Elements of economics

Preface

This book is designed to be an introduction to the science of economics. Technical discussions and difficult terminology have been avoided. The author has endeavored to write a book of practical value to the student, but is convinced that any practical work must be founded upon sound theory.

There are many economic questions upon which there may be dififerences of opinion. Both sides of most disputed questions are given. Students should be encouraged to draw their own conclusions after weighing the evidence.

While the experience of most teachers of economics has convinced them that one book should be followed as a guide, students should read references in other works. Fortunately there are many excellent books — ^perhaps too difficult in parts for the beginner — containing many chapters that can be read with profit by even an immature student. Among many works suitable for reference purposes the following are especially recommended: Bulloch, Introduction to the Study of Economics ; Carver, Principles of Political Economy ; Ely, Outlines of Economics ; Fetter, Principles of Economics ; Seager, Introduction to Economics ; and Turner, Introduction to Economics.

Grateful acknowledgment is made to the publishers and authors of copyrighted books for permission to use selections. The Macmillan Company has given permission to vi PREFACE

print certain quotations from Ely's Outlines of Economics, Spargo's Socialism, Taussig's Principles of Economics, and Plehn's Introduction to Public Finance.

Prentice-Hall, incorporated, has authorized the use of selections from Gerstenberg's Economics of Business, and Ettinger and Golieb's Credits and Collections. Harcourt, Brace & Co. have granted permission to use selections from David Friday's Profits, Wages and Prices.

Ginn & Company have given permission to quote a selection from Commons's Trade Unionism and Labor Problems.

The selections from Wolfe's Practical Banking are used with the permission of the La Salle Extension University of Chicago, Illinois.

To Richard T. Ely, the author is indebted for the use of a selection from Problems of Today, a work which is now unfortunately out of print.

To Professor E. E. Proper, of the Bay Ridge High School, Brooklyn, and to Miss Amanda Edson, of Emerson Hall, Brooklyn, the author is indebted for helpful suggestions. Grateful acknowledgment is made to Mr. H. K. Twitchell, President of the Chemical National Bank of New York, and Mr. G. Foster Smith, President of the Nassau National Bank .of Brooklyn, for assistance in the chapters on credit and banking.

A. G. Fradenburgh.

Brooklyn, New York, July 15, 192 1.

Chapter I Page

THE SOCIAL POINT OF VIEW — ECONOMIC DEPENDENCE UPON OTHERS — THE ORGANIC NATURE OF SOCIETY — THE SUBJECT- MATTER OF ECONOMICS — ECONOMICS AND OTHER SCIENCES — THE DIVISIONS OF ECONOMICS — ECONOMIC MOTIVES — SUM- MARY I

Chapter II Some Characteristics Of Modern Economic Society

PRIVATE PROPERTY — ^PRIVATE ENTERPRISE — INHERITANCE — VESTED RIGHTS — DIVISION OF LABOR AND EXCHANGE — FREEDOM OF LABOR — FREEDOM OF CAPITAL — RESTRIC- TIONS ON FREEDOM OF LABOR AND CAPITAL — COMPETITION — MONOPOLY— CUSTOM — SUMMARY lO

Chapter III Wants And Their Satisfaction

ELEMENTARY WANTS — CULTURAL WANTS — ADVERTISING CREATES WANTS — GOODS — FREE GOODS AND ECONOMIC GOODS — THE CONSUMPTION OF GOODS — PRESENT AND FU- TURE GOODS — USEFUL AND HARMFUL CONSUMPTION — PUBLIC WEALTH — SUMMARY 1 9

Chapter IV Consumption Of Wealth Further Considered

THE LAW OF SATIETY — THE LAW OF DIMINISHING UTILITY — THE LAW OF VARIETY — THE ECONOMIC ORDER OF CON- SUMPTION — consumer's goods AND PRODUCER'S GOODS — NECESSARIES — COMFORTS — LUXURIES — LUXURIES DO NOT

vii viii CONTENTS

PAGE

INCREASE DEMAND FOR LABOR FAMILY BUDGETS — ENGEL's

LAW — SOME RECENT FAMILY BUDGETS — MINIMUM-WAGE LAWS — SUMMARY 24

Chapter V The Production Of Wealth

NATURE OF PRODUCTION — PERSONAL SERVICES — NON-PRO- DUCERS — FACTORS IN THE PRODUCTION OF WEALTH — NA- TURE — LAND AS PROPERTY — THE INFLUENCE OF THE LAND UPON THE PEOPLE — INCREASE IN LAND — THE INFLUENCE OF THE CONSUMER UPON PRODUCTION — THRIFT VERSUS EXTRAVAGANCE — SUMMARY 39

Chapter VI

TEMPORARY LOWERING OF EFFICIENCY OF LABOR — DIVISION OF OCCUPATION AND DIVISION OF LABOR — ADVANTAGES OF THE DIVISION OF LABOR — DISADVANTAGES — THE GEO- GRAPHICAL DIVISION OF OCCUPATION — CAUSES FOR GEO- GRAPHICAL DIVISION OF OCCUPATION — INCREASE IN POP- ULATION — NATURAL GROWTH OF POPULATION — THE MAL- THUSIAN THEORY OF POPULATION — IMMIGRATION — AMER- ICANIZATION^SUMMARY 50

Chapter VII The Nature And Use Of Capital

CAPITAL AND CAPITAL GOODS — FIXED AND CIRCULATING CAPITAL — FREE AND SPECIALIZED CAPITAL — PUBLIC AND PRIVATE CAPITAL — THE ROUNDABOUT PROCESS OF PRODUC- TION — CAPITAL FORMATION — REPLACEMENT FUNDS — SUM- MARY 66

Chapter VIII

DEMAND AND SUPPLY — ELASTIC AND INELASTIC DEMAND — THE LAW OF SUBSTITUTION — SUBJECTIVE VALUE — MARKET

CONTENTS ix

PAGE

VALUE WHEN THERE ARE MANY PURCHASERS AND ONE SELLER — MARKET VALUE WHEN THERE ARE MANY SELLERS AND ONE BUYER — MARKET VALUE WHEN THERE ARE MANY BUYERS AND MANY SELLERS — COMPETITION NOT ALWAYS PERFECT — MARKET VALUE OF COMPLEMENTARY GOODS — THE MARKET VALUE OF FUTURE GOODS — THE RELATION OF COST OF PRODUCTION TO VALUE — THE MARGINAL PRO- DUCER — THE EXAMPLE OF OIL WELLS A COMPLICATED ONE — RESTATEMENT OF THE LAW OF VALUE — SUMMARY . . 72

Chapter IX

THE ENTREPRENEUR — INDIVIDUAL PROPRIETORSHIP — PART- NERSHIPS — LIMITED PARTNERSHIPS — CORPORATIONS — STOCKS AND BONDS — PROFIT-SHARING — WELFARE WORK — CO-OPERATION AS A METHOD OF PRODUCTION — INDUSTRIAL DEMOCRACY — THE RELATION OF THE STATE TO INDUSTRY — SUMMARY 86

Chapter X

THE PRINCIPAL AMERICAN INDUSTRIES — HUNTING, FISHING, MINING, AND LUMBERING

CLASSIFICATION OF ECONOMIC INDUSTRIES — EXTRACTIVE AND GENETIC INDUSTRIES — HUNTING — FISHING — MINING — LUMBERING— TIMBER DEPLETION AND PRICES — SUMMARY lOI

Chapter XI

THE PRINCIPAL INDUSTRIES OF THE UNITED STATES — STOCK-RAISING AND AGRICULTURE

STOCK-RAISING AGRICULTURE INTENSIVE AND EXTENSIVE

CULTIVATION — THE LAW OF DIMINISHING RETURNS IN AGRICULTURE — THE MARGINAL PRODUCT OF LABOR AND CAPITAL — SCIENTIFIC AGRICULTURE — URBAN AND COUNTRY POPULATION — DECLINE IN RURAL POPULATION — SIZE OF FARMS — MARKETING OF FARM PRODUCTS — SUMMARY . . II9

X CONTENTS

Chapter XII Page

MANUFACTURING

THE INDUSTRIAL REVOLUTION — THE FACTORY SYSTEM — THE EXTENSION OF THE FACTORY SYSTEM TO AMERICA — THE FACTORY SYSTEM STILL BEING EXTENDED — TENDENCY TO- WARD PRODUCTION ON A LARGE SCALE — ADVANTAGES OF THE SMALL PRODUCER — MACHINERY AND LABOR — THE LAW OF DIMINISHING RETURNS IN MANUFACTURING — SUMMARY 137

Chapter XIII

THE TURNPIKE PERIOD — THE REVIVAL OF LONG-DISTANCE ROADS — CANAL-BUILDING — RAILROADS — RAILROAD COMPE- TITION^RAILROAD ABUSES— PUBLIC REGULATION OF RAIL- ROADS — THE RAILROADS AND THE GREAT WAR — WATER TRANSPORTATION — THE MERCHANT MARINE ACT OF I920 — TRADE ON THE GREAT LAKES — SUMMARY 1 46

Chapter XIV Merchandizing

TRADE PRODUCES UTILITY — IMPORTANCE OF MERCHANDIZ- ING — STORAGE — THE HIGH COST OF SELLING — SALESMAN- SHIP — ADVERTISING — THE PRINCIPLE OF " CAVEAT EMP- TOR" — SUMMARY . 161

Chapter XV

WHAT IS INSURANCE ? — FIRE INSURANCE — THE CONTRACT — PREVENTION OF FIRE — LLOYDS — LIFE INSURANCE — THE LIFE-INSURANCE POLICY — DIVIDENDS — THE SCIENTIFIC BASIS OF LIFE INSURANCE — STATE SUPERVISION OF IN- SURANCE — OLD AGE INSURANCE — ACCIDENT INSURANCE

INSURANCE AGAINST SICKNESS — THE USUAL OBJECTIONS

TO STATE INSURANCE OF WORKING MEN — GROUP INSUR- ANCE — SUMMARY -.170

CONTENTS xi

Chapter XVI Page

WHAT IS MONEY? — WHAT MONEY DOES — MONEY AS A ME- DIUM OF EXCHANGE — MONEY AS A MEASURE OF VALUE — MONEY AS A STANDARD FOR DEFERRED PAYMENTS — QUALI- TIES NECESSARY FOR GOOD METALLIC MONEY — COINAGE — SEIGNIORAGE AND BRASSAGE — FREE COINAGE — GRESHAM'S LAW — BIMETALLISM IN THE UNITED STATES — INTERNA- TIONAL BIMETALLISM — SUMMARY l8o

CHAPTER XVn

VARIETIES OF PAPER MONEY — REDEEMABLE PAPER MONEY — IRREDEEMABLE PAPER MONEY — FIAT MONEY — BANK-NOTES — THE NATIONAL BANKING SYSTEM — ELASTIC CURRENCY — THE FEDERAL RESERVE SYSTEM — ISSUES OF CURRENCY BY FEDERAL RESERVE BANKS — MONEY IN CIRCULATION IN THE UNITED STATES — SUMMARY 19O

Chapter XVIII Money And Prices

THE QUANTITY THEORY OF PRICES — EFFECTS OF CHANGES IN THE VOLUME OF CURRENCY — THE MULTIPLE STANDARD — INFLATION AND CONTRACTION — INDEX NUMBERS — THE STABILIZED DOLLAR — SUMMARY 200

Chapter XIX

THE BANKING FUNCTIONS — THE DEPOSIT FUNCTION — LOANS AND DISCOUNTS — BANK RESERVES^KINDS OF BANKS — WHAT IS CREDIT? — PROMISSORY NOTES — BOOK- AC- COUNTS — ACCEPTANCES — BONDS — CHECKS — CERTIFIED CHECKS — THE CLEARING-HOUSE SYSTEM — BILLS OF EX- CHANGE AND DRAFTS — THE USE AND ABUSE OF CREDIT — SUMMARY 206 xii CONTENTS

Chapter XX Page

INDUSTRIAL DEPRESSIONS AND CRISES

TRUE EXPLANATION OF REGULAR OCCURRENCE OF CRISES — OVER-PRODUCTION AND CRISES — CROP FAILURES AND CRISES — THE RELATION OF MIDDLEMEN TO CRISES — THE BANKS AND CRISES — SUMMARY 220

Chapter XXI

NATURE OF INTERNATIONAL TRADE — THE FOREIGN TRADE OF THE UNITED STATES — BALANCE OF TRADE — PAYMENT OF INTERNATIONAL OBLIGATIONS — THE EDGE ACT AND THE WEBB-POMERENE ACT — SUMMARY 227

Chapter XXII

TARIFFS — THE INFANT-INDUSTRIES ARGUMENT — THE HOME- JMARKET ARGUMENT — THE WAR ARGUMENT — THE TARIFF AND WAGES — THE ANTI-DUMPING ARGUMENT — A PROTEC- TIVE TARIFF INVITES RETALIATORY TARIFFS — THE PROTEC- TIVE TARIFF AND MONOPOLIES — WHO PAYS THE TARIFF? — PROTECTION SELDOM INCREASES THE TOTAL INDUSTRIES OF A COUNTRY — CONCLUSION — SUMMARY 237,

Chapter XXIII

DEFINITION OF MONOPOLY — MONOPOLY PRICES — CLASSIFI- CATION OF MONOPOLIES — PERSONAL MONOPOLIES — PRI- VATE LEGAL MONOPOLIES — PATENTS — COPYRIGHTS — PUB- LIC LEGAL MONOPOLIES — NATURAL MONOPOLIES — NATURAL MONOPOLIES OF LOCATION^ — NATURAL MONOPOLIES BY NATURE OF THE BUSINESS — THE WATER MONOPOLY — GAS AND ELECTRIC SERVICE — THE TELEPHONE BUSINESS — STREET RAILROADS — PUBLIC VERSUS PRIVATE OWNERSHIP OF NATURAL MONOPOLIES — PUBLIC CONTROL OF NATURAL MONOPOLIES — LIMITS TO REGULATION OF PRICES — RAIL- ROAD MONOPOLIES — THE TRANSPORTATION ACT OF 1920 — GOVERNMENT CONTROL OF RAILROADS — TRUSTS, OR CAPI-

CONTENTS xiii

PAGE

TALISTIC MONOPOLIES — WHAT IS A TRUST? — ANTI-TRUST LAWS — SUMMARY 246

Chapter XXIV Rent

DEFINITION or RENT — LAND ON THE MARGIN OF CULTIVA- TION — IS THERE "no-rent LAND " ? — RENTS OF AGRICUL- TURAL LANDS DO NOT AFFECT PRICES — DO AGRICULTURAL RENTS ALWAYS RISE? — URBAN RENTS — CHANGES IN URBAN RENTS — SUMMARY 263

Chapter XXV

LIMITS OF WAGES — REAL AND NOMINAL WAGES — THE DE- MAND AND SUPPLY OF LABOR — TIME WAGES — PIECE WAGES — RATE-OF-SERVICE WAGES — NON-COMPETITIVE GROUPS — ADAM smith's REASONS FOR DIFFERENCES IN WAGES — SUMMARY 272

Chapter XXVI

THE OPEN VERSUS THE CLOSED SHOP — STRIKES — SYMPA- THETIC STRIKES — GENERAL STRIKES — LOCKOUTS — ARBITRA- TION — BOYCOTTS — CHILD-LABOR LAWS — WOMEN WAGE- EARNERS — THE EIGHT-HOUR DAY — SUMMARY . . . 279

Chapter XXVII

THE SERVICES OF LABOR ORGANIZATIONS — THE RISE OF LABOR ORGANIZATIONS IN THE UNITED STATES — THE AMERICAN FEDERATION OF LABOR — THE INDUSTRIAL WORK- ERS OF THE WORLD — THE LOYAL LEGION OF LOGGERS AND LUMBERMEN SUMMARY 29 L

Chapter XXVIII Interest

WHY INTEREST IS PAID — INTEREST AS A REWARD FOR WAIT- ING — PURE AND GROSS INTEREST — THE RATE OF INTEREST — LONG AND SHORT TIME LOANS — USURY LAWS — INTEREST NOT THE ONLY INDUCEMENT TO SAVING — SUMMARY . . . 3OO xiv CONTENTS

Chapter XXIX Page

NATURE OF PROFITS — THE ENTREPRENEUR AS A RISK TAKER — THE NATURE OF BUSINESS RISKS — CLASSES OF ENTRE- PRENEURS — DIFFERENTIAL PROFITS — EXTRAORDINARY PROFITS — WAR PROFITS — SUMMARY . 306

Chapter XXX Some Proposed Radical Economic Changes

THE SINGLE TAX — ARGUMENTS AGAINST THE SINGLE TAX —

ANARCHISM COMMUNISM SOCIALISM ARGUMENTS FOR

SOCIALISM EXAMINED — SUMMARY 313

Chapter XXXI

PUBLIC AND PRIVATE FINANCE COMPARED — THE BUDGET — GROWTH IN PUBLIC EXPENSES — PUBLIC REVENUE — ADAM smith's CANONS OF TAXATION — DIRECT AND INDIRECT TAXATION — TAXES ON IMPORTS — EXCISE TAXES — INCOME

TAXES — INHERITANCE TAXES — TAXES ON REAL ESTATE

TAXES ON PERSONAL PROPERTY — A PROGRAM OF TAXA- TION — EXEMPTIONS FROM TAXATION — TAXES ON SALES — PUBLIC DEBTS — THE LIBERTY AND VICTORY LOANS — SUM- MARY 325

Chapter XXXII Social And Economic Betterment

RECENT SOCIAL AND ECONOMIC PROGRESS — METHODS OF ECONOMIC PROGRESS — INCREASED PRODUCTION SHOULD BENEFIT ALL 345

APPENDICES

APPENDIX I — INDUSTRIAL REPRESENTATION PLAN OF THE FACTORY OF THE GOODYEAR TIRE AND RUBBER COM- PANY, AKRON, OHIO 351

APPENDIX II — AMERICANIZATION — WHAT IS IT ? . . 356

INDEX 359

ILLUSTRATIONS

PAGE

Chicago water front 43

Desert land made fertile by irrigatian 45

Skilled workmen in a Chicago packing-house 53

A stock certificate . . gi

Coal production of the United States 105

Production of iron ore in the United States . , . . . . 106

Bakersfield oil region in California 109

Timber depletion no

A ''skidder machine" . . . m

Destruction by forest-fire 115

Corn production of the United States 121

Wheat production of the United States . . . . . . , 122

Unloading cotton 123

Cotton production of the United States ...... 124

Machinery in use on a Western farm 125

Farm lands in New England and Montana . . . . . 129

Scene in a Detroit automobile factory 143

Mitchell Point on the Columbia River highway . . . 147

Barges on the Mississippi River 151

XV xvi ILLUSTRATIONS

PAGE

An ocean liner and an express-train 155

The "curb" market on Broad Street, New York .... 165

A promissory note secured by collateral 208

A promissory note and draft 211

A trade acceptance 213

A bank acceptance 214

A certified check 215

A foreign bill of exchange . 231

A commercial letter of credit . . . 233

Map illustrating rent 265

A city apartment-house and a suburban house .... 267

Cartoon illustrating war expenses 339

Selling liberty bonds in New York 341

ELEMENTS OF ECONOMICS

Chapter I The Nature Of Economics

Economics treats of man in his relation to wealth. It tells how men make a living and how they may make a better living. It is concerned with the production of wealth, how wealth is divided among the various members of the community, and how wealth is used. It has also to do with plans for a larger production of goods, a more equitable distribution, and a more rational and more economic consumption.

Not many years ago the subject was called Political Economy. Some authors still prefer this title, but Economics is the more appropriate term, inasmuch as many subjects discussed in economics are not at all political.

The Social Point of View. — Most people consider their own economic well-being as of first importance. This is natural. The economist, however, looks at all things from the social point of view, that is, 'Hhe greatest good to the greatest number." The individual economic interest is often opposed to the social interest. For example, a few years ago the Louisiana State Lottery was a profitable enterprise for a small group of men. Its operations were opposed to the economic interests of a majority of the people of Louisiana and of the nation and to the moral interests of all. The State of Louisiana, in refusing to permit the company to continue in business, rendered an economic as well as a social service. Then, again, the owners of a cotton-mill might benefit by employing child labor, but the public would not benefit.

Economic Dependence upon Others. — In earlier times every family was, to a large extent, independent of every other family. It produced its own food, made its own clothing, and lived in its own house supplied with water from its own well and lighted with candles made from the tallow of its own sheep. Such was the condition in America during colonial times.

Now all is changed. No one is economically independent. Each of us renders some service or produces some commodity for others and receives payment in money with which to purchase the goods we need. Recently a popular magazine showed, even for a simple meal, our dependence upon others:

^'The pepper came from ten thousand miles away. It grew on a little bush about eight feet high, which must have had a growth of at least five years. The pepper was picked green, it had to be dried in the sun, and this meant employing women. It took one ship and a thousand miles of railroad to bring the pepper to the United States. The tea on the table came from China and the coffee from South America. The codfish had to be brought from Maine. Men had to be employed to catch the fish; other men and women were employed in drying, packing, and boxing it, and it, too, had to make a long railroad journey. The flour of which the bread was made was grown in

Dakota; some one owned the land, and that meant the investmg of capital; and then he had also to pay wages to working men. The wheat had to be ground, and the building of the mill and the plant, or machinery, meant more money invested. The millers had to be paid; coopers had to be paid for making the barrels; and, of course, the wood of which the barrels were made had to be cut and sawed and shaped, and this meant the employing of more men. Then the flour had to be shipped over the railroad and handled again by cartmen before it came into the house. The salt came from the Indian Reservation in the northwestern part of New York State. The canned peaches came from California, and they too represented the employment of capital and labor. The spices in the cake came from the Spice Islands in the Indian Archipelago."

The only items on the table which could be produced within the county where the meal was eaten were corn bread, butter, and buttermilk. It is estimated that the little meal represented directly or indirectly the employment of five hundred millions of dollars of capital and of five millions of men.

The Organic Nature of Society. — Our dependence upon others has caused society, which includes all of us, to be regarded as an organism, just as the human body is an organism. Some parts of this social organism do one thing and some another. The services of each part are necessary to the welfare of the whole. Suppose, for example, the railroads fail to bring us food and fuel. Then the whole social organism suffers. Just as the human body cannot do its work if the nervous system is out of order, so society depends upon its nervous system — the telegraph and telephone lines. We are truly our brother's keepers.

The Subject-Matter of Economics. — Economics deals with subjects in which every one is interested. Such subjects as the protective tariff, public ownership of railroads, money and banking, stocks and bonds, labor problems, and monopolies are of concern to each of us. The main object in the study of economics is to teach us to think correctly on economic questions.

Economics and Other Sciences. — ^Every science is in some way related to economics. For example, arithmetic is used in the conduct of the smallest business. The higher mathematics are employed by surveyors, architects, mechanical and electrical engineers. Statistics form the scientific basis of the life-insurance business and are used by business men in calculating costs and determining the results of advertising campaigns. Chemistry and physics must be known by the scientific farmer as well as by those who engage in manufacturing. Among the social sciences sociology and history are most closely related to economics. Sociology is the science which treats of man in his relations with his fellow men. Economics may be considered as that branch of sociology which has to do with how men make a living. History is of such importance to economics that every historian must be something of an economist and every economist must be well versed in history. The English historian Freeman once said that ''History is past politics and politics is present history." Many modern historians would also say that history is past economics and economics is present history.

The Divisions of Economics. — Economics may be regarded as consisting of three sections: (i) Consumption of wealth, (2) production of wealth, (3) distribution of wealth.

1. The consumption of wealth deals with the use or using up of goods. Some goods, like edibles, are used in one process and are known as perishable goods. Others, like a house, may be used for many years and are known as durable goods.

2. Production has to do with making things ready for use. Nature furnishes raw material, but man must gather it and prepare it. The relation between production and consumption of wealth is close. Goods are produced in order that they may be consumed. Demand results in goods being supplied. But a supply sometimes creates a demand. The desire for a means of flying led to the invention of the airplane, but the production of airplanes produced a demand for them among persons who had never before considered the possibility of flying.

3. Distribution deals with the incomes which the various members of society receive. Rent, wages, interest, and profits are the subjects discussed in considering the distribution of wealth. Most of the great economic questions of to-day refer to distribution. For example, the interests of labor and capital are identical in the production of wealth. Both are interested in a large production, for the more produced the more there will be to divide; but when it comes to distribution their interests often seem to clash. The capitalist thinks the laborer wants more than his just share, and the laborer thinks the capitalist is the offender, and often both condemn the landlord as a conscienceless profiteer. To secure such a distribution of wealth as will be most fair to all parties is an economic ideal toward which progress is being made.

Economic Motives. — ^Men are impelled to work by a variety of motives and these motives are found in different proportions with different men. Self-interest is a powerful motive to induce men to work, but this is usually an enlarged self-interest. The pleasure of a night at the opera is more than doubled by sharing it with another. The same is true of a trip to Europe, an automobile ride, or anything that can give pleasure to a member of the family or to a friend. The phrase "economic man" was coined to describe a man wholly influenced by his own selfish interests. Such a man, if he ever existed, has fortunately been rare. The normal man works that he may secure necessities, comforts, and luxuries for himself and that he may provide a competence which will support him in ill fortune and in old age. But what he wishes for himself he doubly wishes for his wife and children and others dependent on him.

Social esteem is also a powerful motive. Men like to be well thought of in the community in which they live and will shun employments which their friends and companions regard as dishonorable or degrading. Social esteem explains why girls prefer to work in a factory rather than as domestic servants, even though the hours of labor and other conditions may be equal. The profession of law is held in high esteem, and every lawyer wants to be successful not only because of the income which success will insure but because of the standing his profession will afford him in his community. A successful lawyer wants to become a judge, though his income as a judge may be much less than he could obtain as a lawyer.

Another motive to economic activity is the desire for employment. For real men and women a certain amount of activity is pleasurable. For them loafing is the hardest kind of work. Many a man keeps at work because he likes to be employed when it is no longer necessary for him to "Work.

The instinct for association is another motive for activity. People want to do what others are doing, and in the United States, where most people are working, it is the fashion to work. In some countries, where there is a large leisure class and where work is not held in such high esteem, a part of the population finds association in idleness.

Altruism, or the desire to help others, causes economic activity among many of our people. Either impelled by religion or ethics, most people want to leave the world better than they found it. They work and accumulate riches in order that they may endow colleges or hospitals or do some service for mankind. This motive is not confined to the very rich. Many a day-laborer, during the period of the war, gladly worked overtime for a season in order that he might make a contribution to some of the war charities.

Summary. — Economics is a science which deals with man in his relation to wealth. Society may be regarded as an organism and every person has a service to perform for the* common good. All persons who can work and do not, are not only hurting themselves but are injuring society. Every science has some relation to economics, but history and sociology are especially helpful. From history we learn the experience of men and can avoid the mistakes and profit by the successes of those who have preceded us. Since the economic hfe of man is closely related to his other activities, sociology is helpful to the student of economics. For convenience in treatment, economics is divided into three sections: (i) The consumption of wealth, (2) the production of wealth, (3) the distribution of wealth. Each section is closely related to the others. Some economists prefer to begin the discussion of our science with the production of wealth; others with the ■consumption of wealth. Many motives impel men to work. Among the more important are self-interest, the desire for social esteem, the pleasure that comes from being employed, the instinct for association, and the desire to help others. i

1. What is a science? Is economics less of a science than mathe-

matics ? How do the social sciences differ from the physical sciences?

2. Give some illustrations of the conflict between individual and

social interests.

3. Show how you are dependent upon others for the materials

used in your classroom. How many men do you suppose contributed toward making your classroom what it is ?

4. We have mentioned in the text five motives which impel men

to work. See if you can find any other motives which influence some men.

5. Which motive do you think is the most important? Do the

same motives appeal in the same proportion to a lawyer and a teacher? To a farmer and a clergyman? To a missionary and a pawnbroker?

6. Professor F. A. Fetter of Princeton University speaks of men being influenced to work by their desire to serve the public. Their reward is largely in 'Hheir own consciousness of duty well performed." This reward he calls "psychic income." Give an illustration of psychic income that has come to some persons in your community. What psychic income have you received? 7. Some economists say that society is an organism. Others prefer to say that society is like an organism. Which expression do you prefer? Why?

Chapter II Some Characteristics Of Modern Economic

SOCIETY

Private Property. — In modern times most property is owned by private persons. People care for the things which they can call their own. A man who owns his own home has a pride in its possession. He has a personal interest in his city and in the street on which he lives. This makes for good citizenship. Private property exists because it is to the interest of most people that it should exist.

Private Enterprise. — ^As with property so industry is chiefly in private hands. Agriculture, manufacturing, mining, transportation, professional services, and banking are as a rule private enterprises. In some foreign countries the State owns and operates the railroads, engages in the banking business, manufactyres and sells certain goods, but even in these countries most industries are privately owned and operated.

Though private property and private industry are the rule, there is everywhere a certain amount of public control. For example, corporations, before they can do business, must meet the conditions prescribed by law. Factories must be run in accordance with the sanitary code and the legal requirements of labor. Rates charged by public-service corporations must not exceed legal rates. Food products must be clean and properly labelled. Nui-

lO

CHARACTERISTICS OF MODERN SOCIETY ii

sances and illegal business are forbidden. Certain professions like medicine, dentistry, and law cannot be practised unless a state examination be passed. Such regulations are in the interest of private persons, who would otherwise be unable to protect themselves against dishonest and grasping employers or incompetent professional men.

Inheritance.— Closely associated with the right of owning property is the right of disposing of property. During the life of the owner there is no restriction in his power to sell his property, except that in most states a married man cannot sell land without his wife's consent. However, his power to dispose of property after death is limited by all states. The law prescribes how wills must be made and makes provision in regard to the disposition of property in the absence of a will. In most states a man cannot disinherit his wife, and his minor children have rights that must not be ignored. In America, unlike England, land must not be left in entail, as it is called, if a will prescribes that an estate shall, pass to a certain class of heirs, like the eldest sons, through all future time.

Vested Rights. — ^Vested interests are rights which cannot be disturbed unless the owners of these interests receive compensation. They usually exist in property or contract. Vested rights were everywhere in evidence in feudal times, extending even to offices. Professor R. T. Ely gives several survivals of mediaeval vested rights: ''Leeds was compelled by a feudal arrangement to grind its corn, grain, and meal at the lord's mill till well on in the last century, and finally had to pay £13,000 to terminate these obligations ! When Prussia bought the railroads, the railway presidents were indemnified for the loss of their positions by large payments; in other words, their offices were looked upon as vested interests. England is the classic land of vested interests. An office in the army was until recently looked upon as such, and so was an appointment in the established church." In the United States vested interests have never played so important a part as in Europe, doubtless because America never passed through a feudal regime. When the XVIIIth Amendment to the Constitution of the United States deprived them of the value of much of their property without compensation, the distillers and brewers advanced the claim that their vested rights were violated. However, the claim was not allowed. Street railroad companies in their competition with motor busses have sometimes been regarded as possessing vested interests which protect them.