, H HB 171 5'=Q--"U"'vers,ty Library 
 
 Outlines of social economics, 
 
 '"iii'iili'i I I II iiii Ill mil nil Mill mil I 
 
 3 1924 002 238 479 
 
 ■ Vjvjl 
 
 trit) 
 
hb 
 
 II 1.5" 
 
 ^1 
 
 THE LIBRARY 
 
 OF THE 
 
 NEW YORK STATE SCHOOL 
 
 OF 
 
 INDUSTRIAL AND LABOR 
 
 RELATIONS 
 
 AT 
 CORNELL UNIVERSITY 
 
6 Q (y j^ 
 
 i^ 
 
 iy\m^m^ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 GAYLORD 
 
 
 
 PRINTED IN U.SA 
 
The original of tliis book is in 
 tine Cornell University Library. 
 
 There are no known copyright restrictions in 
 the United States on the use of the text. 
 
 http://www.archive.org/details/cu31924002238479 
 
OUTLINES 
 OF SOCIAL 
 ECONOMICS 
 
 BY 
 
 GEORGE GUNTON 
 
 AUTHOR OF "TRUSTS AND THE PUBLIC," "WEALTH AND 
 PROGRESS," " PRINCIPLES OF SOCIAL ECONOMICS," ETC. 
 
 AND 
 
 HAYES ROBBI NS 
 
 DEAN OF THE INSTITUTE OF SOCIAL ECONOMICS 
 
 PROPERTY OF LIBRARY 
 
 NEW yr:^^ state scijool 
 mmimi / :b laesr relations 
 
 CORNELL UNIVERSITY 
 
 NEW YORK 
 
 D. APPLETON AND COMPANY 
 1900 
 
 p.f. . 
 
Copyright, igoo 
 By George Gunton and Hayes Robbins 
 
PREFACE. 
 
 This volume is especially adapted for study clubs, lit- 
 erary and debating societies, and high schools. It may be 
 used independently or, if desired, supplemented with 
 Gunton's "Principles of Social Economics" chiefly, and 
 other works to which reference is frequently made. 
 
 It is believed that the method of arrangement will be 
 found very practical. Dividing the subject into twenty- 
 four distinct lessons, while it does not forbid a different 
 division when circumstances may require it,, as in high 
 school classes perhaps, makes it peculiarly well suited for 
 clubs and societies holding weekly or bi-weekly meetings. 
 By covering two topics each time, a club holding fort- 
 nightly meetings would complete the course in six 
 months ; so that this volume is a very convenient basis 
 for a winter's work. School classes, which must make 
 their work conform to the division of time by "terms," 
 can easily subdivide or group these lessons according 
 to their requirements. 
 
 It should be clearly understood that the present volume 
 is entirely complete in itself, and may be used without 
 reference to supplementary text-books or other litera- 
 ture. At the same time, for the sake of those who 
 wish to go more deeply into the subject, references have 
 been given in connection with each lesson to appropriate 
 chapters and sections in Gunton's "Principles of Social 
 Economics" and various historical and economic works. 
 
 iii 
 
IV PREFACE 
 
 To each lesson is appended a number of brief extracts 
 from some of the suggested readings, and a series of 
 questions on the topic, intended either for class work or 
 in preparing programs for club meetings. 
 
 Special attention is called to the extracts from sug- 
 gested readings. These throw interesting and helpful 
 side-lights on the study at every step, besides indicating 
 the views held by various economists and historians of 
 prominent reputation. 
 
 A bibliography, giving the prices and publishers of 
 every book quoted or referred to for collateral reading, 
 appears as an appendix. 
 
 There can be no more important group of subjects for 
 study by young men and women throughout this coun- 
 try, whether in school or out, than those treated in this 
 volume. They deal with problems which lie at the root 
 of intelligent, useful, American citizenship. Therefore, 
 the constant eflfort in preparing this book has been to treat 
 each topic in a clear and obvious fashion with familiar 
 illustrations so that every step may be readily under- 
 stood. Especially, the aim has been to give such practical 
 applications of the laws and principles brought out that 
 the reader will complete his study with a real "grip" on 
 the meaning and merits of our increasingly acute eco- 
 nomic, social, civil and municipal problems. This under- 
 standing is far more important than to know the techni- 
 cal details of government administration or the mechani- 
 cal working of our political system. It is even more im- 
 portant to young American citizens to-day than the schol- 
 arship implied in a college degree. In fact, the safety 
 and success of our free democratic institutions depend 
 upon the education and good sense of the people on the 
 great industrial and social questions which underlie and 
 determine our opinions and action as citizens. 
 
CONTENTS 
 
 CHAPTER PAGE 
 
 I. Meaning and Scope of Social Economics . . i 
 II. How Industrial Life Affects Social Pro- 
 gress 8 
 
 III. Wealth 17 
 
 IV. Production of Wealth 24 
 
 V. Causes of Production 29 
 
 VI. Factors and Methods of Production 36 
 
 VII. Factors and Methods of Production {Con.) 47 
 
 VIII. Consumption of Wealth 55 
 
 IX. Value or Price 62 
 
 X. Cost of Production 70 
 
 XI. Distribution of Wealth 81 
 
 XII. Wages 86 
 
 XIII. Wages {Continued') 94 
 
 XIV. Rent 105 
 
 XV. Interest 112 
 
 XVI. Profits 119 
 
 XVII. Socialism 128 
 
 XVIII. Socialism {Continued) 139 
 
 XIX. The Single Tax 154 
 
 XX. Cooperation and Profit-sharing 166 
 
 XXI. Labor Organizations 176 
 
 XXII. L,a.hor Organizations {Continued) 185 
 
 XXIII. Panics and Depressions 193 
 
 XXIV. Are We Really Progressing } 200 
 
CHAPTER I. 
 
 MEANING AND SCOPE OF SOCIAL ECONOMICS. 
 
 I. Early fleaning of Economics. In entering upon 
 the study of social economics it is necessary to have 
 definite idea as to the meaning and scope of the sub- 
 ject ; inchiding, first, the ground it covers ; second, its 
 practical usefulness ; third, the point of view from which 
 it should be considered. 
 
 The word economics was first used by Aristotle, who 
 meant the economics of the household, because in that 
 early, patriarclial stage of societ}- the family was the real 
 social group. So that, economics was the science of 
 domestic economy. Later, with the development of po- 
 litical institutions, economics was used as applying to 
 the state, or the economies of government, and hence 
 took on the name "political economy" as distinguished 
 from household economy. 
 
 Political economy was really intended to convey the 
 idea of economy in tlie administration of government, 
 that is, in the collection and expenditure of public reve- 
 nues. This was the idea of Adam Smith, the so-called 
 ''Father of Political Economy," who published the first 
 great work on economics. "Tlie Wealth of Nations," in 
 1776. 
 
 2. flodern "Social" Economics. \Mth the de- 
 velopment of industry and progress of civilization during 
 the nineteenth century the subject has expanded and 
 now inchules not merely the economy in public revenues 
 
2 OUTLINES OF SOCIAL ECONOMICS 
 
 but the economy of the production and distribution of 
 wealth, and, finally, everything which afifects the indus- 
 trial and social welfare of the community. In this way 
 it has outgrown the limits of the old name, political econ- 
 omy, and has really become the science of "social" eco- 
 nomics. 
 
 3. What It Includes. Social economics, then, in- 
 cludes all questions which afifect the industrial and social 
 welfare of the people. Politics is different from social 
 economics, but depends upon it. 
 
 Politics is public action. It is the public expression of 
 the wishes or poHcies of the people, but these wishes and 
 policies are usually based upon economic considerations. 
 Economics is in reality the foundation of politics. 
 
 Thus, for instance, whether it is the better statesman- 
 ship to annex far-away islands or keep our hands off, 
 to have a protective tariff or free trade, to have bimetal- 
 ism or the gold standard, to have an eight-hour working 
 day in factories or permit them to run as long as their 
 owners may decide, to regulate the employment of wom- 
 en and children or leave it entirely to competition, to 
 have the government own the railroads and telegraphs 
 or let them remain in private hands, to allow sweatshops 
 in our large cities to continue or to suppress them by 
 law, — these and a multitude of similar questions are 
 properly political issues, but the wisdom of our decision 
 regarding each of them depends upon understanding 
 their effect on the daily life, welfare, conditions and char- 
 acter of the people, and this knowledge is what social 
 economics aims to give. 
 
 Therefore, social economics is at the very basis of 
 intelligent, useful citizenship, and to understand it is 
 indispensable to good government where the people rule, 
 as under democracy. 
 
MEANING AND SCOPE OF SOCIAL ECONOMICS 3 
 
 4. nany=Sided Questions. But the questions that 
 arise in social economics are not always simple and easy 
 to understand. Frequently they seem complex and puz- 
 zling. There are always seemingly two sides to every 
 question; as, for example, a labor strike. The laborer 
 demands higher wages and shorter hours, because these 
 will improve his condition. The employer sees it in an- 
 other light. He objects, because the higher wages and 
 shorter working day will increase the cost of running his 
 establishment and for a time at least make it more diffi- 
 cult to do business. So, too, when the legislature is 
 asked to suppress sweatshops, it is urged to do so in the 
 interest of humanity, health and decent industrial condi- 
 tions. But, on the other side, it is urged that the poor 
 people who work in these tenement houses, sweating and 
 sweltering during sixteen or more hours a day for a mere 
 pittance, will be deprived of the means of getting even 
 that scanty livelihood if the law forbids sweatshops. We 
 meet these differences of view on every hand. 
 
 5. Right Point of View. Therefore, it is neces- 
 sary first of all to have a correct point of view from 
 which to see these matters. Politics can never furnish 
 this point of view. We must get it from social economics. 
 The object of all government is the welfare and progress 
 of the people. Therefore, the welfare of the people is the 
 point of view from which all industrial and social prob- 
 lems should be decided. To go one step farther, it may 
 be said that the welfare of the public is best reflected in 
 the welfare of the great wage-earning class, and their 
 welfare is indicated in general by the amoimt of wealth 
 and comfort and advantages of higher civilization that 
 can be obtained for a day's work. Wealth of itself is of 
 no account unless it is consumed and broadens the civili- 
 zation and happiness of the community. 
 
4 OUTLINES OF SOCIAL ECONOMICS 
 
 6. The Great Test of a Public Policy. The real 
 question to ask, therefore, in considering the majority of 
 industrial or political propositions, is, how will it affect 
 the opportunities and income of the laboring or wage- 
 earning class? If the measure will tend directly or indi- 
 rectly to improve their opportunities and increase their 
 income, it will almost always increase the prosperity and 
 improve the character of the whole community. What- 
 ever helps the income of the laborers sooner or later pro- 
 motes the possibility of profits in business and prosperity 
 for all other classes. Indeed, the expenditures of the 
 wage and salary earners furnish much the larger part 
 of the market for the products of industry. 
 
 There are two things which really indicate progress 
 and improvement to the working class. One of these is 
 a gradual cheapening of the necessaries, conveniences 
 and comforts of life; the other is an increase in wages, 
 without any lengthening of the working day. Whatever 
 will promote either of these movements, by proper eco- 
 nomic means, will promote the progress of society tow- 
 ards a higher and better civilization. Industrial pros- 
 perity is the soil in which all the superior phases of social 
 life grow. Moral improvement, social culture, intellectual 
 advancement, justice and integrity, broad altruism, and 
 a high conception of human life, extending throughout 
 the community generally, have their root in the subsoil 
 of industrial welfare. 
 
 7. Definition. Consequently, the laws and condi- 
 tions which govern industrial welfare are at the root of 
 progress and improvement. Social economics deals with 
 these laws and conditions. It is the science which treats 
 of man as a producer and consumer of wealth. 
 
MEANING AND SCOPE OF SOCIAL ECONOMICS 5 
 SUGGESTED READING. 
 
 In "Principles of Social Economics," the Preface and 
 Chapters I. and II. of Part I. ; discussing social progress 
 and the law of social progress. 
 
 Additional References. Address of Nicholas Murray 
 Butler, Ph.D., before the graduating class of the Univer- 
 sity of Michigan, June 22, 1899, on "The Education of 
 Public Opinion." 
 
 In Alfred Marshall's "Economics of Industry," Chap- 
 ters I., IV., and V. of Book I.; defining economics, trac- 
 ing the growth of economic science and showing its 
 scope. 
 
 In Arthtir T. Hadley's "Economics," Chapter I., on 
 "Public and Private Wealth," including a sketch of 
 economic science and pointing out standards of public 
 welfare. 
 
 In "My Young Man," by Rev. Louis Albert Banks, 
 D.D., Chapter IX., on "My Young Man as a Citizen." 
 
 EXTRACTS FROM READINGS. 
 
 Good and Bad Citi::cns. "The political vitality and in- 
 tegrity of a modern state must rest, in the last instance, 
 upon the character and clearness of the political opinions 
 held by men who are without official station. No admin- 
 istrative vigor and no legislative wisdom can long sur- 
 vive in the vacuum of public ignorance and indifference. 
 A supporting body of opinion is essential to the conduct 
 of legislative or administrative policy, and a serious and 
 high-principled opposition is necessary to prevent its 
 exaggeration and abuse. . . . 
 
 "Burke pointed straight at the typical bad citizen when 
 he described those 'who think their innoxious indolence 
 their security.' The man who submits to public imposi- 
 tion to save trouble or trifling expense, or who pays to 
 
6 OUTLINES OF SOCIAL ECONOMICS 
 
 be 'let alone/ or who, priding himself upon his integrity 
 and business success, affects to 'despise politics,' is con- 
 tributing his mite to the degradation of government and 
 to the tearing down of the structure so laboriously and 
 so painfully builded by the fathers. . . . 
 
 "Are you politically alert? Are you politically honest? 
 If not, you are a bad citizen and a corrupter, however 
 innocent, of public opinion. If so, the standard which 
 you set is a high one, worthy of imitation." — From ad- 
 dress by Nicholas Murray Butler on "The Education of 
 Public Opinion." 
 
 Duty of Young Men. "The individual citizen has no 
 right to be indifferent to the problems of citizenship. If 
 this is true, then it is the duty evidently of every young 
 man to look well to his own education in citizenship. A 
 man ought to count himself ignorant and uneducated 
 who does not have on his tongue's end a clear analysis of 
 all the general conditions of the government under which 
 he lives. ... I urge upon young men as a most 
 solemn duty that they read books on political economy 
 and on the functions of government, those comparing 
 different forms of government, and especially those dis- 
 cussing questions of municipal government. . . . 
 An hour a day devoted to such subjects for the next year 
 would make any young man a bright, wide-awake, well- 
 informed citizen, capable of thinking about and discuss- 
 ing the public issues of the day with intelligence, and able 
 to find his way through the mists and haze of politics to 
 sensible decisions. The country suffers terribly in its 
 government because a great many of the best class of 
 citizens, so far as reliability and character are concerned, 
 fail to take that interest in politics, and in the conduct 
 of the government, which they should." — From Rev. L. 
 A. Banks' "My Young Man," Chapter IX. 
 
MEANING AND SCOPE OF SOCIAL ECONOMICS 7 
 
 QUESTIONS FOR REVIEW OR DEBATE. 
 
 1. What was the early meaning of "'economies'' and "political 
 
 economy?" 
 
 2. Who was Adam Smith? What was his great economic 
 
 work? 
 
 3. What broader aspect has economics gradually taken on? 
 
 4. How does social economics differ from politics? 
 
 5. What kinds of subjects and questions are included in social 
 
 economics? 
 
 6. What is the great object of governments? 
 
 7. On what class of people does the welfare of the community 
 
 chiefly depend? 
 
 8. How is the welfare of this class determined? 
 
 9. What is the great test to apply to proposed reforms or public 
 
 policies? 
 
 10. What two movements or tendencies are necessary to the 
 
 progress of the wage-earning class? 
 
 11. What is social economics? 
 
CHAPTER II. 
 
 now INDUSTRIAL LIFE AFFECTS SOCIAL PROGRESS. 
 
 8. What Progress Is. We are accustomed to talk of 
 progress as if everybody understood it, whereas few peo- 
 ple have any clear idea of what progress really is. How 
 shall we define it, then, so as to know it when we see it .'' 
 Herbert Spencer has well said that progress is change, 
 but all change is not progress. Then progress must be a 
 change in a certain direction. Progress in a plant or ani- 
 mals is a change of structure or formation towards a 
 greater variety of parts or features, and a greater sub- 
 division of special activities or "functions." 
 
 This is true also of communities or races or nations of 
 human beings. Progress is a change towards more com- 
 plex relations and a larger variety of interests and ac- 
 tivities. For example, wild tribes of savages probably 
 represent the earliest form of society, meaning by "so- 
 ciety" the human race associated together in groups, as 
 communities, tribes, nations, et cetera. Among these wild 
 tribes is very little variation in the habits, customs and 
 duties of the people. Hunting and fishing and fighting 
 for protection are practically the only tasks, and every- 
 body does about the same things. In his "Origin of Civ- 
 ilization," on the authority of the greatest investigators. 
 Sir John Lubbock tells us that in some of the simplest 
 tribes even family life does not exist at all. 
 
 From this to our present state of civilization society 
 has passed through numberless changes, towards greater 
 
INDllS'l'RlAl, LIFE AND SOCIAL I'ROCRKSS 9 
 
 vai'icty oi diilios, Icatliiig lo greater variety of action, 
 ideas, tastes, habils, and qualities of eliaracter. In this 
 process the intellect is sharpened, morals are developed, 
 human sympathies expanded, and the social character of 
 man elevated. 
 
 In the earliest slai;e of society we generally find abso- 
 lute tlespotisni antl chattel slavery. The members of the 
 cununnnity must simply oi)ey the despot. With the 
 growth of variety in occupations, interests and expe- 
 riences we find t;'ro\vlh of intelIi,L;ence, desires for new 
 privileges, and assertion of new rights, until gradually 
 society is transformed from a despotism to a state of 
 political and religious freedom, education, wealth and so- 
 cial refinement. Progress is the change by which this 
 great revolution t;ikes place. 
 
 9. Cause of Progress. What is the cause of this 
 progress? How does it arise? We shall see as we pro- 
 ceed that all these great changes in industries and poli- 
 tics and social life have their rise in the necessities and 
 desires of the ]ieople. Oespotism is overthrown and free 
 government established by the expanding desires of the 
 ])eopIe. Nearly always these at first relate to industrial 
 interests or rights. If we study into the real causes of 
 great movements, like the .\nierican Revolution or the 
 overthrow of the Stuarts in England, decline of the 
 feudal system, or the winning of magna charta, we find at 
 bottom industrial iiiotircs. or else social motives arising 
 out of industrial interests. These were the moving 
 caiLses. There is nothing \-ery strange about this, because 
 industrial life is the basis of all life. (Kitting a living is 
 the first absolute necessity 
 
 10. Effects of Industrial life. It is easv to see 
 wh)', therefore, the character of the occupations and in- 
 dustries of a (leople has everything to do with iletermin- 
 
lO OUTLINES OF SOCIAL ECONOMICS 
 
 ing the kind of government and general civilization they 
 possess. In simple pastoral life, for instance, v/here herd- 
 ing and hunting were the chief modes of industry, the 
 chief frequently claimed to rule by authority direct from 
 a god; that is, the government was a "theocracy." The 
 people would not recognize and obey their leaders and 
 rulers without the force of a superstition like this to con- 
 trol them. 
 
 But with the slow change from pastoral to agricultural 
 life, where cultivation of the soil became the necessary 
 means of getting a living, a variety of new experiences 
 arose. A mere roving life became impossible. It was 
 necessary after planting to care for the crops and wait 
 for the harvest. This brought with it comparatively set- 
 tled social relations, regular trade, usually by "barter,"'" 
 and more permanent homes. It also made it necessary 
 that men should recognize some sort of a moral law. It 
 ceased to be allowable to take whatever one saw. When 
 one planted it was necessary that he should have the right 
 and opportunity to reap. Therefore, protection to prop- 
 erty, recognition of personal rights, and security of fam- 
 ily life grew up largely with this new order of settled in- 
 dustry. Consequently, with this era, while they usually 
 had despotism, backed by some pretence of "divine 
 right," still there was the beginning of regular govern- 
 ment distinct from religion, recognition of civil laws, 
 obedience to authority, protection of personal rights, and. 
 some crude semblance of justice. 
 
 With the further progress from purely agricultural oc- 
 cupations to the point where manufacture and commerce 
 came in, still new variations in experience and interests 
 developed. Simple as early manufacture was, it had 
 far more individuality in it than had agriculture. The 
 manufacture of clothing, furniture, military weapons, 
 
INDUSTRIAL LIFE AND SOCIAL PROGRESS II 
 
 and so on, called for ingenuity, invention and skill. Ex- 
 panding trade brought increased personal contact in busi- 
 ness, and more frequent social intercourse, if only at the 
 markets and fairs. Manufacture brought people to- 
 gether in towns, partly for self-defence, partly for the 
 convenience of trade. This clustering in towns in pur- 
 suit of various industries gave people many common in- 
 terests. 
 
 11. Early Towns and Rise of Liberty. The towns 
 were the great strongholds of the people in the middle 
 ages, against the barons, who constantly raided them for 
 the sake of plunder. This very necessity of common de- 
 fence against the barons compelled the citizens or 
 "burghers," to organize municipal governments. Thus, 
 some of these towns were practically little republics, in 
 which each burgher had full political rights and shared 
 fully in the government. It was under these influences 
 and by the growing power and influence of the towns 
 that the burgher or middle classes first gained entrance 
 to the English parliament, and popular government be- 
 gan. To be sure, this progress was slow, tedious and 
 painful. At first it was scarcely observable, from cen- 
 tury to century; but every important change in the di- 
 rection of greater variety of industry and occupation was 
 followed sooner or later by some advance in industrial, 
 political, social or religious freedom. England led in 
 this great movement; the continental countries were 
 much more backward. 
 
 12. The Industrial Revolution. In the eighteentli 
 century, as a natural consequence of this progress, came 
 a series of remarkable inventions in the great industry of 
 cotton spinning and weaving; Hargreaves' spinning jen- 
 ny in 1764, Arkwright's spinning frame in 1769, Cromp- 
 ton's "mule" frame in 1779, and Cartwright's power loom 
 
12 OUTLINES OF SOCIAL ECONOMICS 
 
 in 1785. During the same period (1769) James Watt 
 patented the first steam engine, and this applied to cotton 
 mill machinery gave us the beginning of the modern fac- 
 tory system. 
 
 This was practically a revolution in the character of 
 industry. Factory methods supplanted the "home" or 
 "domestic" system of hand labor. This created a whole 
 series of new interests, new evils to be remedied, new ad- 
 vantages to be enjoyed. It was followed by the great 
 movements of the nineteenth century in England, for 
 political and religious freedom, first for the middle class 
 and then for the laboring class. England still has the 
 remnants of a monarchy, but it remains only by sufifer- 
 ance and on good behavior. In reality, the English peo- 
 ple have practical democracy. 
 
 In this country, although we were largely agricultural 
 up to the time of the Revolution, our people were the best 
 product of centuries of English progress. Liberty came 
 early, therefore, and our civilization has expanded along 
 with our wonderful industrial growth. 
 
 13. Summary. Briefly, then, it may be said that the 
 social life and quality of a people is largely determined 
 by the character of its occupations. Nations rise in civ- 
 ilization, freedom and enlightenment in proportion as 
 their industrial life is varied and expanding. Anything, 
 therefore, which tends to increase the variety of industrial 
 life may be considered favorable to progress, and any- 
 thing which tends to put us back to simple and crude 
 conditions of industry, or diminish the number of in- 
 terests and duties, is certain to deaden the spirit of im- 
 provement and restrict progress, perhaps entirely arrest 
 it. 
 
INDUSTRIAL LIFE AND SOCIAL PROGRESS 1 3 
 SUGGESTED READING. 
 
 In "Principles of Social Economics," Chapters III. to 
 VII. inclusive, of Part I. Two of these chapters are 
 theoretical, dealing with the cause of social progress and 
 giving proofs of the law of progress ; the other three are 
 historical, describing the rise and fall of the medieval 
 free cities and tracing the progress of political and re- 
 ligious freedom, chiefly in England and America. 
 
 Additional References. In Marshall's "Economics of 
 Industry," Chapters II. and III. of Book I.; on "The 
 Growth of Free Industry and Enterprise," in early civili- 
 zations, down through the middle ages, and under our 
 modern factory system, pointing out the influence of 
 climate, custom, etc. 
 
 In Hadley's "Economics," Sections 29 to 45 inclusive, 
 in Chapter II. ; describing primitive life, slavery, the be- 
 ginning of private property, and emancipation. 
 
 In Lubbock's "Origin of Civilization," Chapter I. ; 
 Chapter III. as far as the bottom of page 85 ; and Chap- 
 ter IX. ; describing the social conditions, superstitions, 
 marriage customs, laws, etc., of savage tribes. 
 
 In Henry T. Buckle's "History of Civilization in 
 England," Chapter II. ; which is a marvelously fasci- 
 nating and suggestive account of the "Influence Exer- 
 cised by Physical Laws Over the Organization of Society 
 and Over the Character of Individuals," although defec- 
 tive in some of its economic reasoning. 
 
 In H. de B. Gibbins' "Industrial History of England," 
 Chapter II. of Period II. ; on "The Towns and the Gilds." 
 
 EXTRACTS FROM READINGS. 
 
 Savage Life. Speaking of the wild men in the in- 
 terior of Borneo, Mr. Dalton says that they are found 
 living 'absolutely in a state of nature, who neither cuiti- 
 
14 OUTLINES OF SOCIAL ECONOMICS 
 
 vate the ground, nor live in huts; who neither eat rice 
 nor salt, and who do not associate with each other, but 
 rove about some woods, like wild beasts ; the sexes meet 
 in the jungle, or the man carries away a woman from 
 some campong. When the children are old enough to 
 shift for themselves, they usually separate, neither one 
 afterwards thinking of the other; at night they sleep 
 under some large tree, the branches of which hang low. 
 On these they fasten the children in a sort of swing; 
 around the tree they make a fire to keep off the wild 
 beasts and snakes, — they cover themselves with a piece 
 of bark, and in this also they wrap their children ; it is 
 soft and warm, but will not keep out the rain. The poor 
 creatures are looked upon and treated by the other Dyaks 
 as wild beasts.' . . . 
 
 "No savage is free. All over the world his daily life 
 is regulated by a complicated and apparently most in- 
 convenient set of customs (as forcible as laws), of quaint 
 prohibitions and privileges ; the prohibitions as a general 
 rule applying to the women, and the privileges to the 
 men. 'To believe,' says Sir G. Grey, 'that man in a savage 
 state is endowed with freedom, either of thought or ac- 
 tion, is erroneous in the highest degree.' " — From Sir 
 John Lubbock's "The Origin of Civilization," Chapters I. 
 and IX. 
 
 Early English Tozvns. "The inhabitants of the towns 
 were of all classes of society. There was the noble who 
 held the castle, or the abbot and monks in the monastery, 
 with their retainers and personal dependents ; there were 
 the busy merchants, active both in the management of 
 their trade and of civic affairs; and there were artisans 
 and master workmen in different crafts. There were free 
 tenants, or tenants in socage, including all the burgesses, 
 or burgage-tenants, as they were called; and there was 
 
INDUSTRIAL LIFE AND SOCIAL PROtlRESS 1 5 
 
 the lower class of ■i'llh-iiis, which, however, always tended 
 to rise into freemen as they were admitted into the gilds. 
 To and fro wont our forefathers in the quiet, quaint, 
 narrow streets, or worked at some handicraft in their 
 houses, or exposed their goods round the market-cross. 
 And in those old streets and houses, in the town-mead 
 and market-place, amid the murmur of the mill beside 
 the stream, and the notes of the bell that sounded its 
 summons to the crowded assembly of the town-mote, in 
 merchant-gild and craft-gild was growing up that 
 sturdy, industrial life, unheeded and unnoticed by knight 
 or baron, that silently and surely was building up the 
 slow structure of England's wealth and freedom." — From 
 Gibbins' "Industrial History of England," Chapter II., 
 Period II. 
 
 How flic Towns Bought Frcrrdoiii. "It is interesting 
 to see what circumstances helped forward this emancipa- 
 tion of the towns from the rights possessed by the nobles 
 and the abbeys, or b)- the kings. The chief cause of the 
 readiness of the nobles and kings to grant charters during 
 this period (from the Conquest to Henry III.) was their 
 
 lack of ready money The}' could not indulge 
 
 their love of fighting, which in their eyes was their main 
 duty, without money to pay for their fatal extravagances 
 in this direction, and to get money they frequently parted 
 with their manorial rights over the towns which had 
 grown up on their estates. Especially was this the case 
 when a noble, or king, was taken prisoner, and wanted 
 the means of his ransom. . . . And the glories and 
 cruelties of that savage age of so-called knightly chivalry, 
 which has been idealized and gilded by romancers and 
 history-mongers, with its tournaments .and its tortflre- 
 chambers, were paid for by that despised industrial pop- 
 ulation of the towns and manors which contained the real 
 
l6 OUTLINES OF SOCIAL ECONOMICS 
 
 life and wealth of medieval England." — From Gibbins 
 "Industrial History of England," Chapter II., Period II. 
 
 QUESTIONS FOR REVIEW OR DEBATE. 
 
 1. What is the scientific meaning of "progress"? 
 
 2. What is the great underlying cause of human progress? 
 
 3. How were people governed under simple pastoral life? 
 
 4. What changes in government and ethics came with agricul- 
 
 tural life? 
 
 5. What have been some of the great effects of the rise of 
 
 manufactures and commerce? 
 
 6. In the middle ages what part was played by the towns and 
 
 free cities? 
 
 7. Mention the great inventions that brought in the modern 
 
 factory system, and name the inventors. 
 
 8. In what ways did the factory system revolutionize industry? 
 
 9. What country led the movement of industrial growth and 
 
 free government down at least to the nineteenth century? 
 
 10. How do you account for the more rapid progress of our 
 
 own country, especially in political and religious freedom? 
 
CHAPTER III. 
 
 WEALTH 
 
 14. What Wealth Is. We have seen, in our brief his- 
 torical review, that as people advanced in wealth and 
 prosperity they acquired new rights and advantages, 
 political freedom, and a higher state of general culture 
 and civilization. In order to understand the reasons for 
 this it is important to have a clear idea of the meaning 
 of wealth. This is all the more important because there 
 is a good deal of careless talk about wealth, as if exact- 
 ness were of no special importance. Wealth is every- 
 thing outside of and apart from man, which, by human 
 effort, is made use fid to man. 
 
 15. Gifts of Nature Not Wealth. Every part of this 
 definition is important, as we shall see. There are many 
 things, for instance, that are useful to man but are not 
 wealth; such as sunshine, air, gravitation, and wind. 
 They are not wealth, because they are gratuitous, and do 
 not require any human effort to make them useful. They 
 should be described as free gifts of nature, never as 
 wealth. Wealth requires some kind of human exertion. 
 
 Natural resources not yet utilized, but which are capa- 
 ble of being made useful to man by human effort, such 
 as unoccupied land, virgin forests and undeveloped min- 
 eral deposits, may be regarded as potential wealth. They 
 are not actual wealth until some productive effort has 
 been actually applied to them, but as potential wealth 
 
 17 
 
1 8 OUTLINES OF SOCIAL ECONOMICS 
 
 they may have value or command a price, due to the an- 
 ticipated possibiHty of producing wealth from them. 
 
 i6. Kinds of Wealth. In the next place, nothing 
 should be called wealth which is not entirely distinct 
 from man. To understand clearly the reason of this 
 we should divide wealth, for convenience, into two 
 classes, consumable wealth and productive wealth. By 
 consumable wealth we mean all wealth which is directly 
 used to satisfy desires, such as food, clothing, shelter, 
 art, literature, music; in fact, everything which is used 
 not as a means to a further end, but as the final means of 
 satisfying some desire. This wealth directly ministers 
 to human happiness. It serves the final end for which 
 wealth is produced. Hence it is called consumable 
 wealth. 
 
 Productive wealth, or "capital," is wealth which is not 
 used directly to satisfy final desires, but is used indirectly 
 to aid in producing consumable wealth. Productive 
 wealth includes everything used in the whole process of 
 producing commodities for consumption — tools, ma- 
 chinery, factories, railroads, steamships, etc. 
 
 17. Capital is Distinct from flan. Since man him- 
 self plays the most essential part in producing wealth, 
 it is very easy to make the mistake of saying that man is 
 capital ; or, as is more usual, that a man's muscle or skill 
 or talent are his capital. For instance, Adam Smith 
 spoke of the education and apprenticeship and training 
 of a man as part of his capital. So careful an economist 
 as John Stuart Mill said that the education and skill of 
 a people may be included in the capital of the country. 
 
 Except in a very narrow personal sense this is a grave 
 error. It is a very confusing one, too. It blots out any 
 sharp line of distinction between man and wealth, and 
 it is very important to keep this distinction clear, be- 
 
WEALTH 19 
 
 cause we have exactly the opposite kind of interest in 
 man that we have in wealth. Labor and natural personal 
 faculties, as skill, strength, and genius, are human; they 
 are a part of the individual person and cannot be sepa- 
 rated from him. They are inseparable personal qualities, 
 but wealth is material and capable of being transferred 
 from one to another. Every addition to a man's capacity 
 or expansion of his character is a growth of the man and 
 not an increase of wealth. 
 
 Capital is wealth used as a tool. Skill is not wealth 
 used as a tool ; it is personal quality, personal ability, an 
 evidence of training and natural talent. When actively 
 employed it is simply skill used in production, not wealth 
 used in production. 
 
 18. Importance of the Distinction. This distinction 
 is more important than at first appears. The object of 
 consumable wealth is to gratify human desires. The ob- 
 ject of productive wealth (capital) is to aid man in 
 producing consumable wealth. Both these uses of wealth 
 are for the well-being of man ; one directly, the other in- 
 directly. This means that wealth must be used, most of 
 it used up in fact, for the sake of man, which in turn 
 means that our progress, if we are to have any, depends 
 upon wealth becoming cheaper and man becoming dearer. 
 These are two opposite movements, and of course both of 
 them cannot take place if man and wealth are the same 
 thing. Anything that gives man more wealth for less 
 labor, whether by higher wages, lower prices or shorter 
 hours, or all three, promotes human progress. Thus 
 wealth and man are unlike in their very nature, and hu- 
 man welfare depends upon one being used for the sake 
 of the other. 
 
 19. Evil Effects of tlie Wrong View. The early 
 economists failed to keep this distinction in mind, and 
 
20 OUTLINES OF SOCIAL ECONOMICS 
 
 SO fell into the habit of describing labor as a form of 
 capital. This led directly to the idea that labor should 
 be cheap. Everybody agreed that commodities should 
 be cheap, and this required that they should be cheaply 
 produced. Since capital (including labor) was the in- 
 strument of production, of course labor must be cheap. 
 This justified the lowest possible wages and longest pos- 
 sible hours of work and poorest factory conditions, and 
 the employment of women and children ; whereas, if man 
 and capital had been kept entirely distinct no such course 
 could ever have been justified. Cheap production could 
 have been sought through better machinery (capital), 
 never through cheaper human labor. 
 
 The more perfect human faculties become and the 
 more important the service men render, the higher price 
 they may and should command. Every such upward 
 movement tends toward higher social life. On the other 
 hand, the more perfect the commodities we consume be- 
 come the lower their price should be, so that people can 
 have more of them without working harder or longer, 
 and thus get more happiness and opportunity for culture 
 out of their efforts. 
 
 20. Summary. Wealth, then, is everything outside of 
 man, procured by human effort, which directly or indi- 
 rectly satisfies human wants. Consumable wealth is 
 everything which is directly used for this end. Capital 
 is wealth which is used for the production of more 
 wealth. But under no circumstances or conditions are 
 human faculties and qualities to be considered as wealth. 
 Capital is non-human and labor is human. Wealth exists 
 for man, but not man for wealth. Wealth should be 
 produced and used for man, but man should not be used 
 for wealth. The mercury of human progress rises only 
 when man is growing dearer and using more wealth, and 
 
WEALTH 2 1 
 
 wealth is gowing cheaper and serving man more effec- 
 tively and abundantly. 
 
 SUGGESTED READING. 
 
 In "Principles of Social Economics," Section I. of 
 Chapter I., Part II. ; on definitions of wealth and its es- 
 sential characteristics. 
 
 Additional References. In John B. Clark's "Philoso- 
 phy of Wealth," Chapter I. ; which points out very clearly 
 the distinction between wealth and personal human 
 qualities. 
 
 EXTRACTS FROM READINGS. 
 
 The Broader Meaning of Wealth. "Wealth, then, con- 
 sists in the relative-weal-constituting elements in man's 
 material environment. It is objective to the user, ma- 
 terial, useful, and appropriable. Let us apply the term 
 with logical consistency to whatever possesses these four 
 essential attributes, and note the effect on the traditional 
 conception of wealth. Mr. Mill and the orthodox school 
 will be found to exclude from their classification things 
 which possess these attributes, and to include some which 
 do not. They recognize as wealth only those things 
 which are sufficiently substantial and durable to con- 
 stitute a more or less permanent possession, things which 
 would appear on the inventory, if society were suddenly 
 to cease producing and consuming, and apply itself, for, 
 say, a month or two, to taking an account of stock. It is 
 here maintained that durability is not an essential at- 
 tribute of wealth. Durability is a factor of value, and 
 determines, in so far, the measure of wealth in any par- 
 ticular product. But products are of all degrees of dur- 
 ability, and there is no ground for excluding any of them 
 from the conception of wealth on the ground of this sim- 
 
22 OUTLINES OF SOCIAL ECONOMICS 
 
 pie difference of degree. Even the school of writers re- 
 ferred to would not hesitate to class the ices of the con- 
 fectioner in the same category with the stone wall of the 
 mason, though they are at opposite extremes in the scale 
 of durability. They would, however, exclude music from 
 the conception, on the ground of its insubstantial and 
 perishable character. It is maintained in this discussion 
 that, in that which constitutes wealth, there is no differ- 
 ence other than one of degree between music and a stone 
 wall. The difference in their durability is, indeed, one of 
 the factors in their relative value ; but both alike possess 
 the four essential attributes above specified ; they are ob- 
 jective and material products ; they are useful and ap- 
 propriable, and fall within the definition of wealth. 
 
 "Having unduly limited their conception of wealth in 
 one direction, the orthodox writers have unduly extended 
 it in another. They have, for example, classed as wealth 
 the acquired skill and the technical knowledge of the 
 laborer. Personal attainments, as subjective and imma- 
 terial, are excluded from the meaning of the term. They 
 are not a possession ; that implies externality to the pos- 
 sessor. They are what he is, not what he has. Popular 
 thought and speech broadly distinguish the able man from 
 the wealthy man. A man has a potential fortune, not an 
 actual one, in his abilities. The term indicates a state of 
 being able and implies a possibility — not an attained re- 
 sult. Labor creates wealth, and acquired abilities are po- 
 tential labor. They are to be regarded as the potentiality 
 of the human factor of production, and it introduces an 
 element of confusion into the science to class them with 
 the completed product. If these considerations were not 
 sufficient to settle the economic status of a man's subjec- 
 tive qualities, it would, at least, suffice for that end to 
 apply to them the test of the traditional definition itself. 
 
WEALTH 23 
 
 in which 'exchangeable vakte' is made to be the essential 
 attribute of wealth. In every exchange two commodities 
 are alienated, and transferred to new ownership. Noth- 
 ing can be subjected to this process which is an insepara- 
 ble part of one man's being. . . . 
 
 "If wealth-creating abilities are to be confounded with 
 the product which results from exercising them, every 
 power acquired by effort, involving, in practice, the whole 
 man, will have to be classed as a commodity. The error 
 is mentally confusing, and it is disastrous in its practical 
 results. Man produces wealth and consumes it ; but man 
 himself is always distinct from it." — From John B. 
 Clark's "Philosophy of Wealth," Chapter I. 
 
 QUESTIONS FOR REVIEW OR DEBATE. 
 
 1. What is wealth? 
 
 2. Name several things which are not wealth and explain why. 
 
 3. What are the two great classes of wealth, and what is the 
 
 usefulness of each? 
 
 4. How did the mistake arise of confusing man with wealth? 
 
 5. Should skill, strength, education, etc., be counted as capital' 
 
 Give reasons for the answer. 
 
 6. Why is it so important to make a clear distinction between 
 
 man and capital? 
 
 7. On what great opposite movements does progress depend? 
 
 8. Describe some of the evil results of regarding labor as a 
 
 form of capital? 
 
CHAPTER IV. 
 
 PRODUCTION OF WEALTH. 
 
 21. fleaning of Production. Production is such a 
 simple and commonplace word that it seems hardly to 
 need any explanation. The first thought is, why, every- 
 body knows what production means, yet there is great 
 misunderstanding and difference of opinion about it. If 
 we have our idea of wealth clear and distinct we ought 
 to have no trouble in deciding what kind of efforts are 
 to be called production, since production is simply the 
 process of creating and supplying wealth. 
 
 22. Early Ideas of Production. In the early 
 eighteenth century the leaders of political economy, such 
 as it was, were the French "physiocrats." They taught 
 that nothing was production which did not really bring 
 something from the earth, like mining, agriculture and 
 forestry. Manufacture and trade were not regarded as 
 production. While these pursuits were rather useful they 
 did not increase wealth. Adam Smith in his "Wealth of 
 Nations" completely demolished this view and estab- 
 lished the "mercantile-school" doctrine that manufacture 
 and commerce are both productive ; that to take wool and 
 convert it into clothing is production as much as to raise 
 the sheep. 
 
 But even Adam Smith did not consider that govern- 
 ment officials, clergymen, teachers, scientists, musicians, 
 literary men and soldiers were producers. They were 
 consumers, but were what he called "non-productive con- 
 
 24 
 
PRODUCTION OF WEALTH 2$ 
 
 sumers." John Stuart Mill, who was the great ex- 
 pounder and sustainer of Adam Smith, added soldiers, 
 policemen, judges and jailers to the list of producers. He 
 said they were producers because they were necessary to 
 the security of production. A policeman is a producer 
 because he is needed to stop the thief from running away 
 with the product, or the incendiary from setting fire to it. 
 Soldiers are producers because production could not be 
 secure in any country if foreigners could invade by force 
 and destroy property. 
 
 But Mill thought that teachers and clergymen, actors, 
 scientists, literary men and lecturers (which group in- 
 cluded himself), ct cetera, were not producers. He said 
 they might be very useful but that the country was the 
 poorer for having them. 
 
 This idea of production has led to a great deal of con- 
 fusion and class prejudice. The idea that anybody who 
 does not by his labor directly increase the amount of 
 marketable goods is not a producer, but is only what Mill 
 calls an "unproductive consumer" by whose presence 
 "society or mankind grow no richer . . . but poorer," 
 has led to the idea that middlemen and professional men 
 are parasites on society. This idea is partly responsible 
 for the socialist claim that the laborers produce all the 
 wealth, and hence, of course, that all wealth by right be- 
 longs to them, and that for anybody else to share in it is 
 robbery. 
 
 This shows what serious mistakes can arise out of a 
 wrong conception of important terms. Adam Smith 
 could see that the physiocrats were wrong in denying that 
 manufacturers and merchants are producers. John Stuart 
 Mill could see that Adam Smith was wrong in denying 
 that policemen and soldiers are producers, but he could 
 
26 OUTLINES OF SOCIAL ECONOMICS 
 
 not see that he himself was wrong in denying that teach- 
 ers, clergymen, artists and musicians are producers. 
 
 23. The Broader View. The broader and altogether 
 truer view is that everything is production which directly 
 or indirectly aids in creating and supplying wealth. 
 
 So far as the article itself is concerned, a barrel of flour 
 is as completely produced before it leaves the flour mills 
 of Minnesota as when it gets to the pantry of the con- 
 sumer, but all the handling, transporting, storing and 
 delivering is a part of its production. Production is not 
 complete until the wealth is finally delivered into the 
 hands of the consumer. Therefore, all that takes place 
 between Minnesota and the millions of consumers' homes 
 is as much production as was the plowing of the field or 
 the grinding of the wheat. So that, middlemen are pro- 
 ducers just so long as they are needed in this process. 
 When they are supplanted by a better organization of 
 industries they cease to be needed and are dispensed with, 
 because they are no longer producers. 
 
 From this point of view, also, teachers, clergymen, 
 lawyers, singers, in fact, all professional people whose 
 efforts develop and refine the character and tastes of the 
 community, promote justice and security, and stimulate 
 variety of wholesome wants and activities, are producers, 
 because indirectly they stimulate production, increase its 
 safety and cause the making of a finer and more useful 
 quality of products. Their service, therefore, is not un- 
 productive, but is really productive. 
 
 When we understand that everything is production 
 which is necessary to make consumption possible, the 
 mistaken idea about middlemen being parasites and rob- 
 bers disappears. Going further, when we broaden the 
 idea of production to include everything which stimulates 
 and increases production, then it is perfectly clear that 
 
PRODUCTION OF WEALTH 2/ 
 
 refinement and cultivation of tastes, ideas and habits, the 
 raising and expanding of character, are a part of the pro- 
 ductive effort of society, and those engaged in these Hnes 
 are as truly productive as those who plow the soil or 
 plant the seed or weave the cloth. 
 
 SUGGESTED READING. 
 
 In "Principles of Social Economics," Section II of 
 Chapter I., Part II. ; this section treats of production and 
 producers, showing why the old definitions must be 
 broadened. 
 
 Additional References. In Marshall's "Economics of 
 Industry," Chapters III. and IV., of Book II. ; discussing 
 production, some phases of consumption, necessaries of 
 life, capital and income. It will be noticed that Prof. 
 Marshall retains some of the old-school idea as to "pro- 
 ductive consumption," etc. 
 
 In Adam Smith's "Wealth of Nations," Chapters I. 
 and II., of Book I. ; on the division of labor and its 
 economic causes; also Chapter IX. of Book IV.; in 
 which Dr. Smith attacks the physiocrats' notion of pro- 
 duction and shows that manufacturing and mercantile 
 industries are as much a part of production as agri- 
 culture. 
 
 In John B. Clark's "Philosophy of Wealth," Chapter 
 II. ; pointing out the reasons why writers, speakers, mu- 
 sicians, etc.j should rightfully be considered producers of 
 wealth. 
 
 EXTRACT FROM READINGS. 
 
 Music Is Wealth. "Dr. Roscher has called attention to 
 the intrinsic absurdity of calling a violin manufacturer a 
 productive laborer, and the artist who plays the violin 
 an unproductive one, as is expressly done by Mr. Mill 
 
28 OUTLINES OF SOCIAL ECONOMICS 
 
 and his followers. The violin would, thus, be classed as 
 wealth; the music, the sole end of its manufacture, not 
 wealth. The product, music, satisfies a direct want, the 
 violin only an indirect one; the latter is an instrument 
 for producing that which satisfies direct desire. The 
 direct want-satisfying product is, if anything, more ob- 
 viously wealth than the indirect one. Relative durability 
 and tangibility are non-essential attributes. The me- 
 chanic who makes the violin imparts utility to wood ; the 
 artist who plays it imparts utility to air vibrations. One 
 product is perceived by the senses of sight and touch, 
 the other by the sense of hearing. One is extremely 
 durable, the other extremely perishable; but both alike 
 come under our definition. In both a natural agent has 
 received a utility through human effort; both products 
 are wealth, and both laborers productive." — -From John 
 B. Clark's "Philosophy of Wealth," Chapter II. 
 
 QUESTIONS FOR REVIEW OR DEBATE. 
 
 1. On what does a clear idea of production depend? 
 
 2. What is production? 
 
 3. Who were the physiocrats and what was their idea of pro- 
 
 duction? 
 
 4. How did Adam Smith succeed in modifying this doctrine? 
 
 5. What classes of people did John Stuart Mill regard as "un- 
 
 productive"? 
 
 6. What is the broader view of production and producers? 
 
 7. For what reasons may professional persons, clergymen, law- 
 
 yers, teachers, musicians, etc., be considered producers of 
 wealth? 
 
CHAPTER V. 
 
 CAUSES OF PRODUCTION. 
 
 24. Necessities and Desires. All production is the 
 outcome of desire, springing either from necessity or vol- 
 untary wishes, tastes and habits. The first efforts of man 
 are, of course, to satisfy the desire for food, because food 
 is the original necessity of life which absolutely must be 
 supplied before anything further can be accomplished. In 
 some very poor and barren countries it requires nearly 
 the entire time and strength of the population to supply 
 merely these food necessities, with such rude shelter and 
 clothing as the climate makes imperative. 
 
 Just so soon as people get a little be)ond this state of 
 abject poverty and battle with starvation, other desires 
 begin to expand and claim attention ; such as the desire 
 for personal adornment, for recreation, for better shelter, 
 for a larger variety of more palatable food, for travel and 
 adventure, even for warfare and plunder ; later, for more 
 order and security, for settled homes and government, 
 for justice, broader knowledge, and finally for all the re- 
 fining, cultivating and elevating features of civilized life. 
 
 In truth, desire is the first motive force in progress. 
 It is the disturbing element which makes one grow dis- 
 satisfied with what is and struggle for what ought to be. 
 Without it there is no motive for the new and the better, 
 no motive for change, and hence no impulse to act. All 
 desire, of course, does not result in action, but only when 
 the desire becomes so strong that it is harder to endure the 
 
 29 
 
30 OUTLINES OF SOCIAL ECONOMICS 
 
 privation than to make the necessary effort to satisfy the 
 want. So that, at bottom, the great work of human 
 progress, of civilization, of ethical and spiritual growth, 
 begins with stimulating the variety and raising the 
 quality of human desires. 
 
 Of course, all desires are not good. It is never true 
 that all newness is good. People first learn to want things, 
 and in their ignorance and inexperience they often reach 
 out for the bad as well as the good. Getting rid of the 
 bad and keeping the good is an after process of refine- 
 ment and correction. Take, for instance, the matter of 
 our food. It used to be very meager and simple. Even 
 potatoes were not known till a few hundred years ago. 
 The list of foods was slowly enlarged and sometimes in- 
 cluded new things which were poisonous, creating sick- 
 ness and death. But people learned through experience 
 to distinguish things that made them ill from those that 
 did not, and with the aid of chemistry foods were puri- 
 fied and improved, and those that were poisonous were 
 ruled out and placed on the list of poisons to be used as 
 medicines only and procured by doctors' prescriptions ; — 
 hence the drug store, which is largely a poison shop. 
 
 25. Habit and Sentiment. This same process goes 
 on in almost all other lines. Progress always begins 
 with new desires, and is perfected by weeding out the 
 bad desires from the good. As this goes on habits are 
 gradually formed, which come to be recognized as "sec- 
 ond nature." Habit, because of its tenacity and persis- 
 tence, is stronger than government. There is no govern- 
 ment, be it ever so despotic, that is powerful enough sud- 
 denly to run contrary to the established habits of the 
 people. Habit, continued for generations, creates a deep- 
 rooted sentiment which is a part of the very life and 
 character of the people, and will support or overthrow 
 
CAUSES OF PRODUCTION 3 1 
 
 forms of government or religion if they come into violent 
 conflict with it. 
 
 Habit comes of constant repetition. When habit or 
 custom becomes general throughout the community it is 
 the ratchet wheel, as it were, of progress ; that is, it is the 
 greatest of all influences which prevent society from slip- 
 ping backward. What the people have learned to want, 
 learned to consume and learned to do, habitually, noth- 
 ing can take away from them except social revolution or 
 anarchy. Forms of government may come and go, but 
 national habits can only be changed by the slow process 
 of time. 
 
 Of course, habits may be modified and refined, but this 
 must come by exactly the same process that brought the 
 original habit. It cannot be done by arbitrary force, but 
 by gradually substituting new and superior tastes and 
 wants which lead to new and superior habits. 
 
 26. Influence of Education. When we get beyond 
 the period where absolute necessity controls all our ac- 
 tions, to where habits and seutiments are formed, our 
 opinions and ideas come to have a great deal to do with 
 determining our desires. Thus, very much depends on 
 the kind of education people have, because education has 
 a great influence on our ideas and beliefs. For instance, 
 if we teach that monotonous simplicity is superior to va- 
 riety of life, and that to desire new things that were not 
 used by our fathers is to be frivolous and flippant and 
 selfish, — in short, if the education we give tends to re- 
 press all new tastes and desires it will stand in the way 
 of progress. For example, in China the growth of va- 
 riety and newness has been repressed both by religious 
 teaching and social caste, and the social desires and cus- 
 toms have become fixed and immovable; hence social 
 activity is one monotonous round of repetition. The 
 
32 OUTLINES OF SOCIAL ECONOMICS 
 
 Chinaman wears the same cut of smock and the same 
 type of shoes to-day that he did a thousand years ago. 
 To the extent that education encourages variety and im- 
 provement, hails experiment and invention, it helps 
 progress. 
 
 Sanitation is another great influence in progress. It 
 adds to the wholesomeness and healthfulness of life, 
 which increases the vigor and activity of the people. Pub- 
 lic parks and playgrounds and clean streets contribute to 
 this same result. Public libraries, churches, museums, 
 art galleries, wholesome entertainments and recreation, 
 kindergartens and social settlements all share in elevat- 
 ing and broadening the tastes and ideas of the people 
 and so increasing consumption and improving its quality. 
 
 37. Effect of High Wages on Production. The 
 necessities, habits and customs of a people all combine to 
 make up what is called their "standard of living." This 
 standard of living, as we shall see later on, is the great 
 influence that determines rates of wages. Where the 
 habits, ideas, tastes and general progress of the people 
 have brought about a high standard of living, wages are 
 high, and it is through wages (including salaries) that 
 the great majority receive their living. Therefore, it is 
 easy to see, if wages are high it means that the people 
 buy and consume a great amount and variety of products, 
 thus giving a large market for producers in every line. 
 
 The purchases of the great body of wage and salary 
 earners forms the basis and stimulus of modern indus- 
 tries. Hardly any important industry, except such as 
 make expensive luxuries, could exist at all if nobody but 
 rich persons, business and professional men, etc., bought 
 the products; Wage and salary earners form about 
 three-quarters of the whole working population of the 
 United States. 
 
CAUSES OF PRODUCTION 33 
 
 Therefore, the amount of wages exercises a most im- 
 portant influence upon the extent and methods of pro- 
 duction. As wages rise and the demand for products in- 
 creases, a market basis is furnished for larger and larger 
 investments of capital in industries to supply these de- 
 mands. This also justifies expensive experiments to de- 
 velop the most perfect tools and machinery that inven- 
 tion can furnish. The use of these improvements lessens 
 the cost of production and cheapens the products to all 
 who buy. When products are cheapened by this method 
 they are no less profitable to the capitalists, and hence do 
 not lead to depression and loss ; but when products are 
 cheapened through inability to sell, which comes from 
 diminishing low-wage markets, it ruins the producers 
 and inflicts all the ills of business depression and "hard 
 times" upon the community. 
 
 SUGGESTED READING. 
 
 In "Principles of Social Economics," Section V. of 
 Chapter I., Part II., showing that social consumption 
 (demand) is the basis and cause of production. 
 
 Additional References. In John B. Clark's "Philoso- 
 phy of Wealth," Chapter III. ; showing the effects of ex- 
 panding wants and the real nature of wealth consump- 
 tion. 
 
 In Adam Smith's "Wealth of Nations," Chapter III. 
 of Book I. ; pointing out how the division of labor, and 
 hence progress of industry, is limited by the extent of the 
 market. 
 
 In Gunton's "Wealth- and Progress," Chapter II. of 
 Part I; the title of the chapter sufficiently explains its 
 contents: "Increased Consumption by the Masses the 
 Real Cause of Improved Machinery." 
 
34 OUTLINES OF SOCIAL ECONOMICS 
 
 EXTRACTS FROM READINGS. 
 
 Employments Limited by Market. There are some 
 sorts of industry, even of the lowest kind, which can be 
 carried on nowhere but in a great town. A porter, for 
 example, can find employment and subsistence in no 
 other place. A village is by much too narrow a sphere 
 for him; even an ordinary market town is scarce large 
 enough to afford him constant occupation. In the lone 
 houses and very small villages which are scattered about 
 in so desert a country as the Highlands of Scotland, every 
 farmer must be a butcher, baker, and brewer for his own 
 family. In such situations we can scarce expect to find 
 even a smith, a carpenter, or a mason, within less than 
 twenty miles of another of the same trade The scattered 
 families that live at eight or ten miles' distance from the 
 nearest of them, must learn to perform for themselves a 
 great number of little pieces of work, for which in more 
 populous countries they would call in the assistance of 
 those workmen. Country workmen are almost every- 
 where obliged to apply themselves to all the different 
 branches of industry that have so much affinity to one 
 another as to be employed about the same sort of mate- 
 rials. A country carpenter deals in every sort of work 
 that is made of wood; a country smith in every sort of 
 work that is made of iron. The former is not only a car- 
 penter, but a joiner, a cabinet-maker, and even a carver 
 in wood, as well as a wheelwright, a ploughwright, a 
 cart and wagon maker. The employments of the latter 
 are still more various. It is impossible there should be 
 such a trade as even that of a nailer in the remote and in- 
 land parts of the Highlands of Scotland." — From Adam 
 Smith-'s "Wealth of Nations," Chap. III. of Book I. 
 
CAUSES OF PRODUCTION 35 
 
 QUESTIONS FOR REVIEW OR DEBATE. 
 
 1. What is the great active cause of all production? 
 
 2. From what does this force spring, in the first instance? 
 
 3. Name some of the varieties of desires that are developed 
 
 after absolute necessities are supplied. 
 
 4. Under what conditions only do desires result in action? 
 
 5. How are habits and sentiments developed, and what are 
 
 their effects? 
 
 6. Why .is the kind of education we give an important factor in 
 
 progress? Give an example of the wrong kind of edu- 
 cation? 
 
 7. Name some of the institutions and public policies that pro- 
 
 mote wholesome consumption. 
 
 8. What is the "standard of living" and what has it to do with 
 
 wage rates? 
 
 9. What class furnishes the largest part of the market demand 
 
 for products? 
 ID. What is the eflfect of high wages on the amount and methods 
 of production? Give the reasons for this. 
 
CHAPTER VI. 
 
 FACTORS AND METHODS OF PRODUCTION. 
 
 28. The Great Factors. Strictly speaking, there are 
 but two great factors in the production of wealth, man 
 and nature. Man's contribution is his personal efiforts of 
 hand and brain, grouped under the general head of "la- 
 bor." Nature's contribution is two-fold : the great forces 
 of gravitation, heat, sunlight, wind, electricity, animal 
 ])ower, the germinative power of seeds, ct cetera; and 
 the passive resources from which wealth is extracted, 
 such as soil, mines, forests, and living creatures suitable 
 for food supply. 
 
 In economics, however, we cannot take account of the 
 vast immeasurable forces of nature in general, as to their 
 total power and usefulness to mankind; that belongs to 
 the field of abstract speculation. We can reckon with 
 these forces only to the extent that they are or can be ac- 
 tually utilized, by means of various machines and struc- 
 tures, which are usually managed or guided by some 
 form of labor. These machines and structures are sim- 
 ply so many forms of "wealth used in the production of 
 wealth," — that is, capital. Therefore, instead of trying 
 to deal with natural forces by themselves, as factors in 
 production, we can only take account of them through 
 the means by which we utilize them, namely capital and 
 labor. Therefore, we speak of capital and labor as the 
 two active agents in production, and whatever produc- 
 tive power they yield is considered to include whatever 
 
 36 
 
FACTORS AND METHODS OF PRODUCTION 37 
 
 natural forces are utilized by their aid. Capital also in- 
 cludes all unfinished wealth in process of production, 
 since this is for the time being simply "wealth used in 
 production." 
 
 Natural resources, which are nature's other great con- 
 tribution, are grouped for convenience under the head of 
 land. This includes all of the earth surface occupied or 
 available for human use, with whatever it naturally con- 
 tains and spontaneously bears; even sea food is brought 
 under this head to avoid an unnecessary separate classi- 
 fication. Oceans and lakes, except restricted fishing 
 grounds, occupy the same position in economics as free 
 land which pays no rent. 
 
 Thus, for the purposes of economic reckoning, we 
 speak of three great factors in production ; labor, capital 
 and land. Labor includes all forms of productive human 
 efifort. Capital includes all machines, tools, structures 
 and arrangements contrived to utilize natural forces or 
 assist human labor ; also all unfinished wealth in process 
 of production. Land includes all natural resources, 
 meaning principally of course the occupied or available 
 earth surface and all its natural qualities and elements, 
 such as fertility, mineral deposits, forests and wild ani- 
 mal life. Land not yet available for human use is not 
 within the range of economics ; it is not wealth, and we 
 can only take account of it as "land" when it does be- 
 come available. 
 
 29. Hand Labor Era. Division of Labor. In the 
 earliest and simplest state of society practically all in- 
 dustry was carried on by hand labor. Men lived by gath- 
 ering roots and fruits and by taming and herding animals. 
 Very early the use of crude tools began, — traps and 
 weapons to capture or kill wild animals, tackle for fish- 
 ing, stone hatchets, kettles, baskets and canoes. As agri- 
 
38 OUTLINES OF SOCIAL ECONOMICS 
 
 culture developed, implements for tilling the soil were 
 devised, and structures built for storing the crops. In 
 this early period, also, began the division of labor, which 
 has ever been one of the most important and really in- 
 dispensable features of all industrial progress. So long 
 as each individual had to supply all his own wants by his 
 own direct efforts, nothing but poverty and degradation 
 could be the result. As soon as men began to act and 
 live together in any sort of settled relations, the custom 
 arose of dividing pursuits among different groups; the 
 men hunted and fought while the women guarded the 
 huts and property and made baskets; then some of the 
 men herded while others followed the chase, and still 
 others did the fighting and governing; later on, some 
 began to devote their whole time to agriculture, some to 
 trade, some to crude mechanic arts. Every new division 
 of labor brought a prompt and notable increase in pro- 
 ductive power, order and safety, and a larger social life. 
 This has been true of every successive subdivision or 
 speciali::ation of industry down through all the vast de- 
 velopments of capitalistic production. 
 
 Simple manufacture began, of course, with the making 
 of crude weapons and tools, and later on developed into 
 higher forms, such as metal-working, spinning and 
 weaving, cobbling and tailoring, — all done with very 
 simple and primitive instruments. Although these crude 
 aids to industry were forms of capital, they were merely 
 aids to direct hand labor and it was still the hand-labor 
 era. There came to be masters and apprentices, but no 
 employers and wage-earners as we know them. Every 
 man or family worked separately, and made practically 
 no use of natural forces ; all was done by human effort, 
 aided by simple tools and machines. This was the slowest 
 and dearest method of production, requiring the most 
 
FACTORS AND METHODS OF PRODUCTION 39 
 
 labor for the least results. Some industries in our own 
 limes are still in the hand-labor era in many respects, such 
 as frontier agriculture, cobbling, peddling, small store- 
 keeping, sweatshop clothing-making, et cetera; and back- 
 ward countries like China and India are almost entirely 
 in the hand-labor period. 
 
 30. Capitalistic Production. The use of capital on a 
 large scale, accompanied, by the sub-division of labor 
 within each industry, marks a great step in the progress 
 of society. Under the capitalist and wages system all 
 the tools, machinery, structures and raw materials of 
 production are owned by the "capitalist" or group of 
 capitalists, who employ workers for definite and agreed 
 amounts of pay, the workers furnishing only their labor. 
 
 The rise of "capitalism" as a separate factor neces- 
 sarily came with the wages system. There cannot be 
 wage laborers without employers ; so that, when the 
 villeins and serfs in the middle ages gradually bettered 
 their lot and became wage-workers, with the freedom at 
 least to choose their own employers, this brought with it 
 the employing or capitalist system. For a long time the 
 only difiference was that the capitalist, instead of owning 
 material, land, tools, laborers and all, as before, now only 
 owned material, land and tools. It was a change which 
 took the laborer away from the master or lord as property 
 and made him a social and bargaining factor. From the 
 fourteenth to the eighteenth century freedom of in- 
 dividual action in industry gradually developed, some 
 laborers became employers, and thus competition arose 
 between employers or capitalists. In the eighteenth cen- 
 tury, with the inventions which started the factory sys- 
 tem, the capitalists became a distinct group. These in- 
 ventions gave us the capitalist system of production. 
 
40 OUTLINES OF SOCIAL ECONOMICS 
 
 which has revolutionized industry and commerce and the 
 relations of the different classes in society. 
 
 The great feature of capitalist production is that it sub- 
 stitutes natural forces, by the use of machinery, and 
 wage-workers on machinery, for the older and more di- 
 rect hand labor. Like every other great change this has 
 been the subject of long and sharp discussion. For a 
 long time it was declared, and there are many who still 
 believe, that this is an injury. While the use of ma- 
 chinery clearly results in more wealth being produced, it 
 is charged that the capitalist gets all the increase. This 
 is a very one-sided view, which is not at all sustained by 
 the facts. Capitalist production does introduce great 
 labor-saving appliances, which either ' produce more 
 wealth with the same expenditure or the same amount of 
 wealth at less cost. In either case, the result is a surplus 
 which some people, especially the socialists, insist is all 
 kept by the capitalists, which they declare is robbery of 
 labor. 
 
 But this charge is not true. If it were, there could have 
 been no reduction in the prices of commodities furnished 
 by capitalist production. The multitude of articles of 
 food, clothing, furniture, books, papers, public conve- 
 niences, and what not, would cost just as much now as 
 they did when furnished by hand labor. We all know 
 they do not. If they did we could have not half, perhaps 
 not a quarter, of the number of things which are now a 
 part of our regular daily use. If food and clothes and 
 shelter cost as much to-day, quality considered, as when 
 produced by hand labor, coarse food and coarser cloth- 
 ing and very poor housing would be all that most of us 
 would now get. Prices have fallen steadily wherever 
 capitalist production has been successfully carried on. 
 
FACTORS AND METHODS OF PRODUCTION 4 1 
 
 31. Effects of Machinery on Labor. Does ma- 
 chinery injure labor? is a very important question in con- 
 sidering this subject. It is charged that it does, because 
 it displaces laborers and creates enforced idleness. There 
 is a half truth in this. It cannot be denied that an im- 
 proved machine will produce the same wealth with less 
 labor or more with the same labor than the old one, else 
 there would be no gain in it. That means, of course, that 
 it will supply a certain market demand with fewer la- 
 borers than before. If it were true that this demand 
 never became any larger, then it would be true that 
 fewer and fewer laborers would be needed as machinery 
 was introduced. But the market does increase, not only 
 by the higher wages made possible by the better ma- 
 chinery, not only by the natural growth of population, but 
 largely because the new machine so reduces the cost of 
 producing an article that it can be sold at a much lower 
 price, which greatly enlarges the demand for it. The 
 producer is tempted to lower the price, not by any gen- 
 erosity to the public, but in the hope of getting this 
 larger trade. 
 
 Almost always the result of this, sooner or later, is 
 that as many and even more laborers are needed in the 
 business than before the new machinery was introduced. 
 It is probably safe to say that there are not two per cent, 
 of the well-established industries in which much im- 
 proved machinery has been introduced that have not had 
 to increase instead of diminish the number of laborers 
 employed. If we compare some sixty or more machine- 
 using industries from 1880 to 1890 we find that in nearly 
 every instance the number of laborers employed in the 
 industry increased, the price of the product was lowered, 
 and the wages per laborer rose. 
 
 In the long run it may be safely said that machinery is 
 
42 OUTLINES OF SOCIAL ECONOMICS 
 
 the friend and helper of labor, and not its enemy and 
 oppressor. 
 
 32. Effect of Corporations and " Trusts." Where 
 an industry requires a large amount of capital it has be- 
 come customary to organize "corporations," in which 
 large numbers of people are enabled to unite their cap- 
 ital, some in small amounts and some in large, and em- 
 ploy skilled and able managers to conduct the business. 
 A few years ago many corporations attempted to form 
 "trusts," or agreements to control all the product in their 
 special industries and raise prices. Every one of these 
 attempts failed, sooner or later, but they have been fol- 
 lowed by a great tendency to reorganize numbers of 
 small corporations into large ones, for the sake of econ- 
 omy and more stable business. The old name "trust" is 
 commonly applied to these large corporations, but they 
 are not trusts at all. They are simply large corporations. 
 
 The effect of these large concerns upon the public is 
 regarded with a great deal of distrust. Indeed, they are 
 regarded in much the same way that laborers and hand 
 workers regarded machinery when it was first intro- 
 duced. But these large corporations are simply the latest 
 form of capitalist production. They are to small con- 
 cerns what machinery is to tools, and the latest is the best 
 because it will work most cheaply and effectively ; if it 
 did not it would not be adopted. This latest form of cap- 
 italist production saves a great many wasteful expenses 
 which the small, petty concerns make necessary. 
 
 This saving by large corporations operates exactly like 
 the saving created by better machines. First, it increases 
 the profits of the management ; then, by competition and 
 the efforts for larger sales, that profit is shared by the 
 community in the form of lower prices. Wh^re very 
 large concerns exist, lower prices and usually better 
 
FACTORS AND METHODS OF PRODUCTION 43 
 
 products are the results in the long run. Concerns which 
 try to avoid this movement, and keep up prices arbi- 
 trarily, almost certainly -collapse or are driven out by 
 competition. 
 
 Large concerns also tend to give permanence to busi- 
 ness. They are conservative. They look ahead with the 
 view of keeping steady business, because to stop for a 
 month or two in the year involves a great loss. This 
 steadiness is a great advantage to wage-workers. Few 
 things are more important to them than steadiness of 
 employment, and few things are more important to the 
 public in general than stability of business. Large con- 
 cerns contribute more to this business stability and per- 
 manence of employment than any one factor in modern 
 times. 
 
 So that, large corporations, while they sometimes have 
 arbitrary and foolish and even dishonest management, 
 and while they have some bad features which call for 
 improvement, just as every new thing has, do contain 
 the elements of improved industrial conditions. They 
 contribute cheapness of commodities, stability of busi- 
 ness and permanence of employment, — ^three things that 
 are of vast importance to modern society. We ought to 
 be careful, therefore, in attempting to reform corpora- 
 tions, not to strike at the vital features which give these 
 results, but only seek to get rid of the temporary defects, 
 and protect the rights of investors and the public in 
 general. 
 
 SUGGESTED READING. 
 
 In "Principles of Social Economics," Sections III. and 
 IV. of Chapter I., Part II. ; on the three factors in pro- 
 duction and the conditions under which natural forces 
 can be used; also Chapter VI. of Part IV.; discussing 
 
44 OUTLINES OF SOCIAL ECONOMICS 
 
 the question of large corporations, or "combinations of 
 capital." 
 
 Additional References. In Marshall's "Economics of 
 Industry," Chapters I., II., IX., X. and XL, of Book IV. 
 These chapters deal with the agents of production, land 
 and its fertility, division of labor, concentration of in- 
 dustries and production on a large scale. 
 
 In Hadley's "Economics," Chapter VI., on "Combina- 
 tion of Capital," and Chapter XL, on "Machinery and 
 Labor." 
 
 In John Stuart Mill's "Principles of Political Econ- 
 omy," Chapter IX. of Book I. ; on "Production on a 
 Large and Production on a Small Scale." 
 
 In Gunton's "Trusts and the Public," Chapters I., V. 
 and XVI. ; discussing various features of the so-called 
 "trust" problem in the light of recent developments. 
 
 In Frederick Starr's "First Steps in LIuman Progress," 
 Chapters I. to XII., inclusive; describing the primitive 
 arts and industries of mankind. 
 
 In Sir John Lubbock's "Origin of Civilization," Chap- 
 ter II. ; describing industrial life among savage tribes. 
 
 EXTRACTS FROM READINGS. 
 
 The Earliest Tool. "Perhaps the oldest implement of 
 man we know is the flint hache from the glacial gravels 
 of France and other parts of Western Europe. It is a 
 coarse, heavy, rude implement, chipped to shape by great 
 spalls being broken from its surface. It is somewhat 
 almond-shaped; may average about a hand's length; is 
 thick and heavy. It is probable that this object was used 
 for many purposes. It would be a weapon grasped in 
 the hand and used in close combat ; it would be a hatchet 
 for breaking open bones to get at the marrow ; it would 
 be a knife for forcing open shells of mollusks ; it might 
 
FACTORS AND METHODS OF PRODUCTION 45 
 
 be an ice-pick for cutting holes through the ice in winter 
 in order to get at fish. Taylor mentions that the spear- 
 point of iron which the African has made for himself 
 may be used by him as a knife for smoothing the spear- 
 shaft itself. The stick which the primitive man picked 
 up in the woods he would use for every purpose. Hurled 
 at a passing bird, it was a missile ; held in the hand and 
 wielded for defense, it was a war-club ; used for thrust- 
 ing, it became a spear ; as a digger of roots it was, per- 
 haps, the first agricultural implement ; to the man astride 
 a floating log upon the river, the same stick became a 
 help in handling the primitive craft."— From Frederick 
 Starr's "Some First Steps in Human Progress," Chapter 
 X. 
 
 Labor Not Displaced. "Machinery has not displaced 
 labor. On the contrary, there has been a most con- 
 spicuous increase of employment in those lines where 
 improvements in machinery have been greatest. The 
 number of persons engaged in manufacturing and trans- 
 portation to-day bears a far larger proportion to those 
 engaged in agriculture than was the case two or three 
 generations ago. The urban population makes more use 
 of machinery than the rural population ; and it is a con- 
 spicuous fact that our cities have grown faster than the 
 country as a whole. Whatever else machinery may have 
 done, it certainly has not kept labor out of mechanical 
 industries." — From Hadley's "Economics," Chapter XI. 
 
 Advantages of Large Production. "The possibility of 
 substituting the large system of production for the small, 
 depends, of course, in the first place, on the extent of the 
 market. The large system can only be advantageous 
 when a large amount of business is to be done ; it im- 
 plies, therefore, either a populous and flourishing com- 
 munity, or a great opening for exportation. Again, this 
 
46 OUTLINES OF SOCIAL ECONOMICS 
 
 as well as every other change in the system of produc- 
 tion, is greatly favored by a progressive condition of capi- 
 tal. It is chiefly when the capital of a country is receiv- 
 ing a great annual increase that there is a large amount 
 of capital seeking for investment; and a new enterprise 
 is much sooner and more easily entered upon by new 
 capital than by withdrawing capital from existing em- 
 ployments. The change is also much facilitated by the 
 existence of large capitals in few hands. It is true that 
 the same amount of capital can be raised by bringing to- 
 gether many small sums. But this (besides that it is not 
 equally well suited to all branches of industry) supposes 
 a much greater degree of commercial confidence and en- 
 terprise diffused through the community, and belongs al- 
 together to a more advanced stage of industrial prog- 
 ress." — From Mill's "Principles of Political Economy," 
 Chapter IX. of Book I. 
 
 QUESTIONS FOR REVIEW OR DEBATE. 
 
 1. What are the three factors in the production of wealth? 
 
 2. What is meant by "labor"? 
 
 3. What is meant by "capital"? 
 
 4. What is meant by "land"? 
 
 5. Describe the early and simple methods of producing wealth. 
 
 6. How did the division of labor and use of capital begin? 
 
 7. What are the distinct features of the capitalist and wages 
 
 system? 
 
 8. Do the capitalists receive all the benefits of capitalistic pro- 
 
 duction? What do the facts show? 
 
 9. What are the temporary and permanent effects of m;icliinery 
 
 on the employment of labor? 
 
 10. What is the object of corporations? 
 
 11. What were the "trusts," what became of them, and why? 
 
 12. Describe the advantages of large corporations. 
 
 13. Are the defects of large corporations a necessary part of 
 
 them or due to unwise management? What should be 
 our attitude toward them? 
 
CHAPTER VII. 
 
 FACTORS AND METHODS OF PRODUCTION— CoutillUcd. 
 
 33 Beginnings of Exctiange. In primitive society, 
 as soon as industries became at all specialized or sub- 
 divided, the necessity arose of exchanging products. 
 Those who minded flocks of sheep or herds of cattle 
 could not attend to the plowing, planting and harvesting 
 of crops, and neither could the shepherds or farmers 
 very well attend to the making of clothing, when woven 
 garments took the place of skins. Therefore, those who 
 raised sheep had to exchange the wool and mutton for 
 food and clothes, and those who raised crops had to ex- 
 change the grain and vegetables for wool and meat and 
 clothing, and those who made clothing had to exchange 
 what they did not themselves need for meat and grain 
 and wool. This exchange was at first a direct "swap- 
 ping" of goods for goods, and whenever or wherever 
 that takes place it is known as "barter." As the number 
 and variety of commodities increased, the feasibility of 
 this direct barter diminished. It was quite easy to ex- 
 change simple commodities in bulk, as wheat for sheep, 
 but when articles became more unlike and numerous this 
 barter system grew to be very cumbersome and difScult. 
 So it came to be necessary to have some one thing whose 
 value should be a standard by which the value of other 
 things could be measured, and for this purpose money 
 came into use. 
 
 34. rioney. Money has been made of all sorts of 
 
 47 
 
48 OUTLINES OF SOCIAL ECONOMICS 
 
 materials at different times and in different countries, — 
 skins, shells, grain, cattle, even tobacco, etc. In selecting 
 the material from which it shall be made it is necessary 
 to have in mind the uses to which it is to be put. In the 
 first place, money must be made of a commodity which is 
 itself valuable, so that those who receive it in exchange 
 or payment for a commodity may get something which 
 is as valuable as that with which they part. Then, in 
 order to do the work of money, it must be something 
 which can be divided into very small portions, so that 
 small quantities of different things can be purchased and 
 pieces of money to the exact value of the purchases be 
 given in exchange. 
 
 Aftei- a great deal of experimenting with different ma- 
 terials, the countries that were most advanced began to 
 use metal coins as money. Iron, copper, nickel, silver 
 and gold have been used. Certain quantities of metals 
 were stamped to show that they were of the right weight 
 and quantity, and so the system of coinage was developed. 
 As civilization advanced, the most expensive metals came 
 into use as money because of their greater convenience 
 and less liability to change in value. But gold, for in- 
 stance, could not be used in poor and semi-civilized coun- 
 tries as money. It is so valuable that it could not be 
 made into pieces small enough for the people to make 
 their ordinary purchases. In China, gold coins could 
 not be made small enough to pay a week's wages, and of 
 course no one could use money which required paying a 
 whole week's wages in a single coin. It had to be made 
 of material which could be divided up into pieces small 
 enough for their small wages and purchases. The wages 
 are so low in China and India that most purchases can- 
 not be made even with silver, so they are compelled very 
 largely to use copper, and even iron. 
 
FACTORS AND METHODS OF PRODUCTION 49 
 
 But as people become better off and large purchases are 
 made, the more valuable metals become indispensable. 
 For instance, it would be impossible to make some of the 
 large purchases that are common in this country to-day 
 with iron money. The cost of handling the money 
 would make the transaction immensely expensive. In 
 advanced civilization the most valuable metals become 
 the most economical and best fitted for use as standard 
 money. That is why, as nations grow in wealth and com- 
 merce, they tend to substitute gold for silver standard 
 money, but even gold becomes too burdensome. When 
 trade and commerce reach great proportions another in- 
 novation has to be made, namely, the use of paper money, 
 representing gold or silver and redeemable- in these 
 metals, but much more convenient to use. In small 
 dealings, not only coin, but coin made of cheap material 
 can be used and everything paid for in cash, but, as com- 
 modities multiply in number and business increases in 
 volume, cash payments become burdensome and impos- 
 sible. Then comes the use of this paper money, and 
 banking is developed as a further and most effective ad- 
 dition to the methods of exchange. 
 
 35. Banking. Banks are established to aid exchange 
 by the use of business faith or "credit," so that business 
 can be carried on without money changing hands at all. 
 Money is deposited in these banks by large numbers of 
 people, who, when they wish to buy something, instead 
 of handing over the cash give a check or order on their 
 bank ; and the person receiving the check may often de- 
 posit it to his own credit in the same bank, so that no 
 money changes hands. Probably nine-tenths of the busi- 
 ness of this country is done in this way, and without any 
 use of money. 
 
 Of course, in the constant round of business some of 
 
50 OUTLINES OF SOCIAL ECONOMICS 
 
 these checks are redeemed in coin. Then, too, checks 
 given on one bank will be deposited in several other 
 banks, but this does not mean that each bank pays the 
 others in cash for all the checks they hold against it. 
 Every bank holds checks against many of the other 
 banks, and so a large part of the accounts are cancelled 
 and only the balances are paid in cash. In large cities, 
 messengers from all the banks meet every morning at 
 a "clearing house" and exchange checks, taking back the 
 cash balances due them. If, for instance, one bank has 
 checks against another amounting to $500,000, and the 
 second bank has checks against the first amounting to 
 $490,000, the second bank pays the first bank only $10,- 
 000 ; the rest of the account is mutually cancelled because 
 the one offsets the other. In this way checks have be- 
 come the civilized world's great instrument of exchange, 
 by which commodities or properties from one dollar's 
 worth to a million dollar's worth are exchanged to suit 
 the convenience of the wage-earner as well as the rich. 
 
 Banks do more than this. A great deal of money is 
 usually left with them on deposit all the time, and this 
 they loan out to others who want it for business purposes. 
 So the banks serve as an instrument by which the unused 
 money of those who have a surplus is made available for 
 others who temporarily have a shortage. Banks usually 
 have the right, also, to issue their own notes — "bank- 
 notes," secured and guaranteed in various ways, and 
 these they can loan out for business purposes. Bank- 
 notes serve the same ends as money. 
 
 36. Transportation and Markets. The final stage in 
 production is getting the goods to the consumer, and this 
 requires transportation and markets. As society grows 
 more complex, exchanges are not limited to special lo- 
 calities, but extend to the extreme parts of the earth. 
 
FACTORS AND METHODS OF PRODUCTION 5 I 
 
 The American dinner table calls for the products of al- 
 most every part of the globe. To accomplish these great 
 exchanges transportation is indispensable. At first, the 
 products were carried on men's backs, then domestic ani- 
 mals like the pack-horse and the mule were used, and 
 canoes and rafts where possible; then wagons and 
 coaches, and, finally, through the application of steam 
 and mechanical invention, steamships and railroads were 
 developed. Without railroads, probably more than 90 
 per cent, of the present exchanges of products would be 
 impossible. Clearly, therefore, production is not merely 
 the securing of materials and manufacturing articles, but 
 includes distributing them over the face of the entire 
 globe, wherever required. 
 
 Commodities are not generally shipped direct to the 
 consumer, but are sent first to local merchants or deal- 
 ers, — "middlemen," — all over the country and perhaps 
 world, who hold them in stock and sell in large or small 
 amounts to the final consumers as they may desire to 
 buy. This is also a necessary part of production, and is 
 usually a real economy. If every consumer had to order 
 direct from the farm or factory, the expense of shipping 
 such small quantities would greatly increase the price, to 
 say nothing of the loss of time. 
 
 Exchange, therefore, requires the use of money, of 
 banking, of transportation, and of stores or markets, and 
 all are necessary factors in the production of wealth. 
 
 SUGGESTED READING. 
 
 In "Principles of Social Economics," Chapter VI. of 
 Part II., on "Money and Its Economic Function." This 
 chapter goes rather fully into the money question. Its va- 
 rious sub-divisions explain what money is, its economic 
 functions, how its value is determined, the depreciation 
 
52 OUTLINES OF SOCIAL ECONOMICS 
 
 of money, and by whom money should be coined or is- 
 sued. The sections involving the question of the value 
 of money will be understood better after the chapter in 
 this volume on "Value or Price." 
 
 Additional References. In Charles F. Dunbar's 
 "Theory and History of Banking," Chapters L to VI., 
 inclusive. These chapters explain in detail, for those 
 who wish to go into the subject carefully, the nature of 
 banks and the operation of the banking system, including 
 discounts, deposits, banking accounts, checks, bank-notes 
 and reserves. 
 
 In Hadley's "Economics," Sections 201 to 215, inclu- 
 sive, in Chapter VII. These sections discuss the uses of 
 money, its forms (including paper money), seigniorage 
 and depreciation. 
 
 In Hadley's "Railroad Transportation, Its History and 
 Its Laws," Chapters I. and II., describing "The Modern 
 Transportation System" and "The Growth of United 
 States Internal Commerce." The rest of this volume 
 deals largely with the problems of railroad rates, dis- 
 criminations and management, and foreign railroad sys- 
 tems; it is useful for special students of transportation. 
 
 EXTRACTS FROM READINGS. 
 
 The Bank Check System. "The depositor, or the cred- 
 itor of a bank, who has to make a payment to some other 
 person, has his choice between two methods of making 
 it. He may demand money from the bank, in the exer- 
 cise of his right as a creditor, and deliver this money ; or, 
 with the assent of the person to whom he has to make 
 payment, he may give to this person an order on the bank 
 for the money, or what is commonly called a check. If he 
 adopts the latter method, a payment for goods or of a 
 debt is effected by the simple transfer of a right to de- 
 
FACTORS AND METHODS OF PRODUCTION S3 
 
 mand money from ihe bank ; and so too if the recipient 
 of the check gives it in payment to some third person, and 
 he to a fourth, and so on. To this extent the check is 
 plainly made a substitute for the sum of money for which 
 it calls. It represents no particular money or group of 
 coins, for, as we have seen, the deposit is likely to have 
 been created by the bank in exchange for some security 
 bought by it, and is, therefore, a naked right to demand 
 and not a claim to any particular cash ; and even if the 
 deposit originated in the lodging of money by the deposi- 
 tor, it has in this case also become a naked right to de- 
 mand and does not imply any claim to the money actually 
 deposited. But the transfer of this naked right, in the 
 case supposed, is made by the agreement of the parties to 
 serve the same purpose as the transfer of money, and the 
 right thus becomes a substitute for money. 
 
 "The effectiveness of this substitution, however, is in- 
 creased and the use of the deposit greatly prolonged, 
 where it is the practice for the transferee himself to de- 
 posit the check instead of demanding its payment by the 
 bank, or seeking his opportunity to use it in some pay- 
 ment of his own." — From Dunbar's "Theory and His- 
 tory of Banking," Chapter IV. 
 
 Transportation a Century Ago. "One hundred years 
 ago the United States had no system of transportation. 
 Except on natural water courses it had very little 
 transportation of any kind. The roads were built by local 
 authorities for local purposes — and badly built at that. 
 Wagon conveyance was slow and expensive. It took a 
 week to go from Boston to New York by stage, and 
 nearly three weeks to reach Charleston. Although this 
 was the most frequented route, there was only a tri- 
 weekly mail at best. The postal service was irregular and 
 unsafe. Passenger journeys were attended with discom- 
 
54 OUTLINES OF SOCIAL ECONOMICS 
 
 fort, and not infrequently with danger. Long-distance 
 freight movement was absolutely impossible. The charge 
 for hauling a cord of wood twenty miles was three dol- 
 lars. For hauling a barrel of flour one hundred and fifty 
 miles it was five dollars. Either of these charges was 
 sufficient to double the price of the article and set a prac- 
 tical limit to its conveyance. Salt, which cost one cent a 
 pound at the shore, would sometimes cost six cents a 
 pound three hundred miles inland, the difference repre- 
 senting the bare cost of transportation. It was on these 
 cheap articles of common use that the charge bore most 
 heavily. It forced every community to live within itself." 
 From Hadley's "Railroad Transportation, Its History 
 an.d Its Laws,'' Chapter II. 
 
 QUESTIONS FOR REVIEW OR DEBATE. 
 
 1. At what stage in progress did exchange first become nec- 
 
 essary? 
 
 2. What is money, and why did it come into use? 
 
 3. Of what materials has money been made at diflfercnt times 
 
 and in different countries? Why has the tendency been 
 to use more and more expensive metals? 
 
 4. Mention some of the necessary qualities of money. 
 
 5. What is paper money, and what purpose does it serve? 
 
 6. How do banks make it possible to use "credit" as a means 
 
 of exchange? Describe the check system. 
 
 7. In what way are the accounts of banks against each other 
 
 settled, especially in large cities? 
 
 8. In what other ways do banks render aid to industry and 
 
 enterprise? 
 
 9. Explain the importance and methods of transportation, as a 
 
 factor in wealth production. 
 10. Who are the "middlemen"? What service do they render 
 in production, and are they a burden or a saving to con- 
 sumers? 
 
CHAPTER VIII. 
 
 CONSUMPTION OF WEALTH. 
 
 37. Consumption the Object of Production. Con 
 
 sumption is both the first and the final object of produc- 
 tion. Whatever the form of production, whether it is 
 near to or remote from consumption, it is governed by 
 consumption. The primitive producer, even of the Rob- 
 inson Crusoe type, is governed in his fishing and hunting 
 entirely by his desire to consume fish and game. If he 
 did not wish to consume fish or game he would neither 
 take the trouble nor run the risk of hunting and fishing. 
 
 When production reaches a more advanced state, 
 where the first producers sell their products to whole- 
 salers, and they to retailers, the connection between pro- 
 duction and consumption is not so obvious, at first sight, 
 but it is none the less real. The farmer who raises wheat 
 in Dakota or wool on the plains of Australia is none the 
 less producing for consumption because he is far from 
 market. He sells to the speculator, who in turn sells to 
 the miller or manufacturer, and he to the merchant ; but 
 merchant, speculator and farmer are all finally governed 
 by what the consumer will actually buy. 
 
 Beyond the elementary products required to sustain life, 
 consumption is wholly a matter of habits, tastes and cus- 
 toms ; in other words, it is a social rather than industrial 
 fact. The variety and character of the objects consumed 
 determines what will be produced. In China or other 
 pagan countries they produce idols, for which in Chris- 
 
 55 
 
56 OUTLINES OF SOCIAL ECONOMICS 
 
 tian countries there is absolutely no demand, and lience 
 none are produced. There are some industries, how- 
 ever, in this country and elsewhere that produce com- 
 modities for use in India and China. These things could 
 not be sold in England or the United States, but their 
 character is as much determined by the kind of consump- 
 tion in China as if the Chinamen themselves had made 
 them. Consumption is in reality the final expression of 
 desire and demand. Business is based upon it. Every- 
 day regular consumption is the basis of future produc- 
 tion. The market for the future is estimated by the 
 market of the past. Production is always and every- 
 where the effort to supply something which is demanded 
 for consumption. 
 
 38. Public and Private Consumption. Private con- 
 sumption is the direct consumption of wealth by indi- 
 viduals. Public consumption is the use of wealth by the 
 people in common. For example, public expenditures 
 for streets, water, drainage, parks, museums, police, 
 board of health, etc., are forms of public consumption. 
 Both of these kinds of consumption, private and public, 
 affect production in practically the same way. Both 
 kinds of consumption are governed entirely by the tastes 
 and habits of the people, and in turn affect human quality 
 and character. Both contribute to the education of the 
 people. Private consumption, represented by houses, 
 clothing, literature, art, music, amusements and social 
 contact, tends to refine, cultivate and improve the tastes, 
 habits and character of the individual. Every beautiful 
 building, every clean street, every new appointment 
 which adds to the convenience, sanitation or attractive- 
 ness of the streets or homes, is just so much civilizing 
 and refining influence. 
 
 39. Social Effects of Consumption. The social ef- 
 
CONSUMPTION OF WEALTH 57 
 
 feet of all this is shown in the habits, tastes, manners, in- 
 telligence and character of the people. Indeed, it might 
 be safely laid down as a general proposition that the 
 civilization of a community or nation is broadly deter- 
 mined by the extent and variety of its consumption. 
 Small consumption per capita always means crude and 
 relatively costly products, because where the demand is 
 small the production is sure to he carried on by primitive 
 methods, mainly by hand labor. Wherever hand labor 
 prevails the variety of products is slight. When the con- 
 sumption is very large it is sure to be varied. When- 
 ever the products consumed are few in number and of 
 uniform st}'le the total amount used is always relatively 
 small. For instance, if all clothing were made alike there 
 would be no motive for change, and hence a single suit 
 would do as well as twenty. But when commodities have 
 to satisf}' the artistic sense and taste for beauty and 
 comfort then the forms become practically unlimited. 
 Large consumption is always expressed in a large and 
 varied market, and this is what calls out inventions and 
 experiments and large investments of capital in new lines 
 of production. All our ^complex machinery, from the 
 first spinning frame to the modern printing press and 
 electrical plants, which have lessened the cost and low- 
 ered the price of products, have come because of and 
 depend entirely upon the growth of the market, or in- 
 creased consumption. 
 
 So that, the social effect of consumption is really to 
 give a higher standard of living and larger measure of 
 civilization in proportion as it is large and varied; or, to 
 give primitive barbarism in proportion as it remains 
 small. Consumption is the key to civilization. Progress 
 comes with the increase and diversification of consump- 
 tion. Let science, art and statesmanship stimulate and 
 
58 OUTLINES OF SOCIAL ECONOMICS 
 
 diversify desires and demands, leading to consumption, 
 and self-interest will set in motion the producing forces 
 to furnish the required supply. 
 
 40. Useful and Wasteful Consumption. There is a 
 good deal said about "wasteful" consumption. This is 
 a part of the old idea that consumption is waste unless 
 it is for the special purpose of further production. In 
 reality, all consumption leads to production. Of course, 
 there is useful and less useful consumption. Consump- 
 tion may be regarded as wasteful which results in op- 
 pression, crime and imrnorality. While this class of 
 consumption stimulates production it serves no useful 
 end in the community, but actually results in harm. But 
 it is a great mistake to suppose that all wealth which is 
 used to satisfy the demands and tastes of people who 
 are not engaged in business is wholly wasted ; such, for 
 instance, as the highly expensive furnishings of the 
 homes of the rich or the lavish expenditures on social 
 entertainments. 
 
 This cannot be regarded as wasteful consumption. It 
 is this very class of consumption that constantly brings 
 in and develops variety of products, which gradually 
 come within the reach of larger and larger numbers. 
 New artistic products, or "luxuries," are first introduced 
 for the seemingly extravagant people who can pay for 
 the experiments and high-priced hand labor required to 
 bring out the small quantity at first demanded. This is 
 the beginning of the market for new and improved prod- 
 ucts. As soon as the use of them becomes established 
 and the methods of production permit a little lower 
 prices, the demand spreads among people of smaller pur- 
 chasing power. This increases the market and leads to 
 increased production, which, in turn, calls for more scien- 
 tific and effective methods. This so lowers the price that 
 
CONSUMPTION OF WEALTH 59 
 
 a larger and larger proportion of the community can af- 
 ford to buy the products. 
 
 It is in this way that carpets, furniture, pictures, Hter- 
 ature, musical instruments, stoves, sewing machines, and 
 the multitude of common furnishings of the laborer's 
 home, were first introduced. They were made at first 
 only for the royalty and nobility, but now, produced by 
 capitalist factory methods, have become the daily pur- 
 chases of the laboring class. 
 
 Therefore, whether consumption is useful or waste- 
 ful is not necessarily or even usually a question of 
 whether the thing used is expensive or even "extrava- 
 gant," if the buyer can afford it, but it is a question of 
 whether it leads to higher refinement, comfort or con- 
 venience, or to coarseness, excesses, ill health, immo- 
 rality or crime. This is the real test. 
 
 SUGGESTED READING. 
 
 General References. In Marshall's "Economics of In- 
 dustry," Chapters IV., V. and VI., of Book III. These 
 chapters contain many interesting comments on the na- 
 ture and elasticity of various desires and demands, the 
 effects of wealth consumption, the kinds and amounts of 
 gratification yielded by different forms of wealth, etc. 
 
 In John B. Clark's "Philosophy of Wealth," Chapters 
 III. and IV. Chapter III., which relates more directly 
 to desires and demands as the causes of production, has 
 already been suggested in connection with the reading 
 in Chapter V., but in its latter portion especially is very 
 applicable to the present topic. Chapter IV. is on "The 
 Elements of Social Service," and contains many excellent 
 observations on the nature and effects of consumption. 
 
6o OUTLINES OF SOCIAL ECONOMICS 
 
 EXTRACTS FROM READINGS. 
 
 Consumption the Social Object of Production. "To 
 draw a line between that which, when consumed, gives 
 capacity for labor, and that which does not, is impracti- 
 cable. Comforts, as well as necessities, may increase the 
 ability to work, and necessities, as well as comforts, may 
 give gratification. The food of nearly every man satisfies 
 wants higher in the scale than that of simple nourish- 
 ment; it gives a sensuous gratification distinct from its 
 nutritive action. The clothing of every one above desti- 
 tution satisfies higher wants than those of warmth and 
 protection, those, namely, of personal adornment and of 
 social consideration. So with the dwelling, and the entire 
 surroundings. It is impossible to say that food, cloth- 
 ing, and shelter are productively consumed, or even that 
 distinguishable portions of them are so. 
 
 "To consume only productively one must eat the cheap- 
 est food that will adequately nourish, wear the simplest 
 clothing that will completely protect, and live in the 
 rudest dwelling that will fully shelter. All higher wants 
 must remain unsatisfied, and the man must become a ma- 
 chine, content with the fuel that keeps him in motion. 
 Here is the chief weakness of the classification, and the 
 reason for mentioning it in this connection; to make a 
 man a machine is to make him anything but productive. 
 
 "That such a result can never be realized in fact is self- 
 evident ; that it should never be conceived of in thought 
 is an evidence of how little trouble even the greatest 
 writers on political economy have given themselves con- 
 cerning the real nature of the being with whose actions 
 they deal. If the laborer is an engine, his motive power 
 is fuel ; if he is a man, his motive power is hope. It is 
 pyschological rather than physiological forces which 
 
CONSUMPTION OF WEALTH 6 1 
 
 keep him in motion. His will, and not merely his muscle, 
 is an economic agent, and he is to be lured, not pushed, in 
 the way of productive effort. Ambition may have feeble 
 sway in individual cases, but, this side of the gate of 
 Dante's Inferno, it is never entirely extinct." — From 
 Clark's "Philosophy of Wealth," Chapter III. 
 
 QUESTIONS FOR REVIEW OR DEBATE. ' 
 
 I. \\'lial is the object of all productive effort? 
 
 -?. On what does the extent and variety of consumption depend? 
 
 3. Explain how consumption is really the basis of all industry, 
 
 and how production is regulated by it. 
 
 4. What is the difference between private and public con- 
 
 sumption? 
 
 5. Is there any real difference in the primary causes of private 
 
 and public consumption? 
 
 6. What are some of the social and individual effects of con- 
 
 sumption, whether public or private? 
 
 7. What effect has the largeness or smallness of consumption 
 
 on the variety and price of products? 
 
 8. In what way have most of our comforts and conveniences 
 
 first come into use? 
 
 9. Are luxuries to be regarded as wasted wealth? Give reasons 
 
 for your answer. 
 10. What is the real test of whether consumption is "useful" or 
 "wasteful"? 
 
CHAPTER IX. 
 
 VALUE OR PRICE. 
 
 41. Value and Price are Identical. Value and price 
 are two names for the same thing. Both mean, simply, the 
 ratio in which commodities, including money, are ex- 
 changed for each other or for human service. We often 
 speak of value as something different from price. John 
 Stuart Mill said that value is the ratio in which things 
 will exchange for one another, and price is the ratio in 
 which they will exchange for money. For all practical 
 purposes this is confusing and unnecessary. The price 
 of a thing, it is true, is what it will bring in exchange for 
 something else, but if it will bring a dollar in money it 
 will bring a dollar's worth of anything else. The ratio 
 in which a hat will exchange for wheat, potatoes or corn 
 is the same as the ratio in which it will exchange for the 
 money price of any of these things. In modern society, 
 where money is used, value and price are the same thing. 
 In primitive society, where money is not used, value and 
 price are not spoken of. It is simply barter, "swapping" 
 things. When barter or swapping becomes too incon- 
 venient to be practicable, money is used; this furnishes, 
 as we have already seen, a common standard article which 
 anybody will accept in exchange for what he has to sell, 
 because he knows that others will accept it in turn in ex- 
 change for what he wants to buy, and so on. Therefore, 
 while it is correct enough to speak of the value or price 
 of one commodity in some other commodity, as "the value 
 
 62 
 
VALUE OR PRICE 63 
 
 of a hat is two bushels of wheat," nevertheless, for con- 
 venience, when we speak of the value or price of any- 
 thing we nearly always mean its value or price in money, 
 the commonly accepted instrument or measure of all ex- 
 changes. 
 
 42. Value and Utility. Value is a much used and 
 misused word, the meaning of which has been unneces- 
 sarily confused. For instance, Adam Smith and a great 
 many others who have written since speak of two kinds 
 of value, "value in use" and "value in exchange." But 
 when we speak of "value in use" (meaning the usefulness 
 of, say, a coat to the wearer) we are not really talking of 
 value at all, any more than we are when we speak of the 
 "value" of a friend. That use of the word value has no 
 relation whatever to exchange or to price. It relates to 
 usefulness, to esteem. One never thinks of trading his 
 friend when he speaks of his value. He thinks only of 
 his esteem for him. Or, when one speaks of the "value" 
 of a fur coat in a blizzard he does not mean its price, he 
 means its warmth, its usefulness. When Adam Smith 
 spoke of water as having a high "value in use" but no 
 "value in exchange" because it can be had for nothing; 
 or the low "value in use" and high "value in exchange" 
 of diamonds, he was really making a wrong use of the 
 word value. The high value in use of water is simply its 
 utility for quenching thirst and irrigating land, and for 
 cleanliness. In the same way we may speak of the value 
 of sunshine and air and gravitation, when we do not 
 mean value at all, but utility, usefulness. If we make a 
 clear distinction between the two it will help us very 
 much in understanding the subject. 
 
 Value, then, does not mean the quality of a thing but 
 the ratio or proportion in which it will exchange for some 
 other thing. When cotton cloth cost fifty cents a yard it 
 
64 OUTLINES OF SOCIAL ECONOMICS 
 
 was no more useful for making sheets and shirts than it 
 is now at four cents a yard, but it was more valuable. 
 It had a higher price. When steel rails cost $120 a ton 
 they were no more useful than when they were sold at 
 $18 a ton ; in fact, they were not so useful because they 
 were not so good ; but they were more valuable. They 
 had a higher price. It often happens that the usefulness 
 of a thing increases while its value or price diminishes. 
 Clearly, then, they are not the same thing at all. 
 
 How this value or price is determined is one of the 
 most important questions in social economics. We find, 
 that some things which are very useful, even indispensa- 
 ble, like air and sunshine, have no price at all. We get 
 them for nothing. And we find other things, like dia- 
 monds and gold plate, which are useful in satisfying cer- 
 tain desires, but are not indispensable because millions of 
 people get along without them, yet have a very high 
 price. 
 
 Now, why have diamonds a high value and sunshine no 
 value at all ? Clearly it is not because of the difference in 
 their usefulness. If it were, sunshine would have an 
 enormously higher value. Then what is the reason? It 
 is because sunshine costs nothing. It is a free gift of na- 
 ture. Diamonds cost a great deal to obtain. Nature is 
 very niggardly in supplying diamonds and lavish in sup- 
 plying sunshine. Diamonds have a very high price; 
 gold has also a very high price, though not so high ; silver 
 is less high, and so on down through the multitude of 
 articles, until a ton of some things is of less value than 
 an ounce of others. Why should there be such dif- 
 ferences ? 
 
 43. Supply and Demand. The most usual theory by 
 which this is explained is that price is determined by 
 supply and demand. This theory holds, first, that the 
 
VALUE OR PRICE 65 
 
 value of everything rises in proportion as the demand for 
 it exceeds the supply, and falls in proportion as the sup- 
 ply exceeds the demand ; second, that this rise or fall con- 
 tinues until the demand and supply are equal. Sometimes 
 this theory appears to be true, but it fails to explain why 
 any given commodity has any given price, and does not 
 account for the great changes in prices, but only for 
 some of their temporary variations. If supply and de- 
 mand determined it, when there was an over-supply of an 
 article the price would keep falling until all the supply 
 was sold, but it does not. Such a thing almost never oc- 
 curs, except at a bankruptcy sale. Even in times of panic 
 and business depression, while prices do fall they do not 
 fall to the point of taking off the whole supply. When a 
 merchant has a large supply of goods, part of which he 
 cannot sell, does he keep marking down and down and 
 down until the last is sold ? Not at all. He marks down, 
 until he reaches a certain point, and stops. He will carry 
 a large part of his stock over till the next season. Why? 
 Because he reaches a point where any further fall of price 
 means loss. It gets down to what the article costs him, 
 and then he halts. He will borrow money if needs be, to 
 carry the stock over, before he will do as this theory of 
 supply and demand says he will, because that would take 
 him to bankruptcy. 
 
 The same is true of the price of labor. When there 
 are some laborers out of employment is it true that wages 
 fall till they are all employed? No. On the contrary, 
 though the demand for labor has never been as great as 
 the supply for a whole twelvemonth, probably, during 
 the entire century, yet wages have kept rising and rising. 
 Why is this ? It is because another force has been at work, 
 which is altogether stronger than supply and demand, 
 namely the cost of production. The laborer's living is 
 
66 OUTLINES OF SOCIAL ECONOMICS 
 
 more expensive, because he uses more and lives better, 
 and so his wages have risen steadily, although the de- 
 mand for labor has not increased any faster than the 
 supply, and very often not so fast. 
 
 44. What the Law of Value flust Explain. If there 
 is any law governing the value, or price, of articles and 
 of services, it must be able to explain several essential 
 points : 
 
 First, it must explain why any particular article or 
 quantity of labor is worth a given sum of money (that 
 is, has a certain price) at any given time. If the supply 
 of diamonds equals the demand, and the supply of cot- 
 ton equals the demand, there is nothing in the supply 
 and demand theory to show why diamonds and cotton 
 should not have the same value. Clearly, this theory is 
 insufficient here. 
 
 Second, it must explain why and how prices change, 
 and how far the change will go in either direction, up or 
 down. As a part of this, it must explain why the price 
 of any article frequently stops falling long before the 
 over-supply is sold off; also, why the prices of some 
 articles may steadily decline from decade to decade, while 
 the relation between the supply of and demand for these 
 articles remains practically the same all the time ; and, on 
 the other hand, why the prices of other articles, and 
 wages of labor, may steadily rise from decade to decade, 
 while the supply and demand keep in about the same pro- 
 portion to each other. 
 
 Third, it must explain why prices for the same com- 
 modities or for the same amount of labor may be very 
 much higher in one country than in another, while the 
 relation between the demand and supply is practically the 
 same in both countries. 
 
 It should be said, here, for the sake of clearness, that 
 
VALUE OR PRICE 67 
 
 when we speak of demand, in the ordinary sense, we mean 
 the demand of those only who actually ask for the given 
 article, or can reasonably be expected to ask for it, when 
 it is offered, and will pay the price at which the owners 
 are willing to sell ; we do not mean the unknown desire 
 for the article by those who for any reason do not at- 
 tempt to buy it. Also, when we speak of supply, we mean 
 the commodities or labor actually offered for sale in the 
 market; we do not mean the whole possible supply that 
 could be offered if all the raw materials were worked up 
 into finished products. Briefly, we mean only the actual 
 (including the reasonably expected) market demand, and 
 the actual (including the proposed or planned) market 
 supply. It is important to remember this in seeking the 
 true law of value or prices, because it is only this actual 
 supply and actual demand that are factors in fixing the 
 price of a commodity at any given time. 
 
 In the next chapter we shall see that, while changes in 
 the proportion between supply and demand often do 
 cause temporary variations in prices, the great controll- 
 ing influence that fixes the value or price of commodities 
 and of labor and underlies all the important changes, is 
 cost of production. It is because sunshine does not cost 
 anything that it has no price. It is because diamonds do 
 cost a great deal to produce that they have a high price. 
 It is because gold costs about thirty-two times as much 
 to produce as silver that it is about thirty-two times as 
 valuable, even though more gold is being produced than 
 silver. When gold only cost sixteen times as much to 
 produce as silver, then its value was only sixteen times 
 as much, and that is when the much-talked-of ratio of 
 "sixteen to one" originated. There is a definite law ac- 
 cording to which cost of production determines prices, 
 and this we shall study next. 
 
68 OUTLINES OF SOCIAL ECONOMICS 
 
 SUGGESTED READING. 
 
 In "Principles of Social Economics," Chapters II. and 
 III., of Part II. The first of these chapters is on "Eco- 
 nomic Value," explaining what it is and showing the dif- 
 ference between value and utility. The second chapter 
 takes up the theories about value and is entitled : "De- 
 mand and Supply Not the Law of Economic Prices. 
 
 Additional References. In Mill's "Principles of Po- 
 litical Economy," Chapter II. of Book III., on "Demand 
 and Supply, in Their Relation to Value." This chapter 
 is suggested because it contains the standard accepted 
 statement of the demand and supply theory as presented 
 so long a time by the "English-school" economists. 
 
 EXTRACTS FROM READINGS. 
 
 Usefulness and Cost. "That a thing may have any 
 value in exchange, two conditions are necessary. It must 
 be of some use; that is (as already explained) it must 
 conduce to some purpose, satisfy some desire. No one 
 will pay a price, or part with anything which serves some 
 of his purposes, to obtain a thing which serves none of 
 them. But, secondly, the thing must not only have some 
 utility, there must also be some difficulty in its attain- 
 ment. 'Any article whatever,' says Mr. De Quincey, 'to 
 obtain that artificial sort of value which is meant by ex- 
 change value, must begin by offering itself as a means to 
 some desirable purpose ; and secondly, even though pos- 
 sessing incontestably this preliminary advantage, it will 
 never ascend to an exchange value in cases where it can 
 be obtained gratuitously and without effort ; of which last 
 terms both are necessary as limitations. For often it will 
 happen that some desirable object may be obtained grat- 
 uitously; stoop, and you gather it at yoiu' feet; but still. 
 
VALUE OR PRICE 69 
 
 because the continued iteration of this stooping exacts a 
 laborious effort, very soon it is found, that to gather for 
 yourself virtually is not gratuitous. In the vast forests 
 of the Canadas, at intervals, wild strawberries may be 
 gratuitously gathered by shiploads; yet such is the ex- 
 haustion of a stooping posture, and of a labour so mo- 
 notonous, that everybody is soon glad to resign the ser- 
 vice into mercenary hands.' " — From Mill's "Political 
 Economy," Chapter II. -of Book III. 
 
 QUESTIONS FOR REVIEW OR DEBATE. 
 
 1. What is meant by the "Value" of an article? 
 
 2. Is there any real difference between value and price? Ex- 
 
 plain. 
 
 3. What is barter, and what service does money perform in 
 
 exchange? 
 
 4. In what way is value different from utility or usefulness? 
 
 5. Give illustrations of commodities that have very high utility 
 
 and low value, and others that have a high value and small 
 relative utility. 
 
 6. What is the supply and demand theory of value? 
 
 7. Mention some of the defects of this theory. 
 
 8. What conditions and changes must the true law of value be 
 
 able to explain? 
 
 9. When we are speaking of their influence on value, just what 
 
 do we mean by "demand" and what by ''supply"? 
 ID. What is the real controlling influence that determines prices 
 and the changes in prices? Illustrate. 
 
CHAPTER X. 
 
 COST OF PRODUCTION. 
 
 45. Elements of Cost. Before discussing the relation 
 of cost of production to value, we ought to understand 
 just what we mean by cost. In economics, the cost of 
 producing a commodity includes all the expenses in- 
 volved in the whole process, from securing the original 
 raw materials down to the final delivery of the finished 
 product to the consumer. For example, in the produc- 
 tion of wheat bread, scores of dififerent expenses are in- 
 curred, — the cost of the seed, the labor of the farmer 
 and his men, the miller's charge for grinding, the ex- 
 pense of bags and barrels, the service of the railroads and 
 steamships in transporting the flour, the time and effort 
 of the merchant in storing, selling and delivering the 
 flour to the buyer, or the labor of the baker in making it 
 up into bread ; and at every stage is added the taxes and 
 insurance and repairs which farmer, miller, railroad, 
 merchant and baker have to pay in order to carry on their 
 respective industries. 
 
 46. Surplus is Not Cost. It is important to note that 
 rent of land is not included among the economic costs 
 of production ; nor is the interest paid for use of capital ; 
 nor is the profit earned by the managers of any of the 
 various industries concerned in the process. The reason 
 for this is that rent, interest and profits are all forms 
 of surplus, left over in the hands of some of the pro- 
 ducers after their expenses of production are paid. In 
 
 70 
 
COST OF PRODUCTION 7 1 
 
 every industry many of the concerns have one or more 
 of these forms of surplus left on hand, but there are 
 also some concerns which are running very "close to the 
 wind," not earning enough to pay either rent, interest 
 or profits. This means that the price of the products is 
 only high enough to cover the bare costs of these poorer 
 concerns, and, so long as they are needed to help supply 
 all that is demanded, the price cannot be lower. Now the 
 price of an article, at wholesale, is practically uniform in 
 any given market, no matter where the different parts of 
 the supply come from, provided of course they are all of 
 equally good quality. Therefore, it is clear that the 
 necessary price of an article at any given time does not 
 include rent, interest or profits; it includes only the 
 items of real cost, and these, when we follow them back, 
 all turn out to be items of labor and service. 
 
 The cost of the raw materials is, in the first place, the 
 expense of the labor to take them out of the earth, mines 
 or forests. The cost of manufacturing, transporting, and 
 selling the product is the labor of the employees, services 
 of managers and salesmen, and generally the expense of 
 replacing and repairing machinery, buildings, etc., which 
 simply calls for different extra forms of labor, and for 
 more raw materials, whose cost we have already seen is 
 labor cost. Taxes go to pay for services rendered by 
 the government, while insurance is simply a means of 
 dividing up the losses from fires and accidents in small 
 amounts throughout the business community. 
 
 47. How Profits Arise. Much of this may at first 
 seem quite unclear. We all know of cases where farm- 
 ers and manufacturers and merchants have to pay rent 
 for their land and interest on their capital ; in fact, we 
 know that the majority do. To them, these are items of 
 cost just as much as labor or taxes. But it must be re- 
 
72 OUTLINES OF SOCIAL ECONOMICS 
 
 membered that we are not now considering the costs in- 
 curred by any given producer, but only the case of those 
 whose cost of production is just covered by the price they 
 receive for the product. These are the producers who 
 are not paying or cannot pay rent or interest, and are 
 not earning any profits, above the owner's or manager's 
 salaries. That is why we say that rent, interest and profits 
 are not elements in the price-fixing cost of production, 
 whatever they may be to the better managed or located 
 concerns that are producing at less than the price-fixing 
 cost point. 
 
 In the conclusion of the last chapter it was stated that 
 cost of production is the great controlling factor that de- 
 termines value or price. Of course, this does not mean 
 that the price of each particular article is determined by 
 the cost of producing that article, because, as we have 
 just seen, the cost is different in the case of each different 
 factory or farm, while the price of the product in the 
 same market is practically uniform. Prices have a kind 
 of fluidity ; that is, within the limits of the same market 
 they are, under ordinary competition, very much like 
 water, as Mr. Mill expressed it ; constantly seeking a 
 level. They do not always reach that level, and neither 
 does water. The swells and breakers of the ocean surface 
 make it always uneven, but there is a force constantly at 
 work tending to smooth out this unevenness. Wind and 
 tide are constantly creating disturbances, but gravitation 
 is all the time tending to force each particle of water to 
 seek the general level. Hence it is truly said that water, 
 if not obstructed by artificial barriers, finds its level. 
 
 This is also true of prices, provided there are no ar- 
 bitrary obstructions. Within any given market where 
 competition operates there is a constant tendency to- 
 wards uniformity of prices for the same article. Speak- 
 
COST OF PRODUCTION 73 
 
 ing of this tendency David Ricardo, the great English 
 economist, said: "There cannot be two prices for the 
 same thing in the same market." But this is not strictly 
 true ; there are nearly always temporary disturbances. 
 There may be two prices for the same article for a little 
 while, until the consumers find it out. But it is strictly 
 true that there is a constant tendency towards a uniform 
 price for the same thing in the same market. 
 
 Of course, then, if the cost of furnishing the different 
 portions of the supply to this common market is differ- 
 ent, while the price is uniform, some of the producers 
 will have a large surplus, divided between rent, interest 
 and profits ; others will have a fair surplus, others only a 
 very small margin, and still others, whose cost is highest, 
 will have no surplus at all. For convenience, the word 
 "profit" is often used in the broad sense of surplus, in- 
 cluding rent, interest, and profits in the narrower sense 
 of the owners' or managers' income. 
 
 Since the cost is different for each different portion of 
 the supply, how can cost of production determine what 
 this uniform level of prices shall be, for any given com- 
 modity? Manifestly, it must be the cost of some special 
 portion of the supply that establishes the price level for 
 all. The process is as follows : 
 
 Competition between producers, together with the ef- 
 forts of consumers to buy at the lowest price, tends to 
 force the level of prices downward. This is a common- 
 place fact, familiar to everybody. On the other hand, 
 the upward resistance to this competitive pressure is cost. 
 Suppose, for illustration, the costs of supplying a given 
 commodity from different factories to be posts of differ- 
 ent lengths under a common platform. We can easily 
 see that the platform will be maintained at a height equal 
 to that of the longest posts, so long as they are strong 
 
74 OUTLINES OF SOCIAL ECONOMICS 
 
 enough to hold it up. If a few of the posts are ten feet 
 high, and some others only nine, eight and a half and 
 seven, the shorter ones will do nothing towards holding 
 up the platform. It will rest entirely on the ten-foot 
 posts. If for any reason the long posts give way, the 
 platform will drop to the level of the next longest ones, 
 and so on. 
 
 Now if we will think of these posts as being costs of 
 production in as many different concerns, and the plat- 
 form as being the level of prices, we will get an idea of 
 how the level of prices is held up by costs. Those longest 
 posts represent the greatest cost, and the price must at 
 least be equal to that cost so long as they remain stand- 
 ing. At these points the price and cost meet, and of 
 course there is no profit. Those concerns represented by 
 the longest posts, or highest cost, hold up the price as 
 long as they can. They have no margins of profit. 
 Those concerns that produce at less than this largest cost 
 represent the shorter posts ; they get the same price for 
 their product as the dearer producers, and so of course 
 have the diflference in profits, varying according to their 
 respective costs per unit of product, or, in our illustra- 
 tion, the lengths of the various posts. 
 
 So we find in every market the price level maintained 
 by a few of the dearest producers. In other words, 
 prices tend to a level on the basis of cost of production ; 
 not the cost of producing each particular article, nor the 
 cost of producing the cheapest article, but the cost of 
 producing the most expensive part of the supply which 
 the market demands. If some of the cheaper producers 
 increase their supply so that the dearest group are no 
 longer needed, these dearest producers are forced to 
 adopt cheaper and better methods of production or else 
 they will be crowded out by competition. In either case, 
 
COST OF PRODUCTION 75 
 
 the price of the product soon falls to the cost level of 
 the next dearest group of producers. So, when a manu- 
 facturer introduces new and successful machinery, which 
 increases his output without much if any increase in his 
 cost of production, he reaps an increased profit for a time, 
 until his competitors get similar improved machinery or 
 until some of the poorer competitors are crowded out of 
 the field. Then the price falls again, and the manufac- 
 turer no longer gets any special advantage from his ma- 
 chine, except that it prevents him from falling behind in 
 the race. What was for a time his profit is now being en- 
 joyed by the public in the shape of lower prices. 
 
 48 High Cost and Low Cost Production. Of course, 
 many factors enter in, to determine whether the cost of 
 production in different concerns is high or low. Near- 
 ness to supplies and fuel, nearness to market, efficiency 
 of machinery, expertness of management and skilfulness 
 of labor, all are elements in giving a low cost of produc- 
 tion as compared with concerns that have to bring their 
 raw materials and coal from a distance, or that have to 
 go a long way to find a market, or that use old, slow and 
 worn-out machiner\-, or that are managed by old-fash- 
 ioned, illiberal methods and employ a poor grade of labor. 
 Right at this point we should correct the very serious 
 error that "cheap" labor necessarily means cheap produc- 
 tion. We think of low-wage laborers as cheap producers. 
 Sometimes these are the very dearest producers; that is, 
 the most expensive. The measure of cheapness in labor 
 is not always the amount paid per day but the cost of the 
 labor per unit of product. If a laborer employed at a 
 dollar a day only produces half as much as one employed 
 at a dollar and a half, the dollar-a-day man is dearer than 
 the dollar-and-a-half man. The dearness or cheapness 
 of laborers depends upon the cost of the labor necessary 
 
^6 OUTLINES OF SOCIAL ECONOMICS 
 
 to turn out a given quantity of product. If everything 
 were done by hand it would generally be true that low- 
 paid laborers would be cheap producers, but the great 
 cheapening power in' production is not muscle but machin- 
 ery. The productiveness of human muscle can never be 
 increased very much. The fifteen-cent-a-day Japanese and 
 ten-cent-a-day Chinaman are as dexterous and expert 
 with their fingers as the average three-dollar-a-da\' 
 American. The difference in this respect is very limited. 
 The great gain in productive power comes from the use 
 of science and machinery. 
 
 For instance, fifty years ago a weaver could attend to 
 only two looms. Some weavers would do a little more 
 with two looms than others, but the best could not do 
 twice as much as the poorest. These looms would only 
 make about sixty to seventy-five revolutions a minute. 
 With the improved machinery used to-day some weavers 
 can mind twenty and even more than twenty looms, run- 
 ning at the rate of two hundred and twenty revolutions a 
 minute. This is a reduction in the cost which no amount 
 of hand dexterity could ever produce. 
 
 This leads directly to the greatest of all reasons why 
 low-wage labor is really dearer than high-wage labor; 
 namely, the fact that high wages make a large market for 
 products, and it is only when there is a large market that 
 machinery and other cheapening processes can be used in 
 the production of wealth. This point was emphasized, 
 it will be remembered, in the lesson on "Causes of Pro- 
 duction." Twenty looms minded by one operator and 
 making two hundred and twenty revolutions a minute 
 will produce one thousand yards of cloth a day, which 
 is about twenty times more than the weaver of fifty years 
 ago could produce. Of course, the use of such looms can 
 only be made profitable if this immensely increased prod- 
 
COST OF PRODUCTION TJ 
 
 uct of cloth can be sold. The poorer the working people of 
 the country are — that is, the lower their wages — the less 
 they can buy of the cloth, and hence the less they, can con- 
 tribute toward making this improved machinery possible. 
 Large consumption, which nearly always depends upon 
 high wages, except in the case of luxuries sold to (he 
 rich, is necessary to the development and profitable use 
 of the most economic and cheapest methods of produc- 
 tion. In the long run this is always true. 
 
 The forces which give lower prices, then, are not 
 merely the forces which develop the dexterity of human 
 muscle but are chiefly the forces which bring improved 
 machinery and productive methods into use. These forces 
 are not physical but social. They arise not out of the 
 laborer's personal endurance and excessive drudgery, but 
 out of his social refinement, education, high standards of 
 life and large consumption, all of which result in high 
 wages. The continuous lowering of prices, which means 
 cheapening of wealth for everybody, comes not through 
 low wages but through larger use of machinery, and this 
 results from the increasing demand for an increasing va- 
 riety of products by the community. In other words, 
 this demand comes chiefly from a higher standard of so- 
 cial life among the wage-earning people. 
 
 SUGGESTED READING. 
 
 In "Principles of Social Economics," Chapters IV. and 
 V of Part II. These chapters are entitled respectively 
 "The Law of Economic Prices" and "The Law of Cost 
 of Production," and explain in more detail the points we 
 have just covered. 
 
 Additional References. In David Ricardo's "Princi- 
 ples of Political Economy and Taxation," Chapter XXX., 
 "On the Influence of Demand and Supply on Prices." 
 
78 OUTLINES OF SOCIAL ECONOMICS 
 
 Mr. Ricardo, whose "Political Economy" was published 
 in 1817, was practically the only great English economist 
 to deny the demand and supply theory and assert that 
 prices are governed by cost of production, but even he 
 did not see the full application and wide scope of his 
 doctrine. Some of his reasoning as to how cost of pro- 
 duction is determined has been discarded in the light of 
 later economic investigations. 
 
 In Mill's "Principles of Political Economy," Chapter 
 III. of Book III. Although Mill was the strongest of all 
 defenders of the supply and demand theory, he recog- 
 nized the influence of cost of production in determining 
 prices under certain conditions. This chapter treats "Of 
 Cost of Production, in Its Relation to Value." 
 
 EXTRACTS FROM READINGS. 
 
 Cost^ Not Quantity, Determines Value. "It is the cost 
 of production which must ultimately regulate the price of 
 commodities, and not, as has been often said, the propor- 
 tion between supply and demand; the proportion 
 between supply and demand may, indeed, for a time, 
 affect the market value of a commodity, until it is sup- 
 plied in greater or less abundance, according as the de- 
 mand may have increased or diminished ; but this effect 
 will be only of temporary duration. 
 
 "Diminish the cost of production of hats, and their 
 price will ultimately fall to their new natural price, al- 
 though the demand should be doubled, trebled, or quad- 
 rupled. Diminish the cost of subsistence of men, by di- 
 minishing the natural price of the food and clothing, by 
 which life is sustained, and wages will ultimately fall, 
 notwithstanding that the demand for laborers may verv 
 greatly increase." — From Ricardo's "Political Economy 
 and Taxation," Chapter XXX. 
 
COST OF PRODUCTION 79 
 
 The Tendency of Value to Equal Cost. "Adam Smith 
 and Ricardo have called that value of a thing which is 
 proportional to its cost of production, its Natural Value 
 (or its Natural Price). They meant by this, the point 
 about which the value oscillates, and to which it always 
 tends to return; the centre value, towards which, as 
 Adam Smith expresses it, the market value of a thing is 
 constantly gravitating; and any deviation from which is 
 but a temporary irregularity, which, the moment it ex- 
 ists, sets forces in motion tending to correct it. On an 
 average of years sufficient to enable the oscillations on 
 one side of the central line to be compensated by those 
 on the other, the market value agrees with the natural 
 value ; but it very seldom coincides exactly with it at any 
 particular time. The sea everywhere tends to a level ; but 
 it never is at an exact level ; its surface is always ruffled 
 by waves, and often agitated by storms. It is enough that 
 no point, at least in the open sea, is permanently higher 
 than another. Each place is alternately elevated and de- 
 pressed; but the ocean preserves its level. . . . 
 
 "To recapitulate : demand and supply govern the value 
 of all things which cannot be indefinitely increased ; ex- 
 cept that even for them, when produced by industry, 
 there is a minimum value, determined by the cost of pro- 
 duction. But in all things which admit of indefinite 
 multiplication, demand and supply only determine the 
 perturbations of value, during a period which cannot ex- 
 ceed the length of time necessary for altering the supply. 
 While thus ruling the oscillations of value, they them- 
 selves obey a superior force, which makes value gravitate 
 towards Cost of Production, and which would settle it 
 and keep it there, if fresh disturbing influences were not 
 continually arising to make it again deviate. To pursue 
 the same strain of metaphor, demand and supply always 
 
8o OUTLINES OF SOCIAL ECONOMICS 
 
 rush to an equilibrium, but the condition of stable equi- 
 librium is when things exchange for each other according 
 to their cost of production, or, in the expression we have 
 used, when things arc at their Natural Value." — From 
 Mill's "Principles of Political Economy," Chapter III. 
 of Book III. 
 
 QUESTIONS FOR REVIEW OR DEBATE. 
 
 1. Name some of the elements in the economic cost of pro- 
 
 ducing a commodity. 
 
 2. Why are not rent, interest and profits included in our reck- 
 
 oning of economic costs. 
 
 3. When we trace back the various items of real cost, into 
 
 what one form of cost do they resolve themselves? Il- 
 lustrate. 
 
 4. Explain how some industries have an economic surplus, 
 
 including rent, interest and profits, while others do not. 
 
 5. Since we know that rent and interest are items of cost to 
 
 some producers, in what sense do we mean tlial they are 
 not part of the economic cost of production? 
 
 6. What is the general tendency of prices in the same market? 
 
 What can you say of the variations from this tendency? 
 
 7. Explain just how cost of production determines prices. Is 
 - it the cost of each particular article or of some definite 
 
 part of the whole supply? If the latter, what part is it, 
 and why? 
 
 8. How does competition affect prices? What is the effect 
 
 of improved machinery and belter methods of produc- 
 tion? 
 
 9. What are some of the conditions that cause high and low 
 
 cost of production, respectively? 
 10. Why is low-wage labor in the long run the most costly 
 of all labor? Explain just how the use of improved 
 machinery, giving cheap production, finally depends on 
 a high level of wages throughout the community. 
 
CHAPTER XL 
 
 DISTRIBUTION OF WEALTH. 
 
 49. What Distribution Means. Distribution is some- 
 times spoken of as if it meant the transportation and 
 selling of goods. What is meant by distribution in eco- 
 nomics is the division of wealth among the various fac- 
 tors that share in its production. There are really but 
 four economic avenues or channels by which wealth is 
 distributed throughout the community,. They are wages 
 (including salaries), rent, interest and profits. Every- 
 body, except those supported by charity, gets his or her 
 income and share of the wealth produced in one of those 
 forms. 
 
 50. Wages. Wages are a definite kind of income, dif- 
 ferent in character from either rent, interest or profit. 
 Wages are often spoken of as if they meant any and 
 every kind of reward for labor. This is a mistake. If a 
 man plants a hill of potatoes the product is the reward for 
 his labor, but it is not wages. It is simply wealth he has 
 helped produce. Wages are a specific agreed sum paid by 
 one person to another for a certain amount of service. 
 Wages are the price of labor, and are always a definite 
 stipulated income. They are not an uncertain variable in- 
 come, depending for their amount on the success or 
 otherwise of the industry. They are a definite sum 
 agreed upon before the service is rendered, and must be 
 paid if the business is to be carried on at all, because the 
 laborer must at least be fed before he can work. All 
 
 81 
 
82 OUTLINES OF SOCIAL ECONOMICS 
 
 forms of stipulated income paid for services may be 
 properly classed as wages. Moreover, wages are nearly 
 always a part of the cost of production, because all pro- 
 duction involves labor and under modern conditions 
 practically all labor is performed for wages. Conse- 
 c[uently wages are never a division of profits, because 
 profits are the surplus remaining after all costs are paid. 
 51. Rent, Interest and Profits. Rent is different 
 from wages in that it is not a necessary part of the cost 
 of production. There is a good deal of production that 
 does not involve rent-paying at all. Rent is a part of the 
 surplus or profit arising from the use of land, just as in- 
 terest is a part of the surplus arising from the use of capi- 
 tal. If a producer owned all the land he used and all the 
 capital invested in his business, there would be neither 
 rent nor interest to pay. He might pay wages, or if he did 
 the work himself his own cost of living would constitute 
 the labor cost equivalent to wages. All the remaining 
 value of the product above what it costs to produce it 
 would be his profits.- If he did not own the land but did 
 own the capital he would then have to pay, first, wages 
 for the labor, and out of the remaining profits he would 
 have to pay a part for rent of land. The surplus created 
 by any special fertility or advantageousness of the land 
 he uses is paid to the landowner for the use of it, and is 
 called rent. If he does not own the capital he uses he 
 then has to pay interest for borrowed capital, and thus 
 his profits are still further reduced by the amount paid 
 for interest. If anything is left after paying wages, rent 
 and interest, it is his profits. If the total surplus is no 
 more than equal to the rent and interest, he will have no 
 profits, as very often happens. Thus it may be said that 
 wages are a stipulated amount paid for labor, rent is a 
 stipulated amount paid for the use of land, interest is a 
 
DISTRIBUTION OF WEALTH 83 
 
 Stipulated amount paid for the use of capital, and profits 
 are the possible surplus left after everything else is paid. 
 It should not be forgotten, however, that rent and in- 
 terest, while stipulated in amount, are not always ele- 
 ments in cost of production, while wages, or labor cost in 
 some form, are always an element. There is no produc- 
 tion without paying the labor cost in some way or other, 
 almost always in wages. Rent and interest are payments 
 out of the surplus or profit. 
 
 If, for instance ,a farmer wants a piece of land, and 
 the owner asks ten dollars an acre for the use of it, the 
 farmer will only pay ten dollars provided he can clear 
 that much or more by using it. If he cannot realize 
 from the product of the land above all costs more than 
 ten dollars he will refuse to take it at that rent. If he 
 can realize fifteen dollars he will gladly pay ten or even 
 twelve dollars as rent, but he will not pay sixteen dollars, 
 because that would be giving more than the gain obtained 
 by using the land. In other words, rent is a part of the 
 surplus created by, a given piece of land, and is paid by 
 those who use it to those who own it. Sometimes all the 
 surplus coming directly from the land is paid in rent, 
 sometimes only a part of it, but of course more than the 
 surplus will not be continuously paid. 
 
 Interest is exactly like rent, only it is paid for the use 
 of capital, such as machinery, tools, stock, etc., but a per- 
 son will pay interest for capital to use in business only 
 on condition that he can make more than the interest by 
 so doing. If new capital will not increase his remainder 
 of profit he will refuse to use it, but in some industries, 
 like bonanza gold mining, very high rates of interest are 
 paid because large margins of profits are realized. In- 
 terest is generally higher in this country than in Europe, 
 because profits are usually larger here than abroad. 
 
84 OUTLINES OF SOCIAL ECONOMICS 
 
 Rent and interest, therefore, are divisions of the total 
 gain among the owners of borrowed land and borrowed 
 capital. The remainder goes to those who conduct the 
 industry, to the extent that the total profits are larger 
 than the amount due for rent and interest. To illustrate : 
 if a business will yield 15 per cent, surplus, and the person 
 conducting it owns both the land and capital employed, 
 then he will have the total profit of 15 per cent. If he 
 owns only the capital but has to hire the land at a rent 
 equal to one-third of his surplus he will have only a profit 
 of ID per cent. If he also borrows his capital and has to 
 pay another third of his surplus in interest, he will only 
 have 5 per cent, profit left. 
 
 Rent and interest are not parts of the cost of pro- 
 duction, which aifect the price of the commodity, but are 
 a portion of the general surplus or profit. In other words, 
 wages or labor expense are cost of production ; rent, in- 
 terest and profits are surplus. They may all go to one 
 person or be divided among many, according as the land 
 and capital employed is owned by one or by diflferent 
 people, but if the latter the total gains or surplus created 
 by the industry will be divided among these three. It may 
 all go to rent and interest and leave no profits, or it may 
 go equally to all three, but there will never be profits 
 without first paying the rent and interest, though there 
 may be rent and interest without any profits. Rent, inter- 
 est and profits are divisions of the surplus created by 
 the quality of the land, and by the use of capital, and 
 by the skilful management of the business. 
 
 SUGGE.STED READING. 
 
 In "Principles of Social Economics," Chapter I. of 
 Part III., on "The Distribution of Wealth." In this chap- 
 ter special attention is devoted to showing the order in 
 
DISTRIBUTION OF WEALTH 8$ 
 
 which wealth is distributed through the four economic 
 channels; first wages, then rent and interest, lastly 
 profits. 
 
 For Additional References see subsequent chapters, on 
 Wages, Rent, Interest and Profits, respectively. 
 
 QUESTIONS FOR REVIEW OR DEBATE. 
 
 1. What is the economic meaning of "distribution" of wealth? 
 
 2. How many channels of economic distribution are there? 
 
 What are they? 
 
 3. Define wages. What other form of income does the term 
 
 wages, in economics, include? 
 
 4. Do wages always include all labor cost? If not, what forms 
 
 of labor cost are not represented by wages? 
 
 5. What is rent? How does it differ from wages? 
 
 6. For what is interest paid? How does it differ from wages, 
 
 and wherein is it similar to rent? 
 
 7. Define profits. What is the difference between general or 
 
 total profits (or "surplus") and the employer's final prof- 
 its? 
 
 8. In what order is wealth distributed through these four chan- 
 
 nels? 
 
 9. Explain by illustrations how the method of distribution 
 
 varies according to the ownership of the land and capital 
 used. 
 10. Why are wages the first and unavoidable item of distribution, 
 while rent and interest are uncertain, and profits wholly 
 dependent on the success of the business? 
 
CHAPTER XII. 
 
 WAGES. 
 
 53. Wages an Index of Civilization. Wages and 
 salaries are the forms of wealth-distribution through 
 which the great majority of the community receive their 
 income, especially in modern countries. The class whose 
 income reaches them in this way is constantly increasing 
 as civilization advances. Strictly speaking, wages are a 
 stipulated amount paid for services. It may be by the 
 day, week, month or year, only when it is by the year 
 it is called salary, and is usually larger in total amount. 
 Wages in the broad sense include all stipulated amounts 
 paid for services. They are the price of labor. 
 
 Since wages are the means by which the laboring class 
 secures command over the necessities, comforts, con- 
 veniences and luxuries of life, it is clear that the stand- 
 ard of wages is a very good sign of the material and 
 social condition of the people of any nation. Whatever 
 else may be said of a nation, if wages are low the masses 
 of the people are sure to be poor, and if the people are 
 poor civilization is backward. There is no more reliable 
 general index to a nation's welfare and progress than 
 the wage conditions of its people, and nothing more 
 surely contributes to a people's progress than a general 
 permanent rise of real wages, although there are many 
 other things that affect their welfare in various ways. 
 
 53. Real and Nominal Wages. From the laborer's 
 standpoint, the mere amount of money he earns does not 
 
 86 
 
WAGES 87 
 
 prove whether his wages are relatively high or low ; it de- 
 pends on what and how much he can buy, with his wages. 
 For instance, when wages were $10 or $15 a day in the 
 Klondike gold fields, prices of ordinary necessities were 
 so very high that the laborer was unable to buy as mttch 
 with his money as a New England factory operative on 
 $1.50 or $2 a day could with his. Therefore, we make 
 a distinction between the money rate of wages and the 
 purchasing power of the laborer's earnings. The amoinit 
 received in money is his "nominal wages ;" the amount of 
 commodities or whatever he can buy with his money in- 
 come is his "real wages." When we are considering 
 wages as an item in cost of production we can take ac- 
 count only of the nominal or money wages, but when we 
 speak of wages as a measure of the workingman's wel- 
 fare or standard of living or advancement in civilization 
 we mean, of course, real wages. 
 
 54. Standard of Living. How are wages, or the 
 "price of labor," determined? By the operation of the 
 same principle of cost that determines the prices of com- 
 modities. The influences that operate upon a manufac- 
 turer in compelling him to demand a certain price for his 
 output operate upon laborers in compelling them to 
 demand a certain price for their labor. In the case of 
 a manufacturer it is the expense involved in furnishing 
 the product that fixes the minimum level of price at 
 which he can afford to sell. In the case of laborers it is 
 the normal, customary and established expense of living 
 that furnishes the basis of their demand for wages. 
 
 This is not always understood by the laborers them- 
 selves, but, like the silent operation of forces in nature, 
 it is an unconscious fact that is ever present and finally 
 decides the result. In other words, what it has become 
 necessary for the laborers to have, according to the social 
 
88 OUTLINES OF SOCIAL ECONOMICS 
 
 conditions under which they Hve, constitutes the real 
 force of their demand and the measure of the amount of 
 their wages. Laborers in China will seldom get more than 
 ten or twelve cents a day,, because the material and social 
 requirements under which they live can be satisfied with 
 the meager supply that ten or twelve cents a day will fur- 
 nish. In more advanced countries this amount is not only 
 inadequate but it is so far short of fulfilling the living- 
 necessities that even employers do not think of offering 
 it. The standard of life, for instance, in England and 
 the United States has advanced so far that no industry 
 could exist at all, whose life depended upon paying ten 
 cents a day for labor. The thought would be dismissed 
 as impossible; in fact, it becomes a part of the primary 
 estimates of a business, before it is started, that it must 
 be able at least to pay the scale of wages that the estab- 
 lished standards of living of the country demands. If 
 it is in a community or industry that rec^uires five dollars 
 a day to be paid, as in some cases in the United States, a 
 new business will only be established if its prospects will 
 afford that, but if it is an industry or community where 
 twenty-five cents a day can be paid, the business will be 
 started on that basis. 
 
 Whether the wages are twenty-five cents a day, or 
 two, three or five dollars a day, is not determined by the 
 desire of the capitalists to pay more or less. They will 
 nearly always pay the least they can. The wages, are 
 determined by the necessary expensiveness of the labor- 
 ing class in that country or community ; in other words, 
 by the minimum amount the established standard of liv- 
 ing requires in order to continue. 
 
 55. Influences that Affect Wages. Clearly, then, 
 wages are affected by whatever influences affect the 
 tastes and habits of the laboring class, because the expen- 
 
WAGES 89 
 
 siveness of labor is governed by the laborers' standard 
 111" living. Where they are content and can live nndcr 
 conditions that compel them to eat and sleep and cook 
 in the same room, they can with comparative ease be in- 
 duced to accept low wages that will cover that sort of 
 living. But where the laborers' social and domestic 
 habits, education and standards of life are such that they 
 refuse to eat and sleep in the same room, refuse to live 
 under conditions where they cannot have decent housing 
 and sanitation, carpets and modern furniture and some 
 literature and social entertainment, they will not forego 
 these without discontent, strikes and disturbance, and 
 cannot be induced to work for wages that will not supply 
 these conditions. This difference in habitual tastes and 
 desires makes the difference in rates of wages. Nothing 
 but habitual acceptance of lower conditions can establish 
 low wages, and nothing but the education and social re- 
 finement which demands better conditions can exact high 
 wages. All the influences, therefore, of education, social 
 opportunity, varied experience, cultivation of new ideas 
 and tastes, are forces which push wages upward. 
 
 In short, all the influences which awal<en the mind, 
 sharpen the ideas, refine the tastes, cultivate the manners, 
 vary the experience and broaden the life of the citizen, 
 make irresistibly for a higher plane of wages. On the 
 other hand, anything and everything which tends to re- 
 press new aspirations and opportunities for seeing new 
 things and people, undergoing new experiences, or having 
 new desires, tends to either stop the rise or cause a fall 
 in wages. If it were possible to make American laborers 
 as contented with a cotton smock, wooden shoes, rice and 
 chopsticks as are the hundreds of millions in China, it 
 would be just as easy to pay the Chinese rates of wages. 
 And, if it were possible to make the average Chinaman 
 
90 OUTLINES OF SOCIAL ECONOMICS 
 
 insist upon a variety of clothing, some furniture, and the 
 ordinary features that enter into the Hfe of the American 
 citizen, it would not be difficult to raise his wages to the 
 American level; in fact, it would be impossible to keep 
 them much below. 
 
 56. Effect of Charity on Wages. In accordance 
 with this general principle, nearly all forms of charity, 
 tips and perquisites, or special privileges in any form, if 
 they are at all general, have the effect of lowering wages. 
 There is no class in the community among whom any of 
 these forms of regular charitable aid are given where 
 wages are not correspondingly lower. It is a custom in 
 some places, quite common in England and other Eu- 
 ropean countries and in some parts of this country, to 
 give in addition to wages certain privileges, like the use 
 of a small piece of land, the right to keep a pig or a cow, 
 or the right to accept fees and tips. In every such in- 
 stance, whether it be the waiters and barbers and livery- 
 men who receive tips, laborers who receive a pig and 
 cow, or public officials who receive fees, the wages or 
 salaries are lower than in similar occupations where these 
 "extras'" are not allowed. 
 
 In the eighteenth century in England it became a cus- 
 tom (which finally had the force of law) to grant parish 
 (pauper) allowances to laborers when the price of bread 
 rose above a certain point. The natural way to have met 
 this, in accordance with the true principle of wages, 
 would have been to raise wages when the cost of living 
 rose. But this was contrary to the notion of those who 
 paid wages ; the employers, acting as public officials, 
 fixed the wages twice a year by law and proclamation, 
 and, being taxpayers as well, had to supply the difference 
 in pauper allowances. In other words, when they made 
 the wages inflexible and fixed, by law, they were forced 
 
WAGES 91 
 
 to supply a charitable addition varying with the cost of 
 living. If they had withheld the charity then the wages 
 would have varied, but the variation of the one or the 
 other along with the cost of living was certain to occur. 
 The proof of this came when the habit of piecing out 
 wages with parish allowances was finally prohibited. 
 Wages immediately went up, by the whole, and very soon 
 more than the whole difference. This same principle 
 operates wherever wages or stated incomes exist. Any 
 form of gratuity given to laborers, if it becomes at all 
 general, finally operates to reduce their wages. 
 
 SUGGESTED READING. 
 
 In "Principles of Social Economics," Chapter III. of 
 Part III., as far as the second paragraph on page 208. 
 This chapter is on "The Law of Wages," and the portion 
 given states the, test of a scientific law of wages, defines 
 wages, and explains in detail the influence of the stand- 
 ard of living in determining wage rates. 
 
 Additional References. , In Gunton's "Wealth and 
 Progress," Sections I. and II. of Chapter I., Part II., dis- 
 cussing respectively the old "wages-fund" theory and Dr. 
 Francis A. Walker's theory of how wages are deter- 
 mined; also, the whole of Chapter II., Part II. "Wealth 
 and Progress" is devoted entirely to a critical examina- 
 tion of the wages question, and this latter chapter defines 
 wages, explains nominal and real wages, the economic 
 law of wages, standard of living and cost of living. 
 
 In Marshall's "Economics of Industry," Chapters III., 
 IV. and V. of Book VI., all three chapters being on "De- 
 mand and Supply in Relation to Labor." Prof. Marshall 
 does not advance any very definite law of wages, but 
 makes many interesting comments on systems of pay- 
 ments, kinds of employment, supplementary wages, etc. 
 
92 OUTLINES OF SOCIAL ECONOMICS 
 
 In Hadley's "Economics," Chapter X., on "Wages," 
 and in Francis A. Walker's "Wages Question," Chapter 
 IX. of Part I. Both these chapters are chiefly devoted 
 to exposing the errors of the "wages-fund" theory. 
 Chapter VI., in Book I., of Walker's "Wages Question," 
 might well be read because of its refutation of the famous 
 but discouraging doctrine of Malthus, a century ago, that 
 population all the time tends to increase faster than the 
 means of subsistence. A photograph and sketch of Mal- 
 thus may be found in Gunton's Magazine for Septeinber, 
 1898. 
 
 In Sir Thomas Brassey's "Work and Wages," Chap- 
 ter III., entitled "Cost of Labor Cannot be Determined 
 by the Rate of Wages." This is devoted to showing that 
 high wages do not necessarily mean high labor cost, in 
 reckoning the costs of production in an industry; and 
 incidentally illustrating the relation of standard of living 
 to wages. 
 
 EXTRACT FRG.AE READINGS. 
 
 Wages Fund a Myth. "As has been shown in a 
 formei- chapter, wages are really paid out of current pro- 
 duction, and not out of capital, as the wage-fund theory 
 assumes. Granting, for the moment, that wages are 
 wholly advanced out of capital to supply the immediate 
 necessities of the laborer, I have, I think, abundantly 
 proved that the two questions, whether labor shall be 
 employed at all, and, secondly, what wages shall be paid 
 to laborers if employed, are decided by reference to pro- 
 duction and not to capital. It is the prospect of a profit 
 in production which determines the employer to hire la- 
 borers; it is the anticipated value of the product which 
 determines how much he can pay them. The product, 
 then, and not capital, furnishes at once the motive to 
 
wA(;ics (j^ 
 
 employment and the measure of wages. If this be so, tlie 
 wliolo vvaf;x'-fund theory falls, for it is built on the as- 
 sumi)lion that capital furnislics the measure of wages; 
 that ihc wa|;v-fun(l is no lai\L;"(.'r because ca])ital is no 
 lari^cr, and that the only way In increase the aggregate 
 amount which can be paid in wages is to increase capital. 
 But, as matter of fact, wages are not wholly advanced by 
 capital, but are paid out of the product of the labor for 
 which wages are due, as has been shown in the preceding 
 chapter. This alone, which is indisputable, invalidates 
 the theory we arc considering." — From Francis A. 
 Walker's "Wages Question," Chapter IX., Part I. 
 
 QUESTIONS FOR REVIEW OR DEBATl':. 
 
 I 111 what fiirni do the majority of llio people in modern coini- 
 tries receive their ineonies? 
 2. Why are wage rates among' the best indications of a nation'.s 
 state of civilization? 
 
 3. Explain the difference between real and nominal wages. 
 
 4. What is meant by the standard of living? 
 
 5. Why and how docs the standard of living determine wage 
 
 rates? Illustrate by the experience of different countries. 
 
 6. What are some of the influences that affect the st.andard of 
 
 living, and hence wage rates? 
 
 7. What is the effect of charitable or "'extra'" items of income 
 
 on wage rates? Why is this? 
 
 8. Give illustrations of the effect of tips, fees, pauper allowances, 
 
 etc., on wages. 
 
CHAPTER XIII. 
 
 WAGES — Contin iied. 
 
 57. Piece=Work. Piece-work is a system under 
 wliicli laborers are paid according to the quantity of 
 work done instead of according to the time worked. It 
 has gradually come into vogue with the capitalist system 
 of production. There are many reasons which have con- 
 tributed to its adoption in certain industries, especially 
 factories and machine shops. It is believed by many that 
 under piece-work the laborers' reward is more equitable. 
 It is assumed with great confidence that under piece- 
 work every laborer gets what he earns. If he works 
 harder and does twice as much or a third more under 
 this system he is supposed to get twice as much or a third 
 more pay. 
 
 Although this view is honestly held, it is far from being 
 entirely true. It would at first sight seem as if, for in- 
 stance, when shoemakers are paid by the quantity of 
 work done, it would make no difference to the employer 
 how many pairs a man made. If he doubled his output 
 by any ingenious contrivance or special" energy or skill, 
 his wages would presumably increase by the full amount 
 of the increase of his product. But that is contrary to the 
 history of piece-work wages. The theory would be true 
 if the wages ^vere really paid in proportion to the work 
 done, but they are not. The real force that finally oper- 
 ates to detemine wages, as explained in the last chapter, 
 is the cost or standard of living among the wage class. 
 
 94 
 
WAGES 95 
 
 Of course, there are individual exceptions to this, just as 
 there are to the cost basis of all prices, and just as there 
 are variations and disturbances in the operation of every 
 natural law, but the great steady influence underlying 
 prices is cost of production, and underlying wages, cost 
 of living. A very little observation of the facts in any 
 industry where there is any considerable change in the 
 methods of production will show that piece-work wages 
 are really governed by the same principle as regular time 
 wages. 
 
 58. How Piece=Work Wages Are Determined. The 
 truth is, as every workingman knows, the piece-work 
 price in any shop or factory is finally fixed by the average 
 earnings of the time or day workers in the same business. 
 In other words, the price per unit of product, whether by 
 the ton, dozen or yard, is fixed with the view of making 
 the total earnings of the day of week as nearly equal to 
 the time earnings as possible. The differences in the 
 energy and skill of the workers cause the actual earnings 
 to fluctuate around this line. As an illustration, take the 
 case of any workshop where a new machine is intro- 
 duced. Whether it is in printing, shoemaking, iron-work 
 or whatever, it is an absolute rule that when a new ma- 
 chine that produces a great deal more than the old is 
 brought in the price paid to the laborer per unit of pro- 
 duct is reduced. For instance, with the latest improved 
 looms that are now being introduced in the southern cot- 
 ton mills the weaver can operate double the number and 
 hence produce double the quantity of cloth, and the price 
 paid for weaving fifty yards is only a little more than 
 half what it is on the old looms. 
 
 This is not necessarily unjust. There is no just reason 
 why all the benefits of a new machine should go to the 
 laborer who happens to work at it. He did nothing to 
 
96 OUTLINES OF SOCIAL ECONOMICS 
 
 invent it. He took none of the risk and expense of ex- 
 perimenting with it, nor of the larger investment of capi- 
 tal necessary to instal it. If the price paid the laborer 
 per unit of product remained the same the public at large 
 would never get any benefit from the improvements. 
 Prices could not fall, capital could get nothing 'for its 
 risks and losses, and the few workmen who did receive 
 the gain would probably be demoralized by the sudden 
 extraordinary increase of income. But the universal 
 principle which tends to make piece-workers' wages like 
 those of day-workers, according to the standard of living, 
 distributes the benefit of improvements throughout the 
 whole community. It goes partly to the consumers in the 
 lower prices of products, partly to the capitalists, tem- 
 porarily, in larger profits, and partly to the laborers who 
 operate the machines, in some increase of total earnings 
 even at the reduced piece-rate. 
 
 This fact, that piece-work wages tend to equal the day 
 earnings, in the long run, prevents the piece-work system 
 from always inspiring the laborers to the highest energy ■ 
 and competition that employers expect. By long experi- 
 ence laborers have learned that if a few in a shop work 
 unusually hard and produce an unusually large amount, 
 that fact will often be made the basis of reducing the rate 
 of pay in the shop. It will be seen that these few earn 
 morel than Che hormal standard, and from this it will be 
 assumed that the rest could do the same if they tried, and 
 so the piece-work prices will be lowered. That is the 
 real reason why trade unions have so often made it a 
 rule, which is so much criticized and censured, to limit 
 the amount of work the members shall do in a day. This 
 tendency has arisen among the trade unions because em- 
 ployers so frequently base the piece-rate for a whole shop 
 on the earnings of a certain number of the hardest 
 
WAGES 97 
 
 workers, sometimes not scrupling to give these few an 
 extra bonus to turn out a large product. This means 
 that the rate of labor for all must be at the very highest 
 notch in order to earn even average day wages. The 
 trade unions are familiar with this, and so they try to 
 check it by fixing a limit to the piece-work product per 
 day. They realize that otherwise they would be pitted 
 against each other like racehorses, and so in the long run 
 be forced to very exhaustive labor with no more pay. 
 
 59. Women's Wages. Piece-work has many excel- 
 lent features, but it is not necessarily a means of earn- 
 ing higher wages ; that is determined in the long run by 
 other conditions, as we have seen. One of the advan- 
 tages of piece-work is that it destroys the discrimination 
 against women in the rate of wages. Under piece-work, 
 employers are practically obliged to pay women the same 
 rate of wages as men. Wherever piece-work prevails, 
 men and women who work at the same employment get 
 practically the same wages ; at least, the same piece-rate. 
 It is a common thing, among weavers in cotton, silk and 
 woolen mills, for some women to earn more than some 
 men, although that is not the rule. 
 
 But, curiously enough, piece-work operates in another 
 way to separate employments into men's work and 
 women's work. That is to say, where the work is of a 
 kind that women can do equally as well as men, men are 
 gradually dropped out altogether and it becomes a 
 "woman's job," so much so that women even get to dis- 
 like seeing a man doing it, and vice versa. The reason is 
 the same that operates in leveling piece-work rates to the 
 day-work wages ; namely, the effort to base the total 
 earnings on the cost or standard of living of the workers. 
 With women this is less than with men, and hence a 
 lower piece-rate can be paid on what is exclusively 
 
98 OUTLINES OF SOCIAL ECONOMICS 
 
 woman's work, just as the day rate for women is nearly 
 always lower than for men. 
 
 That women's cost of living, all included, is less than 
 men's, is so thoroughly recognized that in many places 
 (in factory towns it is a rule) the price of board for 
 women is lower than that for men. Moreover, women de- 
 pend largely on other people for a portion of their ex- 
 penses. They depend on their parents or brothers or 
 young men friends for most of their social enjoyments, 
 entertainments, presents, etc., and these are sufficiently 
 important and continuous items to make a marked differ- 
 ence in their general regular expenses. Then, too, 
 women are very much less often responsible for family 
 support than men. Except in the case of widows, women 
 rarely have to supply the income of a whole family. Sta- 
 tistics show that working women represent only about 
 one and one-half dependent persons to each worker, 
 whereas each workingman represents an average of 
 more than three dependent persons. Since the cost of 
 living includes not merely the personal expenses of the 
 individual, but also of those dependent on him, as indi- 
 cated by the family, the average man's expense is much 
 greater than the woman's. 
 
 60. Family Expenses the Basis of Wages. Work- 
 ing women are usually single, and are generally members 
 of families. Being thus partly supported by the family 
 income, their earnings can be and are much less than 
 what would be required for full support. 
 
 Likewise, the head of the house in turn usually earns 
 less when the family income is pieced out by the small 
 wages of the women and children. In other words, the 
 forces governing wages steadily work toward the point 
 of basing the total income on the family cost or standard 
 of living. 
 
WAGES 99 
 
 The income of the family must be not merely enough 
 to support the worker, but also the dependent non- 
 workers. The general rule is that when only the man 
 works his wages are based on this average family ex- 
 pense, but when the wife and children also work each 
 earns less, so that the total income rarely exceeds the nor- 
 mal standard of living of families in the same social 
 group. 
 
 6i. Country and City Wages, The difference be- 
 tween country and city wages for the same class of 
 workers is determined in the same'way. The standard 
 of living in the country requires much less expense than 
 in the city, and therefore wages are lower in the rural 
 districts and higher in the cities. Part of this cheaper 
 cost is due to lower rents and cheaper provisions, but 
 very largely it is because in the country a smaller and 
 poorer variety of commodities are consumed than in the 
 city. Less is usually spent on good clothing, on newspa- 
 pers and magazines, on travel and amusements, on pic- 
 tures and music and furniture and various sundries, be- 
 cause the social life and contact between people is less. 
 People demand these extra comforts, conveniences and 
 artistic products largely in proportion as they see them 
 in customary use by acquaintances, neighbors and 
 friends, and naturally there is less of this sort of incen- 
 tive "in the country than in the city. Both the cost and 
 the standard of living are lower, and therefore wages 
 are lower. 
 
 62. Wages Fixed by Groups, Not Individuals. Wage 
 rates are determined by the standard of living of groups 
 of families, not of each separate household. Wages are 
 different for different kinds of employment according to 
 the standards of living of the groups of workers that 
 seek these various occupations, and the pay is uniform 
 
lOO OUTLINES OF SOCIAL ECONOMICS 
 
 for the same work. For instance, the price for weaving 
 cloth is a fixed amount for all weavers, the price for peg- 
 ging shoes in shoe factories is uniform, and so for all 
 forms of labor, whether skilled or unskilled. The wage 
 rate for carpentering or plumbing or bricklaying is a 
 standard price for that work for the whole of each group 
 or trade in each locality. 
 
 But of course the standards of living of different fam- 
 ilies within each of these groups are not all the same. 
 How, then, is the standard for the group, on which 
 wages are based, determined? In the same way as the 
 prices of commodities are determined, — by the cost of 
 the dearest portion.* In the case of prices, it is the cost of 
 producing the dearest portion of the required supply; in 
 the case of wages, it is the cost or standard of living of 
 the most expensive portion of each group of laborers that 
 determines the wages for the group. This dearest por- 
 tion is composed of the families in that group who, either 
 through higher tastes or more expensive habits or larger 
 families, have the most costly standard of living in the 
 group. 
 
 Suppose, for instance, a group of workingmen consists 
 of a thousand men, and two hundred of them represent 
 families whose habitual customary expenses are $15 a 
 week. The pressure from those two hundred would be 
 to force a wage rate of at least $15 a week, and perhaps 
 start a strike if wages fell below that point. The effect of 
 the requirements and perhaps efforts of these two hun- 
 dred most expensive families is to keep the wage stand- 
 ard up to $15. But of course the cost of living of all 
 of the laborers in this group is not $15 a week. There 
 will be a number of single men and married couples 
 
 * See Chapter X, 
 
WAGES 10 1 
 
 without children, whose cost of living will be less 
 than that of the two hundred most expensive, but they 
 will get the same wages as the two hundred, because 
 wages are uniform for the group just as prices tend to 
 uniforniit}' in the same market. Therefore, some of these 
 single men and couples without families will be able to 
 save something, have a small bank account or buy a home 
 perhaps. Like the low-cost manufacturers, they get the 
 same price as their dearest competitors for what they 
 have to sell, and have the difference as a margin of profit. 
 That is why foreigners who come to this country gen- 
 erally save money,, while Americans, as a rule, do not. 
 They come right into groups of laborers whose wages are 
 fixed by the American standard of living, which is much 
 higher than their own. Therefore they get American 
 wages, and, still living according to European standards, 
 save up a part of their wages and frequently send money 
 home. 
 
 This group method of fixing wages also applies to 
 other conditions of labor, the sanitary conditions of 
 workshops, emplo)'ment of children, hours of labor, etc. 
 These are determined, under modern industry, not for 
 the individual but for the group, and this has made it 
 necessary for laborers to act, not as individuals but in 
 groups. This is the chief reason why trade unions have 
 come into existence; and, with all their mistakes, they 
 are an inevitable part of the capitalist and wages system 
 of production. 
 
 SUGGESTED READING. 
 
 In "Principles of Social Economics," Chapter III. of 
 Part III., on "The Law of Wages." 
 
 Additional References. In Gunton's "Wealth and 
 Progress," Chapters VIL, VIII. and IX. of Part II., 
 
102 OUTLINES OF SOCIAL ECONOMICS 
 
 treating respectively of the "Universality of the Law of 
 Wages," "Wages Under Piece-Work/' and "Ultimate 
 Analysis of the Law of Wages." 
 
 In Adam Smith's "Wealth of Nations," Article III. 
 of Chapter II., Book V., and in David Ricardo's "Political 
 Economy and Taxation," Chapter XVI. Both these chap- 
 ters discuss the influence of taxes upon wages, showing 
 the effect of cost of living in fixing wage rates. They 
 will be interesting to students desiring to make a more 
 extensive study of the subject. 
 
 EXTRACTS FROM READINGS. 
 
 Taxes on Wages. "The wages of the inferior classes 
 of workmen, I have endeavored to show in the first book, 
 are everywhere necessarily regulated by two different 
 circumstances : the demand for labor, and the ordinary 
 or average price of provisions. The demand for labor, 
 according as it happens to be either increasing, station- 
 ary, or declining, or to require an increasing, stationary, 
 or declining population, regulates the subsistence of the 
 laborer, and determines in what degree it shall either 
 be liberal, moderate, or scanty. The ordinary or average 
 price of provisions determines the quantity of money 
 which must be paid to the workman in order to enable 
 him, one year with another, to purchase this liberal, mod- 
 erate or scanty subsistence. While the demand for labor 
 and the price of provisions remain the same, a direct tax 
 upon the wages of labor can have no other effect than to 
 raise them somewhat higher than the tax. . . . A 
 direct tax upon the wages of labor, though the laborer 
 might perhaps pay it out of his hand, could not properly 
 be said to be even advanced by him; at least if the de- 
 mand for labor and the average price of provisions re- 
 mained the same after the tax as before it. In all such 
 
WAGES 103 
 
 cases, not only the tax, but something more than the tax, 
 would in reality be advanced by the persoil who imme- 
 diately employed him." — From Adam Smith's "Wealtli 
 of Nations," Article III. of Chapter IL, Book V. 
 
 The Employer Would Pay a Tax on Wages. "If taxes 
 press unequally on the farmer, he will be enabled to raise 
 the price of raw produce, to place himself on a level with 
 those who carry on other trades ; but a tax on wages, 
 which would not affect him more than it would affect 
 any other trade, could not be removed or compensated by 
 a high price of raw produce ; for the same reason which 
 should induce him to raise the price of corn, namely, to 
 remunerate himself for the tax, would induce the clothier 
 to raise the price of cloth, the shoemaker, hatter and up- 
 holsterer, to raise the price of shoes, hats and furniture. 
 If they could all raise the price of their goods, so as to 
 remunerate themselves, with a profit, for the tax ; as they 
 are all consumers of each other's commodities, it is ob- 
 vious that the tax could never be paid ; for who would be 
 the contributors if all were compensated? I hope, then, 
 that I have succeeded in showing, that any tax which 
 shall have the effect of raising wages, will be paid by a 
 diminution of profits, and, therefore, that a tax on wages 
 is in fact a tax on profits." — From Ricardo's "Political 
 Economy and Taxation," Chapter XVI. 
 
 QUESTIONS FOR REVIEW OR DEBATE. 
 
 1. What is the piece-work system? 
 
 2. How is it supposed to affect the laborer's earnings? Is this 
 
 supposition correct? 
 
 3. How are piece-work rates really determined? Illustrate this 
 
 in the case of new machinery introduced in a factory. 
 
 4. Is there any injustice in this method of fixing piece-rates? 
 
 5. To what classes and in what ways are the gains from new 
 
 machinery really distributed? 
 
I04 OUTLINES OF SOCIAL ECONOMICS 
 
 6. What have laborers found to be the custom of employers 
 when some of the workers earn unusually large amounts? 
 What rule have the trade unions adopted to prevent this? 
 ■ 7. Is this rule of the unions justified by the facts in the case? 
 
 8. What good eflfect has piece-work on the relation between 
 
 men's and women's wages? 
 
 9. How is this result sometimes avoided? 
 
 10. Why are women's wages lower than men's? Mention several 
 
 reasons. 
 
 11. Explain why the family is the real basis of wage rates, rather 
 
 than the individual worker. Give illustrations showing 
 that this is really the case. 
 
 12. Why are country wages lower than city wages? Give some 
 
 reasons why both the cost of living and standard of living 
 are lower in the country. 
 
 13. Explain why wages are fixed according to groups instead of 
 
 for each separate laborer. 
 
 14. What portion of each group of laborers determines the rate 
 
 for the group? Why is this? 
 
 15. How is it that foreigners coming to this country are able 
 
 to save money when American laborers generally cannot? 
 
 16. What has brought trade unions into existence? Are they 
 
 a necessary part of modern industry? 
 
CHAPTER XIV. 
 
 RENT. 
 
 63. Nominal and Hconomic Rent. Rent is the gen- 
 eral name of the income from the use of land. Nominal 
 rent is the total amount paid to the landlord for the use 
 of his land. Economic rent is what the landlord has left 
 after paying his agreed share of the expenses of keeping 
 up the property, such as taxes, road assessments, clearing 
 off, water rights, etc. When there are improve- 
 ments, such as buildings, wells, fences, etc., situated on 
 the land, they are nearly always considered to belong to 
 the land, and so the rent includes payment for both land 
 and buildings. In reality, that portion of the rent paid 
 for use of the buildings or other improvements is not 
 properly rent; it is interest on the capital invested in 
 these improvements. Because of the difficulty of sep- 
 arating the two, however, it is usual to call the whole 
 payment for use of land and improvements by the name 
 of rent. We should remember that only the payment for 
 use of land is really rent, and only the landlord's final 
 profit is "economic" rent. 
 
 64. How Rent Is Determined. There is a sense in 
 which land is very much like capital. It is one of the fac- 
 tors in production, not only as the source of raw ma- 
 terials, but as an instrument actively used in production, 
 like capital ; except of course that land cannot be moved 
 arotmd like machinery. Land is used for various pur- 
 poses — agriculture, manufacture, and for residences. Its 
 
Io6 OUTLINES OF SOCIAL ECONOMICS 
 
 rent is the surplus arising from its use, and the rent of 
 different portions of land is determined by their different 
 degrees of tisefulness for the purposes for which they are 
 offered. 
 
 For example, if the land is desired for purposes of re- 
 tail trade, it has much more usefulness on a prominent 
 street than in a back alley or country road. If it is 
 wanted for raising garden stuff it is much more useful if 
 the soil is fertile than if it is a rocky, sandy hillside. If 
 it is desired as a site for a factory, it is much more useful 
 if located near a railway leading both to raw materials 
 and to good markets than if located away off in the 
 woods. 
 
 Suppose one piece of land will produce ten bushels of 
 wheat, another twelve, another fourteen and another six- 
 teen bushels, with the same outlay of labor and other 
 expenses. If the wheat from all three pieces is sold in 
 the same market, the price per bushel will be the same 
 whichever land it comes from. The consumer does not 
 care whether the wheat is raised on poor land or good 
 land. He wants the wheat, and it is the same to him 
 whether it was raised on a hillside in New England or 
 on the fertile fields of Minnesota. 
 
 The wheat will be sold at practically the same price, 
 and that price will have to be high enough to cover the 
 expense of raising it on the poorest of these competing 
 pieces of land. This, in our illustration, would be the 
 ten-bushel tract. If the owner of the ten-bushel tract of 
 land cannot pay expenses in raising wheat at less than 
 seventy cents a bushel, seventy cents a bushel will have 
 to be the price, so long as his crop is required in the mar- 
 ket. The tracts which yield twelve, fourteen and sixteen 
 bushels will get the same price per bushel, and they will 
 have two, four and six bushels an acre, respectively, as 
 
RENT 107 
 
 profit. This will be due to the different degrees of fer- 
 tility of these different pieces of land. The profit will 
 come to the better tracts because the price of the wheat 
 is fixed by the cost of farming on the poorest land used. 
 
 The owner of the land requires the farmer to divide 
 that surplus ■ with him, in payment for the privilege of 
 using the land. What the landlord thus receives is the 
 nominal rent of the land. He may be able to exact all 
 the surplus, or only a small part of it, depending on cir- 
 cumstances. If he asks the man on the ten-bushel tract 
 to pay him a bushel an acre for the use of his land, the 
 man will be unable to do so, because he would lose. The 
 price of the wheat only just covers his cost of produc- 
 ing it. He will give up the land rather than pay this rent, 
 and if the owner then takes it and uses it himself he finds 
 he can get nothing but what it costs him, because the 
 price of the crop only equals the cost. Therefore, the 
 owner of that land can demand no rent for it because it 
 will yield no surplus above the cost. 
 
 But the cultivators of the other tracts, who make two, 
 four or six bushels an acre, according to the fertility of 
 the land, will divide their surplus with the land-owner 
 rather than not use the land. The farmer sees that he 
 could get some ten-bushel land without paying any rent, 
 but he also knows that he would not make anything by 
 it. If he pays the landlord a bushel per acre for the 
 twelve-bushel tract he will still have a bushel left, and be 
 a bushel an acre better off than if he went on to the land 
 he could get for nothing. Even if he paid a rent of two 
 bushels he would be at least as well off. 
 
 This one bushel or two bushels paid to the landlord 
 does not add to the price of the wheat. That is fixed by 
 the cost on the ten-bushel land. The rent is simply a 
 portion of the profit due to the greater productiveness of 
 
I08 OUTLINES OF SOCIAL ECONOMICS 
 
 the twelve, fourteen and sixteen-bushel tracts. The re- 
 maining part of the surplus produced, if it is not all paid 
 in rent, goes to the farmer or user of "the land and is his 
 profit. If he has to pay it all in rent, then he simply gets 
 his living from the land and has no profit. 
 
 65. Rent Not a Tax on Consumers or Laborers. 
 Rent, therefore, is not added to the price of products but 
 is taken from the profits of the user of the land. In other 
 words, it is a division of the profits between the user of 
 the land and the owner. Neither does rent come out of 
 the laborers' wages, because wages have to be paid before 
 rent arises at all. Whatever the crop, or the profit or 
 loss, even though it finally means bankruptcy, the labor 
 employed in cultivating the land has to be paid. Wages 
 are a part of the original and necessary first cost of culti- 
 vating the land and raising the crop. If the farmer hires 
 no labor but does all the work himself, the same is true. 
 His own labor has to be paid for in his cost of living, 
 which amounts to the same thing as paying wages. In 
 either case, this labor cost must be paid first ; farmer or 
 laborer must at least be supported before they can work 
 on the land, whatever happens afterwards. Wages are 
 always a part of the first cost of production and never a 
 part of the profit. Indeed, the price of the produce of the 
 land is largely determined by, the wages or labor cost, 
 including the farmer's services, because in farming espe- 
 cially these are the largest items in the cost of produc- 
 tion and can never be avoided 
 
 Wages are substantially the same on the ten-bushel 
 tract as they are on the twelve, fourteen or sixteen-bushel 
 tracts. The farmer cannot get his labor any cheaper be- 
 cause of the fact that he only raises ten bushels instead 
 of twelve or more; and it is because he is forced to pay 
 the wages and support himself that the price of the wheat 
 
RENT 109 
 
 must equal the cost on the poorest tract. If he has to 
 drain the land the price must cover that cost, which is 
 largely wages. If he has to cultivate much the price 
 must cover that, which also is largely wages. If he has 
 to make improved roads to give access to the farm, that 
 is another cost which is largely wages. So, in any case, 
 the cost of production, not only on the best but on the 
 IXDorest land, is largely made up of wages. 
 
 But rent is not a part of the cost of production, be- 
 cause the ten-bushel tract, by which the price of wheat is 
 fixed, pays no rent at all. It pays wages and the farmer's 
 living and costs of different kinds, but it pays no rent, be- 
 cause it produces only enough to cover these costs. The 
 other three tracts each pay rent, because the cost of pro- 
 duction on them is less per bushel, while the price per 
 bushel is fixed by the cost on the poorest tract. Rent is 
 simply a part of the surplus which arises after wages are 
 paid and after the price is determined. 
 
 Rent, therefore, does not enter into prices and hence 
 does not increase prices. It does not arise until after 
 wages are paid, and therefore is not taken out of wages. 
 One might as well say that the amount of water in a well 
 to-day depends upon the amount that will be taken from 
 the well to-morrow. 
 
 Therefore, the claim made by advocates of the "single 
 tax" on land, equal to the whole rent, that the laborer 
 receives only what the landlord leaves is entirely a mis- 
 take. On the contrary, the landlord receives what the 
 laborer leaves. The great interest of the laborers, there- 
 fore, is not in abolishing rent, but in seeing that they 
 get a large amount in the first place, in wages. They 
 have the first bite of the apple. Whether they will work 
 for ten cents a day or will not work for less than two dol- 
 lars is a question of how much their standard of life im- 
 
no OUTLINES OF SOCIAL ECONOMICS 
 
 pels them to insist upon, but in any event the landlord 
 can have nothing until the laborers are paid. Every ef- 
 fort to improve the condition of the laborers by abolish- 
 ing rent must be as futile as trying to run a mill by the 
 water that has passed down stream. Wages must be im- 
 proved by improving the conditions that affect the 
 laborer's home and social life and opportunities. It is by 
 improvement of the conditions of the laborer's life, his 
 education, his home, his social opportunities, everything 
 that makes for the betterment of his personal, social and 
 moral character, that wages can be raised, but never by 
 attempting to regulate or abolish rent. To recognize this 
 is a great step towards wise treatment of the wages 
 question. 
 
 SUGGESTED READING. 
 
 In "Principles of Social Economics," Chapter IV. of 
 Part III., on "Rent, Its Economic Law and Cause." 
 
 Additional References. In Marshall's "Economics of 
 Industry," Chapters IX. and X. of Book VI., on the 
 theory of rent and history of various systems of land 
 ownership. 
 
 In Hadley's "Economics," Sections 142 to 146 inclu- 
 sive, in Chapter V., discussing systems of ownership and 
 rental of land ; also sections 321 to 330 inclusive, in Chap- 
 ter IX., on economic rent, landlord's expenses and losses, 
 land speculation, etc. 
 
 In Ricardo's "Political Economy and Taxation," Chap- 
 ters II. and X. In these chapters will be found the best 
 part of Ricardo's famous theory of rent, which is still the 
 accepted teaching by economists of nearly every school. 
 It is this same theory, expanded to cover interest and 
 profits, which leads us to the cost of production theorv 
 of value. 
 
RENT I I I 
 
 EXTRACT FROM READINGS. 
 
 Rent Does Not Affect Prices. "The reason then, why 
 raw produce rises in comparative vakie, is because more 
 labor is employed in the production of the last portion 
 obtained, and not because a rent is paid to the landlord. 
 The value of corn is regulated by the quantity of labor 
 bestowed on its production on that quality of land, or 
 with that portion of capital, which pays no rent. Corn 
 is not high because a rent is paid, but a rent is paid be- 
 cause corn is high; and it has been justly observed that 
 no reduction would take place in the price of corn, al- 
 though landlords should forego the whole of their rent. 
 Such a measure would only enable some farmers to live 
 like gentlemen, but would not diminish the quantity of 
 labor necessary to raise raw produce on the least produc- 
 tive land in cultivation." — From Ricardo's "Principles of 
 Political Economy and Taxation," Chapter IT. 
 
 QUESTIONS FOR REVIEW OR DEBATE. 
 
 1. What is the difference between nominal and economic rent? 
 
 2. Is rent paid for buildings and other improvements on land 
 
 properly called rent? If not, what is it, and why does it 
 go under a wrong name? 
 
 3. In what way is land like capital, and how does it differ from 
 
 capital? 
 
 4. Does all land yield rent? If not, what portion is it that 
 
 pays none? 
 
 5. Explain by an illustration just how rent arises on different 
 
 kinds of farm land. 
 
 6. Does the land-owner get all the surplus from the use of his 
 
 land, or is it usually divided with the tenant? 
 
 7. Is rent added to the price of the products of land? Give rea- 
 
 sons. 
 
 8. Does rent come out of the laborer's wages? Which has to be 
 
 paid first, labor cost or rent? 
 
CHAPTER XV. 
 
 INTEREST. 
 
 66. Interest Similar to Rent. Rent is a sum paid for 
 the use of an instrument and source of production — land ; 
 interest is a sum paid for another instrument — capital. 
 The difference is merely in the method of payment; rent 
 being a gross sum paid directly for the use of land, while 
 interest is a percentage paid for the use of money with 
 which machinery or other forms of capital may be 
 purchased. 
 
 This difference in the method of payment makes the 
 similarity between rent and interest a little unclear, at 
 first sight, but it is really very simple. If, for instance, 
 when we speak of interest we should name the whole 
 sum paid in a year's time for the use of money, instead 
 of naming an annual rate per dollar, it would be clearly 
 just like rent ; and if we should, in speaking of rent, name 
 an annual rate per dollar on the value of a given piece of 
 land, the similarity to interest would be equally apparent. 
 To illustrate: If a farm is worth $10,000 and the rent is 
 $500 per year, we might just as correctly say that the rent 
 is 5 per cent, on $10,000 worth of property; or, if a fac- 
 tory is worth $10,000 and the interest on the money with 
 which it was built is 5 per cent., we might say that the 
 interest is $500 per year. The result is the same in either 
 case. The difference in the way of expressing it comes 
 from the custom of reckoning rent as a lump sum paid for 
 use of a given piece of land as a whole, not as a percent- 
 
INTEREST 1 1 3 
 
 age paid on each dollar represented in the value of that 
 land ; while interest is reckoned as so much paid per dol- 
 lar for use of money, rather than as a lump sum for use 
 of the capital represented by that money. It is simply a 
 reverse custom of reckoning, based on convenience. 
 Money being the universal measure of value, it is easy to 
 express interest as a percentage per dollar, whatever the 
 number of dollars borrowed; while land being separate 
 and unequal pieces of property of countless different 
 values, rent could not be expressed as a percentage with- 
 out always mentioning also the value of the particular 
 piece of land, hence it is a more direct way simply to 
 name the gross sum paid per annum. 
 
 67. How Interest Arises. Interest is paid for the use 
 of capital because the borrower expects that by its aid 
 he can produce a surplus, not only larger than he could 
 produce without the capital, but larger than the interest 
 demanded for it, thus having a profit left for himself. 
 How much interest he will be willing to pay depends on 
 how large a surplus he expects the use of the capital will 
 give him. The lender, perhaps, wants 5 per cent, for his 
 money. The borrower, is not sure that he can make that 
 much surplus with it; he believes he can only realize 
 about 4 per cent, extra by borrowing this money, and 
 therefore declines to borrow at 5 per cent. Why? Be- 
 cause the surplus he expects to be created by the new 
 capital is not equal to what the owner of the capital 
 wants for its use. 
 
 That is exactly like rent. A farmer will not pay in 
 rent more than, nor quite as much as, the expected extra 
 productiveness of the land offered, over and above that 
 of land he can get at less or no rent. A manufacturer 
 will only pay in interest something less than the increased 
 surplus that the borrowed capital is expected to produce. 
 
I 14 OUTLINES OF SOCIAL ECONOMICS 
 
 Otherwise he would lose by using it, and he only borrows 
 it in the hope of gaining a profit for himself over and 
 above the interest. Interest is a division of the profitable 
 use of capital between the borrower and the lender. 
 
 68. Mow Interest Rates Are Determined. When 
 money is loaned it is of course impossible to foretell ex- 
 actly whether it will earn more or less than a given 
 amount; nevertheless, interest has to be agreed upon in 
 advance, and therefore must be based on some general 
 average expectation of surplus from use of capital. In 
 practical experience, some establishments find them- 
 selves unable to earn the expected surplus at all, while 
 others earn very much more than the ordinary. Normal 
 interest rates are the result of an unconscious effort to 
 strike a rough average of the varying earnings of capital 
 in diflferent lines of industry, and under ordinary circum- 
 stances. The rates frequently vary from this normal 
 standard according to any unusual riskiness or unusual 
 security, ease or difficulty of borrowing the money, and 
 other special circumstances. If, for instance, in a given 
 country or section the bulk of the capital invested in ordi- 
 nary lines of business earns all the way from 3 to 8 per 
 cent, (some of course earning nothing and some perhaps 
 10, 15 or 20 per cent.), the normal interest will probably 
 be a little over 5 per cent. If in another country or 
 locality the bulk of capital in ordinary business earns 
 from 4 to 10 per cent., interest will tend more nearly to- 
 wards 6 or 7 per cent. This higher rate will be aided by 
 the fact that where earnings of capital are unusually, high, 
 the element of riskiness is generally larger than else- 
 where. Because of the greater chance of losing all, the 
 lender demands more interest, while the borrower, count- 
 ing on his extra good chance of earning a large surplus, 
 is willing to pay more to get the use of the lender's capi- 
 
INTEREST I I 5 
 
 tal. In this way, interest is higher as a rule in the United 
 States than in England, and much higher in the Klondike 
 than in New York and Pennsylvania. 
 
 The same is true of the risks and expected profits of 
 different kinds of industries in the same community. 
 For instance, a factory for making gunpowder or dyna- 
 mite runs great risk of being blown up, and so has a 
 much larger percentage of probable loss than a hardware 
 factory or a grocery store. The average wastes and 
 losses of a business have to be covered in the price of the 
 product, and hence are just the same to the manufacturer 
 or farmer as cost of production. In a business where the 
 losses from accidents, etc., are likely to be very large, the 
 prices are proportionately higher than in safer industries, 
 and therefore the profits of those who escape the losses 
 are also unusually high. Relying on the hope of these 
 high profits and no losses, the manufacturer agrees to 
 pay a high rate of interest, which the lender naturally 
 demands because of the greater danger of losing his 
 principal. In proportion as the risk is great the lender 
 will demand a high rate of interest, and in proportion as 
 the investment is safe for a long term he will accept a low 
 rate of interest. For instance, the lowest rate of in- 
 terest is paid for English consols and United States 
 bonds. Why? Because they are believed to be absolutely 
 secure. The credit of the English and United States 
 governments is regarded as entirely beyond suspicion. 
 There is no care and no risk in holding the bonds of 
 these two governments. Interest on the bonds of old and 
 profitable railroad systems is also generally lower than 
 the average, for the same kind of reason. 
 
 69. Interest Does Not Affect Prices or Wages. 
 Like rent, interest is simply one part of profits, not a part 
 of cost of production. It dififers from wages because of 
 
Il6 OUTLINES OF SOCIAL ECONOMICS 
 
 this fact. Wages are a part of cost and always have to 
 be paid, but there is capital in use which yields no profit. 
 Many a business man can tell of having used capital 
 without being able to earn the interest on it. That capi- 
 tal barely saves itself from being swallowed up in losses. 
 There is no-interest capital and no-rent land, but there is 
 no such thing as no-wage labor. That is to say, there is 
 land used without paying rent, there is capital used with- 
 out paying interest, but there is no labor used without 
 being paid wages in some form or other. 
 
 Interest, like rent again, has practically no effect upon 
 prices, because prices in any industry are determined by 
 the cost of furnishing the dearest portion of the product, 
 and that is the portion which is unable to pay rent or in- 
 terest. It is the portion that is on the verge of loss, merely 
 struggling to Iceep in the race. Interest, except in un- 
 usual instances and to an insignificant degree, is not an 
 addition to prices, but is a division of profits. If all pro- 
 ducers had capital enough to conduct their business with- 
 out borrowing there would be no interest paid, but prices 
 would not be lower. The only difference would be that 
 the producers' profits would be larger. 
 
 Rent and interest are simply two portions of the sur- 
 plus earnings of industry, paid for the use of instruments 
 employed in the industry and owned by other people. 
 Whoever uses other people's land and capital has to di- 
 vide with them the resulting profits in interest and rent. 
 The common assumption that all rent and interest are an 
 addition to the prices of the commodities consumed by 
 the people is one of the greatest errors in economics. The 
 users of the capital and land pay the interest and rent, 
 not by adding it to the price of the products, but out of 
 the profits of the industry. 
 
 In business honestly conducted, interest, like rent, is 
 
INTEREST 1 1 7 
 
 not robbery but is an economic division of the profits 
 created by an instrument that produces wealth cheaper 
 than the dearest or most expensive competitors. In other 
 words, it is a division of an extra amount extracted from 
 nature, and not a tax upon the consumers. 
 
 SUGGESTED READING. 
 
 In "Principles of Social Economics," Chapter V. of 
 Part III., on "The Law of Interest." 
 
 Additional References. In Pladley's "Economics," 
 Sections 151 to 159 inclusive, in Chapter V., discussing 
 interest as a system and showing how the custom of in- 
 terest-paying arises. 
 
 In Mill's "Principles of Political Economy," Section 5 
 of Chapter XXIII., Book III. This section brings out an 
 important point connected with the subject of interest, 
 namely, the fact that the rates of income from invest- 
 ments is what determines the value of those investments. 
 
 In Adam Smith's "Wealth of Nations," Chapter IX. 
 of Book I., on "The Profits of Stock," under which 
 heading Dr. Smith also discussed interest, showing it to 
 be a portion of the profits of industry ; also. Chapter IV. 
 of Book II., treating "Of Stock Lent at Interest." Be- 
 cause of Dr. Smith's habit of close practical observation, 
 what he has to say on these topics is frequently more 
 correct and significant than the theories of many later 
 economists. 
 
 EXTRACT FROM READINGS. 
 
 Interest and Profits. "But though it may be impossi- 
 ble to determine with any degree of precision, what are 
 or were the average profits of stock, either in the pres- 
 ent, or in ancient times, some notion may be formed of 
 them from the interest of money. It may be laid down as 
 
Il8 OUTLINES Or~SOCIAL ECONOMICS 
 
 a maxim, that wherever a great deal can be made by the 
 use of money, a great deal will commonly be given for 
 the use of it ; and that wherever little can be made by it, 
 less will commonly be given for it. Accordingly, there- 
 fore, as the usual market rate of interest varies in any 
 country, we may be assured that the ordinary profits of 
 stock must vary with it, must sink as it sinks and rise as 
 it rises. The progress of interest, therefore, may lead us 
 to form some notion of the progress of profit." — From 
 Adam Smith's "Wealth of Nations," Chapter IX. of 
 Book I. 
 
 QUESTIONS FOR REVIEW OR DEBATE. 
 
 1. How is interest similar to rent? 
 
 2. What is the difference in the methods by which interest and 
 
 rent are paid? What is the reason for this difference? 
 
 3. Why is interest paid? Under what circumstances will a 
 
 business man decline to borrow? Illustrate. 
 
 4. How is a "normal" interest rate determined? 
 
 5. Under what circumstances are interest rates likely to be 
 
 higher in some countries or localities than in others? 
 
 6. What effect has risk of loss in establishing different interest 
 
 rates for different kinds of industries? Give illustrations. 
 
 7. What are some of the forms of investment on which interest 
 
 is usually very low? Why? 
 
 8. Is interest added to the price of products? If not, from 
 
 what source is it drawn? 
 
CHAPTER XVI. 
 
 PROFITS. 
 
 70. What Profits Are. The word profits is used in 
 a double sense. Sometimes it is meant to indicate tlie 
 whole undivided surplus earnings of an industry, and 
 sometimes only what the manufacturer or farmer has left 
 after paying rent and interest out of that surplus. In the 
 sense in which we are now considering it, profits means 
 this final balance in the hands of the man who carries 
 on the business. Sometimes they are called his "wages," 
 but in reality they are entirely different from wages. 
 Wages are a fixed amount paid for a definite service, 
 while profits are entirely uncertain and may range from 
 nothing to millions of dollars a year. They are not paid 
 by an employer for services, but are the employer's own 
 surplus, and come, if at all, in return for an indefinite 
 amount of effort on his part, devoted to managing and 
 organizing the industry or utilizing natural forces in new 
 ways. 
 
 Profits are the final undivided remainder of the sur- 
 plus earnings of industry. Rent and interest, being stip- 
 ulated in advance, must be paid, if possible, even if they 
 take all the surplus earnings of the business. If any- 
 thing remains after paying these, it is the manager's or 
 owner's profits. 
 
 71. No "Average" Rate of Profits. People fre- 
 quently, speak of an "average" rate of profits, but in reality 
 there is no such thing as an average rate of profits. On 
 
 119 
 
I20 OUTLINES OF SOCIAL ECONOMICS 
 
 the contrary, hardly any two competing concerns in the 
 same industry earn the same profits, or rate of profits 
 They range in every Hne of industry from nothing at 
 one end to "bonanza" at the other. To speak of an aver- 
 age rate of profits is hke speaking of the average height 
 of the mountains in this country. Some are only a few 
 hundred feet, but the highest is about fifteen thousand. 
 To reduce them to an average would give no idea of any 
 of them and would probably be true of no one of them. If 
 there was an average of profits, then industries would be 
 all uniformly prosperous, but everybody knows they are 
 not. On the contrary, in every line of business there are 
 some concerns that are barely holding on, others that are 
 actually dropping out every year because profits have dis- 
 appeared, while at the same time in the same industries 
 there are some producers who are getting enormously 
 rich. 
 
 This difference between the verge of failure and grow- 
 ing success is the difference in profits. The explanation 
 for this has already been given in the chapters on Value 
 and Cost of Production ; namely, that under competition 
 prices in any given market tend towards uniformity on 
 the basis of the cost of producing the most expensive 
 portion of the required supply. It is easy to see that all 
 who can produce at less cost than the price thus fixed will 
 have the difference in profits and the profits will be 
 large or small according as the cost of production in each 
 different concern is very much or only a little below the 
 price received for the product. This cheaper cost de- 
 pends on the better location, superior methods and abler 
 management of the industry, as compared with its com- 
 petitors. 
 
 72. Profits the Incentive to Improvement. Profits, 
 therefore, are the great incentive which economic law 
 
PROFITS 121 
 
 holds out to develop new methods of production, and 
 careful and skilful management of industry. It rewards 
 improvement with increased profit. The only way, in the 
 long run, to increase profits, is by lessening the cost of 
 production, through some form of productive improve- 
 ment, either by the use of better machinery or larger 
 organization, or more careful economies or more pro- 
 gressive direction of the business. The final profits may 
 be made up from several sources ; partly from the excess 
 earnings of the land used, above what is paid in rent; 
 partly from the excess earnings of the capital used, above 
 what is paid in interest; but chiefly from the superior 
 management or exceptional effort, forethought, enter- 
 prise and skill of those who conduct the business. With- 
 out good management many a business of fair oppor- 
 tunities not only fails to earn a profit but is unable to 
 avoid loss, and goes into bankruptcy. 
 
 73. Effect of Competition. Improved methods and 
 superior management tend to increase profits, but com- 
 petition is all the time working to lower profits. The 
 competition usually results from some of the concerns 
 introducing better machinery or methods, by which the 
 output is increased. The effort then is to sell this in- 
 creased output by underbidding the other competitors, 
 and, since the increased product has rendered some of 
 the former supply unnecessary, the dearest competitors 
 are now forced to improve their methods or get out of 
 business. In either case the price falls to the cost level 
 of the next dearest producers, and so on. This process 
 of course reduces the profits of all the other competitors, 
 all along the line, and they can only be restored to the 
 former point by still further introducing improvements 
 to lower the cost of production. So the two movements 
 are constantly following each other, increase of the 
 
122 OUTLINES OF SOCIAL ECONOMICS 
 
 profits by new cost-saving devices, and reduction of 
 profits by competition. The profits are a stimulus to im- 
 provements and progress, but they are only retained for 
 a brief period. As soon as the methods which created the 
 large profits become generally known, others adopt them 
 and compete for the market, and before long the methods 
 that once gave bonanza profits are out of date and mean 
 bankruptcy to any concern that retains them. In other 
 words, all that was once received by the competitors as 
 profits" has passed to the public in lower prices. In this 
 way, for example, the price of cotton cloth has been re- 
 duced during the present century from more than fifteen 
 cents a yard to two or three cents, and manufacturers are 
 still creating new profits even at this price, by introduc- 
 ing new and better looms. All that difference in price 
 has become a permanent gain to the public, while the 
 winning of new profits and loss of old has served right 
 along as the incentive and spur to improvements, by 
 which this cheapening of cloth has been made possible. 
 
 In the period after the introduction of improved meth- 
 ods and before competition has lowered the price, the 
 capitalist gets the benefit of the margin. Perhaps he gets 
 rich, but that will depend on the extent of his improve- 
 ment. If it is only a small one the profits will be but 
 slightly increased and will disappear before he gets very 
 rich. If his improvement is a great one, his profits will 
 be large and he will become rich quickly. But, in any 
 event, he cannot long retain the same rate of profits, ex- 
 cept by still further improving or enlarging his produc- 
 tive methods. 
 
 Thus the whole process consists in giving the first in- 
 crease of wealth to those who directly bring it into ex- 
 istence, and then setting forces in operation which grad- 
 ually and sometimes very rapidly distribute it to the en- 
 
PROFITS 123 
 
 tire consuming public. This gives the necessary reward 
 for the special effort, and finally gives the results of the 
 improvements to society at large. Thus it really comes 
 about that the increase and wide distribution of wealth, 
 which the advocates of socialism believe requires a revo- 
 lution to secure, is actually going on by the silent oper- 
 ation of our existing economic forces. 
 
 74. Profits Not a Tax on Consumers or Wage 
 Earners. Many people believe that the profits of an in- 
 dustry mean just so much taken out of the consumers 
 who buy the products. But nothing can be taken out of 
 the consumer which cannot be added to the price. Since 
 prices are determined by the cost of production in that 
 portion of the concerns which have no profits, or prac- 
 tically none, then, of course, profits are not added to the 
 price, and if they are not added to the price they cannot 
 be a tax on the consumer. 
 
 Suppose profits were abolished by law. That could not 
 materially affect prices, because they are determined by 
 the cost of that portion of the product which receives no 
 profit. To take away the profits would make the pro- 
 ducers who create them poorer, but it would not make 
 the consumers richer. 
 
 It may be asked, who pays the profits if the consumers 
 do not ? Strictly speaking, nobody pays the profits ; they 
 come out of nature. They are not a tax on anybody. They 
 are the saving from what otherwise would be simply 
 higher cost to everybody. They come as the result of 
 making nature do more for the same expense. Nature 
 works for nothing. It costs something to utilize natural 
 forces, but the forces themselves are free. To the extent 
 that they can be made to work for less than it costs to 
 furnish human force, nature supplies a surplus, and it is 
 from this surplus, produced by the use of successive 
 
124 OUTLINES OF SOCIAL ECONOMICS 
 
 new instruments for harnessing natural forces, that 
 profits are drawn. They are not a tax added to prices, but 
 are a reward for devising means to make nature do an 
 extra task without charge. 
 
 Nor are profits a tax upon the wage-earner. Wages, 
 as before explained, are a permanent item in all cost of 
 production. Therefore wages are not paid from profits 
 but enter into cost of production, and even the producers 
 with the poorest methods have to pay wages. No pro- 
 ducer can have profits until after wages have been paid. 
 He can even escape paying for his raw material easier 
 than he can avoid wage claims, since in cases of bank- 
 ruptcy the laborer in nearly all modern countries has the 
 first lien on the assets. Wages tend to be uniform in all 
 industries of the same kind in the same market, and they 
 are all a permanent part of the cost paid by all the com- 
 petitors. Whatever affects all competitors alike cannot 
 affect the profits, because profits arise purely from the 
 differences and not the similarities in costs. 
 
 Therefore, it would be as futile to try to increase wages 
 by abolishing profits as it would be to reduce prices by 
 abolishing profits. The only way prices can be perma- 
 nently lowered is by lessening the costs of production by 
 use of more scientific methods. The only way wages 
 can be increased is by raising the standard of living of the 
 workers, thus increasing their necessary cost. Social wel- 
 fare demands the gradual economic lowering of prices 
 and economic raising of wages. Both are forms of prices, 
 and are governed by cost. That which should be low- 
 ered can be lowered only by reducing the costs, by 
 greater application of science to nature; and that whica 
 should be raised can be raised only by an increase of mc 
 cost, through improvement of the standards, ideas, habits 
 and character of the laborers. Progress will not come 
 
PROFITS 1 25 
 
 by abolishing profits, but by aiding the forces that make 
 wealth cheap and man dear. 
 
 SUGGESTED READING. 
 
 In "Principles of Social Economics," Chapter VI. of 
 Part III., on "The Law of Interest." 
 
 Additional References. In Marshall's "Economics of 
 Industry," Chapters VII. and VIII., of Book VI. These 
 chapters relate to profits, or "earnings of management," 
 and bring out many interesting points ; one particularly, 
 showing that the cost of living or support of the owner 
 or manager of the business is really a part of the cost of 
 conducting the business, and ndt to be considered as 
 profits. 
 
 In Mill's "Principles of Political Economy," Chapter 
 V. of Book IV., which contains some practical comments 
 on "Consequences of the Tendency of Profits to a 
 Minimum." 
 
 In Nicholas P. Oilman's "A Dividend to Labor," 
 Chapter I., discussing some of the ethical and social as 
 well as industrial aspects of the employer's service to 
 society jmd obligation to his employees. 
 
 EXTRACTS FROM READINGS. 
 
 How Profits Are Made and Lost. "For instance, eco- 
 nomies have lately been introduced into some branches 
 of iron manufacture by diminishing the number of times 
 which the metal is heated in passing from pig iron to its 
 final form ; and some of these new inventions have been 
 of such a nature that they could neither be patented nor 
 kept secret. Let us suppose then that a manufactvtrer with 
 a capital of £50,000 is getting in normal times a net profit 
 of £4,000 a year, £1,500 of which we may regard as his 
 Earnings of Management, leaving £2,500 for the other 
 
126 OUTLINES OF SOCIAL ECONOMICS 
 
 two elements of profits. We assume that he has been 
 working so far in the same way as his neighbors, and 
 showing an amount of ability which, though great, is no 
 more than the normal or average ability of the people 
 who fill such exceptionally difficult posts ; that is, we as- 
 sume that £1,500 a )'ear is the normal earnings for the 
 kind of work he has been doing. But as time goes on, he 
 thinks out a way of dispensing with one of the heatings 
 that have hitherto been customary; and in consequence, 
 without increasing his expenses, he is able to increase his 
 annual output by things which can be sold for £2,000 net. 
 So long, therefore, as he can sell his wares at the old 
 price, his Earnings of Management will be £2,000 a year 
 above the average; and he will earn the full reward of 
 his services to society. His neighbors, however, will 
 copy his plan, and probably make more than average 
 profits for a time. But soon competition will increase the 
 supply and lower the price of their wares, until their 
 profits fall to about their old level ; for no one could get 
 extra high wages for making eggs stand on their ends 
 after Columbus' plan had become public property. 
 
 "Many business men whose inventions have in the long 
 run been of almost priceless value to the world, have died 
 in poverty; and while many men have amassed great 
 wealth by good fortune, rather than by exceptional ability 
 in the performance of public services of high importance, 
 it is probable that those business men who have pio- 
 neered new paths have often conferred on society bene- 
 fits out of all proportion to their own gains, even though 
 they had died millionaires."^ — From Marshall's "Eco- 
 nomics of Industry," Chapter VII. of Book VI. 
 
 Pro-fits Restore Ex[)cnded Capital. "In the first place, 
 then, this view of things greatly weakens, in a wealthy 
 and industrious country, the force of the economical ar- 
 
PROFITS 127 
 
 gument against the expenditure of public money for 
 really valuable, even though industrially unproductive, 
 purposes. If for any great object of justice or philan- 
 thropic policy, such as the industrial regeneration of Ire- 
 land, or a comprehensive measure of colonization or of 
 public education, it were proposed to raise a large sum by 
 way of loan, politicians need not demur to the abstraction 
 of so much capital, as tending to dry up the permanent 
 sources of the country's wealth, and diminish the fund 
 which supplies the subsistence of the laboring population. 
 The utmost expense which could be requisite for any of 
 these purposes, would not in all probability deprive one 
 laborer of employment, or diminish the next year's pro- 
 duction by one ell of cloth or one bushel of grain." — 
 From Mill's "Principles of Political Economv," Chapter 
 V. of Book IV. 
 
 QUESTIONS FOR REVIEW OR DEBATE. 
 
 1. Why is it confusing and inadvisable to speak of profits as 
 
 the employer's wages? 
 
 2. How do profits differ from rent and interest? What have 
 
 they in common with rent and interest? 
 
 3. Is there any "average rate of profits"? Give reasons. 
 
 4. What great incentive do profits offer? 
 
 5. What is the effect of competition on profits? Describe the 
 
 process, and show how profits are constantly distributed 
 to the public. 
 
 6. How long can the producer continue to receive the profits 
 
 from an improvement in production? 
 
 7. Do profits come out of the consumer? Give reasons. 
 
 8. What effect have profits on workingmen's wages? 
 
 9. From what source are profits really drawn? 
 
 10. Would abolition of profits benefit the wage earner? What 
 are the two great opposite economic movements by which 
 the community is really benefited? 
 
CHAPTER XVII. 
 
 SOCIALISM. 
 
 75. What Socialism Is. Socialism is a theory of 
 social reform ; a proposition for improving the conditions 
 of the masses by abolishing private industry and making 
 the state, or government, the owner and manager of all 
 forms of production. It is the most comprehensive of all 
 reform theories. Indeed, there is hardly a movement for 
 social reform in this country that is not more or less fla- 
 vored with socialism. The populist, single-tax, and mu- 
 nicipal ownership movements, and many large labor or- 
 ganizations, are to a greater or less extent socialistic 
 in character, although often their respective advocates 
 do not seem to realize it. 
 
 Socialism is a distinct theory, based on the belief that 
 all rent, interest and profits are robbery ; that the labor- 
 ers produce all wealth, which, therefore, should all go 
 to the laborers. Socialists believe that the laborers are 
 in effect cheated out of any part of the total production 
 which does not go to labor. 
 
 It will be seen at once that those who advocate abol- 
 ishing rent are at least one-third socialist. Those who 
 believe in abolishing interest and those who would do 
 away with profits are also socialists, to that extent, 
 though perhaps unconsciously. But the avowed socialist 
 declares that all three, — rent, interest and profits, — are 
 robbery, and demands a system of industry which would 
 abolish them all. If it be true that labor produces all 
 
 128 
 
SOCIALISM 129 
 
 wealth, then the socialists would seem to be right, be- 
 cause surely those who produce wealth are entitled to 
 possess it. If this theory be true, capitalists are just 
 so many parasites on society, and the middlemen who 
 buy and sell are simply robbers who help themselves at 
 the laborers' expense. 
 
 76. Does Labor Produce All Wealth ? But is it 
 true that labor produces all wealth? Our study of the 
 service rendered by each of the factors in production has 
 already shown, indirectly, that this notion is wholly erro- 
 neous. The capacity of the human race to produce 
 wealth by individual labor is not much greater to-day 
 than it was a thousand years ago. Personal dexterity 
 in many lines is not so great. In China and Japan the 
 dexterity of laborers in some occupations is even greater 
 than in England and the United States. The fact is, the 
 power of unaided human labor to produce wealth has 
 not materially increased. Nevertheless, wealth has enor- 
 mously increased ; but this has been due to the fact that 
 nature, in a hundred ways, has been made to work. 
 When nature is made to work, whether it drives an en- 
 gine, pumps water, or turns a windmill, it is doing what 
 human muscle would have to do, if the result were to be 
 accomplished at all. 
 
 For instance, suppose two men are rowing a boat, tug- 
 ging away with their oars. One of them hoists a sail 
 and lets the wind force them along much faster, and the 
 oars can be thrown aside. It is not human effort that is 
 now propelling the boat, but it is the wind, by means 
 of the sail. 
 
 The same is true wherever steam, electricity, gravita- 
 tion, wind, water or any natural forces are used. In this 
 way, the various forms of machinery used in England 
 and the United States probably produce more wealth 
 
I30 OUTLINES OF SOCIAL ECONOMICS 
 
 than could be produced by the unaided hand labor of the 
 entire human race. Every additional dollar's worth of 
 wealth brought into existence in this way is produced not 
 by human labor but by nature in addition to human 
 labor. Nature's forces are utilized by means of capital; 
 that is, by wealth that has been previously produced for 
 just this purpose. 
 
 It is sometimes said that this capital, by which nature 
 is utilized, is "stored-up labor." It is nothing of the kind. 
 There is no such thing as stored-up labor. Labor is not 
 stored up ; it is expended, and can never be used again. 
 What is stored up is the product, whether product of 
 labor only or of labor and natural forces. If a few days' 
 labor is expended in making a machine, that machine is 
 not stored-up labor; it is the product or result of labor. 
 It is something new that labor has brought into exist- 
 ence, but the labor put on it is expended and gone forever. 
 If the laborers who produced that machine had been 
 idle during those few days, their labor for that time 
 would have been lost and gone just as completely. 
 Labor cannot be saved in the sense of being stored up, 
 either by using it or not using it. If the effort is not 
 expended, then the labor is lost because it was not used. 
 If it is expended, it is gone forever, but what remains 
 is the product. The difference to the world between 
 not using and using any given labor is that by using it 
 we have a product, by not using it we have not. 
 
 The wealth thus produced in the shape of a machine 
 can be used to make nature produce many times as 
 much additional wealth as the labor devoted to making 
 the machine could have produced. All the wealth that 
 is produced by the machine, more than the labor used 
 in making and afterwards operating it could have pro- 
 duced alone, is net gain, and that net gain is due to the 
 
SOCIALISM 131 
 
 natural forces made available by the use of the machine. 
 
 It is obvious that if by hand labor, however skilful, 
 only a given amount can be produced, say ten units, and, 
 by the aid of steam or electricity, made available by ma- 
 chinery requiring only this same amount of labor to con- 
 struct, operate and maintain it, thirty units can be pro- 
 duced, the extra twenty are the product of the steam or 
 electricity. If there is any doubt upon that point, all that 
 is necessary is for the laborer to try to get along with 
 out the machinery, and he will find that only ten units can 
 be produced. This additional twenty units of product 
 is not entirely without cost. Nature does not quite 
 do it for nothing, because the machinery which is neces- 
 sary to utilize nature costs something to maintain and 
 operate, though perhaps only a fraction of what the la- 
 bor to do the whole work would cost. All the product 
 over and above what the labor required to make, oper- 
 ate and maintain the machinery could have produced 
 alone and directly, is clear gain contributed by nature. 
 
 Labor, if separated from capital, could not do much 
 more to-day than it did a century ago, man for iTin. 
 Personal labor has not materially increased in produc- 
 tive efficiency, and laborers do not work harder or 
 longer ; on the contrary, the toil is less exhausting and 
 the hours of work shorter. Therefore, our great in- 
 crease of wealth cannot be exclusively the product of 
 labor. If labor does not produce all wealth, it is not 
 necessarily true that all wealth rightfully belongs to 
 labor. 
 
 77. The Economic Division of Wealth. What, 
 then, does become of all this increased wealth? As ex- 
 plained in the chapters on rent, interest and profits, at 
 first it goes to the capitalists. Why? Because capital, 
 by applying machinery to nature, brings the increased 
 
132 OUTLINES OF SOCIAL ECONOMICS 
 
 wealth into existence. Laborers do not introduce the 
 machinery ; on the contrary, they usually oppose the at- 
 tempts of capitalists to make natural forces produce 
 wealth. They oppose it in the belief that steam or 
 electricity will throw them out of work. The capitalist 
 who first introduces a successful improvement is the one 
 who reaps the first reward. But very soon others discover 
 the way he did it, imitate his process or machine, and be- 
 gin to compete for the increased wealth. This forces down 
 the price of the product and finally transfers, through 
 lower prices, a large part of this increased wealth to the 
 public. At the same time, the laborers, through their 
 organizations, begin to demand a share of the new wealth 
 in the form of higher wages. So that, while the capital- 
 ist, by applying productive wealth to nature, brought 
 into existence a new stream of wealth, which for a time 
 comes to him as profits, it is finally transferred in the 
 form of cheaper commodities and higher wages to the 
 community, including the laborers. 
 
 Labor does not produce all wealth, but in this way it 
 does share in the wealth that nature brings into exis- 
 tence. This is not merely theory, but is proved by ex- 
 perience everywhere. If the wage-earning classes in 
 modern machine-using countries were only receiving as 
 much as they could earn with their bare hands, they 
 would be as poverty-stricken as the hand-labor masses 
 of India, China and Russia. They could not, alone, pro- 
 duce any more, man for man, than the Chinese or Rus- 
 sians. The superiority in the earnings, comforts and 
 standard of life of workingmen in countries having the 
 capitalist system proves that the laborers do share con- 
 stantly in the increased wealth which the application of 
 capital to nature brings into existence. 
 
 78. Socialism in History. Historically, socialism is 
 
SOCIALISM 133 
 
 very old. The earliest type of industrial society was 
 largely socialistic. It should be remembered that the 
 essential feature of socialism is public ownership of the 
 instruments of production, but this has not always taken 
 the same form. The early village community, of which 
 Sir Henry Maine and others have given such extensive 
 accounts, was socialism of the most arbitrary kind. The 
 government furnished the employments, fixed the in- 
 comes, established the religion, arranged or regulated the 
 marriages — in fact, left little or nothing for individual 
 choice and responsibility. This was the character of early 
 communities. In the middle ages, throughout Christen- 
 dom, the community was mostly represented by the 
 church, and practically everything was determined by 
 the church authorities. 
 
 The progress of civilization has been steadily away 
 from that type of government. Wherever progress has 
 showed itself it has taken the form of specialization of 
 industry and growth of individual interests. This always 
 brought with it a growing variety of ideas and activities, 
 and assertion of personal rights. 
 
 Among the earliest rights demanded were rights of in- 
 dustry, including the right to own and sell the products 
 of one's labor, or to sell one's labor direct, the right to 
 select an occupation, the right to produce whatever one 
 pleased, and so on. This brought with it gradually 
 a greater and greater range of personal activities, and 
 a smaller and smaller sphere, relatively, of "paternal" 
 management and regulation by the state or community. 
 
 Later came further separations and divisions of au- 
 thority and action. The right of exercising political gov- 
 ernment was taken from the church and absorbed entirely 
 by the temporal authorities. The temporal authority was 
 still supposed to be selected by "divine right," but even 
 
134 OUTLINES OF SOCIAL ECONOMICS 
 
 this has given way, in the more advanced nations, to the 
 idea of the people's right to govern. This has brought 
 with it, naturally, the right of choosing one's own re- 
 ligion, the right of holding and advocating political 
 opinions, the right to decide about education of one's 
 children ; and so, little by little, the sphere of individual 
 activity, responsibility, rights and authority has widened, 
 thus diminishing the element of socialism and increasing 
 the element of individualism in society. 
 
 This gradual supplanting of socialism or "paternalism'' 
 by individualism is the mercury that indicates the state 
 of advancement of human freedom. To the extent 
 that the government does for the citizen what he can do 
 as well or better individually, it takes away his freedom, 
 responsibility and opportunity, making him dependent in- 
 stead of self-reliant, and depriving the world of the ben- 
 efits of individual enterprise, ingenuity and energy. 
 
 SUGGESTED READING. 
 
 In "Principles of Social Economics," Sections I. and 
 II. of Chapter II., Part IV. These sections discuss quite 
 thoroughly the questions of what the state, or political or- 
 ganization of the community, really is, and its relation to 
 individual citizens. A right understanding of this prob- 
 lem is very important in judging the claims of socialism. 
 In the same connection it would be well to re-read Sec- 
 tions II. and III. of Chapter VI.', Part III., pointing out 
 the error in Karl Marx's theory of "surplus value," 
 which is relied on by most socialists as proving that labor 
 is constantly being plundered by capital. 
 
 Additional References. In John Rae's "Contemporary 
 Socialism," from page 155, in Chapter IV., to end of the 
 chapter. This chapter is on "Karl Marx," and the por- 
 
SOCIALISM 135 
 
 tion suggested is a statement and criticism of Marx's 
 economic theory as laid down in his great work on "Cap- 
 ital." Chapter X., on "Socialism and the Social Ques- 
 tion," is also recommended; it discusses a number of the 
 more common charges made by socialists against our 
 present industrial system. 
 
 In William Graham's "Socialism, New and Old," Chap- 
 ter I., on "The Forms of Socialism;" and Sections I. and 
 II. of Chapter II., describing early types of socialism, 
 among the Jews, under the catholic church, under feudal- 
 ism, etc. For those desiring to make a more thorough 
 study of the development of socialism as a theory, the re- 
 maining six sections of Chapter II., and the whole of 
 Chapters III. and IV. are recommended. These chapters 
 describe the different phases of socialist doctrine from the 
 time of the Jews and early Christian era (above recom- 
 mended for reading) down through the nineteenth cen- 
 tury to "The New Socialism and its Argument." 
 
 In W. H. Mallock's "Labour and the Popular Wel- 
 fare," Chapter VI. of Book II., and the four chapters of 
 Book III. These chapters are devoted to showing the 
 very large part taken by "Ability" in the production of 
 wealth ; but it should be noted that under this head Mr. 
 Mallock includes the capital directed by "Ability," the 
 object being to show, somewhat roughly, what part of 
 our wealth production is due to labor and what part to 
 capital and management. 
 
 The pamphlet, "Economic Basis of Socialism," by 
 George Gunton, is also recommended. 
 
 EXTRACTS FROM READINGS. 
 
 Socialism's Aim and Method. "Socialism is that system 
 economic and political, in which the production of wealth 
 is carried on solely by the state, as the collective owner of 
 
136 OUTLINES OF SOCIAL ECONOMICS 
 
 the land and instruments of production, instead of by 
 private capitalist employers or companies ; while the dis- 
 tribution in like manner is made by the state on some 
 assumed principles of justice, which give to each in pro- 
 portion to his work, instead of being as now determined 
 largely and immediately by contracts, and ultimately by 
 laws of property and inheritance. This, the only true 
 socialism according to its adherents, is now generally 
 called collectivism, to denote the collective ownership or 
 ownership by the state, as the representative of all, of the 
 land and instruments of production. It distinguishes it- 
 self from communism, inasmuch as it admits of private 
 property in articles of consumption, and to a certain lim- 
 ited extent, of inequality of shares, accumulations, and 
 inheritance. Only it suppresses private enterprise, it will 
 not allow individuals to use their accumulations to set 
 others to labour for them, with a view to make profit from 
 their labour, nor to lend for the sake of interest, nor to 
 let for the sake of rent or hire, nor in any way to make 
 private gains from their superfluous goods; because by 
 these means great inequality might come back, and it is a 
 principal aim of the new socialism not only to extinguish 
 great inequality, but to prevent forever its return." — 
 From William Graham's "Socialism, New and Old," 
 Chapter I. 
 
 Labor's Share of Wealth Increases the Faster. "Greg- 
 ory King made an estimate of the distribution of wealth 
 among the various classes of society in England in 1688, 
 founded partly on the poll-books, hearth-books, and other 
 official statistical records, and partly on personal observa- 
 tion and inquiry in the several towns and counties of 
 England; and Dr. C. Davenant, who says he had care- 
 fully examined King's statistics himself, checking them 
 by calculations of his own and by the schemes of other 
 
SOCIALISM 137 
 
 persons, pronounces them to be 'very accurate and more 
 perhaps to be rehed on than anything that has been ever 
 done of a Hke kind.' Now, a comparison of King's 
 figures with the estimate of the distribution of the na- 
 tional income made by Mr. Dudley Baxter from tlie re- 
 turns of 1867, will afford some sort of idea — ^though of 
 course only approximately, and perhaps not very 
 closely so — of the changes that have actually occurred. 
 . . . . The average income of a working-class fam- 
 ily in King's time was £12 12s. (including his artisan 
 and handicraft families along with the other laborers) ; 
 the average income of a working-class family now is £81. 
 The average income of English families generally in 
 King's time was £32 ; the average income of English 
 families generally now is £162. The average income of 
 the country has thus increased five-fold, while the aver- 
 age income of the working class has increased six and a 
 half times. The ratio of the working-class income to the 
 general income stood in King's time as i :23^ and now as 
 1 :2. In 1688, 74 per cent, of the whole population be- 
 longed to the working class, and they earned collectively 
 26 per cent, of the entire income of the country ; in 1867 
 — according to the basis we have adopted, though the 
 proportion is doubtless really less — 80 per cent, of the 
 whole population belonged to the working class, and they 
 earned collectively 40 per cent, of the entire income of 
 the country. Their share of the population has in- 
 creased 6 per cent. ; their share of the income 14 per 
 cent."- — From Rae's "Contemporary Socialism," Chap- 
 ter X. 
 
 QUESTIONS FOR REVIEW OR DEBATE. 
 
 I. What is socialism? On what charge against industrial so- 
 ciety is it based? 
 
138 OUTLINES OF SOCIAL ECONOMICS 
 
 2. What is the aim of socialism, and how does it propose to 
 
 accomplish that aim? 
 
 3. How does socialism compare with other prominent reform 
 
 movements? What have each of these movements in 
 common with socialism? 
 
 4. What theory about the production of wealth is the basis of 
 
 socialist doctrine? 
 
 5. Is this theory correct? What is the other great active factor, 
 
 besides labor, in wealth production, and how is it utilized? 
 
 6. What do the socialists claim as to ''stored-up'' labor? Can 
 
 there be any such thing as "stored-up" labor? Give 
 reasons. 
 
 7. What portion of the wealth produced by the aid of natural 
 
 forces is net gain to the world? Is this the result of labor 
 or of application of capital? 
 
 8. How does the producing capacity of hand-labor, unaided by 
 
 machinery, compare with that of, say, a century ago, man 
 for man? How does it compare as between the oriental 
 and western nations ? 
 
 9. To whom does the increase of wealth due to application of 
 
 capital first go? Why does it not go directly to the la- 
 borers? 
 
 10. When and in what ways do the laborers and the pTiblic share 
 
 in this increased wealth? 
 
 11. What comparison proves that labor does share in the wealth 
 
 increase coming from application of capital to nature? 
 r_>. Under what state of society has socialism actually existed? 
 What were its characteristics under those conditions? 
 
 13. What efifect has the progress of society had on these social- 
 
 istic forms of government? 
 
 14. Show the steps by which the movement towards greater 
 
 individual liberty has developed. 
 
CHAPTER XVIII. 
 
 SOCIALISM — ContiiiKcd. 
 
 79. What Socialism Promises. Just as socialism is 
 the most thoroughgoing in its plan of reorganizing so- 
 ciety, so it is the most sweeping in its promises of the 
 universal comfort and justice it would usher in. Edward 
 Bellamy, in his "Looking Backward," a hook which at- 
 tained wide popularity some }oars ago, described in de- 
 tail an imaginary perfected state of society, wherein 
 every man, woman and child received a generous income, 
 the same to each one, regardless of the service per- 
 formed ; inequality, injustice, crime, poverty, ignorance 
 and intemperance had disappeared, and happiness was all 
 but universal. This had come about entirely by making 
 the government the sole owner and manager of all pro- 
 ductive industry, with an elaborate and complicated 
 method of determining the lines of industry or labor 
 which each man should follow. This is only one of 
 many books that have appeared from time to time, pur- 
 porting to describe an ideal state of society, some writ- 
 ten pm-ely as fanciful works of imagination, others as 
 \ery earnest and sincere attempts to point out a swift 
 and easy solution for most of the great problems of hu- 
 man life. Perhaps the most famous of them all is Sir 
 Thomas More's "Utopia." published in 15 16, describing 
 the conditions and customs of life in a supposable ideal 
 comnuuiity where all things were held and enjoyed in 
 common. 
 
 139 
 
140 OUTLINES OF SOCIAL ECONOMICS 
 
 Such pictures are always alluring, and appeal strongly 
 not only to the sentimental and visionary, but to thou- 
 sands of earnest, sympathetic people who are tormented 
 by the hardships and suffering they see about them and 
 readily turn to the most summary and radical proposi- 
 tions that are offered as a cure. No one can be blind to 
 the defects, injustices, poverty and misery that are still 
 such prominent features of human life ; and ought not to 
 if he could. It is not here that those who believe in 
 preserving our present social system differ with the so- 
 cialists. The faults, the shortcomings, excepting heated 
 exaggerations, are admitted, but the great point of dif- 
 ference is how to get rid of them ; what remedy will root 
 out these evils without sacrificing in the process more 
 than is gained ? It must be remembered that poverty, ig- 
 norance, crime, oppression and the thousand forms of 
 human suffering have existed since the beginning of the 
 human race, and under almost every conceivable form 
 of government, laws and religion. On the other hand, 
 it is becoming clear, as our knowledge of history in- 
 creases, that all along the lot of man has, by slow and 
 painful steps, with many and wearisome delays, been 
 growing better. By comparing the condition of the 
 masses in the most advanced countries to-day with that 
 in the most backward, or with that in the same advanced 
 countries several hundred years ago, this fact of pro- 
 gress, of improvement, is made very clear. There are 
 still great numbers who are deep in poverty, but the 
 proportion of these to the whole is less than ever before. 
 Comfort is more general than ever before; that is, it is 
 enjoyed by a much larger proportion — the great majority 
 in several countries — ^than ever before; and the same is 
 true of personal freedom in religion and government, se- 
 curity in personal and domestic rights, reasonable and 
 
SOCIALISM 141 
 
 healthful conditions of labor, decent conditions of living, 
 opportunities for education, recreation and culture. None 
 of these things are yet anywhere near so abundant, foi 
 the mass of the people, as they should be; indeed, from 
 the standpoint of the more advanced the life and oppor- 
 tunities of the millions seem pitifully meager. But, since 
 it is true that the lot of the average man is improving, 
 and never more rapidly, certainly and universally than 
 during the century just closing, we are compelled to ask 
 ourselves, soberly and without prejudice, whether we are 
 not likely to approach the ideal, or at least vastly im- 
 proved, social conditions towards which we are strug- 
 gling, sooner, more safely, and with less sacrifice of the 
 great rights of personal liberty for which men have 
 labored and fought all down the ages, by preserving our 
 present industrial and social system, developing its ad- 
 vantages and weeding out its defects, than by running the 
 fearful risk of a radical, strange experiment. Especially, 
 we ought to ask this when the experiment is one that 
 takes little account of the imperfections of human nature, 
 but would overturn our existing institutions, abolish pri- 
 vate industry, abolish the personal right to choose occupa- 
 tions, take away the stimulus to industrial progress which 
 is now offered by the hope of making profits, and in gen- 
 eral place every man's work and opportunities absolutely 
 in the hands of the government, which would of necessity 
 have to be a despotism, — a despotism of the mass rather 
 than of a prince, to be sure, but a despotism nevertheless. 
 In other words, ought we to put our faith in the method 
 of natural evolution or of arbitrary revolution ? 
 
 80. Difference Between Socialism, Communism and 
 Anarcliism. To determine this question we must see 
 just what socialism proposes to do, and judge how it 
 would probably work in practice. There is a great dif- 
 
142 OUTLINES OF SOCIAL ECONOMICS 
 
 ference between the plan proposed by socialists and that 
 offered by the communists and anarchists. "Commun- 
 ism" merely proposes that all property shall be held in 
 common, consumable products as well as productive cap- 
 ital, and used freely as each one desires. "Anarchism" 
 would abolish all government and allow every man to 
 work and live as he chose, produce what he pleased and 
 do what he liked with it, free from any hindrance or in- 
 terference by authority of any kind. The only limit it 
 would place to the domination of one man by another is 
 the personal resistance of that other man, and anarchists 
 believe this would lead to voluntary recognition by each 
 of the rights of all, without government of any kind. 
 The theory only needs stating to show its utterly vision- 
 ary and impracticable character. 
 
 8i. Proposed Methods of Socialism. SociaHsm is 
 the very opposite of anarchism. It proposes that the 
 community, through the government, shall take pos- 
 session of all the means or instruments of production ; — 
 capital, including all factories, railroads, steamboats, etc., 
 and land, including, of course, mines, forests, oil wells 
 and all natural resources whatsoever. Private ownership 
 of the means of production in any form is to be pro- 
 hibited. All production must be under public manage- 
 ment, with instruments owned by the public, and then, of 
 course, the public would get all the benefit. The capitalists 
 and middlemen would become .unnecessary ; they would 
 be ordered into other branches of the productive system 
 as the government might provide opportunity. Socialism 
 promises by this method to abolish all injustice, to make 
 poverty on the one hand and large wealth on the other 
 impossible. 
 
 Although nearly all socialists are agreed on the general 
 features of this program, there is the widest difference 
 
SOCIALISM 143 
 
 among them as to details. Some believe that the man- 
 agers or superintendents of the various industries should 
 be chosen by popular vote; others think they should be 
 selected by test examinations. Some insist that each 
 man's share of the wealth produced should be the same ; 
 ethers advocate a so-called "scientific" division, according 
 to the hardship of the task, or else according to 
 the value of the service to society, — which would come 
 back dangerously near to our present system of wages 
 and profits. Some demand that socialism shall be estab- 
 lished by a sudden, forcible revolution ; others want it to 
 come by a majority vote in the regular political method ; 
 still others expect it to develop naturally, through co- 
 operative experiments, municipal ownership of street 
 railroads, gas plants and the like, government ownership 
 of railroads, and so on. 
 
 82. Economic Effects of Socialism. The complete 
 scheme of modern socialists has never, of course, been 
 applied anywhere, but there have been many approaches 
 to it and many experiments on a small scale. As we saw 
 in our brief review of the history of socialism in prac- 
 tice, wherever the paternal or socialistic element in gov- 
 ernment has been most prominent, progress has been 
 least. In such countries as Russia we find the greatest 
 amount of collective authority and paternalism. In not 
 a few instances in these countries the primitive village 
 community with its many common-ownership features 
 still exists, and the progress of industrial diversification 
 has been very slight. Under these conditions individual 
 rights have scarcely been born, and authority, both po- 
 litical and religious, is despotic. The individual counts 
 for but little. He is not recognized or consulted about 
 the government or even about himself, and if he ven- 
 tures to have an opinion it may cost him his life. 
 
144 OUTLINES OF SOCIAL ECONOMICS 
 
 As we ascend in the scale of progress we find in the 
 different nations an increasing diversity of industry and 
 individual enterprise, extension of personal rights, re- 
 ligious and political freedom, and a narrowing of the 
 range of the government's activity. Thus Germany and 
 France are less paternal and communistic than Russia or 
 Persia. England and America are still less paternal than 
 France or Germany, and correspondingly higher in free- 
 dom and civilization. 
 
 Socialism asks that the individual freedom and initia- 
 tive which have been won by centuries of struggle and 
 hardship shall be replaced by a social despotism of ma- 
 jority rule. The right to engage in industry, to have and 
 keep or dispose of the fruits of one's labor, to exercise 
 individual judgment and responsibility, is to be super- 
 seded by the collective authority of the community 
 through the government. Of course modern socialism 
 would not try to duplicate the early village community 
 or the Persian type of authority. It would not have a 
 divinely-appointed czar, but it would have mediocre pop- 
 ularly-elected bureaus and officials with power to regu- 
 late absolutely all the most important interests that affect 
 the individual. Nothing, probably, could be more clumsy, 
 costly and inefficient as a director of industrial affairs 
 than such a committee, elected by popular vote or by any 
 political machinery yet devised. To take the tools of in- 
 dustry out of the hands of private individuals and turn 
 them over to the government would at once put industrial 
 enterprises into the control of inferior and very often in- 
 competent management. 
 
 It has been found from long experience that under 
 democratic government the very best are seldom chosen 
 for any position, from president of the United States 
 down to ward alderman. The criticisms of the press and 
 
SOCIALISM 145 
 
 complaints of citizens testify that our really ablest and 
 best qualified men are rarely elected to any public office, 
 executive or legislative. The reason for this is simply 
 because they have to be elected, instead of reaching their 
 positions by natural merit-testing competition. Whoever 
 has to be elected to any position will necessarily have to 
 represent those who elect him, and whoever represents 
 either a party or the public at large is almost invariably 
 below the best. He must represent not the best but the 
 majority, which is always mediocre. Control and man- 
 agement of industry by majority vote is a long way be- 
 hind what the individual expert could give. 
 
 This has been demonstrated by all the experiments that 
 have yet been made, and they are very numerous. Many 
 experiments have been made in this country and Europe 
 in socialistic industrial communities. Robert Owen's 
 settlement at New Harmony, Indiana, in 1825 ; the nu- 
 merous experiments based on the ideas of the French 
 reformer Fourier, a little later; the Brook Farm com- 
 munity near Boston, in the early forties ; and several so- 
 cialistic communities of Americans in California, Mexico, 
 etc., all have had to be abandoned. Not one proved an 
 economic success, because they lacked individual initia- 
 tive and personal enterprise, and lost the advantage of 
 expert effort and management. They were organizations 
 in which the mediocre majority tried to make everything 
 equal and uniform, and so suppressed the growth of the 
 best. 
 
 Socialism could only achieve what it promises by caus- 
 ing some immense economies or increase in the produc- 
 tion of wealth, but all experience shows that removal of 
 competition has just the opposite effect, leading to greater 
 waste in methods and general lessening in productive 
 activity. Mere equal division of what is now produced 
 
146 OUTLINES OF SOCIAL ECONOMICS 
 
 would leave nothing for new enterprises and would add 
 but little to the income of the wage-earning classes, while 
 even this would tend to disappear with the slackening of 
 productive energy. 
 
 Numerous experiments have been made in manufac- 
 turing industries on a plan of co-operation very much 
 like socialism. A large number of cooperative cotton 
 factories were built in the north of England in the sixties 
 and seventies. The management of these mills was de- 
 termined by the majority vote of the stockholders as in- 
 dividuals, each counting one, regardless of the amount 
 of stock he might hold. The theory of this was that one 
 man was just as wise and efficient as another, and that 
 the man who had one share of stock was entitled to just 
 as much voice in the management of a business enter- 
 prise as the man who had a hundred shares. In other 
 words, they assumed that human beings are not only 
 equal in their rights and opportunities but also equal in 
 their industrial abilities. They believed that the acquisi- 
 tion and ownership of property is no sign of industrial 
 superiority. The result was that these concerns, which 
 were at first among the best-appointed factories in Lan- 
 cashire, little by little dropped behind in the competition 
 with regular capitalistic factories, through inferior man- 
 agement, internal quarrelings, and short terms of office 
 for their managers and overseers, until, one after another, 
 in order to avoid bankruptcy, they had to be converted 
 from socialistic or cooperative factories into joint-stock 
 corporations, and they are now successful enterprises. 
 
 Thus far, any attempt on any considerable scale to con- 
 duct industry on the socialistic principle has resulted in 
 failure and arrest of progress. This is not surprising, 
 because socialism attempts to reverse the whole course of 
 natural progress by which every advantage in scientific 
 
SOCIALISM 147 
 
 wealth production, personal opportunities, religious free- 
 dom and democratic government, has been evolved. 
 Progress is a movement towards greater variety of hu- 
 man effort and complexity of methods, and any theory 
 which proposes to substitute collective paternalism for 
 individual initiative, uniformity for diversity, is an effort 
 to retrace the steps of progress. In the nature of things 
 such an attempt must either fail in itself or else put so- 
 ciety back. However plausible a theory may be, how- 
 ever attractive its promises, if it proposes to accomplish 
 its reforms by turning society backward to any earlier 
 and cruder forms of human institutions, it will prove a 
 blow to freedom and progress. 
 
 83. Effects on Individual Life Socialism, beyond 
 question, would have very deep and far-reaching effects 
 on the development and quality of individual character, 
 aside from its economic results. This phase of the sub- 
 ject is too broad for proper discussion here, it involves 
 so much of psychology and sociology, but in general it 
 may be said that any scheme which proposes to take all 
 elements of individual initiative, risk, enterprise and re- 
 sponsibility out of human society could only result in a 
 weakening of purpose, deadening of ambitious energy, 
 and general settling down to a monotonous routine of 
 appointed tasks. It would lead to a decay of that spirit 
 of personal independence, self-reliance, excellence, and 
 sense of responsibility, which develop strength, sound- 
 ness and breadth of character. It would tend to remove 
 most of the strongest influences which discipline, train 
 and develop the personal life and at the same time invest 
 it with variety, interest, deep significance and promise. 
 
148 OUTLINES OF SOCIAL ECONOMICS 
 
 SUGGESTED READING. 
 
 In "Principles of Social Economics," Section III. of 
 Chapter II., Part IV. This section is on "The Function 
 of Government ; or, The Controlling Principle in States- 
 manship," and points out the dividing line between the ■ 
 class of undertakings that should be carried on, or con- 
 ditions regulated, by the government, and those that 
 should be left to private enterprise and individual choice. 
 
 Additional References. In Rae's "Contemporary So- 
 cialism," Chapter XL, on the practical aspects of "State 
 Socialism," pointing out how the various socialist propo- 
 sitions might be expected to work in practice. 
 
 In Gunton's "Wealth and Progress," Section III. ot 
 Chapter I., Part III. This also deals with the short- 
 comings of socialism in practice ; it is entitled : "Inade- 
 quacy of Socialistic Methods." 
 
 In George Plarris's "Inequality and Progress," Chap- 
 ters I. to VIII. inclusive ; but the whole book of twenty 
 chapters might be read with great profit. It is a lucid, 
 philosophical treatise, showing the impossibility of bring- 
 ing about actual equality in any department of human 
 life. Dr. Harris points out how in fact all the progress 
 of the race comes from inequality or variety, and how, 
 from the opportunities thus offered and responsibilities 
 imposed, the highest development is attained, of which 
 the race is capable at any given time. 
 
 In Henry Wood's "Political Economy of Natural 
 Law," Chapter XIIL, on "Socialism as a Political Sys- 
 tem." Mr. Wood here contrasts the effects of the so- 
 cialist proposition and the workings of natural law, on 
 character and progress. 
 
 In Graham's "Socialism, New and Old," Chapter VI., 
 on "The Distribution of Wealth," as proposed by so- 
 
SOCIALISM 149 
 
 eialism, and Chapter XIII. on "The Supposed Spon- 
 taneous Tendencies to Socialism." 
 
 The Ann Arbor address of Nicholas Murray Butler on 
 "The Education of Public Opinion," referred to and 
 quoted from in Chapter I., might well be read again for 
 the contrast it draws between healthy individualism and 
 social uniformity. 
 
 EXTRACTS FROM READINGS. 
 
 What "Equality" Would Mean. "Nature knows no 
 such thing as equality; it is a human invention thrown 
 up as an artificial barrier against selfishness and tyranny. 
 The law of life is the development of the heterogeneous, 
 the dissimilar, the unequal; it tends away from the dull 
 inefficiency of uniform equality toward the high effective- 
 ness of well-organized differences. Destroy inequality of 
 talent and capacity, and life as we know it stops. De- 
 mocracy becomes unthinkable. The corner-stone of de- 
 mocracy is natural inequality, its ideal the selection of the 
 most fit. Liberty is far more precious than equality, and 
 the two are mutually destructive. If all the hills and 
 mountains of Europe were leveled off, it would result in 
 producing a barren, dismal plain some nine hundred and 
 odd feet higher than the present shore line. The beauty 
 and productiveness of a continent would be gone. If all 
 the wealth of the United States were divided equally 
 among the population, it is estimated that we should each 
 possess a capital of $1,100. Industry would be reduced 
 to the lowest level ever known in modern times, every- 
 thing which makes life agreeable would go out of it, and 
 we should all be driven to a conflict and struggle for a 
 bare subsistence to which the state of primitive war de- 
 scribed by Hobbes would be as nothing." — From address 
 
ISO OUTLINES OF SOCIAL ECONOMICS 
 
 of Nicholas Murray Butler, at the University of Michi- 
 gan, June 22, 1899. 
 
 Coercion Under Socialism. "Socialistic agitators des- 
 cant upon 'wage-slavery,' but that is nothing compared 
 with a coercion which would sweep away all liberty. 
 The employer — and, the vast majority of employers are 
 not rich — is a 'slave' to the markets, as much as the wage- 
 earner to his toil, and often more, for he cannot so easily 
 change his position. It would indeed be slavery to have 
 eating, sleeping, clothing, working, and all the social and 
 personal activities conducted upon the compulsory plan, 
 in which each is assigned his place by the 'majority,' 
 which would really consist of a few official dictators. 
 The blotting out of individual liberty would mean real 
 slavery. There would be no incentive for personal effort, 
 such as is now afforded by the hope of providing for in- 
 firmity or old age, or for the wants of family and kin- 
 dred. The fruits of a man's industry would belong to 
 'The State.' The choice of occupation would be dictated 
 by the office-holders of the dominant party." — From 
 Henry Wood's "Political Economy of Natural Law," 
 Chapter XIII. 
 
 Defects of State Management of Industry. "What are 
 the conditions of efficient state . administration ? The 
 state possesses several natural characteristics which give 
 it a decided advantage as an industrial manager, some for 
 one branch of work, some for another. It has stability, it 
 has permanency, and it has — what is perhaps its principal 
 industrial superiority — unrivalled power of securing unity 
 of administration, since it is the only agency that can 
 use force for the purpose. On the other hand, it has one' 
 great natural defect, its want of a personal stake in the 
 produce of the business it conducts, its want of that keen 
 check on waste and that pushing incentive to exertion 
 
SOCIALISM 151 
 
 which private undertakings enjoy in the eye and energy 
 of the master. This is the great taproot from which all 
 the usual faults of government management spring — its 
 routine, red-tape spirit, its sluggishness in noting changes 
 in the market, in adapting itself to changes in the public 
 taste, and in introducing improved methods of produc- 
 tion. Government servants may very generally be men 
 of a higher stamp and training than the servants of a 
 private company, but they are proverbial, on the one 
 hand, for a certain lofty disdain of the humble but val- 
 uable virtue of parsimony, and, on the other, for an un- 
 progressive, unenterprising, uninventive administration 
 of business. 
 
 "Now, the branches of industry which the state is fitted 
 to carry on are of course those in which its great fault 
 happens to have small scope for play, and in which its 
 great merit or merits have great scope for play ; those, 
 for example, which gain largely in efficiency or economy 
 by a centralized administration, and suffer little harm 
 comparatively from a routine one. That is the reason 
 governments always manage the postal service well. In 
 post-office work the specific industrial superiority of gov- 
 ernment carries its maximum of advantage, and its speci- 
 fic industrial defect does its minimum of injury. The 
 carrying and delivery of letters from one part of the em- 
 pire to another require, for efficiency, a single co-ordina- 
 ted system, and, on the other hand, those operations them- 
 selves are of so unvariable and routine a character that 
 little harm is done by their being carried on in a routine 
 spirit ; they involve so little capital expenditure — the en- 
 tire capital of the department in England is only £80,000 
 — ^that the opportunity for waste and corruption is slight ; 
 and being conducted much more largely under the public 
 eye than the affairs of other departments of state, they 
 
152 OUTLINES OF SOCIAL ECONOMICS 
 
 are consequently subject to the constant and interested 
 criticism of the people whose wants they are meant to 
 satisfy. The same reason explains why government 
 dockyards and arms factories are always managed so un- 
 satisfactorily. There is, on the one hand, no need in them 
 for any higher unity of administration than is wanted 
 in any ordinary single business establishment; but, on 
 the other, progressiveness and adaptability are of the first 
 moment, routine and obstruction to improvement being 
 indeed among their worst dangers. Then the risk of 
 prodigality and corruption is high, for their capital ex- 
 penditure is great, and the check of public criticism very 
 distant and ineffectual. So exceptional a business is the 
 post, that the telegraphs, though managed by the same 
 department, have never been managed with the same suc- 
 cess. They were bought at first at a ransom, they have 
 involved an increasing loss nearly ever since, and the 
 public have to pay practically as much for their telegrams 
 — perhaps more — ^than the public of the United States 
 pay to their telegraph companies. Even in the postal de- 
 partment, government administration shows the usual 
 official slowness in adopting much-needed and even lucra- 
 tive reforms. Of this, a good example occurred only the 
 other day. It was not until a Boys' Messenger Company 
 was already in the field and doing the work that the post- 
 master-general was brought to recognize, as he said, 'the 
 desirability of providing a more rapid means of trans- 
 mitting single letters for short distances and under special 
 circumstances than at present exists.' " — From Rae's 
 "Contemporary Socialism," Chapter XL, Section IV. 
 
 QUESTIONS FOR REVIEW OR DEBATE. 
 I. What are some of the benefits promised by socialism? 
 
SOCIALISM 153 
 
 2. Mention two of the best known descriptions of an imaginary 
 
 ideal socialistic society. 
 
 3. In considerinig remedies for poverty and other social ills, 
 
 what great facts about human progress should be re- 
 membered? 
 
 4. In the light of these facts, what question ought we to ask 
 
 ourselves as to the best and safest methods of further ad- 
 vancement? 
 
 5. Explain the diflference between socialism, communism and 
 
 anarchism. 
 
 6. What system of production does socialism propose? Men- 
 
 tion some of the diflferences in details advocated by dif- 
 ferent groups of socialists. 
 
 7. What are some of the methods by which socialists hope to 
 
 see their system established? 
 
 8. What is true of the comparative civilization of countries with 
 
 different degrees of "paternalism" in their government? 
 Give instances. 
 
 9. What would be the effect of substituting elected officials 
 
 for private management of industries? 
 
 10. Why does popular election almost always result in the 
 
 choice of mediocre men? 
 
 11. Mention some of the experiments in socialistic community 
 
 life that have been made; what has been the result, and 
 why? 
 
 12. Describe the great experiment in rnanufacturing coopera- 
 
 tion in England, and explain the outcome. 
 
 13. In what chief respect is socialism contrary to the natural 
 
 law of progress? 
 
 14. What would probably be some of the effects of socialism 
 
 on individual character? 
 
CHAPTER XIX. 
 
 THE SINGLE TAX. 
 
 84. The Single-Tax Theory. To put a "single tax" 
 on land, equal to its economic rent, and abolish all other 
 forms of taxation, is a scheme of social reform pro- 
 pounded by Mr. Henry George in his "Progress and Pov- 
 erty." It is advocated as one of those comprehensive re- 
 forms which will solve every phase of industrial and so- 
 cial injustice and hardship. On the score of simplicity it 
 leaves little to be desired. It is probably the simplest 
 scheme for solving the ills of society that was ever pro- 
 pounded. It is much simpler than socialism. It does not 
 propose that the government shall take possession of and 
 operate all the industries of the country. The single-tax 
 plan proposes to abolish poverty and injustice by* im- 
 posing a single tax upon land, to the full extent of the 
 economic rent derived from it. The basis of this doctrine 
 is that God gave the earth to all the human race, and 
 therefore individual ownership of any part of the earth's 
 surface is a violation of God's moral law. It is held to 
 be robbery, because it is taking for individual benefit 
 what the Creator gave to everybody. 
 
 85. Its Fundamental Error. The great error in 
 this proposition is that it assumes the value of land to be 
 a part of its original condition. This is a mistake. In 
 its original state land had no value. Value comes only 
 when the land is utilized for human purposes, which al- 
 ways means that effort is bestowed upon it. Nature sup- 
 
 154 
 
THE SINGLE TAX 1 55 
 
 plies the substance but man supplies the value. There was 
 just as much land in this country when the Pilgrims came 
 as there is now, but it had no value. When the Indians 
 were roaming over the country the iron and coal and 
 gold and silver in our mountains was all there, but it had 
 no value. The value came only when labor and capital 
 were applied to appropriate it. Of course, man did not 
 create land, neither does he create wool or iron. He 
 tends the sheep and nature grows the wool. He clips 
 the wool, washes it and manufactures it, and it is the 
 clipping, washing and manufacturing, together with the 
 expense of raising the sheep, that gives the wool its value. 
 86. How Land Values Are Determined. But, in 
 considering the value of particular pieces of land, we find 
 there is a great deal of productive land that has a high 
 value, but upon which the expenditure has been small, 
 compared with its value, while other land requiring pro- 
 portionatel}- larger expense to utilize it has a low value. 
 This is strictly in accordance with the general law of 
 value; the law of land values, indeed, is simply a deduc- 
 tion from or continuation of the law of rent. Rent arises 
 on any given piece of land used in production in propor- 
 tion to the surplus which it will yield over and above 
 that derived from the least productive land whose prod- 
 ucts compete in the same market. The value of the piece 
 of land itself is reflected from its earning power ; it will 
 be high or low according as this rent or surplus-yielding 
 capacity is large or small. In other words, the value of 
 a piece of land used in agriculture or any form of indus- 
 try depends tipon its profitableness as compared with its 
 poorest or dearest competitors. Some land is so barren 
 or so far from a market that it cannot be made to pay 
 the expenses of any kind of productive effort applied to 
 it ; such land yields no rent and has no value, unless it be 
 
156 OUTLINES OF SOCIAL ECONOMICS 
 
 a speculative value due to anticipated profitableness. 
 Other land, more fertile or nearer to markets or offer- 
 ing superior business advantages, will yield a surplus, 
 and hence will have a value in proportion to this surplus 
 derived from it ; and this surplus arises only because the 
 price of its products is determined by the cost of produc- 
 tion on the poorest or dearest land competing with it. It 
 is for exactly the same reason that some manufacturing 
 plants are much more valuable than others, because they 
 can be operated at less relative cost and so will yield a 
 larger profit. 
 
 Land used for residence purposes is really in the group 
 of commodities ; it is not an instrument of production. 
 Productive land is what the single-tax proposition chiefly 
 attacks, although the theory includes all kinds of land. 
 Residence property is judged, not by the wealth that can 
 be derived from it, but by its convenience, beauty of sit- 
 uation and general social desirabilit}-. Its value is deter- 
 mined by the same law that fixes the prices of commodi- 
 ties. Plots of land of equal residential utility, conve- 
 nience, etc., are like so many hats — they are all alike, and 
 tend to be uniform in price. That price, whatever it is, 
 is determined just as in the case of hats — ^by the cost of 
 production of the dearest portion for which there is a 
 market demand. In the case of land, cost of production 
 means cost of developing, advertising, improving, making 
 accessible by streets, supplying water and drainage, and a 
 score of expense items. The owners of a certain portion 
 of the plots of any given class, judged as residence prop- 
 erty, find that these costs, including loss from unsold 
 portions, etc., are greater than in the case of any of their 
 competitors. They, therefore, will resist any competitive 
 effort to force the price of the plots below a point that 
 will at least repay their investment; sometimes they will 
 
THE SINGLE TAX I 57 
 
 hold land for jears rather than sell at a loss. This tends 
 to establish the general line of value for residence prop- 
 erty of that same class, and the other landowners will 
 rate their property, or offer it for sale, at approximately 
 the same price. Some, -of course, for the sake of quick 
 returns, will sell their holdings for less, but this seldom 
 affects what is recognized as the actual value of that class 
 of property, so long as the dearer portions are also in 
 demand. The great differences in the value of different 
 kinds of residence property, are due simply to the fact 
 that they belong in different groups, differing in residen- 
 tial utility, just as caps, derbys and silk hats differ in so- 
 cial utility. In each separate group, however, the price 
 for all is determined by the cost of supplying the dearest 
 portion. 
 
 87. Cost Qoes With Value. Therefore, it is not 
 true that the value of land, either for production or resi- 
 dence, is a free contribution of nature. It would have no 
 value at all if human effort were not exerted to utilize it, 
 make it accessible and available, and, in the case of pro- 
 ductive land, to conduct industry upon it. Almost inva- 
 riably, the most valuable land is that on which the largest 
 actual amounts of effort and capital have been expended 
 to give it its superior productivity, and which costs the 
 most in gross amount, though of course less relatively, 
 to maintain it; for example, the lots on Broadway in 
 New York city. All that has ever been expended on har- 
 bor and transportation facilities, on street improvements, 
 on water and light supply, on fire protection, on all the 
 phases of city government for which land taxes have been 
 exacted, not to mention the expense of the buildings 
 erected on these lots, have been items of cost, contribu- 
 ting directly and indirectly to the earning power of the 
 land and hence contributing to its value. Therefore, so 
 
IS8 OUTLINES OF SOCIAL ECONOMICS 
 
 far from land value being a free gift, the almost universal 
 rule is that the greater the earning power, and hence 
 value, of land, the greater has been the expenditure of 
 labor and capital, directly and indirectly, upon it, and the 
 greater is the cost, in taxes, assessments, improvements, 
 etc., of continuously utilizing and maintaining it. 
 
 88. Rent Does Not Absorb All Economic Gain. 
 It is asserted by advocates of the single tax that because 
 rent of land apparently tends to increase, therefore rent 
 absorbs all the gain in wealth production. This is a com- 
 plete mistake. The rent of a piece of land used in pro- 
 duction increases only when and because that land be- 
 comes more productive, yielding not merely enough to 
 pay the higher rent but also a surplus to the user of the 
 property. Where rent is rising rapidly it is the best of 
 evidence that the wealth-producing capacity of the land is 
 rising still more rapidly. If rent absorbed all the gain, 
 everybody would prefer to hire cheaper property, by 
 using which the same profits could be earned without the 
 risk of a high rent investment. In reality, it is the high- 
 est-rent properties that are most eagerly sought for, by 
 those who have sufficiently large enterprises to conduct, 
 because the profits that can be made by using such prop- 
 erty are so much greater, even after paying the high rent, 
 than could be realized in other and lower-rent situations. 
 For example, the cities are the places of highest rents, 
 and they are also the places of the largest surpluses of 
 wealth produced over and above the rents. On Wall 
 Street and lower Broadway rents are very high, but it is 
 just there that business is most profitable. So far from 
 rent absorbing the whole gain in production, it really 
 represents, in all probability, a diminishing relative pro- 
 portion of the total wealth produced, just as truly as in- 
 terest on capital to-day represents a diminishing relative 
 
THE SINGLE TAX I 59 
 
 proportion of the earnings of industry. Interest rates 
 are slowly falling, and rent, while nominally increasing 
 in many quarters, is actually not increasing, but prob- 
 ably decreasing, in proportion to earning power. 
 
 It should be remembered, moreover, that rents in some 
 localities and sections are always falling while elsewhere 
 they are rising. In the same city, even, some property is 
 almost always declining in value while other property is 
 increasing, according to changes in the drift of business, 
 trade and residence. When rents were rising on the rich 
 farms of the Northwest they were declining on the hill 
 farms of New England, and some landlords were losing 
 while others were gaining. It is not true, therefore, that 
 land is a natural monopoly, constantly and everywhere in- 
 creasing in value, and absorbing an increasing portion of 
 the products of industry. There is no so-called "landlord 
 class," in this country at least, for land is constantly 
 changing ownership. It is simply one form of invest- 
 ment, judged by comparison with the opportunities in 
 manufacturing, mercantile and all other industries. If 
 any particular land is exceptionally productive, whoever 
 buys it must pay a proportionately high price for it, so 
 that the return he receives in rent is not materially dif- 
 ferent from what he would have received by putting out 
 the same amount of money at interest. In fact, the price 
 of land tends to rise or fall according as the rate of rent 
 income on it becomes greater or less than the normal rate 
 of interest on capital. 
 
 89. Single-Tax Would Be Robbery. Land in this 
 country changes ownership so often that by far the larger 
 part of it is owned by persons who have bought and paid 
 for it at its full value within, say, a generation. To them 
 it represents actual cost, money, savings or whatever, in- 
 vested in this land ; while families that have held land 
 
l6o OUTLINES OF SOCIAL ECONOMICS 
 
 for several generations have as a rule expended, first 
 and last, considerable sums in improving and increasing 
 its productive capacity or residential desirability. To tax 
 away the full value of land, therefore, as the single-tax 
 proposition demands, would be sheer robbery and would 
 never be tolerated by a free people. The government that 
 should attempt such an act of despotism would be swept 
 away by revolution before it could begin to enforce it. 
 
 90. It Could Not Abolish Poverty. The claim that 
 the single tax would abolish poverty must be considered 
 a delusion. If all the value of land were confiscated by 
 a tax, nobody, would care to own any, and land would 
 then be taken by the state and become its property. So 
 far as land is concerned, this would be socialism, but in 
 what way would it affect poverty ? Who would get more 
 if the state owned the land than at present? If the state 
 owned the land it would become the landlord, and who- 
 ever used it would merely have to pay rent to the state in- 
 stead of to private owners. The rent exacted by the state 
 would be governed by the same law as now, because it 
 could not be governed ,by any other. If the state de- 
 manded equal rent for all kinds of land, good or bad, near 
 or far from markets, it simply could not get it. Nobody 
 would hire any land except that which would yield more 
 than the cost of using it. Nobody would pay rent for 
 land so barren or far away that it took all the profits to 
 pay the rent, whether the state owned it or anybody else. 
 Even the state cannot make people continuously do busi- 
 ness at a loss. The same different degrees of utility 
 would exist in the land that exist now, and that would 
 govern the rent anybody would pay for its use. There- 
 fore, rents would either have to be the same as now, or 
 the state, by trying to fix uniform rents, would have 
 the larger part of the land left idle on its hands and the 
 
THE^SINGLE TAX l6l 
 
 rest earning enormous profits for the fortunate occupiers. 
 
 There is one primary condition without which nobody 
 will use land, whether for building, agriculture, or any 
 other purpose ; and that is, a demand or market for the 
 products. The single tax, therefore, could not compel 
 people to use land which they were holding for specula- 
 tive purposes. If there were not a sufficiently, profitable 
 opportunity for using the land, the owner would sur- 
 render it to the government rather than lo^e money by 
 trying to conduct an industry upon it while paying the 
 government's assessed tax of the full rental value. The 
 government could not force industries into existence in 
 any such way, because that is a matter governed entirely 
 by the market opportunities. 
 
 Nor could the single tax do anything towards abolish- 
 ing poverty by lowering prices to the consumers. Prod- 
 ucts would not be cheapened by the fact that the state 
 took all the rent, because prices would still be determined 
 by the cost of production on the dearest land, as at pres- 
 ent. It would cost just as much to utilize the poor or 
 badly situated land for any given purpose then as it does 
 now. The cost of production, therefore, would be the 
 same ; the cost of the dearest portion would be the same, 
 and hence prices would be the same. 
 
 Real wages would not be increased by the single tax. 
 Rent would have to be paid just as now, to the state as 
 a tax, instead of to private landlords as rent, and, as we 
 have just seen, the tax could not force industries into 
 existence and so increase employment for labor. The 
 only thing that the single tax would really accomplish is 
 to establish government ownership of land. This would 
 be a disadvantage, because the state is never as efficient 
 in the use of any productive instrument as is private en 
 terprise. This would neither increase the use of land, re- 
 
l62 OUTLINES OF SOCIAL ECONOMICS 
 
 duce the price of products from the land, give a single 
 additional laborer a day's work on land, nor do anything 
 whatever to raise wages. The single tax is based on a 
 false assumption. It will produce none of the results 
 predicted for it, because it does not affect the economic 
 conditions out of which these results arise. As a means 
 of raising revenue, a tax on real property is far superior 
 to any form of taxes on incomes and personal property, 
 or any method of direct taxation, but a revenue tax 
 should be levied only as required to meet government ex- 
 penses or for public improvements, not for the purpose 
 of confiscating private property regardless of the amount 
 of revenue required. Instead of being a means of estab- 
 lishing justice, the single tax would be nothing less than 
 legalized robbery. As a means of abolishing poverty it 
 is a delusion. 
 
 SUGGESTED READING. 
 
 In "Principles of Social Economics,'' Section IV. of 
 Chapter IV., Part III. This section discusses the ques- 
 tion: "Is Rent a Social Tax?" and has already been sug- 
 gested in connection with the chapter on Rent. 
 
 Additional References. In Gunton's "Wealth and 
 Progress," Section III. of Chapter I., Part II., on "Henry 
 George's Theory" — of wages. 
 
 In Hadley's "Economics," Sections 521 to 524 inclu- 
 sive, in Chapter XIV This chapter is on "Government 
 Revenue," and the sections mentioned point out some of 
 the economic and moral defects of the single-tax 
 proposition. 
 
 In Sehgman's "Essays on Taxation," Chapter III, on 
 "The Single Tax." 
 
 In Francis A. Walker's "Land and Its Rent," Chapter 
 III., on "Recent Attacks Upon Landed Property." 
 
THE SINGLE TAX 1 63 
 
 The pamphlet, "Economic Heresies of Henry George," 
 by George Gunton, is also recommended. 
 
 For a complete statement of the single-tax doctrine 
 see Henry George's "Progress and Poverty." 
 
 EXTRACTS FROM READINGS. 
 
 No Sudden Millenniuni Possible. "It is clearly impos- 
 sible to discuss in this place the wider claim of the single- 
 taxers, that the application of their scheme would intro- 
 duce the social millennium. If economists thought that 
 the distinguished single-tax leader had solved this prob- 
 lem they would enthrone him high on their council seats ; 
 they would reverently bend the knee and acknowledge in 
 him a master, a prophet. But when he comes to them 
 with a tale that is as old as the hills ; when he sets forth 
 in his writings doctrines that have long since been re- 
 futed ; when in his enthusiasm he seeks to impose a 
 remedy which appears to them as unjust as it is one- 
 sided, as inconsistent as it is inequitable, — they have a 
 right to protest. This is not the first time that some en- 
 thusiast has supposed that he has discovered a world- 
 saving panacea. The remedy for social maladjustments 
 does not lie in any such lop-sided idea; the only cure is 
 the slow, gradual evolution of the moral conscience ot 
 mankind. We cannot solve the labor problem by any rule 
 of thumb. Every student of history, of political philoso- 
 phy, of economics, will tell us that the progress of the 
 race has been slow and painful; that the world has ad- 
 vanced step by step ; and that each successive step, to be 
 enduring, must be founded on justice. To suppose for a 
 moment that the social millennium will be ushered in by 
 any one sudden change — even were the change not so 
 lamentably inadequate as the one above discussed — is an 
 
164 OUTLINES OF|SOCIAL ECONOMICS 
 
 evidence not of wisdom, but of short-sightedness." — 
 From Seligman's "Essays on Taxation," Chapter III. 
 
 A One-Sided Proposition. "Now it is evident, beyond 
 challenge or question by any honest man, that in a read- 
 justment of the relations of land, made primarily to meet 
 the demands of political equity, the state, if it will claim 
 the benefit of all gain resulting from general causes af- 
 fecting the numbers and productive power of the com- 
 munity, and thus due neither to the merits nor to the 
 sacrifices of owners, is bound to make good all losses re- 
 sulting from a decline of demand due to causes which are 
 of a general nature, and are thus attributable to no fault 
 or neglect on the part of owners. If he who remains, in 
 name, the proprietor of land is not to be allowed to reap 
 any gain not brought about by his own exertions, he has 
 a good claim to be saved harmless from loss which no 
 effort of his could have averted." — From Walker's "Land 
 and Its Rent," Chapter III. 
 
 Fallacies in Single-Tax Theory. "In contradiction, 
 then, of Mr. George's proposition that the entire effect of 
 an increase of production is expended in raising rents, 
 neither wages nor the interest of capital deriving any gain 
 whatsoever therefrom, rent indeed absorbing the entire 
 gain, 'and more than the gain,' we have seen, — 
 
 "i. That an increase of production may enhance the 
 demand for labor equally with the demand for land. 
 
 "2. That, in fact, in those forms of production which 
 especially characterize modern society, the rate of en- 
 hancement of the demand for labor tends to far exceed 
 the rate of enhancement of the demand for land. 
 
 "3. That an increased demand for the production of 
 wealth may, and in a vast body of instances does, enhance 
 the demand for labor without enhancing the demand for 
 land in any, the slightest degree, the whole eflfect being 
 
THE SINGLE TAX 165 
 
 expended in the elaboration of the same amount of ma- 
 terial. 
 
 "4. We have now only to show, in the fourth place, 
 that, instead of all improvements and inventions increas- 
 ing the demand for land, as Mr. George declares, some 
 very extensive classes of improvements and inventions ac- 
 tually operate powerfully, directly, and exclusively in 
 reducing the demand for land, — we have, I say, only to 
 show this, to convict this would-be apostle of a new po- 
 litical economy and a regenerated humanity, iof the 
 grossest incompetence for economic reasoning. This it 
 will be easy to do." — From Walker's "Land and Its 
 Rent," Chapter III. 
 
 QUESTIONS FOR REVIEW OR DEBATE. 
 
 1. What is the single-tax proposition? What does it promise? 
 
 2. On what theory of land value is it based? 
 
 3. How is the value of productive land really determined? 
 
 4. How is the value of land used for residence purposes de- 
 
 termined? 
 
 5. What are some of the elements of cost in utilizing land? 
 
 On what kind of land are these items actually, though 
 not relatively, largest? 
 
 6. Does rent absorb all the gain in wealth production? Does 
 
 it take an increasing or relatively decreasing portion? 
 Illustrate. 
 
 7. Is all land increasing in value? Is there any permanent 
 
 landlord class? Give reasons for answer. 
 
 8. What great injustice would the single tax inflict? 
 
 g. Would the single tax make land "free" to all comers? If 
 not, what system of rent charges would the state as land- 
 lord have to adopt? 
 
 10. Could the single tax force unused la:nd into use? Give 
 
 reasons for your answer. 
 
 11. What effect would it have on wages and employment? Why? 
 
 12. What effect would it have on prices of commodities? Why? 
 
CHAPTER XX. 
 
 COOPERATION AND PROFIT-SHARING. 
 
 91. What Cooperation Is. Cooperation and profit- 
 sharing are propositions for industrial reform, aiming at 
 a better distribution of wealth. Cooperation is a form of 
 socialism, though not of a political character. It is a 
 voluntary effort to conduct specific industries on the 
 strictly democratic plan. 
 
 Hundreds of cooperative experiments have been made, 
 during the last half century and more. Cooperation dif- 
 fers from socialism in that socialism aims to have the 
 government own and conduct all productive industry, 
 while cooperation relies on voluntary association and 
 divides the results according to the amount of stock held, 
 while the management is by majority vote of the stock- 
 holders as individuals. 
 
 92. Difference Between Cooperation and Corpora- 
 tions. Sometimes we hear people speak of corporations 
 as a form of cooperation. That is a distortion of the 
 term. The difference is very great. Corporations are 
 chartered companies in which, not only the profits are 
 divided according to the number of shares held, but the 
 management also goes with the ownership of the capital. 
 If one man owns more than half he can have absolute 
 management of the corporation, because by majority 
 vote he can elect all the directors and dictate the entire 
 policy. With cooperation the case is quite different. 
 The profits, to be sure, are divided according to the capi- 
 
 166 
 
COOPERATION AND PROFIT-SHARING 1 67 
 
 tal, whatever that may be, and the owner of the largest 
 amount of stock in a cooperative concern will therefore 
 get the largest share of the dividends. But when it 
 comes to the management the case is quite different. 
 This, under cooperation, is thoroughly democratic. It 
 assumes that one man knows just as much as another, 
 which of course is not true. 
 
 93. History of Productive Cooperation. Modern 
 cooperative experiments came into existence about the 
 middle of this century. The movement was the historic 
 successor of the chartist movement in England. It grew 
 out of the ruins of the Fergus O'Connor land-ownership 
 scheme for poor people, which finally collapsed in 1848. 
 Under the leadership of a few of the former followers 
 of the Owenite movement and the radical chartists, co- 
 operative experiments were made. These took two dif- 
 ferent directions, one in productive enterprise, like manu- 
 factures, and the other in mercantile or, as they call it, 
 distributive enterprises. The history of these two lines 
 of experimenting is very instructive and throws much 
 light on the character and possibility of industrial co- 
 operation. 
 
 The first efforts were in manufacturing, and for a time 
 they seemed very promising. The experiments were 
 quite successful until they reached the stage of being 
 what we may call established industries, when they came 
 into steady competition with non-cooperative enterprises. 
 Under the enthusiasm of the cooperative idea, the ex- 
 periments extended through the greater part of Lan- 
 cashire. Some of the largest cotton factories were built 
 and equipped on the purely cooperative plan, and many 
 people who did not believe in cooperation invested in 
 them. But a quarter of a century saw the collapse of 
 the entire cooperative experiment in productive industry. 
 
l68 OUTLINES OF SOCIAL ECONOMICS 
 
 Democracy of management did what it nearly always 
 does at the convention and ballot-box in politics; it se- 
 lected the superficial faultfinder, the popular sentimental- 
 ist, and rejected the hard-headed and efficient business 
 manager. The outcome was that to prevent bankruptcy 
 and ruin one concern after another was converted into a 
 regular joint-stock corporation. The cooperative ele- 
 ment was dropped, and now the concerns are as success- 
 ful as their average competitors. In other words, the 
 experiment proved that in productive enterprise on any 
 considerable scale, where the industry is complex and 
 requires special skill and expert management, coopera- 
 tion was an unqualified failure. 
 
 94. Success of Mercantile Cooperation. In mer- 
 cantile enterprise, however, it has been a signal success. 
 In conducting grocery and haberdashery and general sup- 
 ply stores, the cooperative plan has worked well from the 
 first. Starting at about the same time that productive 
 cooperation did in England, and at the same place, while 
 cooperative manufacture has disappeared cooperative 
 stores have multiplied and become very large, being in 
 many respects superior to private concerns. The local 
 cooperative stores have established wholesale stores 
 which they jointly own and through which they make 
 their purchases. They have their agents in different 
 countries purchasing, on the best terms, supplies for all 
 their various departments. 
 
 What is the reason why the one kind of cooperation 
 failed and the other has been such a marked success? 
 Chiefly because productive cooperation requires expert 
 talent, quick decision, inventive genius, and constant re- 
 sourceful adaptation to conditions, in its management, 
 while the other does not. The purchasing of materials, 
 choice and operation of machinery, direction of experi- 
 
COOPERATION AND PROFIT-SHARING 1 69 
 
 ments, application of inventions, are necessary in manu- 
 facturing without much waiting. Mediocre effort and 
 slow judgment, which the yearly or half-yearly meeting 
 of the cooperative concerns furnished, put the manage- 
 ment to a disadvantage. In selling its products it had to 
 compete with concerns guided by individual enterprise 
 and expert management. Clumsy methods, waste, and 
 poor management could not succeed against the highest 
 type of individual effort. When a cooperative concern 
 failed to make profits the manager would be removed at 
 the next annual meeting, and the man who made the 
 strongest speech against the management would proba- 
 bly be appointed, however little he might know about the 
 business. 
 
 In mercantile enterprises it was different. The man- 
 agers were selected by the same method, but they sold 
 goods to their own members. They did not have to go 
 into competition with other firms on prices. They fixed 
 their prices so as to cover their expenses, and coopera- 
 tive prices were often from ten to fifteen per cent, higher 
 than the prices of private concerns. But this secured the 
 enterprise against loss and always insured a dividend, be- 
 cause prices could always be put to a point where they 
 would yield a dividend at the end of the quarter. This 
 was a seeming net gain to the members of the coopera- 
 tive associations. At any rate, it acted as an automatic 
 savings institution. It was the rule of the cooperative 
 stores to compel the members to leave their dividends 
 until they acquired a share in the business, of a certain 
 amount, upon which they would always receive interest. 
 In this way the stores never failed, and they gradually 
 grew from grocery stores into large department stores, 
 supplying everything from bread and butter to the mi- 
 nute furnishing of a home, and later even providing 
 
170 OUTLINES OF SOCIAL ECONOMICS 
 
 houses on the installment plan. Being free from com- 
 petition on prices their permanence was secured, and 
 establishing their own wholesale stores yielded a great 
 economy in business. 
 
 This distributive cooperation in England also had so- 
 cial and educational features. They erected their own 
 buildings and in each one would usually have a lecture- 
 hall free for all purposes of the association, a library, a 
 well-appointed reading-room, and sometimes excellent 
 courses of lectures. In this way they conducted, as a 
 part of the expense of the business, an educational work 
 which was very beneficial and has been a great factor 
 in the intellectual and social improvement of the people. 
 
 The secret of the success of this phase of cooperation 
 is that it does not have to be on its merits as an economic 
 proposition. The owners of each store are themselves the 
 purchasers of its products. The stores buy their goods 
 in open market and sell to their own members. When it 
 has been attempted, as under productive cooperation, to 
 produce by the members and sell in the open market it 
 has failed. Moreover, conducting a mercantile business 
 is a much less complex matter than operating highly-de- 
 veloped manufacture. Being free from competition as 
 to prices, cooperative stores succeed with mediocre tal- 
 ent. This indicates that cooperation on a purely demo- 
 cratic basis can succeed only in lines of industry where 
 the methods are relatively permanent and simple, and not 
 subject to the revolutions which invention and expert 
 management by competitors may create. Where the 
 undertaking is subject to competition with private con- 
 cerns, and the methods are complex and subject to sud- 
 den changes by the introduction of new methods, then 
 mediocre management by popular election on the co- 
 operative plan is in great danger of failure. 
 
COOPERATION AND PROFIT-SHARING 171 
 
 95. Prolit=Sharing. Profit-sharing is quite distinct 
 from cooperation. It is a system of distributing a part 
 of the profits of an industry among the employees, but 
 l<eeping the control and management in the hands of the 
 capitalist. In other words, it is cooperation in results, 
 but not in responsibility and management. The difficulty 
 with profit-sharing is that it is entirely dependent upon 
 profit-making. It can nSver be a universal plan of dis- 
 tribution, because all concerns do not make profits. 
 Profits can only be "shared" by the successful. More- 
 over, it depends largely upon the personal disposition of 
 the employer. It must be voluntary with him, and so take 
 the form, to some extent, of a gratuity. It is declared by 
 some who have tried it that to distribute a certain portion 
 of the profits in this way yields better results and better 
 selection of laborers. But this is chiefly because only the 
 few do it. If every concern divided profits among em- 
 ployees it would give no advantage in the selection of la- 
 borers, because they would get the same wherever they 
 went. If profit-sharing were made compulsory on all 
 employers it would become a part of the cost of produc- 
 tion for all the poorer and dearer concerns, and either 
 prices would have to be raised or wages would have to be 
 reduced so that what the men had received in wages could 
 be given as profits., In fact, it is frequently the case in 
 profit-sharing experiments that the laborers get no more 
 than what they would receive in higher wages if they 
 could not rely on this small extra income. The law of 
 the standard of living operates to lessen the pressure 
 from workingmen for more wages, when their earnings 
 are pieced out by semi-gratuities in this way. 
 
 Profits cannot be relied upon. They dififer in amount 
 with almost every concern, and sometimes are missing 
 entirely. Therefore profit-sharing can never be a general 
 
172 OUTLINES OF SOCIAL ECONOMICS 
 
 policy in the community. If a law were passed compell- 
 ing all those who have profits to divide them among their 
 laborers the probability is that capitalists would cease to 
 experiment and invest with a view to making profits. 
 Such a policy would stop the creation of profits, and 
 therefore destroy the possibility of lowering prices, which 
 would be an arrest of industrial progress. Profits are 
 the stimulus to special and new risk-taking efforts. Any 
 system which distributed those profits, as such, among 
 other people would destroy the incentive for new creation 
 of wealth. By the natural economic method of distribu- 
 tion, profits do eventually go to the laborers and the com- 
 munity, through lower prices, higher wages and taxation 
 for public improvements, while allowing them to pass to 
 the captalist long enough to furnish a constant stimulus 
 to industrial improvement. 
 
 Mercantile cooperation, though not feasible as a uni- 
 versal method of conducting industry, has strong social 
 merits. Where it can be successfully applied it may, as 
 in England, carry with it great socializing and educa- 
 tional opportunities, the influence of which is elevating 
 and stimulating, even though paid for sometimes in 
 higher prices. But profit-sharing has nothing of this char- 
 acter to recommend it. It is not economic, it has no social 
 or educational aspect, but it has in it an element of philan- 
 thropy, which is not wholesome. Whatever is desired to 
 be of permanent value in the distribution of wealth must 
 be capable of universal application. Anything which de- 
 pends on the sympathy or personal goodness of the em- 
 ployer, and can only be granted by a part of the indus- 
 tries, cannot lead to any widespread social and industrial 
 reform. 
 
COOPERATION AND PROFIT-SHARING 1 73 
 
 SUGGESTED READING. 
 
 In Hadley's "Economics," Chapter XII., on "Coopera- 
 tion," which includes discussion of profit-sharing, pro- 
 ducers' and consumers' cooperation, and government 
 management of industry. 
 
 In N. P. Gihiian's "A Dividend to Labor," Chapters I. 
 and II., discussing the general possibilities of coopera- 
 tive and profit-sharing experiments. In George Howell's 
 "Conflicts of Capital and Labor," Chapter XII., on 
 "Labor and Capital in Alliance," describing and discuss- 
 ing" numerous experiments in cooperation and profit- 
 sharing, in a very friendly spirit but not overlooking 
 obvious defects. 
 
 In David Schloss's "Methods of Industrial Remunera- 
 tion," Chapters XVI. to XXIX., inclusive. These chap- 
 ters take up the theory and practice of cooperation and 
 profit-sharing quite at length, while the Appendix de- 
 scribes in detail a number of practical experiments. 
 
 EXTRACTS FROiM RE.VDINGS. 
 
 Risk to Laborers of Profit-Sharing. "Why tempt a 
 working-man to gamble by staking part of the reward 
 of his labor upon the financial results of a business over 
 the conduct of whose financial operations he is not al- 
 lowed to possess any control, and would, perhaps, sel- 
 dom be competent, even if he were allowed, to exercise 
 any useful control? To invest in this manner in the en- 
 terprise carried on by his employers is a risky thing for 
 a working-man, even when the investment is of a tem- 
 porary nature only; that is, when the bonus is paid in 
 cash at the end of the year. But, where, as is often the 
 case, a large part of the bonus is placed to the credit 
 of a Provident Fund, and, as such, becomes part of 
 
1/4 OUTLINES OF SOCIAL ECONOMICS 
 
 the permanent capital of the business, there it is clear 
 that a working-man, whose savings are locked up in an 
 unsecured investment of this nature, must, in very many 
 cases, run a grave risk of losing his money. Is the work- 
 man expected, before he accepts employment in a profit- 
 sharing firm, to make inquiries from his stock-brokers 
 or his bankers as to the standing of the concern and as 
 to the reputation for business ability possessed by its 
 directors? Or is he to 'chance it?' We may well de- 
 mur to inviting working-men to hazard their earnings in 
 this manner, whether for one year or for forty." — From 
 Schloss's "Methods of Industrial Remuneration," Chap- 
 ter XXII. 
 
 So]nc Results of English Cooperation. "The follow- 
 ing is the account of the Sun Mill [England] given by 
 Miss Potter. 'In this instance workers were largely 
 shareholders, and at the outset a resolution was passed, 
 insisting that shareholders and their families should be 
 preferred for employment. ... I am informed at 
 the present day that few, if any, of its employees happen 
 to be shareholders. Profit-sharing with ,the principal 
 employees was introduced in 1869; in 1875 it was dis- 
 continued.' . . . Mr. Marcroft, the historian of the 
 Sun Mill, adds that the recipients of bonus had been re- 
 duced in their wages, and that on its discontinuance their 
 wages were raised 20 per cent. This mill, says Miss Pot- 
 ter, serves as a type of the general history of cotton fac- 
 tories primarily established in the interests of the actual 
 workers. . . . 
 
 "In conclusion, the results of our examination of the 
 practice of Industrial Cooperation shows us that by far 
 the greater part of Industrial Cooperation is carried on 
 upon the ordinary wage-system, the employees being 
 altogether excluded from participation in profits; while. 
 
COOPERATION AND PROFIT-SHARING 1 75 
 
 that in those cases in which profit-sharing is practised by 
 working-men cooperators the financial position of the 
 workmen employed in a cooperative workshop is sel- 
 dom indeed to any appreciable extent improved by the 
 receipt of bonus, must be abundantly clear from the facts 
 and figures above adduced." — From Schloss's "Methods 
 of Industrial Remuneration," Chapter XXIV. 
 
 QUESTIONS FOR REVIEW OR DEBATE. 
 
 1. What is meant by industrial cooperation? 
 
 2. What is the difference between cooperation and corpora- 
 
 tions? 
 
 3. What experiments in productive cooperation have been 
 
 made in England and with what result? 
 
 4. Explain the reasons for the outcome of these undertakings. 
 
 5. What has been the experience with mercantile or distributive 
 
 cooperation? Describe some of the industrial and edu- 
 cational features of these concerns. 
 
 6. Why have they resulted so differently from productive co- 
 
 operation? 
 7. How does profit-sharing differ from cooperation? 
 
 8. Could profit-sharing ever be adopted as a universal system? 
 
 Give reasons. 
 
 9. What effect does profit-sharing tend to have on wages? 
 
CHAPTER XXL 
 
 LABOR ORGANIZATIONS. 
 
 96. Objects of Trade Unions. Trade unions are vol- 
 iintary associations of workingmen, with the object of im- 
 proving the general conditions of their class. They are 
 very different in character, object and methods from 
 either cooperation or profit-sharing. Trade unions are 
 organized not to overthrow or supersede the wages sys- 
 tem, but to better the laborers' condition under it. They 
 recognize the advantages of the wages system, and en- 
 deavor to work through it to secure higher wages and 
 shorter hours and better conditions rather than to com- 
 pel a distribution of profits as such. They are not based 
 upon any theory of socialism or radical rearrangement 
 of society, but recognize the fact that the capitalist owns 
 the plant and the laborers own their labor, and the rela- 
 tion between them is one of buying and selling service, 
 and agreeing on the conditions of work. 
 
 Having learned by experience that wages in any in- 
 dustry in any given district are substantially the same, 
 and when increased or diminished for one are in- 
 creased or diminished for all — in other words, that 
 wages are determined for the group and not for the 
 individual — the laborers have organized on the group 
 plan. They have learned that if they are treated as 
 a group by employers it is better that they act as a 
 group for themselves. The object of trade unions is 
 primarily to represent the interests of the workingmen 
 
 176 
 
LABOR ORGANIZATIONS 177 
 
 in the various industries, in respect to wages, hours of 
 labor, treatment of employees and other working 
 conditions. 
 
 For this reason trade unions have almost always 
 avoided taking part as organizations in any political 
 movement. Indeed, it is a by-law of nearly all the unions 
 in this country that discussion of politics shall be pro- 
 hibited in their meetings. In political matters they act as 
 individuals. On matters of wages, trade conditions, any- 
 thing affecting their industrial life, they act as a unit. 
 
 97. Early Trade Unions. Trade unions arose in 
 England, for the same reason that nearly all modern in- 
 stitutions arose there, because from the fourteenth cen- 
 tury England had taken the lead in Europe in industrial 
 and political progress. The trade-union movement is the 
 necessary outcome of the wages system, which is in- 
 separable from capitalist methods of industry. As the 
 capitalist system was earliest and most strongly devel- 
 oped in England, it followed as a matter of course that 
 trade unions had their rise in the same country. It is 
 sometimes said that trade unions arose out of the me- 
 diaeval town "gilds," but there is little historic data to 
 sustain this view. The modern trade union has very lit- 
 tle in common with the mediaeval gild, which included in- 
 dependent craftsmen and had nothing to do with any dis- 
 tinct wage class. The trade union did not arise until the 
 gilds had disappeared. It is the product of the capitalist 
 industry of the eighteenth and nineteenth centuries, and 
 arose out of the conditions resulting from the factory 
 system. 
 
 During the early part of this century the efforts of 
 laborers to organize, or even for three laborers to meet 
 in the same room to talk over their wages or other con- 
 ditions, was treated as conspiracy. This restriction con- 
 
178 OUTLINES OF SOCIAL ECONOMICS 
 
 tinued until 1824, when the conspiracy laws were abol- 
 ished, but for a long time afterwards trade unions were 
 under a social and quasi-legal ban. They were regarded as 
 revolutionary, as infringing on the rights of private prop- 
 erty. The popular theory was that the employer had the 
 sole right to say what hours his people should work, 
 when begin and when stop, what wages should be paid, 
 and what sanitary and other conditions should exist. The 
 employers' ideas on all these points were narrow, often 
 actually inhuman. The excessive length of the working 
 day, the driving pressure of the boss, the unwholesome 
 conditions of the workshop and the degrading hovels in 
 which the laborers lived, were such as to destroy the 
 health and debase the social and moral life of the work- 
 ing people. Numerous new diseases and types of de- 
 formity, contracted chests and curved spines, were de- 
 veloped. Against this the laborers organized, and at first, 
 very naturally, they were scarcely less narrow and crude 
 in their ideas and methods of procedure than were their 
 employers. They thought the only effective way to pro- 
 ceed was to destroy the employers' property, get up 
 strikes, blow up factories, and if necessary maltreat or 
 kill any laborers who should attempt to take their places. 
 But, while their methods were frequently brutal, their 
 complaints were genuine. This became too obvious to 
 be overlooked by decent and humane people. Attempts 
 at reform began as early as 1825, and continued until a 
 whole series of improvements in the laborers' conditions 
 were accomplished. Night work for women and chil- 
 dren was abolished, the working day shortened, school- 
 ing provided for factory children (the half-time system 
 being introduced in 1844), until in 1847 the general ten- 
 hour law was passed, and in 1874 the nine-and-a-half 
 hour law for textile industries. 
 
LABOR ORGANIZATIONS 1 79 
 
 98. How the English Factory Acts Were Passed. 
 
 This great success of the trade unions in England, in 
 the way of labor legislation, was due more largely to 
 political class feeling than to the efforts of the unions 
 themselves. At that time a bitter struggle was going on in 
 England over the so-called corn laws, which imposed a 
 high tariff on the importation of wheat and breadstuffs. 
 These laws, of course, were directly in the interest of the 
 landed class, and were opposed by the manufacturers, 
 who wanted cheap bread for the laborers, so that they 
 could live on low wages. 
 
 This manufacturing or "middle class" had already 
 gained largely in power through the extension of the 
 voting franchise in 1832, and in 1839 they organized the 
 "Anti-Corn-Law League." At the same time the work- 
 ingmen were demanding shorter hours of labor, restric- 
 tion of child labor, and improvement in working condi- 
 tions, all of which the manufacturers opposed. Now the 
 landed aristocracy were a cultivated class, inclined to be 
 humane and considerate though very patronizing and 
 paternal. They were opposed to giving the laborers any 
 political power, but they never treated them like beasts 
 of burden. Being desperately opposed to the manufac- 
 turers' crusade for repeal of the corn laws, the aristocracy 
 sided with the laborers in their demand for the factory 
 acts. Indeed, Lord Ashley, afterwards the Earl of 
 Shaftesbury, became the real leader of the short-hour 
 movement. In 1846 the manufacturers succeeded in get- 
 ting the corn laws repealed, whereupon the landlords 
 united in behalf of the laborers' movement. The next 
 year, 1847, partly out of human sympathy for the 
 laborers, partly out of a sense of justice, but very largely 
 out of chagrin over the repeal of the corn laws, the land- 
 owners voted for the ten-hour law and carried it. Thus 
 
l8o OUTLINES OF SOCIAL ECONOMICS 
 
 in reality the great labor legislation of England was due 
 more to the class war between the landowners and manu- 
 facturers than to the united efforts of the laborers. 
 99. Trade Unions in the United States. In the 
 
 United States the first law limiting the hours of labor 
 was adopted in Massachusetts in 1874, the same year that 
 practically the last important one was adopted in Eng- 
 land. This, however, does not mean that the English 
 trade unions were superior either in intelligence or ac- 
 tivity. The factory system, and with it labor unions, be- 
 gan much earlier in England than in the United States. 
 It had practically no existence in this country until about 
 1830, and took on no great importance until after the civil 
 war. The trade-union movement here has grown up 
 under conditions entirely different from those in Eng- 
 land. There was no class war outside of the labor ranks 
 to help American unions. They came into existence as 
 the factory system developed, particularly in the cotton 
 and shoe industries in New England. The employing 
 class here acted almost exactly as they had done thirty 
 years earlier in England ; used the same arguments 
 against shortening the hours, made the same false pre- 
 dictions and the same silly threats. There was no landed 
 class here to combine forces with the laborers, but the 
 laborers in the United States had a power that the Eng- 
 lish laborers did not — the ballot. They were a political 
 force from the beginning. They had the right and they 
 had the wisdom to unite on candidates for the legisla- 
 tures who were in favor of their cause, and thus, in a 
 much shorter time than in England, secured important 
 factory legislation. 
 
 During the last twenty-five years the trade-union 
 movement in this country has made great progress, and 
 really shown a higher grade of economic intelligence than 
 
LABOR ORGANIZATIONS l8l 
 
 has the movement in England. In England it has in a 
 considerable degree drifted away from strictly economic 
 purposes into the socialistic "Fabian" movement, known 
 as the "new trade-unionism." It has turned its attention 
 to electing members of parliament, and with one or two 
 exceptions they cut sorry figures in the house of com- 
 mons. It may be said that to the extent that English 
 trade-unionism has passed into semi-socialism it has de- 
 generated as an economic force. Thus far, American 
 trade unions are distinct from any socialistic organiza- 
 tions. They are best represented by the American Feder- 
 ation of Labor, which is a voluntary general association 
 of unions in all the principal industries of the country. 
 They are strictly adhering to their economic purposes 
 and methods, eschewing both socialism and politics. In 
 their literature and lecture work they show a grade of 
 economic intelligence quite superior to that of the Eng- 
 lish unions; their discussion of economic problems, of 
 the relation of labor to the public and to the employing 
 class, has altogether a higher scientific character. Their 
 latest proposition, to establish a trade-union college for 
 'the education of trade-unionists and preparation of 
 writers and speakers as leaders of the labor movement, 
 will, if carried out, be the most advanced step ever taken 
 by a labor organization in its own behalf. With every, ad- 
 vance in this direction, greater intelligence, better infor- 
 mation and more rational conduct will prevail in indus- 
 trial disputes, and the element of force will give place to 
 reason in adjusting labor differences and solving labor 
 problems. 
 
 SUGGESTED READING. 
 
 In "Principles of Social Economics," Chapter VII. of 
 Part IV. to the middle of page 423. This chapter is on 
 
1 82 OUTLINES OF SOCIAL ECONOMICS 
 
 "Combination of Labor," and the portion suggested deals 
 with the place of labor organization in economic progress. 
 
 Additional References. In Howell's "Conflicts of Cap- 
 ital and Labor," Chapters IL, IIL and XIV. Mr. Howell, 
 who is a Fellow of the Statistical Society, England, is 
 very favorable to labor organization, and these chapters 
 deal with the origin, history, objects and government of 
 trade unions, with a general review of their past and 
 forecast of their future. 
 
 In Lujo Brentano's "Relation of Labor to the Law of 
 To-Day," Chapters VII., XL, XIV. and XV. of Book I., 
 discussing the origin of unions, early laws against them, 
 their progress in England, and some of their objects and 
 methods. 
 
 In Carroll D. Wright's "Industrial Evolution of the 
 United States," Chapters XVIIL, XIX. and XX., of 
 Part III. These chapters describe the labor movement 
 in the United States, with a history of some of the great 
 labor organizations, etc. 
 
 Probably the most complete history of the rise of 
 organized labor is the "History of Trade-Unionism," 
 by Sidney and Beatrice Webb ; this will be found very 
 useful, especially for reference. 
 
 EXTRACTS FROM READINGS. 
 
 What Trade Unions Have Done. "It is not so much, 
 however, in specific performances that their [trade 
 unions] record of work is seen to the greatest advantage. 
 It is rather in those unrecorded fields of labour, which 
 constitute the every-day-life work of the unions, that they 
 display their power, wield their influence, and achieve 
 their more permanent successes. The improved condi- 
 tion of the working classes to-day is largely due to their 
 efforts. The improvement has been slow, terribly slow; 
 
LABOR ORGANIZATIONS 1 83 
 
 and it is not so apparent to the younger generation as to 
 those whose age and experience take them back to the 
 "forties" and the "fifties" of the present century. The 
 progress, nevertheless, lias been real and substantial, in 
 material advantages — wages and hours of labor; in so- 
 cial position — ^by the recognition of industrial rights ; in 
 political status — by enfranchisement, and election to the 
 highest posts open to popular election; in constitutional 
 rights and judicial obligation — ^by the repeal of repressive 
 and disabling laws, and by the enactment of more just 
 and equitable enabling laws. Equality before the law is 
 not only recognized as an abstract principle, but is em- 
 bodied in statutory enactment, not in its fullness, per- 
 haps, but generally; and even in the administration of 
 justice the position of workmen has improved enor- 
 mously of late years." — From Howell's "Conflicts of 
 Capital and Labor," Chapter XIV. 
 
 Unions and Individual Workers. "The whole indus- 
 trial policy of the trades unions is calculated for the 
 middling stamp which everywhere predominates. What- 
 ever industrial efforts we find among them, the principle 
 permeating all these is the care that the great mass of 
 laborers endowed with average capabilities may be able 
 to live from their labor, and in this, moreover, the trades 
 unions show themselves as the necessary supplement of 
 political economy built upon the foundation of perfect 
 freedom. . . . The same freedom which led the 
 highly endowed to the unhindered development of their 
 powers, led that great mass of those standing in the 
 middle to confederation into trades unions. And whilst 
 trades unions have not hindered the most skillful laborers 
 in obtaining the greatest possible advantage from their 
 special capabilities; whilst, for example, the great mass 
 of superintendents and overseers in engineering, and the 
 
184 OUTLINES OF SOCIAL ECONOMICS 
 
 great number of administrators and directors at one time 
 or another have been members of the trades union of 
 engineers, indeed, belonged to their founders; whilst we 
 have the express testimony of employers who were hos- 
 tile to the trades unions that their activity in no way di- 
 minished the number of laborers who have elevated 
 themselves above their order, the trades unions have pre- 
 served the mass endowed with average capabilities from 
 ruin, and have educated up to that point a number of 
 laborers who left to themselves would not have reached 
 the middling class." — From Brentano's "Relation of 
 Labor to the Law of To-Day," Chapter XV., Book L 
 
 QUESTIONS FOR REVIEW OR DEBATE, 
 
 1. What are trade unions? With what kind of matters do they 
 
 concern themselves? 
 
 2. Why are they necessary under modern industrial conditions? 
 
 3. Describe the origin and early experience of trade imions. 
 
 Against what evils did they struggle? 
 
 4. How were the English factory acts secured? 
 
 5. Name some of the more important laws in behalf of labor 
 
 enacted in England. 
 
 6. When and where was the first law limiting the hours of labor 
 
 passed in the United States? 
 
 7. What power have American laborers possessed that English 
 
 laborers did not, in obtaining factory legislation? 
 
 8. What is the present trend of English trade unions? 
 
 9. Along what lines are American trade unions working to-day? 
 
CHAPTER XXII. 
 LABOR ORGANIZATIONS. (Continued.) 
 
 loo. Economic Character of Trade Unions. Of all 
 
 the kinds of labor organizations, trade unions alone are 
 strictly economic in character. Practically every other 
 form of labor association is more or less socialistic or 
 political. The trade union is organized strictly for the 
 industrial and social improvement of the members of a 
 particular trade or industry. The American Federation 
 of Labor organizes the trade groups or the different craft 
 organizations into one general body, but this federation 
 is only for cooperative purposes. Each union and each 
 group of unions in specific trades remains as distinctly 
 devoted to its particular industry as if there were no 
 federation. 
 
 The purpose of the trade union is economic ; that is, 
 it deals directly with industrial conditions, such as hours 
 of labor, wages, employment of women and children, and 
 other matters that relate to the workshop side of life. 
 This is the real secret of the strength of trade unions. 
 They have not ebbed and flowed like the socialistic and 
 political labor organizations. They have never been 
 stronger than they are now, with the public and the em- 
 ployers. They began with being extremely unpopular — ■ 
 so unpopular that they were deemed conspiracies. But, 
 year by year and decade by decade they have persisted. 
 No amount of political condemnation, social ostracism or 
 moral censure seems to have affected their growth. They 
 
 185 
 
1 86 OUTLINES OF SOCIAL ECONOMICS 
 
 encounter defeats, get under bad leadership, become the 
 victims of political demagogues, and at times have seemed 
 to go to pieces under the exposure of fraud or the gross 
 mistakes of hotheaded, ignorant leadership. Neverthe- 
 less, while particular unions "may go through this expe- 
 rience, it is never true of all unions in any trade, or of all 
 trades in any country at a given time. It is very much 
 like a backsliding deacon or vestryman, whose misbe- 
 havior is a shock to the church, but they reorganize and 
 go ahead. A necessary and useful organization seldom 
 dies from such a cause. 
 
 Trade unions persist because they are a natural and, in 
 the present state of civilization, necessary feature of in- 
 dustrial society. They are the most efficient means ex- 
 perience has presented by which laborers can make their 
 desires for improvement effective. 
 
 The mistakes and misfortunes of trade unions, which, 
 seem so conspicuous, are relatively few, compared with 
 the general success. The demagogue is not nearly so 
 prevalent in trade unions as in political parties, and when 
 he does appear in the trade unions he is frequently the 
 agent of some political machine, trying to use the labor 
 organization for political ends. 
 
 loi. Advantages of Labor Organization. There are 
 two respects in which the trade union is permanently 
 beneficial to the wage earners : one is in its constant 
 vigilance over wages, hours of labor and conditions of 
 employment, the other is in its educational influence on 
 its members. 
 
 The unions are constantly on the alert for higher 
 wages and better working ' conditions. They are the 
 means through which the expanding and improving 
 standard of living of the wage earners expresses itself 
 and brings pressui^e to bear for higher wages. Every 
 
, LABOR ORGANIZATIONS 1 87 
 
 time the unions succeed in getting a higher wage rate, 
 transferring children from the workshop into the 
 school, shortening the working day, improving the 
 sanitary surroundings, etc., they secure an improve- 
 ment not merely for their own members but ulti- 
 mately for all wage-earners who are near enough to come 
 at all under the touch of the same influences. It is fre- 
 quently urged against trade unions that they represent 
 only a fraction of the laborers, but they really do the 
 fighting for the whole group. For instance, when wages 
 in any trade are increased the rise is seldom limited to 
 the members of the unions who have made the struggle 
 and lost weeks and months possibly in a strike to secure 
 it. These may not constitute more than 15 or 20 per cent, 
 of the total laborers in the, trade, but when the increase is 
 gained it is for all. Those laborers who did not join the 
 union, who would not help the strike, and often were 
 the first to complain about the fat salaries of the labor 
 leaders, to which they contributed nothing, share in the 
 benefits gained by the efforts of organized laborers. 
 
 Moreover, the benefits thus secured are for the most 
 part permanent. When the wages of, say, carpenters, 
 bricklayers, painters or machinists, have by persistent ef- 
 fort been raised to $3.50 or $4 a day, they can almost 
 never be forced down again to $2 or $2.50 a day. Even 
 where wages are pushed down from a high point under 
 an industrial depression, they mount up again to the old 
 mark immediately on the return of prosperity. So that, 
 in reality, each step gained becomes a permanent acqui- 
 sition to the welfare not of the members of the trade 
 unions alone but of the whole craft. 
 
 The second important respect in which trade unions 
 are a permanent benefit to the laborers is in the oppor- 
 tunities of economic education they afford. The regular 
 
1 88 OUTLINES OF SOCIAL ECONOMICS 
 
 meetings, definite interests, and centering of attention 
 upon purely economic topics, makes frequent discussion 
 of this kind of subjects necessary. At almost every meet- 
 ing of the union some complaint or idea is presented, or 
 new demands — some of them very unreasonable, — and 
 these have to be discussed. The more conservative ele- 
 ment is constantly repressing the enthusiastic or warlike 
 spirit of the less cautious, and so these discussions arc 
 good training. They force those who take part in them to 
 be well equipped and under the necessity of finding out 
 the facts, collecting information. 
 
 The federation of these organizations is a great step. 
 It creates a central body to which grievances can be sub- 
 mitted before strikes are ordered. This compels each 
 union to collect data and present arguments to establish 
 a plausible case. It also tends to create a conservative 
 judicious quality in those who have to pass upon these 
 contests, because responsible leaders lose their reputa- 
 tion and prestige in proportion to the mistakes the organ- 
 izations make. Very much more than the public im- 
 agines, it is a constant struggle with most labor leaders 
 to keep peace in the ranks and prevent the hot-heads from 
 bringing on useless conflicts with employers. All this is 
 highly educational in its influence, and the eflfect is quite 
 marked on the conduct of trade unions to-day as coni- 
 pared with twenty or thirty years ago. 
 
 I02. riistakes and Needs of Unions. The mistakes 
 of trade unions are largely due to the lack of these con- 
 servative and educational influences. Too frequently it 
 happens that when a union is very strong its members 
 insist upon being dogmatic and even despotic. They 
 become as overbearing in their rules and regulations and 
 in exactions from employers as employers ever were to- 
 ward laborers when there were no unions. 
 
LABOR ORGANIZATIONS 1 89 
 
 Often, even yet, powerful unions either resort to brute 
 force or seem to countenance it, in the conduct of strikes. 
 These mistakes have clone and always will do trade 
 unions incalculable harm, so long as they are continued, 
 but it should not be assumed that they overbalance the 
 good these organizations are doing. The remedy lies in 
 more and more education. The unions should and must 
 observe the principles of ordinary fairness and act in ac- 
 cordance with economic laws. 
 
 Many charges are made against trade unions which are 
 not and never were true. For instance, it is commonly 
 asserted that it is a trade-union rule that no member 
 shall receive more than a certain amount of wages. This 
 is not true. There never was any need for such a rule. 
 There never was any danger that employers would pay. 
 too high wages to anybody. The rule that trade unions 
 have tried to enforce is that no member shall be paid 
 less than a certain amount, and it is probably true that in 
 enforcing this rule they have often compelled employers 
 to pay some inferior workmen more than they were 
 worth. The employers' remedy for that is to not employ 
 inferior men. The union's function is to keep up the 
 standard of wages, and the employers must keep up the 
 standard of the workmen's efficiency. 
 
 Of course, it would be a great help in this direction if 
 unions would always exercise their influence in behalf of 
 good workmanship, by saying that a laborer must be 
 competent in order to have the protection of the union. 
 In some trades this has already come to be the rule. There 
 are some unions, like that of the locomotive engineers, 
 which a man cannot join unless he is a competent engi- 
 neer, and, on the other hand, the union insists that no 
 engineer shall be employed who is not a member of the 
 union. There is a sense in which this is justifiable. If 
 
190 OUTLINES OF SOCIAL ECONOMICS 
 
 the union will insist that its members shall be competent 
 workmen, the capitalists will have an interest in select- 
 ing only union men. There are some railroads which 
 recognize this, and when they want an engineer go to 
 the union for him, and hold the union responsible for his 
 competency. Thus there is a moral responsibility upon 
 the union for the efficiency, sobriety and other qualities 
 of the workman, the effect of which has been very satis- 
 factory. It is along these lines that trade unions need 
 further and higher development. In spite of all their de- 
 fects trade unions cannot be suppressed any more than 
 corporations can be wiped out and hand-labor industry 
 restored. The remedy for the defects of trade unions 
 lies in improvement through economic education and 
 greater moral responsibility. To provide more education 
 and emphasize this moral responsibility are the two most 
 important duties of trade unions today. 
 
 SUGGESTED READING. 
 
 In "Principles of Social Economics," from the middle 
 of page 423, in Chapter VII., of Part IV., to end of chap- 
 ter. This is the remaining portion of the chapter on 
 "Combinations of Labor," and discusses the economics of 
 labor unions and their necessity in modern industry. 
 
 Additional References. In Howell's "Conflicts of Cap- 
 ital and Labour," Chapter IV., on "Political Economy 
 and Trade Unions" ; also Section I. of Chapter IX., on 
 "Strikes — Their Objects, Cost and Results." This last 
 is especially sensible and wholesome, and is strongly rec- 
 ommended. 
 
 In Brentano's "Relation of Labor to the Law of To- 
 day," Chapter XII., of Book II., on "The Solution of the 
 Labor Question." 
 
LABOR ORGANIZATIONS 191 
 
 In Carroll D. Wright's "Industrial Evolution of the 
 United States," Chapters XXIV. and XXV. of Part III., 
 describing some of the famous labor controversies and 
 strikes in this country. 
 
 In Francis A. Walker's "Wages Question," Chapter 
 XIX., of Part II., in which he gives an affirmative an- 
 swer to the question : "May any Advantage Be Acquired 
 by the Wages Class through Strikes or Trades Unions ?" 
 
 EXTRACTS FROM READINGS. 
 
 Losses and Gains of Strikes. "It may at once be con- 
 ceded that the cost of a prolonged strike is enormous and 
 that the distress which it occasions is ofttimes appalling ; 
 but workmen would not undergo all this suffering, and 
 contribute their hard earnings week after week, in sup- 
 port of those engaged in the struggle, if there were no 
 corresponding advantages to be gained from the outlay. 
 It would be tedious to attempt to tabulate the estimated 
 cost of strikes during the present century; and it would 
 serve no useful purpose, unless we were able at the same 
 time, to estimate the commercial value of every success- 
 ful one, and strike a balance of profit and loss. This 
 could not possibly be done, even if the calculations em- 
 ployed were as profound and difficult as those used in 
 astronomy, 'for there is no rule in mathematics, or stand- 
 ard of computation, in any of the known tables, by which 
 to arrive at any definite result or satisfactory conclusion. 
 There is, in fact, absolutely no comparison between the 
 cost in pounds sterling and the gain, material and moral, 
 which has accrued to the working classes from some of 
 those labor struggles, comprehended in the term 
 'strikes.' " — From Howell's "Conflicts of Capital and 
 Labor," Chapter IX. 
 
192 OUTLINES OF SOCIAL ECONOMICS 
 
 Strikes Sometimes Necessary. "I cannot conceive how 
 one can look at the condition of the manufacturing opera- 
 tives as they were left at the repeal of the iniquitous com- 
 bination acts in 1824, and question that the early strikes 
 in England were essential to the breaking up of the power 
 of custom and of fear over the minds of the working 
 classes, habituated to submission under the terror of 
 laws now universally recognized as oppressive, unaccus- 
 tomed to concerted action, illiterate, jealous, suspicious, 
 tax-ridden and jxjverty-stricken. ... It is well enough 
 for the peace of industrial society and the mutual under- 
 standing of all parties, that masters should be made to 
 know that two can play at the same game. There is noth- 
 ing to quicken the sense of justice and equity like the 
 consciousness that unjust and inequitable demands or 
 acts are likely to be promptly and fearlessly resisted and 
 resented." — From Walker's "Wages Question," Chapter 
 XIX. 
 
 QUESTIONS FOR REVIEW OR DEBATE. 
 
 1. Why may trade unions be called strictly economic organiza- 
 
 tions ? 
 
 2. In what two chief particulars are unions beneficial to wage 
 
 earners? 
 
 3. In what way do the other laborers share in the benefits 
 
 gained by the unions? 
 
 4. What effect have unions on the permanent welfare of the 
 
 wages class? 
 
 5. In what way do trade unions exert an educational influence 
 
 on their members? 
 
 6. What are some of the chief complaints against trade unions^ 
 
 7. To what are these mistakes chiefly due? 
 
 8. What is the true remedy for these errors? 
 
 g. What rule have some of the more advanced unions adopted 
 as to qualifications of their members? 
 
CHAPTER XXIII. 
 
 PANICS AND DEPRESSIONS. 
 
 103. Difference Between Panics and Depressions. 
 
 Panics and industrial depressions are forms of business 
 disturbance peculiar to modern industry. A panic is a 
 sudden alarm concerning the safety of money and invest- 
 ments; it always arises in financial and banking centers. 
 It is a financial fright, and affects financial interests very 
 much as an alarm of fire affects the occupants of a 
 theatre. The moment the cry of fire is heard, without 
 stopping to learn the facts or the safe way of acting, all 
 imagine the worst, lose self-control and make a frantic 
 dash to escape. In doing so they produce chaotic con- 
 fusion so that nobody can act intelligently, and the 
 weaker ones are ruthlessly trodden under foot. This is 
 practically what occurs in the money centers when a 
 financial panic suddenly arises. 
 
 A business depression is different. It may arise as the 
 outcome of a money panic or from a variety of other 
 causes, but usually it is due to a falling off in tlie market 
 demands for products. Buyers grow more reluctant to 
 place orders, they hesitate, purchases dwindle, and as a 
 result producers slacken their efforts or close their works, 
 necessarily bringing enforced idleness and hardship upon 
 the community. 
 
 104. Causes of Business Disturbances. The imme- 
 diate causes of these two kinds of disturbances are nu- 
 merous, but traced to the source they are essentially the 
 
 193 
 
194 OUTLINES OF SOCIAL ECONOMICS 
 
 same. Both panics and depressions are due to uncer- 
 tainty or disturbance in the confidence of the people, aris- 
 ing from some disarrangement in the relation of produc- 
 tion to consumption. It is only under modern conditions 
 of industry that business to any extent depends upon con- 
 fidence and credit. Whoever heard of a financial panic in 
 China, India or among the ancients, or in any purely 
 agricultural country? The reason for this is that panics 
 are due to a sudden shaking of the confidence of people 
 in their investments, which are for the time largely re- 
 moved from the personal control of the owners; but, in 
 countries where industries are simple and largely agri- 
 cultural, investments are not entrusted to others in this 
 way. The industries are small and directly, managed by 
 the owners, there are no complicated financial relations, 
 and production is chiefly by hand labor or by very primi- 
 tive methods. Under these conditions there is very little 
 reliance on credit, and hence rarely a panic. 
 
 Financial panics may come from any alarm which 
 causes capitalists and banks to withdraw loans and re- 
 fuse to make new ones, or from scarcity of money in lo- 
 calities where there is a sudden increased demand for it, 
 or from overconfidence and rash investment in specula- 
 tive enterprises not sufficiently developed or tested, and 
 which soon fail. This latter condition existed at the close 
 of the civil war, and led to the panic of 1873, and we were 
 dangerously near it again in the fall of 1899 ^^^ spring 
 of 1900. The difiference in the two periods was that in 
 1873 business conditions were in a declining state, while 
 in 1899-1900 business was in a solidly improving condi- 
 tion, so that even rash speculations did not bring 
 disaster. 
 
 In the last analysis, as already indicated, business de- 
 nressions, and usually financial panics, are directly or in- 
 
PANICS AND DErRESSIONS I95 
 
 directly due to an irregular or badly adjusted relation of 
 production to consumption. If consumption could be 
 made to keep exact and regular pace with production, 
 no matter how rapid the increase there would never be 
 an industrial depression and seldom a financial panic. The 
 failure of general consumption to increase with the 
 growth of production is sure to bring on an industrial 
 depression. Whenever things are produced and cannot 
 be sold, depression sets in. This condition may arise by 
 a slackening of demand for the materials and goods used 
 in production and trade, due to fear of some sudden 
 change in the monetary standard, or in the tariff, or sys- 
 tem of taxation, or to prospect of war, etc. This has ex- 
 actly the same effect upon industry as a gradual falling 
 off in the daily consumption by the people. Both create 
 a disturbance in the balance between consumption and 
 production, and business depression begins. Orders are 
 cancelled or withheld, mills are closed, laborers dis- 
 charged, and, in the concerns which do keep on, produc- 
 tion is lessened and wages lowered, all of which helps to 
 intensify the general hard times. 
 
 io5. How Can These Evils Be Prevented? Since 
 panics and industrial depressions did not exist in primi- 
 tive society and have come into existence with modern 
 industry, it might be assumed that the only remedy is to 
 return to early conditions. Such a conclusion assumes 
 that these evils are a necessary and unavoidable feature 
 of progress. This is a mistake. The remedy for panics 
 and depressions is not to return to hand-labor industry, 
 but to call upon economic science and statesmanship to 
 aid natural laws in providing a better adjustment of con- 
 sumption and production, so as to maintain a steady 
 balance, both increasing together. 
 
 In order to avoid financial panics, we ought, for one 
 
196 OUTLINES OF SOCIAL ECONOMICS 
 
 thing, to reform our banking system so that it may yield 
 better accommodation for business purposes, and re- 
 spond better to sudden waves of demand for loans of 
 currency. This would require a much more thorough 
 welding together and interdependence among the banks 
 of the country, and for that matter of the world, so that 
 financial accommodations, like water seeking its level, 
 would flow to the point of greatest need, and inequalities 
 in the supply of money tend to neutralize each other so 
 that the needs of every section could be properly met. 
 
 Business depressions can be made less and less frequent 
 by the worldwide extension of means of communication, 
 information and transportation. In this way the signs of 
 growing or declining demand at any given point can be 
 known everywhere, and the world's products dispatched 
 from the points of glut to the points of great demand be- 
 fore great losses overtake producers in one section and 
 excessive prices burden consumers in another. More ac- 
 curate knowledge of the conditions of demand and sup- 
 ply is necessary, not merely in the locality where any 
 given commodities are produced, but in every accessible 
 market in the world. In proportion as this knowledge is 
 meager and unreliable, it is impossible to adjust produc- 
 tion to the market demand. Industrial disturbances re- 
 sulting from so-called "overproduction" are very fre- 
 quently due to the ignorance of producers concerning the 
 conditions of the market and its means of supply. 
 
 Therefore, increase of accurate information as to the 
 actual state of consumption and means of supply is one 
 of the first conditions of getting rid of industrial de- 
 pressions. This can be furnished, very largely, by the 
 organization into large concerns of all such industries as 
 are adapted to consolidation. Small firms cannot afford 
 the expense necessary, to procure this kind of informa- 
 
PANICS AND DEPRESSIONS 1 97 
 
 tion. When the industries whose products supply more 
 than a local market are developed to or organized on a 
 scale sufficient to warrant the expenditure necessary for 
 special regular information, making economic forecasts 
 possible, a long step will have been taken towards abol- 
 ishing industrial depressions altogether. 
 
 This information in regard to the conditions of con- 
 sumption should include all the details of the standard of 
 living, tastes, habits, demands, employment, earnings, 
 and other conditions, in different countries, which directly 
 and indirectly affect the aggregate consumption of prod- 
 ucts. Such data should be accurately and frequently col- 
 lected, and while large corporations will more and more 
 collect it for themselves it is a duty the government 
 might well undertake, for the benefit of all industries. 
 
 Public policy should also be directed to stimulating a 
 higher, expanding standard of living among the people, 
 which leads to a steady increase in consumption and so 
 lessens the danger from one of the great causes of busi- 
 ness depression. When the balance between production 
 and consumption is disturbed it can only be restored in 
 one of two ways, either by increasing the consumption as 
 compared with the production, or lessening the produc- 
 tion as compared with the consumption. 
 
 To increase consumption stimulates industrial life and 
 the upward progress of society. To restrict production 
 sets all the depressing social forces in action. It creates 
 enforced idleness, destroys profits, lessens the value of 
 investments, discourages enterprise, and stops the springs 
 of optimism, hope, confidence and progressive activity. 
 
 Panics and depressions came with modern industry, 
 but are not necessary features of it. They can and will 
 be diminished in frequency and intensity, perhaps abol- 
 ished entirely. Reform in our money and banking sys- 
 
198 OUTLINES OF SOCIAL ECONOMICS 
 
 terns, removing all fear of sudden changes and equaliz- 
 ing the distribution of money according to business 
 needs, and steadiness in the government's tariff and tax- 
 ation policies, will remove some of the chief causes of 
 panics. Concentration of capital, making production 
 more steady and furnishing ample regular information, 
 supplemented by government statistics, so that economic 
 conditions may be foreseen and prepared for, will do 
 much to prevent industrial depressions. Wise public pol- 
 icy, in nation, state and city, furnishing ample educa- 
 tional opportunities, prohibiting child labor, restricting 
 the hours of labor so as to increase the social opportuni- 
 ties of the millions, enforcing decent and sanitary housing 
 in cities, limiting the immigration of aliens with their de- 
 graded standard of living, furnishing clean streets, li- 
 braries, public baths and good roads, encouraging the 
 diversification of industry as a progressive and socially 
 enlivening influence, and in a score of other ways helping 
 to raise and improve the standard of living of the people, 
 will stimulate the forces that lead to higher wages and so 
 to a steadily increasing and diversifying market demand 
 for products. Under such conditions, only some severe 
 calamity or national folly can bring on a real industrial 
 depression. 
 
 SUGGESTED READING. 
 
 In "Principles of Social Economics," Chapter V. of 
 Part IV., on "Business Depressions." 
 
 Additional Reference. In Hadley's "Economics," Sec- 
 tions 330 to 333 inclusive, in Chapter IX. These sec- 
 tions trace the causes and progress of commercial crises 
 or industrial depressions. 
 
PANICS AND UEPRKSSIONS I99 
 
 QUESTIONS FOR REVIEW OR DEBATE. 
 
 1. Explain the difference between a panic and an industrial de- 
 
 pression. 
 
 2. What is the great general cause at the root of both panics 
 
 and industrial depressions? 
 
 3. What are some of the more immediate causes of financial 
 
 panics? 
 
 4. Mention some of the direct causes of industrial depressions. 
 
 5. Describe one important reform that would help prevent 
 
 financial panics. 
 
 6. How could increased information and transportation reduce 
 
 industrial depressions? 
 
 7. What tendency of industries is most favorable to this greater 
 
 accuracy in knowledge of conditions? 
 
 8. Mention some of the things the government can do to in- 
 
 crease commercial information and stimulate a higher 
 standard of living. 
 
 9. How and why would such measures aflect industrial de- 
 
 pressions? 
 
CHAPTER XXIV. 
 
 ARE WE REALLY PROGRESSING? 
 
 io6. The Test of Progress. Before attempting to 
 answer the question, whether or not we are really pro- 
 gressing, we must recall what is meant by progress. In 
 general it means changing to a more complex condition. 
 Progress in horticulture is the development of new and 
 varied forms of plant life. Progress in society is the de- 
 velopment of a greater variety of desires, habits, experi- 
 ences and activities, and this always involves a greater 
 quantity of wealth and greater variety in its forms and 
 uses. This greater variety, reaching into every phase of 
 the use of wealth, of social life, and multiplying indi- 
 vidual rights and activities, is the evidence of progress. 
 
 It can hardly ever be said that there is real progress 
 in a community unless there is an increase of the wealth 
 produced, diversification of industries and employments, 
 and a greater distribution of the increasing wealth among 
 all classes of the people, resulting in their general social 
 and individual improvement. Judged by this standard, 
 are we in the United States really progressing? This 
 question is one upon which volumes have been and can 
 be written, and at most we can only mention a few leading 
 considerations bearing on the material and social welfare 
 of the nation. 
 
 107. Population and Wealth.* In i860 the popula- 
 
 *These statistics are taken from the United States Census 
 Reports. 
 
 200 
 
ARE WIC KEAM.V I'ROCRESSING? 20I 
 
 tion nf the United Stales was 3i,44_^,_^2i . The iiivcst- 
 luont of caiMtal in niannfactnrini;- and mechanical indus- 
 tries was $i,0(M),,S55,7i5, or $3_'. ii per capita of tlie pop- 
 ulation, and the vahie of the total [iroduet was $1,885,- 
 .S()i,(i7(), or $59. yS per capita. In 1890 the population of 
 the country was (12,622,2^,0. The capital invested in man- 
 ufacturing and mechanical industries ^vas $f),5J5,i5r),48(), 
 or $104.19 per capita, and the value of the product was 
 $9,372,4,^7,283, or $149.67 per capita. This was an in- 
 crease in the total capital invested in these industries of 
 546 per cent., ov 224 per cent. ])er capita, and an increase 
 of 31)7 per cent, in the total jiroduct, or i4() per cent, in- 
 crease of product per capita. Statistics of ai;ricultural, 
 mineral and fishery products were not included in the 
 census of i860, but in 1890 these were : a!;ricultural 
 products, $2,4()0,io7,454; mineral, $587,230,662: fisliery, 
 $44,277,514. The products of manufacturini;- and mer- 
 cantile industries in i8i)o were valued at $9,372,437,283, 
 as before stated; deductint;- the $5,021,453,32(1 worth of 
 materials used, we have $4,35o,i;83,()57 as the value 
 strictly due to the manufacturing;- process applied to 
 products, and adding to this the \alue of agricultural, 
 mineral and fishery products, we have a grand total of 
 production in 1890 of $7,442, 501), 587. This is a ti^tal per 
 capita product in i8i)o of $118.85, or $585. ()3 per average 
 family of 4.1)3 persons. Of course, this is no indication 
 of what the actual income per family was ; this varied 
 from a mere pittance on the part of some to the immense 
 incomes of the very rich, but the great majority, espe- 
 cially the wage-earning class, earn incomes which do not 
 widely vary from this general average of production, lie- 
 ing, on the wliole, necessarily, somewhat under it. The 
 actual distribution of the wealth produced is idughly in- 
 dicated by tiie mo\-cment of prices and wages. 
 
202 OUTLINES OF SOCIAL ECONOMICS 
 
 io8. Prices and Wages. * The products of practi- 
 cally, all manufacturing industries, especially those in 
 which large capital is invested, have fallen in price since 
 i860; but in some other industries, notably agriculture, 
 products like beef, mutton, chickens, eggs, butter, fruits, 
 etc., have tended to increase in price. Taking all prod- 
 ucts together, and grouping them according to their im- 
 portance in general consumption, prices fell from i860 to 
 1891 a trifle less than 4 per cent. That is to say, a dollar 
 would buy about 4 per cent, more of the total products 
 consumed by the people in 1891 than it would in i860; 
 so that, so far as general prices are concerned, all con- 
 sumers, rich and poor, fared alike in getting 4 per cent, 
 gain. 
 
 During this same period money wages, as nearly as 
 they can be ascertained, and properly averaged according 
 to importance of employments, rose about 68 per cent. If 
 we carry the comparison back to 1840, the increase in 
 wages is more than 85 per cent. Confining ourselves to 
 the period since i860, if we add to the wage average of 
 1891 the 4 per cent, increase in the purchasing power of 
 a dollar, we find that the average American laborer was 
 able to obtain for a day's work about 75 per cent, more 
 than in i860. That is to say, every day's wages would 
 buy 75 per cent, more of food, clothing, shelter and sun- 
 dries in 1890 than it would in i860. In other words, 
 during this period, as the laborer's part of the nation's 
 increased production, his command over the necessaries 
 of life and means of social welfare increased at the rate 
 of 25 per cent, every ten years. 
 
 109. Hours of Labor. The question may well be 
 
 * The statistics given as to prices and wages are taken from the 
 U. S. Senate Report of 1893 on Wholesale Prices, Wages and 
 Transportation. 
 
ARE WE REALLY PROGRESSING? 203 
 
 asked in this connection, does the laborer work harder or 
 longer to get the larger amount he earns to-day than he 
 did to obtain the smaller amount in i860? The answer 
 is, no. The tendency during this whole period has been 
 to lessen the tax upon the laborer's time and increase the 
 proportion of leisure. In i860 the rule in practically all 
 manufacturing industries in this country was to work 
 twelve hours a day. Beginning in Massachusetts in 1874, 
 the hours of labor in manufacturing, mining and trans- 
 portation industries, and of practically all common labor 
 in manufacturing centers, have been reduced — in some 
 cases by law and in others by the efforts of trade unions — 
 to about ten hours, and in a number of special industries 
 to nine and eight hours. For instance, machinists and 
 the building trades in most large cities have nine hours, 
 and, in some of the largest cities, eight hours a day. 
 Miners almost uniformly work only eight hours a day. 
 The factory operatives in Massachusetts work only 58, 
 and in New Jersey 55 hours a week. Speaking generally, 
 since i860 the hours of labor have been reduced by from 
 two to four hours a day. Thus, the earning power of a 
 day's work has increased about 75 per cent., and the 
 working hours have been reduced by from fifteen to 
 twenty-five and thirty per cent. In other words, the 
 wage-earner can obtain practically three-quarters more 
 wealth by working one-fifth less time, as compared with 
 i860. 
 
 no. Education for Factory Children. In popular 
 education, which is so important a feature of social im- 
 provement, the progress has been equally marked. In 
 i860 there were no legal limits fixed to the age at which 
 children should commence work in factories, any more 
 than to the length of the working day. But during the 
 last twenty-five years there has been a more or less 
 
204 OUTLINES OF SOCIAL ECONOMICS 
 
 steady movement in all the states, with the exception of 
 the South, to introduce compulsory education for chil- 
 dren under a certain age, especially affecting those work- 
 ing in shops and factories. In this, as in all legislation 
 of the kind, Massachusetts was again in the lead, and 
 most of the states in the North and East where manufac- 
 turing industries exist have followed. Besides legally 
 limiting the hours of labor to ten or less, the age limit for 
 working children has been gradually raised, and their at- 
 tendance at school during at least a certain number of 
 months in the year has been made compulsory. In some 
 instances the age limit at first was made ten years ; it 
 has been gradually raised until it is now fourteen in most 
 cases, and in some states, including New York, it is six- 
 teen years, unless the young person is able to read and 
 write. 
 
 In the South no laws of this character have been 
 adopted, but a movement demanding child-labor legisla- 
 tion has begun in earnest. 
 
 III. "Truck System" Abolished. Besides the long 
 hours and lack of educational opportunities in i860, and 
 for a long time afterwards, workingmen labored under 
 many other disadvantages. For instance, they were paid 
 very largely in "store orders;" that is, the corporations 
 owned stores supplying various commodities, and the la- 
 borers were practically compelled to purchase their goods 
 at the corporation store. If ever they wished to go else- 
 where to buy goods they had to use these orders and 
 submit to a discount on them. This was called the "truck 
 system." It prevailed throughout New England, as it did 
 in the early part of the century in old England. Laborers 
 were seldom paid, even in store orders, more often than 
 once a month. With a few exceptions, this practice is 
 now abolished. In most cases it has been prohibited by 
 
ARE WE REALLY PROGRESSING? 20$ 
 
 laws providing that laborers must be paid in full legal 
 money and be at liberty to make their purchases whereso- 
 ever they please. In several states, also, laws have been 
 enacted compelling employers to pay laborers at least 
 every two weeks ; in some cases, every week. 
 
 112. Sanitation and Homes. In the matter of home 
 appointments and sanitation the improvement has been 
 very great, although much remains to be done, especially 
 in cities. Forty years ago there were practically no sani- 
 tary appliances connected with the laborers' homes, ex- 
 cept what gravitation provided. The community had 
 done almost nothing to insure wholesome conditions. 
 Cities were badly drained, poorly lighted, and as a rule 
 inadequately furnished with water supply. Since that 
 time sanitary science has made marked progress, and 
 through legislation and boards of health numerous mod- 
 ern improvements have been applied to the dwellings of 
 the laboring class in most of the large cities. Builders 
 are now rarely permitted to erect houses without modern 
 provisions for ventilation, light, sanitary plumbing and 
 conveniences, proper water supply, etc., and these require- 
 ments are gradually being made more comprehensive and 
 strict. Not many years ago the bathroom was the luxury 
 only of the rich; it is now rapidly becoming a common- 
 place necessity of the laborers' tenements. 
 
 113. Individual Betterment, Concurrently with these 
 various movements has come a greater degree of per- 
 sonal freedom and individual character, a relative de- 
 crease of pauperism and of serious crimes, and a gen- 
 erally recognized higher standard of civilization. 
 
 The evidences and statistics on all the manifold phases 
 of this subject are so voluminous that we can do little 
 more than summarize the leading facts and state the gen- 
 eral conclusions. In verifying these, reference should be 
 
2o6 OUTLINES OF SOCIAL ECONOMICS 
 
 made to standard, recognized statistical authorities and 
 competent students of industrial, social and moral prog- 
 ress. Some of these, the most easily accessible, -we have 
 indicated in the suggestions for reading in connection 
 with this chapter. 
 
 114. Duty of the Future. Encouraging as the evi- 
 dences of progress are, they should not by any means 
 lull us into indifference and neglect of the grave evils that 
 still remain. We must deal with these and with the new 
 problems that progress is constantly "developing, vig- 
 orously, persistently, and if necessary by new methods 
 adapted to the new conditions. There is hardly any feature 
 of our national life which has not the possibilities of being, 
 on the one hand, perverted, abused and converted into a 
 menace to our freedom and progress, and, on the other 
 hand, of serving public" welfare and becoming a source 
 of strength and prosperity to the republic. To prevent 
 the former and secure the latter results demands constant 
 watchfulness, study and willingness to help on the part 
 of every citizen. The natural evolution of industry may 
 be trusted to bring us an increasing measure of material 
 well-being, but to secure the good results which this is 
 capable of yielding we must jealously watch the social 
 consequences of every new step. Increase of wealth, if it 
 is to be of any real utility to mankind, must be accom- 
 panied by a constant broadening of the opportunities for 
 using it, and an increasing variety of higher and finer in- 
 centives to use it wisely and well. Production and wages 
 will increase, but the hours of labor must be still further 
 shortened, the age-limit of child labor must be still further 
 raised, educational opportunities must be extended and 
 the methods broadened and improved, city tenements 
 must be made more healthful and decent, the wage-earn- 
 ing class must be protected against the pitiable effects of 
 
ARE WE REALLY PROGRESSING? 207 
 
 accidents, sickness and old-age poverty by some auto- 
 matic and general system of labor insurance, systems of 
 taxation- and finance require scientific remodelling, meth- 
 ods of dealing with crime and vagrancy demand far more 
 thorough development, and, in general, society must be 
 protected against dangerous and down-dragging in- 
 fluences, while encouragement is given to all that minis- 
 ters to a higher standard and quality of life. If progress 
 is to be genuine, industrial and social forces must supple- 
 ment the efforts "of the church and all wholesome moral 
 agencies for that ultimate and highest object of all 
 progress, — ^the development of individual character. 
 
 SUGGESTED READING. 
 
 In "Principles of Social Economics," the "Summary 
 and Conclusion," in which special emp.,asis is laid on 
 the character of social progress and duties of statesman- 
 ship. 
 
 Additional References. In Marshall's "Economics of 
 Industry," Chapter XII. of Book VI., on "The Influence 
 of Progress on Value." 
 
 In Carroll D. Wright's "Outline of Practical Sociolo- 
 gy," Parts VI. and VII., on "Social Well-Being" and 
 "The Defence of Society," respectively; these portions 
 discuss the accumulation and distribution of wealth, the 
 problem of poverty, crime and its punishment, the tem- 
 perance question, and the relation of art to progress. 
 The whole volume will be found useful for reference 
 purposes, as will also the same author's "Industrial Evo- 
 lution of the United States," which summarizes the his- 
 tory and statistics of our industrial progress from co- 
 lonial times to the present day. 
 
 In Franklin H. Gidding's "Elements of Sociology," 
 
208 OUTLINES OF SOCIAL ECONOMICS 
 
 Chapter XXIIL, on "Progress." Other chapters, espe- 
 cially those on "Civilization," "Democracy," "The Char- 
 acter and Efficiency of Organization," "The Early His- 
 tory of Society," and "Tribal Society," throw additional 
 light on various phases of the problem of progress. 
 
 In "Social Peace : A Study of the Trade-Union Move- 
 ment in England," by G. von Schulze-Gaevernitz, Chap- 
 ter XVII., which is the "Conclusion" and marshals an 
 array of considerations indicating improvement in the 
 condition of the masses. 
 
 In William Edward Hearn's "Plutology: or the The- 
 ory of the Efforts to Satisfy Human Wants," Chapter 
 XXIV., treating "Of Some Causes of Poverty." 
 
 In "The Forum" for July, 1900, article on : "Is Crime 
 Increasing?" by Roland P. Falkner. 
 
 For statistics of industrial progress in the United 
 States the most complete sources of authority are the 
 government census reports and the Senate Report of 
 1893 on Prices, Wages and Transportation. Data on 
 nearly every important phase of the progress of industry 
 and labor in England may be found in Gibbins' "Industry 
 in England," or the same author's smaller volume "Indus- 
 trial History of England ;" Sir Robert Giffen's "Progress 
 of the Working Classes in the Last Half Century ;" Mal- 
 lock's "Labour and the Popular Welfare," and the same 
 author's "Classes and Masses." For general data, includ- 
 ing all nations, the most convenient and probably most 
 accurate authorities are the "Statesman's Year Book" 
 and Mulhall's "Industries and Wealth of Nations." An 
 interesting review of political progress in Europe and 
 America is given in Frederick May Holland's "Liberty in 
 the Nineteenth Century." Information as to the pub- 
 lishers, prices, etc., of these works, as of all others re- 
 ferred to in this volume, is given in the Appendix. 
 
ARE WE REALLY PROGRESSING? 209 
 
 EXTRACTS FROM READINGS. 
 
 Moral Progress a Fact. "Acts which are now justly 
 regarded as heinous offences were once considered either 
 legitimate or at least venial. Piracy was in early Greece 
 a recognized and honorable occupation. The only form 
 of dishonesty noticed in the ancient Roman law was 
 theft. Our own ancestors established a tariff for homi- 
 cide. The morality of the present day is manifestly some- 
 thing different from that which such a state of law repre- 
 sents. The very shock that the perpetration of these 
 great crimes and frauds now gives us is evidence that an 
 opposite course of conduct generally prevails. If the gen- 
 erality of men had not been peaceable and honest, these 
 offenders would have had no opportunity for their iniqui- 
 ties. It is the nature of the human intellect, as Lord 
 Bacon has observed, to be affected with what is affirma- 
 tive and positive rather than with what is negative and 
 privative. We are therefore struck with some glaring 
 but exceptional offence, and the countless multitude of 
 just and honorable dealings remains unnoticed. How nu- 
 merous such dealings are, and what a tendencv there is in 
 an industrial community to their increase is manifest." — 
 From Hearn's "Plutology," Chapter XXIV. 
 
 All Classes Are Growing Richer. "The assertion that 
 the rich are growing richer and the poor poorer is a wan- 
 dering phrase, without paternity or date; it is not au- 
 thority but familiarity that has given it weight. ... To the 
 investigator the real statement should be: The rich are 
 growing richer; many more people than formerly are 
 growing rich ; and the poor are growing better off. If 
 the sum total of wealth were stationary, any increase in 
 the wealth of the rich would be an exploitation of the 
 poor, and then it would be true that the poor are in 
 
210 OUTLINES OF SOCIAL ECONOMICS 
 
 poorer circumstances than formerly. But the sum total 
 of wealth is not stationary ; it increases with great rapidi- 
 ty, and while under this increase the capitalistic side se- 
 cures a greater relative advantage than the wage-earner 
 of the profits of production, the wage-earner secures an 
 advantage which means the improvement of his condi- 
 tion. ... It can be demonstrated that the condition 
 of the poor man is improving, and that his share is rela- 
 tively greater than under previous systems, and we know 
 that the proportion of the skilled workers of the com- 
 munity and of those engaged in the higher classes of em- 
 ployment is constantly increasing." — From Wright's 
 "Outline of Practical Sociology," Chapter XX. 
 
 QUESTIONS FOR REVIEW OR DEBATE. 
 
 1. What is the primary test of progress? 
 
 2. Compared with the growth in population, how much did 
 
 the production of wealth in manufacturing and mercan- 
 tile industries in this country increase between i860 and 
 1890? 
 
 3. What do statistics show as to the increase in wages and 
 
 decline in prices between i860 and 1890? 
 
 4. What changes have taken place with reference to hours of 
 
 labor since i860? 
 
 5. What progress has been made in regard to restriction of 
 
 child-labor and compulsory education? 
 
 6. Describe the "truck system;" to what extent does it pre- 
 
 vail as compared with a generation ago? 
 
 7. What movement haa been and is going on with reference 
 
 to the sanitation and improvement of city houses? 
 
 8. Considering all these evidences of progress, why is con- 
 
 stant watchfulness and reform eflfort still necessary? 
 
 9. Mention some of the great reforms that ought next to be 
 
 accomplished. 
 
APPENDIX 
 
 INFORMATION CONCERNING BOOKS REFERRED TO IN 
 THE TEXT* 
 
 Banks, Louis Albert. "My Young Man." Funk & Wagnalls 
 Co., New York. 75 cents. 
 
 Brassey, Sir Thomas. "Work and Wages." G. P. Putnam's 
 Sons, New York. $1. 
 
 Brentano, Lujo, of University of Leipsic. "The Relation of 
 Labor to the Law of To-Day." G. P. Putnam's Sons, New 
 York. $1.75. 
 
 Buckle, Henry T. "History of Civilization in England." Ap- 
 pleton & Co., New York. Two vols., $4. 
 
 Butler, Nicholas Murray, of Columbia University. Address 
 on "The Education of Public Opinion." Pamphlet pub- 
 lished by University of Michigan, Ann Arbor, Mich. 
 
 Clark, John Bates, of Columbia University. "The Philosophy of 
 Wealth." Ginn & Co., Boston. $1.10. 
 
 Dunbar, Charles P., of Harvard University. "Theory and His- 
 tory of Banking." G. P. Putnam's Sons, New York, $1.00. 
 
 Falkner, Roland P., of University of Pennsylvania. Article 
 on: "Is Crime Increasing?" July 1900 number of The Forum, 
 New York. 35 cents. 
 
 George, Henry. "Progress and Poverty." Appleton & Co. New 
 York. $1. 
 
 GiBBiNS, H. deB. "Industrial History of England." Chas. 
 Scribner's Sons, New York. $1.20. 
 "Industry in England." (Scribner's), $2.50. 
 
 GiDDiNGs, Franklin H., of Columbia University. "Elements of 
 Sociology." Macmillan Co., New York. $1.10. 
 
 *Any of these books may be ordered, if preferred, from the Institute of So- 
 cial Economics, Union Square, New York. 
 
2 12 APPENDIX 
 
 GiFFENj Sir Robert. "Progress of the Working Classes in the 
 Last Half Century." Pamphlet, order through the Macmil- 
 lan Co., New York. 
 
 GiLMAN, Nicholas P., of Meadville Theological School. "A 
 Dividend to Labor." Houghton, MifBin & Co., Boston. $1.50. 
 
 Graham, William, of Queen's College, Belfast. "Socialism, 
 New and Old." Appleton & Co., New York. $1.75. 
 
 GuNTON, George,* President Institute of Social Economics. 
 "Principles of Social Economics." G. P. Putnam's Sons, 
 New York, $1.75. 
 
 "Wealth and Progress.'' Appleton & Co., New York. $1. 
 "Trusts and the Public." (Appleton's.) $1. 
 "Economic Basis of Socialism." Ginn & Co. Boston. 
 
 Pamphlet, 10 cents. 
 "Economic Heresies of Henry George." Article reprinted 
 from The Forum in pamphlet form; 10 cents. 
 
 HadleYj Arthur T., President Yale University. "Economics," 
 G. P. Putnam's Sons, New York. $2.50. 
 "Railroad Transportation; Its History and Its Laws.'' 
 (Putnam's.) $1.50. 
 
 Harris, George, President Amherst College. "Inequality and 
 Progress." Houghton, MifHin & Co., Boston. $1.25. 
 
 Hearn^ William Edward. "Plutology; or the Theory of the 
 Efforts to Satisfy Human Wants." Originally published by 
 the Macmillan Co., New York, but now out of print. Large 
 libraries may have it. 
 
 Holland, Frederick May. "Liberty in the Nineteenth Century.'' 
 G. P. Putnam's Sons, New York. $1.75. 
 
 Howell, George. "The Conflicts of Capital and Labor.'' Mac- 
 millan Co., New York. $2.50. 
 
 Lubbock, Sir John. "Origin of Civilization." Appleton & Co., 
 New York. New and enlarged edition, $5. 
 
 Mallock, William H. "Classes and Masses." Macmillan Co., 
 New York. $1.25. 
 "Labour and the Popular Welfare." Macmillan's. $1.25. 
 
 Marshall, Alfred, of the University of Cambridge. "Economics 
 of Industry." Macmillan Co., New York. $1. 
 
 Mill, John Stuart. "Principles of Political Economy.'' Apple- 
 ton & Co., New York. Complete, 2 vols., $4; abridged edi- 
 tion, $3.50. One-volume edition also published by Long- 
 mans, Green & Co., New York, at $1.25. 
 
APPENDIX 213 
 
 MuLHALL, Michael G. "Industries and Wealth of Nations." 
 Longmans, Green & Co., New York. $3. 
 
 RiCARDO, David. "Principles of Political Economy and Taxa- 
 tion." Macmillan Co., New York. $1.50. 
 
 Rae, John. "Contemporary Socialism." Chas. Scribner's Sons, 
 New York. $2.50. 
 
 Schulze-Gaevernitz, G. von. "Social Peace: A Study of the 
 Trade-Union Movement in England." Chas. Scribner's Sons, 
 New York. $1.25. 
 
 ScHLoss, David F. "Methods of Industrial Remuneration." G. 
 P. Putnam's Sons, New York. $2.50. 
 
 Seligman, Edwin R. A., of Columbia University. "Essays on 
 Taxation." Macmillan Co., New York. $3. 
 
 Smith, Adam. "Wealth of Nations." G. P. Putnam's Sons, 
 New York. $1.25. 
 
 Starr, Frederick, of the University of Chicago. "Some First 
 Steps in Human Progress." Curts & Jennings, Cincinnati. 
 
 Statesman's Year Book. Historical and Statistical Annual of' 
 the World. Edited by J. Scott Keltie. Macmillan Co., New 
 York. Issued annually, $3. 
 
 U. S. Census Reports. In most libraries ; not for sale. 
 
 U. S. Senate Report of 1893 on Prices, Wages and Transpor- 
 tation. In many libraries ; not for sale. 
 
 Walker, Francis A. "The Wages Question." Henry Holt & 
 Co., New York. $3.50. 
 "Land and Its Rent." Little, Brown & Co., Boston. 75 cents. 
 
 Webb, Sidney and Beatrice. "History of Trade-Unionism." 
 Longmans, Green & Co., New York. $S. 
 
 WooD^ Henry. "The Political Economy of Natural Law." Lee 
 & Shepard, Boston. $1.25. 
 
 Wright, Carroll D. "Outline of Practical Sociology." Long- 
 mans, Green & Co., New York. $2. 
 
 "Industrial Evolution of the United States.'' Chas. Scrib- 
 ner's Sons, New York. $1.25. 
 
INDEX 
 
 Agricultural life, beginnings of . to 
 
 Anarchism 141 
 
 Arkwright's spinning frame 11 
 
 Banking, factor in exchange . . . 49, 52 
 
 — iietter system of 196 
 
 Bellamy, Edward; " Looking Backward," 139 
 
 Barter . . . . . . 47 
 
 Business depressions (see Panics) 
 
 Capital, what it is 18, 36 
 
 —(see Corporations) 
 
 Capitalistic production 39 
 
 Cartwright's power loom 11 
 
 Character, effect of socialism on . . 147, 149 
 
 — (see Individual Betterment) 
 
 Charity, effect on wages 90 
 
 Children, factory: education of 203 
 
 Citizens, good and bad 5 
 
 Citizenship, duties of 206 
 
 Communism 141 
 
 Competition, effect of . . . ... 73, 121 
 
 Consumption, object of 55, 60 
 
 — productive consumption . . . 58, 60 
 
 — public and private 56 
 
 — social effects of . . 56 
 
 — statistics of .... ... 196 
 
 — useful and wasteful 58 
 
 Cooperation, experiments in 145. 146, 167, 174 
 
 — success of mercantile 168 
 
 — what it is .... 166 
 
 Corporations, effect on production 42, 45 
 
 — business depressions and . . ig6 
 
 Cost, of production 67, 70, 71, 75 
 
 — of utilizing land 157 
 
 Credit, an instrument of exchange . .... -49 
 
 Crompton's "mule frame" .11 
 
 Depressions (see Panics) 
 
 Desires, cause of production 29 
 
 — effect on wages 88 
 
 — (see Habits) 
 
 214 
 
INDEX 
 
 215 
 
 Economic education, need of 6, 181, igo 
 
 Economics, early meaning of i 
 
 — (see Social Economics) 
 
 Education, effect on production 31 
 
 — of factory children 203 
 
 Equality not feasible I4g 
 
 Exchange, beginnings of 47 
 
 Factory methods 39 
 
 Factory system, rise of 12 
 
 Family, basis of wage rates . . 98 
 
 Family life, origin of 1, 7 
 
 George, Henry 154, 164 
 
 Groups, earliest social ... i, 7 
 
 — laborers must act in . ... 176 
 
 — wages iixed by .99, 187 
 
 Habits, effect on production 30 
 
 — effect on wages .... 88 
 
 — (see Desires) 
 
 Hargreaves' spinning jenny . . 11 
 
 Immigrants, wages of . ... loi 
 
 Individual betterment 205 
 
 — (see Progress) 
 Individualism (see Liberty) 
 
 Industrial life, social effects of . 9, 12 
 
 Industrial revolution. The . . .11 
 
 Interest, how determined 114, 117 
 
 — how it arises H3 
 
 — is not a tax . . 115 
 
 — similar to rent 112 
 
 — what it is 82 
 
 Labor, cheap labor is dearest 76 
 
 — distinct from wealth 18 
 
 — division of 37 
 
 — does not produce all wealth 129 
 
 — education of 181, igo 
 
 — effects of machinery on 4O1 45 
 
 — factor in production 36 
 
 — hand-labor era .... 37 
 
 — hours of 202 
 
 — its share in production 131. 136 
 
 — legislation for ^79 
 
 —organizations of (see Trade Unions) 
 
 Land, factor in production 37 
 
 — cost of utilizing i57 
 
 — value of '55 
 
2l6 INDEX 
 
 Liberty, growth of 8, 133 
 
 — preservatioB of 141. i49. 150 
 
 — trade unions and . . . ... 183 
 
 Lubbock, Sir John . . ... 8 
 
 Luxuries not wasted wealth £8 
 
 Machinery, effects on labor 40, 4^, 95 
 
 Manufacture, beginnings of • . . 10, 38, 44 
 
 Middlemen, necessity of 51 
 
 Mill, John Stuart .... 18, 25 
 
 Money, convenience of coins ... . . . 4g 
 
 — first use of 48 
 
 Nature, agent in production . .36 
 
 Occupations, social effects of .... . 9, 12 
 
 Panics, causes of 193 
 
 — remedies for .... . . . .... 195 
 
 Pastoral life 10 
 
 Personal qualities not wealth . . 18, 22 
 
 Piece-work, wages under .... . . . 94, 95 
 
 Point of view in economics 3 
 
 Political economy, first use of i 
 
 — (see Social Economics) 
 
 Politics, character of 2 
 
 Poverty, relative decrease of 136, 140, 201, 209 
 
 — single tax could not abolish 160 
 
 Price (see Value) 
 
 Prices, decline of 202 
 
 — single tax and . 161 
 
 Production, capitalistic 39 
 
 — causes of . . . . . . 29-31 
 
 — cheap and dear 75 
 
 —cost of 67, 70-72, 75 
 
 — effect of high wages on 32 
 
 — factors in 36 
 
 — former ideas of 24 
 
 — limited by market 36 
 
 — meaning of 24, 27 
 
 Profits, distribution of 122, 125 
 
 — how they arise 71 
 
 — necessary to progress 120 
 
 — no average rate 119 
 
 — not a tax 123 
 
 — restore spent capital 126 
 
 — what they are 83, 1 19 
 
 Proiit-sharing , lyr, 173 
 
INDEX 217 
 
 Progress, causes of g 
 
 — promotion of 206 
 
 — statistics of 200-205, 209 
 
 — successive steps in . 133, 140, 147, 163 
 
 — test of 200 
 
 — what it is ... 8 
 
 Public ownership 133, 142, 150 
 
 Public policy, test of 4 
 
 Rent, does not absorb all gain 158 
 
 — how determined 105 ■ 
 
 — not a tax 108, log 
 
 — nominal and economic 105 
 
 — what it is 82 
 
 Sanitation, progress in 205 
 
 Savage life . 13 
 
 Sentiments (see Habits) 
 
 Single tax, errors of 109, 154, 157, 158, 160, 163, 164 
 
 — immorality of 1 59 
 
 — theory of . . . 154 
 
 Smith, Adam i, 18, 24 
 
 Socialism, different from anarchism and communism . . . 141 
 
 — economic effects of 143, 150 
 
 — effects on individual life 147, 149 
 
 — experiments in . . . . . 145, 146, 167, 174 
 
 — history of 132 
 
 — proposed methods of . . . 135, 142 
 
 —theory of . . . . . 128, 129, 131 
 
 — what it promises 139 
 
 Social economics, meaning of . . . .1, 4 
 
 — point of view of . . . . 3 
 
 — what it includes .... 2, 3 
 
 Standard of living ....... • 87, 98, 197 
 
 Statesmanship, duties of . . . 197. 198. 206 
 
 Supply and demand, theory of . . .... 64 
 
 Surplus not part of cost 7" 
 
 Towns, early English . . 14 i5 
 
 — rise of " 
 
 Trade unions, advantages of . . . . . . .182,186, 189 
 
 — economic character of 185 
 
 — federation of • 181, 185, 188 
 
 — individual liberty and 183 
 
 —in England i77 
 
 —in the United States ■ • ■ . . 180 
 
 — mistakes and needs of 188 
 
 —objects of ■ . . . . 176, 185 
 
 Transportation, part of production 5° 
 
 —in the United States 53 
 
2l8 INDEX 
 
 "Truck system" 204 
 
 Trusts (see Corporations) 
 
 Utility, diflferent from value 3 
 
 " Utopia," Sir Thomas More's ^^9 
 
 Value, fixed by cost of production 67, 72, 78, 79 
 
 —of land 155 
 
 — requirements of law of . . . °° 
 
 — same as price ^^ 
 
 —utility and 63, 68 
 
 Variety, and progress 10, 12, 29 
 
 — (see Progress) 
 
 Wages, country and city 99 
 
 — effect on production 32 
 
 — fixed by standard of living . .. . 87, 98 ; of groups 99 
 
 — index of civilization 87 
 
 — influences that affect 88, go 
 
 — low wages dearest . . 7^ 
 
 — of immigrants ... loi 
 
 — profit-sharing and 171 
 
 — real and nominal 86 
 
 — rise of 202 
 
 — single tax and . ... 161 
 
 — taxes on 102, 103 
 
 — under piece-work .... 95 
 
 — what they are 81 
 
 — women's wages .... 97 
 
 Wages-fund a myth 92 
 
 Wants (see Desires) 
 
 Watt's steam engine ... 12 
 
 Wealth, consumption of 55 
 
 — distinct from man 18 
 
 — distribution of 81, 131 
 
 — kinds of 17 
 
 — labor does not produce all 129 
 
 — production of 24, 29, 36, 47 
 
 — what it is ... . . . 17, 21 
 

 Date Due 
 
 
 
 
 
 
 Ab 
 
 s A • 4ftfM 
 
 k 
 
 
 AP 
 
 < OSZOu 
 
 » 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 - 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 , 
 
 
 
 
 
 
 
 
 
 
 ' 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ^ 
 
 
 
 
PROPERTYi 
 
 NEW YOHK \ HB 171.5.^0%™" ""'«rs,.y Library 
 
 INBUSJi ;.'L /;.' |||||||||Jiiyifi'|Mir°'*°*''^'*'^°"°^^^^^ 
 3 1924 002 238 479