New era economics, presenting a rational theory of value

Part I. Introductory

Chapter. Page.

I. Scope and Function of Economics 5

Part II. Value

II. General Value Notions. Anderson and

Davenport on Value 36

III. Value Based on Labor of Standard Effi-

ciency 51

IV. Economic Status of Professionals and

Artists 66

V. Equal Value of, and Equal Compensation FOR All Kinds of Skilled Labor — 74

VI. Equal Value of Skilled and Unskilled

Labor 87

VII. No Labor Without Skill. Present Tendency Toward Equal Compensation 115

VIII. Ultimacy in Value. Summary of Value

Theory 127

Part III. Application

IX. Application of Value Theory. Some Objections Answered 143

X. New Era Society. Further Applications

of Value Theory 162

Chapter I

Any fairly well informed person who takes up the study of economics must be struck by the variety and the conflicting character of doctrines presented by different schools of political economy; and he could not help noticing the difference of viewpoint, taken by various writers, as to what is the proper function and scope of the science of political economy; a difference which necessarily must affect the deductions and the teachings of the respective writers in a marked degree. One class of economists may be credited with a distinct desire to give a moral side, or content, to their theories. These were unquestionably men of strongly humane and kindly instincts, men who saw the widespread misery of the greater number of their fellow beings, the almost universal poverty and degradation of the masses, largely self-inflicted perhaps, but more largely imposed by circumstances, by customs, and by institutions over which the victims have no control ; such as the misfortune of sickness or

* Any reader of this book who is versed in economics is advised to turn at once to Part II, which presents the author's value theory; since that is the part which, if any, would be of interest to such a reader.

of native incapacity, of enforced idleness, precariousness of work, and meagerness of compensation, especially in the case of unskilled labor. Contemplating this widespread suffering, these large - souled humanitarian men took thought and set about enquiring the cause, and endeavored to find remedy and means of betterment. To this class unquestionably both Adam Smith and John Stuart Mill belong; for, though they may not have made any explicit statement to that effect, yet, it seems to me that a distinct undertone runs through their books, indicating a strong desire to be helpful; to improve conditions; to abate evils and errors which result in human suffering; and to assist in bringing about a nearer approximation to economic justice than obtained in their day. Besides being economists, both ^vere moral philosophers and writers on morals; Adam Smith being a teacher of such, as Professor of Moral Philosophy in Glasgow University.

In this class of humanitarians can also be listed several American economists. Among these is Henry C. Carey, author of Principles of Social Science, on almost every page of which can be noticed his intense desire to teach that which he believes essential to human welfare. This is admirably expressed in the preface to the one volume manual, into which his three volume work has been condensed by Kate Mc- Kean (1864). This, in part, reads as follows:

''Why do misery and crime exist? Why when so large a portion of the earth is yet unoccupied are human beings suffering for food, and crowded together in unwholesome dens, to the sacrifice of decency, comfort and health? Why does one nation export food of which its own members are in need, while another sends its manufactures throughout the world although hundreds at home are scarcely clothed? Why are nations and individuals seen elbowing each other, so to speak, for room to live? Why are we called on to see everywhere an uneasy jealousy among communities, each watching with an unfriendly eye the expansion of the other — the strong ever encroaching upon the rights of the weak? Why should the chief European nations wage a ceaseless warfare against the industry and prosperity of the world at large? In short, what is the cause of the measureless woe that exists in this fair world which the Creator pronounced to be very good?"

"Who that has ever reflected upon human affairs has not asked himself these questions, has not at some period of his life sought to solve these problems? Is there no law regulating human affairs ? Is there no principle, broad, simple, comprehensive, which can account for all this confusion, and reconcile these contradictions ? If so, where is it to be found, to whom has it been revealed? Has the Newton of social science not yet appeared?"

Francis Wayland, Professor of Economics and Moral Philosophy, and President of Brown University, prepared a textbook in the preface of which he says : "The principles of political economy are so closely analagous to those of moral philosophy that almost every question in the one may be argued on grounds belonging to the other."

Wayland never loses a certain moral attitude toward his subject, and he teaches it as a means to human welfare; and I mention him here in order to list him in the class of humanitarian economists.

Henry George, whom some would deny a place among economists, is another American philosopher and writer on economics who heart and soul is intent on abolishing poverty, and who sought to establish unfailing employment and general welfare by destroying monopoly ownership of land through his single tax scheme.

In the class of humanitarians also belongs Richard T. Ely, of Wisconsin University. He says, Chapter I. of his Outline of Economics :

"Animating the entire subject, blended of course with the love of truth for truth's sake common to all sciences, is the persistent hope that by systematic study we may eventually abolish the material poverty which deadens and dwarfs the lives of millions of our fellows. Economics is a science, but something more than a science; it is a science shot through with the infinite variety of human life, calling not only for systematic, ordered thinking, but for human sympathy, imagination, and in an unusual degree for the saving grace of common sense Satisfaction of social need, not individual profit, is the objective point of the science."

"Economics treats of man; but the supreme importance of man in the study of wealth has not always been appreciated by those who have expounded the science. Too often they have considered man simply as a producer of wealth 'by whom' the necessaries, conveniences, and luxuries of life are created, whereas the infinitely greater truth is that man is the one 'for whom' they are produced."

'*We do not mean to say that the whole problem of human development is the subject of economics, but simply that manhood, rounded human development, is the goal of all social sciences, and none must consider their subject so narrowly as to exclude that object."

These brief passages from Prof. Ely's first chapter clearly indicate his humanitarian attitude, and his idea as to the scope of economics and its function in the life of mankind ; and this puts him in the class of economists that I speak of as humanitarians, as distinguished from the class that might be called materialistic, if not mammonistic, as putting things above men, and wealth above welfare. This latter class seems to consider it of the highest importance for a nation to figure large in financial and economic statistics; to secure important trade concessions in distant lands ; to hold great quantities of foreign securities; and, especially, to capture and dominate a large share of foreign markets, in order that wealth may accumulate, though men decay; forgetful of the fact that such a land fares ill, as the lamented Oliver Goldsmith declared.

As examples of this class of economists I would mention F. A. Walker, who, in his Political Economy, Briefer Course, Chapter I., says: "Political Economy has to do with no other subject whatever than wealth. The economist may also be a social philosopher, a moralist, or a statesman; but not on that account should the several subjects be confounded" (page 7). "AH those things which some economists have called intellectual capital, and those which by analogy might be called physical capital, are to be excluded from the category of wealth. These have seemed to be things so desirable in themselves, so much to be preferred in any right view of human welfare, that excellent writers have not been able to bring themselves to leave them out of the field of economics. But political economy is the science, not of welfare, but of wealth'' (page 10). "It cannot too strongly be insisted on, that the economist, as such, has nothing to do with the question, what men had better do; how nations should be governed; or what regulations should be made for their mutual intercourse" (page 16). "Great confusion has been engendered by writers on economics wandering off into discussions of political equity. The economist, as such, has nothing to do with the question whether existing institutions, or laws, or customs, are right or wrong. His only concern with them is how they do, in fact, affect the production and distribution of wealth" (page 17).

These excerpts sufficiently indicate Mr. Walker's viewpoint as to the scope and function of economics, and a like attitude of mind is evidenced by Prof. J. L. Laughlin in the textbook on economics which he prepared for his classes, and which is a revision and condensation of Miirs Principles of Political Economy. This

SCOPE AND FUNCTION OF ECONOMICS. ii

revision was published in 1884, and in it Professor Laug"hlin seems to take particular pains to correct the supposedly mistaken humanitarian attitude of Mill. But in some of Laughlin's later writings, notably in his little volume entitled **Latter Day Problems," published 1909, his own attitude is changed very much toward a distinctly humanitarian leaning.

The greater number of English economists, especially of the ''lassez faire" school. Senior, Fawcett, McCulloch, Mallock, all maintain an attitude of indifference and aloofness from humane reform ideas, as having no connection with economics; and they have formulated that "dismal" science against which Ruskin and Carlyle thundered their denunciations. Carlyle, in Past and Present, Book III, chap. 9, p. 228, says: "The saddest news is that we should find our national existence depend upon our selling manufactured cotton at a farthing an ell cheaper than any other people ; a most narrow stand for a great nation to base itself on. Think of a nation which fancies it must die if it do not undersell all other nations to the end of the world!" And on page 326: "It is for others to know in what specific ways it may be possible to interfere, with time-bills, factory-bills, and other such legislation, between workers and employers ; the present editor (Carlyle) knows not; he knows only and sees, what all men are beginning to see, that legislative interferences, quite a number, are indispensable, that the lawless anarchy of supply and demand can no longer be tolerated." See also Ruskin's "Unto this Last''.

I have begun this essay by pointing out that at the very threshold of the science, at the initial question: what is it about, and for what purpose, economists are a house divided against itself. And in chapter II, I shall show that on the question of value economists are very much at sea; so much, that several have openly declared the value question to be an unsolved problem. Since this essay must be brief, and mainly devoted to a discussion of what I have termed a rational theory of value, which is presented in Part II, I will here but lightly touch on several fundamental errors which have more or less direct connection with current theories of value. My contention is that present value concepts and theories are incomplete, and wholly inadequate for making them what they should be — the basis and foundation of the entire economic science. This insufficiency of the generally accepted value concepts is due, I contend, to several fundamental errors; and to false ideas concerning the relations of man to man, the rights and duties of individuals, and the claims and duties of society. These errors and false notions have naturally been shared by writers on economics, and are reflected in their value concepts. But be it remembered that much of what we of today speak of as errors and false ideas, in times past was accepted as truth and as sound sense, and in one way indeed was such. It is today a mere commonplace to say that in the passage of time, along with industrial, political, and intellectual progress, the human race undergoes a continuous change of viewpoint; change in its sense of right and wrong; and in its general notions as to man's place in nature, as well as to his place in the social fabric. Summing up the total of sentiments, ideals, desires, beliefs, aspirations, and aims of any given time and place, and calling that the spirit of that age or time, all individuals living at such time and place are largely dominated by that spirit; especially is the written thought marked by the spirit of its respective age, at least that part of the written thought which finds acceptance and currency. And naturally the writers on economics were, generally speaking, influenced by, and reflect this spirit of their age in their theory of value, as well as in their economics in general. No value theory, evolved under the influence of a society based on slave labor, could prove acceptable in a free labor, or wage labgr, age. The undisputed private ownership of land gives a basis for rent, and for a theory of rent, and affects current theories of value ; but the rent theory will collapse, and value theories will be modified, should private ownership of land be abolished or materially restricted. No theory of value can obtain currency or force if it conflicts with general notions and customs; it must accord with the spirit of its age.

The value theory that I shall here present could not possibly have been accepted before these latter days, and it remains to be seen whether the times are now ripe for its acceptance. I hope so, for I verily believe that economic, intellectual and moral progress is halted because of the absence of a true and socially vitalizing theory of value. Moreover, political economy is today without an undisputed theory of value; confessedly, value is still a disputed question among economists, and by some acknowledged as an unsolved problem.

To solve this problem, and to point out erroneous premises which hinder the solution of this problem, is the task I have undertaken in this essay. The first of these false premises, that economics has nothing to do with welfare but only deals with wealth and nothing else than wealth, has already in part been discussed; and it was pointed out that here, right at the beginning of the study, there is dispute and disagreement among present as well as among past teachers of economics, depending upon the personal leaning and viewpoint of the respective writers. This divergence of opinion shows that, strictly speaking, economics is not a science ; that its dicta are expressions of opinions, rather than of proven or provable facts; and that it is called a science by courtesy and for convenience. It is a study and discussion of theories rather than a science. Economics is not in the class of exact sciences like mathematics, chemistry, and physics, the propositions of which can be proven on the blackboard or demonstrated by experiments in the laboratory. The most that can be done with the propositions of economics is to reason them out to a convincing degree of self-evidency, such as will satisfy the average intelligence; and any subsequent experiment requires the consent of whole communities, and usually takes decades of time to prove out. It is therefore quite natural that the opinions of economists should vary, and vary widely, according to personal idiosyncracy ; and it would consequently be foolish to judge harshly of economists. And since in the nature of the case I shall have to criticize their reasoning and reject many of their conclusions, I take occasion here to declare that I hold these men in as high regard as any other set of men who have labored and spoken according to their best knowledge and belief; and that nothing I may have to set down against their teaching is set down in a spirit of personal detraction, but solely to combat what I claim to be erroneous belief.

Let us resume then the discussion of what is, in reason and common sense, the true scope and purpose of economics. This is so admirably set forth by Professor Ely in Chapter I. of his Outline of Economics, from which I have quoted a few passages, that I feel unable to add anything worth while to what he there has said. But it would hardly be proper here to reproduce that entire chapter ; and inasmuch as some readers of this essay may not have ready access to Professor Ely^s work, I shall, in my own way, present such arguments as are at my command, to convince them that those who declare that economics has nothing to do with welfare but only deals with wealth are wrong; that they start wrong, at the very beginning of their inquiry, and that they necessarily must end with various erroneous conclusions.

For whom are houses built; roads and streets made; ships, railroads and bridges built; crops sown and harvested; schools, libraries, and other institutions established ? These questions answer themselves. It is evident to the commonest inteli6 SCOPE AND FUNCTION OF ECONOMICS.

ligence that all these works of man are for man, for his use and benefit; to give him food, clothing, shelter, comforts, education and recreation.* And if, because of some hitch in the social mechanism, these things, the constituents of wealth, at some points accumulate to a glut ; and if this excess of wealth condemns the very producers of that wealth to unemployment and consequent want and distress, that simply shows how badly economists have blundered. It shows how poorly they have done their work, how they have been groping in the dark, and how they have failed to teach the world sane and wise economics. The opinion that things constitute a consideration superior to man, superior at least to the common man, the lower ranks of laborers; that the things of wealth, in absolute and unquestioned control of private owners, must be and are the foremost consideration, regardless of public welfare or distress; such an opinion can be accounted for only on the ground that men have been in the habit of beholding just that state of affairs for many generations, and therefore could not believe that anything else was possible. The land and its yield belonged to the king, the nobles, the squire or other proprietor; and these exercised an unquestioned right to dispose of the crops as they thought best for their own interest or pleasure; so also did the manufacturer and the merchant with their wares. The welfare of the populace was a matter of small concern; the

* Even religion and the church is for man. Jesus said: The Sabbath was made for man, and not man for the Sabbath. Mark 2:27.

utmost that was considered feasible in their behalf was the establishment of almshouses. But to increase the wealth of kings and proprietors, and the profits of manufacturers and merchants, that engaged the thought and attention of early economists; and some present day ones have not outgrown that mental attitude. Possibly this despotism of private ownership and private interest was an historical necessity; was the right thing at the right time; right because necessary; right because comporting with the then existing state of general human development. But right no longer than necessary; and necessary no longer than till general human development reaches a stage where man is fit for cooperation, for brotherliness instead of antagonism, fit, in a word, for the cooperative commonwealth.

I quote here, as bearing upon this particular thought, a passage from Mill, Principles of Political Economy, p. 19: 'It often happens that the universal belief of one age of mankind — a belief from which no one was, nor without an extraordinary effort of genius and courage could, at that time be free — becomes to a subsequent age so palpable an absurdity, that the difficulty then is to imagine how such a thing could ever have appeared credible.''

But I shall not pursue this line of thought further; suffice it to say that the true philosopher and teacher of mankind is not content to describe things as they are, but labors to reason out how things ought to be. Likewise, the forward looking economist will not merely describe the economics that was and that is, but also the economi8 SCOPE AND FUNCTION OF ECONOMICS.

ics that ought to be and will be ; and he who puts men above things, and welfare above wealth, that economist has his face set in a direction which unquestionably is the right one.

Besides this initial error of a false idea as to the scope and mission of political economy, there are several other errors, shared in greater or less degree by practically all accredited economists, errors, which have more or less of a bearing upon their value concepts and their theories of value; inasmuch as the value theory of any economist is built up of and embodies most of his fundamental economic notions. Some of these errors connect closely with the initial one regarding the proper function of economics; others, pertaining to wages, capital, labor, supply and demand, are of a class that I call half-truths, being made up part of truth and part of error, and which, just because they contain partial truths, are the more perversive, since they mislead men into accepting them as complete truths. Looking back at the early economists of the eighteenth century, it seems that they assumed the economic and social conditions of their time to be fixed and unchangeable. They described and explained things as they found them ; and it did not occur to them to describe things as they might be improved, and how conditions might be made better, juster, and humaner for the lowly masses. Hence their so-called science became largely an attempt to justify as necessary and inevitable all social wrongs, oppressions, and despotisms. The absolute despotism of kings and nobles was accepted as natural and inevitable. And when later the despotism of aristocracy was superseded by the despotism of wealth, of private ownership of natural resources, the despotism of private control of the means of life and labor, then this was also accepted as natural and necessary; and all the evil consequences to the disinherited masses, engendered thereby, were likewise apologized for as inevitable and beyond remedy.

And we see that especially the so-called orthodox lassez faire school of economists of the nineteenth century were mainly busy with explaining as unavoidable all the industrial misery of their time; the poverty and wretchedness of the lowly toilers on farm and field, in mill and mine ; their starvation wages ; their slum habitations ; and the toil slavery of their women and children. Economists apologized for all these things as being inevitable, and therefore justified; and also as necessary for the commercial prosperity and glory of England, since she was by these means able to undersell other nations in the markets of the world. This reprehensible work of economists is a direct outgrowth and consequence of the false idea of putting wealth above welfare, and things above men, instead of making man and his welfare the end and aim of all work and effort, of all knowledge and philosophy. And economists who fail to do this, who mistakenly follow the opposite course, thinking thereby to give their subject a truly scientific character, merely prove themselves to be blindly groping pedants; and the probability is that they may soon find themselves and their alleged science relegated to the limbo of things discarded and forgotten.

Another error, coincident with the foregoing, was the supercilious mental attitude of the educated and the ruling classes toward the common man and the laborer. What rights had these a claim to anyhow, in society and in life? To what consideration, if any, were they entitled? What were they here for on this earth? Owing to their numbers, their interests should have had first place in the consideration of public policy and endeavor; but it was not even conceded that they might claim to be here for their own sake and for their own welfare. They are here to provide soldiers, thought the rulers. They are here to produce wealth, subsistence and luxuries for us, said the land owners, the bankers and the captains of industry and their spokesmen, the orthodox economists. They were regarded by economists as producers of wealth with much the same feeling and consideration with which a farmer regards his pigs as producers of pork. Even the best of economists, such well-meaning men as Adam Smith and J. S. Mill, in their reasoning treated the laborer as a commodity. Perhaps they did this somewhat unconsciously, but they did so none the less when using the terms "labor" and "laborers'* synonymously. Mill, in his "Principles," p. 554, has this statement: "There are commodities which, though being capable of increase and decrease to a great extent, their value always depends upon demand and supply. This is the case in particular with the commodity labor." When speaking of the supply or increase of labor, they mean the supply or increase of laborers, of men. These two, labor, the activity, and the laborer, he who exerts that activity, are so conjoined they cannot be separated in actual life, and they are so identical in economic reasoning, that when you make a commodity of one, the other becomes a commodity also.

By making labor, and with it the laborer, a commodity, economists have in their reasoning reduced the laborer to a thing, a soul-less, will-less thing; or, at best, a mere work animal without selfhood and conscious life purpose; a creature to be used and directed by others as they see fit, and as suits their advantage. I said economists have in their reasoning reduced the laborer to this; perhaps it would be more correct to say that they found him thus, and that they left him so, as far as their science is concerned. They assigned to the laborer's life hardly anything beyond this : to work, eat, sleep, and to propagate his species, so as to keep up the supply of laborers somewhat in excess of the actual need; and they deduced a law of subsistence wages, the so-called "iron law of wages,'' which was supposed to cut oi¥, automatically, the excess supply of laborers, by a process of slow starvation. I do not know whether, as an actual fact, men in any great number were ever reduced to such a low standard of life as these economists would make us believe is the natural and inevitable level to which competition and economic self-adjustment must necessarily bring the laborers. Perhaps the conditions in England during the first half of the nineteenth century were largely so, as this seems indicated by various utterances in the literature of that time; such as: Hood's Song of the Shirt, Shelly's To the Men of England, Tennyson's Maud; by novelists like Dickens; and by essayists like Ruskin and Carlyle, who scathingly criticized the political economy of their day, which knew no remedy and which called these conditions inevitable. But, certainly, in no Anglo-Saxon country do any such conditions obtain today, nor in any of the advanced European countries; and any political economy which assumes this bare subsistence as a law of wages, and on such a labor cost bases its theory of value, I hold is utterly absurd, and absolutely out of date.

We find then that the economics of those days was merely descriptive of what it saw, rather than instructive as to better ways and better things that might be; that the advance made by man in his economic condition was made without help from this alleged science, made rather in spite of the political economy of that period and the pronouncements of its professors and teachers. If political economy cannot instruct the race how to establish general welfare; how to eradicate that socio-economic disease poverty; but only can describe it and tell us it is here, then of what use is it? It must stand as discredited as would stand a medical science which did not endeavor to cure disease, but was content merely to describe it.

While the Malthusian theory of a bare subsistence condition for labor is contrary to the general facts of human life in modern times, and repugnant to reason when presented as a fundamental principle in economics, as something natural and unalterable, it is none the less a partial truth; and it has withstood all the fierce attacks made upon it on the mistaken assumption that it was wholly false. The trouble was that the opponents of this theory, that population tends to outrun subsistence, did not realize that it was a contingent truth; that it contains elements of truth as well as of error. And instead of separating the true from the false, they wasted their words in vain attempts to disprove it in toto, largely on sentimental and religious grounds. For, granting the assumed premises of the Malthusian theory, that the mass of men exist on a plane of life like unto an animal, to eat, sleep, and to gratify their sexual impulses, regardless of consequences ; and that as a result they propagate and increase in numbers to the maximum bearing capacity of their females ; granting these premises, the Malthusian conclusion, that the number of men will tend to exceed the sources of subsistence is undeniably true. This is true at least in all countries outside the tropics, in the very countries and nations for whom the science of economics was formulated. But the moment these premises are proven to be false, or proven to be no longer true, that moment the Malthusian subsistence and population theory with all its attendant consequences falls to the ground. Now I contend that these premises have largely ceased to exist as an actual and general fact of ^human life, and that they are disappearing more and more from day to day; hence, the Malthusian theory of population and subsistence limit has become obsolete, has lost validity; and with this has been lost the basis of some of the fundamental ideas of conventional political economy.