Outlines of elementary economics

Front matter

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Class Book.

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CHAPTER II Man and Environment 8 The law of adaptation, 5

Man is one term in the adjustment, 6-8.

The two terms considered together, 9-11.

Environment affects man, 10.

Man in energy and effort, 12 ; in moral qualities, 12 ; in forethought and intelligence, 12 ; liberty and security, 12.

CHAPTER III Utility and Wealth 23

Utility explains desire ; desire the primary force, 13.

Utility not an ethical question, 14.

Production is not creation, 15.

There is no material measure of wealth, 16.

The lines of increase are (1) external, (2) internal, 17.

Services, 18.

Intellectual acquirements are not wealth, 19.

X ANALYTICAL TABLE OF CONTENTS CHAPTER IV

PAGE

The Factors in Production 33

Are man, natural opportunity, and capital, 20. Capital an intermediate term, 21. Advantages of machinery, 22.

Wages, Profits, Rents, and Interest 38

These factors have their respective remunerations, 23.

Profit is essentially wages, 24-26.

The inter-relations of profits and wages, 27.

CHAPTER V Value . 47

All remunerations flow from value, 28. All outlays made in view of value, 29, 30. Desires are satiable, 31, 32.

Value is fixed by the process of marginal adjustment, 33-36.

Is an expression of sacrifice, 37. Is in antagonism with utility, 38. Production is a purchase from nature, 39.

Chapter VI

Human actions follow line of least sacrifice, 40. Economic action not necessarily selfish, 40. What sacrifice measures value, 41. Outlays not the ultimate cost, 42 ; nor labor, 42. Cost of production analyzed ; the marginal doctrine, 43, 44.

CHAPTER VII Rent of Land , 78

Value of product controls outlays, 45. There are differences in land, 46.

ANALYTICAL TABLE OF CONTENTS xi

Increase of population raises rent, 47. Lowers wages and interest, 48.

Law of diminishing returns, 49. Urban lands, 50.

Rent not a part of price, 51, 53. Margin of cultivation and prices, 52.

CHAPTER VIII Interest 95 The demand for capital, 54, 55

The importance of time, 56.

Interest is premium of present over future, 58, 59.

How fixed, 60.

Effect of machinery on wages, 61, 62.

CHAPTER IX Fundamental question is product to divide, 63

Standard of living unimportant, 64.

Bearing of demand and supply on wages, 65.

Particular classes of laborers, 6Q.

Harmony and conflict in relations of employers and

employees, 67.

Machinery raises wages, 68 ; because the tendency

of profits is downward, 69-71.

CHAPTER X Population, Increasing and Diminishing Returns 124

Malthus and the English poor laws, 72, 73. Increase of population may lower the per capita

product, 74.

Diminishing returns, 75.

Is over-population coming ? 76. Increasing returns, 77, 78.

Xll ANALYTICAL TABLE OF CONTENTS CHAPTER XI

PAGE

Money 135

Its usefulness, 79, 80.

Necessary qualities, 81.

Credit is one aspect of exchange, 82.

Peculiar qualities of gold and silver, 83.

There is no ideal money, 85.

The silver question, 86.

The demand for money is limited by the division

of labor, 87 ; is increasing, 88. The value of money, 89.

Quasi-rents explain the demand for money, 90-92. Supply of money, 93.

Effect of increase of supply, 94. Credit and bank currency, 95.

Government issues, 96.

Gresham's law, 97-99 ; proves local expansions

futile, 100.

Commercial crises, 101-104.

Advantages and disadvantages of credit, 105. Remedies, 106.

Chapter XII

Can humanity improve its own condition ? 107-110. Examination of present system, 111-114. Socialism examined, 115.

CHAPTER XIII Population, Rent, and Socialism 191

Disquieting doctrines not necessarily false, 116. Diminishing returns again, 117. Would socialism help ? 118.

Increasing returns again, 119.

ANALYTICAL TABLE OF CONTENTS Xlll CHAPTER XIV

PAGE

Some Current Questions in Economics .... 201 Speculation, 120-127.

Combination and Monopoly, 128.

Trades-unions, 129.

The Eight-hour Day, 130, 131.

The Sweating System, 132.

Labor of Women and Children, 133, 134. Wages of Women, 135.

The Tariff Question, 136-147.

CHAPTER XV Taxation 237 Is essential fact in government, 148

Governments are worth more than they cost, but

they cost, 149.

No miracles in taxation, 150.

All taxes fall on consumption, 151. How best collected, 152 ; Practical rules, 153. The shifting of taxes, 154.

Taxes on rent ; Henry George, 155. Taxes on interest, 156.

Taxes on income, 157-159.

Taxes on liquors and tobacco, 160. Taxes on inheritances, 161.

Distribution between central and local government,

162.

Taxes on personal property, 162.

CHAPTER XVI Consumption, Standards of Life, and Fashion . 257 Which is first cause, production or consumption ?

163, 164.

Expansiveness of desires, 165, 166. Disappointing and non-disappointing desires, 167. Ostentation, 168.

xiv ANALYTICAL TABLE OF CONTENTS CHAPTER XVII

PAGE

Is business overdone ? In what directions is there

room ? 169.

What things in life are best worth while ? 170. The purpose of culture, 171.

Chapter I Scope Of The Science

What do you suppose Political Economy is about? Would the study of the Australian ballot system fall within it? The popular election of senators? The silver question ? Money generally ? The tariff question ?

Do you see any way in which Geology could bear on what you suppose to be economic questions ? Geography ? History ?

Ought the economist to understand the processes of the iron industry? The science of electricity ? Chemistry?

Have these anything to do with Political Economy ? How?

Is more required than that the economist understand the laws and facts common to industries in general ?

What are scientific laws as distinguished from moral laws and civil laws ?

Is Economics concerned with the relations of employers with employees ?

Does the study of markets, values, and prices require the examination of transportation questions ? How ?

How does climate become important in Economics ? Waterways ? Mineral resources ? Human wants and needs? Religion? Morals? Public health? General intelligence ?

Why should any one produce wealth ?

Do you know any one who has more wealth than he needs ? Than he thinks he needs ?

Is either condition likely ever to become common ?

Does demand limit consumption, or is it supply?

What is the practical limit to consumption ?

Does average consumption depend upon the amount of money in the world, or upon the amount of wealth produced?

Suppose there were no money, how could the farmer use his grain to procure machinery or clothing?

Do you see any respect in which this would be inconvenient ?

In what sense can money be termed a common denominator of values ?

1. If one were to offer you a ten-dollar bill on the condition that you should always keep Why we use ^' Jon Probably would not greatly money. prize the gift. Even were a ten-

dollar gold piece offered you, and you were bound to keep it as such, not making it over into something of service or ornament, you would not very warmly thank the giver. Money is good to buy things with. Men in society and societies as a whole are well off, not in proportion to the money they have, but in proportion to what they can get to consume. We are used to selling things for money and to buying things with money, so that it comes to

SCOPE OF THE SCIENCE 3

stand with us as the most general symbol or representative of the things which we buy. Men commonly reckon their riches in terms of money, as we commonly state the value of each commodity in money. It would be inconvenient to exchange sheep for cattle, or tooth-brushes for iron. When we go to the concert, it is not practicable to pay in hay, or chickens, or jackknives. The doctor or the newspaper man objects to garden truck as pay. It is better for all concerned to pay in money and to allow the receiver to expend the money for the things he may desire. We use money as a common denominator just as, in arithmetic or algebra, if we are going to work in fractions, it is most convenient to reduce these fractions to a common denominator.

2. But what things we can get with our money, and not the money itself, is the important matter. People could get on

1 & Things and not

without money, making their ex- money the imchanges with each other directly por an ac ' by trade or barter, though doubtless this would be inconvenient. So people in ancient times used cattle as money, the Indians in early colonial days used beads or wampum, the Virginia colonists tobacco, and even of late years in some parts of the South, twists of perique tobacco have served as the medium of exchange. The use by children of pins in their small commerce of store-keeping is a familiar fact.

How much any people can have to eat and wear and enjoy — its share in the good things of life — must depend upon how much is produced. Consumption is limited by production. It is a question of factories, and herds, and crops, and not of money. Money is the measure — the common denominator of value — the medium of exchanging goods between men — and not the cause or the basis or the test of well-being. Doubling the amount of money in a country would not double the production of the fields and factories, or the strength and skill of human beings. All these would remain as they were before. Each of us would like to have his own money doubled, just as each of us would like an increased number of orders or of coupon books upon the grocer or dry-goods man. But increasing the coupon books would not increase the amount of goods which the grocer or dry-goods man has in his shop. Increasing the money does not increase the commodities. The aggregate production is the essential fact in any society. Who has the

SCOPE OF THE SCIENCE 5

orders or coupons for it — the money — is a question of who gets most in the division or distribution of the goods produced. We therefore call the aggregate production of a nation or of a society the national or social dividend. The average of consumption is found by dividing the aggregate production by the number of shares in it; that is to say, by the population. Average consumption is of the nature ,of a quotient.

Thus we see that those nations which used to make great efforts to acquire and keep in the country money or jewels and precious stones, were mistaking the symbol for the substance. It is as if a nation should regard itself as rich in proportion to its yardsticks or coupon books, or as if a farmer were to estimate his crop by the number of wagons he had in which to carry it to market.

To say that the love of money is the root of all evil is a conveniently short but inaccurate method of expressing a great truth. Loveofmoileyis Cupidity in some of its forms is love of wealth. the root of endless evil ; but people want not money, — they want the things which money will buy. Only people with diseased brains care for money as a thing in itself. When we speak of the love of money, Ave use a sort of shorthand expression for the love of the things in life which are bought and sold. Money is the general form in which desires express themselves and temptations present themselves. But human needs and desires are the source of all well-doing, equally with all ill. If we wanted nothing we should do nothing. The evil is in the improper direction and insufficient restraint of desires. Money is helpful because it enables us easily and conveniently to make exchanges of goods. Barter would be inconvenient and impracticable.

3. This brings us to the difference in meaning between the terms "value" and "price." Value and This difference is important in

Price. Political Economy, though it is

not always observed in common speech. When, in the technical use, we speak of the value of the thing, we mean what it is worth of other things ; when we speak of the price, we mean its value measured in terms of money. Thus a horse may be worth two cows, a cow five sheep. Put in terms of price, we should say that the horse was worth, for example, fifty dollars, the cow twenty-five dollars, and the sheep five dollars each.

SCOPE OF THE SCIENCE 7

4. Political Economy is, in a general way, an investigation of the manner in which men think and act in the business affairs Political Econof life, — a study of their activity omy defined. as related to the things which are bought and sold. Thus we are set to inquire about farms and crops, factories, stores, railroads, banks, wages, interest, rents, values, and prices, and the countless facts and influences bearing upon matters of this sort. Political Economy is not merely the tariff question or the money question, as many beginners are apt to believe, but a great deal more than this, and much of it of a great deal higher importance. Perhaps the following will answer as a fairly accurate statement of the scope of our subject : Political Economy treats of men in their commercial and industrial activities from the standpoint of markets and values.

Define, as far as you now can, the terms " value " and " price."

If things were all doubled in price, what effect would this have on values ?

Mention some relations of Chemistry to Medicine. Of Mathematics to Physics. Of Geology to Zoology.

From the point of view of how many sciences can you discuss a stick of wood ?

Chapter II Man And Envikonment

Why is the polar bear white ?

Why are many snakes striped?

Why are some forms of life able to change in color to fit the color of the background ?

Why have northern animals heavy coats of fur ?

As far as we can see, is the world adapted to the forms of life upon it, or are the forms of life adapted to the world ?

Illustrate your answer from Botany and Zoology.

What becomes of such forms of life as fail of adaptation ? What of the forms best adapted ?

What is the " struggle for life " ?

What influences limit or tend to limit the numbers of buffalo, trout, flies, rats, squirrels, men ?

Are similar influences at work in the vegetable world ? How?

The cultivated strawberry set in the field reverts to the type of the wild berry. Why?

What influence would bring it back to the garden type? Why?

Explain the fact that orchard apples have much pulp.

Of what utility is the pulp to the wild apple ?

Mention some kinds of seeds distributed by animals.

How may color help toward distribution ?

What is Natural Selection ?

What is Artificial Selection ?

31 AN AND ENVIB0N2IENT 9

What is Correspondence to Environment ?

Why are. tropical races dark? Northern races vigorous and industrious ?

Mention such different elements of success in life as you can.

On what does the raising of a good crop depend?

Has a good chance in life much to do with success ?

Why not raise bananas in Canada ?

Could Shakspeare's plays have been written in the Sioux language ? Thought out in a Sioux civilization ?

Are there any millionaires in Greenland? Why? Where are they found ? Why ?

Is an opportunity to get a good education to be regarded as part of yourself or part of your surroundings ?

When you have obtained the education, which is it?

Mention such necessary conditions as you can to the prosperity of a great silk factory.

Apportion these elements into two classes, (1) those which are human in their character, (2) those which are not.

Apportion these elements into, (1) those which pertain to the owner, (2) those which pertain to his surroundings and opportunities.

Describe the social conditions necessary to the existence of a great silk factory in (a) public tastes, (b) transportation, (c) machinery and mechanical skill, (d) motive power, (e) social security and morality, (/) laws, (g) international relations.

5. Polar bears are found to be white; snakes which live in the grass are green Adaptation to

, • -i c i • • • environment —

or striped; races of men living m actorandop. hot climates are generally dark, portunity. We say that these things are due to the conditions in which these different orders of animal life have lived. Bees taken to a climate of continual summer are said to lose their habit of accumulating honey. The fish in Mammoth Cave are without eyes.

Not only in animal life, but in vegetable life as well, similar facts are observed. Large trees grow in fertile soil and fostering climate, the finest vegetables in rich and well-tilled gardens. On the other hand, the cultivated plant set in the poor soil of the field to make its way against grass and weeds reverts to the type of its wild ancestor.

Botany and Zoology should already have taught the student this great law of adaptation in its two aspects of correspondence to environment and of survival of the fittest. Lack of correspondence means disadvantage in the struggle for growth and life. This principle holds for man as well as for the lower orders. Human life and human society must be studied with constant attention to the conditions which surround and limit activity and development. Individual success in the contests of social life is not purely a question of pluck and brain; something must be allowed for education and opportunity. Good legs and a fair field are both needed for fast running. So in economic relations both actor and opportunity require examination.

6. Thus the human race in its relations to its environment, and the individual of the race in his relations to an environment of which the other members of his race are themselves a part, are the subject matter of all economic and social study. Man, as one term of the science, is regarded as standing over against an outside world of fact and circumstance. He is neither entirely the master of his fate, nor yet entirely the puppet of the forces by which he is surrounded. He is himself a force, a centre of energy and activity. He is one of the facts in the complex interplay of human with natural energies. If he receives, he gives; if his environment rains its influences upon him, he puts forth his own efforts in adapting self to environment or environment to self. He strives and resists and reacts. George Eliot has put the case helpfully, when, in supplement to the half-truth " Our deeds are fetters which we forge ourselves," she adds, "Aye, but I think it is the world that brings the iron." The history of human development is the story of what circumstance has done for man and man for circumstance— the play of outside forces upon him and his reactions thereupon. There are thus two forces in the problem of history, — man and nature. The resultant is the direction of human development.

7. This is not a difficult notion. As has already been stated, it is merely one aspect of that which men of science call the law of adaptation or of correspondence to environment. Life, for each one of us, is a question of what there is in us plus what is outside — of our powers and energies in the face of our surroundings and opportunities. Give Crusoe his island, what will he do with it? This is in part a question of Crusoe and in part a question of his island. Likewise for races the problem is on one side a matter of character and capacity, on the other, of surroundings and opportunity.

8. It is unnecessary for the purposes of Political Economy to push the question into

an inquiry as to which of these

No matter now

which is pri- two forces in human development, mary" if either, is the primary fact and

which the derivative. We may, for example, regard coral polyps as a product of the sea ; it is

MAN AN J) ENVIRONMENT 13

none the less true that once existing they not merely suffer but work the processes of sea change. It constantly occurs that a result becomes in turn a cause, — as, for example, in Chemistry, where a product of combination or decomposition furnishes a basis for a new series of chemical changes, or in Physics, where in a row of blocks one falls as the result of an impact received, and by delivering its impact causes the next to fall, or again in Chemistry where combustion liberates gases which themselves furnish material for further combustion.

Economic science is not, however, greatly concerned with the history of human development; the main purpose of our discussion is to fix clearly and definitely the first important distinction in economic theory — the division of its subject matter into the two terms of man and environment, the human and the nonhuman elements in the problem. Taking man as he is in relation to his environment as it exists, Political Economy treats of him in his commercial and industrial activities as viewed from the standpoint of markets and values.

9. The production of wealth by man, so far as it does not rest with the character of the actor himself, must therefore find its explanation in the nature of his environment, — in Production of the elements, in the varying condign flyman*1*8 ti°ns °^ temperature, rainfall, sun- (2) opportunity, shine, humidity, healthfulness, etc. — in the soil, or, more accurately, in the land, its fertility and workability, its mineral resources, its convenience for industry

Environment. .. .

and commerce; in the varying sum of natural forces more or less within the control of man, such as winds, tides, electricity, gravitation, and steam. This enumeration is of necessity both incomplete and inexact. Climate cannot be definitely distinguished from winds, electricity, and light, nor can natural forces be treated apart from questions of navigation and convenience for commerce. Light, which may be used as a natural force for power or for the purposes of chemistry or art, is, from another point of view, an important factor in the fertility of the soil. But it is important merely to hold in mind that wealth depends upon the correspondence of two factors, — (1) man himself, (2) the conditions surrounding him. He may, in large measure, modify surrounding conditions. But it will still remain true that the arctic regions and the tropical deserts do not offer favorable opportunities for his wealth-producing activities. He may adapt himself in some degree to an unhealthful climate. But, in some measure, an unhealthful climate must exercise an unfavorable influence on his powers. He may make for himself artificial lines of communication, but rivers, lakes, and seas will retain an economic importance for this purpose. He may exist making small use of the opportunities offered by natural forces, but it will remain true that in these rest the possibility of the greatest efficiency and the largest field for economic progress.

10. Turning to a closer examination of the factor, man, we find wide differences between different races of men, and between Man as affected different men of the same race, by environment. We need not assert that all of these differences are due to environment; clearly enough, however, some of them are. The human race exhibits the effects of correspondence otherwise than in color and physical power. Not only have men been profoundly influenced by their surroundings in health, strength, and stature, but also in habits, character, and intelligence. The student need only call to his aid his knowledge of Geography to find this many times verified. Civilization is too difficult a problem in the frigid zones for any race yet fully to have solved it. The problem of mere existence in the tropics is so over-easy as to have degraded man, through stagnation and ignorance, into an incapacity for civilization.

11. The student should now be able to appreciate the truth that wherever there is found „ '. a high stage of civilization, or great

How explain . . ' o

high and low prosperity, or a high average production and consumption of wealth, the explanation must always lie in the character of the people under examination or in the character of the country in which they live. If the people in China have less per capita to consume than the people in France, it is because the Chinese produce less per capita than do the French; and the explanation of this must be found in the lower vigor, or skill, or energy, or intelligence, or scientific attainments of the Chinese, or in the unfavorable character of the opportunities in which they live. If Americans are more prosperous and live better than Europeans, it must be that Americans are better producers, — more active, more inventive, more enterprising, — or that the soil and climate and other natural resources of America offer more advantageous opportunities for production. No one has great difficulty in understanding this principle as illustrated in the affairs of everyday life. Long ago it was remarked that not even the most skilful workman could make bricks without straw. Bad tools place the best of mechanics at disadvantage. Men do not gather grapes of thorns or figs of thistles. It takes mqre than a good farmer alone, or than a good farm alone, to make a good crop;' this needs both farm and farmer. Only opportunity improved is success.

12. It is obviously true that the producing powers of men are, in large measure, matters of physical strength and endurance. Man in energy Perhaps an equal measure of im- and efforti portance should be ascribed to agility and intensity of effort. The German economist, Wilhelm Roscher, writes in this regard: —

"According to the reports of English manufacturers an English workman produces on an average almost twice as much as a Frenchman ; the latter in turn more than an Irishman. An English wage-earner who had worked in a French factory speaking before the Parliamentary Committee gave his opinion of the French as follows : It cannot be called work they do ; it is only looking at it and wishing it done. Thus, for example, a good English spinner with an eight-hundred spindle machine could produce daily sixty-six pounds of yarn ; a Frenchman only fortyeight pounds. . . . The report of an Agricultural-interest Commission places the North American workman above the English in good conduct, fidelity, and interest. A Berlin woodcutter accomplishes as much in ten days as an East Prussian in twenty-seven days. (Hoffman.) English planters on the Hellespont prefer to pay Greek laborers ten pounds sterling a year and their keep rather than Turkish laborers three pounds. So the Malay fieldlaborer gets two and a half dollars per month, the Malabar four, the Chinese six."

Perhaps equally important in production are the distinctively moral qualities of men, and the social and moral conditions in which they live and for which they are largely responsible.

Under modern conditions every corner of the

world does business with almost every other.

Business affairs are complex, of

Moral qualities. , -. , . , ,

enormous magnitude, and highly centralized. Great factories, employing thousands of men, sell goods all over the world. Their force of officers, clerks, and agents is necessarily large. The system of buying and selling on credit is widespread. Business must therefore be largely done on terms of trust and confidence. A high moral development in certain directions is essential to the success of this system, and any society lacking in this respect must suffer thereby. Not only this, but under present conditions most men must be wage-earners serving under employers. The productive effectiveness of society must therefore largely depend upon the good faith of the employees.

No advanced society can reach its highest possibilities in production if men are not free to work for their own benefit and, if they so desire, under their own direction. Labor must be voluntary or it will not be vigorous and care-taking. Slavery or any other form of severing reward from effort, weakens the springs of motive, while at the same time relaxing the energy of those who wrongly profit thereby. Feudalism in the middle ages suffered by this defect.

Likewise, no society which, through disorder, crime, war, or over-taxation, unsettles the connection between industry and reward, can fail of enfeebling its productive forces. Security of life, property, and investment is essential to high economic efficiency.

Again, in no society in which people lack in forethought for the future will work go on, unless under stress of immediate need. The ability to wait, to see ahead, and to provide for the far-off want, drains the land, clears the forests, plans the machinery, builds the railroads, and constructs the factories.

But most important among the characteristics

of man as producer are his intellectual powers

and acquirements. If we compare

Intellectual

powers and modern industrial processes with the

acquirements. ,-, -, £ , ,. ,

* methods ot ancient times, we get

some notion of the importance of science and art in production. Especially in the world of economics is it true that knowledge is power. The savage made an enormous step forward when he acquired the knowledge of the bow and rod. Tools increase by many fold the effectiveness of human energies. But when, by the use of machinery, man has harnessed to his aid the forces of nature, the field of progress is infinitely widened. By spindle and loom he multiplies his product by hundreds. Steam and electricity, the printing press, the cotton gin, and the countless contrivances which make of every county fair a collection of marvels, and of every world's exposition a display of miracles — these are the fruits of that civilization into which each one of us is born as to a free heritage. And remember that behind the art and the skill in all these processes and methods, there is a world of pure science. No one has grown more grain than the chemist. The difficult problems of industry are wrought out in the laboratory of the specialist. The investigators and the inventors have revolutionized the opinions and the organization of the modern world. The ruling forces of civilized life are the intellectual forces. The moral code of eighteen hundred years ago left, indeed, not much to be added. Laws, governments, institutions, science, art, invention, and discovery, — these are the facts which measure the distance between civilization and savagery. In these directions the progress of mankind is seemingly without limit.