. They killed game for food, erected their own huts and made their own garments from the skins of animals. Their civilized brothers have learned that business activity is more fruitful when it proceeds by roundabout and co-operative methods. They spend much of their time in fashioning tools, machines and other aids to production, and concentrate their attention on special tasks, relying on others to provide most of the things which they require. It is this indirectness of modem business activity which gives rise to many of the most important problems of economics.

Other motives to business activity (besides the desire to obtain control over commodities and services as a means to gratifying wants) are interest in work for its own sake; desire for the social distinction which attaches to large command over commodities and services; love of power, and desire to serve the community. The strength of these supplementary motives varies with different men and in different occupations. The first is particularly prominent in connection with the work of artists, artisans and professional men, but it is by no means confined to such pursuits. In fact it is not far from the truth to say that business success in nearly all occupations is in direct proportion to the interest the worker takes in his work for its own sake. Desire for social distinction and love of power have little influence on the attitude of the average man towards the working life, but in the minds of those who rise to the highest positions in the business world these become dominant motives. It is only by reference to them that the laborious days of America's hard-working millionaires can be understood. Finally, the desire to render social service is already a strong motive with many persons and promises to become stronger as political and other opportunities to serve the community on terms that self-respecting men can accept are multiplied. There can be little doubt that the present trend of development in progressive countries is towards the exaltation of these supplementary motives at the expense of what may be called th.e mere bread-and-butter attitude towards the working life.

4. Characteristics of the Business, or '' Economic/' Man. — ^A first step in the study of business is a clear description of the business man. As found to-day in the United States and other countries in the same stage of industrial development, he has four traits which show themselves more or less clearly in all of his acts :

(1) The business man pursues his own interest in his business dealings and assumes that others will do the same. This does not mean that he is steeped in selfishness, but simply that from his point of view " business is business," not play nor philanthropy, and that he prefers to keep his getting separate and distinct from his giving.

(S) In judging of his own interest the business man thinks of himself not as an isolated individual, but as ^

CHARACTERISTICS OF BUSINESS MEN 6

member of different social groups, of which the family is by far the most important. He works not for himself alone, but for his family, his church, his union, or club, and his country. In different relations and at different times he identifies his interest with the interests of these organizations. For his family the business man will sacrifice as much or more than he will for himself alone.

(3) He desires to be financially independent. His ambition is to stand on his own feet, to make his own way and, when he accepts assistance, to give an adequate return for it.

(4) He is controlled in his business dealings by the code of business morality that pertains to his class. As there is ^^ honor even among thieves," so there are special standards that are accepted and lived up to by different business classes. These standards are not as high as would be desirable, but they are higher than current criticisms of business morality might lead one to think. To be maintained, however, in communities where class barriers are constantly giving way, such standards have often to be reinforced by legal enactments.

These four characteristics of the business, or economic, man are readily explained by reference to the evolutionary process which has brought industrial society to its present stage of development. Self-interest as a dominant motive, for example, is the direct fruit of that struggle for existence which is still in progress and which makes self-preservation the first law of nature to every organic species. In the case of men, religious and other influences have tempered self-seeking with consideration for others, but it stiU plays the chief role in shaping human conduct.

5* Definitions of Common Terms. — ^The material commodities and personal services which gratify human wants are conveniently designated as goods, while the capacity or quality in goods which gratifies wants is called utility. As used in economics these terms are stripped of the moral implication that attaches to them in ordinary speech. Thus anything that gratifies a want has utility and is a good, whether it be the whisky of the trader or the hymn-book of the missionary.

Not all goods figure in business transactions. Such things as sunlight, air and water are usuaUy free good, for which no one expects or receives a return. They are supplied by nature in such abimdance that there is enough of them for all and to spare. In general it may be said that whenever the spontaneous supply of any good exceeds the desire for it, tmits of that good wHl be free.

In contrast with free goods is that vastly larger class of commodities whose supplies are limited in comparison with the desire for them and which are therefore objects of economy. These are appropriately named economic goods and taken together constitute the wealth to secure which men engage in business. The characteristic of economic goods is that they have valiie as well as utility.

The term, value, is used in two distinct, although closely related, senses in economics, and this has given rise to a great deal of confusion. It may designate the importance which a person ascribes to a unit of a good ds a condition to the gratification of his wants. This is value in the subjective sense and may be distinguished as valtie m use. In the phrases, " the value of a loaf of bread to a starving man is beyond calculation " and " no one knows the value of an object until he has to do without it," values in use are meant. The other sense of the term is that of vahie in exchange. When a bushel of wheat is said to be twice as valuable as a bushel of com, it is the exchange ratio between the two that is referred to. Value in exchange is thus the power of a good to comma/nd other goods in exchange for itself. In future in this book the word value by itself will be used in the sense of value in exchange.

The three conceptions, utility, value in use and value in exchange, are analyzed more fully in the chapter on

DEFINITIONS OF COMMON TERMS 7

Value and Price. At this point it will suffice to suggest very briefly the relations which they bear to one another. Free goods have no value in use, that is, single units of such goods have no importance as conditions to the gratification of wants. Thus a cubic foot of air in the room in which the reader sits has no value, although it has utility, because it would not be missed if withdrawn. Other air would rush in from adjoining rooms and from outdoors and the equilibrium of atmospheric pressure would be almost immediately re-established. If the room were made air-tight, however, and one cubic foot of air after another were withdrawn, the situation would be quite changed. Now, instead of being indifferent, each cubic foot of air would be of importance ; and as one cubic foot after another was taken away this importance would steadily increase. As the air became thinner, discomfort, strangulation and finally death would ensue, imless the process of exhaustion could be checked. The reader would in this case ascribe high value to air, holding it as precious when at the last extremity as life itself. As this illustration indicates, value in use is variable and measures the extent of man's dependence under the given conditions of supply upon a imit of the good being valued.

The relation between value in use and value in exchange is somewhat more complex. At the outset it is obvious that a good must have value in use to some one as a condition to its having value in exchange. Such value in use may be immediate, as in the case of goods finished and ready for consumption, or remote, as in the case of raw materials. Unless it is present there can be no value in exchange for the simple reason that no one will give anything for something which no one considers of any importance. In the second place a good which has value in use to two or more persons so situated that they may have business dealings with one another will normally have value in exchange. This may be inferred from the definition of value in use^ since a good which is of importance to the well-being of two or more persons can hardly fail to be worth something in other goods. Since value in exchange never arises in the absence of value in use, and, on the other hand, normally results when value in use is present, there must be a close causal connection between the two. The explanation of this connection must be deferred to Chapter HI.

Closely related to value in exchange is another familiar concept, that of price. As ordinarily used in business conversation price designates exchange value measured in terms of monetfj money being the universal medium of exchange. In the United States prices are expressed in dollars and cents, and the dollar is maintained, by means of regulations described in Chapter XTV., as the invariable exchange equivalent of 23.S2 grains of pure gold. It follows that current American prices indicate the quantities of the commodity gold^ for which units of the commodities priced would exchange on the given date in the given market.

6. Production and Consumption. — The limitation on the supplies of goods which makes them economic, or valuable, may be due to the fact that they are unique, that they are controlled by a monopoly or simply that business activity is required to bring them into existence. Examples of absolute limitation are afforded by old coins or stamps, pictures by deceased artists, etc. Such goods often acquire with age a value out of all proportion to the esteem in which they were originally held. Monopolized goods are equally familiar. Such are patented goods and those produced by means of secret processes. Most common of all are goods whose supplies are limited simply because business activity is needed to create them.

The creation of economic goods, or, more accurately^ of the utilities embodied in them, is called production. It is the chief purpose of business activity. Contrasted with it is consumption^ the utilization of goods as a mea/ns to the

PRODUCTION AND CONSUMPTION 9

gratification of wants. Consumption, as already su^ gested, furnishes the principal motive for business activity. The utilization of goods as means to gratification must, for the sake of clearness, be sharply contrasted with productive utilization^ as for example of fuel or raw materials in manufacturing. The latter, although sometimes described by the misleading phrase " productive consumption,*' is really production itself. It has nothing in common with consumption except that it too usually involves the destruction of the utilities in the goods utilized.

To the extent that business activity entails effort it is obvious why its products must normally have value. If they did not, business men would be under no inducement to produce them. But business is often merely a form of pleasurable activity. Why, it may be asked, are not goods which it is a pleasure to create, such as the products of talented artists, multiplied until they become free like the superabundant gifts of nature? The mere statement of this question suggests the answer. In the first place artistic talent is rare in comparison with the demand for artistic products. Even if all artists of first-rate ability were so constituted that they could derive unalloyed pleasure from their work during ten hours out of every twenty-four, there would still be a scarcity of artistic products which would prevent them from being free goods. But few if any artists are able to work even ten hours a day without incurring a sacrifice, and this is the second reason. Production and consumption are usually mutually exclusive and each takes time. It follows that the hours spent, no matter how pleasantly, in production, are hours subtracted from the consiuning period. So long as the hours devoted to business activity afford more pleasure than would the same hours devoted to leisurely consumption, the former involves no sacrifice. But as work is continued through the day it loses in interest, while leisurely consumption gains in attraction. In consequence after a few hours' toil the balance is usually turned and work, even though still pleasurable, ceases to be more pleasurable than consumption. In this situation to continue to produce is to make a sacrifice. As the economic man declines to put forth effort that is not rewarded in valuable products, so he declines to incur sacrifice that is not similarly recompensed. This fact limits the supplies of all goods except those which nature furnishes in superabundance, and is one of the fundamental causes of value.