First steps of political economy

Front matter

DAVIS, BARDEEN & CO.,

White Memorial Building, Vanderbilt Square, SYRACUSE, N. y.

TEA

Contents

CHAPTER. PAGE.

I.— Items of Wealth.— Origin of Wealth.— Original

Measure of Value 7

Chapter I

ITEMS OF WEALTH. ORIGIN OF WEALTH. THE

ORiaiNAL MEASURE OF VALUE.

The desire of possession is one of our earliest desires. The child desires to have something for its own. This desire becomes in man the desire of property — of wealth.

Items of wealth. — The items of wealth are very nmnerous. Land, houses, furniture, clothing, carriages, watches, money, fruit, cattle — these and a great many other things constitute the wealth or riches of a country.

Two things common. — Two things are common to all these articles : 1. They are adapted to gratify some desire ; 2. They can be appropriated — that is, can be owned by some person or persons. All articles adapted to gratify desire and capable of appropriation come under the head of wealth.

Air and sunlight. — Some objects of desire do not come under the head of wealth. Air is very desirable. All want it, and cannot live without it ; but it is not an item of wealth. It cannot be appropriated — cannot become private property. This is owing to its abundance.

Water. — The remarks which apply to air and sunlight apply, for the most part, to water.

i Sometimes, however, water becomes in certain places so scarce that it can be appropriated. Then it becomes an item of wealth, and is bought and sold.

Origin of wealth. — A house is an item of wealth ; where did it come from ?

The trees grew in the forest. The laborer cut down the trees and took them to the saw-mill. The sawyer sawed them into timber and boards. The carpenter fashioned the timber and boards into a house. The house is the result of labor employed on materials furnished by nature.

An axe. — An axe is an item of wealth. The miner dug the ore from the earth, and made it into iron and steel ; the blacksmith hammered it into shape and tempered it. The axe is the result of labor employed on materials furnished by nature.

A salmon-trout. — You purchase a salmon-trout for a dollar. The fisherman caught it in the lake. When caught, it was his property — an item of wealth. It was the result of labor employed on materials furnished by nature.

What is true of these items is true of all items of wealth. Wealth is the result of labor employed on materials furnished by nature.

J^irst measure of value. — All items of wealth have value. What is the original measure of value ?

Suppose two men are without food in the wilderness. They go in search of food. One catches four quail, and the other four trout. If they exchange, a quail will be given for a trout.

ITEMS OF WEALTH. 9

The quail cost the one about as much labor as the trout cost the other. There is something like an equal exchange of labor. Labor is thus the first measure of value.

Questions.

1. "What is said of the desire of possession ?

2. What are some of the items of wealth mentioned ?

3. Name some items which are not mentioned.

4. What two things aria common to them all ?

5. What is said of air and sunlight ?

6. What is said of water ?

7. What is said about the origin of a house ?

8. What is said of the axe ?

9. What is said of the salmon-trout ? 10. Of what is all wealth the result ?

It. What is the first or original measure of value ? 13. Illustrate that truth.

Chapter II

EXCHANGEABLE VALUE. FLUCTUATION'.

All items of wealth have excliangeable value. On what does the exchangeable value of an article depend ?

A coat. — Take, for example, a coat. Suppose the cloth costs ten dollars, and the labor of making it five dollars. The cost of the coat will be fifteen dollars. The tailor cannot afford to sell it under cost. The market or exchangeable value of the coat will not be less than fifteen dollars.

Cost of production. — From this example we see that the cost of production is the cost of the material of which the article is made, and the cost of the labor employed in making it. As no one can afford to produce articles and sell them under cost, the cost of production is an important element of value.

Suj^ply and dema.nd. — Suppose there are one hundred coats in the market, and one hundred persons who wish to buy coats and who have the money to pay for them. Coats will command a certain price — say fifteen dollars each.

Suppose there are one hundred coats in market, and two hundred persons who wish to buy coats. Coats will now command a higher price. As there are not coats enough for all, there will be

EXCHANGEABLE VALUE. 11

competition among tlie buyers. The price of coats will rise.

Suppose there are one hundred coats in market, and fifty persons who wish to buy coats. There will now be a competition among sellers. The price of coats will fall.

Conclusion. — The exchangeable value of an article depends upon the cost of production, and the supply compared with the demand.

Incorrect views. — Some persons think that the value of an article depends solely on the cost of production. Others think that the value of ah article depends solely upon the supply compared with the demand, or, as it is commonly expressed, upon supply and demand.

High jyrices. — When the demand for an article is great and the supply is limited, the price will rise. When an article commands a high price in the market, persons will engage in the production of that article. Suppose the cost of hats is four dollars, and the demand for hats is so great that the price rises to seven dollars. Hat-manufacturing will be regarded as profitable. Men will rush into the business. The supply of hats will be increased, and the price will begin to fall. It may be that so many hats Avill be manufactured that some manufacturers will be compelled to sell their hats at cost, or even below cost. The price of hats may, for a short time, be below cost.

Low j^rices. — The price of an article cannot remain below cost of production for any great length of time, because the production of the

12 POLITICAL ECOKOMT.

article will cease. No one will continue to manufacture liats and sell them at a loss. The supply of hats will be diminished. If the demand continues the same, the price of hats will gradually rise till they can be made and sold at a profit. Then the supply will be increased. Men will engage in manufacturing hats.

Fluctuation. — The prices of nearly all articles are subject to fluctuation, after the manner above described. They cannot remain for any great length of time very high — very much above cost ; and they cannot remain for any great length of time very low. Between those two extremes most articles are subject to more or less fluctuation.

Value and price. — The XqilVH^ value and price have been used in this chapter in the same sense. Strictly speaking, the price of an article is its exchangeable value reckoned in money.

Questions.

1. What is said of all items of wealth ?

2. What question is asked ?

3. What supposition is made respecting a coat ?

4. What will be the market value of tlie coat ?

5. What is meant by the cost of production ?

6. What is the first supposition under the head of Supiily and Demand f

7. What effect on price ?

8. What is the second supposition made ?

9. What effect on price ?

10. What is the third supposition made ?

EXCHANGEABLE VALUE. 13

11. What effect on price ?

12. "What conclusion is drawn respecting exchangeable value ?

13. What two erroneous views are noticed ?

14. What is the effect of high prices on production ?

15. To what will increased production lead ?

16. How low may prices fall ?

17. What is the effect of low prices on production ?

18. What is said of the continuance of very high and of very low prices ?

19. What remark respecting value and price ?

20. What is price?

Chapter III. Different Kinds Of Industry

All ivealth is the result of industry. The different kinds of industry have been classed under three heads :

1. Agricultural industry. — The farmer prepares the soil, and plants the seed, and takes care of the growing crop, and harvests it. The grain produced is the result of his labor. It is said to be the product of human industry. It is really the result of human industry combined with the productive powers of nature.

2. Manufacturing industry. — The manufacturer takes cotton from the agricultural laborer, and changes it into cloth. The tanner takes the skin of an animal, and changes it intole ather. The blacksmith takes iron and steel, and makes an axe. Cloth, leather, and axes illustrate manufacturing industry.

3. Commercicd industry. — A merchant buys silks in France and broadcloths in England, and sells them in New York. He purchases shoes in Massachusetts, and sells them in South Carolina. His business is to transfer commodities from places where they are less wanted to places where they are more wanted. He is thus instrumental in supplying the wants of men.

DIFFERENT KH^BS OF INDUSTRY. 17

asserted that where industry is free, the rate of profits in different departments is the same. Facts show that this is not the case.

Mining and fishing. — The miner increases the wealth of a country by extracting minerals from the earth, and the fisherman, by taking fish from the waters. Strictly speaking, mining and fishing do not come under any of the heads above mentioned. Those three departments embrace by far the greater portions of human industry. There are operations which cannot properly be said to belong to any one of them.

Questions.

1. Of what is all wealth the result ?

2. How many kinds of industry are mentioned ?

3. Explain what is meant by agricultural industry.

4. Explain manufacturing industry.

5. Explain commercial industry.

6. How does the farmer add to the wealth of a country ?

7. How does the manufacturer ?

8. How does the merchant ?

9. State the example showing how the merchant adds to the wealth of the country.

10. What is the most profitable industry for a country?

11. What countries should be devoted to agriculture?

12. What countries may engage in manufacturing ?

13. What besides natural facihties is required ?

14. What is said of the commerce of newly-settled countries ?

15. What is said of the rate of profit in different kinds of industry ?

16. What unwarranted assertion is noticed ?

17. What is said of mining and fishing ?

Chapter IV. Conditions Of Industry

As wealth is tlie result of industry, it is proper to inquire what are the circumstances most favorable to the exercise of industry.

A fundamental condition. — Security of property is a fundamental condition of the existence of continuous industry. No man will labor if he has not a good degree of certainty that he will enjoy the fruit of his labor. No one will sow if it is probable that others will appropriate the harvest. No one will spend his time and labor in producing that which he cannot claim and hold as his own. All stimulus to labor is taken away when there is no security of property. When a man is secure in the enjoyment of his rights, when he is allowed to do what he wills with his own, he has encouragement to labor.

Good govermnent. — Where there is no government, there is nothing to restrain men from seizing the property of their weaker neighbors. Where lawlessness prevails, there are indolence and poverty.

A bad government may unjustly appropriate the property of its subjects, tinder such a government, a man who is known to possess property may be arrested on a false charge, and his property may be confiscated. Hence there is no stimulus to industry and enterprise for the accumulation of wealth. Prosperity invites oppression. If a man has wealth, he conceals it lest it should be taken from him. Industry is discouraged, and capital lies useless.

Umvise legislation. — Property can be rendered insecure by unwise legislation. So far as industry is concerned, it makes no difference whether insecurity is caused by tyranny or by folly. Whatever produces insecurity discourages industry and enterprise. Without industry and enterprise there is no advancement in wealth.

The government may not rob its subjects, and yet may not furnish due protection to life and property.

It may fail to enact and enforce laws preventing fraud.

It may pass laws which may cause depreciation of property. By an uncertain and changing course in regard to certain departments of business, it may paralyze industry in regard to those departments.

For example. — Suppose the government enters on a course designed to encourage the manufacture of cotton. Suppose cotton cloth can be imported cheaper than it can be manufactured. No one will build a cotton factory. But let the government pass a law forbidding the importation of cotton cloth, or laying a heavy tariff on its importation, and men will engage in the manufacture of cotton. Capital will be invested in man-

C02?"DITI0KS OF INDUSTRY. 21

ufactures. Factories will be built, and laborers employed.

Now let the government repeal the laws in regard to foreign cottons, and the capital invested in domestic manufactures will be well-nigh valueless.

Suppose governments alter the coin of the country, and put one third less gold and silver into the coins. They bear the same denominations as before, and are a legal tender as before. The result will be great loss on the part of multitudes. Manufacturers and farmers have sold on credit ; and if they were paid what they expected when they sold their commodities, they would be prosperous. But they are paid only two thirds of their debts : all profit is lost, and more besides. The wisest men can form no plans that will be successful, if they are liable to be thwarted by the folly of the government.

Honest and wise legislators. — We see the importance to the prosperity of a country, of honest and wise legislators, judges, and executive officers. Governments cannot create wealth ; but they can furnish the necessary conditions for the production of wealth.

Freedom of industry. — There will be the most labor when men may engage in what kind of labor they please, provided they do not interfere with the rights of others. In former times, rulers undertook to direct the employments of men. It is now left to the laborer to choose his employment as his tastes or his interest may lead him.

22 POLITICAL ECOIfOMY.

Intelligence. — Intelligence promotes industry and renders it more efficient. An ignorant community do not know what can be obtained by industry, and hence will labor merely to supply their pressing wants. This is true of all savage tribes. When men know what desirable things can be gained by labor, their desires for those things will lead them to perform the requisite labor.

Questions.

1. What question is asked at the beginning of the chapter ?

2. What fundamental condition of industry is mentioned ?

3. Show why security of property is necessary.

4. Why is a good government necessary ?

5. What may a bad government do ?

G. What effect will this have on industry ?

7. What effects may follow unwise acts of government?

8. What may the government fail to do ?

9. What may it do with respect to fraud ?

10. What effects may follow a changing course on the part of the government ?

11. What illustration is given ?

12. What illustration is given relating to the coin ?

13. What kind of rulers are needed ?

14. Show the effect of freedom of industry.

15. Show the effect of intelligence.

Chapter V. How The Productiveness Of Industry May Be Increased

At the outset, a mari^s hands were the main instruments of labor. If he had no other instruments, he could accomplish very little. With his hands he fashions instruments which add greatly to the productiveness of his labor.

Tools and machines. — The gardener can turn up the soil with a spade better than with his hands. One can perform only the simplest kinds of labor with his mere hands.

As he increases in knowledge and property, he devises tools which add greatly to the productiveness of his labor.

Machines. — By degrees he improves his tools and makes more complex and efficient ones. They are then called machines. A scythe is called a tool. A more complicated instrument for mowing is called a machine.

By the use of tools and machines^ the efficiency of human industry is greatly increased, and its products are greatly multiplied.

By the use of machinery, there is done every day an amount of work which could not be done by hundreds of millions of manual laborers.

Use of animals. — Human industry is rendered more productive by the aid of animals. The horse, the ox, the reindeer, the dog, the elephant, and other animals, have been brought under the control of man, and have become assistant laborers. They greatly increase his industrial power. "With a horse and cultivator, the farmer can till ten acres of corn in less time than he can till one acre by hand. Animals are employed in various departments of industry.

Poioers of nature. — Man subdues animals and makes them do his bidding. He pursues a similar course in respect to the powers of nature.

Wind. — Wind is used to propel vessels on the water. Before the discoveries relating to steam, wind was the sole instrument of navigation. By human skill it was made to propel vessels in almost every direction except that directly opposite its course.

It was formerly used to propel machinery on land, but is now very generally superseded by steam.

Water. — The gravitating power of water is a great aid to human industry. It has furnished motive-power for thousands of factories of every description.

Of course it can be had only when it is found in nature. In places where it exists in abundance, villages and cities have grown up. Its great advantage is its cheapness. It is subject to some disadvantages. It does not always exist in convenient localities, is not in all cases constant ; but is affected by drought, and is liable to inundation. The runnin<r streams in manufac-

tiiring countries do the work of many millions of hands.

Steam. — Steam is the great assistant of human industry. It propels vessels on the rivers and the ocean, and the locomotive on the railway. It is used to give motion to machinery for performing the most delicate operation. It is subject to fixed and well-known laws, and is therefore under control. It is the great industrial agent of man.

Gunpowder, Nitro- glycerine, etc. — The explosive power of gunpowder is used in war, and has rendered war less sanfyuinary. As an aid to labor, it is used in blasting rocks, and removing obstacles which could not well be removed without its aid, or that of other explosive agents of equal power.

Electricity. — The electric fluid, though not yet used as a motive-power in machinery, is man's swiftest messenger. The machine which it operates stands at the head of all labor-saving machines.

Nature has furnished man with a great many efficient helpers.

Questions.

1. What are man's original instruments of labor ?

2. What does he soon furnish himself with ?

3. What effect on production ?

4. What is the difference between a tool and a machine ?

5. Mention a tool and a machine.

26 POLITICAL ECOKOMT.

6. How much is done by machinery every day ?

7. What animals are made to labor for man ?

8. What effects ?

9. What other power besides that of animals does man use ?

10. What is said about wind ?

11. What is said about water?

12. What is said about steam ?

13. What is said about gunpowder ?

14. What is said about electricity ?

15. What has nature given man ?

CHAPTER YI.

EFFECTS OF LABOR-SAVING MACHINES.

Suppose one hundred men are engaged in making brick. A machine is invented which can be worked by one man, and which will do the work of one hundred men. If the machine is used, ninety-nine brickmakers are thrown out of employment. This cannot be regarded as a benefit to them.

If it is said, ** Let them seek some other employment, ' ' it may be that they cannot find another employment.

Effect on price. — If one man, by means of a machine, can make in a day as many bricks as one hundred men, the cost of making brick is lessened. The price of brick will fall. Two dollars will buy as many brick now as four or five dollars would before the machine was used. This will be advantageous to all buyers of brick.

Machines for making cloth. — Formerly wool and cotton and flax were spun and woven by hand-power. Now it is done by machinery. The introduction of the machines threw many spinners and weavers out of employment. Cloth has become vastly cheaper. Cotton cloth, which once sold for forty or fifty cents a yard, can now be bought for ten cents or less. The introduc-

28 POLITICAL ECOKOMT.

tion of machinery has been advantageous to all buyers of cloth. It was a disadvantage to those thrown out of employment.

Su2')pose the same thing takes place in regard to hats, furniture, leather, and all manufactured articles. Machinery lessens the cost of their production. Goods become cheaper. In proportion as they become cheaper, the community is benefited.

It is indisputable that since the introduction of labor-saving machinery, all manufactured articles have become cheaper.

How this benefits the laborer. — The laborer receives for a day's labor more cloth, leather, nails, and other manufactured articles which he uses, than he received before machinery was used.

His wages reckoned in money may not be higher than they were before the invention of machinery, but a day's wages will purchase more. The cheapness of articles has in reality raised his wages. The introduction of machinery has raised the wages of every laborer in the land.

Money -loages and real wages. — Suppose a man's wages in money are one dollar a day, and that he can buy with that dollar five yards of cloth. Again, suppose a man's wages in money are fifty cents a day, and that with fifty cents he can buy six yards of cloth of the same quality. Suppose that other commodities can be purchased in like manner. When are the man's wages really the highest — when he receives one dollar, or when he receives fifty cents ? The value of monej wages

LABOR-SAYIKG MACHINES. 29

IS as tlieir purchasing power. The laborer works for bread and clothes and furniture. He takes his pay in money that he may purchase the things he wants. He is interested, not in the nominal value of his money, but in its purchasing power.

In time of our Revolution, a man was offered for an article nine dollars in silver, or one thousand dollars in " Continental money." He took the nine dollars, because he could buy more with them.

Machines increase the demand for labor. — It is thought by some that labor-saving machines lessen the demand for labor ; that the interest of the laborer requires that machinery should not be used. It can be shown that the use of machinery increases the demand for labor, and hence is beneficial to the laborer. In a very poor community there will be little or no demand for labor. Suppose a community of poor men. No one can hire a laborer ; for he has nothing to pay him.

Suppose a community in which there are some men of property — men who have ten thousand dollars each to invest in farming or in manufacturing. They will want a few laborers. There will be some demand for labor in that community.

Suppose a community in which there are a number of men with twenty thousand dollars each to invest in business. There will be an increased demand for labor.

In proportion as tlie wealth of a community is increased, the demand for labor is increased.

Machines increase the productiveness of industry — increase the wealth of a country ; hence they increase the demand for labor.

Immediate effect. — The immediate effect of the introduction of labor-saving machinery is to lessen the demand for labor — to throw laborers out of employment. That it is an evil cannot be denied.

The ultimate effect. — The ultimate effect of the introduction of machinery is to increase the demand for labor, and to increase the wages of labor. The ultimate effect more than counterbalances the immediate effect, though it will not prevent individual cases of hardship.

Test of experience. — Facts are in harmony with the statements made above. The demand for labor is found to be the greatest in those countries in which machinery is most used, and in the parts where machinery is most used.

Machinery is extensively used in Great Britain, and the number of laborers is very great. In the manufacturing districts w^here machinery is most used, more laborers are employed than elsewhere.

Questions.

1. What supposition is made in the first paragraph?

2. Is the effect of introducing the machine beneficial to the laborers ?

3. What is the effect of machinery on the cost of production ?

LABOE-SAYIKG MACHIKES. 31

4. What the effect of a machine for makmg cloth ?

5. What effect on the price of cloth ?

6. What effect on all things made by machinery ?

7. Show how this benefits the laborer.

8. By what is the value of wages to be estimated ?

9. Effect of machines on demand for labor ?

10. What is the first supposition made ?

11. The second supposition ?

12. The third supposition ?

13. What conclusion is stated ?

14. What is the immediate effect of the introduction of machinery ?

15. What is the ultimate effect ?

16. Show that facts correspond with the statement last made.

Chapter VII. Division Of Labor

The productiveness of industry can be increased by division of labor.

Labor is said to be divided, when one man gives his whole attention to performing one operation. When the work to be done comprises several operations, more will be accomplished when as many laborers are employed as there are distinct operations.

In making pins without the aid of machinery there are a number of distinct operations. There is drawing out the wire, straightening it, cutting it off at the right length, sharpening the point, preparing it for the head, making the head, putting it on, etc. When one man performs the successive operations and makes the whole pin, he can make about twenty pins in a day.

Let division of labor be applied, let as many men be employed as there are distinct operations, let each one perform one operation, and the number of pins made will be greatly increased. One man performing all the operations can make twenty pins in a day. Ten men thus employed can make about two hundred pins in a day. AVhen each performs only one operation, they can make more than forty-eight thousand in a day !

DIVISION OF LABOR. 33

Increase of skill. — When one devotes himself to a single operation, he acquires greater skill in performing it. This is the chief advantage of the division of labor.

There are some minor advantages. The laborer has to learn to perform but one operation. He loses no time in passing from one kind of work to another, and in adjusting his tools.

Leads to invention. — Division of labor has led to the invention of labor-saving machines. When one's attention is fixed on a single operation, he is the more likely to think on the easiest way of performing it. If it can be done by a machine, he is likely to invent a machine for doing it.

Adaptation of strength. — Some operations require more strength and skill than others. By division of labor, the operations which require strength can be given to the strong, and those which do not require so much strength can be given to the feeble. The work may thus be adapted to the capacity of the laborer.

Division of labor is less applicable to agricultural than to manufacturing labor. The farmer is compelled to perform more operations than the manufacturing laborer. The work of the former changes with the seasons, while that of the latter does not thus change.

Division of labor can be applied to commercial industry. One may be a wholesale dealer, another a retail dealer. One may deal in coffee, another in sugar, another in flour.

It is only in large cities that division of labor can be applied to commercial industry.

New settlements. — In a new settlement there cannot be much division of labor. The farmer tills his land, shoes his horses, builds his barn ; in short, performs almost every kind of labor.

We have seen that division of labor is a good thing. Why cannot it be introduced in the new settlement ?