Practical principles of economics, being a revision of Introduction to economics

Introduction To Economics

BY

HENRY ROGERS SEAGER

Professor of Political EcoDomy in Columbia University

NEW YORK

HENRY HOLT AND COMPANY r

,344

CopvRionT, 1913,

BY

HENRY HOLT AND COMPANY

* PREFACE

The present work is the fourth edition of my Introduction to Economics, which was first published in 1904. I have changed the title to Principles of Economics to prevent the confusion of this book with my Economics: Briefer Course, which appeared in 1909, and to conform to "the usage which has grown up of designating as Principles any treatise which covers the whole field of economics.

The purpose of the book is to introduce college classes to the study of the subject. This is, if I may repeat what was said in the preface to the first edition, " a task of no little difficulty. If lectures are depended upon exclusively, much time must be wasted in imparting information that could be acquired more quickly and more surely from the printed page. On the other hand, exclusive reliance on a text-book results in narrowness and dogmatism on the part of both teacher and student." The obvious escape from this dilemma is to combine the text-book and lecture methods, and it was to facilitate such a combination that the book was first written.

In revising it for this new edition I have done a good deal more than bring the information it contains up to date, important as this part of my task has been. I have rewritten several of the theoretical chapters and recast the explanations of the laws of value and distribution so as to anticipate difficulties and clear up possible misunderstandings. While continuing to describe the explanation of distribution presented as the " productivity theory," I have tried to make it perfectly clear that this phrase is intended merely to emphasize the intimate relation between distribution and production, which some economists have seemed to deny. An understanding of distribution requires constant attention to both sides of the value problem, the demand side and the supply side, and no theory, by whatever name it bet called, can be complete which wavers in this attention or gives' undue

Preface

M^.minence to one side to the neglect of the other. Tl-^ presentation of economic theory which results from this i ^■ision will be found, I believe, both simpler and more accurate than in the previous editions.

"With a view to harmonizing, so far as possible, tiie nomenclature of this book with that employed by other American economists, I have throughout substituted the phra.se, " waint gratification " for " want satisfaction " of the earlier editions, and " enterprisers " for " entrepreneurs." The first change is an undoubted improvement. I am not so confident as to the wisdom of the second, but have decided upon st on the ground that " enterpriser," notwithstanding that it is etymologically less elegant than ' ' entrepreneur, ' ' has the great advantage of seeming like an English word and, therefore, a better chance of making its way into everyday speech.

The changes in the second half of the book, dealing wi^b practical economic problems, have been even more extensiv The rearrangement and expansion of the material have > suited in four new chapters on the Reform of the Tax S^'stem of the United States, Profit Sharing and Labor Copartnership, Social Insurance and Socialism, in place of the single chapter on Plans of Economic Reform in the previmj-S edition. Not only in these new chapters but throughou I have tried to bring together the latest information in regard to new governmental policies in the economic field and their results.

The increased attention devoted to socialism reflects the increasing importance of that subject. No sincere, high-minded person can fail to be strongly attracted by the ideal which socialism presents. A reorganization of industrial society which promises to make the brotherhood of man something more than an empty phrase, which proposes to dispense with the wastes of competition and which undertakes so to exalt the functions of the state that the best capacity of the nation will be constantly in its service, merits not only the most careful but also the sympathetic consideration of economists. In the current literature in advocacy of socialism, the Marxian theories of value and interest still figure prominently, although tliey re no longer accepted by all socialists. It

PREFACE V

has seemed worth while, therefore, to restate with s -'("al care and clearness the conclusive objections to the labor ; ^ of value and its corollary, the exploitation explanat; tii of interest. In doing so I have tried to bring out clear v f.l- - distinction between the so-called " scientific socialism " of Marx, at which my criticisms are directed, and socialism as a program of social reform.

Though this edition is perhaps more largely my own work, the fruit of my own thought and teaching experience, than earlier editions, it still owes much of its form and content to suggestions derived from other writers. I desire particularly to record my indebtedness to the writings and teachings of Professors J. B. Clark, S. N. Patten, Eugen von Bohm- Bawerk and Alfred Marshall. More concrete is my obligation to Professor R. C. McCrea, who suggested changes in the figure on page 190 and other improvements in Chapter XI. Greatest of all is my indebtedness to my wife, whose unflagging interest and patient criticisms have been an aid and encouragement at times when both were much needed.

Henry R. Seager.

SOTTTHPORT, CONNECTICUT,

Chapter I

PAGE Definition of Economics — Its Relation to Other Social Sciences: Sociology — Politics and Law — History — The Manorial System — Its Characteristics — Contrasted with Modern System — The Gild System — Merchant Gilds — Craft Gilds — Change from Local to National Regulation — The Black Death — Inclosures — Causes of Breakdown of Manorial and Gild Systems — The National System — Debasements of the Coinage — Statute of Apprentices — Monopolies — The Mercantile System — The Industrial Revolution — Mechanical Inventions — The Steam Engine — Spinning — Weaving — Steam Transportation — The Laissez-faire Policy — Abolition of Old Restrictions — Rise of the Factory System — Its Consequences — Conclusions — References for Collateral Reading 1

Chapter II Industrial Expansion Of The United States

The Colonial Period — Liberty, Private Property and Equality — Slave V. Free Labor — The National Industrial Ideal — Physical Characteristics of the LTnited States — The Atlantic Seaboard — The Middle West — The Great American Desert — The Far West — The New Possessions — Development of Transportation Facilities — Growth of Railroads — Crossing the Continent — Importance of Railroads — Growth of Population — The Foreign and Native Born — Negroes — Distribution of the Population — Race Problem in South — The Foreign Born — Growth of Cities — Foreign Born in Cities — New Issues Following the Conquest of the Continent — References for Collateral Reading 21

CHAPTER III INDUSTRIAL EXPANSION OF THE UNITED STATES {concluded)

Progress of Agriculture — Recent Developments — Important Crops — Corn — Hay — Wheat — Cotton — Progress of Mining — Iron — Coal — Gold — Silver — Copper — Petroleum — Natural Gas — Principal Mineral Products, 1910 — Progress in Manufacturing — Manufactures of Iron and Steel— Manufactures of Cotton — Concentration in Manufacturing— The Growth of Commerce — Changes in Exports — Relative Importance of Commerce — Conclusion — References for Collateral Reading 37 viii CONTENTS

Chapter IV Preliminary Survey Of Economics Page

Definition of Business — Motives to Business Activity — Characteristics of the Business Man: Self-interest — The Larger Self — Desire for Independence — Business Morality — Goods and Their Utility — Free Goods — Economic Goods — Value — Relation Between Utility and Value — Value in Use and Value in Exchange — Price — Production and Consumption — The State of Normal Equilibrium — Effort and Sacrifice Involved in Production — The Cost of Production — Expenses of Production — Work and Pay — The World's Workers — Wages — Property and Its Earnings — Business Activity May be Predatory, Not PrO' ductive — Illustration — The Remedy — The Methods of Economics: Deduction — Induction — Statistics — The Laws of Economics — New Economic Conditions Give Rise to New Laws — Outline of Book — Conclusion — -References for Collateral Reading — Bibliographical Note 50

Chapter V

Characteristics of Human Wants — The Law of Diminishing Utility — Present v. Future Goods — Wants Are Determined by Social Standards — The Law of Demand — Elasticity of Demand — The Law of Variety — The Law of Harmony — The Law of Least Social Cost — Adaptation of Wants to Environment — Adaptation to Tastes of Producers — Progress Due to Changes in Tastes — Adaptation to Laws of Production — Economical Consumption — Nutritive Value of Foods — Luxury — Definition of Luxuries — Of Necessaries — Necessaries for All Before Luxuries for Any — Fallacies Respecting Luxuries — Defensible Luxury — Saving v. Spending — Statistics of Consumption — Consumption in the United States — Other Investigations — Family Budgets — Two Aspects of Consumption — Conclusion — References for Collateral Reading 70

Chapter VI

Two Senses of Value — Values in Use Relative — Value in Use Depends on Marginal Utility — Limitations on Above Law: Calculations Always Prospective — Valuation Refers to Single Units, Not Whole Stock — Marginal Utility Always Affected by Amount of Supply — Value and Marginal Cost or Disutility — Graphic Presentation of Relation Between Utility and Disutility — Surplus Utility — Marginal Utility and Value in Industrial Society — Marginal Utility Estimated by Marginal Consumers — Valuation Even of Single Goods Complex — Valuation a Collective Process — Marginal Cost and Value in Industrial Society — Complications in Calculation of Social Cost — Valuation of Complementary Goods — The Factors in Production Are Complementary Goods — The Margin of Consumption

CONTENTS ix

PAGE

— Importance of Price Phenomena — Exchange Values Ratios — The Value of Money May Change— The Value of Money — Adam Smith's Error in Discussing Value — References for Collateral Reading 89

Chapter VII

The Determination of Prices — Buyers' Calculations — Sellers' Calculations — Price Scales — Definition of a Market — Data for Price Scales Lacking — Four Possible Situations for Determination of Prices: One Buyer and One Seller — Several Buyers and Only One Seller — One Buyer and Several Sellers — Two-sided Competition — Gi'aphic Representation of Two-sided Competition — The Berlin Stock Exchange — Complications — Advantages of One-price System — The Marginal Buyer — The Marginal Seller — Market v. Normal Prices — References for Collateral Reading 109

Chapter VIII Production: Land And Natural Forces

Nature of Production — Manufacturing and Trading as Truly Productive as Agriculture — Factors in Production: Nature and Man — Capital a Secondary Factor — Definition of " Land " — Progress in Production — Different Characteristics of Different Pieces of Land — Old and New Countries Contrasted — Differences in Land Cause Differences in Expenses of Production: Mining — Wheat Culture — Manufacturing — Source of Rent — Law of Diminishing Returns — Applies to Extensive or Intensive Margins of Cultivation — Law Static — Social Influences Important — Suburban and Country Acres Contrasted — High Value of City Real Estate — Value of Land Often Due to Human Forethought — Definition of Rent — References for Collateral Reading 122

Chapter IX Production: Labor And Capital

Man as Producer — Qualities Influencing His Efficiency — Conditions Favorable to Health and Strength — Intelligence and Judgment — Ambition, Energy and Perseverance — Imagination, Mechanical Ingenuity and Technical Knowledge — Tendency of Evolution — Capitalistic Production — Its Advantages — Capital Goods and Capital — Fixed and Circulating Capital Goods — Mobility of Capital Goods — Money — Fixed and Specialized Capital Increasing — Labor Also Subject to Law of Diminishing Returns — Also Capital — Law of Diminishing Returns Generalized — Methods of Acquiring Capital — Saving and Investing — Borrowing and Investing — Borrowing from Banks — Borrowing Not Always for Investment — Saving and Waiting Necessary to Existence of Capital — Economic Cause of Interest — Capital Goods the Things Saved — Buying Stocks and Bonds Does Not Add to Capital — Kinds of Capital Goods — Land and Capital — Personal Qualities Not Capital — Reasons for Describing Dealers' Stocks as Capital — Money — Progress in Capitalistic Production: Middle Ages — Growth of Commerce — Influence of Industrial Revolution — Conclusion — References for Collateral Reading 135

Chapter X Production: Cooperation And Business Organization

Cooperation — Varieties of Cooperation — Importance of Growth of Markets — Influence of Improved Means of Transportation — Qualities Necessary to Effective Cooperation: Honesty — Steadiness — Spirit of Conciliation — Obedience— These Qualities Fostered by Cooperation Itself — Advantages of Cooperation — Disadvantages of Cooperation — Other Considerations — Statistical Evidence of Benefits from Cooperation— Business Organization — The Enterpriser — Forms of Business Organization : The Single Enterpriser — The Partnership — The Corporation — Advantages of Corporations — Their Disadvantages — -Diffused Responsibility — Abuse of Borrowing Power — Political Corruption — Dependence of Corporations for Success on Single Individuals — Large v. Small Scale Production — Advantages of Large Scale Production : Division of Labor — Equipment of Capital Better Employed — Especially in Transporting Industries — Economy in Buying Supplies — Saving Through Byproducts — Can Spend More on Experiments — Classification of Business — Tlie Representative Firm — References for Collateral Reading 153

Chapter XI Production And Distribution

Relation Between Production and Distribution — Definition of Net Product — Of Money Income — Of Real Income — Distribution from Viewpoint of Enterpriser — Definition of Wages-of- Management — The Other Shares: Rent — Wages — Interest — Taxes — Business Man's Explanation of These Shares — Why Economist Must Go Further — Explanation of Wages-of-Management — Included in Explanation of Wages — Distribution Concerned with the Money Income — Increasing Net Product Normally Increases Money Income — Relation Between Money Income, Real Income and Net Product — Services of Consumers' Goods Part of Real Income — Real Incomes Drawn from Capital Rather than Directly from Net Product — Confusion Caused by Constant Changes — Assumption of State of Normal Equilibrium — Net Product and Real Income Interchangeable — Correspondence to Actual State — Purpose of Assumption — Arithmetical Illustration — Assumptions Made — Conclusions from the Example — Comparison with Actual Conditions — Relation Between Net Product. Money Income and Real Income — Graphic Illustration — Explanation — Complications in Actual Industrial Society — Importance of Prices — Influence

CONTENTS xl of Marginal Buyers — Influence of Expenses of Production — Representative Firms and Normal Prices — The Shares in Distribution — Competitive and Monopoly Profits — The Law of Competitive Distribution — References for Collateral Reading 170

Chapter XII Distribution: Competitive Profits

Cause of Competitive Profits — The Power of Substitution — Definition of Competitive Profits — Their Causes: Fluctuations in Prices — Means of Limiting Fluctuations — Dealings in Futures — Illustrated by Reference to Wheat — Service of Speculators — Speculation v. Gambling — General Price Movements — Effect of Rising Prices — Of Falling Prices — Profits from Inventions — Profits from Improved Methods — Profits and Losses from Changing Natural Conditions — Profits from New Land — Profits from Changing Rents, Wages and Interest— Conclusion — References for Collateral Reading 198

Chapter XIII Distribution: Monopoly Profits

Definition of Monopoly — Contrast with Differential Advantages — Kinds of Monopolies — Importance of Monopolies — Limitations on Monopoly Power — Power of Substitution — Competition — Legal Interference — Conclusion — Law of Monopoly Price — Complications — Summary — Methods of Concealing Monopoly Profits — Inflated Salaries and Other Expenses — Stock Watering — Funded Incomes — Earned v. Unearned Incomes — Monopolies Not Always Disadvantageous — Influence of Monopoly Profits on Other Shares — Practical Phases of Monopoly Problem Treated in Later Chapters — References for Collateral Reading 213

Chapter XIV Distribution: Rent

Contrast Between Profits and Other Shares — Definition of Rent — Problems Connected with Rent — The Source of Rent — The Principal Grades of Land Distinguished — Store Sites — Residence Sites — Plots Devoted to Truck Farming — Farm Land Proper — Grazing Land — Fertility as Important as Situation to Rent — The Demand for Land of Different Grades — The Calculation of Rent — Summary of Explanation — Other Causes of Rent — The Rent of Sovirces of Water Power — The Rent of Mines — Apparent Exceptions to the Law of Rent — Existence of Several No-rent Margins — The Rotation of Crops — Average Return Basis for Calculating Rent — Land Fit for One Use Only May Command High Rent — Other Complications — Investments of Capital in Land and Rent — The Capitalization of Rent — Summary of Theory of Rent: Its Cause — Includes a Marginal as well as a Differential Element — The xii CONTENTS

PAGE

Intensive Margin — A Surplus Income — When There Is No Rent — Law of Diminishing Returns — Permanent Improvements

Rent and Price of Land — Commercial Not Always Same

as Economic Rent — The Metayer System — Rent of Buildings and Ground Rent — Importance of Rent — References for Collateral Reading 229

Chapter XV Distribution: Wages

Definition of Wages — Differences in Rates of Wages Due to Unequal Capacities of Workmen — Differences Gaged in Same Way as in Case of Rent — Relation Among Different Groups — Tendency Toward One Uniform Rate of Wages — Different ' Grades Overlap — Some Workmen Below the Margin in Their Group — Individual's Efficiency Depends on Right Choice of Occupation — Unequal Opportunities of Workers — Number of Grades Very Large in Practice — Higher Wages Measured from Marginal Wages — The Rate of Wages Depends on Relation Between Demand and Supply — Differences in Wages Perpetuated by Immobility of Workers— Efficiency and Time Wages Contrasted — Other Causes of Differences in Wages: Differences in Cost of Living — Expense of Learning Trade — Ease or Difficulty of Work — Hazard Involved — Chance of Success or Failure — Social Esteem — Regularity of Employment — Chance for Promotion — Finally Men Unlike — Influence of Heredity in Dispute — Influence of Habit, Custom and Education — Differences in Standards of Living Perpetuate Differences in Wages: Definition of Standard of Living — Educational Opportunities of Children of the Well-to-do and of Manual Laborers Contrasted — Reasons Why More Is Not Invested in Education — Necessity for Free Public Education — Conclusion — The Determination of Marginal Wages — References for Collateral Reading 244

Chapter XVI Distribution: Interest

Definition of Interest — Nature of Problem — Preliminary Explanation — Interest on Bank Loans a Derived Form — The Source of Interest the Productiveness of Capital — Summary Statement of Explanation — Interest Paid for Use of Capital — Points Requiring Special Emphasis — The Replacement Fimd Gives Mobility to Capital Embodied in Capital Goods — Competition Tends to Eliminate Differences in Rates of Interest — Differences Among Different Branches of Production — Causes of Differences in Rates — Monopoly — Interest on Permanent Improvements — Specialized Forms of Capital Lack Mobility — Differences in Risk of Loss — Differences Among Different Sections — Differences in Rates of Interest Less Marked than Differences in Wages — Assumptions Made to Simplify Discussion — Monopolies Not Considered — Rent Already Explained — Circumstances Determining Amount of Joint Share — The Influence of Enterprisers — Qualities and Quantities of

CONTENTS xiii

PAGE

Workmen and Capital Goods Important — Both Wages and Interest High in the United States— The Law of Competitive Distribution — Workmen and Capital Goods Compete as well as Cooperate — This Competition Leads to Comparisons and Substitutions by Which Wage and Interest Rates Are Determined — Law Restated — The Law of Competitive Distribution Illustrated — Correspondence with Actual Industrial Society — References for Collateral Reading 262

Chapter XVII

Summary of Theory of Value — Summary of Theory of Prices — Relation Between Incomes of Consumers and the Expenses of Production — Graphic Representation of Production and Distribution — Restatement of Theory of Rent — Restatement of Theory of Wages — The Wages of Marginal Workmen — Restatement of Theory of Interest — The Calculation of the Replacement Fund — The Life Period of a Capital Good Depends upon Current Rates of Wages and Interest — Explanation of Interest Applies to Gross as well as to Net Earnings of Capital Goods — Restatement of Law of Competitive Distribution — Necessary Qualifications — Other Theories of Distribution — The Exchange Theory — Interest a Discount on Future Goods — The Exchange Theory from Viewpoint of Lenders — The Productivity Theory from the Viewpoint of Borrowers — Two Theories Complementary — The Wages-fund Theory — Conclusions Drawn from It — Criticism of the Theory — Other Objections and Conclusion — References for Collateral Reading 283

CHAPTER XVIII VALUE, PRICE AND DISTRIBUTION {concluded)

The Ultimate Determinants of Distribution — Statistics of Population — Differences in Rates of Growth, 1901-1911 — Birth, Death and Marriage Rates of Different Countries — Conclusions — The Malthusian Theory of Population — Its Influence on Economic Thought — Criticism of the Theory — Current Theories : The Physiological Check — The Influence of Social Customs — The Economic Check — Influence of the Standard of Living — A Stationary Population — Conditions Necessary to a Low Birth-rate — Progress and Standards of Living — Population Should Grow at the Top, Not at the Bottom — Growth of Population in China — Growth of Population in France — Conclusions — The Growth of Population Controlled by Standards of Living — The Growth of Capital — Increase in Wealth in the United States — Growth of Capital in Agriculture and Manufacturing— Necessary Cautions — Present Goods Preferred Above Future Goods — Reasons for This Preference — Influence of These Motives Depends on the Amount of Individual's Income — The Motives to Saving — Progress Strengthens These Motives — The Ultimate Determinants of Distribution — The Balancing of Utilities Against Disutilities — References for Collateral Reading 300

■4

Chapter XIX Money And The Monetary System Of The United States

The Disadvantages of Barter — The Nature and Functions of Money — Money a Standard of Value — Also of Deferred Payments — Prices and the Value of Money Vary Inversely — Stability of Value Necessary to a Good Money — Various Commodities Have Served as Money — Qualities of a Good Money — The Role of the Government in Regulating the Monetary System — Coinage and the Printing of Paper Money — The Three Kinds of Money: Standard — Token — Credit — Gresham's Law — Illustrated from Monetary History of the United States — Application to Present Monetary System — The Adoption of the Gold Standard in Europe — Its Adoption Outside of Europe — Monetary History of the United States — The Gold Standard Law — Present Monetary System of the United States — Maintenance of Parity of Value Between Gold Coin and Gold Bullion — Between Gold and Silver Coin — Between Gold Coin and Paper Money — The Gold Reserve — The National Bank Notes — Stability of the Gold Standard — Defects in Monetary System of the United States — The Function of Token Money — Are Half-cent Pieces Needed? — The Useless Silver Hoard — Objections to Sale of Silver Dollars as Bullion — Remedy Advocated — References for Collateral Reading .... 322

Chapter XX

The Nature of Credit— Book Credit — Description of Banking Business — The Bank of England — The Check System — Checks and Drafts — Money and Credit — Importance of Deposits to Banks — Forms of Bank Loans — Collateral Loans — Call and Time Loans — Banks Lend Their Credit — By Means of Deposit Accounts — Or Bank Notes — Interest on Bank Loans Paid for Control over Capital — Gold Coin is Capital — Credit Is Not Capital but It Does Work of Standard Money — Limitations on Use of Bank Credit — Short-time Loans — Competition Tends to Adjust Bank Rate of Interest to the General Rate — Should Banking be Regulated ? — Argument for Free Banking — Counterargument — History of the National Banking System — The Present Law — Emergency Notes of 1908 — Protection of Note Holders — Of Depositors — Defects in System — Bank Notes Perversely Elastic — Proposed Reform in System of Note Issues — Reforms in Reserve System — Statistics of Banking Institutions — Conclusion — References for Collateral Reading . .341

Chapter XXI Foreign Exchange And Some Unsettled Monetary Problems

The Nature of Foreign Exchange — International Credits and Debits — Scerling Exchange — The Gold Points — The Rate of Sterling Exchange — Controlling Rate of Exchange Through the Rate

CONTENTS XV

PAGE

of Interest — Influence of Prices — Three-cornered Exchanges — When Standards Diff"er — A Country's Gold Supply Regulates Itself— The United States Should Normally Export Gold — Unsettled Monetary Problems — Demand and Supply in Relation to Gold — Three Different Kinds of Demand — The Arts Demand — The Monetary Demand — The Reserve Demand — The Supply of Gold — Explanation of Table — Conclusion — Measuring the Value of Money or the Level of Prices — Other Methods — Relation Between Level of Prices and Value of Money Illustrated — Price Statistics — Discussion of Chart — International Bimetallism — Triumph of Gold Standard — The Free Silver Agitation — Future of the Gold Standard— Influences Steadying the Value of Gold — The Multiple Standard — References for Collateral Reading 365

Chapter XXII V

Foreign and Domestic Trade Compared — Peculiarities of Foreign Trade — Principle Controlling Foreign Trade — The Policy of Protection — The Advantages of Free Trade — Arguments for Protection — The Infant-industry Argument: Special Form — General Form — The Home-market Argument — Origin of Present Tariff" System — The Wages Argument — The Vested-interests Argument — The Political Argument — The Payne- Aldrich Tariff— Burden of High Duties— The Making of a Tariff — Weakness of Arguments for Protection for United States To-day — Obstacles to Change — Present Status of Tariff Question in the United States — Protection v. Conservation — Interest of Producers in Free Trade — Retaliatory Tariffs — Tariff Cause of Political Corruption — Present Outlook — References for Collateral Reading 383

Chapter XXIII

Importance of the Monopoly Problem — Public Legal Monopolies — Merits of Post-office — Private Legal Monopolies in the United Kingdom — In the United States — The Patent System — ^Arguments for and against Patents — Discussion of Arguments — Reforms Proposed — Present Status of Patent Law — Labels and Trade-marks — Copyright — Defects in Present Law — Importance of Natural Monopolies — Natural Monopolies of Situation — The Anthracite Coal Combination — Future Policy — Other Natural Monopolies of Situation — Natural Monopolies of Organization — The Business of Supplying Water — The Gas and Electric Light Monopolies — The Street-railway Monopoly — Reasons for Combination — Advantages of Combination — The Telephone Monopoly — Monopoly Renders More Convenient Service Possible — Methods of Fixing Rates — Monopoly Profits of Street Railways in the United States — Of Other Municipal Monopolies — The Solution of the Municipal Monopoly Problem — Arguments for Public Ownership — Arguments Against Public Ownership — Other Considerations — The Situation in

L xvi CONTENTS

PAGE

the United States and Abroad — Method of Regulating Municipal Monopolies — Obstacles to be Overcome in the United States — References for Collateral Reading .... 399

Chapter XXIV Railroad Problem In The United States

National Monopolies of Organization — Circumstances Making the Railroad Business Monopolistic — Progress Toward Railroad Concentration in the United States — Federal Legislation — Discrimination in Rates: Among Commodities — Among Localities — Among Persons — Motives for Such Discrimination — Railroads and Trusts — Monopoly Profits Enjoyed by the Railroads — Failure of State Regulation — The Interstate Commerce Act of 1887— Defects in Act — Amendments to Interstate Commerce Act — The Short-lived Commerce Court — Discriminations Now Prevented^ — -Arguments for National Ownership and Operation of Express and Telephone Businesses — Arguments for National Ownership and Operation of Railroads — Arguments Against— Other Considerations — Further Amendments Needed — The Future — References for Collateral Reading 424

Chapter XXV

Definition of a Trust — Motives Behind Trust Movement — The Early Trusts — History of the American Trusts — Circumstances Favoring Organization of Trusts — The Role of the Promoter — Facts as to Business Success of the Trusts — The Highly Successful Trusts — Reasons for This Success: Efficient Organization— Economy in Sale of Products — Saving in Cross Freights — Better Adjustment of Production to Demand — Other Reasons — Illegitimate Practices of the Trusts — The Standard Oil Company's Advantages in Transportation- — Discrimination in Prices — Unfair Methods of Competition Charged Against the National Cash Register Company — Conclusion as to Public Policy— The Trusts and the Tariff— Other Evils : Over-capitalization — -Political Corruption — Monopolistic Prices— Obstacles to Solution of the Trust Problem in the United States — The Sherman Anti-trust Act — Its Provisions — Anti-trust Act of Ohio — Difficulty of Enforcements— The Bureau of Corporations — Three Possible Ways of Regulating Trusts: National Control Alone Adequate — Proposal to Combine a Federal License and a Federal Incorporation Plan — Commission to Insure Enforcement of the Law — Transfer of Control over Business Enterprise to the Federal Government That Would Result— Reforms to be Effected — Prevention of Unfair Competition — Scaling Down of Protective Duties on Trust Products — A Model Federal Corporation Act — The Future of American Trusts — Regulation, Not Prohibition, Desirable — Consumers' Power to Protect Themselves — References for Collateral Reading 442

Chapter XXVI Government Expenditures And Government Revenues

PAGE Scope of Discussion — Government Expenditures Are Designed, to Promote the General Welfare — Public v. Private Expenditures — Division of Governmental Functions in the United States — Division of Expenditures — Relative Importance of Public and Private Expenditures in the United States — Sources of Public Revenue — Revenue from Public Lands — From Public Industries — Definition of Special Assessments — Revenues from Loans — War Loans— Industrial Loans — Deficiency Loans — Restrictions on Borrowing Power in the United States — Revenues from Gifts— Definition of a Fee — Definition of a Tax — Taxes Should Be Paid by Each in Proportion to His Ability — The " Equal Sacrifice " Theory — Principal Taxes Imposed in the United States — Tax Provisions of the Federal Constitution — -The Shifting and Incidence of Taxes — The Incidence of Customs and Excise Taxes — Property and Poll Taxes — Evasion of the Personal Property Tax — Evidence of Such Evasion — Incidence of a Perfect General Property Tax — Analysis of a General Property Tax — Tax on Land Paid by Landowner — Circumstances Obscuring This Fact — Capitalization of Land Taxes — An Example — An Old Land Tax Becomes Burdenless — A New Land Tax May Involve Confiscation of Property — Taxes on Buildings Paid by Occupiers — Tax on Mortgages Paid by Borrowers — Injustice of a Partial Tax on Personal Property — Corporation Taxes — The Incorporation Tax — Franchise Taxes — The Capital Stock Tax — Advantages of This Tax — Gross Receipts Taxes — Net Income Taxes — Special Franchise Taxes — Their Resemblance to Land Taxes— Liquor License Taxes — Inheritance Taxes — References for Collateral Reading 472