Principles of economics, with special reference to American conditions

Front matter

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V

Preface To The Sixth Edition

IN the present edition the introductory matter has been re-written. In the body of the book chapters have been added on the Control of Trusts, Labor Legislation and Labor Insurance. This has necessitated a compression of the chapters on money and credit, but room has nevertheless been found for a treatment of the Federal Reserve Act. In other respects also the discussion and references have been brought down to date. It is my hope that in this revised form the work may continue to enjoy the favor which has hitherto been so generously accorded to it.

EDWIN R. A. SELIGMAN.

Columbia University, New York, July, 19 14

FROM THE PREFACE TO THE FOURTH EDITION

IN the explanatory note which accompanied the first edition of this work, it was stated that " The object of the author is not only to give the salient facts of economic life, and to analyze them in the light of modern research, but also to present a point of view from which to approach the great questions of modern economic vi Preface to the Fourth Edition.

policy. In the second place the author believes that the function of economics is not only to explain what actually exists, but to show how it has come to exist, and to forecast both the probable and the ideal future. Throughout the entire work the author endeavors to reconcile the historical and the a priori methods, and to provide an analysis of existing industrial society in the light of a treatment which, while seeking to emphasize the importance of wealth, lays especial emphasis on the human side of the subject and the subordination of wealth to man." The justification of this attempt is evident from the unexpected demand for the work, which has led to a constant succession of new editions. Of the suggestions and criticisms that have been made in the various reviews of the book, only one seems to call for mention. Some surprise has been expressed that so little attention has been devoted to the problems of taxation — a field which the author has elsewhere somewhat assiduously cultivated. The intentional omission is due to the conviction that it is inexpedient to attempt a treatment of public finance in a short treatise on the principles of economics. The science of finance is indeed in one sense a part of economics, but in another and better sense a quasi-independent science. The attempt to treat .the problems of finance in a few chapters at the end of a treatise on economics, as do most of the English works, is bound to be unsatisfactory in the extreme. There is no more reason so to include Finance than there would be to include Statistics or any other semiindependent discipline. A treatment of finance that is in any sense adequate would require a volume. It is my hope in the not far distant future to issue such a companion volume.

Contents

SUGGESTIONS FOR STUDENTS AND GENERAL REFERENCES

Page I. General Treatises in English xix

II. General Treatises in Foreign Languages xxii

Chapter I. Fundamental Concepts

2. Economic Life 3

3. Economics or Political Economy? 6

4. The Meaning of Wealth 8

5. Wealth and Man 13

6. The Measure of Wealth — Income and Capital. ... 15

7. Wealth, Money, and Property 19

8. Public and Private Wealth 21

vii viii Contents Parts I., II.

II. Economic Law and Method.

10. Meaning of Economic Law 24

11. Methods of Economic Investigation 28

12. Relation of Economics to Other Sciences 29

13. Relation of Economics to Politics and Other Moral

Sciences 31

14. Scope of Economics 35

Book I. — Foundations Of Economic Life

III. The Natural Environment.

16. Climatic and Geological Conditions 37

17. The Flora, the Fauna, and the Geographical Location 41

18. Changes in Environment 43

19. Changes in Location 46

IV. The Population.

21. Density of Population 49

22. Concentration of Population 52

23. Distribution of Population 54

24. Increase of Population 56

25. Migration of Population 60

26. The Law of Population 62

Book II. — Development Of Economic Life And Thought

V. The Economic Stages.

29. Primitive Technique 69

30. Transition from the Lower Stages of Civilization . ... 72

31. Self-sufhcing or Isolated Economy 75

32. Trade or Commercial Economy 77

S3. Capitalist or Industrial Economy 81

Part II. Contents ix

VI. The Historical Forms of Business Enterprise.

35. Primitive Economic AcLivity — The Clan 85

36. The Family 87

37. Help or Hire System 90

38. Handicraft System 91

39. Domestic System 93

40. Factory System 95

41. Associated and Corporate Enterprise 96

VII. Economic Development of the United States.

43. Early Period of American Economic Life 100

44. Growth of American Industry in the Nineteenth Century 102

45. Recent Development of American Industry 104

46. Modern Problems of America 106

VIII. Development of Economic Thought.

48. Economic Theory in Classic Antiquity 109

49. Mediaeval Economic Theory 112

50. The Mercantile Doctrine 116

51. Adam Smith and the Physiocrats 118

52. Ricardo and Modern Economics 121

Book III. — Conditions Of Economic Life

IX. Private Property.

54. Origin of Private Property 125

55. Growth of Property in Land 128

56. Theories of Private Property 131

57. Limits of Private Property 134

58. Content of Property Rights 136

X. Competition.

60. Nature of Competition 139

61. Forms of Competition 141

62. Dangers of Competition 145

63. Limits of Competition 147

64. Substitutes for Competition 150

X Contents Parts II., III.

Chapter Page XI. Freedom.

66. Origin and Growth of Slavery 154

67. Decay and Disappearance of Slavery 158

68. Liberty of Economic Action 163

69. Various Kinds of Economic Freedom 165

70. Individual Liberty as a Social Concept 171

Book I. — Value: General Principles

XII. The Meaning of Value.

72. Original Meaning of Value 173

73. Marginal Utility — Law of Diminishing Utility . . . .175

74. Individual and Social Value 179

75. Value in Exchange 182

76. Value and Price 184

77. Value and Marginal Increments of Wealth 185

XIII. The Measure of Valxje.

79. Meaning of Cost 189

80. Individual and Social Cost 192

81. Cost and Surplus 194

82. Cost and Utility 198

83. Social Surplus and Progress 201

XIV. The Capitalization of Value.

85. Value and Rent 204

86. Law of Depreciation 206

87. Law of Future Estimates 209

88. Law of Diminishing Returns 212

89. Forms of Value 214

90. Value as a Differential 217

91. Relation of Rental and Capital Values 220

Part III. Contents xi

XV. Determination of Market Value.

93. Demand and Supply 223

94. Market and Normal Price 224

95. Conditions of Exchange — Law of Comparative Utilities

and Comparative Costs 226

96. Rate of Exchange — Barter 227

97. One Seller and One Buyer 229

98. Monopoly 231

100. Conclusions 235

XVI. Determination of Normal Value.

loi. References 241

102. Normal Demand — Elasticity of Demand 241

103. Normal Supply — Cost of Production 244

104. Law of Marginal or Maximum Cost 247

105. Law of Minimum Cost 249

106. Elasticity of Supply — Law of Varying Cost 251

107. Law of Joint Cost 253

108. Equilibrium of Normal Demand and Normal Supply . 255

109. Influence of Normal Price upon Market Price .... 256 no. Normal Monopoly Value 258

XVII. The General Law of Value.

112. Value and Cost of Production 262

113. Value and Efficiency 264

114. Efficiency and Capitalization 268

115. Valuation and Taxation 269

116. Valuation and Regulation 273

117. Valuation and Investment 275

Book II. — Value And Production

XVIII. Character and Factors of Production.

119. Production: Its Meaning and Relation to Consumption 278

120. Kinds of Production 281

121. Factors of Production 283

122. Production and the Producer 285 xii . Contents Part III.

XIX. Labor.

1 24. Meaning of Labor 288

125. Cost of Labor 289

126. Efficiency of Labor 292

127. Division of Labor — Nature and Advantages .... 293

128. Division of Labor — Defects 298

129. Combination of Labor 299

130. Supply of Labor 301

XX. Land.

132. Land as a Separate Factor of Production 304

133. Fertility of Land 308

134. Situation of Land 311

135. Cultivation of Land 313

XXI. Capital.

137. Kinds of Capital 317

138. Function of Capital 320

139. Creation and Growth of Capital 323

140. Nature and Influence of Capital 326

141. Investment of Capital 329

XXII. Enterprise — The Concentration of Production.

143. The Meaning of Concentration 333

144. Large-Scale Production 335

145. Large-Scale Agriculture 338

146. Consolidation and Integration of Production 341

147. Combination and Efficiency 345

148. Limits of Combination 349

Book III. — Value And Distribution

XXIII. Profits.

150. The Shares in Distribution 352

151. Ordinary Profits 354

152. Aleatory Profits , ■ ■ ■ 35^

153. Speculative Profits: Nature 360

Part III. Contents xiii

Profits {Continued).

154. Speculative Profits: Function 364

155. Monopoly Profits 368

156. Regulation and Justification of Profits 370

XXIV. Rent.

158. Nature of Rent 373

159. Relation of Land Rent to Other Rents 375

160. Rent and Price 378

161. Growth of Land Rent . ■ 381

162. Land Rent and Land Tenure 385

163. Justification of Land Rent 389

XXV. Interest.

165. Nature of Interest 394

166. Interest and Forbearance 398

167. Interest and Productivity 401

168. Course of Interest 405

169. Tendency of Interest to a Minimum 407

170. Regulation of Interest 410

XXVI. Wages.

172. Nature of Wages 413

173. Wages and Cost 416

174. Wages and Efficiency 418

175. Rate of Wages 421

176. Course of Wages 423

177. Variations in Wages 425

178. Wages and Profits ' 429

XXVII. Wages. — The Labor Problem.

180. Labor Organizations 432

181. Strikes 437

182. Boycotts 440

183. Profit Sharing and Co-operation 443

184. Arbitration and Conciliation 446 xiv Contents Part III.

BOOK IV. — VALUE AND EXCHANGE. Chapter Page

XXVIII. Money. — ■ Nature and Value.

186. Origin and Functions of Money 449

187. Value of Money 453

188. The Quantity Theory 458

189. The Price Level 461

190. Distribution and Stability of Money 464

XXIX. Money. — Practical Problems.

192. Coinage Problems •. . . . 470

193. Choice of the Money Standard 475

195. Adoption of the Gold Standard 483

XXX. Credit and Banking.

198. Nature and Forms of Credit 496

199. Development of Banking 501

200. Modern Bank Operations 506

201. Bank Reserves 511

202. Credit and Prices 518

XXXI. Credit and Currency.

204. Banks of Issue 521

205. Regulation of Note Issues 525

206. The American Systems 528

208. The Federal Reserve Act 538

209. Credit and Crises 543

209I The Federal Farm Loan Act 546*

XXXII. International Trade.

211. Basis of International Trade 547

212. Rate of International Exchange 552

213. Growth of Free Trade 556

214. The Argument for Protection 560

215. The Argument for Free Trade 566

216. Conclusion 567

Parts III., IV. Contents xv

XXXIII. Transportation.

218. Transmission of Intelligence — The Post-Office. . . .572

219. Railway Development 575

220. Nature of Railway Business 577

221. Principle of Railway Charges 581

222. Classification 584

XXXIV. Insurance.

226. Nature of Insurance 598

228. Theory of Insurance 606

229. Methods and Regulation of Insurance 609