Economics

Front matter

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Preface

Several chapters of this book were originally printed as lessons on Economics in University Extensioiiy a magazine published in the interests of the movement for the Extension of University Teaching.J Those chapters, in a somewhat expanded form, were submitted as a thesis to the University of Pennsylvania in 1893. Other portions have appeared as University Extension courses at the Oxford (England) Summer Meeting and in various centres of the American Society.

The presentation of the entire subject, while influenced in great measure by such contact with students who approach the subject from active life, is intended also for the class room of the college and high school. The inspiration which, in common with scores of the younger generation of economic students, the author has

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VI PREFACE

received from " that prince of teachers," Simon N. Patten, Professor of Political Economy in the University of Pennsylvania, will be sufficiently obvious to any reader of the current literature of the subject.

New York, 1898.

Contents

CHAPTER

I. The Economic Man II. The Economic Environment .

III. The Social Conditions of an Economic

Chapter I

Economics is the science of man in his relation to wealth. By wealth is meant, not as in common speech, a large quantity of desirable goods, but rather all desirable things in quantity great or small. The unit in economic observations and reasonings is man as a member of a wealth-producing and wealth-using community. The terms used in the study imply human needs, relations, and activities. The man who is of interest to the economist has need of goods, some of which are given free by nature, some like natural fruits, given free by the community in which he lives, some like the farmer's grain, produced by his own efforts, and some like the food on the mechanic's table, given by the community in return for the product of his

B I labor. The economic man has the capacity for performing useful service of some sort, and for uniting with his fellow-beings on some sensible basis for mutual exchange of services. A preliminary description of the economic man is necessary : for a mastery of this single expression is to the economist what an intelligent appreciation of the character of the cell is to the biologist, or an understanding of the school of the soldier to the student of military tactics.

The economic man, then, is a human being. The term is generic, including both men and women ; not merely those who are usually called breadwinners, but also the bread preparers. Men and women may do different work, their place in the economic world may be distinct,^ but both are included in the term by which we designate the unit with which our study deals.

The economic man, secondly, has material and spiritual wants which are satisfied by means of goods. The quantity and character of goods desired may vary widely at different times and

^ See Economic Function of Womaji^ by the present author, Publications of the American Academy of Political and Social Science.

places, furnishing an indication in each case of the particular kind of economic man then and there to be found. Some wants, however, are universal. Of these, food is first in importance, and has sometimes been taken by a figure of speech as a collective expression for all the goods required to supply man's wants. This is done, for example, by the economists who trace a connection between the wages paid to laborers and the cost of food. Strictly speaking, the relation is between wages and the cost of living. Next in im.portance are shelter and clothing, though in point of time ornaments are perhaps desired at an even earlier stage. Human association and religious worship are among the most primitive goods, and these desires remain of chief importance in every stage of civilization with which we are familiar. Besides these fundamental wants there are innumerable special desires and a class of goods to correspond to each, however fantastic or however common. Man as the object of economic inquiries, having human desires, has also human capacities. Infants, idiots, idlers, invalids, and criminals are excluded more or less completely in accordance with the degree of their incapacity. Those who are entirely dependent, and those whose natures are so perverted that society cannot afford to give them an opportunity for the free exercise of their powers, are not to be regarded, for purposes of economic study, as integers in human society. Their presence raises many interesting economic questions, but they are not themselves economic men. It is obvious that different economists may have different views of the exact place where the line separating economic men from dependents should be drawn, and that some writers may not take the trouble to think out the distinction carefully, leaving even themselves in uncertainty whether, for example, persons supported in part by their own efforts and in part by charity ^ are or are not included in the observations which they make. Probably it would be most satisfactory to draw the line sharply between the economic man and the social debtor, including in the first class only those whose withdrawal would be felt to be a real economic loss to the communit}^,

1 In England at one time nearly all common laborers received public relief at some period of their lives.

and in the second class all who live upon others. Immense consequences flow from this distinction. It has been recognized tacitly by many of the writers on economic subjects. Careless critics, failing to discover that the economists were thinking only of the real members of economic society and not of the social debtors, have declared that their principles were false, because they did not apply to this or that special class, when in all probability the principles should have been applied only to the free and effective workers, the intelligent users of wealth, to the economic man whose desires and capacities are normal.

We may find a useful comparison in civic relations. The citizen is one who is a member in full standing of the political community, who may claim the usual rights, and expects to perform the ordinary duties of citizenship. Nearly all nations have tolerated the presence of other persons who share in the protection of the government, who are required to obey its laws, and who may have certain civil rights which may be taken away, however, or modified without their consent.

The distinction between the economic man and the social debtor is somewhat similar. The great body of the active workers throughout the world, whether day-laborers, skilled mechanics, merchants, or brain-workers, constitute a solid industrial community, each part connected by numerous bonds with every other part, each member contributing something that will satisfy the wants of himself or of others, and each aiding to some extent to determine what kind of goods he himself and others who are at work shall produce. Excluded from this body by their failure to make any such contribution are the social debtors — the idlers, the inefficient, the industrial failures. Their failure may be due to natural weakness, or to misfortune, or to a criminal unwillingness to take part in honest toil. There is no law or constitutional provision excluding them as a class from the industrial world, and nearly all who are able to work at all are at times persuaded or compelled to do so. But their work is irregular and of little value, and in large part they rely upon the bounty of others who are united to them by social or religious ties, or upon the care given by the state.

When they are employed, they are apt to receive from motives of pity or for other reasons more than they really earn, thus concealing the extent to which they are supported by the active workers.

It must not be thought that all social debtors are blameworthy. Those who are at one time dependent may have done useful work at some previous time. Many who appear to be completely disabled are nevertheless producers because they influence and stimulate the efforts of others. Young children might be thought equally useless with those whom we have called social debtors, but excepting those who are to remain useless all their lives it is better to regard them as workers in preparation. Our attention is directed toward their development into healthy, well-balanced, useful members of the community, and it is expected that they will gradually fit into their natural places of economic activity, first in their own homes, and then in some chosen occupation for which they will have been prepared.

Perhaps at some time in the future we shall come to think of all social debtors, except those who are disabled, in much the same way as undeveloped, untrained members of society, who can be transformed into active members by some suitable course of instruction and discipline. Farm colonies for tramps, indeterminate sentence in prisons, military and naval service, maintained in some countries on a large scale partly for its educational value, and the many attempts to restore individual families to selfsupport by means of the personal influence of friendly visitors, all rest upon this idea. Such agencies as these counteract to some extent the downward tendencies caused by " hard times," overwork, unhealthful sanitary conditions, intemperance and immorality, which every year in every country leave by the wayside thousands who have had the capacity for work.

Without attempting, therefore, to fix the moral responsibility for the difference between those whom we call economic men and the social debtors, or to find out at present why there are so many in the latter class, it is sufficient to point out the distinction and to warn the student that nearly all economic discussion refers to the first class, which is fortunately, also, by far the most numerous.

The laws of value, of wages, of profits, of interest, of rent, of money, of credit, of consumption, of social progress, are laws operating in a society of equals.^ The unit of all calculations is the economic man with clearly defined wants, with personal capacity for some kind of useful work, with the power of choosing between higher and lower pleasures, between the satisfaction enjoyed to-day and that insured for a future period, and with a social nature enabling him to work in some degree of harmony with other men. It must be admitted that every true economic principle would remain true when applied to a single man in the midst of a desert, or to a society of dependents all living, without any effort or responsibility of their own, on the direct bounty of some outside power. But the principles would then be applied very differently. Their relative importance would be altered ; and the practical conclusions to be drawn from, them might be completely reversed. Thus in a society composed entirely of dependents the desire for food and for shelter might remain

1 This word is of course used in a relative sense. Economic men are equals in that all earn their living.

lO ECONOMICS

among men as at present, but if the outside power gave shelter freely and food sparingly, the relative value of these two classes of goods would be influenced by this fact just as at present it is influenced by the relative cost of securing them.^

No student of economics could entirely forget, even if he desired to do so, the social conditions in the midst of which he finds the economic laws to be in operation. It is natural to keep those actual conditions constantly in view, whether practical conclusions are drawn and practical applications made or not. Economic men constitute society. On the outer fringe of the society to be studied is the social dependent. He cannot be ignored. He is not to be explained by exactly the same principles as apply to society in general. The social debtor may be cast aside to perish, or tolerated as a persistent drain on the social income. Neither course is wise, though human society is constantly alternating between them.

Leaving aside this problem of practical philanthropy, we return to our society of economic

THE ECONOMIC MAN II

equals to consider what mental traits may be discovered which are as universal as the physical characteristics already pointed out. Foremost among these is the feeling of personal independence, of confidence in the ability to earn one's living, a sense of security on the part of the individual in the continued public appreciation of the services which he can render. Where this confidence is lacking, the man is not conscious of full economic freedom. Where it is robust and universally shared, the economic ideal is realized. The possession of property no doubt strengthens this sense of security, but its real basis is personal, and it is to a large extent independent of any present possessions other than physical health, mental vigor, and a free opportunity to use one's powers to the best advantage.

Coupled with this feeling of personal independence there is, in the normal economic man, an unwillingness to take for personal use any wealth which he has not earned. He would not steal even if the laws did not prohibit it. He will refuse to accept presents except as courtesies which will in some way be reciprocated. He will accept the highest possible reward for his own labor, because that is the law of his society, and he willingly sees others exact similar terms of exchange ; but if he were to find himself in position to pocket the wealth belonging to others, he would reject the opportunity, insisting upon such social " rearrangements as would restore the wealth to its rightful owners. If the facts of actual life appear to be in conflict with this broad principle, it is partly because individuals are sometimes brought into possession of property as the result of complicated legal and social relations which they do not fully understand, so that they do not appreciate to what extent they have really become dependents, or social debtors, and remain under the delusion that they have in some way earned and are entitled to all that they have ; and partly because there are many persons who having such opportunities eagerly seize them from what is at bottom a criminal instinct. They thus belong in the criminal class of social debtors. The laws even of civilized countries are imperfect, and do not reach all v/ilf ul offenders ; but they are steadily improving, and in no direction at the present time more rapidly than in their extension to the class who, having large income, attempt to escape a just accounting for its origin. The reason for this improvement is not a class feeling of envy or resentment, but the fact that the great body of citizens, rich and poor, deliberately act upon principles of equity, and sternly insist that those who refuse to recognize those principles shall be put where they belong, beyond the pale of honest citizenship.

Another mental trait of the economic man is his readiness to accept the final judgment of the community as to the market value of the commodities and services which he wishes to buy or sell. He may use great ingenuity and skill in the attempt to make that judgment more favorable to himself and to those whose interests are identical with his own, but he accepts it nevertheless as the basis of his economic relations with his fellows. The line between the economic man and the social debtor is nowhere more clearly drawn than here. The latter may be given an income determined by his human needs, or by the public safety, or by the generosity of those who deal with him, or by the amount of the free surplus at the disposal of society. Any of these methods of distribution involves inquiry into the personal affairs of the recipients, such as would be resented by the normal economic man. Such inquiry would be humiliating to one who is not in need of assistance. It may or may not be humiliating to a dependent according as the dependency is, or is not, caused by his own fault.

Economic society might conceivably adopt some other basis of wealth distribution such as that proposed by the socialists or the communists. But present opinion in all countries, and, as far as all history shows, the practically universal opinion of the past, has been in favor of a general market value for each class of goods, nicely adjusted to the total quantity of such goods available, and to the demand or general desire for them. Attention will be given in due time to the exact nature and laws of value. At present it is only necessary to point out the universal acquiescence in the fact of value as a characteristic of that part of the human family with which we are directly concerned. Those who struggle for higher wages, no less than others who attempt to sell land or diamonds at the highest possible price ; advocates of a single gold standard, no less than bimetalists who would like to see the price of silver increased ; scholars who prize books and instruments of research, and an opportunity for travel, and free time for meditation and study ; parents who weigh carefully the cost of proposed courses of education for their children ; every one who has any kind of unsatisfied desire takes value into consideration.

The economic man has many other characteristics less easily described, but these are fundamental, are easily recognized, and will remain as a part of our conception, however extensive may become our acquaintance with his less obvious traits. It has already become obvious that the economic man is not a mere abstraction and that he is not a rare exception. He is not only a human being. He is the normal human being of ordinary life. To an increasing extent we are all becoming economic men.

Chapter II

Like geography and some other sciences, economics requires a knowledge of man's surroundings. Those surroundings are partlyphysical and partly social. What economics demands of physical science is a knowledge of the particular facts concerning the surface of the earth and the atmosphere which have any direct bearing upon man's welfare. If it were our task to account for those facts, it would be necessary to bring into our study all the teachings of astronomy concerning the past and present of the solar system, all the teachings of geology concerning the formation of the crust of the earth, and the teachings of biology concerning the natural history of plants and animals. If, on the other hand, we were to attempt an examination of all those branches of human knowledge which indirectly contribute to the welfare of man by furnishing to i6 mechanic, farmer, or physician, the necessaryequipment of his calling, we should speedily get beyond the proper boundaries of any single science. Our inquiry is much less extensive and may be stated in this way : Of what general conditions must account be taken in man's struggle with nature for a living ? Or, in other words, what are the facts which determine the character of his economic life ?

It is evident that we cannot borrow indiscriminately from geography, geology, or other sciences. There are innumerable facts which are essential to a well-ordered description of the earth's surface which are not essential in a statement of man's economic surroundings, because they have a very remote bearing, if any, upon the welfare of society. Such, for example, are the descriptions of many of the natural wonders of the Arctic regions and of the luxuriant vegetation of tropical swamps. The increase of knowledge or a shifting of conditions, such as the discovery of gold in the Klondike, or the transfer of tropical islands to a more efficient government, occasionally increases the relative importance of such facts, c giving them a new significance. By such means the environment, to adopt a more appropriate term for all these surroundings which have an influence upon man's welfare, is continually changing, certain conditions which were once of consequence ceasing to be so, and others rising to a prominent place. But the environment, as we shall use the term, never includes more than a comparatively small fragment of the universe, or, for that matter, more than a small portion of the facts and relations to be found on our own globe. In searching for those conditions of physical nature which are the primary requisites of human activity, we encounter, first, what seems to be fundamental and universal, the existence of physical energy. The forces of nature are to a large extent placed under man's will. If this were not the case, man would not be able to exert any influence over his own well-being, and there would be no occasion for the study of economic laws. This physical energy appears in various forms, as heat, light, magnetism, gravitation, and muscular force. In any of its forms it is convertible into others. In this process, if intelligently directed, it transforms useless matter into useful goods, and thus contributes to the end of all economic activity.

Physical energy is often totally misdirected with the effect that goods which might have been of use to men are destroyed, i.e., given a form which renders them unfit for the use to which they would have been put. Perhaps it is never so directed as to be fully utilized. All human progress may be looked upon as an increase in the economy of physical energy. The new machine which utilizes a larger proportion of the force released by the burning of coal or the falling of water thus becomes a type of the progress of society.

The student of physics learns that whether man succeeds or fails in his attempt to utilize a particular form of energy for his own purposes, the energy itself is not lost. The physicist measures it, in its earlier and later forms, and finds that none has been destroyed. But such measurements do not concern the economist. The success or failure to utilize the energy in the particular form in which it was embodied is, from his standpoint, a final failure or success. If the coal in the engine does not drive the wheels successfully, it is of little consequence that the temperature of the surrounding air is slightly raised, and that gases are produced by the combustion. Infinite knowledge would be necessary for a complete utilization of the available natural forces. The amount of knowledge which we do possess is the slow product of experiment and research. Years may be spent upon the simplifying of processes of which we are already in possession. Hence the saying among machinists that anybody can make a machine to do a given kind of work, but only a genius can make a simple machine that will do the work cheaply and well.

A few of the forms in which physical energy appears are of sufficient importance to justify a fuller examination of their relation to human welfare.

Heat may be regarded as the primary requisite of plant and animal life. Not only is heat an absolute condition of such animal and vegetable life as we know, but it would seem to be essential that we receive almost precisely that amount of it which we do receive.^ A few degrees in excess of highest summer heat would destroy vegetation over a large part of the earth, and a few degrees less than our winter temperature would render a still larger part uninhabitable. The sun's heat is used directly in countless processes of agriculture and manufacture ; it is an element in the formation of winds and ocean currents ; and by raising water from the oceans in the form of vapor it permits the circulation through the continents. Stored up in beds of coal it becomes one of the most highly prized agents of industry, and again, in its more direct form, it is the source not only of that high degree of physical vigor which is essential to human enjoyment, but of life itself.

Light, like heat, is indispensable, and as in the case of heat, the chief supply of our globe is from the sun. We may, perhaps, conceive a society existing without light, but its activity would be very different from our own. Almost the whole of our work presupposes sight on the part of those who direct and perform it. Without light, dangers to life would be multiplied,

1 Shaler, Interpretation of Nature ^ p. 66.

and countless sources of enjoyment would be destroyed. The dependence of human welfare upon the continued presence of a certain amount of energy in the form of light is therefore obvious. But it would be difficult to obtain a full measure of its contribution to our economic life. Color is as important in industry as in art, and both art and industry fall within the field of economics in so far as they contribute to human welfare. A faint illustration of the extent to which light enters into the environment may be found in the economy of time and labor resulting from the use of books and newspapers.

Gravitation is a third form of energy which demands special attention. No force is more familiar in the mechanical processes of everyday life, and it is all-pervasive. We rely upon it for the weight of the hammer, for the flow of water, and for the stability of objects when placed in position. Gravitation holds ships and railway trains in their courses. It draws the ripened seed and the withered leaf to the ground, and causes the circulation of air and of water for which preparation has been made by the -action of heat. Because of its very familiarity it is easy to underestimate the important part which this silent force plays in the life of man.

Among the various forms of physical energy, muscular force, and especially that exerted by human beings, has usually been assigned an unique place in economic texts. For certain branches of our discussion it will be of advantage to distinguish, in the total energy expended in any given industrial activity, that part which may be attributed to man's labor; but for our present purpose it will be simpler and entirely accurate to regard muscular force as one among many forms of energy, all of which, like muscular force, even if not in the same degree, are under human direction. Muscular force may be regarded as the highest form of physical energy, for the reason that the relation between the directive will and the energy to be controlled is here most immediate. It is not necessary to invent intermediate mechanism or device, or even, in many of the muscular processes, to make conscious calculation of means and methods. Action follows will with incredible swiftness. The natural force which has been generated in muscular tissue is nevertheless a product of other forces. It has a natural origin in the food by which man is nourished, the heat and light, and the biologic forces upon which his existence and health depend.

The forces of nature, some examples of which have now been given, are capable of acting only upon matter. The transformation from one sort of energy to another takes place by the process of moving material objects. It is a commonplace of economics that man's part in industry is confined to the moving of things, but it is also in this manner that all physical forces act. Heat and gravitation cause the formation of clouds, the fall of rain, and the flow of rivers. It is everywhere the moving of solid, fluid, or vaporous matter. There is likewise no other manner in which directive intelligence may assert its will. By a series of motions, ores are mined, goods exchanged, and nutritious food transformed into bodily tissue. These motions are largely within the scope of familiar observation. By a series of motions somewhat farther removed, mountain ranges were thrown up, glaciers carried across the face of the continents, soils made from disintegrating rocks, and animal and plant forms adapted to the various regions of the earth.

Since the physical forces upon which man is to rely act only upon matter, it becomes necessary to consider the appearance of the material world in and upon which they are to act. Of the earth's interior little is known, and even that little we may omit. Undoubtedly the interior is subject to the action of physical energy, and any radical changes in its condition might well be fatal to the existence of human society. Assuming its stability, however, we must regard all speculations concerning its condition as beyond our present field of study. We need consider only the earth's surface, including everything that is so near the surface as to be within reach of the miner and the dredger, and also including the atmosphere. The physical forces act uniformly wherever they are to be found throughout the world ; but those elements of the environment upon the examination of which we are now entering are variously arranged in different regions. It would be difficult to find any two spots on the earth in which the environments are identical; and the primary differences are geographical.

The natural home of man is upon the land. The entire expanse of land area is a little more than one-fourth of the earth's surface, or about one-half as great as that of the sea, if we leave out of account the frozen oceans of the polar regions. Of this land area, three-fourths is in the northern half of the globe, and grouped into two great land masses, known as the Old World and the New. The Old World, consisting of two distinct continents, of which Africa is one, and Europe and Asia the other, is more than twice as large as the New World of North and South America. Australia alone is entirely within the Southern Hemisphere. Asia is distinguished for her lofty plateaus, Europe for her mountains and indented coast-line, America for her plains and river systems.^ The mountains of the Old World stretch from east to west; those of the New World, from north to south. The direction of the mountain ranges influences the direction of river courses, the distribution of moisture, the temperature, the