Principles of economics. The satisfaction of human wants ...

Preface

I have long been of the opinion that, in the study of economic science, we can safely start with no narrower subject than the Satisfaction of Human Wants. To avoid a seeming trespass upon the realm of the spiritual, it is necessary to add the limiting qualification, so far as this satisfaction depends on material resources, or the labor of human beings. The objection which naturally occurs to the reader is that this subject is too broad, and that it is necessary to take a single division of it; e. g., the science of wealth. But this is not a natural division, and, I am convinced, is too indefinite. For wealth, as defined by the writers who make it the subject of Political Economy, is simply that which has exchange value. Now, exchange value is not solid ground. It depends on four things : the quality of the object, the quantity available, the number of people who want it, and what they have to give for it. It is nothing but a relation between various elements. Water is wealth under some circumstances, and not under others. I believe that the only method which will give us certainty is one that goes back to the wants themselves, and to the resources for their satisfaction. Wants are real things ; the resources for their satisfaction are real.

2 PKEFACE.

Those in different countries and different ages can be compared. The relations between wants and resources, and between the resources themselves, can be studied under value both in use and in exchange- No subject is large in outline, which is all that is proposed in the present work. It is something to properly define a subject, and state its natural divisions. Instead of wealth, we consider the resources which the world, or better a single nation, has for the satisfaction of the wants of its people ; next the number of people and the wants to be satisfied. Who is toown or control the various classes of these resources, and what are the reasons for such ownership ? Then we take up the methods by which the resources can be most economically used ; then the principles of their exchange between various owners ; and, last, the distribution of such resources as are produced by modern methods, among the various interests which contribute to their production.

The subject does not, after all, seem so much broader than that which political economists attempt to cover under the head of wealth, and it has the advantage of resting on firm ground ; we are more likely to see things as they are, and to put them in their right relations. The first object of this work is to present the subject in proper outline. The titles of the various books and chapters are intended to be an analysis of the subject,.

The reader will perhaps be struck with the entire omission of all reference to the tariff question, and yet he will see that its treatment does not naturally

PREFACE. 6

belong to the subject. It is, of course, one of the many applications of the principles of exchange. But the applications of the principles of exchange, and of those of the other natural divisions of this treatise, are world-wide. I have been the more willing to omit such discussion in order to emphasize the fact that Political Economy is not the science of free trade or protection, as nine out of ten people suppose. Most persons who feel obliged to make some remark to a student of Political Economy will at once ask, "Are you in favor of free trade or protection ? " evidently supposing that there are but two kinds of political economists. I should not have hesitated, however, to discuss the tariff question had the plan of this treatise demanded it.

It is not in every respect pleasant to be classed with a "school," because one 'may not wish to be held responsible for all the views of those with whom he may agree in the main. Many persons suppose that if they know to which of three or four schools a writer belongs, they know all he has to say. I believe, however, that most of the fundamental truths of economic science are to be found in what has been called " the orthodox English school," which includes so many eminent authors in England and the United States. I have sought to make an original investigation on what I believe to be the only true line of study ; but truths once discovered, whether by English or German writers, must be used by all who come after them.

Attention is called to the outline of the subject as given in the titles of the various books and chapters ;

4 PREFACE.

to the Introduction, the first four chapters of Book I., the first and last chapters of Book II., and the first chapter of Book III. In Book IV. the reader will notice the emphasis put upon the continued employment of labor, and the cost of labor to the laborer. The old and correct view of the distribution of the product between the three elements, " land, capital and labor," is recognized in Book VI., but the larger portion of the space is devoted to the further distribution of the great share of economic labor among the classes of laborers whose interests are naturally opposed, each to all the others. The reader will please notice the share of " good name," a very large share usually overlooked, and the distinction between the laborer who works for himself, the laborer who works for wages in production, and the laborer who satisfies wants directly. The titles of the chapters under " Distribution " give the final shares.

Some portions of this volume were published in. 1890 and 1891.

G. P. O.

Cincinnati, July, 1893.

CCWTE^TS.

PAGE.

Introduction— "Wants, • 9

Contents

Chapter III. Population and Produced Wealth, . Chapter IV. Population and Society, . , . . Chapter V. The Law of the Increase of Popula-

PAGE.

96 103

Book V. Exchange

■Chapter I. How Exchange Satisfies Wants, . . 272

Chapter II. The Price of a Dollar, .... 275

Chapter III. Exchange Values, 280

Chapter IV. The Limits of Values in Exchange

are Fixed by Value in Use, . 285

Chapter V. Supply and Demand, 289

Chapter X. The Booty of the Robber, and the Winnings of the Gambler, . . 441

Chapter XL The Share of the Government, . . 445

INTRODUCTION.

Economy is the making the most of our resources. The man who gets as much out of an income of five thousand dollars a year as other men from an income of ten thousand, is an economist ; while he who lives on five hundred a year, and does not secure the comforts and advantages which other men obtain for three hundred, is a spendthrift. Economy consists in using our resources to the best advantage, in making what we have go as far as possible.

There are more opportunities for the exercise of economy in society or a nation than in the case of a single individual ; we have only to call to mind the difference between a civilized nation, such as the United States, and the state of barbarism in which the Indians dwelt, to see how much economy has done toward the promotion of material comfort. The difference is far greater than would at first appear ; because, under the uneconomical methods of savage life, the entire territory of the United States could support only a few hundred thousand people ; whereas, with such economies as are now employed, the same territory supports more than sixty millions. Even if the people, on the average, had no better living than the savages, the same territory maintains a hundred times as many people. Economical methods result in the supporting of a larger population, quite as often as in giving a better living to the individual members of society. If the resources for the satisfaction of human wants were unlimited ; if there were all the food and clothing and dwellings and furniture which the world could possibly use ; and if these could all be renewed without effort — then there might be no need of the science of Economics. The fact that the world's resources are limited — that land is limited, that timber and minerals can not be had in a condition fit for use without great labor ; that man's power of labor is limited ; that there is not, at present, enough of material goods to give to every person in the world a comfortable living — makes it of the highest importance that we use the resources we have to the best advantage.

Economy is the making the most of the resources of an individual, a community, or a nation.

WANTS.

The heaven of the Esquimau is said to be a happy island in a warmer climate, with great kettles of walrus meat, always boiling, beside which a good Esquimau may sit and eat, forever and forever. This is the Esquimau idea of happiness ; this is the sum of an Esquimau's wants. The wants of a highly civilized man are a thousand times as great.

There are some needs and desires which belong to man, as man, and which he has in common with the brutes. Air and food and water are necessary to life. There are other wants, such as the desire for personal adornment, which are universal, and as old as the history of the race. Still other wants, such as those which distinguish the civilized man from the savage, have been developed by circumstances, or created by various influences.

The Creation, Development and Suppression OP Wants. — The rudiments of most wants exist in the nature of man ; but they are modified and developed and new wants are created, by the circumstances in which individuals and nations are placed. The following influences have been at work in the development of the wants of civilized nations as we find them to-day :

1. Physical surroundings. — Climate and the difficulty of obtaining food, the need of shelter, danger from wild beasts and savage men, nearness to the sea, the variety of efforts necessary to secure a livelihood — all these, and many other circumstances, have had much to do with the development of men and nations.

2. Education, as it is given by man and nature. — The influence and teaching of the schools, the pulpit and the press, the home education of early life, and the influence of natural surroundings, go to form one's wants. Religious and moral teaching have had an enormous influence in moulding the wants of mankind. Mohammedanism and Christianity have produced different types of nations. The difference between Protestant and Catholic countries must be explained, in part, by the influence of different forms of religion.

3. The customs and opinions of society. — By society we mean the people with whom one lives and associates ; it may be the other members of an Indian tribe. Men like to do as others do ; they are influenced very greatly by what others think of them. Particular methods of living, which may have become established by accident, are adopted by children born into the tribe or society, or who come into it from another locality. Most boys who learn to chew tobacco, do so for no other reason than that it is the fashion of the boys or men with whom they associate. People follow many of the customs of society, simply because they are customs.

4. Habit. — A habit is the result of continuing or repeating any act for a sufficient length of time, and it frequently creates a real want. It matters not how the habit is begun, whether by accident, a desire to conform to the customs of society, or through the influence of education. When the habit, good or bad, is once formed, the wants of the man are, so far, changed.

5. Satisfying wants or leaving them unsatisfied. — The mere fact of satisfying wants or of leaving them unsatisfied is one of the principal causes of their development, change in character, or complete suppression. Many wants, if regularly satisfied, tend to increase in strength. There are also many which if left unsatis fied will diminish in intensity ; and some will die out entirely. The desire for works of art is strengthened by the study of art. The desire for knowledge is increased by its acquisition. If a person of very simple habits and tastes is suddenly furnished with the means of gratifying them, he will be surprised to see how fast his wants will grow. The direction of their growth may be determined by accident, but it is sure to influence his life for good or evil. On the other hand, if one has not the means of satisfying many of the wants the gratification of which is not necessary to life, he turns toward something else, and in a measure loses his old desires.

Very close to this is the fact that the mere turning of attention to a particular want, and keeping the means of its satisfaction before one, will usually increase its intensity. Merchants and manufacturers know that they must create a demand for some lines of goods before they can be sold. The vender of peanuts locates his stand on the street corner, where the odor of roasting will reach passers-by. The display of goods in shop windows, and most of the various kinds of advertising, are not so much to inform people where they can procure certain commodities, as to create a demand for them. Trade and manufacturers have as much to do with creating wants as with satisfying them ; and many wants which manuf acturers and merchants have created, die out when these men no longer stimulate them. The saloon-keeper not only satisfies, but creates, wants by an attractive display of his beverages.

The withholding of the means for the satisfaction of wants, tends to keep them in abeyance ; but as soon as one is able easily to satisfy the more common wants, a. great crop of others will spring up. It is easier to create wants than to suppress them.

6. Inheritance. — A powerful factor in fixing the wants of a race is the law of inheritance. It has been said that to educate a man requires at least three generations. The character of the men of New England was determined, not so much by the rocks and the sea and the rugged cotmtry, as by the intellectual and moral character of their ancestors in old England. The gain or loss made in life is in a measure fixed, and transmitted from father to son. The nature of the wants of one generation is the most powerful factor in determining the wants of the next.

The historical study of the development of wants is an interesting subject by itself, but is not necessary to an understanding of the means of their satisfaction.

Still more important to the moralist, are the various influences now at work forming the wants of the coming generations. The well-being of the race may be advanced, to the extent of all that lies between the highest civilization and the lowest barbarism, by the development or the suppression of the various wants of its members. What one wants, determines, to a great extent, what he is, and will become. It is, indeed, one of the claims of Christianity that it possesses supernatural power to modify and actually revolutionize the wants of its adherents. This is the highest claim that any system can make. Wants seek their satisf action,, and often find or make a way to it through seeming impossibilities. What a man thinks he wants, is,.

therefore, of the highest importance ; not only to himself, but to those who live in society with him. No field of study can be more inviting to the practical philanthropist. The history of civilization is the history of the development, the creation, and the suppression of human wants.

Spiritual and Keligious Wants. — There are mental, spiritual and religious wants which can not be satisfied by material resources ; and, to that extent, they do not come under this enquiry. A happy state of mind may give one great comfort in life, even with very indifferent surroundings. It is one of the claims of Christianity, that its followers may receive spiritual help ; and that there are wants in the nature of man which only spiritual influences will satisfy. Our science has to do with satisfactions only to the extent that they depend on material resources. So far as a house of worship, an organ, or the labor of a minister, aids in the satisfaction of religious wants, our science takes account of them ; but in so far as they must be satisfied by divine power, supernatural or spiritual influences, or the condition of the soul itself, this science does not reach them. Surely, this division between the material and the spiritual is a natural one.

While we thus put theology and religion first, as the greatest things in the world, there is no question that the Social Sciences hold the second place. A science which helps us to use to better advantage the resources which God has given us, which feeds the hungry, and enables more people to live in cleanliness and decency, and improves the condition of men, 9 stands next to the spiritual element in religion. A true social science is, indeed, one of the fruits of the spiritual power of Christianity ; since it is mainly Christian men who are engaged in the practical work of philanthropy. In " each one for himself," the struggle results in a terrible waste. The remedy is not Socialism. It is the mastery of social problems by those who love their fellow-men, and are ready to sacrifice something for their welfare. The more general, economic knowledge becomes, the more likely we are to adopt methods of justice, and methods which give the best opportunity for the development of the individual. The great interest in the study of Economics is one of the results of Christianity. Let it be understood, however, that it is a science by itself, and that the line between it and the spiritual element of Christianity is distinct and broad.

All Wants Should Not Be Satisfied. — It is evidently neither for the interest of the individual nor of society that all wants be satisfied. But to discriminate between the wants which should and should mot be satisfied, is the duty of the moralist, rather than of the economist. The same economic principles apply, in the main, to all classes of wants, regardless of the moral element in their satisfaction. As a student of economics, one may seek for the general principles which cover the economical satisfaction of all wants ; as a moralist, the same person may be called on to decide what wants ought not to be satisfied. In treating of wants in detail, we should not go out of our way to show how the drunkard can be furnished

•with liquor at the least cost ; but the laws which govern the production of corn are the same, whether it is ground into meal or distilled into whisky. There will be differences of opinion concerning the propriety of satisfying numerous wants. General principles apply to all alike. When it comes to questions of detail, there are large classes of wants that do not call for special treatment. It is necessary, however, to emphasize the fact that there are wants which ought not to be satisfied.

It should be remembered, also, that the word ■want is not synonymous with wish or desire. Its meaning is more nearly that of need, or something lacking. The term wants is not, however, synonymous with needs ; it has a meaning of its own, including elements from both the others.

The fact that a given desire can be satisfied by economic laws does not make it right to satisfy it. It is not uncommon to hear one attempt to justify a wrong by showing that the act was in accordance with economic laws ; but this is no more a justification than for a murderer to say that he killed a man by using his knowledge of the poisonous nature of certain chemical compounds, or of the laws governing the explosion of dynamite. All knowledge is power, and all power is dangerous. But the world is better off for its knowledge of chemistry and electricity, as well as for its knowledge of Political Economy. There is no doubt that oppression exists, and that crimes are committed by the use of economic laws. They are no more frequent because of the knowledge, but the knowledge is sometimes used as an excuse for the crime. One may rob his neighbor, through the action of the laws of supply and demand ; but the showing how he did it, is no more a justification than for a desperado to explain how he stabbed a man. This point needs emphasis, because of the fact that some works on Political Economy leave the impression upon the reader that any act is right, if it can be shown to be in accordance with the laws of supply and demand ; e. g., that it is right to buy as cheap and sell as dear as one can. Whether it is or not, depends on circumstances, and the question is one of morals rather than of economics.

Chapter V. Utility of the Resources, .... 49' Chapter VI. Value in Use, . 57 BOOK I

THE RESOURCES FOR THE SATIS- FACTION OF WANTS.

The resources which the world has for the satisfaction of wants are properly divided into four classes :

I. The Resources of Nature.

II. Labor.

III. The Productions of Human Industry.

IV. Society.

Chapter I. The Resources Of Nature

The earth as it was before man appeared, or as it has since been modified by natural causes, with the sun that shines upon it, and all the physical forces connected with it, are natural resources. Man had nothing to do with their creation. They are the gifts of Nature, or of God, to the human race. The earth was created for man, and intended to answer the needs of each generation, as its members are born and die.

Some of the older political economists comprised all the resources of nature under the term "Land," on the theory that land includes the water which covers it, the air above it, the minerals found beneath it, the animals that roam over it, and the forces connected with it. It is a question of names; but names are important, and the attempt to use common words out of their ordinary signification has been productive of great mischief.

1. Land, in its common acceptation, is the most important of the natural resources. It is the surface of the earth, whether covered by water or not.

The first utility which land possesses for man is that of a place of residence ; a place to stand or lie down upon ; a place to build his wigwam or his palace ; a door-yard or a lawn for his children's playground or his own enjoyment ; a place to give him access to the sunlight and the air ; ground to separate him from his neighbors, for, much as he desires society, he likes a little space at times between himself and others. He wants a little ground, a portion of the earth's surface, which he can control, and he never realizes its value until he is deprived of it in a crowded city. This use is wholly apart from anything which the land may produce. The occupant may use it for two purposes, to make a garden or grow fruit ; but he desires the land for outdoor space, even if he grows nothing but grass and shade trees.

A great deal of land is needed for strictly resident purposes. Even on the American farm a certain portion is usually set aside for the house lot and grounds, and the whole farm is a range for the farmer's children. It fills to a partial extent the wealthy Englishman's desire for a private park. The farm is not, alone, a place for the production of crops ; it is a broad residence property, which in a city or crowded •country can be enjoyed only by one with large wealth. The second use of land is for commerce and manufactures. Factories occupy more land than is often supposed, and some establishments require many times •as much outdoor yard room as is covered by buildings. It is not the amount of land, but the location, that niakes the site important ; and the location is of still more consequence in commerce. The point where land and water commerce meet is vital, and the land available for commerce at favorable points is very limited. Ocean navigation must terminate in a harbor where ships can lie hi safety, with a depth of water where railroads and ships can transfer their freight. There must also be room for the breaking up of cargoes and the interchange of goods among different lines of "transportation, to reach different countries, and different parts of the same country ; in short, room for a commercial city. Land in such localities is not abundant. He who controls it can levy an enormous toll for its use. So, in interior transportation. At Chi- •cago, railroads meet the lake, and a large tract of land is required for commercial purposes. Roads, i. e., facilities for communication and transportation, require land, and a great deal of it. The acreage of the wagon roads in the United States is large. Railroads usually have a hundred feet in width, twelve acres to the mile, and to the land thus used must be added large acreage for yard room in cities, and still more land rendered useless by railroad traffic.

The uses of land for residence, manufactures and commerce were to a great extent overlooked in the past. Kicardo wrought out his principles of " diminishing returns" and the whole theory of "rent" from agricultural land. In a new country, such as the United States was a few years ago, agriculture is the mam purpose for which land is needed. The proportion of labor required for the production of raw materials a hundred years ago was many times greater than now. In the early discussion of land, therefore, almost all illustrations were drawn from agricultural land, and almost all reasoning based upon it. While land used for residence, manufactures and commerce is still small in area when compared with that used for agriculture, it is large in the aggregate. The most troublesome questions center about it. Principles which appear abstract in connection with land in the country, become very practical when applied to land in cities.

Land for agriculture, as for all other purposes, should be considered as mere extension. The bottom lands of rivers have a wealth of vegetable mould which is a mine to draw upon, and the barren sand or the disintegrating limestone can be made productive by the efforts of man; but without the acreage, no man can make a farm. The natural fertility of the soil, accunmlated through ages, should be classed with mines, which can be exhausted in the using. The land is measured by acres, not by fertility. Land is merely the extension of the earth's surface.

2. Water may be placed next to land in enumerating the Natural Resources. It covers three-fourths of the earth's surface ; it separates continents with advantage to nations; it is a highway for commerce. And this highway is not a canal which is only a line between two points ; it is a body of water which affords each country an opportunity for commerce with all the others. No railway system can be so perfect as an ocean over which ships can sail anywhere. By it the cost of carriage is reduced below that of any other possible means. Lakes and rivers, with the opportunity for canals, form a system of interior water transportation of scarcely less importance.

The influence of the oceans and great lakes on climate must not be forgotten. They insure an abundant rainfall, and make the general cultivation of the soil possible. Indeed, the water which covers so much of the earth may be said to make the rest habitable, and to afford to continents and nations that isolation which in the past has been necessary to the highest civilization.

These large bodies of water also satisfy wants, directly, by affording countless desirable residence sites. The cottage by the sea or lake, in summer, has become popular because of the water and the air. A city on the ocean harbor or the lake has an advantage over one in the interior. The United States would lose immensely were the great lakes to be filled by some convulsion of nature. There are many persons who would like to see them drained, if they could get possession of the land at the bottom ; but the loss to

RESOURCES FOR SATISFACTION OF WANTS.

"the whole country would be a thousand times the gain of the few.

The use of water-power is also of great advantage. It is true that the real power here is the force of gravitation, and the sun-force which lifts the water from the ocean to fall in rain on high levels, so that the force of gravitation can act on it in its descent to the sea ; but the water is a convenient means of using this force, and the water-power of the world enables us to satisfy wants with far less labor. It will, also, endure after the coal has been burned up.

For cleansing purposes no substitute could be found. The earth is washed by the rain, and the use of the hose from water-works is one of the methods of making great cities habitable. For domestic uses the amount of water required is small, but its value is very high. When the quantity is greatly reduced, its value becomes that of life itself. For drinking purposes, it is simply one of the resources of nature, absolutely essential, without which everything else would be worthless. The difficulty of supplying a ■dense population with pure water, or even with water fit for drinking, is very great.