The economics of enterprise

Preface

In questions of economic theory the writer conceives himself, as among his colleagues of the craft, to be in essentials rather a conservative than an innovator. The Socialists, indeed — with whom he disclaims all theoretical sympathies — seem to him to be the ultra-conservatives in doctrinal positions. Mostly, therefore, his attack upon the moderns is for the violence done by them to the older doctrine, either in the bad choice of the portions to be emphasized, or through attempted additions which in general have brought no gain and have often imposed serious loss. In his own sort, doubtless, he similarly aspires to reformulate or to extend or to reconstruct the established principles and categories, but this rarely or never with the purpose to abandon them or to put in issue or to place in hazard their central and intrinsic truths. As between a reactionary loyalty to the old, and an innovating zeal which reforms only in essentials to destroy, he would choose a middle course — to prune in order to save, to engraft only to complete, to restate only in fundamentals to reaffirm. It is, then, especially with his fellow workers who see nothing good or enduring in the work of the masters, who condemn both superstructure and foundation, whose hope rests solely in building entirely anew, that he finds himself entirely out of sympathy. One should altogether despair of what the future may achieve who is compelled to condemn all that the past has done. That our predecessors saw imperfectly was unavoidable; but that they did not see at all is incredible. There were great men in those days — albeit fallible men — in close and intimate grip with the facts. Mostly in what they did not do, rather than in what they did, consisted their imperfections. To fulfill the prophecies rather than to destroy, to supplement the half-truths, to limit too-inclusive formulas, to articulate vi PREFACE

the disconnected generalizations, to find the synthesis which shall harmonize the superficial contradictions, — in this way progress lies. It is, then, upon issues as to the degree and the direction in which the later thought has proceeded that mostly the present writer contests the views of his fellows. As against most of these he claims for himself the position of conservative.

It is, therefore, only upon the applications of economic science to the problems of practical progress that he is to be taken as a radical economist or as qualified to apply for membership among those thinkers who are facing toward the new day — the disturbers at large of the peace. Had it been within the reach of his power, this book should have set forth the economics of a new political and social program ; as it is, the work expresses only an aspiration. Chief, however, among the monopolies that he would condemn is the monopoly, so far enjoyed by the reactionaries, of all authoritative economic doctrine.

H. J. DAVENPORT.

University of Missouri, October, 1913.

ANALYTICAL TABLE OF CONTENTS

CHAPTER I Fundamental Conditions: Man and Environment . 1-18

Income (product) comes from men and their possessions, and consists of goods, 1; and is limited by consumption, 2; not derived from standard of living nor determined by desires, 3 ; nor by volume of money, 4; inevitably tvrof old in origin — men and environment, 5; difference of environments in effect on income, 6; differences in men — in strength and industriousness, 7; in knowledge, 8; in morality, 8; in institutions, 9; interactions between men and environment, 11 ; take place mostly in the human factor, 13 : in any case are mostly due to intelligence, 13-14 ; but are confined within narrow limits, 15; conditions determining relative supplies of goods, 17 ; summary, 18.

CHAPTER n

Competitive Economics ; The Regime of Price . . 19-27

Institutions change, 19 ; competition a present institution, 20 ; its characteristic traits, 20; price its central characteristic, 21; pervasiveness of price, 22 ; criteria of definitions, 25 ; economics defined, 26; summary, 26.

CHAPTER m

The Regime of Price {Continued) 28-32

Price the pivotal point in all economic competitions, 28; and in distribution, 28-29; but only so in the competitive order, 29; the classifications and generalizations of which must conform to the nature of this order, 29; but must avoid appraisals, 29-30; or any assumption of permanency or merit in the facts treated, 30; human desires common to all economic systems, 31 ; summary, 31.

CHAPTER IV

Specialization and Trade Related to Money . . 33-41

Specialization imposes interdependence and promotes efSciency, 33 ; isolation and independence imposing inefficiency for the indivii i/ viii ANALYTICAL TABLE OF CONTENTS vidual, 34:-36: and for nations, 36; specialization postsible in the competitive order only through trade, and trade practicable only throuph intermediates, 37; barter itself connoting multiplicity of media, 38 ; not goods but money competitive demand for goods, 39; value being mostly restricted to the price form, 39; summary, 40.

CHAPTER V

The view of the outsider, 42 ; of the insider, 43 ; of the economist, 44; unreserved supply against one demand, 45; against several, 46; supply with reservation prices, 47; graphs, 48; reservation prices as holders' demands, 50-51 ; goods demands for money, 51; utility related to demand, 51; logic of the marginal analysis, 53; price fixed not by averages, or by demand v' solely, or supply solely, or by margins, or by marginal pairs, 54 ; summary, 54.

CHAPTER VI

Supply Determined by Cost of Production . . . 57-84

Price affects purchases, 57; supply affects price, 57; costs of production affect supplies relatively to one another, as an expression of specialization of production, 58; supplies dependent upon choice of sacrifice — sacrifice being expressed as cost, 59; alterna- •^ tive opportunities costs, 60; what sacrifice cost includes, 61; opportunity cost the leading coUectivist category, 62; as also a competitive cost, 63; cost as reservation price, 64; supply limited at marginal cost, 64; the marginal analysis, 64; marginal cost in relation to opportunity, 65; various cost bases, 67; one's own possessions and cost, 67 ; a typical cost account, 68 ; cost a forward-looking computation based on past experience and affecting future product, 69; includes all resistances under the price denominator, 70; cost and supply z;s. demand, 71 ; cost as expressing resisting demands, 72 ; the focusing point of many influences bearing upon the entrepreneur, 74; which the economist must investigate, rather than the entrepreneur, 75-76; marginality personal rather than instrumental, 77-81 ; the marginal enterprise, 78; marginal discomfort, 79; other margin-determining influences, 80 ; the limited significance of marginality, 82 ; pains and their significance, 82 ; summary, 83.

CHAPTER VII

Utility ; Demand ; Demand with Supply . . . 85-105

Price everywhere determined by demand and srpply and changed by changes in either or both, 85; no demand without

ANALYTICAL TABLE OF CONTENTS ix utility, 85 ; which is desiredness — changing as desires change, 86 ; a relation to a human being and in this sense solely a quality, 87; no demand without marginal utility, 88; marginal utility discussed, 89-91; therefore no demand without scarcity, 91; not marginal utility alone but a comparison of marginal utilities, subjective valuation, gives demand, 91-93; a marginal demand indicating an equality ratio between alternative marginal utilities, 93 ; neither marginal demand nor marginal price fixes price, nor both together, 94; all items, marginal and other, participating, 95; intramarginal higgling, 96; all utility, marginal and other, purely individual — social utility irrelevant, 97; utility, marginal utility, and comparison necessary to explain demand, 97-102; neither of which excludes impulse or habit, or instinct, 98-99; or involves a hedonistic theory of desire, or any necessary relation to pleasure and pain, 99; or even always deliberation and calculation, 100; the nature and limits of abstraction and generalization, 100-102 ; summaries, 103, 104.

CHAPTER VIII

The Significance of Cost of Production . . . 106-119

Entrepreneur cost not ultimate, 106 : but finds no explanation in pain ; unexplained, leads to superficial and circuitous analysis, 107-108; still inevitable and important, being actual, 109; and pivotal, 110; causal sequence on the cost side, the supply side, 111; all explanations which are not genetic imply a preceding and conditioning price situation, 113 ; and a moving equilibrium, 113-114; a necessary method of analysis, 115; the interrelation of bases of cost, 116 ; summary, 116.

CHAPTER IX

What is Production ? What Things are Productive ? 120-136

Activity and enterprise employing a variety of means, 120 ; to a diversity of ends, material and immaterial, 120 ; test of production net proceeds, price results, 121 ; not in materiality, 121-125 ; accumulatability, 123; but in objective price-bearing results, 123- 124; therefore men are not products, 124; subject matter of economics classified, 125; ethical criteria inapplicable as test of product, 126; parasitism and predation irrelevant, 127: so the question who consumes, 127; the various sources of product — proceeds, 128 ; saloons, gamblers, and thieves productive, 130 ; so intangible properties, 131 ; irrelevant to product who is user, 131 ; wealth, capital, and property distinguished, 132 ; rent and interest distinguished, 132: innumerable directions of investment of proceeds, therefore innumerable varieties of costs, 133 ; summary, 134.

X ANALYTICAL TABLE OF CONTENTS

CHAPTER X

The Distributive Process : Apportionment of Pro-

137-158

Distribution according to the productivity theory, 137 ; a price process, 138; relates only to primary distribution, 138; which is captained by the entrepreneur, 139 ; theory laclis precision, 140 ; production and consumption goods similar in point of the price process, —in demand, 141; in supply, 142; the entrepreneur's standpoint merely indicates the direction iu which the explanation is to be sought, 143; demand as distinguished from utility, 144; demand motivates supply, 144-145; but reports accurately neither utility nor the price significance to the entrepreneur, 145; hire being merely market price of the efficiency, 146; nor accurately is there a distinguishable specific efficiency, 146-148; nor is specific efficiency necessary in order that profits and opportunities function as costs, 148 ; the productivity theory only approximately true, and then only when product means proceeds, 150-152 ; there are hirers' surpluses, 151 ; social marginal productivity, ' 153; distribution ethically viewed, 153; property and deserving, 154; summary, 155.

CHAPTER XI

Different Bases op Cost and Distributive Shares 159-177

Cost outlays various in direction, 157; mainly wages, profits, instrument rents, and interest, 160; including equally all instrument hires, 160; compelling a new concept of capital, 161-162; and a new doctrine of costs, 162, 164; condemning traditional tests of labor origin, 163, 165, 167; of materiality, 165; of mobility, 168; of technological functions, 168; of elasticity of supply, 169 ; of political or social significance, 171 ; of relations to diminishing returns, 171 ; what capital is, 172, 175 ; proved by income in time, or by discount, or by interest, 173; the importance of the issue, 175; summary, 176.

CHAPTER XII

Land : Rent and Instruments as Cost : Land Rent

AND Cost 178-195

Substitution possible between factors, 179 ; this not inconsistent with complementarity, 179; no warrant therein for the threefold classification of factors, 179 ; limitation on substitutions in agriculture, is spatial, 179; else no land shortage possible, 179; nor higher rents and prices with increasing population, 180; effect of

ANALYTICAL TABLE OF CONTENTS xi land shortage on wages, 180 ; extensive and intensive cultivation as related to rent, 181; to prices and wages, 182; to hires and instrument costs, 183; Ricardian doctrine of rent stated, 181-183; developed and examined, 183-188 ; rent as cost, 186-187 : the post- Ricardian disciples, 186; various differentials related to cost, 188- 189; fundamental determinants of rent, 190; costs as distributive shares, 190; cost purely an entrepreneur computation, 191; the entrepreneur uninterested in ultimate determinants, 192 ; various costs indistinguishable relative to price determination, 193; summary, 193.

CHAPTER XIII

Urban Rents, Agricultural Rents, and Costs . 196-208

With urban rents not fertility but only position important, 196 ; nature of advantages, 197 ; rents affected by demand for products, and by changes in technique irrespective of owners' deserts, 198 ; social aspects of proportions of factors, 198-199 ; developing technique in transportation and manufacturing tends to increase urban as against rural rents, 200-202 ; effect of urban transportation on distribution of urban rents, 203; urban rents related to costs, and to price, 204-207 ; fundamental causes of rents, 207.

CHAPTER XIV

Capitalization vs. Cost as Determinant of Price . 209-218

Different goods affording incomes present and future, 209; present price related to future income, 210; through capitalization, 210 ; but not so with free men, 211 ; capitalization vs. cost as determinant of price, 211-216; with durable consumption goods, 212; with durable production goods, 213; effects of changed proportions of factors, 215-216; summary, 217.

CHAPTER XV

Capitalization the Process by which Future Incomes achieve Present Worth .... 219-235

Future services, 219 ; the effects of time perspective, 219-220 ; doubtful as bearing upon mere consumable goods, 220; but clear with money or with goods under money price, 221 ; as with a series of money incomes, 222-223; or with future incomes with indefinite money size, 224 ; the commonly accepted view insufficiently individualized, 225 ; any view prone to overrationalization, 227-232; present things commanding future services have present utility, 229 ; summary, 232.

xii ANALYTICAL TABLE OF CONTENTS

CHAPTER XVI

The Discharge of Debts : Deferred Payments . 236-253

Each good has many values — each value an exchange ratio between terms specific and quantitative, 236 ; barter implies value but no price — money exchanges only price, with all value relations mere deductions, 236; exchange dependent on specialized production, 237; the money economy, 237; a standard inevitable in deferred payments, 238 ; no equality in value since value is not quantitative, 239-242; but is only a ratio which is actual only as price, 240; this true over intervals of space, 242; of time, 242; and equally in present exchanges, 242; money has not one but innumerable values, 242; no value is measurable, measurement being quantitative and values not, 243; meaning of instability, 244-230; injustice of, 245; evils of speoulativeness, 245; deferred payment merely one case of exchange, 246; test of stability is utility, the things traded being not values but goods, 247 ; the desideratum is indemnity, 248 ; in terms of immediate consumption goods rather than of durable goods, 249-251 ; summary, 251.

CHAPTER XVII

Currency the intermediate in exchanges, 254 ; all functions are aspects of intermediateship, — standard, storehouse, payment, 255; money defined, 256-258; necessary qualities, 259; banking and the issue of credit, 260; reserves and their function, 260-262; economy of money, 262; banking viewed separately and in the aggregate, 263; what banking really does, 263; deposits and solvency, 264; creative of loan funds, 264; cost of currency from banks and from mines, 265-267 ; analysis of costs in the issue of credit, 265-266; the demand for media, 267-269; traders' surpluses, 267; the allocation of these, 267-269; the sellers' the greater, 268; volume of currency and prices, 269-278; the value of gold in relation to demand, 270; commodity uses as demands, 271; monetary theory peculiar, 271; elasticity of demand, 271- 273; all prices affected equally by changed volume, 273; prices affect one another and tend to move together, 274; relation of supply of gold to its utility, 275 ; supply of banking media related to prices, 276 ; discount rates and prices, 276, 278 ; Gresham's Law: international trade, 278; currency expansions, international trade, intercommunity trade, 279; commercial crises, 280- 285; preceding conditions, 280; rising prices, 282; the reaction, 282 : benefits and dangers of credit, 283 ; ameliorations, 284-286 ; disorganized banking vs. unified reserves, 286-287; responsibility for panics, 287 ; double counting of reserves dangerous but not

ANALYTICAL TABLE OF CONTENTS xiii most serious danger, 289; contraction through scramble for reserves, 289-291; is all credit therefore contracting? 291-294; effects on production, 293; the remedy, 294-295; post-panic depressions, 295-306 ; effects of rising prices on dividends and credit, 295 ; cause and effect of narrowing margins, 297 ; the delay in recovery, 298; restricted consumption and overproduction, 300-302; hoarding of money and credit, 302-303 ; investment with restricted saving, 304-305; savings, luxury, charity, waste, 306-310; quantity theory of money, 310-321 ; admitting that not goods but only goods at a price are demand for money, 311-312; and that not goods as an aggregate but only goods separately exchange against money, 312-314 ; nothing follows adverse to the quantity theory, 314-316; quantity of currency rather than money important, 316- 317 ; credit retains a fixed ratio to money, 317 ; the phenomena of banking in relation to the quantity theory, 318 ; and the phenomena of depressions, 319; changed demand and reservation prices, 319-321; bimetallism, 321-331; effects of demonetization, 321; compensatory action and its effects, 321-324 ; national and international, 324-327; advantages of international bimetallism conjectural and unimportant, 327-330 ; what fluctuations are important, 327; and what the proper base-lines, 328.

CHAPTER XVIII

Interest determined as price adjustment, 332; social capital, 333; money as capital, 334; whether credit is capital, 334; what private capital includes, 335 ; collectivist capital, 336; method of increase of private capital, 337; saving and lending, 337; private capital divergent from social capital, 337-342 ; borrowed thing, repaid thing, premium thing, all currency, 342-347 ; the loan fund widely and authoritatively recognized, 344-347 ; loan and rental contracts distinguished, 346 ; loan fund derived from saving and from banking, 347-349; effects of banking on interest, 349-352; banking essentially underwriting, 351 ; discount rates analyzed, 351; summary, 352.

CHAPTER XIX

Income a currency flow, 355; loans a method of modification, 356; interest the payment to achieve this, 356; loan fund furnished by saving and by banking, 356-357 ; much capital is original bounty, 358; saving never painful, 359, 362; interest rates not necessary to saving, 361 ; abstinence, rightly interpreted, a truism, 362; influences to modify individual's saving, 364-366;

xiv ANALYTICAL TABLE OF CONTENTS

K

PiGBS

saving and banking as sources of loan fund, 36(5 : different abstinence theories, 367-376 ; land and capital in interest theory, as per Bullock, Hadley, Senior, and Taussig, 373-375; productivity in time gives interest, 376; gains from investment give interest, 377; so also durable sources of service, 377; rents related to interest, 378; renters' surpluses and interest, 379; no implication of social service, 380; various independent causes, each adequate, 381 ; the process of fixatiou a price process, 382 : reservation prices in interest theory, 383 ; the concept of a market, 383-385 ; interest not an adjustment of pleasures against pains, 385 ; social explanations and the social organism, 387-393 ; method of hypothesis, 390; the social cosmos, 391-393; summary, 388,

CHAPTER XX

Risks, insurable and non-insurable, as costs, 399-401 ; advantages of affiliations, 399-101 ; risk costs greater as competitor is ■weaker, 399, 400; risk as limit on size, 400; risk as related to profit and interest, 401-403 ; profits and social welfai'e, 405 ; speculation, gambling, and underwriting, 404; summary, 405.

CHAPTER XXI

Capitalization and Discount Rates .... 407-412

Resume of previous conclusions, 407-409; not one but many interest rates, 410; these related to the capitalization process, 410; capitalization doctrine circuitous unless individualized, 411.

CHAPTER XXII

Classification op the Factors of Production . 413-422

Scope of the objects of cost outlays, 413; traditional view of these, 414 ; land vs. capital, 414 ; traditional view collective and genetic, 415; also technological but inaccurate, 416; many kinds and degrees of factors, 417; interrelations and interactions numberless, 419; interdependence and substitution, 420; traditional classification indicted, 421 ; summary, 421.

CHAPTER XXin

Laws of Return : Profitable Proportions : Profitable

Industrial facts underlying the law of proportions, 423 ; social-static formulation, 424, 425 ; social-dynamic, 425 ; competitive-

ANALYTICAL TABLE OF CONTENTS xv

Static, 426; differences in entrepreneurs, 427; classification of factors irrelevant, 428; a price calculation, despite various authorities, 429; deductions, 430; more than a land law, 431; or than technological law, 431 ; competitive-dynamic formulation, 433; deductions, 434; distributive applications, 435; general applications, 437; advantage in size, 437-443; size vs. proportions, 438, 441 ; applies to industries in competition with one another, 441; long-time and short-time best size, 442; law illustrated in what industries, 442 ; the applications, 442; summary, 443.

CHAPTER XXIV

Distribution and the Law of Proportions . . 446-458

Costs mainly distributive shares, 446 ; traditional exaggeration of technology, 446; some factors technological, others not, 447; interdependence and substitutions, 448; distribution favors the relatively scarce, 448; complementary factors, 449; relation of population to wages, 450 ; confusions of static with dynamic, 450 ; wages and standard of living, 451 ; changes in factors require new distributive analysis, 452; effects of changed industrial technique, 454; especially in agriculture on land rent, 456; elasticity of consumption related to land rent, 455-458; Gregory King's law, 456.

CHAPTER XXV

Costs in Corporate ani> Large Businesses . . 459-473

Profits in the large organizations, 459; related to interest, dividends, and risks, 460; stockholders' operations in corporate stocks, 461 ; managers' operations for private gain, 461 ; business code of ethics, 461 ; cost related to monopoly supply, 463 ; giant industry contrasted with farming, 464-467 ; temporary cost not inconsistent with loss, 467; idle plants, 468; supply in average conditions, 469; in favorable conditions, 470; in adverse conditions, 471 ; partial applications of monopoly methods, 472 ; summary, 473.

CHAPTER XXVI

Competition and Monopoly 474-487

Monopoly and competition antithetical, 474-476; yet monopoly competitive in spirit, 476; good and ill in competition, 476; laissez faire criticized, 477-479; wastes of competition, 478; competition often self-destructive, 479 ; economies and advantages of size, 479; monopoly affecting buyers' and sellers' surpluses, 480; buyers' and sellers' combination, 481 ; monopoly theory and competitive theory, 482; pressure toward monopoly, cut-throat xvi ANALYTICAL TABLE OF CONTENTS competition, 482; unwise legislation, 484; combinations of combinations, 485 ; a degree of monopoly in all successful business, 486.

CHAPTER XXVII

The Social Dividend and the Individual Income . 488-503

Social dividend the total of valuable benefits, 488 ; distributed mainly through money incomes, 490^91 ; products the primary fact, 490 ; in what these consist, 491-494 ; different sorts of services, 491 ; service from durable properties, 491, 492 ; privilege and power as income, 493, 494; primary and secondary distribution, 494; property, especially natural bounty, related to distribution, 495 ; also franchises and monopolies, 496-497 ; great wealth controls high ratio of gains, 497-501 ; which defy accurate division into interest and profit, 498-501 ; summary, 501.

CHAPTER XXVIII

The Distributive Analysis in the Large . . . 504-533

Scope of the chapter, 504 ; genesis of current economic doctrines, 504-515; unproductive labor, 505; cameralism, 505; mercantilism, 506; physiocracy, 507; later views, e.g. Adam Smith, J. S. Mill, 508, 509; influence of English legal system, 510; Providence guides, 511; natural law controls, 512; laissez faire, 513; modern views summarized, 514; criticized, 515-519; the census of wealth in the United States, 519; criticized for its concept of capital, 521; natural bounty, 522; wealth and poverty in the United States, 523, 524; enormous production and its explanation, 52.S-526; single tax and other taxes, 527; exploitation by franchises, monopolies, and private property in natural bounty, 528 ; the need of a new economics, 528-533.

THE ECONOMICS OF ENTERPEISE

CHAPTER I

FUNDAMENTAL CONDITIONS: MAN AND ENVIRONMENT

What income is and whence it conies. — There are obviously only two sources from which, in the main, society as a whole or any particular individual may derive an income : (1) from the efforts made, (2) from the possessions used. The only cases that fit clumsily into this statement are the unsought bounties of nature or of chance.

Of any isolated individual man or of an isolated society or of the human race taken as a whole, it may, then, be safely asserted that the current product of goods for consumption — the aggregate income — must be derived either from current labor or from the productive possessions already acquired. All that society can have to-day it must acquire to-day or must take out qf_it_s.4)ast product. How much society can consume, how great is its aggregate command of the things that satisfy human desires, — goods, — is conditioned by the aggregate social production — the social dividend. This aggregate output, this social dividend, conditions and determines the average individual income, precisely as any other dividend conditions its quotient. And it is evident also that ultimately this individual income must consist entirely of the things that satisfy human needs ; that is, must consist in consumption goods, in those things that are wanted in their own right and not as means to the getting of something else. We have here no concern with the money in terms of which the incomes may be received — no necessary reference, that is to say, to the nominal income — but only to the ultimate control of consumption goods, the things that are wanted for their service to human beings.

It is also evident that, in final analysis, all incomes are

B 1 psychic incomes, the experience of having wants gratified. Consumption goods are ultimately not significant as the concrete objective goods themselves, but for the services which they render — precisely as the vibrations of air that make sound concern each of us only as, by striking on the eardrum, they affect the consciousness.

This social dividend — the current output of consumption goods — finds, then, its sources on the one side in the human productive power of society, its efficiency in work (labor), and on the other side in the degree and kind of equipment of society, its possessions — its environment of productive power and opportunity.

That average consumption is limited by average production is not far from an axiom. None the less it needs emphasis ; for in the complexity of actual affairs it is easy to lose a working grasp of it. We are, for example, often told that the reason why the average income, say in India, is so low is that the standard of living is so low : men have little because they desire little, rather than because they produce little. Now it may well be that men produce little because they desire little, but it is only in this way that desires can affect the quantum of product and thereby the average consumption. It is safe to say that there never was and never will be a race of men lacking in desires still to be satisfied, although it may well be true that the dislike of effort is one of the reasons why some desires fail of product for their satisfaction. But it still holds that the desires outrun the means of satisfaction. Conceivably, indeed, all labor might be pleasant ; and yet, by reason of the limited time for work and of the limited time for play and of the limited time for the enjoyment of the fruits of work, — a conflict among competing desires, — some desires for consumable goods must be thwarted of their fulfillment, the product being still inadequate for the satisfaction of all desires. Clearly, then, a low average of production is not due to the fact that all desires are satisfied.

Do standards of living fix wages? — In the aggregate and average, then, men do not stop consuming because they want no more goods but because they can get no more on terms that make this more worth while. Thus, in the assertion that wages are high in America because the standard of living is high, and low in India because the standard of living is low there, there is a sheer reversal of the causal sequence. A standard of living is merely a level of consumption so fixed in habit that any falling short is felt as a privation. America has a high standard because the per capita production in America is great : people have, therefore, acquired the habit of consuming much. The level of production fixes the standard. The standard is causal in the case only so far as, in turn, it may react to affect the volume of product. Average income fixes the standard, rather than the standard the average income. Every few years some millions of people in India starve ; not because they do not want food, but because they cannot get it. They are unable to get it because they are unable to produce it. That they have the habit of consuming little is merely another way of saying that they have always a scant margin of actual product over sheer necessity — a margin that may at any time disappear.

The relation between desire and product. — But nothing in all this should put in question the truth that the fact fundamental to the production of goods is the desire for goods. Things would nowhere have human effort directed to them if they were not wanted. Desire lies back of product; human needs are the ultimate explanation for the putting-forth of labor, and, therefore, for the existence of the products of labor. But it remains true that the limit upon what is consumed is not the limit of desire but the limit of accomplishment. So, again, to say that wages are low in India because work is scarce holds in the sense only that wages are low because that sort of labor is scarce that is efficient enough, under the existing conditions, to command higher wages. It is true that needs, in that climate, are not as many, and that many of these are not as imperative as in severer climates; less suffices there than suffices here. But it remains true that, even with these less urgent needs, their wearily long workday leaves the East Indians scantily housed and clothed and fed. Recurrently famine mows down its millions of victims. So far, then, from there being no work to do, there is more work acutely needing to be done than can get done. The problem is greater than the work can solve ; the lack is not in the work to do but in the work done.