Economics and the community

Introduction

This book has been written as an attempt to place the principles and problems of economic life in their relation to the community, in so simple a form that the study thereof might be of greater service to the citizen in the performance of civic duties. It is the purpose of the book to give what the citizen needs to know about economics rather than to explore and expound economic theory.

A glance at the problems of civil society today discloses that to a large degree, economic problems are the issues which dominate elections, law making and administrative actions. In fact the great central purpose of government— the protection and welfare of the citizens — is seen to take on economic aspects when we consider and determine such questions as the prevention of civil disorder, trade abuses, exploitation, monopoly, waste of resources or when we consider the positive side in the promotion of transportation, mediums of exchange, banking, interna- - tional trade or the education of producers and consumers ii) through schools, laboratories, statistics and research. y Taxation, the life principle of the state, constitutes a combined political and economic problem. Taxes must be levied to support the government, but they must not be so high as to destroy legitimate production.

Whether the economic problem be the tariff, conservation, thrift, insurance, good roads, regulation of railroads

^78315 vi INTRODUCTION

or the prevention of false weights and measures, it is entwined with community action because the citizens decide such matters in the long run through the election of representatives or by referendum.

These truths are so obvious as to need no elaboration. Yet how strange that the study of the subject of economics, so vital to community safety and welfare, has been so largely neglected ! That which should be imparted to all citizens as a common civic necessity has been postponed to the upper grades in high school or even to the college, if indeed it is given at all. Obviously, if we are to meet the needs of the citizen, economics in its community relations should be brought forward in the curriculum as far as possible and certainly to the first years in high school, the vocational schools and continuation classes. It should be borne in mind that only a small part of the future citizens reach the upper grades in high school. Over ninety per cent have left before those grades are reached.

The materials presented in this book are designed to be in form for the use of those who are beginning the study, whether in high school grades, junior high schools, vocational schools or continuation classes.

The difficulties which have perhaps hindered the widespread teaching of economics have been due to the lack of concrete text material related to community life. The same difficulties formerly confronted the teachers of civil government. Just as the study of the social and civic environment enlivened the teaching of civil government and brought it into the elementary grades in the form of community civics, so we may expect a like result for the

INTRODUCTION vii

teaching of economics from the study of economic problems in the community lal^oratory. A wider appeal will thus he made to younger students, and especially to those who profit by concrete instruction.

The plan of instruction outlined provides for a preliminary gathering of local data for each chapter before beginning the study of the text. Questions for community surveys therefore precede the text. With the preliminary data in hand the text may be studied more concretely. The material collected should be classified and retained as a permanent file of materials, but fresh data and reports should be gathered for each succeeding class. Public reports should be secured for comparison with the data in the text, thereby serving the additional purpose of bringing the students into touch with government activities through the reports of the various local, state and national offices and departments.

This method of instruction should result in an understanding of economic principles and problems in connection with current affairs. The test for examination might well be one to determine how efficiently the student has been able to observe and understand comnumity activities in the light of the discussion of the principles and problems in the text. That is the final test which good citizenship fixes upon all who determine community action by their ballots.

J. A. L.

January 21st, 1922.

Contents

I Community Economics 3

II Consumption i6

III Production 32

CHAPTER I COMMUNITY ECONOMICS Community Survey

1. What are the products of your community?

2. What products are sent to other communities?

3. Name all of the principal occupations in which people

engage in your community.

4. Which are the most important to the community?

The student of economics will get a clearer view of the subject at the gtart by observing and listing the activities that are taking place. These activities consist principally in producing, transporting, buying, and selling goods, and in the furnishing of services, to satisfy human wants.

With few exceptions, all able-bodied men and women are engaged in work of some kind. The majority of men produce or distribute goods or perform services in order that they may provide themselves and their dependents with the means of livelihood and enjoyment ; some men work to acquire property for a variety of reasons, and some seek to be influential through the value of their services. These motives cause men to work and to achieve. We see the results in the activities around us.

Specialization of Lobar

In earlier times, before the development of transportation, individuals or families supplied for themselves the bulk of the goods they used, or at least each community provided almost entirely for its own needs. In remote regions and uncivilized countries individuals and com-

The occupations of the people of the U. S. in 1910

munities still produce a large part of the goods they use. The great majority of people, however, produce certain goods, and rely upon others to produce other goods that they need or want. The growth of transportation and means of distribution have made this possible. Each person in civilized countries produces a small part of what he consumes. Some people do not consume any of the goods that they produce. The combined work of all provides for the wants of all.

Formerly the clothes for the family were made in the home from home-grown and home-spun wool, flax, or cotton. Now the clothing for the family is made in factories by thousands of workers and scores of processes, from materials grown in distant places and transported and handled by a variety of agencies.

Workers are engaged in thousands of different occupations. Thousands of workers may be employed in producing a single article. Each worker may perform only a single process. The work of all combines to produce the completed article. It is said to require as many as eighty- four special processes in certain factories to make a pair of shoes. No single worker makes a complete pair of shoes, but the eighty- four workers operating machines produce many pairs of shoes in a single day. While one group of workers is producing shoes for thousands of people, other groups are producing other articles.

Specialization by Communities and Countries

Communities and countries also specialize in production. Each country or community produces what it is best adapted to produce, and exchanges with other communities or countries for the additional goods that it needs. No country or community supplies all that is deemed necessary for its own people.

Many countries and communities supply all or nearly all of certain products. Chile has the principal deposits of nitrates; Japan and China supply most of the tea used in the world ; coal and iron are limited in supply principally to five or six countries ; silk is produced largely in France,

Japan and Italy; the United States manufactures most of the world's agricultural implements and electrical equipment; all countries in temperate climates produce wheat, but the bulk of supplies comes from the United States, Canada, and Russia. These are merely examples of specialization by countries. A list of national or community specialization could readily be made from a standard text-book in geography or physical geography.

A rural shipping point, Fillmore, X. Y. From thousands of places like this farm products are shipped

Alany thousands of separate products are imported or exported each year by the jx^ople of different countries. The vast exchanges of goods between country and country emphasize to everyone the importance of the economic processes by which the whole world supplies the wants of the [>eople of each country.

The morning meal gives us a striking illustration of the way we call upon the world to supply our own needs.

The grapefruit came from California or Florida; the coffee from f5razil ; the corn-Hakes from the Middle West; the bacon from Chicago, whence it came from the farms of Iowa, Illinois or Indiana; the eggs from the surrounding country, perhajjs, but possibly from distant farms. If we should carry the examination further we would

Modern shipping

find that the breakfast-room equipment also came from many countries.

Many of the present generation can remember when their own community provided for a much larger part of its needs than it does now. Transportation has been improved, distances have been cut down, and we reach farther out for products that we need or want. For

ECONOMICS AND THE COIMMUNITY illustration : Milk is brought to New York City from a distance of more than four hundred miles, although milk is a highly perishable product. Perishable fruits are transported from the tropics to all parts of the world.

Our dependence upon other people and upon far-distant places for useful things increases with the growth of

knowledge and invention, and with the improvement of processes of production, transportation, and distribution. New products are found; new inventions require the use of additional products. The discoveries of science are constantly making things useful that were formerly useless, and are thereby enlarging the field of business activities.

We seldom think of the processes by which we are supplied with food, clothing, shelter, and the comforts of life, until they break down at some point and we are deprived of certain things that we need or want. We seldom think of our dependence upon transportation until floods, strikes, or bad service stop the flow of goods. We seldom think of the dependence of the city upon the country, and of the country upon the city, until production or transportation of some important article fails. We seldom think of our dependence upon each other and upon other comnumities or countries, and of their dependence upon us, until we are deprived of some necessity or comfort of life, thus forcing it upon our attention. Yet we grow more and more dependent upon one another for the supply of the things needed for our daily use, comfort and enjoyment.

EconoDiics Defined

The system by which goods are produced and exchanged to meet the varied wants of all people is the subject-matter of economics. If each person produced all he used, there would be no special value in this study. It is because specialization of production and distribution creates an extensive and complicated system that the study of economics becomes important. The more minutely specialization is developed, the more complicated the system becomes, because thereby each person becomes more dependent upon the perfect working of the whole system. When a person produces none of the goods he consumes, it naturally follows that he depends entirely on the process of exchange for his livelihood.

lo ECONOMICS AND THE COMMUNITY

Everyone should have an interest in economics, because the subject concerns the Hvelihood and comfort of everyone. It is important to the individual to understand the economic system, because each person makes decisions constantly on economic questions which may affect his own or his country's welfare. Everybody is an economist in one way or another, although he may be unconscious of the fact.

Economics may be defined as the subject that deals with all of the activities of men in satisfying their needs and wants. It deals with the processes by which people produce and distribute goods to meet the needs of consumers. It deals also with the services that are performed to satisfy needs and wants. Everything that relates to or results from the carrying on of business, including those things that help or hinder the process, is within the field of economics.

The Subject-Matter of Economics

What are the activities that relate to or result from the production and distribution of goods to meet human wants, and that are therefore included in economics? We naturally think first of the actual work of production of goods on, farms and in factories, forests and mines. Next we think of the necessary means for transportation by highway, railroad, water, or air, and the means for care and storage. We observe everywhere the business of buying and selling goods at wholesale and retail. We recognize the need for money to make exchanges, and also the importance of having sound money of staple value to avoid loss and confusion.

COMMUNITY ECONOMICS ii

When we look into the processes of business further, we see the place that banks occupy in creating credit and lending money to carry on production and distribution, and in transmitting money from place to place. We see also the importance of banks and other institutions in bringing together the i)eople's savings in order that they may be safeguarded and used to finance business activities. Insurance of all kinds, by protecting business against the risk of sudden calamities, promotes stability and safety for the business man.

Most important of all in economics is the study of the way in which the income from production and distribution is divided among those who take part in the making and distribution of goods among the employees, workers, managers, landowners, and capitalists.

Control of Economic Evils What evils resulting from the economic processes are we bound, in fairness to all the people, to prevent? First, there is the necessity of preventing greedy men from controlling necessary goods and extorting unfair prices. Monopoly of products or raw materials is condemned by fair-minded men, and is generally prohibited or regulated by law. Profiteering — meaning the charging of unfair prices — is also universally condemned. All citizens desire that the process of supplying the people's wants should work for the benefit of all without selfish control or advantage.

The Citiccn's Interest in EconoDtics The people are interested in the freest and most efficient exchange of goods, and to that end they promote better means of transportation and lietter systems of buying and selling goods, particularly by bringing producers and consumers closer together. Since the good of all is the ideal of democracy, the citizen as an economist is especially desirous that the natural resources of the country shall not be wasted for the selfish advantage of a few. Conservation of mines, forests, and soils, and of the health of human beings as well, is of concern to all. The promotion of efficiency of production and consumption to prevent waste, and to make the most of what we have, is a matter of special interest to the citizen.

The citizen as an economist is also interested in the community control and regulation of business for the public welfare. He is interested in seeing that the people are protected, and, at the same time, that business activities are not unduly hampered l)y unjust regulations. Taxation is especially important to him, because if taxes are not imposed with scientific care and fairness, they may not only harm individuals but may seriously hamper the processes of business and may even destroy business activities. "The power to tax is tlie power to destroy," and therefore it should be exercised with great care.

In short, the citizen as an economist seeks the assurance that the processes of business by which the wants of all the people are supplied shall go on at their fullest efficiency for the benefit of all, and shall be as free as possible from selfish control. We all desire that the economic agencies that produce and distribute goods, or that aid in the process, shall be conducted for the benefit of all.

Economics in its community or social aspects deals with the economic processes of production and distribution of the fruits thereof among the agencies of production, as those processes are controlled or regulated by the community for the benefit of all. The community is concerned in guarding the people's welfare through measures that promote good and restrain evil in the processes that provide for liuman wants.

We are concerned, in the study of economics, with the needs of the people of the community and their fulfilment, because the welfare of the people is the first consideration. Since all of the i)eo])le are consumers, the consumer is entitled to first place in our concern. Production is for the purpose of consumption and not for the selfish advantage of the producer. We encourage production of necessities in order to benefit the consumer. We discourage production of luxuries at times, in order not to interfere with the production of necessities. We encourage efforts tQ get goods from the producer to the consumer more economically in order to supply better the needs of the consumer. We are concerned, first and foremost, with the consumer's essential needs, because we are all consumers and we seek the greatest good to the greatest number.

The following examples will illustrate more fully the place of the community in economic activities :

(i.) The economic processes of business, if uncontrolled, might place a necessity of life in the hands of one man or group of men, who would be able thus to oppress others. In such cases the community properly acts to curb the power of the monopolist.

(2.) The farmer may exhaust the soil or the miner may waste coal for immediate profits ; but the community is interested in saving such resources and in the conservation of productivity.

(3.) Railroads might charge excessive rates and thereby hinder the transportation of goods that the consumers need. The community is interested in fixing the rate at a just and reasonable amount in order to promote transportation for the benefit of all consumers.

(4.) Banks or insurance companies or corporations might be run for the benefit of the few who control them; but the community steps in and regulates their conduct for the benefit of all.

Such examples might be multiplied to show how the purely economic processes of producing, transporting, and selling goods are regulated by the community to protect and promote the interests of the people.

It is plain to any observer that the principal business of men consists in producing and distributing goods to provide the means of supplying their own needs. The process of getting goods to the consumer with the greatest efficiency is the problem that most vitally concerns all. The most difficult questions that confront the people are economic questions growing out of the process of providing for the needs of the people. These questions must be understood by all people in order that the laws that are passed and the actions that are taken may be for the pubHc benefit.

In the study of economics and the community we shall follow the production and distribution of goods and learn about the agencies that carry on the world's work. We shall see how the people act together in local community, state, and nation to facilitate the processes of business and to check those practices that in any harmful way affect the interests of the people.

1. Name different reasons for people selecting the occu-

pation in which they work.

2. Make a complete catalogue of the products used in the

construction of your school building and the sources of supply.

3. Make a catalogue of the principal food-stuffs displayed

in a grocery store and give the sources of supply.

4. Describe the dependence upon other cities, states and

countries for these products.

5. From any standard physical geography or similar

sources make a list of the principal countries upon which we rely for important articles.

6. What are the advantages and disadvantages of supply-

ing one's self or of dividing labor and depending upon others ?

7. What are the advantages and disadvantages in the

specialization of production by communities and countries ?

8. Is our dependence upon others for the goods we want

likely to increase or to decrease in the future?

Clay, Economics for the General Reader, Chapters i and 2.

Chapter II

1. Make a list of all goods consumed in your community.

2. Make a list of what you consider necessaries of life.

3. Make a list of what you consider comforts of life.

4. Make a list of what you consider luxuries of life.

The subject of consumption is dealt with first in economics because consumption is the beginning of the process that results in the production and distribution of goods and in the furnishing of services. It is because people want goods and services that production and distribution are carried on and services are performed. If men did not want shoes there would be no shoes produced, nor products used exclusively in making shoes, nor machinery for the production of shoes. If men wanted some available substitute for leather shoes, production of the substitute would follow. If men wore long hair and beard, there would be no need for the services of the barber, nor for the production of barbers' tools or equipment. The great variety of needs and wants of millions of people call for a great variety of products and services, and induce people to engage in the production of goods

and the furnishing of services.

S2

£ S or, C i8 ECONOMICS AND THE COMMUNITY Kinds of IV ants

The wants of people may be classified into essentials and non-essentials, according as they are necessary or not for comfortable living. Wants may be classified also into necessaries, comforts, and luxuries. Food, clothing, fuel, and shelter, sufficient to sustain and protect life, are essentials or necessaries. Most people would also include many of the ordinary comforts of life among the essentials. For example : one could live without sugar except such as nature supplies in raw foods, but few persons will do so if sugar is to be had. Nearly all people would count it a real hardship to go without a liberal supply of sugar. Education is not essential to existence, but it is necessary in modern civilized life; hence all equipment and work connected with education are essentials. Luxuries or non-essentials, such as diamonds, silks, and many forms of personal service, are those that are not needed for comfortable living.

A little thought will show that necessities, comforts, and luxuries overlap one another. No one can tell exactly where each begins. It is comparatively easy, however, to classify most of the important needs, such as food, clothing, shelter, and fuel. The governments of the nations at war were forced to make such classifications when pressed to produce the essentials of life in war-time without waste of material or eflFort. Some kinds of production were stopped entirely, while others were given special aid and encouragement. Everyone could see plainly that diamonds should not be produced when men were needed to grow wheat or make clothing, to say nothing of the manufacture of guns and ammunition. Many of the countries of Europe will probably find it necessary to center attention for years upon the production of the most important necessaries of life, to the exclusion of luxuries and of many of the comforts of life. The United States will probably find that it is at least desirable to encourage production of necessities in order to meet the most pressing needs of the people.

Partial and Complete Consumption

Consumption of goods may be complete, as w4ien food is consumed or coal is burned. Consumption may also be for further production, as when iron is used in the manufacture of steel, or when steel is used in the manufacture of rails or agricultural implements. The term "consumer" is broader, therefore, than is usually understood. It means not merely the person who uses food and clothing, but also the producer who uses raw material to produce goods.

Every person who buys goods, either for complete consumption or to use in further production, is a consumer of those goods. The one who actually uses the final product for which the w^hole economic process is carried on is called the "ultimate consumer." The user of bread is the ultimate consumer of the products and service of the wheat-grower, miller, baker, and distributor, as well as the manufacturer of machinery used in farming, milling, baking or transportation.

The farmer is the consumer of agricultural machinery, in the manufacture of \\liicli there were several steps, namely, the making and assembling of tb.c parts, the mamifactiire of steel from iron, the manufacture of iron from ore, and the mining of the ore itself. The manufacturer is a consumer of the machinery that he requires in the making of his product. But the ultimate consumer is the one who starts the whole process of consumption. His demand for goods for his own use and satisfaction requires not only the direct production of those goods but also of all of the materials and equipment needed to produce goods in the form wanted.

The Ramifications of Consumers' Needs

Simple examples drawn from everyday life will show the ramifications of demands for goods to supply human wants. Such examples will indicate the world-wide stimulus to production caused by the demands for goods. Take the example of our demand for bread. This demand makes necessary the work of the miller, farmer, baker, transporter, and manufacturer. The baker needs machinery and utensils. The miller needs extensive equipment for the grinding of grain and the milling of flour. The farmer needs farm implements of many varieties. Transportation agencies need road-beds, tracks, vehicles, and power. The manufacturers require vast amounts of machinery to supply the needs of the miller, farmer, baker, and transporter, and of those who supply other necessary products that go to the making of bread. The manufacture of machinery and apparatus requires innumerable products from mines and forests, the getting of which in turn creates demands for other goods. The remotest parts of the earth are called upon to supply some of the things that go to pro(kice bread. The same story may be told of other necessary food-stuffs, clothing, and building materials. To supply each causes wide ramification of demands.

Perhaps the idea can l)e more readily grasped by an example of the demand for a new product, such as the automobile. The automobile industry has developed to

Rubber plantation enormous size in a few years. A new chain of demands was set up by the growth of this industry. What were the products that were called for by the demand for automobiles? Rubber was needed in large quantities. Into the remote regions of the trojiics, organizers and workmen went to develop rubber production. This in turn required machinery for producing and manufacturing riihl)er, as well as means for transportation, including railroads and steamships. These demands in turn increased the demand for iron and wood products in endless succession. Other products specially needed for the auto-

Picking cotton

moljilc were nickel, coi)i)er, platinum, leather, oil, and gasoline. Each need set in motion a new chain of demands, which reached around the world. Activity was stimulated in many directions by the demand for automobiles. Coniinuniiics that possessed raw materials or where manufacturing of automobiles was started were changed into flourishing industrial centers. New occupations connected with the manufacture, repair and operation of cars came into being, thus creating new sources of demand for services and for other goods.

The same story could l)c rei)eate(l in respect to the motion-i)icturc Inisiness, the electrical business, the talkingmachine and numerous other industries that have sprung up in recent years. The ramification of demands spreading out from these industries stimulated activities everywhere, and the process of expansion continues endlessly. Every new invention or scientific discovery creates new needs, which men in all parts of the world supply.

Couimiuiity Consumption

The people in organized communities have needs in common which create large demands for goods. Townships, counties, cities, states, and the nation all perform certain functions for the people that require large supplies of materials. They also require the service of individuals in great numl^ers. Fully two per cent of the people of the United States are engaged in public work for a part or all of their time, in the effort to supply community needs. At present more than six billion dollars are spent annually in supplying the needs of local, state and national governments.

An analysis of public or community needs for materials shows how important are the collective demands of the people upon production. In recent times the need for war materials overshadowed all other needs. Thousands of industries devoted their whole time to the supplying of the collective needs of the people for military supplies. The need for public buildings, and the materials and equipment that go into them, the building of harbors and clocks, the dredging of rivers, and the building of canals make important demands on the output of productive enterprises. Highway, street, and bridge construction and maintenance call for enormous supi)lies of materials and machinery. Education calls for large amounts of material products to provide the necessary buildings, books, and equipment. Drainage, irrigation, parks, play-grounds, and hospitals require large supplies of many l^roducts. The collective demand for goods to supply l)ul)lic needs has the same economic efifect upon production as if they were individual wants. Production responds to meet all of the needs of people, whether expressed individually or by community action.