First lessons in political economy

Front matter

iv*s;-

■5

By FRANCIS A. WALKER

Part I. Chapter Paob

I. Wealth and Yalue, 3

II. The Cause op Value, 13

III. The Production op Wealth, 17

IV. Land, 32

V. Diminishing Returns in Agriculture, .... 35

VI. Labor, 34

VII. Labor, Continued. The Organization op Industry, 50

VIII. Capital, 60

IX. The Relation op Cost op Production to Value, 72

X. Production at the Greatest Disadvantage, . . 85

XI. Money, 95

XII. Primitive Forms op Money, 103

XIII. Credit : The Standard of Deferred Payments :

The Tabular Standard : Bimetallism, . . .109

XIV. Banks and Bank-money, 122

XV. Political Money : Inflation, . 143

XVI. Protection or Free Trade, 164

Part II. Distribution And Consumption

XVII. The Problem op Distribution, 181

XVIII. Rent 189

XIX. Rent, Continued. The Ownership op Land, . . 205

Tii viii TABLE OF C0M'm!t8.

CHAPTER PAGfi:

XX. Profits, 315

XXI. Profits, Continued. Co-operation, 225

XXII. Interest, 237

XXIII. Wages, 251

XXIV. The Economic Effects of Imperfect Competi-

tion 261

XXV. What May be Done to Help the Working

Classes, 272

XXVI. The Pauper Labor Argument for Protection, . 283

XXVII. The Consumption of Wealth, 291

XXVIII. False Notions about Consumption, 301

PART I.

PBODTTGTION AND EXCHANGE.

POLITICAL ECONOMY.

Chapter I. Wealth And Value

1. Political Economy is the Science of Wealth.— Politick economy, or economics, is the science of wealth.

Political economy has to do with nothing hut wealth. This warning should he carefully heeded. A great part of the confusion which has existed on this subject has arisen from the fact that many writers on political economy have allowed their attention to he diverted, here or there, now or then, to some other social object besides wealth, and have perplexed themselves and misled their readers by discussing questions which do not belong to them, as political economists.

When we say that the political economist, as such, has to do with nothing else besides wealth, we are not saying that wealth is the most important matter in the world. We simply say that, if wealth is important enough to be investigated, it should be investigated by itself. The best and surest way by which to increase our knowledge of any subject, is to isolate it and study it long and carefully, by itself, from all sides. This is just as true of a social problem as of a chemical problem. The great difference between the two cases is that in the social problem it is not possible to keep out all foreign elements. Hence we can never expect to reach the same degree of assurance in political economy as in chemistry. But that constitutes no reason at all for not excluding foreign elements so far as we can, and keeping the thing we are studying, namely, wealth, as closely in view, all the time, as the nature of the case will permit.

2. Relation of Value to Wealth. — I have said that political economy is the science of wealth. But what is wealth ? I answer. Wealth comprises all articles of value and nothing else. Everything which has value is wealth. Nothing is wealth which has not value. In the language of the philosophers: Wealth is the substance , of which value is the attribute : that is, we always and everywhere attribute value to the substance, wealth.

If wealth and value are thus indissolubly joined together, the reader may ask. Why, when, should we not call political economy the science of values ? I answer. It would be perfectly proper to do so. Some writers have done so. One reason, however, for calling political economy the science of wealth, is that many persons who would not be in the least interested on being asked to listen to a lecture, or read a book, on the science of values, would be very much interested on being told that the subject was the science of wealth. Wealth is a word which appeals to all, poor or rich, low or high, ignorant or educated. No one is above, no one is below, an interest in this subject. It is, therefore, a good term to use in describing political economy.

3. Value Defined. — But what is value ? This is a question which needs to be carefully answered; and the reader should always keep the definition clearly in view. It will not do to think loosely about value.

In common speech we use the word in more than one sense. Thus, we might say that the value of a horse is one hundred dollars^ or that a certain book contains some valuable truths. In political economy, however, the word should always mean precisely one thing, and nothing else.

The definition which I have to give is a long one, and I must ask the reader to commit it carefully to memory. There are few things which it is worth while to commit to memory, word for word; but this is one of them:

Value is the power which ak article coi^fers UPON- ITS possessor, irrespective of legal authority OR person^al sektimen^ts, of commanding, in exchange FOR ITSELF, THE LABOR, OR THE PRODUCTS OF THE LABOR, OF OTHERS.

It is proper, speaking briefly, to say that value is Power in Exchange; but whenever we say this, we must have in mind all that is stated above.

4. Two Exceptions.— What do we mean by saying, "irrespective of legal authority or personal sentiments'"? This will be best shown by illustrations, as follows:

The Emperor of Eussia or of Germany can, by a few words, compel two millions of men to come from all parts of his empire, to serve in his army He can command them to make the greatest exertions, to submit to the most painful sacrifices, involving hunger and fatigue, and even wounds and death. At his will, they must march, watch, fight, or die. Political economy has nothing to do with this, because it is done by legal authority. This is not a case where value exists. These services are not economic.

On the other hand, the soldiers of England and the United States perform services which are economic. They are not compelled to enter the army. The government makes it worth their while to do so„ It "goes into the market for labor,'' and hires men to leave their homes or their farms or their shops, and serve for one year, or three years, or five years, in the army. What they are to do there is not the question for us to consider here. So long as the government hires them, with clothes and food and money, and so long as they, on their part, freely accept these terms, we have a case of value, just as much as if they were hired to work upon harbor-improvements or in building roads. I do not say that it is just as well for the country to hire men to fight as it would be to hire them to build roads. I only say that, in each case, there is value. The clothing, food, and money of the government confer upon it the power to command, in a fair and free exchange, the labor of the workmen, or of the soldiers. The labor of the workmen, or of the soldiers, confers upon them the power of commanding, in a fair and free exchange, the clothing, food, and money of the government.

So much for ^' legal authority. ■*' How about '^personal sentiments" ? Again, let us proceed by illustrations. A mother gives her thoughts, her care, her labor, her time, her strength, day by day, without grudging and without reserve, to the rearing of her childern ; while, in their sickness, she drains her very life-blood to protect and save them. But this is not a case of value. Political economy has nothing to do with it. The mother renders these services to these children, because they are hers. She does it out of affection for them, and not for reward. On the other hand, the services of a hired nurse or of a paid physician are economic : they constitute a case of value.

5. Value Not a Physical Property. — The reader now sees why I said, " irrespective of legal authority and of personal sentiments." Leaving out these words, for the moment, let us see how our definition of value will read: Value is the power which an article confers upon its possessor of commanding, in exchange for itself, the labor, or the products of the labor, of others.

Value is not any material or physical property of an article. In any given place, at any given time, any given article may depend for its value upon certain physical^ or material properties in itself; but these properties are not the value. Softness is not value; hardness is not value. Some articles are more valuable, the softer they are; some are more valuable, the harder they are. Color is not value; absence of color is not value. Some articles are more valuable, the more highly they are colored; others become more valuable, the more perfectly free they are from every tinge of color. Tenacity is not value; ductility is not value. Some articles are more valuable, the greater their tenacity ; others have value in proportion to the ease with which they can be drawn out. Sweetness is not value, acidity is not value. Honey is valuable in proportion to its sweetness, vinegar to its sourness. We see, then, that value is not any material or physical property of an article.

6. Transferability Essential to Value. — We have seen that value is power in ezchange. Now, to an exchange, as to a quarrel, there must be two parties. An exchange requires at least two exchangers. Value, then, is a social phenomenon.

Again, in order that there shall be an exchange, there must not only be two exchangers, but the article to be exchanged must be such that it can be detached from one and made over to the other. That is, transferability is essential to value.

This point is of much importance, since it at once settles the relation to political economy of certain properties and qualities, which many persons have written about as if these were wealth, namely, health, intelligence, strength, skill, even personal honesty. If, however, we apply the test of our definition, we find that these properties or qualities are not wealth, since they have not value. They have not value, because they cannot be exchanged. A man cannot detach health, strength, skill, or intelligeuce from himself, and make them over to another person. They can, indeed, be taken away from the present owner, as by death or sickness; but they do not, in that case, become the property of another. The gouty millionaire cannot, with all that he has, purchase the robust health of the laborer by the wayside, or buy for his own empty-headed son the learning or the trained faculties of the humblest scholar.

7. The Use of Personal dualities May be Sold. — But while these properties and qualities cannot be detached and transferred, and thus cannot be said to be wealth, the present use of them can be made over to another, and hence may become the subject of exchange. The rich invalid may command the services of the robust laborer in waiting on his person; he may hire the poor scholar to be tutor to his son. The use, therefore, of such personal qualities and endowments properly constitutes an item of wealth. By the force of contract, the possessor may even transfer the use of them for a definite period in the future, as when a man is hired by the week, the month or the year. Such a sale, however, of personal qualities or endowments is always a ''contingent^' one. It is always subject to the chance of death or sickness.

8. Better than Wealth, but Not Wealth. — If we ask why it is that so many excellent writers in political economy have insisted upon regarding health, strength, intelligence and skill as being wealth, we shall find that it is because these things seemed so good and desirable. But the fact, for example, that health is better than most forms of wealth, or that health may be the means of acquiring wealth, does not make it wealth. There are many things which are better than wealth, but are not wealth. ''A good name," says Solomon, ''is rather to be chosen than riches, and loving favor than silver or gold;'' yet a good name is not riches, and loving favor is neither silver nor gold. And, at this point, we iind that the popular use of the teim coincides with the definition given it for scientific purposes. Plain men do not speak of such qualities or endowments as being wealth. No merchant or manufacturer or laboring man would include any one of these items in an account of his wealth, however precious he might esteem them.

9. The Desire of Wealth. — We have defined wealth. It will be seen that by this term is not meant great wealth; that the idea of luxury, or softness of living, is not necessarily implied in it. In common phrase, when we speak of a man as wealthy, we mean that he has great wealth, that he can, if he pleases, live richly. But the wealth of which the political economist speaks embraces the frugal fare and the small savings of the poor laborer, just as much as it does the sumptuous living and the vast accumulations of the millionaire.

It will be seen from the foregoing that the desire for wealth which leads men to labor and to exchange the products of their labor is not, in all cases, or in most cases, the same as that ^'^love of wealth'^ which preachers or moral philosophers are wont to condemn. The desire of wealth, on the part of a poor laborer, means no more than his wish to provide decent and comfortable subsistence for those dependent upon him, and to save them from suffering, squalor and filth. On the part of one who is more fortunate, the desire of wealth may mean the wish to have his family respectably housed and decently clothed; the children well educated for the duties of life, and a fair provision made against sickness and old age. This is all which the desire of wealth means, in the case of nearly all human beings. On the part even of those more fortunate still, the desire of wealth may mean, not so much the taste for rich food, sumptuous apparel, gay equipage and social display, as an ambition to undertake great works, for which large resources are necessary; a wish to be esteemed strong, sagacious and masterful; or even the purpose, altogether benevolent, to use wealth in charity or for the promotion of learning, art and religion.

It will appear what a varied matter is the love of, or the desire for, wealth, alike in its origin and in its ulterior objects. It is probably because people have commonly thought of the desire for wealth as the greed of gain, as the passion for display, as the craving for luxury, as the miser's thirst for gold, or as the strong man's love of power and mastery, that political economy has so often borne a bad name. We have shown, above, how partial and how false such a conception is.

10. Political Economy does not Inculcate Love of Wealth. — Even where the desire of wealth becomes a strong appetite or a raging passion, political economy is not to be charged with any part of this. The political economist has not implanted a love of wealth in the human mind; nor, finding it there, does he seek to blow it into a flame. He simply takes it as he finds it ; and, regarding it as a social force, he proceeds to inquire how this passion, or propensity, as it exists among men, influences their actions in respect to the production, the exchange, the distribution, the consumption, of that which we call wealth. His business is that of the professor of a science, viz., to trace effects back to their causes, to project causes forward to their effects, within the domain of wealth. Hence, we see how unjust is the sneer at political economy, when it is spoken of as the '^''gospel of mammon. '^

11. Political Economy Chastens Greed. — Not only has political economy not implanted a desire for wealth in the human mind ; not only does it not inculcate greed of gain ; but it would be easy to show that the study of political

POLITICAL ECONOMY, H

economy has done mucli, perhaps more than any or all other causes, to repress yiolence, fraud and rapine, as means towards the attainment of wealth. By showing how wealth is really best gained and kept, it has tended to banish a ravenous, ferocious greed, which seeks to snatch its objects by brutal force, with whatever injury to others ; and has replaced this by an enlightened sense of self-interest, which seeks its ends through services and exchanges mutually beneficial, and which supports social order and national peace, as the conditions of general well-being.

Before Adam Smith published his great work, the '* Wealth of Nations,'' in 1776, it was a maxim of public policy that only one party to a trade could profit by it : that all which one might gain the other must lose. Out of this root grew wars and commercial restrictions, which set man against man and nation against nation, making intercourse between e\ren the most highly civilized states a game of deceit and violence. Adam Smith, by his masterly exposition of the mutual benefits to be derived from exchange, left the love of wealth in the human mind, not rebuked but enlightened. Men might still seek wealth as earnestly and ardently as ever, but no longer by the old, bad, brutal, heathen methods. Little more than a hundred years have elapsed since the appearance of the " Wealth of Nations''; yet mankind have, within that time, made greater progress toward humane and mutually beneficial relations between states and nations, than during all other centuries of human history.

CHAPTER 11.

THE CAUSE OF VALUE.

12. TTtility Esseniial to Value. — We have defined value as, briefly speaking, power in exchange. We are now to inquire whence comes that power ? Why is it that one article has value and another has not ? Why is it that one article has great value, while another, perhaps more beautiful, perhaps more useful, has little value ? These are questions we shall now try to answer.

We may certainly begin by assuming that no one will give for any article his labor or the product of his labor, unless he has a use for that article, or unless he is buying it for someone who has a use for it. Hence we say that usefulness, or utility, is an essential element of value. We need make no exception to the statement, that, wherever value is, there is utility.

But we must explain just what we mean by utility, or usefulness. That word, as we use it here, signifies no more than that an article meets a felt human want : that men have a use for it. But this is not the sense which the word always has. By it is sometimes meant that an article is beneficial : that it does good to the person who owns or consumes it, in making him stronger, wiser, happier or better ; or, else, that it does good to the community. Now this would not answer, in the present case. An article may have utility, in the sense that men have a use for it, in the sense that it satisfies a want which men feel, and yet be liarmful, perhaps in a high degree. Intoxicating drinks are, to most persons who buy them, very injurious : yet, so long as men will give for them their labor or the products of their labor, intoxicating drinks possess utility, in the economic sense. Many articles which are always used, or which are often used, in such a way as to injure the mind, or body, or both, are useful in this sense.

13. Value not Proportioned to Utility.— We have said that there is always utility where there is value. Is it, also, always true that there is value wherever there is utility ? We answer, no. There cannot be value without utility, but there may be utility without value. ]N"othing is more useful than atmospheric air : there is nothing for which men have a more constant use, nothing of which they have a more intense need. Yet atmospheric air has, as a general thing, no value at all. Every man, even the poorest and meanest, takes of it what he will, without giving anything in exchange. Water, too, has a high degree of utility. Although men have a use for it in widely varying degrees, some water, more or less, every human being craves, with an eagerness which would soon result in delirium and death, were it denied. Yet water is generally to be had without giving anything in exchange for it. Men help themselves to what they want of it.

Not only is it true that there are some articles which have great utility and no value at all : but among articles which have both utility and value, the value is not always in proportion to the utility. Of two articles, both of which are very useful, both of which men desire and earnestly crave, either of which it would be pain to be deprived of, one may have a high value and the other a low value.

14. Difficulty of Attainment, the Second Element of Value.— We conclude, then, that there is another element of value. And, on reflection, we find that element to be difficulty of attainment, or, as it is sometimes called, scarcity* If we apply these two tests,, utility and difficulty of attainment^ we shall be able to explain every case of value which we meet^ or of which we can conceive. We are sure, therefore, that our analysis is correct.

The reason why men do not, in general, give their labor, or the products of their labor, in exchange for atmospheric air or water, is not that these substances are not useful to them; but that there is, usually, no difficulty in obtaining as much of either as anyone can require. The moment there comes to be any difficulty in obtaining a sufficient amount of atmospheric air, that substance may fairly become the subject of exchange: that is, may acquire value. Air may be delivered to divers under the sea, through pipes or rubber tubes, at a fixed price per cubic foot. A great amount of labor and capital is often employed in supplying atmospheric air to miners under ground, where it is paid for at a high price. While one can always have in his house, for nothing, as much bad air as his family can breathe, pure air in a dwelling is often very costly. It is, indeed, one of the most expensive of all luxuries: so expensive that many persons who devote large sums to display and fashion do not feel themselves rich enough to have their own houses, and the churches, schools, concert halls and theatres which they or their children attend, decently well ventilated.

In general, as we said, water has no value. Indeed, a great deal is sometimes paid for merely getting rid of it: for pumping it out from cellars and mines and low lands, or for building dikes or levees against it, along the banks of rivers or upon the sea-shore. On the other hand, when, in desert countries or in great cities, water becomes difficult of attainment, in the quantities desired and in the right times and places, it comes to command a price, perhaps a high price.

Again, iron, although distinctly th-e most useful of all the metals, in the extent and variety of its applications, has a much lower value than many others, simply because the difficulty of attainment is, in its case, less. The price which a man pays for a knife, for instance, does not measure the usefulness of the knife to him, but only the difficulty of attainment. He pays, in fact, fifty cents for the knife: but he would sooner pay $5, or 110, or even $50, than not have a knife.

15. Demand and Supply. — We have thus far spoken of the two elements of value, viz., utility and difficulty of attainment; but when we come to investigate the ratios of exchange, and to talk of buying and selling in the market, it will help us very much to substitute for these terms two others, viz.. Demand and Supply.

The fact that an article is useful gives rise to the demand for it. The difficulty of attainment ^ in the case of any article, governs the supply of it. Tlie value of an article depends upon the demayid for it and the supply of it. A large demand does not necessarily mean a high price, since the supply may be practically unlimited. A small supply does not necessarily mean a high value, since the demand may, also, be small. But in the case of any article which is desired by men, and which can only be obtained through the exertions and sacrifices of economic agents, value is, at any time, fixed by the relation between supply and demand. Other things equal, if demand increases, or supply decreases, value will rise. On the other hand, if demand decreases or supply increases, value luill falL Inasmuch as the demand for any article and the supply of it are subject to frequent changes, sometimes great and sometimes small, sometimes one way, sometimes the other, it is not to be expected that its value will long remain the same. But this liability to change of value is very different in the case of different articles. Some move as rapidly and frequently as a weathervane; others have a certain degree of stability. But it is always to be borne in mind that, whenever any change of value takes place, it must be due to a change in demand, or in supply, or in the two unequally. We say unequally, since, if the change in demand were just equal to the change in supply, value would remain unaffected.

Chapter III. The Productiok Of Wealth

16. Production Defined, — The term, production of wealth, embraces all those acts and courses by which it comes about (1) that an article which before had no value acquires value, or (2) that an article which before had a certain value now bears a higher value. The production of wealth is not the creation of matter, but the creation of value.

The word, production, is derived from two Latin words which mean drawing forth or bringing forward. The term is very significant as applied to wealth. Much of the production of wealth which takes place, as we shall see, consists merely in drawing things out from where they have no value and in bringing them forward for human use.

17. Three Kinds of Value. — A German economist (Prol Knies) has said that the production of wealth embraces the creation of three kinds of value, time-value, place-value, and form-value. The distinction is not one which we shall need to carry through our study of political economy; but it is interesting at this point, as affording good illustrations of what is meant by the creation of values.

18. Time-value. — Time-value is created in the case of ice, when it is produced, kept along, carried over, from the winter, when nobody wants it, and when it is, perhaps, an obstruction and a nuisance, into the summer, when many people want it, and want it very much. Keeping the ice over from winter to summer, producing, extending it, with all which that requires of labor or of care, is the creation of value: is, therefore, the production of wealth. Wine and many other articles of human use may acquire greatly increased value with age.

19. Place-value. — This species of value is created whenever an article is safely transported from a point where it has no value to a point where it has value, or from a point where it has a certain value to a point where it has a greater value. Most of the values created by commerce are of this kind. Many commodities have two or three times the value in the markets of New York or London which they have in the regions from which they were brought. Timber which is worth eight or ten dollars a thousand feet in Georgia or Canada, will bring, without change of form, twenty-five dollars in Boston.

The addition to the value of articles due to transportation varies very widely. It is, of course, greatest in the case of bulky articles, like lumber and coal, and of perishable articles, like summer fruits. Some articles will, as the saying is, '^bear transportation;" that is, their heightened value will repay the cost of transportation, for thousands of miles; other articles are not worth, in any market, as much as would be required to transport them a hundred miles, even by the easiest route. Of course, a great difference is made in the cost of transportation, according as the carriage is by water or by land ; * according as it is done by carts and wagons, or by trains of cars; or, again, if it be by carts or wagons, according as it is over smooth and level roads, or over rough and steep mountain paths. It is an old saying that ^' resistance is distance;" and it is true that two places separated by a thousand miles of navigable water may be