The principles of wealth and welfare; economics for high schools

Preface

No claim is made that this little book is exhaustive. It is only a simple and elementary discussion of the more important principles which are involved in the consumption, production, and distribution of wealth. And wealth is everywhere thought of as a means to an end — a means to human welfare in all of its manifold aspects.

The author desires to acknowledge his indebtedness to Professor E. K. Graham, of the University of North Carolina, for many valuable suggestions as to the statement of principles and facts. To his wife, who has revised the manuscript, he is under many obligations.

CHARLES LEE RAPER.

Vll

Contents

PAGE

INTRODUCTION i

Section I The Consumption Of Wealth — Welfare Chapter

I. Wants and their Satiation . . . .13 II. Demand, Value, Price 35

Section II The Production Of Wealth —welfare

A. Introduction I. Production: Its Nature and Agents . 'Si

B. Agents of Productio7t

II. Labor a Producing Agent .... 57

III. Land a Producing Agent 76

IV. Capital a Producing Agent .... 92 V. Business Management a Producing Agent . 104

C. Aspects or Groups of Production VI. Agriculture and Mining — Producers of

Wealth 128

VII. Manufacture — A Producer of Wealth . 134 VIII. Transportation — A Producer of Wealth . 139 IX. Exchange : Commerce — A Producer of

Wealth 149

ix

X CONTENTS

CHAPTER PAGE

X. Exchange: Money a Standard of Value —

A Producer of Wealth . . . .161 XI. Exchange: Money a Medium of Exchange —

A Producer of Wealth . . . .173 XII. The State — A Producer of Wealth . . 188

Section III Consumption And Production; Mar- Ket Price — Welfare

I. Demand and Supply; Market Value and

Section IV The Production And Distribution Of Wealth — Welfare

I. Distribution: Its Nature and Standard II. Distribution of Wealth and Wages HI. Distribution of Wealth and Wages; Trades

Unions and Factory Acts IV. Distribution of Wealth and Rent V. Distribution of Wealth and Interest . VI. Distribution of Wealth : Pay of Business Management and Profits (a) Management and its Pay (d) Management and Profits

(c) Monopoly Management ; its Pay and Profits 301

(d) Legislation and Monopoly Management VII. Distribution of Wealth: the State

227 237

250 275 286

293 293

309 319

Appendix

Course of Readings 329

INDEX 331

THE PRINCIPLES OF WEALTH AND WELFARE

Introduction

The Making of a Living a Great Force in Life ; Economics. — Religion and the making of a living, to use popular expressions to describe great and complex forces, enter into the life of every human being, in some form or other and to some degree or other. They are all-pervading forces. They are always at work, quiet and unobserved, or violent and manifest to all. And these two sets of forces, though in many respects seemingly opposites, can never be entirely separated. They are working together in the life of every human being, and at every moment of his life. Whether or not the economic set of these mighty forces is greater and more important than the religious, it is certainly great and fundamental in human life. It is at the basis of all human effort ; it surrounds every human being from his cradle to his grave.

Economics : a Social Science of Business Motives and Activities. — A study of the forces involved in the making of a living — in the consumption and production of wealth, — a study of these universal and all-important forces we call economics. As in wealth consuming, and especially in wealth producing, no man lives entirely or even largely to himself, so economics does not deal with individuals as individuals solely, but with individuals as parts of a larger body called society. It is a systematic study of the business activities of society. Neither does economics deal with the wonderful forces of nature in themselves, but only with these great forces as they are by human effort transformed into various articles for man's consumption, or as these great forces aid as motive powers in the production of the manifold forms of wealth. A study of business activities does not include the physical sciences ; it does not include the great sciences of physics, chemistry, and biology. Nor does this study include all the social sciences. It does not deal with the political and social forces of life in themselves. These forces are in themselves distinct from those of the business world. Economics deals with those social forces whose standard of measurement is money, while government, law, and sociology are the sciences of those social forces, the yardstick of whose measurement is, or at least should be, something very different from money. We have said that religion and the making of a living can never be entirely separated. Likewise the economic can never be divorced from the political, social, and intellectual aspects of life. All other as-

INTRODUCTION 3

pects of human life have a basis in the economic, and this is in turn fundamentally and vitally influenced by the others.

Economics deals with the Production and Consumption of Wealth. — The economic or business world has within itself something of activity on the part of the individual, — an exercise which brings pleasure to his body and mind. It has also something of effort, which brings discomfort and even pain to the individual. This business realm is ever moving and throbbing, is like the sea with its incessant floods and ebbs, and is full of joys and pains commingled in different proportions. This realm is ever consuming wealth in its manifold forms and qualities, and is ever producing these forms and qualities. In its consumption it uses material forces and forms, which in popular speech we call goods, to satisfy or help to satisfy human desires and wants. These goods which are the results of human activity and effort — the products of wealth producing — do not, cannot, satisfy all the desires and wants of man. They can satiate the lower or more material wants, and are an important means in satisfying the higher wants. They do not satiate the purely religious, moral, and intellectual desires, but they are the greatest means toward the satiation of these desires.

Wealth, what is it? A Means to Man's Welfare.

— These goods, which we call wealth, consist of material goods — lands, houses, tools, machines, live stock, raw material, finished goods, bonds, stocks, money, etc., — and also of certain immaterial goods. A man's business or professional reputation and connections, and the organization of his business activities, are certainly not material goods in the strictest sense, but they are nevertheless thought of as a part of his wealth. This wealth in none of its forms should be considered as the end of activity and effort, but only as a means to an end — the satiation of human wants. To consider wealth as an end in itself is to hold up a low standard of religion, to worship a temporary and material form and force, and is to place man beneath material and even sordid things. Welfare in all its manifold aspects should be the end of all economic effort, as well as the end of all economic satisfactions and joys.^

^ The economic realm is composed of man and wealth, and the relations of these may be illustrated by the accompanying diagram.

Let the square represent the economic realm. Man and wealth, the two objects within this realm, while distinct from each other, are in very close and vital relations. Man in-

INTRODUCTION 5

Economic Motives and Acts, of the Individual and Society, to produce Wealth and satiate Wants. — In this economic realm every individual by virtue of his very nature and surroundings has desires and wants, both of his body and mind. And these wants can be satiated, more or less, by wealth. It is wealth that has the power to satiate these wants or to contribute to their satiation. It is wealth that is the greatest instrument in the hands of man, that is a universal and powerful means which enables him to supply his wants, whether they be the most simple or the most complex. Not only does every individual have desires the satiation of which is more or less dependent upon wealth, but he also puts forth, in some degree, activity and effort in order that this powerful instrument may become his own possession and may be for his own use and pleasure.

Man, his wants, and the process of their satiation, are the center of all economic forces and of all economic thought. His wants may be few and most simple in their nature, or they

eludes common labor and managing labor; and this labor is immaterial^ subjective (belonging to the very being of man), exchangeable (in connection with man), and useful. Though not included in wealth, this labor is a great agent in its production. Wealth, on the other hand, consists of those goods which can satisfy man's wants and which are the result of man's efforts; and these goods are 7naterial {\2xgQ\y so) , objective (external to man), exchangeable, and useful.

may be many and most complex. They may be those of the strong adult, of the infirm, of the child, or of society in its various organizations. To satisfy all of these desires and wants, manifold as they are in both form and intensity, means the putting forth of great activity and effort, not only on the part of the individual, but also on the part of society. The individual must produce wealth with which to satisfy his own wants and also the wants of those who by virtue of age or weakness must needs depend upon him. He must produce wealth for the use and pleasure of his family, his church, his clubs, and his educational, governmental, and charitable institutions. In this production of wealth, moreover, the individual cannot, at least should not, transgress upon the rights and privileges of other individuals. Every economic motive and act on the part of the individual should take into consideration the rights of a larger body called society, in which every individual lives and puts forth his efforts; welfare to society, as well as to the individual, should be the ultimate aim of every economic act and should be included in every economic motive. And it is the first duty of the state to create and maintain conditions which are highly favorable to all producers and consumers of wealth.

INTRODUCTION y

Economic Institutions and Conditions largely the Results of the Past. — Ideas and processes which are entirely new seldom come into any aspect of life, and when they come they are more or less modifications of older ones. The seemingly new things, which come into modern life with such frequency and at times with such great popular sensations, are in reality new only in their outward appearances, or at most are new only in a few of their parts. Of the great human institutions of to-day few indeed are of very recent origin, while many of them reach back for their foundation into times long since passed.

Modern democracy, of which we hear so much, and to which so many of us offer our devotions, is old in thought and even in practice. Many of our religious ideas and processes have come down to us from the far-away Hebrews, while many of our intellectual forms and processes were worked out by the ancient Greeks. Beyond a doubt this is more or less a fact of the economic aspects of modern life. Many of our present institutions in the realm of business activity go back for their basis to the seventeenth and eighteenth centuries, and not a few of them to a period much earlier. In fact, most of the economic forces of to-day are as old as mankind ; they are not only universal but also everlasting. The agriculturist tills the soil. By means of his own labor and certain forces of nature he works upon other forces of nature in order that he may produce wealth with which to satisfy his wants ; and this process is as old as civilized man. The idea has not changed, though the methods and implements of tillage have changed, and in recent times with wonderful rapidity and results. The idea of transforming some of the most elementary forms of wealth, as for instance raw wool, into the highest and most delicate forms — into the most beautiful fabrics of clothing — is old, though the methods of such transformation have seen marvelous changes, especially within the last century. In our enthusiasm for ideas and things which are modern we allow ourselves to believe that the elements, as well as the external forms, of our present system of transportation are new, though in reality they are as old as history. The idea of transporting goods from one place to another, by water or overland, by some method or other, is, to say the least, very old. The merchant, acting as a middleman in the exchange of economic products, was as well known to the ancient Jews as was their famous temple dedicated to Jehovah. The Policy of the State toward the IndividuaPs Economic Acts ; in Part Ancient. — Many of the

INTRODUCTION g

fundamental ideas of our government, religion, intellectual processes, and economic efforts are indeed old in their origin. And the policy of society toward the individual producer of wealth is also in its essential features of very ancient origin. The state, which more or less represents the larger body of individuals called society, has always taken some part in the production of wealth and welfare. At one time it has allowed the individual great freedom in his business activities ; at another time it has not only regulated the individual's activities, but has also carried on in itself certain economic enterprises. Of individual economic freedom the man of the present possesses much more than did the producer of wealth in the ancient or mediaeval period. The chief characteristic of the modern individual as compared with the wealth producer of old Rome or mediaeval England is perhaps his freedom, the amount of liberty which the state permits him to enjoy in his economic life. This he prizes as his choicest treasure.

This remarkable feature of modern life did not, however, come into being suddenly, or even within a short time ; it is the result of many forces working together through a long period. American industrial or business life, of which we are a part and of which we think so highly, is by no means a creation solely of the

American people ; much of it came to us from our motherland, England, and from the continent of Europe. Our present wonderful economic life is no new creation ; it is the result of a long line of marvelous development. It is the result of many ideas and forces which have worked together through centuries and centuries in England and Europe, and which have been profoundly influenced by the wonderful natural forces and environment of our own location, as well as by the unprecedented freedom which the individual has enjoyed in government, religious dogmas, and economic effort.

The Permanent Economic Forces and Principles and the Changing Forms in which they Work. — We must now bring our introductory words to a close and consider in detail the forces and principles of the consumption of wealth, and of its production and distribution. We now come to examine the body, blood, and brain of the economic life of to-day. In our examination we shall discover ideas and forces which, though pulsating with great vigor, are nevertheless as old as mankind. We shall also discover that these forces and principles are now embodied in new and strange forms, and that they are at work upon a scale never dreamed of one hundred years ago. To the permanent and vital parts ^ the blood and brain of economic life, let us

INTRODUCTION 1 1

give our most devoted attention. The forms of their embodiment^ and the degree to which they work in different places and at different times, are largely temporary and shall take a second place in our considerations and devotions.

(i) How great a factor in your life is the making of a living ?

(2) What is economics? Wherein is it different from law?

(3) What is wealth? How should it always be looked upon?

(4) What is the aim of all economic motives and acts ?

(5) Are the principles of business life always the same under all conditions ?

Chapter I

Nature acts upon Man ; Wants. — The wonderful being, man, his wants, and the process of their satiation are, as we have said, the center of all economic reasoning and action. They are at the basis of all wealth consuming and producing; they are the fundamental ideas in human welfare. Man, though in some instances a marvelously refined and spiritualized being, is himself largely made up of material forces, and he is throughout his life surrounded by nature and her forces. These forces are ever, as long as he lives, acting upon him. They cause him to be like a furnace the fires of which must from day to day be fed. They create in him feelings and desires for something which has the power to satiate his cravings ; the power to supply to nature the fuel for which she is ever calling. These desires of man create in him wants, and these wants are of all grades and degrees. They range from the smallest and simplest to the highest and most complex, and from the most material to the most intellectual and spiritual. His wants continually and loudly call for something, in some form or other, that can relieve the demands which nature incessantly makes upon him, and that can bring to his wants at least partial satiation. As man's desires and wants are largely created by natural forces, so his demands are supplied largely by material forces, by that which in popular language we call forms of wealth.

Society acts upon Man ; Wants. — Nature is, however, not the only force which surrounds the individual and which creates within him wants and demands for wealth. The individual, as we have said, lives with other individuals— in a large and complicated body called society — and is surrounded throughout his life by the forces of this society. These forces, as well as those of nature, not only surround him but also make deep and lasting impressions upon him. They give shape and intensity to his desires and wants ; they, in fact, have very much to do in creating his wants. Ask the man or woman who lives in the great cities, in which society brings individuals into close and vital contact, in which the social forces are most strongly felt, why they have certain wants for food and clothing, and they will invariably tell you that fashion or style, which is entirely a social force, in a large measure creates their wants. Human wants are, therefore, the results of the powerful forces of nature and society, and this is true of all classes of men. In the lower ranks of society, for the mass of men in fact, the forces of nature are the more important in creating and giving shape to wants, while for the higher classes the forces of society are the all-powerful ones.

Along with nature and society, there is another set of forces which has much influence upon the desires and wants of man, both in the individual and in the collective body. The tendencies which are handed down from father to son, the physical and mental inheritances of the individual and the community, have much to do in creating economic wants, certainly in creating particular forms and degrees of these wants. Economic man is always surrounded by many inherited and traditional forces, as well as by natural and social environment. The forms of foods and houses, for instance, which the individual calls for may, in many cases, be traced to the wants and demands of his ancestors.

Classes of Wants. — As we have said, the wants of man are of all grades and degrees of intensity. This fact, however, does not prevent

US from making a general classification of them, and in our discussions we shall treat of them under the following heads : living wants, developmental wants, and governmental wants, [a) Living Wants, by Nature and Society, — The first and most important of these classes of wants in all ranks of society is that for living, — for food, clothing, and shelter. These wants are universal ; they are in some variety and intensity in the lowest type of the American negro, as well as in the highest and greatest Anglo-Saxon. In one man the desire for food is merely for subsistence. He cares nothing for a variety of food, or for dainty forms of it. Let us consider an illustration. Many a negro in the Southern states has his desire for food satiated when he has eaten, in great quantities at times, of hog meat and corn bread, both cooked in the simplest way. In another individual the want for food, while perhaps not so intense, is satiated only by a great variety of meats and breads, prepared in many different ways. The wants for food, therefore, cover the widest imaginable range, and this is equally a characteristic of the wants for clothing and shelter. The simplest garment that can cover the body, and the smallest and poorest tent or hut that can afford protection from the rains, winds, and snows, satiate the desires of many a man for clothing and shelter. There are, however, many individuals whose desire for clothing can only be satiated by the most elaborate and artistically made dress, and whose wants for shelter demand the most extensive and magnificent palaces.

In any of these wants for living there is, as a rule, a certain element which nature creates and also one which society produces. The wants which nature creates are few and simple, yet at times most intense. The wants produced by social forces are more and more complex and varied. Many a man has desires not only for the necessary elements in his foods, clothing, and houses, but also for a large element in each of these purely for the sake of variety and distinction. When such a man becomes desirous of being distinguished among and even above his fellow-men, when he has desires to shine, so to speak, in the realm of society, then his wants become manifold and complex, and more and more difficult in their satiation. We can most easily understand the differences between the demands which are created by nature and those created by society by examining certain representative illustrations. The dining-table of New York City's highest social class must contain not only the elements of foods necessary for subsistence and health of body and mind.

but also those elements which social ideas declare to be necessary for variety, distinction, and social sensations. The table of the small Georgia farmer, on the other hand, is supplied only with the simple necessities of life. The English lord must have in his house not only the utility of shelter from the sun, winds, and storms, but also sleeping chambers in great number and variety, halls and parlors of many kinds, furniture and treasures of art of a unique and splendid type. But the simple tenant on the Carolina hills must have but a one-room cabin.

(b) Developmental Wants, of the Individual and Society. — We have seen that the living wants arise from the great pressure which nature brings upon man, and as a resultant of the social forces which ever surround him. We have assumed that all these wants create in man more or less of the necessity to put forth activity and effort. When, however, man begins to struggle with nature and her mighty forces, in order that he may produce something with which to satiate his wants, he recognizes that his own labor possesses little power as compared with that of mighty nature, and that his own simple muscular strength and energy can accomplish exceedingly slight results. This experience, though it at times brings him much discomfort and even pain, creates in man a new desire and causes him to put forth greater effort ; it produces in him a new want — the want of his own development.

This want on the part of the individual to be more skilled, and to possess more control over nature and her forces, while not so fundamental and universal as the want for living — for existence — is nevertheless at times very strong and important. These developmental wants, like those for living, are manifold and of many degrees of intensity. In fact, the wants for development and those for living in many cases go hand in hand. In the want for food, clothing, and shelter, there is more or less of a want for a strong and healthy body and mind — a want for physical and mental development and culture.

(i) This economic being called man has wants for his own muscular strength and skill. (2) He also has wants for the development of his own intellectual powers ; has wants for teachers, books, scientific apparatus, works of art and music. (3) This economic being has desires for the development of the great society in which he lives and puts forth his efforts. He has wants for more efficient highways and streets, whereby he may the more easily come in contact with his neighbors ; he has wants for boards of health, sewers, and scavengers, that the disease germs which threaten his hfe may be ehminated; he has wants for fire departments, with which to protect himself and his property ; he has wants for schools, in which he may learn to become a better citizen, as well as a more efficient producer of wealth ; he has wants for hospitals and asylums, in which his fellow-men who are diseased, infirm, poverty-stricken, and mad, may be provided for. Economic man also has wants for deeper and less obstructed rivers and harbors ; he has wants for canals, with which to connect the great natural bodies of water and make them into continuous waterways for the purpose of transportation; he has wants for lighthouses and life-saving stations as an aid to the sailor ; he has wants for postal and railway systems, for the transportation of intelligence, persons, and goods. (4) Economic man also has wants for the development of his spiritual faculties. He desires to know more of the Creator of himself and of his fellow-men. He desires to incorporate into his own heart more of love, faith, and charity, more of honesty and honor. He has wants for ministers, churches, and a great system of religious organizations.

(c) Governmental Protective Wa^its. — Wants of this class, as well as many of those just mentioned, arise from the fact that man is both an individual being and a part of a larger body called society. Robinson Crusoe in his complete loneliness is only an imaginary man. He exists nowhere in our whole economic realm. Economic man lives not by himself or unto himself, but in a community which is more or less densely populated. This community in its organization has many and varied forms, but in the United States it may be considered under the following groups : county, municipality, state, and nation. Whether of one type or another, this community is a living body and, therefore, has its desires and wants of various kinds and degrees. The special kinds and degrees of its wants depend, to an extent, upon the location of the community, — the environment given it by nature and by man, — and to an extent upon the economic conditions and wants of the individuals who constitute the community. Such a collective body we may call the state, whether it be a small or a large community. Many of the wants of this state are those for development, — of its own collective powers, — and these have already been considered. It yet remains to treat of those governmental wants which are more essentially of the nature of protection on the part of the state to the individual, (i) In the first case, there is the governmental want of regular and permanent bodies set apart for the administration of the general affairs of the people. Not only is there a want for regular legislative and executive bodies, (2) but there is also a want for a permanent system of courts and penal institutions, of jails and penitentiaries, in order that justice may be established and maintained in the actions of individual with individual, and of individuals with the collective body which we call the state. (3) There are likewise governmental wants for armies and navies, with which the peace and order of the community may be preserved, and with which the reputation and integrity of the state may be maintained.

Satiation of Wants : Consumption of Wealth. — All these wants, whether for living, development, or governmental protection, should be satiated. It is wealth, in some form or other, which has the great power to satiate these wants or help in their satiation. To the continuous and ever recurring series of wants should be adjusted a continuous series of supplies. If the simple and necessary wants for food, clothing, and shelter are not satiated, the individual weakens, becomes diseased, and dies. If the demands which nature makes upon him are not supplied from without, man's physical energy is soon consumed and exhausted. If the wants for development, both of the individual and of society, and for governmental protection, are not satiated, there is lack of progress, there is inefficiency, there is exhaustion and disease. But satiate all these wants, as far as subsistence and efficiency both demand, and there will be vigor, health, prosperity, progress, and welfare.