The flow of value

Preface

The World War has given impetus to the conviction, the growth of generations, that human energy ought to be directed to the service of human kind. The conversion of the combatant nations into unified organizations for the conduct of war has tended toward an unprecedented coordination of the activities of their peoples. This gives force to the conclusion that there ought to be the coordination of their activities for the general good, not only in time of war but in time of peace.

Although there is wide concurrence in the opinion that there will never be a reversion to the old conditions, there is lack of concurrence as to the changes that ought to be made in institutions and practices of the past. There are those who believe that there must be a radical transformation: others hold that modification of the status attained through the age-long development of civilization ought not to be abrupt.

Of foremost importance will be the solution of the problems concerning the determination of wages, of prices, and the acquisition and tenure of property. There can not be adequate grasp of all that will need to be taken into account without comprehension of the effect of procedure that has had the sanction of custom and of law.

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In the following pages is an attempt to set forth in general and in broad outlines the sequence of cause and effect in the determination of prices. There is no endeavor to trace this sequence in its relation to any specified price at any specified time or place. This would compel an immediate study of the particular incidence of the particular forces involved.

The meteorologist knows that the frost upon the window-pane is due to the temperature without and that within, to the thickness and texture of the glass, the character of its surface, the degree of moisture in the air. If he could in any given case measure each of these factors and the effect of each in their interrelation, he might be enabled to draw in simple outline the pattern that would be formed by their reaction and interaction, provided the glass were clean. But a window-pane, even in a well-ordered household, is seldom, if ever, absolutely clean. Attached to it are nearly always extraneous particles, watery, oily, or dusty, which have a marked influence upon, or may even dominate, the hoary figuration. So also, while cognizance of the primary factors may make it possible to denote the course of prices, there can not, without other data, be ascertainment of just why there is a particular price for a particular thing at a given time and place. '

The overwhelming importance of the problem makes it imperative to surmount the difficulties

PREFACE

IX that beset its solution. As the patient investigation of phenomena of animate and inanimate nature in mass and in detail by astronomers, geologists, physicists, chemists, and biologists has given rise to conclusions of vast benefit, so also must there be persevering study by economists of all that pertains to price. They may discover and isolate many a malignant sociological or psychological bacillus and thus be led to find and apply an antitoxin.

In the practice of medicine no more than a few decades ago it was chiefly through long experience that a physician acquired the insight which enabled him to diagnose a disease, and the skill which enabled him to combat its progress. Now the student, grounded in anatomy, physiology, and organic chemistry, gains in hospital and clinic that acquaintance with the various stages of every malady which qualifies him, in practice in the outer world, to detect the nature of a disease, the degree of its advancement, and to apply the remedy — in the extreme, to resort to surgery. So also it may come about that economists, trained in the fundamentals of their science, cognizant of research into economic phenonaena, with perception developed by the study of the actual course of business, may, when they take part in the affairs of the world, be enabled promptly to recognize a pathological condition of industry or commerce, to decide upon the course requisite to overcome

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the plethora of overproduction and its ensuing unemployment, or the anemia of underproduction and the consequent deprivation, to dissolve the irritation that may culminate in cancerous growth, and thus to reduce to a minimum the resort to the excision of bankruptcy and foreclosure.

Moreover, the time is inevitably approaching when the most complete information as to the effect upon the general welfare of all of the ramifications of any economic juncture will be indispensable as an aid to the judgment of any tribunal charged with the settlement of economic dissension. In the past the procedure of such a tribunal has been very much like that of a court of law. Disputants have been heard, and decision often has been in favor of the side making the more skilful and forceful presentation. It may be, however, that compliance with the petition of one who feels that he suffers unjustly may militate against the weal of many others not in evidence, or who indeed may not even be aware of the bearing of the dispute upon their activities or upon the reward for their activities. Legislators also have often made enactment in behalf of those who have raised the loudest clamor. Then when the enactment has worked to the disadvantage of others, they in turn have engaged in like vociferation, and it has been modified in their favor. In the long reach of time such pulling and tugging back and forth now and then may result in an equitable

PREFACE

XI equilibrium that could the better have been attained and adjusted to changing conditions were there continuing complete consideration, not only of contention but of the general welfare.

It must be said that the analysis in these pages is, in a way, a continuation of the presentation embodied in a previous volume entitled ^^How The World Makes Its Living." It is the writer's desire, however, that each exposition be complete in itself. To this end there is here and there in this book a limited and condensed restatement of certain of the premises and deductions of the earlier volume. Certain subjects there treated, as, for example, speculation, crises and panics, inheritance, and charity, are not here discussed. *^How The World Makes Its Living" presents the evolution of the entire economic structure ; ^^The Flow of Value," the sequence of cause and effect in determining prices, wages, and profit.

It is further to be stated that this discussion is of the physiology of the economic structure, with little reference to its pathology. Definite knowledge of the physiology of the human body led to the perception that many manifestations long regarded as pathological are indications of healthy development. So also it may be with the economic structure, as we attain a more thorough comprehension of the significance of its working.

ACKNOWLEDGMENT

It was the desire of the author that the manuscript of this book be scrutinized from the standpoint of the exposition in general, from the standpoints of the professional teacher of economics, of the practical philosopher of business, and of the practical philosopher of finance. This desire has been kindly and painstakingly fulfilled by Fabian Franklin, editor of the ^ ' Eeview " ; by Walter W. McLaren, professor of Economics in Williams College; by Leonor F. Loree, president of the Delaware and Hudson Company, whose inestimable offices in manifold ways have forwarded the preparation of this volume; and by Paul M. Warburg, formerly vice-governor of the Federal Eeserve Board. Byron J. Eees, professor of English in Williams College, has obligingly read the proof. While each of these gentlemen has made suggestions toward the improvement of the discussion of which the author has gratefully availed himself, it is explicitly to be understood that no one of them is to be held responsible for, or is committed to concurrence in, any opinion expressed in these pages.

The author thanks the faculty of Williams College and the residents of Williamstown for many courtesies extended to him during his sojourn in that charming village where this book was written.

Contents

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