,0° \, o" t ' L i*°«* V *4/ >-», ^°v CV „ < * o , "*" ,-> v\ « . . . ^v 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 NEW YORK D. APPLETON AND COMPANY 1900 /4001 Library of Cor;.: rose Two Copies Re m ved NOV 13 1900 Copyrignt cmiry VT3 vn • 5* SECOND COPY Delivered to • Qo ORDER DIVISION NOV 171900 Copyright, 1900 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 -$f 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 effort 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 XL Distribution of Wealth 81 XII. Wages S6 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. Labor 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 ; including, 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, patriarchal stage of society 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 the 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, "The Wealth of Nations," in 1776. 2. Fiodern " Social' ' Economics. With the de- velopment of industry and progress of civilization during the. nineteenth century the subject has expanded and now includes 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 affects 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 affect 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 policies 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. flany=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 amount 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 Arthur 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 Citizens. "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 QUESTIONS FOR REVIEW OR DEBATE, i. What was the early meaning of "economics" 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. HOW 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 8 INDUSTRIAL LIFE AND SOCIAL PROGRESS 9 variety of duties, leading to greater variety of action, ideas, tastes, habits, and qualities of character. In this process the intellect is sharpened, morals are developed, human sympathies expanded, and the social character of man elevated. In the earliest stage of society we generally find abso- lute despotism and chattel slavery. The members of the community must simply obey the despot. With the growth of variety in occupations, interests and expe- riences we find growth of intelligence, 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 takes 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 people. Despotism is overthrown and free government established by the expanding desires of the people. Nearly always these at first relate to industrial interests or rights. If we study into the real causes of great movements, like the American 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 motives, or else social motives arising out of industrial interests. These were the moving causes. There is nothing very strange about this, because industrial life is the basis of all life. Getting a living is the first absolute necessity. 10. Effects of Industrial Life. It is easy to see why, therefore, the character of the occupations and in- dustries of a people has everything to do with determin- IO OUTLINES OF SOCIAL ECONOMICS ing the kind of government and general civilization they possess. In simple pastoral life, for instance, where 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. ii. 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 eighteenth 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 suffer- 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 culti- 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 Towns. "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 PROGRESS 1 5 the lower class of villeins, which, however, always tended to rise into freemen as they were admitted into the gilds. To and fro went 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 the Towns Bought Freeedom. "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 by 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 They 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 torture- 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. i. 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 useful 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 possibility of producing wealth from them. 16. 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 the 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 I 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 value' 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. /leaning 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 25 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), et 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 27 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 lines 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 2 8 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. i. 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 beyond 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 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 seivtiments 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. 27. 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. i. 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? / 0. What is the effect 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 efforts 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 power, 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 effort. 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. 20. 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 specialisation 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 difference 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. Where 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. Tn "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 L, 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 Human 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 XL 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 advantag'eous 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 4.6 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. t. 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 machinery on the employment of labor? 10. What is the object of corporations? it. 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 01 them or due to unwise management? What should be our attitude toward them? CHAPTER VII. FACTORS AND METHODS OF PRODUCTION— Continued. 33 Beginnings of Exchange. 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 difficult. 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. floney. 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. After 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 I. 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 53 manci money from the 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 and Its Laws," Chapter II. QUESTIONS FOR REVIEW OR DEBATE. i. 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 different 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 hence 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 be 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 style 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 satisfy 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 immorality. 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 OP^ 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, liter- 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. 60 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 hirn 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. What is the object of all productive effort? 2. 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. Wnat 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 want's 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 Smitli 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 your 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"? 10. 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 different 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 difference 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 machinery, 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 y6 OUTLINES OF SOCIAL ECONOMICS to turn out a given quantity of product. If everything were clone 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-day 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 • JJ 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 the 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 very 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 80 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 are at their Natural Value." — From Mill's "Principles of Political Economy," Chapter III. of Book III. QUESTIONS FOR REVIEW OR DEBATE. i. 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 that 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 better 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 XI. 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- quently 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 10 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 affect 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 different 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. SUGGESTED 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 85 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. to. 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. 52. 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 much 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 amount 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 workingmairs 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 live, 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 requires 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 of living. Where they are content and can live under 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 awaken 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 life 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. Rffect 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 L, 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 G union's Magazine for September, 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 FROM READINGS. Wages Fund a Myth. "As has been shown in a former 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 WAGES 93 employment and the measure of wages. If this be so, the whole wage-fund theory falls, for it is built on the as- sumption that capital furnishes the measure of wages ; that the wage-fund is no larger because capital is no larger, and that the only way to 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 are considering." — From Francis A. Walker's "Wages Question," Chapter IX., Part I. QUESTIONS FOR REVIEW OR DEBATE. i. In what form do the majority of the people in modern coun- tries receive their incomes? 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 does the standard of living determine wage rates? Illustrate by the experience of different countries. 6. What are some of the influences that affect the standard 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 — Continued. 57. Piece=Work. Piece-work is a system under which 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 w r ere 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 g6 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 more! than t)he formal 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. 61. 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 LofC, IOO 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 IOI 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 uniformity 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, employment 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 VII., 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 IO3 cases, not only the tax, but something more than the tax, would in reality be advanced by the person who imme- diately employed him." — From Adam Smith's "Wealth of Nations," Article III. of Chapter II., 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? 104 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 effect 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 Kconomic 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 around like machinery. Land is used for various pur- poses — agriculture, manufacture, and for residences. Its 106 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 usefulness 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 IO7 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 108 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 IO9 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 poorest 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- 110 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 theory of value. RENT 1 1 I EXTRACT FROM READINGS. Rent Does Not Affect Prices. "The reason then, why raw produce rises in comparative value, 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 II. QUESTIONS FOR REVIEW OR DEBATE. i. 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- 112 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. 114 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. How 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 different 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 115 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 differs 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 keep 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 117 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 Hadley'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 XXIIL, 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 Pro-fits. "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 OF^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. i. 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 the 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 119 120 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 line of industry from nothing at one end to "bonanza" at the other. To speak of an aver- age rate of profits is like 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 12 1 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 conies 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 whids should be raised can be raised only by an increase of itic cost, through improvement of the standards, ideas, habits and character of the laborers. Progress will not come PROFITS 12 5 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 not 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 and 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 manufacturer 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 year 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. Profits Restore Expended 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 Economy," 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 I29 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 130 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 nan. 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 relied on than anything that has been ever done of a like 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 the 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 1 123/2 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. 1. 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 public share in this increased wealth? 11. What comparison proves that labor does share in the wealth increase coming from application of capital to nature? 12. Under what state of society has socialism actually existed? What were its characteristics under those conditions? 13. What effect 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 — Continued. 70. 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 book which at- tained wide popularity some years 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 purely as fanciful works of imagination, others as very 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 community where all things were held and enjoyed in common. 139 I/J.O 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 orTered 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 Anarchism. 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- 1-42 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. 81. Proposed Methods of Socialism. Socialism 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. ol 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 Harris'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 XIII., 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 cialism, 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 L, 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 150 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 considering 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 difference between socialism, communism and anarchism. 6. What system of production does socialism propose? Men- tion some of the differences 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? n. 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 manufacturing 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 SingIe=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- i54 THE SINGLE TAX 155 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- portionately 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 upon 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 desirability. 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 157 hold land for years 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, derby s 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 Goes 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 158 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 AH 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 1 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 lose 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? 7 ' 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 Seligman'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 6 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 Millennium 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 OFJSOCIAL 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 effect 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, jof 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? 9. 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? to. Could the single tax force unused land 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. 04. 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 merits, 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 I/O 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. Profit=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 keeping 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 never 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 differ 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. Gilman'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 FROM READINGS. 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 174 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. Some 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. i. 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. 06. Objects of Trade Unions. Trade unions are vol- untary 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 tne general ten- hour law was passed, and in 1874 the nine-and-a-half hour law for textile industries. LABOR ORGANIZATIONS IJq 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 breadstuff s. 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 II., III. 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 XVIII., 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, has 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 I. 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 unions. 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.) ioo. 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. 101. 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 pressure to bear for higher wages. Every LABOR ORGANIZATIONS 1 8? 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 are 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 effect is quite marked on the conduct of trade unions to-day as coin- pared with twenty or thirty years ago. 102. flistakes 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 I 89 Often, even yet, powerful unions either resort to brute force or seem to countenance it, in the conduct of strikes. These mistakes have done 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 I90 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. I92 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 poverty-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? 9. 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 the 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 i93 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 and spring of 1900.3. The difference 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- pressions, and usually financial panics, are directly or in- PANICS AND DEPRESSIONS 195- 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 DEPRESSIONS 1 99 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 affect industrial de- pressions? CHAPTER XXIV. ARE WE REALLY PROGRESSING? 106. 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 WE REALLY PROGRESSING? 201 tion of the United States was 31,443,321. The invest- ment of capital in manufacturing and mechanical indus- tries was $1,009,855,715, or $32.11 per capita of the pop- ulation, and the value of the total product was $1,885,- 861,676, or $59.98 per capita. In 1890 the population of the country was 62,622,250. The capital invested in man- ufacturing and mechanical industries was $6,525,156,486, or $104.19 per capita, and the value of the product was $9,372,437,283, or $149.67 per capita. This was an in- crease in the total capital invested in these industries of 546 per cent., or 224 per cent, per capita, and an increase of 397 per cent, in the total product, or 149 per cent, in- crease of product per capita. Statistics of agricultural, mineral and fishery products were not included in the census of i860, but in 1890 these were: agricultural products, $2,460,107,454; mineral, $587,230,662 ; fishery, $44,277,514. The products of manufacturing and mer- cantile industries in 1890 were valued at $9,372,437,283, as before stated; deducting the $5,021,453,326 worth of materials used, we have $4,350,983,957 as the value strictly due to the manufacturing process applied to products, and adding to this the value of agricultural, mineral and fishery products, we have a grand total of production in 1890 of $7,442,599,587. This is a total per capita product in 1890 of $118.85, or $585.93 per average family of 4.93 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, be- ing, on the whole, necessarily, somewhat under it. The actual distribution of the wealth produced is roughly in- dicated by the movement of prices and wages. 202 OUTLINES OF SOCIAL ECONOMICS 108. 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 1 89 1 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 1 89 1 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. in. "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? 205 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 206 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 emphasis 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 XXIII., 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 2IO 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. i. 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 has 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 effort 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 F., 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. 211 2 12 APPENDIX Giffen, 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, Mifflin & 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. Hadley, 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, Mifflin & 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 2 13 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 Keltic 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. $5. 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 — better 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 196 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 2 I 5 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 149 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 1, 7 — laborers must act in . . 176 — wages fixed by 99, 187 Habits, effect on production 30 — effect on wages 88 — (see Desires) Hargreaves' spinning jenny n Immigrants, wages of 101 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 113 — 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, 190 — effects of machinery on 40, 45 — factor in production 36 — hand-labor era 37 — hours of 202 — its share in production 131, 136 — legislation for . . 179 — organizations of (see Trade Unions) Land, factor in production 37 — cost of utilizing 157 — value of 155 2l6 INDEX Liberty, growth of 8, 133 — preservation of 141, 149, 150 — trade unions and 183 Lubbock, Sir John .... 8 Luxuries not wasted wealth ^8 Machinery, effects on labor . , 40, 45, 95 Manufacture, beginnings of • . . . . 10, 38, 44 Middlemen, necessity of 51 Mill, John Stuart 18, 25 Money, convenience of coins 49 — 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 1 — (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 7 r — necessary to progress 120 — no average rate . 119 — not a tax 123 — restore spent capital 126 — what they are 83, 119 Profit-sharing . , 171, 173 RB a a f INDEX 2 17 Progress, causes of 9 — 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, 109 — 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 159 —theory of ... 154 Smith, Adam 1, 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 15 —rise of 11 Trade unions, advantages of 182, 186, 189 — economic character of 185 —federation of 181,185, 188 — individual liberty and 183 — in England 177 —in the^United States •••.-. 180 — mistakes and needs of 188 —objects of 176, 185 Transportation, part of production 50 —in the United States 53 2l8 INDEX "Truck system" 204 Trusts (see Corporations) Utility, different from value 63 " Utopia," Sir Thomas More's I3q Value, fixed by cost of production 67, 72, 78, 79 — of land 155 — requirements of law of 66 — same as price ' . . 62 — 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, 90 — low wages dearest 76 — of immigrants 101 — 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 , 0/ Wages-fund a myth 92 Wants (see Desires) Watt's steam engine 12 Wealth, consumption of 55 — distinct from man 18 1 — distribution of 81, 131 — kinds of . . . .■ 17 — labor does not produce all 129 — production of 24, 29, 36, 47 —what it is 17, 21 ,0^ f* ^ % £ ^ : A§ * A * *P^ 0OBISBROS. 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