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MIOOCOrY HESOIUTION IBT CHAIT 
 
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 EDITED By 
 
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 nPAN, NEW TURK l-NiVEIlHITT 
 
 ■■ IF rcMMKRCE. AQCOVtrrn AXn riNANCI 
 NEW YUHK Cirv 
 
 ^"'^- AMor 
 
 APPLIED ECONOMICS j^„,, mavok 
 
 ORGANIZATION AND MANAGEMENT Lee Gallowat 
 **^LL'NG R,S.B„T.EB 
 
 CREDITS LEEGAtLOWAT 
 
 ™-^I^"C S. J. McLean 
 
 ADVERTISING Lee Ga.lowat 
 
 BUSINESS CORRESPONDENCE G, B, Hotchkiss 
 
 ACCOUNTING PRACTICE . . . . | I-'^o GREENDLiNaEK 
 
 ^ E. \V. Whiuht 
 /William H. Locaii 
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 TEarl Dean Howard 
 
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 E. L. Stewart Patterson 
 f Franklin Escheh 
 I E. L. Stewart Patterson 
 f Thomas Conwjt 
 ^ Albert Atwooi: 
 1 Fred W. Field 
 
 INSURANCE /Edward R, Hahdt 
 
 I Fred W. Field 
 REAL ESTATE / Walter Lindni i 
 
 ■ \ E. W. Wright 
 
 AUDITING Setmohr Walton 
 
 COST ACCOUNTS Stephen W. Gilman 
 
 COMMERCIAL LAW Walter S. Johnson- 
 
 CORPORATION FINANCE 
 MONEY AND BANKING 
 BANKING PRACTICE . 
 FOREIGN EXCHANGE 
 
 INVESTMENT AND SPECULATION 
 
Applied 
 Economics 
 
 A PRACTICAL EXPOSITION OF THE 
 SCIENCE OF BUSINESS WITH IU.USTRA. 
 TIONS FROM ACTUAL EXPERIENCE 
 
 BY 
 
 JAMES MAYOR 
 
 PROFEMOR OF POLITICAL ECONOMY IN THE WnVBK- 
 S^ o»JPS?,2T°' AUTHOR OF "THE ENCUSH RAIL- 
 )JL X.'V^7^ QUESTION', REPORT TO THE GOVERNMENT 
 OF CANADA ON IMMIGRATION! AND VARIOUS OTHER 
 BOOKS AND REPORTS 
 
 Modern Business 
 
 Canadian Edition 
 
 Volume I 
 
 ALEXANDER HAMILTON INSTITUTE 
 NEW YORK 
 
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hr 
 
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 CoFTRtUIIT, I!MI. BT 
 
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 CoPTBiQHT IN Great Rhitain, !914. at 
 ALEXANDER HAMILTON INSTITUTK 
 
EDITORS PREFACE 
 
 The Mclern Business Course an.l Service is clesiRnerl 
 for wide-awake business men. Its aim is to uppH^S 
 e..t.fic methods of thought in the diseussion of the vari- 
 
 [Jmted States some years ago. arul has heen most favor- 
 ably received by the business public. It has been revised 
 from t, ne to t.me and is ke,-' p to date by the Staff 
 of the Alexander Hamilton institute. The Course is 
 now rewritten for the use of Canadian readers. Three 
 of the texts m this Cana.lian revision are entirely 
 new. Every other book and pamphlet has either been 
 thoroughly revised or is original matter written by some 
 authority who ,s familiar at first hand with Canadian 
 
 bmation of the accumulated business knowledge an,' 
 business experience of both Canada and the United 
 
 r„!!" ""'? c°^ ■''''' ■' '^ ^"''^ "^ ^^^ ^I"'!"" Business 
 Course and Service. It should be clearly understood that 
 the texts are not designed to cover thoroughly and in 
 detail every point that ought to be included in a stu.lv 
 of present-day business. They do contain a treatment 
 of all essen ml principles of the growing science of busi- 
 ness. Applications of these principles will be found in 
 tlie Talks. Lectures, Problems and Service 
 
KCONOMICS 
 
 It is not prncticahic to (lisciiss the entire Course ami 
 Service in this lirief introdiiftion. I sliall contine my- 
 self to n sinnniury review of tlie twelve text volumes. 
 
 While tile twilve volumes might well he regarded us 
 n unit, nevertheless each volume is complete in itself 
 and may lie read independently of the rtst. The sub- 
 ject of "Economics" the reader will find is the key- 
 stone of the business arch. A man who does not under- 
 stand the laws that govern all business can never have 
 a thorough grasp of any single business. The subject 
 underlies business callings just as mathematics underlies 
 engineering vocations. The i)urpose of the volume on 
 "Economics" is to bring In'fore the reader a clear idea 
 of the business problems which economists have sought 
 to solve and of the j)rinci])les they have for the most 
 part agreed upon. The author, Professor James Mavor, 
 of the University of Toronto, is a well-known economist. 
 
 The volume on "Orga.iization and Management" is 
 the most comprehensive text on the subject that has 
 3o far appeared. In the United States and Canada 
 much progress is l)eing made in the establishment of cor- 
 rect principles in this field. The subject is engaging the 
 attention of progressive business men throughout the 
 world. The reader will, therefore, undoubtedly welcome 
 the concrete discussion of the subject by Professor Gallo- 
 way. 
 
 Volume III, "Selling, Credits and Traffic," coveis the 
 three essential steps in the process .)f marketing goods. 
 The original treatise on "Selling," by Professor Ralph 
 Starr Butler, of the University of Wisconsin, has re- 
 quired only slight alteration for Canadian use. The 
 treatise on "Credits," by Professor Galloway, has been 
 revised by Dr. Swanson, of Queen's University, 'ihe 
 treatise on "Traffic" is the work of the Hon. Simon 
 
KDITOR-S PHKFACE i\\ 
 
 J. McLean of the Hoanl .,f Railway C'omnrsMoners „f 
 lanm.u a,.<l „ an in.,..,rtunt contrihution to the literu- 
 ture or hu.siiic.s.s. 
 
 vtrtising ha, proved of particular interest to our 
 
 uhsenlH^rs .n the Unit. I state.,. B,«i„e,s men ir 
 
 Ca„a.m W.11 undoubtedly receive this volume with a sin - 
 
 lar degree of appreciation. es,M^.ially as the text on Ad- 
 
 wllh'rfn r T''""^ ''^' " """" ""oroughly familiar 
 with Canadian advertismg practice. Mr. Hotchkiss' 
 work on Business Corresjwndence treats the subject in 
 a scentific, analytical manner. The present tendency 
 « to eliminate much of the "oI,l. formal tone and to let 
 more of the writers perso lity enter into his business 
 correspondence There is much for any business man 
 to learn from this volume. 
 Two volumes are devoted to Accounti -. Volume V 
 
 Drinotr^'f ?f '^''"-'' "'"' ^"'''''''' •"'''dates the' 
 principles of the subject and gives to the reader the 
 gindance he needs in training himself for the solution 
 of accounting problems. The discussion of bookkeep- 
 ing principles, of partnership and corporation forms and 
 accounts and of accounting for intangible expenditure 
 and assets will be found of particular interest. I desire 
 to express my sincere appreciation of the helpfulness of 
 
 E. W. Wright, of the Montreal bar. in making sug- 
 g..-stions as to the revision of this volume for Canadian 
 readers. 
 
 Volume XI also is devoted to accounting. The first 
 part covers the important work of the auditor, stating 
 the principles which determine completeness in audits 
 and giving concrete illustrations of the proper method 
 to pursue in the audit of different businesses. The im- 
 
'" ECOXOAIirS 
 
 portant subject of costs, which is treated in the second 
 half of the volume, cannot be studied too closely by 
 anyone even remotely interested in manufacturing— and 
 this includes bankers, wholesalers, accountants, and 
 many others. 
 
 Volume VI, on "Corporation Finance," is used as text 
 in most of the universities in the United States where 
 business courses are given. The description of sources 
 from whicii corporations obtain their funds and of the 
 methods they employ, is of decided value to any man in 
 business, no matter what his vocation or position may 
 be. The book is full of practical suggestions and can be 
 understood by men who have had no previous training 
 in finance. It has been carefully revised by Mr. I led 
 W. Field, Editor of The Monetary Times, who is one 
 of the foremost authorities on the subject in Canada. 
 
 Volume VII, on "Money and Banking," deals with 
 the fundamental principles underlying financial op- 
 erations. Professor \V. W. Swanson, of Queen's Uni- 
 versity, treats the Canadian phases of the subject. 
 
 Volume VIII, on "Banking Practice and Foreign 
 Exchange," most of which bas been written by Mr. E. K. 
 Stewart-Patterson, of the Canadian Bank of Commerce, 
 is the only book jthat shows the inner mechanism of the 
 Canadian bank. The banking act, the branch system, 
 methods of organization, Recounting and control are all 
 thoroughly discussed. This volume will prove helpful 
 not only to the Canadian banker, but to any business 
 man who has any dealings whatever with a Canadian 
 bank. 
 
 Volume IX, on "Investment and Speculation," is de- 
 signed not only for the benefit of men employed in stock 
 and bond houses, but for all business men. Obviously, 
 the information is especially valuable to those who have 
 securities to dispose of. The book describes stock ex- 
 
EDITOIl'S PKKI'ACK y 
 
 change operations and explains liow to value, and how 
 to buy and sell, securities. The Canadian phases of this 
 siiliject have been written by Mr. Field. 
 
 Volume X, treating of "Insurance and Real Estate " 
 and Volume XII, on "Commercial Law," will prove 
 of great practical help to young men, as well as to execu- 
 tives who are already handling problems in these fields. 
 Keal estate is becoming more and more of a factor in 
 the development of Canadian resources. It requires the 
 attention of all progressive men. The text on this 
 subject has been carefully revised by Jlr E W 
 Wright, of the xAIontreal bar. Commercial law, ob- 
 viously, enters into every business transaction. The vol- 
 ume on this subject by Mr. Walter S. Johnson, of the 
 Montreal bar, is designed both to give a broad under- 
 standing of the common law and to protect business 
 men against common, and often costly, blunders 
 
 The editor has left every author complete liberty in 
 the presentation of opinions and conclusions. Each 
 author IS alone responsible for the views he expresses. 
 Here and there topics are treated in more than one 
 volume. Some apparent duplication is necessary in 
 order to make each subject comprehensive. The reader 
 IS advised, however, to read botii discussions of the same 
 subject, for in one text it will be dealt with more fully 
 than m another, where it may be referred to merely for 
 the sake of completeness. 
 
 Joseph Fhexch Johnson. 
 
 New York Univemty. 
 
 1 . , 
 
 
TABLE OF CONTENTS 
 
 PART I: PRODUCTION 
 
 SECTION 
 1. 
 
 2. 
 S. 
 4. 
 5. 
 6. 
 7. 
 
 8. 
 
 9. 
 
 10. 
 
 CHAPTER I 
 INTRODUCTION 
 
 ■Economics as a Science j 
 
 The Social Aspect i 
 
 Why a Study of Economics is Important .... g 
 
 The Governmental Aspect ^ 
 
 The Four Economic Processes g 
 
 Economic Processes Depend Upon Certain Conditions 6 
 Social Stability Sometimes Disturbed with Interior Ad- 
 vantage ~ 
 
 The Final Purpose g 
 
 The National Dividend g 
 
 Private Luxury n 
 
 CHAPTER II 
 PRIMARY PHASES OF PRODUCTION 
 
 11. Detail and Mass Production jl 
 
 12. The Effect on a Nation as a Whole jS 
 
 1 S. Simple Form of Production j -j 
 
 14. Raw Material j^ 
 
 15. Labor .r 
 
 16. Complex Production jg 
 
 17. Supplementary Requisites 17 
 
 18. Who Owns the Finished Product? 17 
 
 19- Primitive Causes of Disputes Ig 
 
 vii 
 
■ ECTION 
 
 '20. 
 21. 
 22. 
 23. 
 2*. 
 23. 
 26. 
 27. 
 28. 
 
 ECOXOAIICS 
 
 CHAPTER III 
 
 FACTOHS OF PRODUCTION 
 
 Three Divisions of Labor 'g" 
 
 Land and Capital 
 
 Fixed and Circulating Capital "l 
 
 Sources of Capital .22 
 
 Functions in Complex Production 2:i 
 
 Law of Increasing Returns 21. 
 
 Reasons for Industrial Combinations ...... 23 
 
 Conditions Wliicli Must Be Present .26 
 
 The Law of Diminishing Returns ! 26 
 
 29. 
 30. 
 31. 
 32. 
 38. 
 Si. 
 35. 
 36. 
 
 CHAPTER IV 
 EFFECTS OF TRANSPORTATION 
 
 Transportation as an Incident in Production ... 29 
 
 Applied to Manufacturing Industries 29 
 
 Is Transportation Wasteful.' 31 
 
 Methods of Transportation 31 
 
 Opening New Markets 34 
 
 Effects on Labor and Capital g. 
 
 Effect on Land 
 
 Effect on Rents . . «. 
 35 
 
 37. 
 
 nn. 
 39. 
 
 40. 
 41. 
 42. 
 43. 
 44. 
 4.'). 
 46. 
 47. 
 
 CHAPTER V 
 FIRST STAGE IN PRODUCTION 
 
 Stages of the Process of Production 37 
 
 Exploitation or Extractive Stage of Production . '. .ss 
 
 Agriculture and Exploitative Industry ^q 
 
 Passing of Compulsory Cultivatio jj, 
 
 Beginning of Commercial Cultivation ..... 11 
 
 Tribal Land Ownership .„ 
 
 Objection to Commercial Land Ownership .... 41 
 
 Advantages of Commercial Land Ownership . . . ' 44 
 
 Decline of European Smal' Farmer 45 
 
 Return of the Small Cultivator ...... . 4,) 
 
 Land Holding for Social and Po'itical Distinction '. '. 47 
 
CONTENTS ix 
 
 •ccnON 
 
 48. Land Ownership on European Continent .... 48 
 
 49. Cultivation of Wheat 4g 
 
 50. In Europe and South America 50 
 
 51. In the United States and Canada 51 
 
 52. Specialist Wheat Farmers 52 
 
 CHAPTER VI 
 
 AGRICl'LTURE 
 
 53. Immobility of Agricultural Capital 53 
 
 54. Agricultural Capital and Credit 5j 
 
 55. Farming a Hazardous Business m 
 
 56. Farm Loans 5g 
 
 57. The Farmer Inevitably a Borrower 58 
 
 58. Evil of Usurious Rates 58 
 
 59. Speculation the Result of Easy Borrowing Facilities . 5y 
 
 60. Farm Mortgages (jn 
 
 61. Situation in Canadian Northwest .61 
 
 62. Crops as Security gg 
 
 63. Co-operative Agricultural Credit .63 
 
 64. Usury Gradually Vanishing g.j 
 
 65. Co-operative Loan Societies Less Necessary than For- 
 
 ■""'y 66 
 
 66. Marketing Farm Produce g^ 
 
 67. Establishing Wheat Prices gg 
 
 68. Establishing Grade and Quality (iy 
 
 69. From Elevator to Market 70 
 
 70. Financing Crop Movements 7 1 
 
 71. Wheat Market Highly Organized 72 
 
 72. Meat Production as an Extractive Industry .... 73 
 
 CHAPTER VII 
 
 MINING 
 
 73. Gold Mining 75 
 
 74. Two Kinds of Gold Deposits 75 
 
 75. Gold Mining in British Columbia 77 
 
 76. Silver Mining 77 
 
 77. Decline in Value of Silver 78 
 
^ ECONOMICS 
 
 ■ ICTtOM 
 
 78. Attempt to Sustain the Price of Silver in the United 
 
 States ,_- 
 
 79- Effect of Silver Legislation j^ 
 
 80. Mining Camps Tend to Raise Prices go 
 
 81. Copper Mining „,, 
 
 82. Nickel Mining 81 
 
 85. Iron Mining .. 
 
 84. Iron Industry in United States 82 
 
 83. More Economical Handling gg 
 
 86. Iron Mining in Canada ga 
 
 87. Coal Mining 84 
 
 88. Coal Mines Subject to Law of Diminishing Returns . . BH 
 
 89. Guarding Against Law of Diminishing Returns . . . gs 
 
 90. Waste in American Coal Mining gg 
 
 91. Labor in Exploitative Industries 87 
 
 93. 
 
 9*. 
 95. 
 96. 
 97. 
 98. 
 99. 
 loo. 
 
 CHAPTER VIII 
 MANUFACTURING STAGE OP PRODUCTION 
 
 Characteristics of Complex Production go 
 
 Specialization in Manufacturing gg 
 
 Localization of Industries .... .... 90 
 
 Factors in Locating an Industry nj 
 
 Effect of Male and Female Labor upon Location ... 92 
 
 Division of Labor and Over-production 93 
 
 Over-production of Articles of Future Usefulness . . ()t 
 
 Over-pr duction of Railways gj 
 
 Over-production of Crops gg 
 
 101. 
 102. 
 lOS. 
 104. 
 10,5. 
 106. 
 107. 
 
 CHAPTER IX 
 GETTING G0OD.S TO MARKET 
 
 Marketing a Phase of Production 07 
 
 Circulation of Capital an Important Factor .... 98 
 
 Injurious Bargaining ng 
 
 Advertising a Factor in Production gp 
 
 Wholesale and Retail Trade jq\ 
 
 Will the Middleman be Eliminated.' ]02 
 
 Seasonal Trades jOj 
 
CONTKNTS 
 
 PART II: EXCHANGE 
 
 CHAPTER I 
 BARTER AND MONEY 
 
 McnoK „„, 
 
 108. Barter Economy lot 
 
 109. Examples of Primitive Barter 103 
 
 110. The Origins of Money 108 
 
 111. Gold and Silver as Money 108 
 
 112. Money a Standard of Value 110 
 
 113. 
 114. 
 115. 
 116. 
 117. 
 118. 
 119. 
 120. 
 121. 
 122. 
 123. 
 
 134. 
 12S. 
 126. 
 127. 
 128. 
 129. 
 l.SO. 
 131. 
 
 CHAPTER 11 
 tfTILITV AND VALUE 
 
 Value Based on Utility or Exchangeability . . . .112 
 
 Intense Desire and Urgent Demand 114 
 
 Various Degrees of Desire II4 
 
 Diminishing Usefulness 115 
 
 Disutility 115 
 
 Quality of Commodity and Character of Need . .116 
 
 Value Dependent upon Place or Condition . . . .117 
 
 Exchange Value Hg 
 
 Effective Demand > , 
 
 Supply 1 p 
 
 The Law of Substitution 120 
 
 CHAPTER III 
 
 MARKETS 
 
 Origin of Local Markets 1 22 
 
 Market of Nijni Novgorod 122 
 
 Protecting Market Routes 123 
 
 Some Well-known Market Places J? j 
 
 Operation in a Typical Local Market 2t 
 
 Market in a General Sense 126 
 
 How to Approach Study of '• The Market " . . .127 
 
 Supply and Demand Illustrated 128 
 
"' KCONOAUCS 
 
 152. How Pries nrr Estnhlisliid **" 
 
 153. External InAueiKCK upon Mnrki't ! ISO 
 
 CHAl'TKR IV 
 (■KICKS 
 
 131.. A " Fnir ExolinnKc " ,„„ 
 
 l.t/i. Customnry Pricrs . , .... ' " ISI 
 
 136. Money iis a Stnndnrd of Vnluc . . . ' jgj 
 
 137. Quantity of Gold and .Silvir in FIxistciicc . . . . isr, 
 
 138. Nntioniil Afonet.ary Laws ISf 
 
 13.9. Effect of Gold and Silver Values upon Prices . . .137 
 
 140. Bimctal.sm a Cure.' ! 1S8 
 
 CHAPTER V 
 SO.MF. FACTOR.S THAT AFFECT PRICKS 
 
 HI. Climatic Variations ..... 
 
 148. Effect of War on PrVes ■.....,' ,.u 
 
 143. Effect of Political ^^lections ....... 142 
 
 144. Changes in Production 143 
 
 145. Variation in Relations of Commodities ..... 14,5 
 
 146. Appued to Metals ' j^g 
 
 147. Changes in Consumption ,40 
 
 148. Growth of Population in Urban Centers . . . . .148 
 
 149. Causes for Movements of Pojiidation . . 140 
 
 150. Effect on Prices .].■>] 
 
 151. Changes in Standard of Comfort jjj 
 
 152. Changes of Fashion ,53 
 
 CHAPTER VI 
 EFFECT OF COMPETITION AND MONOPOLY I'PON PRICES 
 
 153. Competition 
 
 154. Monopoly ,.~ 
 
 155. Monopoly Prices ,.. 
 
 156. Government Monopolies ,-7 
 
 157. Monopolies Subject to Law of Substitution . . . . ijg 
 
 158. Practical Effect of a Typical Case ,59 
 
CONTENTS 
 
 m 
 
 150. 
 
 i6n. 
 I6l. 
 i63. 
 J63. 
 J6i. 
 16:.. 
 
 Iti6. 
 
 VAOI 
 
 Quasi-monopolici IgO 
 
 Are Monopoly Prices Excessive? )go 
 
 The Situation in the United States 161 
 
 Land Monopoly Ig^ 
 
 I'luctuntion of Land Prices Igg 
 
 Competition in Land Selling jg.| 
 
 Rates of Interest Affect Land Prices 16J 
 
 Changes in Geographical Relations Ig7 
 
 Kir. 
 
 lliB. 
 Hi!). 
 170. 
 171. 
 172. 
 173. 
 I7». 
 173. 
 176. 
 177. 
 178. 
 179. 
 180. 
 
 CHAPTER VII 
 MONEY AND CUEDIT IN RELATION TO PRICES 
 
 Expansion and Contraction of Credit 170 
 
 Effect of Quantity of Money in Circulation . .171 
 
 Periodical Payments I71 
 
 Settlement of Bank Balances 172 
 
 Gold Required for International Trade 173 
 
 Money in Circulation Offsets Prices Through Credit . 17+ 
 
 The Panic of 1907 173 
 
 Fiduciary Currency j^g 
 
 Paper Money ]»■- 
 
 An Hypothetical Case 173 
 
 Fiduciary Currency in Internationa] Trade . .179 
 
 Money and Credit Combines Influence Prices . . . "80 
 
 Bank Reserves jgi 
 
 Importance of Elastic Currency System 183 
 
 CHAPTER VIII 
 EFFECT OF LEGISLATION ON PRICES 
 
 181. Changes in Monetary Law jgj 
 
 182. Duties ! ' 18S 
 
 183. Who Pays the Tax? How to Test I87 
 
 184. Speculation and Prices jgq 
 
 185. Cornering jgg 
 
 186. Regulation of Price Fluctuations .'.... jgg 
 
 187. Cost of Living . igo 
 
 188. Trade Cytles 198 
 
ECONOMICS 
 
 PART III: DISTRIBUTION 
 
 •Bcnow 
 
 189. 
 
 190. 
 
 191. 
 
 192- 
 
 193. 
 
 191. 
 
 193. 
 
 196. 
 
 CHAPTER I 
 PKODLKMS OF DISTRIBUTION 
 
 SiKnificnnrc of Distribution 197 
 
 Difficalty of Establishing nn Ideal System .... 199 
 
 Tlie Present System SOO 
 
 Economic Equality *01 
 
 Analysis of Distributive Process 80* 
 
 Guilds «<" 
 
 Beginning of Unrestricted Trade S04 
 
 Competition the Result *0* 
 
 197. 
 198. 
 199. 
 200. 
 201. 
 202. 
 20.^. 
 201. 
 205. 
 
 CHAPTER II 
 
 PROCESS or DISTRIBUTION 
 
 Factors of Production SOS 
 
 Productive Industries Classified S08 
 
 Large Corporntions S'O 
 
 Effect of Large Enterprises <1S 
 
 Employer's Position in Process of Distribution . . . 21S 
 How Result of Production is Distributed . . . .214 
 
 Deficiency or Surplus 21* 
 
 Employer's Double Function 216 
 
 Influence of Supply and Demand !l6 
 
 206. 
 207. 
 208. 
 209. 
 210. 
 211. 
 
 CHAPTER III 
 
 PROFIT AND WAGES 
 
 Source of Profit 219 
 
 How is Profit Brought About.' 220 
 
 Profit Distribution in Joint Stock Company. . . .221 
 
 Employers' Associations 221 
 
 Superintending Labor 222 
 
 Salaries 2*^ 
 
CON'IKNTS 
 
 IV 
 
 ■Jli. KdiiMlion of Siip<Ti ...idiriif Lnborrn "/J 
 
 •J 1 3. Cln»»is of Mnniinl I.almri r» M6 
 
 i'll. L'niriirm Win « 207 
 
 •'IS. Old A^e PriKlnnii j^g 
 
 •-'16. Lalior Or^nniiintions ,„,. 
 
 ^17. Difficulty of Triin«|MirliMB Labor . ...... ai) 
 
 i!l8. Labor Cannot Be StortU . gS! 
 
 ■-'19. 
 ii.'O. 
 2.'1. 
 S'-i2. 
 
 as. 
 
 S'H. 
 
 '■i-26. 
 
 '.",>7. 
 2-'8. 
 
 229. 
 2.10. 
 2.')I. 
 233. 
 
 CHAPTER IV 
 
 HATK OF WAGES 
 
 Value of Products and \'nluf of Wngvn j.iS 
 
 Nominal and Real Wagea ocu 
 
 Kffieiency of Laborer 00, 
 
 .Marginal WnRi-s . gs6 
 
 Demand and Supply Pricei of Labor ' js; 
 
 LalK>r Reserves ,„„ 
 
 Effect of I'opulation ^g,. 
 
 Other Influences on Labor Reserves ^W 
 
 Minimum and Maximum Wages gH 
 
 Labor Not S„le Determining Factor in Value of Prod- 
 
 ."''' 2i.f 
 
 Why Distribution is Njt Based upon Product . . 24t 
 
 Supporting Laborer During Period of Production . . 21.1 
 
 Voluntary Association jjg 
 
 Advantages of Modern System 217 
 
 CHAPTER V 
 PRACTICAL LABOR PROBLEMS 
 
 233. Labor Combinations 040 
 
 231. Change in Labor Union v ontrol . . o.n 
 
 ass. Strikes ''''251 
 
 236. Strike Failures gjg 
 
 237. Collective Bargaining 2'>2 
 
 238. Economic Effects of Trade Unionism 25S 
 
 239. Trade Unionism in United States 25j 
 
 240. Trade Unionism in Canada 2j5 
 
xvi 
 
 KCOXOMICS 
 
 itt. 
 
 818. 
 SU. 
 S4S. 
 846. 
 847. 
 848. 
 
 Intcrnalioniil Trmlr fnionn 
 " Cliiwd '• and " Ojicn Sliop ' 
 Womnn'ii I.aUir .... 
 Voluntary .Minimum Wnge% 
 Statutory .Minimum W'agra 
 Statutory ^rnaimum Wagea 
 Conciliation and Arliitrntlon . 
 Trade Unioniam and Kcunomic Theory 
 
 , 83d 
 
 9117 
 8.17 
 85R 
 8(i() 
 8f>4 
 8(j< 
 863 
 
 840. 
 
 8.10. 
 8.1). 
 2.14. 
 8.1S. 
 234. 
 233. 
 2.16. 
 237. 
 i!38. 
 
 CHAPTER VI 
 CAPITAL AND INTEREST 
 
 History of Intcrmt - 
 
 Early Theoric!. of Intircst ... „^ 
 
 Current Theory _' *''" 
 
 Market Rate of Interest . . . . ." . .' ' ' g^^ 
 
 Four Divisions of .Money Market .....'' ^70 
 
 Influcnec of Monetary Combinations ... 072 
 
 Function of Capital ■ S'H 
 
 How Capital Cornea into Play . . . . ' ' gl. 
 Hallway Construction in United States ' • ' • 
 
 Effect in Europe . . ' ' ' „-, 
 
 •^ 277 
 
 CHAPTER VII 
 THE LANDOWNER'S SHARE 
 
 S59. Value of Land Depends upon Rent . »>„ 
 
 260. Origin of Rent "' 
 
 261. Lond as a Commodity .... 
 
 262. Similarity to OtI.cr Productive Enternrisej . ' ' ' itl 
 
 263. Lond Policy in United States ,-.nd Can ida asi 
 
 264. Increase of Land Prices . ' ' oa' 
 263. Who Bene:?ts? .... ' 
 
 266. Theory of Rent . . ^* ' 
 
 267. Rent as Surplus ' ' 
 
 268. •• Surplus " Theory \„t Always Applicable .' ' ' ' ggy 
 26 J. General Aprlication of the Term Rent ..... ggS 
 
CONTKNTS 
 
 ivii 
 
 PART IV: CONSUMPTION 
 
 CHAPTER I 
 
 CONSUMPTIOf FOR SOCIAL USB 
 
 «T0. CUMlflcaUon of Con.nnipllon ""' 
 
 871. N«tion«I Coniumplion **» 
 
 «7». VoIunUry Con.umption for S«l„i l',c '. '. '. [ ' f * 
 
 CHAPTER /I 
 CONSUMPTION FOR pkhsoNAL USE 
 S7S. Perional Rcquirtments 
 «76. Flood ... i'.)3 
 
 877. Clothing . .' 890 
 
 878. Shelter . . . 898 
 
 879. Philnnthropic Housing Kxperiment. in !• '^^ 
 
 880. Typical He,„It, * '■■'""•"■•■t- m I uro,« . . .3,,, 
 
 881. Experiment, by Employer, ''"•^ 
 
 882. Hou.e. Owned by Workmen ""'' 
 
 883. Subject to Economic T^w, ^'** 
 
 884. Mlscllaneou, Personal Con'su, "ptl™ .■;••■• '"' 
 
 s c^rorI:i:inr^^"";'":-:" - --"p«on • -- 
 
 887. Changes in 1830 and 187S , '"^ 
 
 888. Prices I89O-I909 '" 
 
 289. Important Increases' . , ^'8 
 
 890. Conclusion to be Drawn ^'* 
 
 8J4 
 
 CHAPTER III 
 
 PRODUCTIVK CONSUMPTION 
 
 291. Consumption of Natural Resources 
 
 292. Conservation of Natural Resource, .' f'^ 
 
 293. Causes of Waste ^'^ 
 
 C 320 
 
xviii 
 
 •wmoii 
 
 294. 
 293. 
 296. 
 297. 
 298. 
 299. 
 
 ECOiXOMICS 
 
 Borrowing Necessary 
 
 Effect of Legislation up'on ihe Bo^owing of Canitai 
 
 Consumpfon of Human Life and Energy ^ 
 
 Reae .ona of Consumption upon ProducUon ! ' ' 
 
 Reacfon, of Distribution upon Consumption ' ' 
 
 Reactions of Consumption and E«hange ' ' 
 
 ■ 322 
 32i 
 323 
 326 
 327 
 328 
 
 PART v.. THE ECONOMIC ASPECT. OF THE STATE AND 
 MUNICIPALITY 
 
 CHAPTER I 
 
 PROTKCTroV AN-D FR,,E TRADE 
 Laissez-faire 
 
 Regulating Foreign Tr.adc ®^' 
 
 Protective Tariff . ^''2 
 
 I'iriff for Revenue . . ' ' ^^^ 
 
 Free Trade in Great Britain ^^* 
 
 Fair Trade Movement ^^* 
 
 300. 
 SOI. 
 302. 
 303. 
 
 sot. 
 
 305. 
 
 306. 
 
 S07. 
 
 308. 
 
 S09. 
 
 310. 
 
 311. 
 
 312. 
 
 3 1. '5. 
 314. 
 SIS. 
 316. 
 SI 7. 
 318. 
 819. 
 
 CHAPTER II 
 REGULATION OF DO.MESTIC TRADE 
 Municipal Regulation . 
 State Regulation . . 
 Arguments For and Against " 
 Miscellaneous State Regulations 
 Control of Quasi-monopolistic Ent'erpn'. 
 
 Responsibilities of Government' 
 Disadvantages of Government (■„(„,, 
 Regulation of Railways 
 
 Economic Effect of R.;,l«.ay Control ; 
 
 I be Hegulation of Trusts . 
 Standard Oil Trust . ' 
 
 Objections to Trusts in Uniied States ' 
 Difficulty of Dissolving Trusts 
 
 S37 
 
 ■ 339 
 
 . 339 
 
 - 341 
 
 . 342 
 
 . 343 
 
 . 344 
 
 . 344 
 
 . 34.'> 
 
 346 
 
 346 
 
 348 
 
 349 
 
 350 
 
 351 
 
CONTKNTS 
 
 320. 
 
 :m. 
 
 322. 
 323. 
 321. 
 325. 
 
 Stock Watering 
 
 Conclusion „M„d„,;„.„-c,;,„„;.,^.;, • • 
 
 National Ownerslnp of I.a„,| 
 
 n.stributi„n„fI.,,„daG..„cra]].„ii,; ' 
 Nationalization of Industry " ' 
 
 Trust. Are a Step Toward, x;u™,a,Owner»„ip 
 
 . 352 
 . 3-,S 
 3.55 
 356 
 338 
 359 
 
 326. 
 
 327. 
 
 328. 
 
 329. 
 
 330. 
 
 3SI. 
 
 332. 
 333. 
 331. 
 835. 
 
 CHAPTKR HI 
 
 TAXATION 
 The Revenue 
 Taxes on /nconie 
 Imports and Exports 
 International Trade Depend: 
 t-lnssification of Revenue 
 Graduated I„„,n:e T.-.x 
 Two Theories of Taxation .' 
 "ho Pays Taxes.' 
 Marginal Producer . 
 Economic Strength of Groups 
 
 •-pon Comiiarative P; 
 
 362 
 362 
 363 
 rices 361. 
 36.'! 
 367 
 368 
 370 
 371 
 371 
 
 336. 
 
 337. 
 
 338. 
 
 339. 
 
 310. 
 
 311. 
 
 312. 
 
 313. 
 
 314. 
 
 .?15. 
 
 316. 
 
 317. 
 
 318. 
 
 CHAPTER IV 
 THK BlTnOKT AXn P,.BI.,C nEBTS 
 
 Public Expenditures 
 Annual Budget . . ' ' ' 
 
 Public Debts . ' ■ ' • 
 
 Early Government Loans ' ' ' ' 
 Government Securities . ' ' ' ' 
 
 Funded Loans 
 
 Public Debts of Various C„u„,h,; ' ' 
 temporary Loans and Loans for Fixed Period 
 Conversion 'inrl n„j i- reriod: 
 
 «.. 1"^*T''''»" »f P"'''- Debts . 
 
 ^.dustria. Activity of ti: s;:;"""^ 
 
 Responsibilities of State Industrial En 
 
 nterprises 
 
 . 371 
 
 • 376 
 
 . 378 
 
 ■ 379 
 
 . 380 
 
 . 381 
 
 • 382 
 
 ■ 382 
 
 . .fSl 
 
 385 
 
 386 
 
 388 
 
 389 
 
 T^^ i . -mnj:-,:3. 
 
" ECONOMICS 
 
 CHAPTER V 
 
 LOCAL GOVERNMENT IN ITS ECONOMIC ASPECTS 
 
 ■BcnoN 
 
 319. Local and Municipal Finance '*°'' 
 
 350. Provincial Taxation in Canada. ." *^^ 
 
 351. Corporation Tax an Income Tax l^^ 
 
 352. Utilizing Prison Labor . ^^* 
 
 333. Municipal Finance . *^* 
 
 354. Tax Exemption, . ^^6 
 
 357. Method of A.sess.„..,t for Municipal Taxes.' .' ' 'Z 
 
 358. Municipal Administration . ■ ■ ■ ■ m 
 
 359. Local Government Board i„ England '. tnl 
 
 300. Local Independent Action . *"^ 
 
 361. Municipal Enterprises *°^ 
 
 362 i„e„ased Jfnnicipal Indchtedness' Results .' ' ' ' ^l 
 
 £. ^r';;sr:: " '-''-' """ "'-"^ » — ' *- 
 
 365. In Canada *"* 
 
 S66. Mmiicipal Officials **"' 
 
 367. Agitation for Commission Government' .'.'■■■ tZ 
 
 368. Economics of Municipal Enterprise . ' ' 408 
 
 369. 
 
 370. 
 
 371. 
 
 372. 
 
 373. 
 
 374. 
 
 375. 
 
 376. 
 
 377. 
 
 378. 
 
 379. 
 
 CHAPTER VI 
 
 SOCIAL LEGISLATION 
 Factory Acts . 
 
 The '.Vorlting Day . . ' .' *" 
 
 Factors to be Considered . *'* 
 
 Accident Compensation . . *'* 
 
 German Accident Insurance *"' 
 
 German System Not Financed by 'state .' .' ' ' H^ 
 
 Workmen's Compensation Act in England . ,' ' ' H, 
 Federal Compensation for Accident in the United States 422 
 Question of Responsibility ^ 
 
 Individual and Collective Responsibility Compared' ' 111 
 
 Assumption of Costs i »" u ■ . iJ5 
 
 , • . . 426 
 
CONTENTS 
 
 XXI 
 
 ■Bcnoiv 
 
 380. Economic Effect, of Workman', r- 
 
 MI. Old Age Pension, . '^'"'""'" ' Compen,ation System, 428 
 
 S82. History of Pension Acts *29 
 
 383. Canadian Situation . ■••■••.489 
 
 38t. Labor Exchange, •.431 
 
 385. A New Experiment . '♦SI 
 
 386. ■• Right to Work " . ' ■ • • . 432 
 
 387. Unemployment . • • . 433 
 
 388. ■I-^urance Against Unemployment' ' ■ ' • • *34 
 
 435 
 
 389. 
 390. 
 391. 
 392. 
 393. 
 394. 
 
 CHAPTER VII 
 SOCIALISM 
 Origin and History of Socialism 
 
 Progress a Result of Circumstance, .' *'« 
 
 Classification of Socialist Doctrine, '*'" 
 
 Explanation of Sociali,t Doctrine, *^^ 
 
 Various Jletliods . . *■*! 
 
 Significance of the Movement **^ 
 
 445 
 

 'mmm m 
 
PART I: PRODUCTION 
 
 CHAPTER I 
 
 INTRODUCTIO.V 
 
 1. Economics as a science.— The difference between a 
 science and a merely disconnected series of statements 
 w that a science offers an orderly sequence of ideas 
 Economic science may thus be said to present an orderly 
 sequence of ideas concerning that part of life which con- 
 sists in the experience of needs and in their satisfaction 
 considered in relation to the resources available. 
 
 The needs of mankind are not exclusively susceptible 
 of satisfaction by material resources; but most of our 
 fundamental needs are of this character. Those of our 
 needs which are satisfied by other than material things 
 cannot in general be satisfied except by the sacrifice or 
 surrender of material resources. The first and continu- 
 ally recurrent need of all hving beings is food-indeed 
 for any )articular living being, a particular kind or 
 vange of Kinds of food— susceptible of assimilation by the 
 organs of the body. Other appetites emerge as the liv- 
 ing being reaches maturity-appetites scarcely less im- 
 perious than the appetite for food. The needs of mental 
 and moral stimulus which may be held to be peculiar to 
 man, although they be regarded as non-material, have 
 especially through their bearing upon the organization 
 of society, a very definite economic aspect. Some of the 
 data with which economic science concerns Itself are no 
 C— I-l J 
 
« ECONOMICS 
 
 doubt difficult to procure ; but a very large part of this 
 data lies within us and about us, although this fact does 
 not necessarily render the study an easy one. 
 
 2. The social aspect.— Rcnnonuc science as it has de- 
 veloped in modern times lays great emphasis upon the 
 essentially social character of the economic processes; 
 that is, it purports to investigate in a critical manner 
 the extent to which the operation of these processes makes 
 for the benefit of the community as a whole. Nor is the 
 expression "community" regarded in a narrow sense. 
 There is included not merely the present living genera- 
 tions, but, although more vaguely, the permanent com- 
 munity whose interests are not always identical with 
 those of a given social group at a particular moment. 
 
 The science of economics looks, moreover, at the proc- 
 esses which together comprise economic life as being 
 organically related and as being conducted in relation to 
 an organized body analogous to a household. In this 
 large household, differing in many important respects 
 from a typical human household, there is a certain auto- 
 matic distribution of benefits as there is in any well 
 ordered family— although not necessarily in precisely the 
 same manner as is customarj' in the family. The normal 
 manner of the distribution of these benefits is the law of 
 the household. In Eastern Europe, for example, the 
 law of the family respecting shares of labor and shares 
 in the product of labor is often very precise, and any in- 
 fringement of it is apt to lead to the offender being 
 ostracized not only by the family but by the community. 
 The law with which we are concerned is not the custo- 
 mary law, which is variable in different regions, but the 
 normal manner of the production, exchange and distribu- 
 tion of the products when these processes are carried on 
 collectively. 
 
INTRODUCTION 3 
 
 the economic processes™ ^^ ^X n "' "'1 
 ascertaii.iniT what li.rht tl,.. Tu , ^ P"rpose of 
 
 are useful tlZrio JJia -"rranr'l?'' t>^ 
 
 ^^t:ri^:r"--'--"t^-£: 
 
 ample, if „.e ^^ f 117 '"e^l- ''!'"^' '°^ ^^- 
 and a certain atmospheric prss 1 «l ,*7P^'-«t'-e 
 theory of the exnnnin. f ^ """*^' "^ l^-nowledge of the 
 
 clict the LhavW o?rtafn''"" """," ^"'''"^ "" *" Po- 
 tions or under anvoTher"T;' ""''''" ^'''^ '^'■^'^" ^«"''i- 
 assumed. PlvsSl ex"^^^^ "'"^'^ '"'^''t also be 
 
 social experi.rn;raTe'r;Sc;r^^^^^^^^^ 
 necessary to rely chiefly upon o^se ition 1, T''' 
 "ig conclusions from obserl-ationVr- '" ''™'^- 
 
 'S 
 
4 KCONOMKS 
 
 iiusiiiess mail ; hut such ktiowledge may he turned to iii- 
 vahiahlc account by one wlio has a talent for business 
 and opportunity to exercise it. 
 
 4. The governmental lupect. — Apart from the view 
 of economic science as concerned with the spontaneous 
 activities of individual members and groups of members 
 of the community, and with the relations of tliese to the 
 welfare of the whole, there is the view concerned witli 
 the economic side of the governmental activities of the 
 state. The government of a state is conducted by per- 
 sons who have been endowed with jjower by the peo- 
 ple, or by inheritance, or who have been able to seize 
 power by force. In any case, the exercise of govern- 
 mental power involves economic relations between the 
 authority which exercises it and the jieople over whom it 
 is exercised. These economic relations are partly of a 
 compulsory character, as in taxation, i>nd partly of a 
 contractural character, as in the postage regulations. j\s 
 the functions with which governmental authority is en- 
 tmsted become more numerous, the extent and intensity 
 of these economic relations become greater. 
 
 While the exercise of the functions of government is 
 an art and not a science in the strict sense, the science 
 which concerns itself with the functions of government 
 from a comparative and critical point of view is generally 
 known as political science. That part of political science 
 which is concerned with the methods and course of those 
 activities of the government in which the government 
 controls, acquires and intromits with property belonging 
 to the community either collectively or individually, is 
 political economy i'l the strict sense. 
 
 There can be no definite division between political 
 economy in the sense of the public economy of the state 
 and political economy in the sense of the economy of the 
 
 v 
 
iXTnont'CTiox a 
 
 community, because the reactions of tl,e two spheres of 
 activity are too intimate for division. For tl sake of 
 convenience, however, it is a.lvisable to treat each of the 
 spheres separately in order to make clear the character- 
 istics of each While, however, they may 1« separated 
 |n thought, they cannot be re.rarded as otherwise than 
 mseparable m economic life. 
 
 5. The four ecommic processes.— The economic 
 processes are customarily catalojfued as follows :-Pro- 
 <Iurtion Exchanjfe Distribution and Consumption. 
 The order in which these processes are studied is a matter 
 of indifference; the important point to ,„„ice is that 
 they are interacting parts f.f one whole. That whole 
 IS economic life. It is thus impossible to understand 
 be phenomena of exchange without also understanding 
 ductfon ""'"*'"'' "^ '^"*''''"*'°"> 'consumption and pro- 
 In different parts of the world the methmls vary and 
 in different ages methods have varied; but in all places 
 ^id times, all forms of economic life yield upon analvsis 
 these processes, by whatever name they may be called 
 In some of the forms the differentiation of the processes 
 may be obscured. For example, in the patriarchal or 
 
 less that of ?• *"' °P""*'"" "' distribution, and still 
 ess that of exchange, may not be obvious; in such a case 
 the important and obvious pro-^sses are production and 
 consumption; the others assume a minor place 
 
 In more highly developed industrial societies, ex- 
 change and distribution come to be regarded as of ob- 
 vious importancs and it is even urmal in .such societies 
 to overestimate them and to underestimate the signifi- 
 cance of production and consumption 
 
 forll" ""''" -^"rf *° '■""""'^'" '' ^^^^ "° '"^"^r what 
 form economic life may assume it ^s a unity and that one 
 
* ECONOMICS 
 
 element cannot be affected without influencing the other 
 elements. Ihe economic process., appear on investiua- 
 tion to be mvolved in scries of more or less complicatcl 
 reactions. The study of economic science ia chiefly de- 
 voted to mvestigation of the reactions. 
 
 dihona.-U has lK..en «bser^•ed that the economic proc- 
 esses are concerned primarily with material thingsl but 
 economic hfe is not composed exclusively of these l,ecause 
 for some non-material things-the things of the mind 
 
 S. .„*'"'"""'"""'*"■'''' *'■'"«'' ^'» ^ exchanged. 
 What w.ll not a man give in exchange for his life?" 
 But the economic processes as they concern the things 
 of the body or the material side of life must first engage 
 our attention. ** •* 
 
 There are certain indkpensahle conditions to which all 
 of the economic processes are subject. These are time 
 
 without which the economic processes cannot be con- 
 ducted with smoothness and regularity-these are na- 
 tional security and social stability The indispensable 
 conditions need no illustration; the desirability of the 
 contingent conditions may be best illustrated by cases 
 m which they are absent. ^ 
 
 During the siege of Kars in Armenia-the Turkish 
 fortress which maintained a protracted defense in tSe 
 Russo-Turkish War of 1876-77-the villagers b ll 
 the fortress, which was situated on a precipitous river 
 banK. drove their cattle to the fields in the morning" nd 
 drove them home at night. Russian and TurkishfheSs 
 were being hurled through the air over the heads of h 
 villagers during the course of an almost incessant bom- 
 bardment for about three months. This is an example 
 of industry without national security " 
 
INTRODUCTION , 
 
 ' ce,J£r "C^ Tf"' ^"*''^"' "'"■'^^ '■" Moscow in De- 
 cemoer, 1003, while a irrent nni-t ,.r n. •» 
 
 K passages m the barricades to buv foml Ti.;„ 
 
 !»«!. :";':^rSvTrr '"""""'"""• 
 
 ".ighi b. no';^ . ;'J=:! "— 1i.<»W the,, 
 lean Cvl War ;« . ~,^ • • ""' '^''™«"- IheAmer- 
 
 It IS somefmes. but not invariably, possiWetfeff , 
 changes of an important character g.aZnv with . 
 
 S^frn*t^h:::Ltr• '" ^^'^^^ 
 histoo.. virjirbinToMC^s^orr^^^^^ 
 
 promises the economical processes S ^r^"" 
 renders production difficulLr Tpossil-k it^^ T 
 tribut on, interfere* wifh „ i, t"^^''^^^^' " alters dis- 
 
 sumption It mav bl tb . "*^' ""'^ ''™'"'^''- «=»"- 
 evenLllyresuirrbetfiUothet;-'"' ""'''^'^ """^^ 
 s^^nse; h :t the sacrifice may ht^as an" Jm" rT™"''' 
 nomic consequence more or' lei .el:: Z:^^ ^l 
 years may elapse before the economic eqm fbri ^ iTe 
 
" ECONOMICS 
 
 e.stablisl,«l. The R„««,-.r„,,„,K.«, War may ultimately 
 Imve amsenxmn-vH \K-uvt\vM t<, J„,,«„. altlmuKh tk- »aJ- 
 rifions ,t .K^-usionfl havt al.cct«l the ci,..„trv for niariv 
 years. * ' 
 
 a. The final purpote.-The en<l f„r which the eco- 
 nonnc pr,Kx.s.s..s are c.,n,l„cte,l is the .satisfaction of the 
 nee.18 of mankin.l; indeed. pr<Hiueti,.n n.ay Ix: remrde.1 
 as the heKinning. an.l consumption as the end of this sat- 
 rsfmtmn. We may. therefore. pro,,erly c-onsider in how 
 far any particular act or series of acts wn.luces to in- 
 crt-nse or to diminish the total means available for the 
 satisfaction of human needs. In other words, we shall 
 hnd ourselves constantly c^nsiderinp whether this or 
 that legislative measure or this or that voluntary act is 
 
 n^ ..?„."""^"'* *" *'"^ '""™'*«' "^ "''at Adam Smith 
 ca led The Wealth of the Nation." or what others hive 
 called the rent, interest, wages and profits fund, or the 
 social or national dividend." 
 0. The national dhuh„d.-The production of com- 
 modities by the people and their consumption must re- 
 sult either in the increase or in the diminution of the 
 national wealth, or "social dividend." Consumption of 
 social wealth in the production of objects of beauty 
 even though these objects are not obviously productive 
 of an equivalent amount of wealth, may be" justified on 
 he ground of the stimulus which beautiful objects give- 
 hey make or life in the best sense. But consump-' 
 tion m social wealth, even in such objects, must bear a 
 certain proportion to the total consumption of any group 
 otherwise the social dividend may be diminished' by sud,' 
 consumption The stupendous tombs of the Egyptian 
 kmgs, and the immense temples erected by them to the 
 gwls of Egypt were sometimes, although not always 
 objects of beauty; but in certain ages the construction 
 
INTIIOUUCTIO.V 
 
 fully productive exeenS' ''^ P"Hluctive. are not 
 
 tl.e di turbans of SI* " ■*"""" '^"«' "' *''"e. 
 
 expenditure tvoL?Zl";r''"'i''"^^ "'"'^" ""» 
 "national dividend " ?hl T. " '^""'""t'"" i" the 
 
 theexpenditu^i^tade bi;. ""''' '"""" "''^*''" 
 
 per Js. If the Ze^J «"ve„,n.ent or by private 
 
 «..V purpose n aZTtTt/''^'?'" " ""'P''^ ^'"• 
 cripple t.^irpr"odue^:e;:er;^^^^^^^^^^ Tf'?* *° 
 must be reduced. national dividend" 
 
 in ;itS;,^;:si^:cj°" '^^ ^'^^-'^ '- "^ 
 
 Excessive private 1 "ulvrnr.? ' '""'* '^""™'' '"^• 
 «nd the boSy and t ^comlt Z7T'': "''''' 
 prfHluction; but luxurv is a r „f '^'""""t'on of 
 
 impossible to dr w a y^cL lineir^""'"" ""'^ " " 
 
 and desirable standanl of" mfortatlT " "''"'"'""^ 
 ard. In Western F,„ """'"f* and a luxurious stand- 
 
 bread. In GreaTBritl.n , T^^' '^' ''™^'n ««■ »"«ck 
 
 in France ^S^^^::;^''''^^ '^ « ^--ry; 
 
 as a luxury in 1802-08 and fa , i" « f '"'" ""^"^"^ 
 and America until lon^ a teVthat iat""^ T ^r^^ 
 ;vl"ehisanecessitytoa,fanof etter wouW b T"^' 
 
 o a person Mho could not utilize t F ° 1 I * '"-^"''^ 
 letters five thousand volumes^a; b^ n^"""" °^ 
 a second five thousand miT,\^^ be necessary, while 
 1^^^^^ nousand might be regarded as a culpable 
 
 Some people depend very little upon external stimu- 
 
10 
 
 FXONOMICS 
 
 lus; they have their intellectual and moral resources with- 
 in them. Such people are little inclined to luxurious 
 livmg; but there are others whose powers of production 
 are dependent for their support upon constant external 
 stimulus. Their full powers are not developed without 
 an amount of luxury which to some others might be in- 
 jurious or fatal. The most productive ages in an indus- 
 trial, as well as in an artistic sense, have not been those 
 of which asceticism was the dominant note. Sordid in- 
 dividualism and complete disregard of social interests 
 and of social progress have frequently developed among 
 ascetic groups in various races. Individuals and nations 
 alike do well to preserve the golden mean. 
 
CH.^PTER II 
 
 PRly-Miy PUA ,£S OF PRODUCTION 
 
 »«t?Ss°i::;:,«™p;'p"™. producer 
 
 duction involves r>roP„r;„ f "'"* *<^"^« P™" 
 
 raw materia oJndTn/r'" "''""' '"' "'^"^'"^ f™'" 
 
 oTSr^ in the foL o. i::L:. z: J- 
 
 '" ' -"""-ity or a nation. I i a/tWt th ^f " 
 v.ew can present itself only to the m.nd W *"■ 
 
 see the t6tal production of «nv 1 . "^ ''''" "•^''^"' 
 
 grasp the extent of it fl^ "''*'°"' ""'' '^^^ ^^ «««-> 
 these are avaiSe but ,^ '"^ '*''"*''^^' ^^'^-^ ^^er; 
 any Particula^^^^ /;::7^^^^^^^^ -fe that at 
 tf.e material means of JsLnce *^ ^'^ ^ *°*^' "^ 
 
 -''E:^'^:t\:.r^^:';2"-r 
 St-rsTi™^^^^^^^^ 
 
 stream of consumable good "somfofTh """'"" ^'''^ 
 
 distances from the point of ZductionT 7"''-^^''* 
 
 consumption by practic«hl, ° ""^ P"'"* °f 
 
 ny practicably mnumerable voluntary 
 
12 
 
 ECONOMICS 
 
 agents, each of them remunerated for the service which 
 he renders, is essential to the existence of the community 
 as an organized group of people. 
 
 If the stream of consumable goods is steady, ecommic 
 life goes on smoothly; if for any reason the stream is 
 interrupted, more or less serious consequences ensue. It 
 is obviously important for the well-being of the nation 
 that the quantity of consumable goods should increase 
 in at least the same proportion as the population and 
 that these goods should be susceptible of being moved 
 to places where effective demand for them exists. This 
 may perhaps best be illustrated by the case of a district 
 rather than by that of a nation. In certain provinces in 
 Russia, details being for present purposes unimportant, 
 there is a certain annual average yield of grain per fam- 
 ily. This annual average yield is insufficient to provide 
 the amount of grain which is regarded by medical experts 
 as the minimum amount requisite for the support of an 
 average family. It is thus necessary even in average 
 years to send supplies of grain into the locality. Those 
 peasant families which experience the greatest shortage 
 of grain are obliged in years of scarcity to sell every- 
 thing they have in order to buy food; some are relieved 
 by the government or by subscriptions from the benevo- 
 lent, some die of starvation and of disease induced by 
 inferior nutrition. 
 
 A nation cannot enjoy adequate well being unless the 
 aggregate of production is large enough to enable its 
 population to subsist either upon the actual products of 
 the nation or upon the products of other nations obtain- 
 able by means of exchange. Various censuses of pro- 
 duction, notably those of Great Britain, the United 
 States and Canada, give some idea of production from 
 a national point of view, but no statistics do so fully. 
 
PRIMARY PHASES OF PRODUCTION 13 
 
 i-i-Jhe effect on a nation as a whole.— In estimating 
 the effects of systems of production it is necessary to 
 take mto account as an important element their effects 
 upon the national aggregate product. Thus it is not a 
 matter of mdifference to a country that its agricultural 
 or Its forestry methods are such as to produce less than 
 might be produced by other methods; or that mining is 
 earned on so unskillfully that great quantities of min- 
 erals which might be utilized are wasted; or that factory 
 industry is less efficient than it might be; or that large 
 numbers of people within the nation are less productive 
 than they might be. It is also, as we shall see, a matter 
 of extreme importance to a nation that the various wants 
 of its people should be supplied and therefore that due 
 proportions should be preserved among the various con- 
 sumable commodities destined for the satisfaction of 
 these wants-in short, that there should be no overpro- 
 duction of some, and underproduction of other, com- 
 modities equally necessary for the maintenance of life 
 and for the continuance of the economic processes 
 
 13. Simple form of production.-Production may be 
 regarded as presenting two {orms-simple and comvlex. 
 In both of these forms the end of production is the biing- 
 ing mto existence of something which is intended by the 
 producer for some use or for several uses 
 
 The simplest form of production is that of manufac- 
 ture in the strict sense; that is, d9ing something with the 
 hands. A peasant child known to the writer, desiring 
 a vessel to drink out of, M^ent to a place where there was 
 
 moulded It with the fingers and in a few moments pro- 
 duced a rough cup which was quickly dried by the sun 
 The cup was very crude but it was made quicklj' by man- 
 
14 
 
 ECOXO.MU'S 
 
 ual labor and it sened its purpose-in other words, it 
 was an object of utility. 
 
 Much of the potterj' of primitive people was and i. 
 produced in this manner. The earliest lamps of the 
 Mediterranean peoples appear to have been made by 
 taking a piece of clay, shaping it into a round shallow 
 bowl with inward curving lip and then pinching one 
 part of the hp between the linger and thumb in such a 
 way as to provide a place for the wick to lie in. So also 
 the poaery making Indians of Xew Mexico formed clay 
 .nto rope-hke lengths and then wound it into the shape 
 
 1'' r r T' "■■*'"'"* '^' ""'' "f ''"y implements 
 other than the fingers. The inner bark of certain trees 
 
 r "'!? / * u' °'"' °^ ^^''"^ ^'^^-^ I^'^ke in Xorthern 
 Canada for the purpose of making cord which is knotted 
 by the fingers into fishing nets. 
 
 14. Raw matmalSince simple production is very 
 generally practised by nomads, settlement and occupa- 
 tion of land IS in the strict sense not a requisite of simple 
 production The only requisites are ral material and 
 labor force the atter involving skill in its application) 
 The raw material may be hard to procure eit.,cr because 
 of Its scarcity in a given region or in nature generally 
 or because of the appropriation of it by the community 
 as a whole or by individuals who hold it by force or bv 
 consent of the community-that is to say, by conquest 
 or robbery or by common or statute law. Tfmbert so 
 scarce m extreme northern legions, that the Eskimos of 
 
 Sclss of '; r P'^™''* ''^ P"-''^ appropriation in 
 whether Pt requirements by individual persons, 
 
 We tL n "; '''''''^'''- ^'"'^'^■- <»'^ Canadian 
 
 of tmiber from the public lands; and under various acts 
 of the provinces of Canada and the States of the Union 
 
I 
 
 
 PRIMAHY PHASKS OF PRODUCTION 13 
 
 timber limits are granted, leased or sold and permits to 
 cut fnjber are given on certain conditions. A "ess to 
 m^erals and l.eenses to fish and hunt are simikrlv prl- 
 
 zaZ ,s tn r? "■'*' °"'y ''^^'^ the social organi- 
 
 zation ,s too weak to irapose restrictions. 
 
 v.ry w,U, ,e,, .ge, ,p,i,„je and practice. A m.kc* ?i 
 
 difference in skill on the n«rf „f *i, ■ • . ^ ^ 
 
 fore the primrtive craftsman who possesses it leralv 
 specializes upon some manufacture in which hfhaTh 
 -me proficient. An expert a.rowma J wfu ^ke ': 
 arroHs for his tribe and he may do little else * 
 
 ^^"zL^i^c^rL^:sx"r^ r™ 
 -X^^fT-^-rr-^"- 
 
 .Uh.ughwithlerenTpre;;?a:;dr^^^^^^^ 
 de^ote themselves to the functions for which thev h ' 
 -shown themselves to be better fitted thin oth Is rC 
 essential feature of the simple methn,! ^f ! x- 
 the directness and immediacy S 11 C:,:? ' 
 produced hecnsc u satisfies^ immSe ^anr Th': 
 
16 
 
 KCONOMICS 
 
 need incites the craftsman to produce and he does so as 
 soon as he can obtain tlie raw material or, aware as he is 
 of the future occurrence of a need, he picks up a piece 
 of material which he finds by accident, with the intention 
 of one day fashioning it into some object which will 
 satisfy a probable need of the future. 
 
 16. Complex production.— In the simplest form of 
 complex production, the product of an operation of 
 simple production is utilized as an instrument in a fur- 
 ther productive process. It is obvious that not all simple 
 products are susceptible of being so utilized. Some are 
 made for special uses, as in the case of the cup, for exam- 
 ple. Others are made for ornament or for food; but 
 many are made for the express purpose of facilitating the 
 manufacture of other useful things. It is true that in 
 many cases such things might be mr le by means of 
 simple production, but they are more easily or more ef- 
 fectively made by means of some instrument. The fact 
 that this instrument has first to be made causes the first 
 total process to be indirect and therefore' slow; but sub- 
 sequent processes are effected more rapidly than would 
 be the case if the simple production process were applied 
 on each occasion. Thus, for example, if a primitive 
 potter, instead of fashioning a cup with his hands, makes 
 a potter's wheel— a very simple apparatus— places the 
 clay in the center of it, sets the wheel spinning and then 
 by the dexterous use of his hands gives the clay a round 
 form or such an outline as he may design, he employs 
 complex production. He has user' the product of one 
 operation— his wheel— to accomp, .i, another operation, 
 the production of a vessel. He occupies time in making 
 his wheel during which he might have made many cups- 
 but his power to produce cups in nmnbers per unit of 
 time IS for the future greatly increased and, moreover he 
 
PRniAHV PHASKS OF PHODUCTIOV ,7 
 
 tioJ':lT£''oT'' """'«'— I" --Plex procluc 
 1h,s .equ,s,te ,s the instn.ment or tool hy means of T'ch 
 
 incTdent n ,11 J'''^/^^"^!"'^*'**-" i« an indispensable 
 inciaent m all complex production. 
 
 iAIoreover, instruments or tools are used fn. tu 
 facture of other instruments and so on u'w „ the' htl 
 orgamzed economic life of modern communitL'l'S 
 pies esTrl r^^^ '^' --P'i-ted 
 
 les.ff„ executed in various more or less refractor 
 o«^p=,™ .„. h.s tand the „„ J.,„w"LX ,:! 
 
18 
 
 ECONOMICS 
 
 stmment, made the instnunent, found the raw material 
 for the final product and eventually produced the final 
 product. In such a case, as in a similar instance of 
 simple prmluction, there could arise no question of 'he 
 ownership of the finished product; at all events, in any 
 community where such a product was regarded as right- 
 fully subject to private ownership. Even among people 
 who in general regard food as the common property of 
 the tribe, private ownership of weapons is usually recog- 
 
 Cases of individual manufacture of things which are 
 the result of complicated processes are not uncommon. 
 In Central India, for example, some of the workers in 
 iron find the deposits of native iron in the mountains, 
 burn charcoal, refine the metal and make out of it tools 
 customarily used in the villages. 
 
 The processes of complex production are, however, 
 usually carried on by joint or successive labors. A 
 group of Russian peasants was visited by the writer im- 
 mediately after they had settled in a region previously 
 unoccupied. Upon their arrival the first thing they did 
 was to hunt for clay. When they found it, they made 
 rough bricks, dried them in the sun and on the second 
 day after their arrival, they built ovens in which the 
 women baked bread for the group. Meanwhile some 
 of the men were cutting down trees and building large 
 temporary houses each to contain several families. In 
 such a case joint labor, and joint use of the instruments 
 and joint enjoyment of the product were clearly ex- 
 pedient. 
 
 19. Primitive causes of disputes.— When joint or suc- 
 cessive labors are exercised upon a series of productive 
 processes of a complex character, the same questions arise 
 as may arise even where the productive method is simple. 
 
production, whicl, are „/T 1 ?'," ^•'■"*'-'»"'t'"-.s to the 
 
 to settle sue,, elairon" ^^ Sr:?'';' f ""' ^^^^ 
 «•> "lual division might be as mp T, '"' J""*"*- 
 
 equal division whieh It, "^a t^t'"'"' "."" "" 
 oneortw. andi,ienrir.t,V„i . • ^ "wnership I,y 
 
 Here ajrain custom n,>-i x- ' " the others. 
 
 iaw i"tfrven:t aCZc r ""'■'""^•^- "^ ^*"'"*« 
 pute may be sett,ed r! n i "''"" "■'"'^'' «'« <'is- 
 
 more .„d „„„ ,iiiB„|, r^' •"'" '"rf. it become. 
 Produc. „, . „„r„ .:^ "r '"■■' »' »f '" «» 
 certain; if pr, |„ctin„ ; , "^ °"^ conclusion is 
 
 -s. the pi; atT^^eZ 't^.*^ '^' 7^™' "«- 
 'ightly be regarded as tl^Tv " ^"'"'^"'^^'l ^^^n""* 
 
 "f these agerfcies ■""'"''"^ P'-°P^'-ty »f any one 
 
CIIAPTKR III 
 
 FACTOaS OK PRODUCTION 
 
 20. Three divmons of labor. — The iiiilispensnblc con- 
 ditions of protluction are time and space. The contin- 
 gent conditions are national security and social stability. 
 The factors or requisites of simple pro<hiction are mate- 
 rials and labor; and, of the complex or lonj? production 
 process, and (inchiding materials upon and within it), 
 labor and instnmients of capital. It has lieen made clear 
 that these factors of pnxluction may he employed by 
 one perskjii or by many. In highly organized industry, 
 materials may he assembled from many different regions 
 and may be the products of numerous complex produc- 
 tive operations. These materials may be subjected to 
 further processes by means of instruments similarly as- 
 sembled and by the exercise of labor of a diversified 
 character. 
 
 In all productive enterprises of a certain magnitude, 
 labor may be regarded as being obviously divisible into 
 three important categories: (a) directive labor exercised 
 by the responsible chiefs of the undertaking; (b) super- 
 intending labor — that of managers, foremen and the 
 like; and (c) manual l.ibor. The enterprise may or may 
 not be socially necessary ; but its existence being granted, 
 labors of all three categories are necessary to its continu- 
 ance. AVhatever tlie dimensions of the indtistry, the 
 functions implied in these categories must be performed, 
 whether by one person or by many. 
 SO 
 
lAcroHs or phowction h 
 
 Dirwtive nn.l .s,.i,eri,.ten.li„ff lal,„r is as ..eccssarv 
 as ...nnual lalK,r. entirely irrespective ..f ti.e IZTZ 
 
 ^K'Klt uul. „I„al, l,y a ^roup „f partners. I.y a joint «fiK-k- 
 
 y ine state. The form may affect the efflcienev of 
 
 riST r " •'? "•" ""''' *"^' --tial ira - 
 itnsiics oi Its orffani/ation. 
 
 21. Z-««d „„rf «//«7«/.-The other factors are simi- 
 lar y necessary, whatever may he the form of tSreZ 
 
 s Ld ",:;;" ;'"k* "t-t'^^^- --y •'« eontin.; . 
 
 In ♦ J ' "'* '■'*'"■'■ ""•" it "'• '^•a'^e it. That is 
 
 to say they must exercise the function of kn.lhojje 
 rh.s funcfon is actually necessary nl.ether t e an^i 
 beWs to a private individual or to thestate. ' 
 
 5>.mdarly the mstrun.ents of pro<luction, the l.uildin«.s 
 
 22. Fijrcd anrf «>c«/«<i«^ captVa/.-The provision of 
 tttm oTthf '"^ '-'''''' '' "----^ >-^eTt e „" 
 
 .^t■ndl;rs':;rd^rtrs^^^^^^^^ 
 
 upon the conditions of credit Wanted to t.f. 
 
 and .ranted hy it. as .ell as .^oT:^'u:XTZ'P. 
 
a 
 
 F.rovoMirs 
 
 .hictivc process in whiph it is vixk>xkv,1 In some Indus- 
 tries tlie «xt(I t'upiial is .siiuili in pr..p„rli..ri to the o.it- 
 I)ut. Ill iiKiiistries wliiiT haii.l labor is fxclusivciv or 
 chidly cinplovf,! or uliiri' the pr.Kliict is rnpi.llv pr 
 cluml and iinnifdial.ly salalili-. tin- aniounl of fixnl cap- 
 ital IS sometimes extremely small. In those industries 
 in which It is nec-essary to niainiuin lar^e stocks of raw 
 material, or materials in a partially nianufaeturwl state, 
 in those industries in which the sale of the finished pnxl- 
 uct IS customarily slow, an.l especially in those industries 
 (like ship-lHiildin^) in which the pim-ess of production 
 IS lonff. the amount of eireulutin^ capital neeessarilv 
 involved in the husiness is relativelv ^reat. The develop'- 
 nient of machine mai.ul... ;.,re has increased the propor- 
 tions borne by both fixed and circ.ilatinif capital to the 
 output. 
 
 23. Sources of capilal.—ln order that an enterprise 
 may be continuous, it is necessary that the fixed and eir- 
 culatinff eajHtal should belonjf to, or alternatively should 
 be under the control of, the organizers of the enterj.rise 
 Ihey may obtain it from ordinary shareholders, that is 
 from persons who share the ,,rotits and expect to have 
 to share the losses; from preference shareholders who 
 give their capital permanently at a fixed rate of inter- 
 est; from bondholders who lend their capital for u fixed 
 period or permanently at a fixed rate of interest; from 
 bankers or others for short or indeterminate periods also 
 at a fixed rate of interest; or otherwise. The capital of 
 large enterprises is customarily provided by all of these 
 classes of persons and is frequently provid;d by people 
 who live m countries distant from the locality where the 
 industrj' IS conducted. Industries in .South America are 
 extensively financed by jjcople in the tTnited States- in 
 dustries in Mexico by people in Great Britain, the United 
 
FACTOHS OF Pnom-CTION 
 
 States am] Cnrmdu; iiuliist 
 
 83 
 
 rics 
 
 in 
 
 Great «ritain,r^;;;;;;r;;:j,i;.„«"-''' '' '""'"'^ 
 
 Ihe cxtTi.i.sc. .,f llie f„,u.fi„„ „f the capitalist is „.,l 
 Ie« necessary to tl. «,n.I.u.t of „„ i.ulustr ^ ir ^s,. • i . 
 
 tZTti """:,' ""= ^■^"^'^^- "^ "- '"-!''-"> 
 
 o«^i I "■ • "^ ""^ »"■«'"'•' '" •""»" tl.e place of 
 cap.tal .s .ns.gn.flcant. but it nevertheless exists.' 
 
 24 Funchoi'. m complex ,>ro<luc, ion. -Tlw functions 
 winch are necessarily exercised in complex ^^21 
 may be summarized thus: prwiuction 
 
 orLT'T ^"""''" "'■ *''" ^""d'>ol'hr (individual, ffroun 
 or State) who controls access to land for manufactuH ^ 
 
 In^tSi^r-^ *" "^ "^ "■"^"""^ '" nnne'Sr:^ 
 2 The function of the ca/ntalkt who possesses the 
 
 SidS:;'^-'^"^*'-''^-^-^'^''^-'-" 
 
 hislwotf"" °' ^"'^ """'«'" '"^-^ ^■'- -rcises 
 
 ''t\tTabo"roV''' "'"t ''"''"'' "'• ^'''■-^ -••" 
 , ,J I ^ *^''°"1'' "f "'a"""! labor: 
 
 5 The function of the employer or or^awVr of th-> 
 whole en erprise who interposes his credifand Lcomt 
 responsible to landholder, capitalist, superintendentrinj 
 laborers for the proper condition of the business Th"s 
 person IS sometimes called entrepreneur or undertale 
 
 In the simplest industrial forms these functions may 
 all be rendered by one person; in the most compHcS 
 they may each be rendered by ^eat numbers orp™ 
 The vanous categories of labor, vi..: manual. superS^i 
 
24 
 
 ECOXOJIICS 
 
 
 tend.nff, and directive or employing, cannot be rendered 
 otherwise than by persons more or less explicitly com- 
 petent to exercise their respective functions; but the 
 functions of landholder and capitalist imply possession 
 and do not in a sense necessarily imply personal com- 
 petence The functions may in a sense be exercised bv 
 a child, by a lunatic or by the State; but they are not 
 truly exercised by these, but rather by the persons who. 
 acting in a fiduciary capacity, exercise the functions in 
 tneir stead.' 
 
 25. Law of increasing returm.—It is matter of com- 
 mon observation that an increase of labor will sometimes 
 produce a proportionately greater result than the pro- 
 portionate result produced by the previous labor. This 
 IS not true of all points upon an imaginary scale of labor 
 and result, but it is true of all forms of effort and result 
 up to a certain point. It is true, for example, of agri- 
 cultural production. A given quantity of seed, a given 
 quantity of manure and a given amount of labor will 
 result m a maximum yield from a certain area of land 
 l.ess than these amounts will utilize the land to a less 
 extent than the maximum, but a curve representing the 
 yield would rise sharply from zero and less sharply as 
 It approaches the maximum. The same is true of me- 
 chanical production. A machine of a certain maximum 
 power will produce its maximum only when it is fed with 
 luel, oil and raw material up to the limit of its speed 
 A curve of its output will approximate to the curve of 
 agricultural yield. This is the simplest form of the oper- 
 ation of the law of increasing returns. In a larger sense 
 the law also acts in the expansion of industry, and its 
 action IS especially noticeable in those industries in which 
 
 •The relations of the fartun of produolion to one aEothcr are D,„r, », 
 ,.r.,|,ri«tely diacmsed uoder the head of Distribution. '" 
 
FACTORS OP PRODUCTION 33 
 
 capital is largely employed in proportion to I.bor A 
 
 ever the output, and there are other elements whioh Ar. 
 n«n„o ju,t,fa.,o„ of i„d„.„i.| co„l„„.„„„, j J" 
 
 . bus™, ™pioyi„°;'i "::'^,i „7™;„'^^^^^^ 
 .till p.,„s«d by .„,„„ „ng4T™„ (rs""' 
 
 •Ul, tl,c tacl,„„ of ™„.ge„,e„i o„ . J.pg, ,„|f 
 
26 
 
 ECONOMICS 
 
 brings into existence the organ which is appropriate for 
 .ts exercise through the operation of the obscure law of 
 variation considered in an economic sense. New sources 
 of raw material are frequently discovered and improve- 
 ments in the technique of agriculture and of mechanical 
 industry are constantly being made ; yet the various fields 
 Sr^ *" ^™"^*'' °"^°"^'* "°* *'^"y« ^y the same 
 27. Conditions tchich must be present— The expressed 
 or implied condition in all statements of the law of in- 
 creasing return, viz.: that other things being equal, such 
 and such a result will follow certain action, must be 
 carefully kept in mind. What is increased is the physi- 
 cal output; the price is assumed to remain constant. In 
 a statement of the law the prices of things might be left 
 out of account altogether except for the fact that it 
 IS impossible to add together essentially different ele- 
 ments like material and labor without expressing them 
 in a common denominator denoting value. Thus while 
 the increase of return in respect to physical output is 
 limited by the supply and by skill in the application of 
 means of production, the increase of return in the sense of 
 value IS also limited by the extent of the market and the 
 movements of prices. Indeed, an increase of product, 
 unless demand increases also, must induce a fall in 
 pnce. Thus increased effort may meet with even a 
 diminution of value in exchange. The case is familiar 
 enough when an exceptionally abundant harvest neutral- 
 izes through a fall in price the gain which might be ex- 
 pected to accrue through an additional application of 
 capital and labor. 
 
 28. The law of diminishing returns.— When the law 
 of increasmg returns has reached the limit imposed bv a 
 limitation m the supply of raw material, a limitation in 
 
FACTORS OF PRODrCTIOX 37 
 
 tlie supply of labor or in the i)o« ers nf tl, 1 . 
 l"nitati.,„ in the sn,,„Iv "f j { ' ''''""■'^'•'*> «•• « 
 
 'l"im] for expaLtrn'of •''''"" ''""' "^ '''''" '•*^- 
 
 nor diminishes; itt™^„, ^n^Lr^ ""''''' ^"'^^^-^ 
 
 whenit Tally S2tt/^r,'"' "'^'^ "^ '^°"'^"- 
 
 If theiaborer'f:rs\rr,fVriTer '"^^^^ 
 
 power he breaks down and cannot wo"k a^ TT 
 machine is forced above the .n^^H f„ u- ^ • ^^ * 
 signed and constructed it wii?l Z '"^ '* ^"^ ^'^ 
 
 to the profits anH if ti,« ^crease out of proportion 
 
 •icpiunis, ana It the process IS continiipH fi,«>i, • 
 may come to irreparable ruin ™"*'""''*' ^'^^ l'»«ness 
 
 Such is the law of diminishing returns Then, * 
 conspicuous case of its operation is toT found inT. 
 exploitative industries. In coal minil f„ 1 ^ 
 
 curve indicating production risesTarp?;t.'"'""P''' * 
 der the influence of the law Tf -^ "" ^^'■° "»" 
 
 there isaperiodd^ril'jihlrS^^^^ 
 
 and "nderground"ort ofTS^^^^^ ^^"*"''«- 
 As still more remote seams are attSd r"'"' '" "''*• 
 become more and more rstr«ndtffieuU ' 
 have to be sunk and fresh seams have toU' '?"^*'' 
 
 Eventually the mine produces less ^djet ^1""- 
 donment becomes expedient. If the area Tli T 
 -c of supply of coal for an induVrLT d ' trt. tlie 
 
38 
 
 ECOXO.MICS 
 
 limitation of supply caused by the gradual exhaustion 
 of the mines will tend to check the increase of return to 
 mainifacturiiig enterprises, and to extend to them the 
 influence of the law of diminishing returns. 
 
 Another conspicuous case is that of agriculture. Cul- 
 tivation by means of successive doses of labor and capital 
 results in increasing returns up to a certain point. 
 When the point of maximum return under the new con- 
 ditions of agricultural knowledge is reached, any fur- 
 ther application of labor and capital would result in a 
 smaller proportionate return than the previous doses. 
 In other words, the law of diminishing returns would be- 
 gin to be effective. 
 
 When we come to discuss the question of rent we 
 shall see that the reason for the emergence of rent lies in 
 this law. If it were possible to produce constantly in- 
 creasing quautities of foodstuffs by the application of 
 labor and capital to a small area of land, rent for land 
 for purposes of cultivation could not arise because one 
 piece of land would serve as well as any other. There 
 would be no differential advantage in the cultivation of 
 areas of varying fertility, and therefore there could be 
 no rent. Similarly multiplication of machinery would 
 be useless if the product of the operation of one machine 
 could be carried to infinity. 
 
CHAPTER IV 
 
 THANSPOHTATIO.V A FACTOR IN PRODUCTION 
 
 In^a^ll ^ZV'"''"" "" """ '""'^"" '■" production.-. 
 In all productive operations transportation may be said 
 
 said Jr^T-" ''"* '^ *° "'y' *»-* - thing cannot1,e 
 sa.d to be produced until it is taken out, and to be taken 
 
 ttnlrtat.? 'T^-'^^''- ^" '"^^ extr'active* i tts: 
 tlZ^Uu ^^^^' " '''y ^^'Se P«rt. especially in 
 hose which are concerned with heayy commodities In 
 oggmg operations, for example, the transportat on of 
 the logs from the place of the "cut" to the water "s a 
 
 ber lands th s ,s usually now done by machinery In 
 some coal m.nes electrical trolley line! conv y the coa" 
 m cars from the "face" of the cutting to the bot om 
 of the pit. occasionally for two to three miles The c3 
 - then hoisted by other mechanism to th pi^^he'S 
 Transportation may thus be regarded as a specia branch 
 of production m which the extractive industries and the 
 manuf acturmg industries are equally concerned. 
 
 30. Applied to manufacturing industries—In the in- 
 terior management of factories transportation's an im 
 
 em sr td '''^ """?^'"^"* °' factori":;:;!! 
 
 em design and equipment is such that the amount of 
 
 nioving about of heavy material within the factory is 
 
 educed to a minimum. Every movement costs som 
 
 tl..ng m labor, material and time. An ideaTa rZe 
 
 riTd'ofThe 1 1" "'^ T*™"'* ^' '"^^ -- -s 
 
 one end of the factory and the emergence of the fin- 
 i9 
 
30 
 
 ECOXOillCS 
 
 ished prmluct at the other; or. the factory being arrange.1 
 in a circle, at the point of entrance. 
 
 In another sense, transportation is of the first im- 
 portance m production because the most economical pro- 
 duc^,on takes place when there is easy communicaLn 
 both for the raw materials and for the finished product. 
 In the case of heavy goods this is indispensable, and 
 ^em ly an the case of articles in the manufacture of 
 which two or more heavy raw materials enter. In the 
 
 that the coal and the iron ore should both be readily 
 accessible. The Scottish iron fields were the firsMo b^ 
 «p bited by means of coal because the coal fields wer^ 
 m the immediate vicinity. The English coal and Iron 
 deposes are similarly close together, and the same I Z 
 of the Pennsylvania deposits. The Han Yang iron 
 works on the Yangtse Kiang in China are situatedT 
 tween iron and coal fields, each five miles distant from 
 
 Not less important is it that means of transportation 
 should exist for the finished product. DocksTnd rS 
 way sidmgs provide such means for all large manufac- 
 
 tS r?™'; ^* ^ ^^" ^""^ works'Ibove men. 
 ioned, steel rails are shipped upon ocean steamers from 
 wharves at the works within a few yards of the mX 
 where the rails are rolled. '*' 
 
 Where means of transportation do not exist pro- 
 duction on any considerable scale is impossible. ExC 
 sive mineral deposits are reported to exist in U™ 
 and m the region to the north of the Barren T „nfe 
 Northern Canada; but their e.ploilfirmu^rat;; 
 n^eans of transportation of supplies into the reg^ 
 and of raw materials or finished products out ofTem 
 So. also, the coal deposits which are reported to lie undTr 
 
TRANSPORTATION IN PRODUCTION si 
 
 « *= p... ., «„. fc city ™„., fc. b^,r "£ 
 
 ,T .r .?^ ?*"'™'"° "f "»noi»ic life 
 
32 
 
 KCOXOMICS 
 
 by the wheelbarrow. Wherever, as in all of these coun- 
 tries, animals are scarce and costly, human transporta- 
 tion IS the i-ule. 
 
 Camels are used extensively in Northwestern China, 
 in Transcaspia, in Egypt, in the Soudan and in the 
 Arabian desert. Oxen are used in South Africa. India, 
 Italy. Germany, extensively in the province of Quebec 
 and occasionally in the Prairie provinces. Horses, mules 
 and asses are used everywhere excepting in the south 
 of China, where animals are rare. 
 
 In cou.itries where there are great interior waterways, 
 like China, Russia. Holland, Canada and the United 
 States, a large part of the movement of goods and per- 
 sons in these countries has been accomplished from the 
 earliest times by means of small boats and rafts. Rafts 
 may be seen in great numbers on the Danube and on the 
 Rhine, and occasionally on the Canadian rivers. A more 
 usual method now is for logs to be enclosed in booms 
 m the form of a "bag" and for the mass to be towed 
 by a steamer. Immense bags of this kind are often to 
 be seen on the Cxreat Lakes. Dug-out canoes may still 
 be seen on the Dnieper, for example. 
 
 The prairie trails of modern times are similar to the 
 early roads of all scantily peopled countries. They are 
 not constructed in any sense and they cost nothing for 
 maintenance because they are not maintained. The 
 great roads of early times were military roads, although, 
 of course, they were used for commerce. Many Roman 
 roads are still in use in Southern Europe and in Great 
 Britain. 
 
 The practice of merchants who transported their goods 
 by land in Europe, until the middle of the nineteenth 
 century, was to form large caravans composed of manv 
 carts, sometimes accompanied by an escort. The 
 
TRANSPOUTATIOX IX PRODUCTION 33 
 
 Hudson Bay Company in.itate(l thi. practice Fverv 
 
 "•peg the company sent out from Fort Garry a bri 
 «ade o some two hundred lied River Carts Xh ca 
 ned a large part of the total annual quantity of fur, 
 to St Paul, through which they were sent to Londo" 
 
 ^, fhVlf "' "'"'"""* *''^^^ -""y occasionally be Ln 
 on the Northern Canadian prairies a train of "fightS" 
 or wagoners carrying supplies to settlements leml 
 from railway communication. These "freighters" are 
 generally ,«.//, or half-breed Indians. Priof to 'he 7 
 vas,on of the Canadian Xorthwest by the rai Ly the 
 
 t.on. The disturbance of their economic equilibrium bv 
 
 we^ttSir °"^ °^ ''' ~ °^ '- «-"^ ^-'^ 
 
 F.In' ™P'°r^'"™t °f the main roads throughout 
 Europe an.l Great Britain towards the beginningTf the 
 Sor T r"'* transportation to aV^itch oj 
 pertection. The service of the past was well organized- 
 by means of this service it was possible for travek to* 
 proceed at any hour and to travel day and nLht „t th^ 
 rate of f so to over 100 miles a daracc^ h' 
 tte horsef ' ''"' *'' '^'^"™^*^^ °^ "^ -"ids Inl 
 During the eighteenth century, also, canals were con- 
 tructed connectmg the rivers and lakes and providTg 
 for the transportation of heavy goods. The railway and 
 he steamship, coming as they did practically together 
 n the second quarter of the nineteenth century, rfvolu 
 unused transportation in respect to time. "^ Except 
 n t^s sense, technical progress did not greatly diS 
 .sh the cost, saving only „hen great distances ha^^o 
 be overcome; but they added greatly to the convenien ^ 
 
34 
 
 ECONOMICS 
 
 of traveling and rendered it less fatiguing and, in gen- 
 eral, less dangerous. 
 
 The economic effects of the improved means of com- 
 munication were due principally to the saving of time 
 which they rendered possible. This saving of time 
 meant an increase in the velocity of the circulation of 
 capital, and increased velocity of the movement of capi- 
 tal had the same effect as an increase in its amount. 
 
 88. Opening nno markets.— When a new transporta- 
 tion route enters a rural district previously unserved, 
 except by primitive means, it opens up new markets for 
 produce and therefore tends to increase local prices for 
 that produce because it brings into the field new areas 
 of demand. But a new transportation route opens up 
 opportunities for competition by external traders with 
 the local merchants, and thus tends to diminish the prices 
 of goods which are subject to external competition. 
 Merchants in small country towns have often protested 
 against cheap weekly fares being announced by railway 
 companies on the ground that these induced their cus- 
 tomers to go into the larger towns to do their shopping. 
 In some cases the railway companies have withdrawn 
 the low fares in consequence of these representations. 
 
 In the market centers connected by a new transporta- 
 tion route with the rural districts through which the 
 route passes, the prices of produce tend to diminish be- 
 cause of the new areas of supply which are brought into 
 the field by means of the railway. 
 
 The g dual development of transportation systems 
 through the steamship and the railway served by anil 
 interlocking with more primitive means of communica- 
 tion has resulted in a complicated network of agencies 
 which brings the produce of the incessant labors of 
 Chinese, Japanese and Hindu peasants to every table 
 
TaAXSPO»TAT,„.V ,.V PKODUCTION „ 
 
 Lbor „ .,„ ..ITS, of'SS" .''I r^V 
 wav rear-toH K^»i, ^ capital, and has in this 
 
 resources whJh ecu W ^ol nth '"'"!."' '" •■^'''''' "»*"™1 
 andithasgiventriaborerr^T'* ''?" "^^^ '^'''^''^d. 
 wise would have had Wi^'' """"■'* """" ^' °'^"- 
 
 munication. wages adva^ ™'"'?"' '"'''"'' °^ «""- 
 from the s^me cTu^e treHe 1""' 'T""''' '"*''-^'' 
 
 tion tends to increase thev 1 ^P'"''^'^ communica- 
 
 price rises to a ErwSchil ""■"' '""'^ ""*'' *''« 
 sometimes cauJTrlrJlf'tr':^'''^'''^ '"'J -en 
 value of the land i^the A^lr ^' '""'"'* ''^ *he 
 
 Bukovina and rJ!!^XS;^';:1^ Z^'^^'^' 
 way rates on the Ai.«tr;.„ -i ^ ^'^^ ^°^ rail- 
 
 cause of the er^gr^torfro^^^^^^ "" "" ™P''^-* 
 which began in 1895 17.^ u I P™''"""'' *° Canada 
 
 less actively since S LV '" "'""""^'^ '"°- - 
 
 -rban regions cht[:rar:it/jelTt"''"^ 
 mcreases rents in the suburban dTstrlr On 7^' ""'^ 
 «'ns for the rise of rents in the r .- °"^°f tJ'^ea- 
 ';as been manifest, es;;!;^ ^Le mtVth?- 7''^ 
 •levelopment of radial svsten\« nf 7 '"^*^"°'" 
 
 I'ared with the dev^mlt of « 'T^'''''''"''' *^ «""" 
 the city bo„ndarie"Xt"/w " 17' """'^^ "'*'''" 
 which l^gan with the ho eSr in .h V''! '"^''""'y' 
 teenth.ntur,wase„orI.X-:tSS----: 
 
SA 
 
 ECONOAIICS 
 
 tion, first of mechanical and afterwards of electrical 
 power. The street railway has renJere<l possible the 
 spreading out of the American city over a wide area, 
 and has thus delayed the complete adoption of the tene- 
 ment-house system with great advantage to municipal 
 hygiene. 
 
 Among the economic effects of the development of 
 urban transportation have been the great advance in the 
 price of land in the centers of cities, an increase also in 
 the outskirts within and immediately beyond the mu- 
 nicipal boundaries, and a considerable diminution in the 
 value of land in the intermediate areas. This last is tem- 
 porary because as the population grows round the cir- 
 cumference and as the utilization of the central areas 
 raises the price of land in these, the inner ring of "dead 
 land" will be gradually encroached upon, and its value 
 must advance. Such movements in the prices of land 
 however, depend not exclusively upon the improvement 
 m transportation; this, indeed, is in all cases only a con- 
 tributory cause. Other causes of the fluctuations in the 
 value of land are discussed elsewhere. (See Part ITI- 
 Chapter VII.) ^ ' 
 
I 
 
 CHAPTKR V 
 
 FIRST STAOK IV PRODirCTIO.V 
 
 87. Stage, in . r process of production -The fir,» 
 
 «r3us„f n "/."P'"'*"*-™ or extraction. LarRe 
 
 culture T,r«t J c^'"''r'"T *''"'"• ''"'^ '" "«"- 
 industries "'^ exploitative or extractive 
 
 n>o?oi\s:%C/;;J'T« P^'x^-d they are in 
 are not necessIrSv 1-/.'"°?"""*= '"^ '""'"'«'" 
 on the sitTofT-; eTa^ rittul"'^''^ '-"' 
 
 or less Spia'rsrortr'^^'?'"^'^ 
 
 Hides, for examnlP J T ^^"" Production. 
 
 tothe UnLdTat and Sdri tr, ^^"^'■^• 
 tries they are tanned «nH ,fT ^ ^''^ '""" ^u"- 
 
 finishin/wheXttt^^^^^^^^^^ 
 
 poses. After having Wn finfshei ther •" P"" 
 
 t, "ccii nnisned they are imported 
 
 87 
 
38 
 
 ECONOMICS 
 
 ...to the Uiiited States or Canada and are there made 
 up into Gladstone hags and leather goods of a like char- 
 acter. In such a case tiansiwrtation enters largely into 
 production. " 
 
 When goods are finished they must be placed upon 
 the market, and we may regard the third stage of pro- 
 duction as the marketing stage. This stage also in- 
 volves transportation and sometimes involves as well 
 the services of intermediaries apart from the service of 
 those who have been actually engaged in production. 
 38. Exploitation or the extractive stage of produc- 
 tion.— The raw materials of all products are obtained 
 from the land, from the water or from the air, or in 
 other words, from nature. In the language of economic 
 writers the expression "land" is used as svnonvmous 
 with nature." This usage arose from the circumstance 
 that the early economists were inhabitants of countries 
 the predominant occupation of which was agriculture 
 and thus land and nature were regarded as identical 
 and the term "land" was held to include all the resources 
 of nature. In the process of explmtation. the minerals 
 the plants (including trees), the fish, and sometimes 
 the gases of the atmosphere, are taken from the places 
 m which they are found in nature and moved to more 
 or less distant places where they become the raw ma- 
 terials of further processes of production. 
 
 Perhaps the most important incident in what has been 
 called the "ascent of man" is his harnessing of the forces 
 of nature— as mechanical, chemical or electrical en- 
 ergy—and the exploitation of nature by means of these 
 forces. 
 
 In all ages, knowledge, or science, has played a great 
 part in this exploitation, and no doubt knowledge has 
 sometimes been used for the purpose of exploiting la- 
 
FIRST STAGE IN PRODUCTION 39 
 
 borers as well as material.! Ti, 
 
 cradles. Modds rf tf,7 1? '"'' "" ^^'^' "'""^en 
 Egyptian tont. T eTneS""" '"" /"""'' '" 
 Japan for rolling uTin'll F ^^ " "*'" "^^'^ '« 
 ^truction the h^f/LtXtr^'^^ ""'^^ -- 
 r..et:^t^^^^^^^^^^ ^- the largest 
 
 in aneient tLes of storS'of maJt '"'T' ^''^"^""^ 
 -n.ls suggests that tier ^^iri t ^'■'°™'^ 
 knew how to utilise natural wT and whl T' "'° 
 tives of prudence nf 5.v„.; ^ *"• '^'n mo- 
 
 tery, kep't tirknord^rfl'ST'^r "^'"^^ 
 
 :tXt Xrvt^^ exploitativetrS ag^ 
 
 ent ages, itlLTnTedTp^S IstT'T ^''^'^ '" 
 occupation all othpr „. ^^^f.'^^'* f the only productive 
 
 rivatL. Thl!hout 7 ,T '""^ '^^^^'^^'^ «« de- 
 
 Plain of Europe?;; g LTpatoTc ''l^' ■'''''''' 
 
 t-ei.z^--jnirs^r^*"^"-^ 
 
 prfcti al vT tlTof tT '° ^- ^'"^ ^'^^ -"-tor in 
 freedom W^^^tste^^or ^^^t^- 
 tions were partly personal-thft ; J' ^ "^^'S"' 
 
 render persLfseLcetLyt^^^^^ 
 
 ctssrr j.^-r - >-erLi\i^st 
 
 1^ 
 
40 
 
 ECONOMICS 
 
 I 
 
 owner or to the owner of the land a more or less definite 
 quantity of goods or amounts in money. Under this 
 triple obligation, medieval agriculture was conducted. 
 The system was sometimes veiv oppressive; at all times 
 It was sub^rersive of human liberty and personality; but 
 It was not unproductive. The peasant was inured to 
 hard labor. 
 
 40. Passing of compulsory cultivation.— Thi tran- 
 sition from the obligatory phase of cultivation to a 
 contractual or commercial phase took place in different 
 countries at different epochs. Bv the end of the four- 
 teenth century in England obligatory cultivation had 
 practically passed away; and the class of free hired la- 
 borers had made its appearance. In France compulsory 
 cultivation did not pass until the revolution swept it 
 aside; in Germany it remained until the beginning, and 
 m Russia until the middle, of the nineteenth century 
 Obligatory cultivation in the case of negroes remained 
 in the South' States until the close of the Civil 
 War. 
 
 The system of obligatory cultivation of land had two 
 sides. While the peasant was obliged to cultivate and 
 was not permitted to leave the land allotted to him. the 
 owner of a peasant could not as a rule remove him 
 from the land. There were exceptions in practice to this 
 rule. In Russia, for example, peasants were sometimes 
 sold without land, although the practice was always dis- 
 couraged and sometimes prohibited by the government 
 The owner of the peasant had also his series of obli- 
 gations, not merely to his superiors and to the state 
 but to the peasant. The performance of these obliga- 
 tions was not invariably enforced; but the theory was 
 that the owner of peasants was responsible for them 
 If a deficient harvest occurred and his peasants were in 
 
FIRST STAGE IX PRODUCTION 
 
 41 
 
 land ownership crent infn , . "'r*"°"- Commercial 
 afterward conCS by staS " ^"^'"''' ""^ '* -- 
 
 an^^Jm;:^^^^^^^^^^^ '''^ ^^- of the peas- 
 
 that is, he could seilTt as IL TuT'^ '^' '»"d- 
 he sold or bought subieet to r' ^"^ ^""^^^ '*' »>»* 
 -as occupied. Vte„Sn:w^ TT""* '"'^* ''"'' '* 
 cultivated it. When tZT 'I ^ *''^ P^"'"*"*" -ho 
 he liberated himself bJ?" """' ^'^''"'^^ «>• -hen 
 frequently didTLglandTfhrf"'''"^ ''""^' «^ ''^ 
 the peasant abandoned his ri2 t J „ ''"*'' '''"*"'7' 
 
 words, he forfeited his nr. • . "P""*^>'- I" °ther 
 access to the meanVo n ^"r ^ '"'"'^'"■^^'^ "«ht to 
 recover tWs right by pa^Lg^Tt " Thu^ T' J ""'^ 
 owner of the neasanf W 1 ^""^ ^''^ former 
 When the peasant Tf theZV ^ °""^^ '' '"^^ ^-d. 
 improve his posU jf eSe 7 "^"^' P^'"''''?'' *« 
 iapsed, and wL he reSd upon ttld^^ ^'^ '""'' 
 the prevalence of commercial own u- ' ""^'"^ *« 
 him. his claim came to bStatirbP "T""' ''''°"* 
 at variance with the oldercustoms "" ^"^"''"^ ""'^ ^^ 
 
 traittir^rrrrcr'"^^^^^^^^^ 
 
 siderably to the holdlS of ""T""'*^ ^^^'^ «»>- 
 
 I 
 
4i 
 
 ECOXOMICS 
 
 closure was defended on the ground that it resulted in 
 increased production. 
 
 In Russia, under the Eniancii)ation Acts, the peas- 
 ant became the owner of a portion of the land he had 
 previously been cultivating. After the emancipation of 
 the peasants in Western Europe the owner of the land, 
 now relieved at once of the burden and the privilege of 
 joint ownership with the cultivator, could have his land 
 cultivated by hiring his formerly ohligatory but now 
 free cultivator to cultivate it for him for fiied wages, 
 the produce of the land after the payment of these 
 wages belonging to the owner of the land; or he could 
 let the land to the peasant at a fixed rent, the produce 
 of the land, lesi this rent, belonging to the peasant. 
 
 The ownership of land formerly held under the con- 
 ditions which have been described thus became commer- 
 cialized, and land came to be regarded as a commodity 
 to be bought and sold like any other commodity. The 
 species of land worship which the agricultural com- 
 munity had developed received a rude shock from the 
 profanity of treating land like the movable products 
 of cultivation. Increase of the obligations of the peas- 
 ants and the commercialization of land together pro- 
 duced the state of mind which resulted in the numerous 
 peasant revolts in France and Russia in the eighteenth 
 century. The view of land as common property never 
 wholly died out in any country. From the beginning 
 of the m'neteenth century the resumption of national 
 land ownership was advocated in Great Britain, and 
 later, in the seventies, the late Henry George began 
 his propaganda in California. 
 
 The characteristic economic incidents of medieval 
 land ownership were obligatory labor and immobility 
 on the part of the peasant. In certain phases of the 
 
FIRST STACK IS PRODUCTION 43 
 
 onJy because he was Zner oh ""' """" "^ *''^ '""'^ 
 it- The characteris . ? ^'"'''"* ^'■'"' '^""'^"t^d 
 
 ern period ofTandol;!"'"'" "''''^"''' "^ "'« "^^- 
 
 n»ght be denied acrsot'^ 'I! ""^""' '""""*°'- 
 surrender to the coZunitv ^'."'"■" P'""?"''^'' *« 
 
 of his labor. '°'^'"""'*>^ """"^ portion of the product 
 
 ownership there 1 Li:?"'"" T^'"^ °^ '-d 
 the land was held by the t b ,Tf ' 7 ""'^'' ^'''^'' 
 tribe. Thev mav blvri ill ' ^' ^^'^^^' ^o"" the 
 quired properr but ^b f •. 'j'f """ '"^''^'"^ -^ - 
 ^o the cLrlt^'be,: 4 o' t?e tr ''' Tl ''^'""^ 
 tribal chief controlled thf . 3 ''' ^ '''''°^^- The 
 
 the tribe or ckn onlv J r"*'";" °^ '^' >«"d of 
 
 did in Europe genetlW^^^^^^^^^ '^^'^'•-^'^''- ^ ^hey 
 
 ages, the owLslp of t'^ib an/ b "" °' ''' ""'^''^^ 
 ized in the same mLnJTtu '^'""^ commercial- 
 
 had not been WbT Th,s °""?''P °' ^'*"'J ^^^^^ 
 went on gradulny in tht ^^Sr^Tr?!^^*'"" 
 of Scotland and in Ireland ^fr It ^ highlands 
 
 vivals or memories of tHb„ I ' ^^''' ""'""'"^'J ''"'- 
 
 relations deca;rthe hfef oTr'T"" "^^ '""^ '"^'^^ 
 of the land and th 7 '''"" acquired control 
 
 -a^ed/the otntshipS'r/K^ °'"^''*'°- ^avinj 
 
 ^3. 06K.r; f ?.:L ;;:^^^^^^^^^ commercialized^ 
 
 lummeraai land ownership. The 
 
44 
 
 ECONOMICS 
 
 above is a rough sketch of the origin of modem land 
 ownership. It explains the hostility toward landlord- 
 ism of those races over which tradition has a strong hold. 
 To the Irish peasant and the Highland clansman, the 
 purchase and sale of land is a kind of infamy; and re- 
 moval from their holdings because they did not pay 
 rent was a gross injustice. But such difficulties arose 
 almost exclusively in those areas, in which, from want 
 of natural fertility (as in the highlands of Scotland), 
 or inferior cultivation together with absence of fertility 
 (as in some parts of Ireland), the land had little com- 
 mercial value as agricultural land. 
 
 44. Advantages of commercial land oxmersMp.— 
 In those parts of Western Europe (including the 
 greater part of England and of the lowlands of Scot- 
 land) , where the land was of relatively high fertility and 
 where it had been well cultivated, the agricultural peas- 
 antry found the commercialization of land-owning by 
 no means as disadvantageous. The landowner, even if 
 he had no means independently of his land ownership, 
 ■was able to borrow upon the security with which his 
 commercial ownership endowed him, to provide houses 
 and to undertake improvements which the cultivator 
 could not undertake through lack of agricultural cap- 
 ital. * 
 
 The system of tenant farming thus grew gradually, 
 and the greatly increased production which resulted, 
 on the whole, justified the system. There was security 
 of tenure during the period of the lease (in Scotland, 
 generally nineteen years) and there was freedom of 
 movement. The inferior skill of the agricultural laborer, 
 together with the want on his part of agricultural capital, 
 rendered it difficult for him upon a small holding to meet 
 the competition of the large farmer, and still more diffi- 
 
FIRST STAGE IX PRODUCTION 
 
 HlIl!!."'f**'«'*°ft"eAmer 
 
 4S 
 
 a surplus of wheat tI „? 7' ''*'' ^^^" ?''«'"<''"« 
 farmer wJ,o eiZ\L7 '"^^''»t»«e lay with the large 
 
 «cient '^XZ:nsT:ut'"' r' '"' ^"'- 
 
 with the large landoin *""'""" 8°°^ stocl , and 
 sufficient to proWde "he L ^ 5"' ''^^'' «' "-«"" 
 buildings, to effect Linn T' ^""'"' ^'*'' '^'^^e 
 land in'the fol^orZ^ TTT "P°" ^"^ 
 on the whole, appeared Uhli' , . ^"^ ^^^ '^^ults, 
 siderable siz ; ^nd Thu t t '■"'I 'T '"'"'' "' «"" 
 Britain became an imnor! . ?* ^""""^ '" ^veat 
 class, while rfr^^r^^^Vc^VT""^ "^"■*°-*' 
 either rose into the ^sufon of ? 'T "'""" '"*'' 
 
 into t, si. Of c;"riis::r.at™ °^ ^^-^ 
 the^tttt:'fttrT'"""^™--^''- 
 
 dustry began it ,ji ^'.f *""'*'' ^^nt^^y the factorv in- 
 ter cCrau Vo7Thf sir"^ '"'^^'^ ''°- *''^^«"- 
 
 during the same pert, th"^"'" ""^^'' «''^'-«'^' ^^e 
 grain both in Europe aitr'^'T/^'^^'^*'"" "^ 
 profits from the fLinl rnif^'"'" ^"^ *'"^''"'"''"'ed 
 
 diminished empLvmrt L '"T ""''• *''"^^«'-«' *« 
 
 the beginning ^o^rilrlT^^^^^^^^^^ ^" 
 
 short period during which the nnV J^ ^"^ '^''' » 
 greatly in Englan^d, o ^ toTe "i ?* '''^^"''^'' 
 the farmers prospered nlfl. *he .Napoleonic wars; 
 Peace changed Tllf i """' '^^'' ""'^ '^"t'' ™«e 
 
 about 182oX a^iutraTlah''""'' ''" ^'''■P'^' -^ 
 industrial towns ^ '™""™^ ^''^°'-^'- ^as forced into the 
 
 iS"Ss* whr;!rT. '""^ ^^^*- «^ *e 
 
 -as no more Wablc toT T *'** "' ^^-P- 
 
 ropean systems; yet the demand" *"''• *''''" '""^ ^- 
 . y t tne demand for agricultural labor 
 
46 
 
 ECONO'MICS 
 
 in America became urgent. High wages were offered 
 and inunigration began to draw off agricultural labor- 
 ers from Europe. The alteration in the land system 
 and the offer of free homesteads in the United States 
 greatly increased the attraction to emigrants, and the 
 opening up of the wheat fields of the West was the 
 result. 
 
 46. Return of the small cultivator.~The growth of 
 these wheat fields meant, however, the decay of West- 
 ern European agriculture for a time. The attempt to 
 grow wheat upon land which required constant enrich- 
 ment in competition with wheat grown upon land whi.h 
 required no enrichment at all, was successful in so far 
 as he yield per acre of the former greatly exceeded the 
 yield of the latter; but the wide area of the new land 
 brought into cultivation and the aggregate production 
 m spite of the inferior yield per acre drove the large 
 farmer in England, for the most part and for the tinie. 
 out of wheat growing into sheep grazing and cattle 
 breedmg. and the small farmer into dairying and mar- 
 ket gardening. 
 
 This condition brought the day of the small cultivator 
 round again; because animals in settled countries must 
 m he main be stall fed, and stall feeding involves labor 
 and attention. The growth of the urban centers led to 
 great increase ,n the dema- d for fruit and vegetables, 
 the cultivation of which came within the means of the 
 small farmer. Indeed, such cultivation appeared to be 
 especially adapted to his case. 
 
 Small l,.ldings thus become economicaUy advanta- 
 geous. During recent years they have been advocated 
 on the ground that they afford a means of pi^venting 
 or mitigating the migration of agricultural laborers to 
 the towns. 
 
47 
 
 FIRST STACK IX PKODUCTIO.V 
 
 o{ the land invofved In' h "" ''""^^^ '" *'"= ^--^ 
 described. tJ.ere remaTneJaT ■""'"*" ^'''^'' ''"^^ been 
 
 «c-ter. which attached to rl^ r'"' f"^ P°''*'''«' '^'>«'- 
 sideration gave land pole i„t'.'S. '""'V '''"'' '^""■ 
 enjoyed it or desired to e^ t ^^■''"'^.*'''"'^ "''« 
 apart from the income which wi " P^™""*'-.^ value 
 paid by the tenant farmer, ! "'"*' ''•'"" t^e rents 
 fvation by the ownetZurb h"" *'^ '"°«*^ «^ <^»^- 
 ricultural laborers ^ *'" «^'"PJ°yment of ag- 
 
 r.ntsZivL*ftmTlSjt!tV"' ™'"*"'""^'' "»* by 
 property or from ot;:rso'l'rTr''"T*'' '" "''- 
 ca] consideration attached to L/ f.*""^ P«^'*'- 
 
 >nth the law of primo^.nrf ^ ownership together 
 
 "> Great Britain "o the ao"' "'?' •^''^ ^"^ "^ «»tS led 
 and thus to a quas^moLSron^ -^ lar«e estates. 
 
 Successive reforms^ P , ^"'^ ownership, 
 ^-dually diminish the .^°Ji^"^r^^ 1832 have 
 to Jand ownership, and tbf r"""^'™*''"" »«»'^hed 
 aJarge measure deaSintr "'"''«^-«*-" has in 
 ■" the commercializat^S of i??"'""'' ^ ^"'^''^'- '^^ 
 result. Property n land hi t ™"'''P ''"^ ''-'^ tS 
 '"«ny of the great eJatlr T' """"^ ""hile, and 
 I-ee of land has 1 JfSJ ^Fnl", 'f ^" "P" '^"^ 
 
 --d arising. omtrr;-;iSj--- 
 
48 
 
 ECONOMICS 
 
 distinction which had been traditionally attached to the 
 ownership of land. 
 
 48. Land oxcnership on European continent.— TIk 
 course of land ownership on the continent of Europe 
 has been affected by a somewhat similar course of po- 
 litical change. Tlie destruction of the aristocracy in 
 France during the Revolutionary period and the subse- 
 quent democr::tization of that country commercialized 
 land-owning, and the fertility of the country led to the 
 development of intensive agriculture in small holdings. 
 The growth of the population and the attachment of 
 the people to agricultural occupations led to the splitting 
 up of these holdings into minute fractions. This ex- 
 treme sub-division of land has been the principal cause 
 of the decline of the birth-rate in P'rance and of the 
 ulterior effects which this decline has produced. 
 
 While a great part of the soil of France is under peas- 
 ant ownership, metayer tenancies are common in the 
 south. Under these tenancies the cultivator does not 
 own the soil, but receives it on loan from the proprietor, 
 together with agricultural implements and stock, on the 
 condition that he transfer to the proprietor one-half 
 of the produce. These tenancies also exist in Russia, 
 where the portion of produce retained by the cultivator 
 varies with the renting contract. They are also becom- 
 ing common in the United States, and they are to be 
 found occasionally in Canada. They are practically un- 
 known in Great Britain. 
 
 While large estates continue to exist in Germany, the 
 management of these has been greatly improved of late 
 years. Scientific agriculture has been adopted with suc- 
 cess, and nowhere has the art of forestry been carried 
 so far. In Austria the technique of agriculture has not 
 attained by any means so high a degree. The increase 
 
FIHST STAGK IS I'HODUCTlON ^g 
 
 inc-es of Austria fl,» ,• i "^ eastern prov- 
 
 techn.^,ue a",d c^aS "?' '''^''""^"'-^ "^ "Kricultural 
 
 tion of scientific nie^hJ^V"j ?"'""','''"'' "PP"™' 
 rected agricultural™ ' ""I'^n.ent of di- 
 
 40. Cultivation of ttilipnt wu^ i 
 
 large a proportion of thTr ". 7 "* ^"tributes so 
 
 ■n South America the A™ .'■ . ' ^WPl and 
 » extent lh.t" ri f ""'"T "' "" >*" '» ™* 
 
dO 
 
 ECONOMICS 
 
 migration and emigration have made heavy drafU upon 
 the rural population in hoth countrici, the pnxluction 
 of wheat IS great enough to supply a considerable part 
 of the quantity re<|uired for consumption. 
 
 The production of wheat in Russia has been forced 
 by the monetary, fiscal rnd railway jlicy of the Gov- 
 ernment. By means of differential railway rates upon 
 wheat for export, and a high tariff against imported 
 goods, the cultivation of wheat has been stimulated, the 
 paper ruble has been rehabilitated and a great stock 
 of gold has been accunuilated. 
 
 The production of wheat on large estates, by means 
 chiefly of Italian immigrant laborers, has been an im- 
 portant factor in the development of the Argentine 
 Republic. At one time it was anticipated that con- 
 stantly increasing quantities of wheat would be produced 
 m that country, but the comparatively restricted areas 
 suitable for wheat cultivation and the uncertainty of 
 the climate appear to have checked the increase. 
 
 51. In the United States and Canada.— In the 
 United States the bonanza farm has played a consider- 
 able role in wheat production; but the bulk of the crop 
 IS after all produced upon farms of moderate dimen- 
 sions, the labor upon which is exercised for the most 
 part by the farmer and his family. The advance in 
 the price of land, due to the exhaustion of the free home- 
 stead areas and to the continued influx of population, 
 has resulted especially in the Middle West in the wide 
 extension of the practice of working land on shares or 
 renting the land from the owner. 
 
 The dimensions of farms in Canada vary in differ- 
 ent provinces. In the Province of Quebec the typical 
 farm consists of a long, narrow strip extending at riglit 
 angles to the bank of a river. The houses of the farm- 
 
HHST STMii: IN PHCDLCTION 3, 
 
 era are situated at the en,l ««• n . • 
 bunk. Since the ,tr „! « " " f"'' "" *''« '"er 
 
 ^•lo* together a/K, ""r"^ ""-" '«™l'""«;«. are 
 
 strips have CndfvJrjZu;;'"' '" ""^"-'"^ »'- 
 the original strips and t' h '^''- ?"'"« *" ^'"^ f°™. of 
 
 "f primogeniture such , , f •'""•"'"'^" ''^ '^' P™<^i^-e 
 far. The i.>ench r" , "" " '"" "'""''" ''""'^d 
 
 pl-ymentiitrtwS::;;:'"' ^--'y sought e^' 
 e-xtensivelv emploL J, ' ' '""''^ ""'' ""^ "' "'''''' 
 centers in Canada > '1 '•'• '" "^ '"'^"''t"«' 
 Lawrence to norths,, .,i.h^'\"T'''' J'""" ^^e St. 
 -"me extent to the ,,ra '" "^^°*'"' ""'I to 
 
 «"d -pioymenttc .::: i;;^;, / r r^^'^ 
 
 thcrown province and in .1, '.'J" *'"!''" '""'*» °f 
 The agricultural techm 1 o.' , "l' '^ '""' P"!^'' ^'l- 
 " not high, although effort , '■""'' °^ Q"«''«° 
 
 "•eans of agricultufal edu ation T ""T'*"« '* ''^ 
 made. eaucation are constantly being 
 
 4t^rr; ixtdu" ^"^"^'^"^ --^^ *« -■' 
 
 tion of the western wCS! T^""' ^''^ -"?-- 
 cultivation of wheat tCrTrpU.'' '* ''""^'''^ ^''^ 
 Ontario farn,ers Tave th^ret^'? "^ unprofitable. The 
 
 ing and to the cult S' 0'^"^^^^^^^^ '" "''^^^ ^'"-'- 
 ricultural techniaue h„« 1 "*^ vegetables. Ag- 
 
 -titutes and b;X ft'r" ""^r^^^ ''■^ ^''™«"' in- 
 Vncial Government of at ^^*^*''' "'^ °^ «'- Pro- 
 71 and also o77l;LjZrZ:l '7^ "' " '^ 
 "f agricultural capital has h«>n . ''""^^ '"""""t 
 
 (horses, cattle anj pt);,^" '"•'■"'' '" '''''^ ™«''ng 
 

 Si 
 
 ECONOJIICS 
 
 a homestead or free grant. There are, however, smaller 
 farms in the neighborhood of some of the towns. To 
 the quarter section of his homestead the farmer often 
 adds another quarter section or even more by purchase 
 or by homesteading in the names of members of his fam- 
 ily who are entitled to free grants. 
 
 52. Specialist wheat farmers. — The ease with which 
 wheat can be cultivated and the organization for its 
 sale, due to the universality of the demand, have to- 
 gether conduced to specialist wheat production both in 
 the United States and Canada. The chief economic 
 effects of this specialization may be set forth thus: 
 
 The specialist wheat farmer is dependent upon the 
 outcome of a single crop. He cannot spread his risk 
 over a number of crop operations. In addition to the 
 risk of the season to which all crops are more or less 
 subject, there is the risk of insect pests. If one of 
 these attacks his wheat, the specialist wheat farmer suf- 
 fers heavy loss in the same way as a farmer who had 
 the whole of his capital inves k .' in cattle would suffer 
 loss if his cattle were attacked by disease. 
 
 The specialist wheat farmer further runs the risk of 
 unwittingly taking part in overproduction of -heat. 
 If this takes place the price of wheat falls to an un- 
 remunerative point. The specialist wheat farmer is 
 dependent upon the market organization for the sale cf 
 his product, upon the elevator, the railway, the steam- 
 ship and the bank. If the ])rice of wheat for any reason 
 falls to a low point, the farmer appears merely to be 
 working for this organization, and not for himself. The 
 difficulties of organizing the sale of products not in uni- 
 versal demand are very great; :)ut the economic conse- 
 quences of an absence of diversified production are 
 not less serious on that account. 
 
CHAPTER vr 
 
 AGRICULTURE 
 
 a wide rnlke?ro4t iTj/o'r"^*^ '^ ^""'" ""'^ 
 niodities. while tranfferrce of la.^' ""^ "^ '^° '='""- 
 the production of one c"p to tS°7"'' ^"P'*«' f™'" 
 at least one season. xHr £ of oaf, ""*'" "'^^P'^" 
 yield a higher return n.! .u ""'-^' '" ""^ y^ar 
 
 ditions marbe altered T: .rVfr ^^'"^-^ ''"* *''- -"' 
 
 wheat. ^ ^"™'''' ''°^'' oats instead of 
 
 greater than t'xt " X^tj' ?S? ^T^""-^ 
 amnle taWp n 7«„ a- '»'"""&• i" nut trees, for ex- 
 
 whe'X h ;e7on;To';r^ '"*" '"" "^"""^ -'^ 
 rooted up and repiaced b^- ^ "'T' ^^""""i-ally be 
 
 The -nui:^ ta f rd:ut"alsfb °' '™'-* *^-- 
 cap'tal, but in manv n,«n f . ' *"' specialized 
 
 or less speedi^Ta ~'rrr;te;i ^°:^"'^'"°- 
 such a wav as to divert '"^^''"^'^""er of production in 
 
 d-tion of colo^iti ;S ""' '"''•"• ^'•°'" *•>« P- 
 
 Pr^duetionof those'tlLh^^a'^'^ter ^""^^ ^" ''^ 
 
 then, is inherent StLL, "'T!'"'''''' '''' ">-* 
 
 the farmer can do Lu P e " ."'f '"• T '■""^- ^'"^t 
 uc". He may, for mstance, procure 
 53 
 
5* , 
 
 ECONOMICS 
 
 the kind of stock which will meet the known, and more 
 or less i)ennanent, wants of tlie market— the kinds of 
 beef, hacon, poultry, etc., which the public demands. 
 
 Tlie difference between success and failure maj' often 
 lie in rapid adaptation of the means of production to 
 demands intelligently anticipated. 
 
 54. Agricultural capital and credit.— A\l agricultural 
 communities borrow. The reason for this appears to 
 lie deep in the character of the farming business and 
 in the character of the farmer. The farming business 
 demands, as an inevitable incident, credit at least be- 
 tween the period of j -ing and the period of reaping. 
 This period may be taken as being on the average six 
 months. It is evident that either the farmer or some 
 one else must make advances of the seed and the labor 
 of ploughing and solving, atid must remain under such 
 advances until the harvest time, when the produce may 
 be expected to enable the advances to be refunded. 
 
 But this is not all. The farmer and his family have 
 to be maintained meanwhile. If the farmer has animals 
 for working purposes these have to be cared for also. 
 If he has animals for breeding purposes they have to 
 be supported during the period of gestation. Thus, 
 apart altogether from improvements upon his fann in 
 respect to drainage and the like, and apart from the 
 buildings which are necessary for the shelter of himself 
 and his family and his stock and crops. th« fanner, even 
 if he receives the land gratuitously, must l)e p .vided 
 with a certain amount of agricultural capital in order 
 that he may carry on the business which forms his means 
 of livelihood. 
 
 .55. Farming a hazardoun bii»'neg». —The amtmnt of 
 agricultural capital which is indispensab!-- varies in dif- 
 ferent countries, and has varied at different times. An 
 
AGRICULTURE ^ 
 
 Wely upon the period of ti^ ovl ^~^^^^^ 
 tions proper to the business are ZZZ ■ ? ™' 
 to the total output of thrbusiner ' °" " "''*"°" 
 for wlierS 'ZrT' '"^ P™'^"'=«- °f *he goods 
 
 stage o raw itT^^K 't T'"'^*^^ ^^""^ ^''^ 
 and*^ therefore (SrieyjL '':'**• f «^ '" °"^ '^''y' 
 goods being eliitatef )1tT T""'\'''^ °^ ^'"^ed 
 the daily advance of n«n'>,T^ ^ ^°''^^^ ^^ *""> "^^r 
 The amountTrlk ^r '^ '^''' ^""•^'«' *™^* * y^ar. 
 
 hundredtrLrtTf tfe «7 "Tf""'' '^ ""'^ °"« *'''- 
 i^an or tne annual turn over Tf » «- 
 
 whole year. *°*"' ^°ss for a 
 
 The latter is the ease of the farm TK« * 
 " the nature of his business. turnTer hTstllrr T 
 on. e a year. If « «f,>„, * advances only 
 
 large reserves if continuity is To h!" f"''' '*''""•<' 
 
 '■an be provided for X bv th. /'T'"'- ^""^^ "^"^^ 
 individual reserves or )1 " "'^'•' "'^^mulation of 
 
 involves, ofTur/e Z^ '"Tr '*• '^'^^ '''«^'- '"^thod 
 - "bWo^sly'peT^r „T '7"' ^'^ P'^™™- I* 
 
 «.fficient eapiS f:" Ih /alliVr ""^ *° ^'"^'''^ 
 ineir agricultural operations, plus 
 
j 
 
 i 
 
 I 
 
 56 
 
 ECONOMICS 
 
 the premiums of insurance upon the various risks to 
 which this business is subjected. 
 
 But the farmer, however jrood an agriculturist, i;, 
 rarely a good business man. >\'hen he has a bountiful 
 crop in one year, it is difficult to convince him that he 
 may not have as good a crop the following year; and 
 even if he reahzed that condition quite fully, the fluctu- 
 ating nature of his business tends to make him careless 
 of the future instead of more careful. There is nearly 
 «s large an element of gambling in farming as there 
 is in mining, especially in farming which is confined to 
 one crop. These conditions have resulted in the phe- 
 rwmenon which appears in ail ages, under all conditions 
 of land ownership and of ownership of capital and under 
 all phases of serfdom and of freedom, namely, the phe- 
 nomenon of agricultural indebtedness.' 
 
 56. Farm loans.— This indebtedness, while character- 
 istic of all farming communities, is not universal within 
 the communities. There is to be found in nearly all 
 agricultural districts a class of farmers who are shrewd, 
 frugal and avaricious, and sometimes another class 
 equally shrewd and frugal but without avarice. The 
 latter class it must be allowed is rare. They do exist, 
 however. In the Province of Quebec, for example, the 
 author lived for several months in the house of a hab- 
 itant of this class. He had lent a considerable amount 
 of money in small sums to his neighbors, and he had 
 charged them only five per cent, per annum. In On- 
 tario the other class was common, especially before the 
 extension of branch banking into the rural districts. 
 They exacted usurious rates of interest. 
 
 'Oii the univiT^lity of aKriruItiintl Imlc 
 
 ^i-ilnoss see, e. g.. Sir P. A. Nichol- 
 
 son's "Report on Uad and Agriiullunil Ilanks in the Ma.lr.Li Prcsidei 
 
 ;nc,y," lK9i. 
 
AGRICULTURE jy 
 
 lenders from private bankers, from loan companiesanrf 
 
 rom the regularly chartered or authori"e"3kT The 
 
 large farmer who possesses some agrieultural ca Jta! 
 
 eral Jittle difficulty m securing what money he wants 
 for agricultural purposes, but the small farmer isTa 
 d^erent position. His needs are smaller Than tiose 
 
 "emnd those needs because his resources are slender 
 
 l,.u ^"f *^"\ ^•'^■'^ ^'-^ higher cost of anvtlun^ »,.„ 
 
 rchased m minute instead of i.i wholesale .uantiti: 
 the^cost of capital in small amounts is relatively 
 
 fo/*th^„V"-*' ''"T"'"- '"'' '" '"'•^^ '"<ii-idual amount 
 for the provision of agricultural capital so-called. Yet 
 .n many countries the provision even of this smal 
 
 rZZ'^'tf'^''''''''-''y- ThesnSalTnero 
 I e amount which it ,s necessary for a farmer to possess 
 to procure, m nearly any country, is very striking T 
 lie northwest of Canada an European peasant tcus" 
 omed to make the most of his small capital wol Zk 
 hat he had an extremely favorable start if he had $250 
 obegm arming with upon his 160 acres of LmeS 
 and He could not cultivate all his land with his capi- 
 
 t e first '"'.' ™''''"*^ "' '""'^'' - '« eustomarX 
 the first year of occupation. With this amount, which 
 
 ...leed IS relatively high, the capital required under 
 
 omestead conditions might be put at $l'.,0 ^r act 
 
 1 1 e conditions vary according to the land and a^ording 
 
 to the personal requirements <,{ the farmer. 
 
58 
 
 ECONOMICS 
 
 37. The farmer inevitably a borrower.— The amount 
 i>f capital which is indispensable must be obtained, and 
 the farmer is thus inevitably a borrower from the begin- 
 ning of his enterprise. Moreover, the farmer frequently 
 borrows not merely money but stock and implements. 
 For these he pays in interest a high price. Even where 
 the implements are nominally his own, he has really em- 
 ployed his credit to procure them and has paid a high 
 rate of interest for the accommcxlation. 
 
 In the Northwest Territories of Canada, prior to about 
 1890, the then small farming community was seriously 
 handicappp'l by the practice of borrowing. Interest for 
 sums of moderate amount up to two per cent, a month 
 was not uncommon. The gradual extension of the 
 branch banking system has eliminated the private banker 
 either by competition or by purchase of his business by 
 a chartered bank. Such rates are therefore unknown 
 for "good" loans. In France, Germany and Italy usu- 
 rious loans are still prevalent. Enormous rates which, 
 however, are usually not recoverable in the courts of law- 
 are sometimes extorted from the unfortunate peasants. 
 58. Evil of usurious rato.- Where usurious rates are 
 charged the farming community rapidly declines into 
 a condition of debt dependency. The position of the 
 farmer becomes httle better than that of a serf to his 
 money lender. This has been almost literally the case in 
 Italy, where sometimes a peasant enters into a contract 
 not only to pay a certain amount of interest in cash, 
 but even to render one or more days of labor a week to 
 his creditor and, in addition, to supply him with vege- 
 tables without payment. Such incidents are precisely 
 the same as those by which the serf discharged his obli- 
 gations. Partly owing to the revivification of Southern 
 Italy through the savings of Italian emigrants to Amer- 
 
AGRICUT^TUnR 
 
 "'urts) of inducin/f«™ ! u ^''P""^** '" ^''^ '•'^ 
 
 t'.ey may trufe^L;.rpVs^lT " ''''V'"' 
 usurer. While th^,„ ^? *''* P"'^^' °f the 
 
 ^eneraleSofllTsuKl^r.^^^^^ 
 
 -wing and to stimulate savinuTf „„^t , ^. '*"" •""- 
 
 "f keeping out of the usu^/utS ^'^ ^^^"^ 
 
 ^^^rSsroSi.rs;te?--- 
 
 land baZ^I ^i a/rr'^*"^^ '^ P"^'"*^ '-^ers. 
 established in 1 " «^^^^ have been 
 
 nieans of funds suppZTaZl^r'T .^'""'''^^^ ^^ 
 ».y enthusiasts for SVeTo™ Th/ 1. ""f P"*'^ 
 creased facilities for borrrwinTand 'Lh! H "'^'^ '"- 
 
 '-S. ItTn;itbsre Va^^^^^^^^^^^ 1 ^^^'^^^^ 
 Jitions loans were nr,t J / , ^''^ ^°™*''' «">- 
 
 ;^ the. being^droV e:=rsi::^^^^^^^^^ ,T7 
 
 ^:?ebtd^S,ra;i;' ''-' ^" -ensCte Jset 
 ^^^^^^ in the small farmmg communities has taken 
 
 -r^hfn^Srit^crn^^^^ 
 
 haveenabled the ffr,^! f k '^""''*'" ^"^ borrowing 
 ^-. Tjelncrease oT '"'"' ''^*^"^"'^ '«"d h^'d 
 
 valueof la'd^hr i^dreXmTo ""'/'^ '"""'^^'-^ 
 P-d homesteads inordSt^ulrilfd^:^^^^^^^^^^^ 
 
GO 
 
 ECONOMICS 
 
 hold for speculative purposes. They have usually insuf- 
 heiciit agricultural capital to utilize the additii.nal areas 
 and they could with difficulty fiud the labor to do m 
 even if they had sufficient cajiital. 
 
 In most cases the land is [ irchased from the railway 
 companies out of their land grants, and is payable by 
 mstahnents. The farmers are thus driven to save out 
 of their yearly income a/i amount sufficient to meet 
 these mstahnents, the currency of which is usually ten 
 years. The optimism which is characteristic of the 
 northwest has in many cases led the farmers to enter 
 Hito obi.gations to meet which an uninterrupted series 
 of hifiJ.y successful years would be necessary. 
 
 CO. Far7n mortgage».~MoTtga^ loans upon im- 
 proved land are customarily effected through loan com- 
 panies and so-called trust companies, of which there are 
 a great number, most of them having their headquar- 
 ters m Montreal and Toronto. These companies in gen- 
 eral will lend upon first mortgage upon improved land 
 (i.e., land a certain proportion of which has been brougiit 
 mto cultivation and upon which fa^m buildings have 
 been erected) an amount equal to about $1,000 for each 
 quarter section of 1 60 acres. This rule, which is flexible 
 according to conditions, the amount seldom exceeding 
 $1,000, and occasionally falling short of it, applies in 
 general to Manitoba, to the greater part of Saskatche- 
 wan and to Xorthem Alberta. 
 
 The usual rate upon such a loan is seven per cent. 
 Since recoverj' of interest or principal by process of law, 
 should this be necessary, is more expensive in outlying 
 districts than in those near the centers of population, 
 the rate is sometimes higher in these districts. In dis- 
 tricts where crops are uncertein, owing to deficient rain- 
 fall even in normal seasons, such companies will eitlier 
 
 not 1( 
 
 whicli 
 
 again 
 
 61. 
 
 ativel; 
 
 the ni 
 
 have 
 
 financ 
 
 of Ian 
 
 tion m 
 
 but me 
 
 is true 
 
 the leu 
 
 and thi 
 
 paymei 
 
 ous los! 
 
 e.vcessi' 
 
 series o 
 
 The! 
 
 in gene 
 
 crease c 
 
 mand t( 
 
 uted hd! 
 
 mand a 
 
 The J 
 
 been du^ 
 
 gions ah 
 
 that so J 
 
 been far 
 
 striiction 
 
 numbers 
 
 has the 
 
 >est time 
 
 is annual 
 
AGRICULTURE „, 
 
 against loss through infer JL'X '""™""' 
 
 iion n,ay Lb,e h^ JlS ^L itfat'TST 
 but nieanwhile he is rich in land and po.,nn moLv It' 
 
 he lendmg companies have been placed at long date, 
 and that so „.ng as the farmer can maintain hisltere J 
 
 uXs 1: hir^^^r r^ ""* ^^ ^"^ -se o?n : 
 
 vlss ve eZ th" ."f '" '^^"^^'^^^ h-e not been 
 sen^rndantXs '""^ "°* ''^ ^ --~s 
 
 The solvency of the western farmer appears, however 
 n general to rest upon the maintenance or upon an .n 
 crease of the price of land, because the snecuTatirde 
 mand to which the farmer has himself kS contrib 
 "tea has anticipated an increase in the price Sou^hde' 
 mand arising from new immigrants ^ 
 
 The growth of the towns in the northwest has not 
 been due exclusively to the growth of thTt 
 f ns about them, b'ut has beTdut tge y ^Kt" 
 hat so large a proportion of the immigrant have not 
 been farniers. The deman.l for labor for ra Iwrc^n 
 stniction has provided means of emplovmenf Z. i 
 
 Has he per,o.l,cal demand which arises during bar 
 
 annual. The former, however, is liable to suspension 
 
08 
 
 ECONOMICS 
 
 whenever the railway companies .uapend their policy 
 of constructing branch lines. The three main lines of 
 railway are almost completed, and furtlier multiplica- 
 tion of these is unlikely for many years, but the build- 
 ing of branch lines may go on indefinitely. When tht 
 Canadian Pacific Railway was finished to the coast, the 
 population which its construction attracted rapidi^ 
 me ted away. This phenomenon is not likely to occ.r 
 to the same extent when the Grand Trunk Pacific an.l 
 the Canadian Northern Railways have completed their 
 main lines, but some disposal and redistribution or even 
 emigration of the large population employed in their 
 construction may be counted upon. 
 
 ,^f■,\^[?' "* *'^'"""'^^— In th« Canadian Bank Act 
 (1918) there is a provision which enables the chartered 
 banks to lend money to farmers upon the security ,.f 
 their crops. This provision may only explicitly legalize 
 a practice already previously in vogue. A bank migi.t 
 at any tm.e lend a farmer or anyone else money on Im I 
 personal security only, and the fact of the existence 
 of the crop might be an important element in the deter- 
 mination of the bank as to whether the loan should be 
 made or not. Yet the new provision enables the bank 
 to take from the farmer a lien upon his crop. If this 
 were to act as an inducement to the farmer to borrow 
 when otherwise he might not do so. the provision might 
 be very mjurious to his interests. If the provision ha.l 
 the effect of enabling the bank to secure a lien upon all 
 the movables of the farmer, although there was nothinR i 
 to prevent the proceeding in the earlier acts, the mtrc 
 existence of the provision might militate against tl>e 
 fanner s general credit. In any case, the provision .Iocs I 
 not appear to increase agricultural credit in any w«v 
 although it might in certain eases give the bank a pnf- 
 
AGHICULTUKE g^ 
 
 bank the farmer's XereSleor ™"' "^ "'"'•'' *"'' 
 
 which are so«" « 2 l"'/?"'''':" '""" «■'«-'«'-"<.. 
 
 pawnbroker. The 52^^/ ! ^"'"^ "^"«'- ""^ the 
 tion,. find L^LrTtol '' "'^''''' "'^''^ ""•^i"" 
 
 tl.at the smaira^of ul ; «' ■" ™' '"^- '^^'y «"<! 
 heavy costs ' Wheler t£ "''T'' """'"*''' «'"'-eIy 
 and ihethe thTy bt in t'hr*" '"^ ^^'^^ "' '"""^y- 
 di^ed semi-benevoS i^ /f 7'" '"'"■'^^* "'• '» ""^si- 
 
 more than t^teausf th^^^^^^^^ ^'^^ ''"'^ *" P-^ 
 ties. ""*^ ^''^y '"■y "' smaller quanti- 
 
 especially in Italv «.T /" '"'''^'"P'^ent in Europe. 
 
 advocatS ortietrlrof "T ''''' '"'- ^-" 
 
 b.v a bank sustSned bv^ '''"""^ **"= ^'""^^ "''"••«•■ 
 The chief advocates of%: 3^^^^^^^^^^^^^ ^-li"? society, 
 banks have been Prnf„ ^ cT! ''"""P^'"''*'^* «='-edit 
 
 humanitarian t?i J X bi'nihf ^'"^'^''' ■^''''- 
 conservative social reform in GeZ *''^ ""'""P^ng of 
 and Mr. Raffeisen h,.^ ''ermany for many years. 
 
 Ti,« "^"^'Sf n. hur^omaster of FlammersfpM 
 Ihe co-operative crprfit Ko^i, '"""nersield. 
 
 feisen is a very sTm„r^ *"' '"^^^^t^d by Raf- 
 
 ">e society p,7drt?elcTr;'°"-, ^"^ ™^'"'-" °f 
 and loanj and^ lend X ' ' ''' '""'^ '^^P°''*» 
 There is no share tpitaiandTer ""''"^ *''^'"^^'^^''- 
 The liability of each member nf ""■' "° '^"■'■'^^"•^''• 
 
 The system on the wht Istr'^ '' """■'"'*'^''- 
 
 I" the ^rm described or -.Xrri^^rX 
 
MraocofT DEsoiurioN test cmaut 
 
 (ANSI ond ISO TEST CHART No 2| 
 
 1.0 Irl^ m 
 
 ^ - is ilia 
 
 I.! 
 
 ^6 
 
 I 
 
 2.0 
 
 11.25 11 u 
 
 1.6 
 
 ^ x^PPUED IMHDE In 
 
 ^65 5 East Wom SUfet 
 
 (716) *ei - OJOO - Phorp 
 (716) 288 - ^989 - Fa. 
 
64 
 
 ECONOMICS 
 
 been adopted in Germany, and in Italy, where usury 
 was even more prevalent than in Germany, and it has 
 been adopted on the strong recommendation of Sir 1". 
 Nicholson in the Province of Bengal and in the Punjab 
 in India. 
 
 The success of the system in Germany and in Italy 
 may be ascribed to three causes: (a) the prevalence 
 of excessive usury in both countries; (b) the absence 
 of banking facilities of a regular character, especially in 
 the rural districts; and (c) the greatly increased pros- 
 perity of Germany in consequence of the development 
 ot industry, and in Italy, in consequence of the revivifi- 
 cation of the country through the savings of Italian 
 emigrants to America. 
 
 In India, also, the prevalence of village usury offered 
 favorable conditions for a reorganization of credit oti 
 a commercial basis, and the minute amounts involveil 
 in the loan transactions rendered voluntary and unre- 
 munerated management indispensable. The establish- 
 ment of co-operative credit among very poor peasants 
 is unquestionably a sound and wise measure. 
 
 It is, however, questionable whether the system of co- 
 operative credit is susceptible of wide extension in coun- 
 tries where the conditions are different from those of 
 the countries in which it has been successfully estab- 
 lished. 
 
 64. Vmry gradually vanishing. — In the United 
 States the competition of banks has probably almost 
 totally eliminated usury, so far as the provision of agii- 
 cultural capital is concerned; in Canada we have seen 
 that usury existed and perhaps in remote places still 
 exists; but it is by no means common. The facilities 
 afforded by the chartered banks have undoubtetlly on 
 the whole rendered the business of the usurer very bard 
 
AGUICir.TURE 
 
 65 
 
 to conduct. When the cliartcix.l hanks l)egan to open 
 hranches in the Xortlnvest the private bankers and tile 
 well-to-do money ienihng farmers gnnnhled at tlie fail 
 in tlie local rate of interest. Thev found it was im- 
 |)ossible to make a living from money lending in com- 
 petition with the hanks. The banks took at once all 
 the good accounts and left the doubtful accounts to 
 the money lenders. The competition of the Canadian 
 chartered banks has resulted in their establishing 
 hranches in the Xorthwest in every direction. Practi- 
 cally wherever there is an elevator there is a hank. 
 
 Jloreover, in those countries in which the co-operative 
 credit system has been found to be successful, there is 
 no development of credit institutions such as the 
 loan and trust companies to which reference has pre- 
 viously been made, nor is there such extension of trade 
 credit as is to be found in a country like the North- 
 west of Canada, for example, where a farmer pos- 
 sessing improved land is urged to accept credit by the 
 vendors of agricultural machinery who comjiete for bis 
 trade. 
 
 Co-operative credit without the organization of co- 
 operative credit societies in any formal manner is. how- 
 tver, not unknown in the Northwest. Farmers who are 
 well acquainted with one another, and who desire credit 
 for the purchase of seed or implements, spontaneously 
 form groups for mutual credit. They draw a i)romis- 
 sory note for a certain amount due at a certain date, 
 Rciierally after the harvest, for a sum which represents 
 the aggregate of their requirements, and each member 
 of the group signs this document and receives his share 
 of the proceeds. The WTiter has seen in the branch 
 banks in the Northwest of Canada notes of this kind 
 with a hundred names attached to them. If the lead- 
 
 C_I-5 
 
06 
 
 ECONOMICS 
 
 
 irig n.embers of tlie group are known to the man- 
 ager of tlie local i)raiicli of a chartered bank, there is 
 usually no difficulty in discounting the note because 
 each of the drawers is jointly and severally liable to 
 the extent of his means for its j)aynie!it. This form of 
 co-operative or mutual credit is very common and has 
 greatly facilitated the establishment of many of the for- 
 eign settlements. 
 
 65. Co-operative loan societies less necessary than for- 
 merli/.— Since 1890 the Northwest has been borrowing 
 heavily from the East, and through the East from Eu- 
 rojie. Further extension of credit may be necessary, and 
 an increased number of credit institutions may be neces- 
 sary also; but the jirofessionalization of banking in the 
 United States and Canada has rendered it less necessary. 
 It is now much more difficult to establish small local 
 credit societies whose powers of obtaining capital at 
 lower rates of interest than the rate of chartered banks 
 and loan companies must be limited. Moreover, the 
 credit sj'stem of the country is on the whole so well or- 
 ganized and is subject to so effective competition that 
 local co-operative credit associations would be likely to 
 procure only the doubtful business, or that business 
 which the banks and loan companies would not care to 
 have because of the risks involved. They might thus 
 serve some who are not now served; but the absence of 
 ' the more certain and profitable accounts would probably 
 prevent their business from being large enough to allow 
 for the losses they might sustain by pursuing a policy 
 of generous lending. 
 
 ^loreover, the farmers all usually require advances 
 at the same time. The provision of these funds taxes 
 the resources of the banks, although they have access to 
 the international money market; it is difficult to believe 
 
AGUICUimUE „7 
 
 that the local co-o,.erative assr.ciations ,vo„l,l he ahle 
 
 re Me o the „rg.„,j,ii„„ „, „„ „,„ , " 
 
 ^^«iponhe;or;;j^;r;st^E 
 
 Begin with, set aside a certain quantity for seed"an,I 
 
 Botro?tir''-^' V ~Ptio/of V'tX 
 Both of these quantities are in a sense fi 1 The 
 farmer .-ill under normal conditions, sow at tast as 
 much seed m any particular year as he sowed the pre 
 
 -ins is the quantity whichTstj,: eTsal^ tJI: 
 ;t;n events is the case under normal farn^ing co^ 
 
 -mc of |„. ,,ve stock in order to save grain, and per- 
 
 fll 
 
I 
 
 68 
 
 KCONOMU'S 
 
 > ■■■■ 
 
 niA^ 
 
 haps even (liniiiiisli tlic ciinsiiiniJtion of grain in his fam- 
 ily by substituting some otlier foodstuff.' 
 
 When a surpl'is accrues the farmer lias to choose be 
 tween selling it immediately after harvest or keeping 
 it. In the former case, where the market is a restricted 
 one, the farmer sells his grain at the jjeriod of the year 
 when grain, being in abundant supply, is normally at its 
 lowest price. In the latter case tiie farmer incurs the 
 risk ant' cost of storage. Under the existing conditions 
 the grain market is not restricted ; it is, on the contrary, 
 world wide, and the seasons of harvesting in different 
 countries do not coincide. Thus the period of harvest 
 in one country, or even in many, may not be the period 
 of lowest price. When the farmer holds his wheat lie 
 runs the risk of obtaining a lower price, although lie 
 also has an opportunity of obtaining a higher priee 
 should the market advance. 
 
 If, however, the farmer decides 'o sell his wheat im- 
 mediately after harvest he must take it to the raihv;iy 
 station. In the Xorthwest of Canad™ tliM is sometimes 
 a serious undertaking. The roads are often in bad 
 condition at this jieriod, and if the distance is consider- 
 able, twenty-five miles for instance, the farmer will need 
 to weigh the advantages of keeping his horses at tlie 
 l)lough, utilizing the fine days of the early fall for tlie 
 purpose of ploughing, against the advantage of gettinj; 
 his wheat to market, lie has to consider that later in 
 the season he cannot plough, and the roads will be in 
 good condition after the first touch of autumn fmst. 
 But if he decides to wait he nmst not wait too loii),'; 
 for after the beginning of November he will find it dif- 
 ficult to get his wheat out to the Great I.,akes before 
 the close of season. 
 
 'See remarks and illustrations in Part IV on Consumption. 
 
AGitici-r.Tfui: 
 
 e» 
 
 nnhuj l,c. l.as a .Lou-e of two n.c.tl,o,|.s of ,|i.s,,o,si„K "f 
 t; He ,nay .so.l ,t to local flour .niH, to k- Kro,.„d o 
 IHS ..w,. acx.ou„t or i.c „,ay co„.si«„ it to agents i V^ 
 
 I'Z' ',"''"'"*''• '" ''"«■"'"• "■• - I-er%I >r si 
 
 he « ,11 have to run the risk of the priee .t which his wE 
 will eventually he realized Undlr tl,„ ^r ,V 
 
 \„f n » • "^u'l'iu. L nder tlie ^Manitoba CJra n 
 
 Aet, the farmer can, by jfiving notice to the railway eon 
 pany he sure that a car for his shipment will be'ia" 
 
 farm rt -^f'^Ir r tZ T^'^*" *'"^ ^^ '^'^ 
 • ' "' course, take the gram to an pl^vnt^^ 
 
 comj.„y.,d sell it outright. receLgthe^^^^^^^ 
 
 So far as the price is concerned the farmer and the 
 elevator company are on exactly equal terms for bar! 
 ^umng, because the price at any railway station set 
 act> the same as the market price at Fort w;ir 
 ("•l..ch is the point of shipment' on th G^t L ke'sT 
 less a constant, which includes freight to Fort wSlilm 
 and all elevator charges. The mtrket price at Fort 
 n .ham ,s based in turn upon the Chicago and Live 
 pool pnces. Advices upon the fluctuations in thL mar 
 ets are practically equally available to the farmer and 
 to the elevator company.' " 
 
 <i8. EHablishing grade and quality. -There is how 
 ever ancH^r element. The price bein^g fixedTnVend- 
 en ly of the farm-r and of the elevator company by the 
 
 t^rn„ned, because upon this depen.ls the price of the 
 
 1 I'.. ■• 
 
 in tlie 
 
 ^CZ^^. """'"''"'" '*'™""-'""i-"'atio„ore„U„.a„d^« 
 
70 
 
 ECONOMICS 
 
 imrticular lot hikhi tlie scalf fixed from day to day at 
 Fort William, and from moment to moment on the 
 Corn Exehaiiffe at Liverpool and in the "Wheat i)it"' 
 at Chicago. It seems that from the point of view of 
 the farmer, the elevator company always grades his 
 wheat too low, and from the point of view of the ele- 
 vator company every farmer thinks that all of his wheat 
 is No. 1 Hard. The estimation must be a rough and 
 ready one. The question of quality could easily be de- 
 termined on a scientific basis, but there is no time for 
 this. Even the Government inspection of wheat is of 
 a rough and ready character, and the standards are sub- 
 ject to fre(iueiit change. The problem is a very diffi- 
 cult one. Uj) to the jiresent time no real solution has 
 been found. Disputes between the farmers and the ele- 
 vator companies having become freejuent, a Grain 
 Growers' Association has been formed for the purjiosi' 
 of dealing with the question co-operatively, and tiiis 
 association has had a considerable amount of succtss. 
 
 69. From elevator to market. — If the farmer conies 
 to terms with the elevator company respecting the 
 grade, he receives a check upon a local bank for the 
 amount due him — grade and market price being the o !y 
 elements in the calculation — and the farmer's interest in 
 the grain ceases. This is the normal course. If the liKal 
 elevator is filled with grain, and it is impossible to get 
 it conveyed to the central elevators at Fort William hu- 
 cause of the scarcity of cars, the system does not work- 
 so smoothly. The elevator company may refuse to take 
 delivery of wheat offered by the farmers. Th's, how- 
 ever, rarely happens. 
 
 The grain having passed into the hands of the ele- 
 vator company, it is placed in the elevator with other 
 grains of the same area and the identity of each par- 
 
.Attuicri/n'HK 
 
 rf '' 'H 
 
 'Iciilar lot is at onct- lost. The- el. 
 lip its carloads and sends tliini ,,(} 
 
 levat 
 
 71 
 
 or company makes 
 
 lis rapidly as 
 
 to Knrt Will- ^ rapidly as possili e 
 
 1 > i ort W ,11 am. wl,ere the ^ndn is transferred o |,„,rc 
 .levators and then loaded on steamers which eonv v i 
 ™ tlie (ireat Lakes to «M,ralo on Lake Kr e' to 
 Mcmtrea or to Depot Tlarhor. At Montreal th «;. 
 IS baded upon ocean stean.ers; from the lake poSs it 
 IS transporte.1 hy rail to Portland. Hoston or Phi l^.l 
 I iia, or by rail or canal and river to New York r 
 ^ ipment to CJreat Britain. The strean. of ,Jn le j 
 
 .--rt:^^:;;sr"r^r;h;=: 
 
 c banks, rius hey do upon the security of each par- 
 '1 "f gram as it ,s transferred to the railway company 
 
 qwrea for the movement of the cro,, is so great that 
 
 prepa.a,o„s have to be made for som'e time bef reha , 
 
 rmerly the Canadian Hanks provi<led a portion of he 
 
 nds necessary for the movement of crops n the l Jnit^I 
 
 . ates; nowM,e Canadian requirements a're large enough 
 
 ;:r;:D:eemr."^^^^ '"'"« "'^ '-'^' ^-- «^1'*- 
 The documents-grade certificate, bill of lading and 
 the drafts-are forwarded together at the time the 
 ^t as shipped, and the Canadian bank is redite. 
 ■n London with the amount which has been paid on Tt 
 account as soon as the wheat arrives 
 
 neerned, is the final process, is achieved only bv the 
 -operation of a great number of voluntary agencie 1 
 ^.Iways. steamships, banks and elevator companies-H.e 
 
 i 
 
74 
 
 KCONOMICS 
 
 coniliined cnpitnl of llicse «;^cncios being vastly in ex- 
 cess of the agri iilturiil eapitai employed in the pnKliie- 
 tion of the wheat. Tlie stiviivs whieh tliis intricate 
 organization renders are necessary under iniMlern eondi- 
 tiiins in order to transfer rapidly eoniniodities from one 
 market to another. Wiiliout some siieli series of agen- 
 cies the '"armer would lie unable to dispose of his sur- 
 j)his wheat, and the JJuro|)ean consumer would have 
 to pay a much higher jirice for wheat locally jjfoduced. 
 iixleed, the large industrial town would be an impossi- 
 bility without the eo-oi)eratioii of the long series of ac- 
 tive agents which begins with the farmer and ends with 
 the buker. 
 
 I 71. IVI rat market mont hiffhli/ organized. — The mar- 
 
 ket for all farm j)roduce is, however, by no means so 
 effectively organized. The chief reason for the effec- 
 tiveness in the organization of the wheat trade is tlic 
 universality of the demand as well as the elasticity of it. 
 The saturation jwint or the point where there is iid 
 further increase of demand, even though the price be 
 reduced to a low point, is high in the case of wheat. 
 Oats and rye, on the other band, are not so universally 
 demanded, and their saturation iwint is lower. Wheat, 
 unlike vegetables, fruit and dairy produce, does not (k- 
 teriorate .so long as it is kejit dry. It may lie kept for 
 a long period of time. Organization on the same scale 
 as that applied to wheat is therefore not applicable to 
 any but a similar commodity. Attempts have been 
 made to organize the fruit trade, especially in Canadian 
 apples, but the difficulty of standardization and the re- 
 luctance of the growers to submit to marketing rej>ii- 
 lations, together with the perishable nature of the fruit, 
 have rendered the organizatioii of the market for fresh 
 fruit very difficult. Cold storage has facilitated the or- 
 
AOIU(ll.'irn|.; 
 
 73 
 
 I Noine 
 
 Kimization of the nmrk.tC.r fruit milk I „, 
 
 «'tl.er ,R.ri.slml,le ,,r,„hK.c.. '"" "'" 
 
 72. Ma,t pro,/ ■/„„ „, „,, cwimrlitr hiduHln. Tl, 
 
 trie., u,.,lc.r the heu.l of u^iu t,,^: ^xHo.tat.ve uulus- 
 
 "rounded up"-thit is tLv ^,'"'"'' ""'"" """^ 
 
 mounted men and t '' ? ' '"*"'' *"«*'"'^'- ''^ 
 hrand of tTe cows ^ :* ^■^7 T' ''''"'''''' •*'> *''"- 
 
 ''.ee;T^LoTt,?ti 7. tti: -r " '-'--^ 
 
 ■round up" was opMn,^ , . lu ^ ""*"'"" '"'°*''«^'- 
 i'-tended Lri 3e XS ^ ""'^ "■'"■'^'' "■^- 
 stations and entrainS T e sttk onTh*" ''^' ™"""^ 
 
 ant ranges was good, and aUhtTgh tllnwr^^" 
 of capital was considerable, and Smul in ' ' "' 
 teis many cattle «-Pr„ i„ * \u "'""*?" "i severe win- 
 
 ""tnit by he rZhl^ '"""*'"■ ^'"'P"'-'^''«sea 
 
 K 11 uy tne ranchmen — somet me* th»„ 1 1 
 'ar«e area and purchased „ c ,, ^^ ^''^y leased a 
 The practice " P"'^''^"'''^'' « smaller area in addition. 
 pract.ce of ranchmg resulted in a great addition 
 
 II 
 
 ^■U'i 
 
74 
 
 RfOVOAfirS 
 
 f«i tlie production; mid tlic (•(niNiiniption of beef wns 
 Krcatly stiiimliilcd, es|K<i«lly in tlic indiistrial renters 
 of Knf^liind. 
 
 A certain amount of cattle raneliinx is still carried on; 
 hut the jiractice has disappeared from Southern Alherta, 
 except in the f(H)thills of tl^c mountains. The ranges 
 over which the cattle roamed at will u few years .'U{o 
 are now occupied, though scantily, hy settlers. Settle- 
 ment and ranchinj^ arc nuitually exclusive. The coiise- 
 ([uences of this change liavc been the diminution in the 
 production of range cattle and a certain stimulus to the 
 production of stall-feii cattle owing to the advance in 
 the i)rice of beef. 
 
 In the United States and in Canada the trade in 
 bacon ha? been organized by the pork packers, and the 
 export trade has been organize<l in the same manner 
 as the export trade in manufactured g(x)ds. The trade 
 in mutton which has been highly organized in \ew 
 Zealand has not been effectively or;];anized in America. 
 Certain regions are peculiarly fitted for sheep farming, 
 but a great part of the plains is unsuitable, partly be- 
 cause of the character of the grasses and partly because 
 of the depredations of wolves. The production of mut- 
 ton is thus not any more than sufficient for local con- 
 sumption. 
 
 The chief points of economic interest in connection 
 with these and other similar exploitative industries arc 
 the extent to which it is possible for producers to n- 
 spond to variations of demand, and the metl od of or- 
 ganization by means of which the produce is broufilit 
 to the most advantageous market. Some of these points 
 are discussed more fully under the head of Exchaiifre. 
 
t'HAI'TKU VII 
 
 "'"I 'mother .iJs "" '■■"*■■"'•""" '"• i^"" "'"1 
 
 (i<)l<l. for instance, is verv wl,l,.K. i » 
 'listrih.te.l in nature W ere i^^ " '" ■ """"">' 
 nal.le state it offers verv ""■'"■ '" " '•^'"'*- 
 
 !^ti.e.,V.re.i„i:,:^ ;;^,^;-=;jese„rehf„r 
 
 -ten prospective n.in's n^ rZ^'^ 
 
 not too low an estimate 'Pi; 7 ' '^•^^'•"lecl as 
 
 "Nslv enters very s^ ailv nt! n""'*"^ ^■''""^^' °'"'- 
 
 '"'•"■•'"« any retu^:".; .!,"„:,[ S;;:," M ""'■""^ "''- 
 'IcMly discover a rich vein TM '•'' "'">' *""'- 
 
 ''-.t a lar^e arnou^Vo eapil inrZr"" *^"'^ *" 
 ' "'-i^'h is unprochictive' Iv Zt , «• '""^''' 
 
 '<ver" is rarelv of benefit tn . ^'''"" "^ «°''J 
 
 -tcJ from indust ro *a L?a"?\'^t*''' '' •^'■- 
 *"<hly renmneraf.-e charactnr "".^'"^t"'^ »'«t more 
 
 mining which is f n m ' ""'^ " ^-^I^nd«l upon 
 
 g nrncli ,s fruitless more often than not 
 
 '*• V teo hiuh of gold devotifx r-^i i i • 
 
 '-e looked upon as^tsisttr^"^? f t?? ."'^ 
 "nc IS the deno^Jf ^e i i- , ""v °' two kinds — 
 deposit of relatively low grade o,*, the ore 
 78 
 
76 
 
 ECONOMICS 
 
 being very abundant and containing gold througliovit 
 the whole body; the other is a deposit in which the ore 
 is characterized by veins of occasional but exceeding 
 richness. The deposits of the Rand in Soutli ^Vfrica 
 are of the former, those of Porcupine in Ontario are 
 of the latter description. The first mentioned ore re- 
 quires only economical treatment by mechanical or 
 chemical means or both to yield a return more or less in 
 excess of the cost of mining, and under skillful man- 
 agement may he made to yield a handsome return. 
 Such mining requires, however, large capital expendi- 
 tures in plants for tlie treatment of the ore and a rela- 
 tively large amount of labor. 
 
 The large returns from the South African mines have 
 been due to the discovery of means to treat the ore in 
 such a way as to recover nearly all the gold it contains, 
 and to the availability of a practically unlimited supjily 
 of labor at a low price. The disturbance of economical 
 relations caused by the South African war resulted for 
 a time in great difficulty in procuring labor. The 
 Kaffirs, who had been working in the mities for low- 
 wages, suddenly found themselves enriched by the much 
 higher pay which they received for their services as 
 muleteers and otherwise during tiie war. They wei* 
 enabled by means of their savings to buy wives to work 
 for them, and they were therefore able to anticipate a 
 life of ease. 
 
 Under these circumstances the mines were deserted, 
 and they could only have been re-manned by Kaffirs 
 by means of a system of forced labor, which pulilic 
 opinion in Great Britain would not have permitted. 
 The mine owners then imported Chinese laborers, wlio 
 were willing to work for the wages offered to tiiem; 
 but this system also had its drawbacks and objections. 
 
MINING -- 
 
 Tl>e effects of the war have been passing away in co„ 
 se.,ue,.ce of the lapse of time, and the labor conditZ' 
 prevous to the war have been gradually resumed S 
 occasional interruptions. 'c»umea, with 
 
 73. Goldmmug in British Columbia.-In British 
 
 ment of the ore requires the application of a con de r-' 
 al le amount of capital and the employment of a con 
 Klerab e amount of labor. But there is no large native 
 population to draw upon. The total populat fn of 1 1 ! 
 
 krtta have i»i ta^te to .,pi„i,.,te„, .rd";tte 
 
 h!. 1 t . "" Pi'I^rto-lely exploited, bee.,,- 
 fc-re ]», been ,„.uffieie„t f„, h,„Me .bor S M 
 
 c lor me iJntish Columbia ores, and the nroH.,n 
 
 «eHb.Hd.,,pjLr,iv=rp^ 
 
 trihlf""', """'"^rSilver is much more widely dis- 
 tnl. ted, an,], as a rule, much more easily recovered from 
 
 II. ■Kxchange." ' '"^ "'""<^'"'' ""« fluctuations of prices. See ^rt 
 
 1"; 
 
78 
 
 ECONO.MUS 
 
 the ores in which it is contained than gold. The (juan- 
 tity of silver available for nse at a particular moment in 
 relation to the quantity of gold similarly available has 
 varied greatly in historical times. Silver has, however, 
 become gradually much more abundant. The value of 
 silver in terms of gold, that is, the number of ounces 
 troy of silver which may be purchased by one ounce troy 
 of gold in the early part of the fifteenth century was 
 about 11 to 1; during nearly a hundred years, between 
 the end of the eighteenth century and 1873, the value 
 remained about 15 to 1 ; since then the value has fallen 
 to about 35 to 1. 
 
 77. Decline in value of si'/i'tr.— This great change has 
 been produced by several causes. The more important of 
 these are the increase of produttion and the diminution 
 of consumption of silver for currency purposes, and — es- 
 pecially between 1870 and 1886— the comparatively slen- 
 der production of gold and the increasing use of that 
 metal for currency purposes. Until the period of the 
 Franco-Prussian AVar silver was the predominant cur- 
 rency medium of Central Europe, and until the present 
 time it is the predominant currency medium of Mexico, 
 China and India. It also enters largely into the cur- 
 rency of the United States in the form of silver certifi- 
 cates. A large part of the metallic currency of the 
 world is still in silver, and fresh supijlies are constantly 
 being demanded for this purpose, but the production of 
 silver has grown in excess of this demand, and the de- 
 mand for industrial purposes has been insufficient to 
 prevent the price from falling. 
 
 78. Attempt to s.atain the price of silver in U. S.—\n 
 order to attempt to avoid the demoralization of silver 
 prices, the Bland-Allison Act of 1878 was passed in the 
 United States. That act provided for the purchase of 
 
MINING 
 
 between $2,000,000 and $4,000, 
 market j)rice each 
 
 79 
 
 .000 worth of silver at tlie 
 
 month, and its coinar 
 lars weighing 4121/. .rraln, ti, ',",7 "" '"' ""'" 
 
 however as l,Jh T ■ '^ ^'^''" ''°"»" '"^ •"•*. 
 
 nowever, as such, go into circulation. Tl,e silver circn 
 lation consisted of silver certificnt,.« I t 
 TSRfi of «./. J certihcates— hetween 1878 and 
 
 1886 of $10 and upwards, and between 1886 end iSo 
 01 Jpl and upwards. The «Iar.,l aii- » <^"u laju 
 
 Art ,„™..a ..e p„„,.„ „, ,,,„ ,„ «i«"™ 
 monetary ouestion. ii "" 'liscuss.on on 
 
 effect u7on''rs;";p,/nii:r''T.;:"i; -^ ^^^ 
 
 to be to linut the'prod J „ :> Jl ert nTrl 
 
 rhe Sherman Act was in force for three years abont 
 fifty million dollars a year being coined in X 
 "f that period. By 1893 it becaL e" lent £ IZT 
 beyond the power of the Government of the UnHed 
 States to sustain the price of silver by means of J 
 
 . «p™, the pnce, p„„ded th. „pp|y „ „„„„ ,, 
 
fftf 
 
 80 
 
 ECONOAIICS 
 
 ill excess of the demand of the moment. British Cohmi- 
 bia produces a considerable amount of silver concen- 
 trates recovered from Galena or silver lead ore. Cobalt 
 produces, on the other hand, native silver as well as silver 
 in other forms. The cobalt ores are treated in reduction 
 works at Thorold, Ontario; but the concentrates are sent 
 to the United States to be refined. 
 
 80. Mining camps tend to raise prices. — The silver 
 mines at Cobalt have attracted miners from all over the 
 world, as did the gold mines of British Columbia in 
 1896. Towns have sprung up throughout the minin;^ 
 region, and consumption in these towns has increased 
 the demand for farm and garden prwluce from south- 
 ern Ontario, and for canned meats and fruits from the 
 United States as well as from the province. Since su])- 
 plies have frequently to be taken to regions remote from 
 railway or even wagon transportation — have, indeed, to 
 be "packed" in on the backs of men — the cost of trans- 
 portation forms so large a part of the total cost tiiat 
 only the best qualities of the various commodities con- 
 sumed by miners and prospectors are customarily sent 
 to mining regions. The opening up of a mining region 
 thus alters the character of demand, and tends to raise 
 the prices of superior qualities of the commodities cdti- 
 sumed by mining camps. Nearly every year "rushes" 
 take place to newly discovered mining areas and some- 
 times the older camps are practically deserted. 
 
 Occasionally unusual features develop in the relations 
 of capital and labor. Miners who believe in a mine will 
 sometimes take bare subsistence in kind from the owners, 
 and will take the balance of their stipulated wages in tlie 
 r ':ock of the mine either at the market price or at a price 
 fixed by agreement between them f.nd the owners. 
 
 81. Copper mining. — The existence Of native copptr 
 
MINING J,, 
 
 known rthoT'r''°""-' ^''""^ "' ^^"''^ Superior was 
 kno„n to the Indians ,„ the seventeenth cent.irv a,„i 
 
 at Sudbury ,„ Ontario. The Michigan mines have tec 
 enormously pr„,h.etive during n^cen't years the eaj^t 
 ' T the.r expIo,tation having, been obtained thZlh 
 Amencan credit lar,.ely fron, Europe. Tte labor ha 
 j.^ been re,, f,„„ ,,„,„p^^ J ^^J^^j has 
 
 r^Z s 7;"'""^r*'""':'"'^^ ''•''^•'^ Sone into the cop- 
 anTprolX "'"" '"" '^^^'^P'^' ^"^'"^""^ 
 
 u-d m assoe,at,on with steel in the manufacture of armor 
 plates IS produced at Sudbury. 
 83. /ron miwV.-Iron ore was shipped from V.V 
 
 ;;n,a from the beginning of the seventeenThtnry.Iid 
 m 1G19 smeltmg works were erected near Richmond 
 
 rs™:'f """• ''^^^"^^'^ "^ ^''^ Indians inT^': 
 
 A sme t ,g furnace was erected in 1643 at Lynn, Mass 
 
 A this period the manufacture of iron was s^nH 
 
 -11 affair in Europe. Sweden was the prL^Tl Zol 
 
 f supp y until in the beginning of the eighteenth cen 
 
 tuo' Peter the Great established large works hv m 
 
 "f forced labor in the Ural Mountain . In ,722 the" 
 
 works^proaueed the bulk of the iron il^nV^ 'J^Z 
 
 c-i-e 
 
 
82 
 
 ECONOMICS 
 
 The iron industry of Great Britain did not become 
 important until after the middle of the eighteenth cen- 
 tury. Colonial pig-iron was permitted to enter Great 
 Britain free of duty in 1750, although the erection of 
 rolling and other mills for the manufacture of iron bars 
 and plates and of furnaces for the manufacture of steel 
 was prohibited in the jVmerican colonies. 
 
 84. Iron industri) in U. S. — It was not until the dis- 
 covery of anthracite coal in the beginning of the nine- 
 teenth century that iron smelting on any large scale was 
 possible in America. This event led to the discovery of 
 new sources for the supply of ore and to the rapid de- 
 velopment of the industry. Pittsburg became at this 
 time the center of iron manufacture. The war of 18T2- 
 14 stimulated all manufactures in the United Status 
 because it shut off for the time the competition of Brit- 
 ish manufacturers. 
 
 Peace brought so great a "glut" of imports that many 
 of the iron furnaces on the coast were "blown out." 
 Pittsburg was saved by the mere fact of distanci Grad- 
 ually the discovery of fresh sources of supply, both of 
 coal and iron, and the application of capital and labor 
 to their exploitation brought iron manufacture to a high 
 point. After the Civ;' War, the requirements of the 
 railways, which then came into existence, were too great 
 for the American iron manufacturer at this stage of 
 development, and great quantities of iron rails were 
 importe<l from Great Britain. The results in that coun- 
 try were great increases in the price of iron, in its pro- 
 duction, ill the price of coal, and in the rate of wages in 
 the iron and coal industries. 
 
 The construction of railwayj gave, however, an im- 
 mense .stimulus to iron and steel manufacture, although 
 there were temporary checks due to the over-constnic- 
 
MINING 
 
 tion of railways wl.ich l«;ean.c nmnifest 
 
 to the 
 
 83 
 
 in 1873 and due 
 
 panic of 1803. Since then the n.anu^aetur 
 
 ron ami steel has devel„p«| to s„eh prodi« 
 
 :iou.s pn)|)()r- 
 
 vltion r ■*'' *" '" "■'^'"'' "^ "- •^■"t-"«I t'""- 
 
 >'i he Lake S„,K;nor region will he exhausted hv 1039 
 
 es Meanwhde. owu.^r to the richness r.f the ores and 
 o then- ready aeeessihility, An.eriean iron is prohal 
 l-"g procluce.! „,ore cheaply than European iron n 
 spite of the ^n-eater eost of labor. The operat ns nf 
 
 ally ,n the ITn.te.j states as they are in Europe whe . 
 .!.Jxplo.tat.on of the n.ineral areas is eonsideL as 1 
 
 85. More economical handling.~U seems that .Inn. 
 
 he hands of large compa.nes-the I 'nited States Steel 
 Corporation ehiefly-the exploitation of the ore s be nl 
 condue ed with greater economy than was the ea e vS^n 
 1^ was m the hands of small companies. The M^i 
 
 the whole of the dr>ft overlymg the bodies of ore has 
 fen stnpped, so that the operation of extracting the ore 
 
 can te extracted by systematic work. It is true how 
 -er. that the masses of low-grade ore are Lt "l.Z" 
 T nehest ore is taken out first; later, as the pr ce'^ 
 H. advances m consequence of the exhaustion of t^ 
 l'.« -gra.le ore the interior ore masses will be wo ke 
 
 «<-. Iron vuning ^„ Can„da.--lrou mining in Canada 
 ^- also a,^ a„ early date; hut the difficulty of pZ ! 
 i"S labor and cap.tal, the absence of skill on the IJZ 
 .son.e of the earlier enterprisers, and the chara er o t ; 
 
84 
 
 ECONOMICS 
 
 ore, (Iclayed the (Icveloprni-iit of the iiiduiitry. Tlie smelt- 
 ing of l)ojf-iron was, however, earried on siiecessfully, al- 
 though on a nicxlerate seale, j)rior to the growth, witliiii 
 recent years, of the iron and steel industry at Sault Ste. 
 Marie and at Sydney, Ca|)e Breton. The estahlishnient 
 of these large enterprises has hronght ahoiit a demand 
 for iron ores. This demand has been .satisfied until the 
 present time, chiefly by Newfoundland and by the 
 United States. 
 
 87. Coal mining. — Coal is very widely distributed over 
 the world. The most '■xtensive known deposits, exist- 
 ing at depths which enable them to Ik; exploited in the 
 present pliase of exploitation (a phase limited jjartly by 
 the cost of mining and partly by the state of technical 
 knowledge ) , are to be found in Europe, in Great Britain, 
 France, Belgium, Gerniauy and Russia; in Asia, in 
 China proper and in Manchuria; r.id in North America, 
 in the United States and in Canada. The active exploi- 
 tation of coal began about the middle of the eighteentli 
 century; but it was not until the improvement of the 
 steam engine by Watt in 1776 that a real impetus was 
 given to its exploitation for industrial purposes. Tlit 
 application of steam power to marine propulsion, fol- 
 lowed immediately by its application to land locomotion, 
 led during the nineteenth century to enormous develop- 
 ment of the coal fields. 
 
 In the United States the chief coal fields are the East- 
 ern, which extends over a great part of the States of New- 
 York, Pennsylvania, Ohio, West Virginia and Louis- 
 iana; the middle coal field, whicli extends over nearly 
 the whole of Illinois and a part of Indiana; and the 
 Western field, which extends over a part of North Da- 
 kota and a part of Montana. There are other smaller 
 and less productive fields. In Canada, coal is mined in 
 
MI VINT, 
 
 Xova Scotia, in ManitoLa 
 
 Hii 
 
 I'tTta arxl ii, Hriti.sl, ( „1,„„| 
 
 (to a small extent), in A I 
 
 in Ontarl,,. '""• '''''•^^'■^" '■* '"> true e..;.| 
 
 lateral cutting, an.l en „.Mi ^ i' ' """' ^'""' '" " 
 c'uttinK i..vol.?s n ' 7 "•'""""' '""t in a vertical 
 and capital mtlv^l " "" " ff* """' "'""""* "^ >«''"■• 
 
 'ir«l feet of a mh e c , t?"' r"""-; *''"* *'" "'••^* '""'- 
 either laterally or v^rtlc^ * " "" "' *'" ""'"^ 
 
 -7 th^ law of .li.;;;:,.^ re ..;:r:7, ^" v^- 
 
 Alberta. andTuTer^t it" '* ''■^"' "' ^'^''"*''-" 
 
 Sions).thesubse"ueZpe toZ';:^'" "'"""*--- - 
 itated by careful pIp, . ''^ '"'"^^ '''» '^e facil- 
 
 ^^-^^":tS'ziz^iSzi:s^ «^e start 
 
 necessary, the roof of the mine \fT^ "P' ^''^''^ 
 f»" of the roof .ay. on L™ . bWrt'Lti„t""%*'!: 
 ".ay be necessary to recut throu^l/thelilet /, ' ^""t ',* 
 ■nay not be coal, and which wH ttere ire 1' "'"'■'' 
 
 returnable expense in removing ""' '"^'"'^^ "'- 
 
 '-er to yield the .st^:ri^^:;;rs-::; 
 
80 
 
 lUONOMICS 
 
 ss 
 
 ami ill (ircnt Hritain, for iiistuiice, is customarily carried 
 on ill this manlier. The coal is wholly cxliaiistnl from 
 OIK' icctioii i>( a mine iK'forc serious attem|>ts are made 
 to exploil any other section. The mine is indeed l(H)ked 
 at as a whole, which has to he exploited thoroiijihiy, jiart 
 hy part. ^Vhen the mine has lieeii worked until, owiiijr 
 to the lateral extension of its workiii){s, new .shafts he- 
 come necessary for more economical management, new 
 shafts are sunk. ^Vhen the seams "dip" to such an ex- 
 tent that the cost of iiiining liccomes prohihitive, the (let p 
 workings, after heing exiiausted so far as is jiossihle in 
 an economic sense, are abaiidone<l ; hut they remain in 
 such a condition that, except for accidental falls in the 
 roofs of the galleries owing to decay of the pit props iir 
 other causes, the mine might be reopened to resume the 
 deeper workings. Tiiis would l)e done if the price of coal 
 should advance owing to scarcity or if technical improve- 
 ments in mining should render this proceeding advan- 
 tageous, irrespective of the momentary conditions of tiie 
 market. 
 
 90. Waste in American coal mining. — According to 
 the reports of the Anthracite Coal Commission and of 
 the National Conservation Commission, coal mining in 
 tlie I'nited States is not carried on in the manner de- 
 scribed above. The reports made public facts about the 
 exploitation of coal which were long previously well 
 known to those who were interested in the subject. Tiuse 
 facts led to the conclusion that in respect to anthracite 
 coal, about one and a half tons were wasted and that in 
 respect to bituminous coal, about one-half ton was wasted 
 for each ton respectively placed upon the market. Tliis 
 waste, it appears, was occasioned partly by the ado])ti<)n 
 of the practice of leaving columns of coal in the mine to 
 support the roof instead of propping the roof with tini- 
 
MtMXO 
 
 l*r.s and exlm, iinff Uk: coal; partly by , 
 
 H7 
 
 workinj^ the 
 
 of their levels, thus Ica.l 
 vin^ to th( 
 
 "IW to the caviuff in of 
 
 rres|)eetiv< 
 
 riiirie> 
 
 not having, .en! wliirT''":" "7' '" '"' """"- -"""< 
 it has to t h rned ^Z:^t"r''' "" ^•''*"'* *""' 
 
 land which .i«ht it ;;.tt:.;he:i: "'"^' ""* ""^■"^ 
 
 01. Labor tn the cxpUntathr industries T „K • 
 
 possession of a homestead in r„n I ^"'''^^/"'•"'"•'l *« the 
 in the United State Therl "' "^ " "'"'^'^ ^»™' 
 
 -Itural labor in d LrLttry "bu"tT"'"""" "' "''''■ 
 n-llural laborers are relaH e ?h , '"'"^'' "^ "«"- 
 -th whieh . labour etn«S T? °' "" ^"^« 
 
 ^.h™seJfindepend;nt,;:^;::rl?r:-Lti: 
 "fthe mining eamps. for exanmie „ 80 Ji ""'"''^t'on'' 
 
 ;^^.tu., laboL. but 3:i*c:r^'r:^£ 
 ercanSr;::.^^-^"""""--^-- 
 
 JImmg both for the precious metals and for minerals 
 ■n Amenca manned by a racial diversified populata! 
 
88 
 
 ECONOMICS 
 
 Kxperienced gold miners who have worked in the mines 
 in Siberia, in the Kocky Mountains and eliicwherc are to 
 lie found in the mining eunips <i{ Ontario, Kritish Cohini- 
 liia and the Yukon. The railway eonstruetion i-ani|>s. 
 which arc anaioffous to the mining eanips Iwcause they 
 represent a partially organized type of settlement, con- 
 tain also nomadic groups — Lithuanians, Finlanders, 
 tussians proper, Bulgarians, Swedes, Italians, Gali- 
 cians and Kuthenians. 
 
 In Europe the lalxirers employed in the extractive in- 
 dustries are, in general, hereditarily so employed — agri- 
 cultural laborers are the sons of agricultural laborers, 
 as miners are the sons of miners. In Scotland, however, 
 of late years the coal mines have l)een increasingly 
 manned by liithuanians and by laborers of other north- 
 em European races. 
 
CHAPTEll VIII 
 
 MAM;FA(TLIU.V(i STMiV. OK PROOICTION 
 
 02. Cl,aractcrulic» of complc.r production -The 
 liaraetenstics of nmnufa.-lure I v the mefl ll „?" • 
 pM.^io„ have a.e„.,y ,.„, ats^,^':;:^ ^^^^^^ 
 cs .f manufacture in con.plex pro,luction arc clmfly 
 
 ms nd £^'r;.'' r.""^""'" -^ '-^^^ numbers of per- 
 
 through the numerous phases which come between ex- 
 ... at.on o the raw material ami the final J ^e y of • 
 .I.C consumable pnxluct to the ultimate purchaser or L;. 
 
 It is the function of the man.,faet.irer to .-rform 
 
 ^s; oM^e" ""' •"= '?""'""• *" '^•' '♦ "/^h'r 
 
 P>"yero,.manufactu«.rcannTwlinlZt":rhfs:'"' 
 --.-function sustain the burden JlllZl^Zn 
 
 -nff employer to retain his product un«l hJ.^^""' 
 
 ^''an.e it at the most advantaS";";,-::*' '^ "" ^•^- 
 
 ■'-i- Specialization in manufacturing —Ono nf ti. 
 
 89 
 
90 
 
 ECONOMICS 
 
 tion leads to the formation of large enterprises for the 
 manufacture of commodities which are not final, but 
 which are destined to enter as raw material into tlic 
 manufacture of more or less final commodities. Thus the 
 steel tubes which enter into the structure of a bicycle 
 are manufactured by one concern, the india-rubber tires 
 by another, and so on, the bicycle being assembled in 
 some cases in a workshop where no single part of it is or 
 can be made. The same is true of pianos and of many 
 other commodities. 
 
 This distribution of manufacturing function has been 
 accompanied by concentration in other directions, and 
 this concentration has been due chiefly to two influences; 
 first, the desire to diminisn competition by the amalga- 
 mation of two or more competitive enterprises, and, sec- 
 ond, the desire to reduce the cost of production by the 
 diminution of the general expenses of management. The 
 expectations implied in these influences cannot be said 
 to have been fully realized in practice. Increase in mag- 
 nitude of an industrial unit demands increase of skill in 
 management, and this increase of skill is not always 
 forthcoming. Increase in magnitude of a factory com- 
 promises the economy of interior management and often 
 requires the complete reconstruction of the factory not 
 because its parts are worn out, but because their relations 
 to one another have been altered by the additions to cer- 
 tain parts. The gross gain must thus be subjected to de- 
 duction in respect to the increase in costs of certain ele- 
 ments. 
 
 94. Localization of industries. — The industrial cities 
 of Europe have, as a rule, grown upon ancient sites se- 
 lected on grounds of military or commercial strategy 
 under conditions that have long passed. The importance 
 of some of these cities (like Venice, Nuremberg and Re- 
 
 'i^bjim '?' 
 
MANUFACTL'lUNG STAGK OV PRODUCTION- 91 
 Kensburg, for exan,ple) has become of small account 
 
 anJ Ld nburgh) have retained their earlier fame and 
 i^ve added to it the influence acquired in modern tin 
 ri e locahzation of ,n,l„stry is by no mear.s a new tend- 
 
 elebrat.H f T" '""'f ''''' ^''"^'' «"'' Ghent Mere 
 tclebrated for the.r woolen clotlis, as in later times Ver- 
 
 ners became celebrate,! for its fine woolen yarns. Paisley 
 
 for thread. Manchester for cotton, the west of EnglanJ 
 
 and the south of Scotland for tweeds. Sheffield and Sol- 
 
 ,ngen for cutlery and Edinburgh for beer and for prin - 
 
 Z tl 1."^"'^ • '*"*"• *'" "■"'•''*^'' -'^ -«on il^dus- 
 tnes, the shoemakmg industry and others have been 
 
 . rong y concentrated in the Xew England towns; De- 
 
 ro,t has developed a great automobile industry; Pitts- 
 
 ^cture. In Canada, Montreal, Toronto, Kingston 
 Ham, ton and Sherbrooke have become importanfcen 
 rrrL""> ,""'""' '"^'^hanieal industries; Sherbrooke 
 
 motives. Peterborough m electrical machinery, Alontreal 
 ■n br.dge bu,lding and in sugar refining. Torol o .d 
 Brantford m agricultural machinen'. A process analo 
 gous to the division of labor has be™ in progress 
 
 locartv for * '" Z"?''"^ "« industry.-The choice of 
 oca>.ty for a particular industry depends upon a yarietv 
 f considerations, among which the mor«> important are 
 .e acihties for transporting the raw materrand tl" 
 nished product, the facilities for obtaining a good wa- 
 ter supply (indispensable in the case of paper S or 
 
 stance) thefacilitiesforobtainingpowLLdZfacn 
 ^eforobtaimng labor. The textile and shoemakingi - 
 Justnes are more advantageously established in the IKo !. 
 
 i 
 
 
92 
 
 ECONOMICS 
 
 ince of Quebec than they can be in Ontario, because of 
 the greater amplitude of the supply of female labor. Of 
 slightly less importance are the cost of land, the rate of 
 local taxation, the j)ossibility of obtaining exemption 
 from taxation or of obtaining a bonus from a municipal- 
 ity, and the like. 
 
 9(). Effect of ■^tale and female labor upon location- 
 While the relative ease with which labor can be obtained 
 in already existing centers of population constitutes :i 
 strong reason why manufactures should be drawn to 
 these centers, sometimes there has been a disposition on 
 the part of manufacturers to establish works in small but 
 readily accessible places. Examples of this are tlie 
 growth of a rubber industry, a piano industry and a drug 
 industry in small towns in Ontario. This practice tends 
 to prevent industrial activity from being confined to one 
 or two great centers and contributes to the prosperity of 
 the agricultural region in the neighborhood of these 
 subordinate industrial centers. 
 
 Unless, however, industries which are complementary 
 to one another in respect to male and female labor are 
 established together, difficulty must be experienced in 
 obtaining labor. Towns where men or women respec- 
 tively are exclusively i.mployed are industrial anomalies. 
 For this reason places where textile factories, in wliieli 
 women are predominantly employed, are establislied, 
 generally attract engineering or other similar works 
 where men are exclusively or predominantly employed. 
 
 The municipal governments of the Canadian cities ant! 
 towns have endeavored to attract industries by means 
 of bonuses and exemption from taxation; and in tlie 
 United States attempts have been made by means of dif- 
 ferential railway rates to compensate for deficient natu- 
 ral advantages, and thus to equalize economic opporlu- 
 
MAXUKACTUHIXG STAGE OF PHODUCTION 93 
 .ree, and auto^lliZltZX^'' "V"' *° » '"^'' '^- 
 
 been i„.p„r„t ^aZ tth rr'''"'°r ' ^"•'"■- ''"- 
 
 lia^ e resulted Yet h^T' f ^^^ economies which 
 mllv by the use of ? !• ''^'''"''■''"^'""•""d^^Pe- 
 a farf Tf 1 • . "' er production is, neverthplpc« 
 
 ^r tVehirttizrs? ''r r -""^ ^i- 
 
 there is no law of nature Ir ^ ^"'''''"^^' commodity, 
 the increased quiitry f ^^^^^^^^ \'T''' ^"^ 
 o-Iy below the dimi^hed expense 0^1 k """■ 
 clear that the whole nf +»,» • P^"^^ "* production, it is 
 te demanded! '""'^^ 1"^"*'ty '"ight not 
 
 in liLh tTrtr,: S:^" *'"-«'• ^ '-^^ ^-*- 
 
 tured. He was shown 1 ^^ """l^^P""" ^«« manufac- 
 
 -matic m:i-^z::t Tpo':t L'r '^ °^ ^'-^ 
 
 parts of the staple eommoditronly one of t^ "''"" 
 «peration, and it was evident^om the ""*' '" 
 
 *e others that they had norbee;^ op ralTr" "' 
 
 "^"!e industry; lT:Sdpr:.S;Cber~'^ 
 nerj from some concern which undertook to sup! 
 
 \=^t,' ■*' 
 
94 
 
 ECONOMICS 
 
 ply the whole trade than to inst&l in individiial factories 
 at great expense a battery of rarely used machines. 
 
 In every nation every year a certain portion of tlif 
 national income — public and piivate incomej being taken 
 into account — as well as the major portion of the funds 
 borrowed within the nation or abroad, are devoted to 
 the productian of commodities whose production oc- 
 cupies a long time and vi-hose utilities are yielded very 
 gradually over a long j)eriod. Of this nature are rail- 
 ways, canals, docks, waterworks, hydro-electrical plants 
 and durable machinery of all kinds, steamships, public 
 and private buildings, roads, streets, and the like. 
 
 Out of the national income there is expended a further 
 portion upon production which yields more or less imme- 
 diately realizable utilities Of this nature is the expendi- 
 ture upon seed grain an'' the like; upon clothing and 
 upon the numerous things which satisfy our daily wants. 
 It is clear that it is a matter of the utmost social impor- 
 tance that a certain proportion should exist in respect 
 to these two forms of expenditure. If a farmer were to 
 occupy the whole of his time and his resources in buikiini; 
 a house for himself while his fields were lying idle, lie 
 would soon involve himself in difficulties. Some portion 
 of his time and resources might be advantageously so 
 expended, but not the whole. 
 
 08. Over-production of articles of future usefulness. 
 — Highly durable commodities yield their utilities over 
 a long period — the fact that they do so constitutes their 
 durability. They are, therefore, under normal condi- 
 tions higlily valued. Under conditions, liowe\er. in 
 which there is immediate need of commodities for itnnio- 
 diate cotisiimption, the offer of remote utilities is oesidi' 
 the question. To offer a starving man a stcan^sbip or » 
 railway would be at least irrelevant. If a banker werei 
 
to lend or invest more th 
 
 t"tal assets upon land orZllTJ'^'l Proportion of J,is 
 
 ^elf unable to meet hi, ^n "'''''"^''> ''« mi^W.t find l,i,„. 
 
 -;"v to .aii.e"To;rsSer xftr "' "'^ '- 
 
 »r a country or if a large number nV • 1 ! «"^ernment 
 "o one individual may do "u '"'l'^«'""'« d<> what 
 
 t-n-vi^.. spend a Zprono ti ""'^""'*'' '" "'" ^•'""- 
 -urces of the count v aTa " """"""^ °^ ""^ ■•^- 
 I-rnmnent utilities-no maUefr "?'"* '" '"'*'''''y 
 Penditure may have been nn ' ^"^''''^^^^ *''« ex- 
 
 - private policy-:eSIs^''"^^^'?r'^ "^ P"'"- 
 Pl'ennmenon is really o^oTov ' ."""^ °'^''"'-- The 
 99. Ovcr-nrnrJ,. 7 \ °^er-production. 
 ^^i-r-production of railu-nim tu 
 
 too many miles of railwa^ fromT""^ """y ""* ^-^ 
 traveler or the trader but «!!!^ *''' P°'"* "^ ^''^^ "^ the 
 the point of view of the cWti I ""'"^ ^ "^ '"''"^ f™'" 
 that the fixed charges on ^nLrhr^r*- ^^ '•^«'-'' 
 in consequence of its rat,M .7 '•'' '""^ '° heavy 
 ter ho,v economically he Ine-^"""""' '^'' »° ">«*- 
 how successful it m^ eveiSvT"'"' 'f "" ""««" 
 a period during which Ihrnn^ "'""• ^''"^ ""'^t be 
 payment of th! in restlZ •^"i: T* ''^'''"'* '" *»"-' 
 period itmay be forceTLo^Z ; L'°"'^\ °"™g ^^at 
 of the shareholders may be sa'critr ^'^ ''''''''' 
 
 •Jver-production of railwa • 
 "■^enon. It occurred in clLl^T^. ^" """""''' Pl>e- 
 -d 1848; it occurred! the nrt.^"*f ''^*"^^" ^«4« 
 *se of the Civil ,Var and S/J .^*'*'' ^^*^^» «'<^ 
 ^-^aland in 1875-76 ,> / ' '* °'^™"-«^d in New 
 
 ^"d 1880. Such ove'r It?'' '" '^'''^ »-*--« I67I 
 
 ^"d the same^turprSr'"""-^^'^'''*^ '''-'' 
 ^en pushed to an evtr^me 1, ' "^'P"""''"^*'"" ''as 
 «"«cial crisis or of c ^^rV ' '''"" °'" P'-"''"«»g a 
 «- were as well 1^' fu t "^ *° ^ "'- "^ -^^^'h 
 
96 
 
 ECONOMICS 
 
 100. Over-production of trop*.— There may even bt 
 over-production of wheat or of any other single crop. 
 The price of wheat falls to a low point under such con- 
 ditions, and large numbers of people who are consum- 
 ers of wheat benefit from the fall in price as weU as 
 those who derive advantage from the reaction which a 
 fall in the price of wheat produces, but the producers 
 suffer. They may have a bountiful crop, but its ex- 
 change value may be so depreciated that they are ii<.- 
 poverished. This phenomenon has occurred with some 
 frequency in Eastern Europe. The difficulty of avoid- 
 ing over-production of certain foodstuffs owing to the 
 comparative inflexibility of agriculture has already beei! 
 noticed. 
 
CHAPTER IX 
 
 GETTING GOODS TO MARKET 
 
 J?'/?""^'"'".^ " ^'^'"^ "f production—In petting 
 goods to the nmrket after their prmluction has been com- 
 pleted, more IS mvolved than the mere transportr.tion of 
 the goods. A market must be fmmd to which the goods 
 may be sent ; m other words, goods n.ust he introduced to 
 he notice of mtending buyers or brought within the vis- 
 't'le supply. i„ the large agricultural markets of Con- 
 tmental Europe market officials and policemen bustle 
 
 ll hC Tf "" '"'■'""'' '"*° -^I--' P'-- in which 
 long Ines of hay wagons, other long lines of earts with 
 
 m,scellaneous produce, other long hues of horses, Luie. 
 
 group To the pubhc market everyone who observes the 
 -rket reg.dat.ons has equal access, and in it he has a 
 
 St he b^f "'T'T^ '^"'^ ''''>'"'' '^'^ to offer 
 
 aS tb.?r ' '■ ^" ■'*""'' '""••'^'^^^ '* ^«" hardly be 
 
 a.d that there are any strategic points in the long lines 
 of wagons and booths. ^ 
 
 When the goods are brought into view, and a buyer 
 
 ppears bargammg begins. The Greek philosophers 
 r garded bargaming as an art stan.ling apart from the 
 er arts separate from the art of aJrie'ltLe wh Lh 
 they cons,dered as the only productive art (i. e. theTrt 
 |vh.ch eontnbuted the whole of the resources of he pe" 
 
 e; and separate also from manufacture and the fine 
 c-i-T ' " '■'^"'^ *•'" "* °^ bargaining 
 
98 
 
 ■ECONOMICS 
 
 r 
 
 as a productive art. but neither did they so consider 
 manufacture and the fine arts.^ 
 
 102. Circulation of capital an important factor.— It 
 may be observed that the ([uantity of the net product 
 which is available for the community as a whole is in- 
 creased by rapid, and diminished by retarded, circulation 
 of capitai. If the velocity of the circulation of capital 
 is increased, the output is greater, as it would be greater 
 in the case of the product of a piece of machinery if the 
 speed of the machinery were increased. If, therefore, a 
 producer has slender powers of bringing his wares to 
 market — if he is a poor bargainer, in short— he is slow 
 in exchanging his wares, and he is therefore slow in pro- 
 ducing them. During the same period of time he pro- 
 duces less than a more active bargainer, and he has fewer 
 resources for further production than a more successful 
 bargainer. The "national dividend" is in cor- equence 
 poorer than it would be if both bargainers were equally 
 active and equally successful. 
 
 The idea that the success or failure of a bargain is 
 unimportant to the community appears to be based upon 
 the notion that what is a good bargain for the seller must 
 be a bad bargain for the buyer, but this is by no means 
 the case. Even the most astute seller is not always able 
 to secure "the maximum advantage" for himself. The 
 maxim, "a fair exchange is no robbery," is no doiilit 
 sound, but what is a fair exchange is not always easily 
 determined. 
 
 103. Injurious hargaiiiiiiff. — Perhaps the most impor- 
 tant case of bargaining is the bargaining about wajjes. 
 If the view be held that wliat the man bargains about 
 is not merely his labor, but his life, such bargaining is 
 
 ' The view lliat l)iirgainin(! ia unproductive is held, althoURh the point " "»' 1 
 rlnbornted. l>y I'rofessor Pigon in hia interesting and suggestive book «oalt» | 
 and Welfare" (p. 109). 
 
GETTING GOODS TO MARKET 09 
 
 l>y far the most important case TTpw. u ^ i . . 
 
 son.e vast fortunes b. so aU ' ^ " """^ ''"'''^ "P 
 
 ^.-nvalents-isohCiouslvpr;!""!'''' ^ '■"■'■""^" "' 
 
 ■ l'"om" of 1890-97 ;n Brit s" ColnnW ' f °''^-""»'"g 
 
 -.uent cobalt silver ''Z^ l^^tL^:^ '" *'" '''" 
 -ployed by farmers and U HrSm 'n Tn" 2""^ 
 
 -notman/ctrvelf^aC 'f::;.r'rb\*'^ 
 ;*on. involve the diversion of ft. L S. ^^^ ,*3- 
 
 I'een devoted (although not necessarilvV I ""?''' ''"^'^ 
 »r other production ""* "'^•^^'^"■^''j') t" «gncultural 
 
 P";;;it1;^:r?tf Cttr-' ^'^ f «^«---An im. 
 "--MS the practice ol^Stir El'" "".fT '^•""■ 
 -.."vertising by means of tt'TtntrtTf "'"''' 
 
100 
 
 KCONOMICS 
 
 i 
 
 1 ■!!, 
 
 csted was likely to sec tlicin, liavc given place to the 
 electric sign, the l)illh<)ar(l, an«l the voliiines of advertisi- 
 ments with a few pages of text which aj)i>ear monthly 
 under the covers of tlic popular niaga/ines. The prac- 
 tice, in general, may !)e regarded us part of the price 
 which society has to pay for its desire for novelty and 
 diversity in consumption. Much of it, for this reason, 
 results in a diminution of the nationul resources — that is, 
 in waste — partly tecause the advertising is excessive ami 
 partly hecause it is advertising of useless or injurious 
 things. 
 
 If the skillful gettingof a useful commodity to markit, 
 hy advertisi!ig or otherwise, results in .so great an exten- 
 sion of the market and in tlie pnKluctioii of the coninind- 
 ity on so large a scale that the pnxlucer's price is <liinin- 
 ished, and if the market jjrice is brought down liy 
 competition, it is clear that there is an advantage to tlif 
 consumer. It is true that the "national dividend" may 
 be held to be neither increa.sed nor diminishci because tlu 
 capital and labor which were exercised upoi the prodnc- 
 tion in question might have been otherwise equally pro- 
 ductively employed; but on this ground it wtjidd he pns- 
 sible to deny any increase in the "national dividend" f I'oiii 
 any source whatever. The increased production due to 
 the increased demand makes possible the utilization el 
 machinery which increases the rate of production per 
 man or per machine. 
 
 The lav of increasing and diminishing returns a|>p!y 
 with very special force to competitive advertising. Tiicre 
 is a point which can, as a rule, be determined only liy 
 experience, where no additional advertising can increase 
 sales, where such additional advertising would be wast'- 
 ful not merely from the national point of view, but also 
 from the point of view of the individual enterprise. 
 
GETTING GOODS TO MARKET ,„, 
 
 105 mwleaale ami retail tra^lc-SomciimcH the 
 
 IIH.S praftice ,« very Kcerul in certain trmles. It is 
 sual m ... pnntiMK tra.le.,. „„., it is the rule i,. the t« . 1 
 
 Paper is in^eneral sold by the ,„ill „t which it i, 
 made to a v holesale dealer who keeps « certain ..Entity 
 .hfferent vanet.es an.l from different n.ills i . sLk-I 
 Ik- pnnter finds it advanta„eo„s to huv his pape not 
 rmn the m.l s. because he woul.l re,,u,re-to have co n^ 
 ....>. w.th half a dozen mills, but fro'm a wholes!"" " 
 
 irom stock. The quantity he wants may be too insiu- 
 ■n cant for the mill to supply or the n.ill in wJic; U i 
 .ic may be », Japan or in England or in German^ 
 ll.ehus.ness of the wholesale dealer is to keep a uffi." 
 KMt stock to meet the .leman.ls of the trade. The fu.u^- 
 ..... ol the wholesale dealer has become indeed more and 
 ...re important as pro<h.ction has become morTm scl 
 aneous. The exclusion of the mid.IIen.an is hv no m a s 
 jn^oasy task when the mi.ldleman discharges a ::Z 
 
 The retail tra.ler also discharges a function which ^as 
 
 nahled h.m to contribute importantly to the organi;;! 
 
 .... of economic life in modern comm.mities. ThI com- 
 
 la,„t of the fa.mer on the remote prairie is not tha the" 
 
 are too many stores, but that there are not enouVh nr 
 
 Perap not „„.,,,„ ,,„^, ^,,^^ s.v^tem of ^ri 
 
 ™ ion -r" f7"'' "°* ''^ "'^ elimination of the 
 
 n hon ether of the w' .lesale or the retail trader bul 
 
 '') «.e growth of the latter into the keeper of a depart 
 
UH 
 
 I'.roVOMK'S 
 
 iiitnt slori'. Whili- prcKliiclion lin.s iK-oome more and 
 more highly s|)iTiuliM'<l and wliolisalc liiisines!* lio.» * 
 some extent followed this s|)eciuli/.alion, retail trade lias 
 l)eei)me universalized. The eonsiimer desires to eeono- 
 mize time, an.l therefore wishes t(» <!(> all his shopping in 
 one shop. 
 
 100. H'ill the midilhman he climinntfit'— The dejiart- 
 ment store may not k- elieaper, hut it is more n.'ivenierit, 
 and where tinu' is vahialile eonvenienee is worth pay- 
 ing for. There (I(H's not seem, therefore, to he any wide 
 movement in the direetion of eliminating the middlemiiri. 
 It has ken thought that liy the use of tlie parcel post 
 and hy the facilitation of the remittance of small sums of 
 money, the producer and the consumer might he 
 hrought more closely together. Such measures are use- 
 ful, hut they cannot I)e said to have had any wide elfcit 
 in altering the estahlished currents of trade. For a time 
 it was thought that the department store wouhl ahsoili 
 all retail trade; hut in this case also it would appeii'- that 
 there is a law of diminishing return. 
 
 As the standard of comfort rises, people hecome more 
 fastidious, and the specialist retail dealer who tliorouglily 
 understatids his husiness acts, as it were, as inspector in 
 the interest of his customers, and thus justifies his ex- 
 istence. When, however, as in the case of some of the 
 cities in Poland, cited in another coimeetion, the nnin- 
 her of retail dealers hecomcs excessive, eompetitiim 
 reduces their earnings to the margin of subsistence; 
 or, as in the case of isolated retail dealers in places renidtc 
 from urhan centers, the monojxily which they exercise 
 may cause the whole conununity to pay excessive \>vkvs 
 for what they supply. 
 
 The development of distributive co-operation in tlie 
 north of F.nglnnd and in the .south of .Scotland has iii 
 
GETTING OiH>m TO MaHKKT ,«, 
 
 «"me district, altertW n„t merely the character of retail 
 
 •«>«ity ,„ the villn^fs and small towns l,y imiH,sin.r „ 
 •l-eck upon the growth an.l eve,, son.eti.ne 2 ^^he 
 cmtmuanee of the class of the smaller mere „nt T 
 
 JnZJZr- ''•'t*T^^'"'^' ^■"""•tic conditions do- 
 
 'ii'. di»cu».i„n of Unemployment. Part V- Chapter VI. 
 
 ft 
 
-!»! HI 
 
 PART II: EXCHANGE 
 
 CHAPTER I 
 
 BARTER AND MONEY 
 
 108. Barter ccouomij. — AVlien goods are produced 
 they are utilized by tlie jjroducer, are given away or are 
 exchanged for otlier goods or for money. Although tliu 
 use of money dates back to very early ages, all races 
 practiced exchange by barter in early times; and from 
 time to time, even after money economy had been fully 
 established, they have reverted to it when need arose. 
 Payment in kind, of taxes and of rents, has survived to 
 our own day. 
 
 In the strict sense, barter is the direct excliange of 
 consumable goods for other consumable goods; in the 
 strict sense, exchange occurs when consumable goods or 
 services are rendered for money or when money is gi\ cm 
 for consumable goods or for services. In the strict 
 sense, also, whatever may be the material whicli has liy 
 common consent over a small or over a wide area ac- 
 ((uired the position of money, the particular object, 
 whatever it may lie, is by this mere fact removed from 
 the category of consumable goods. 
 
 This fact appears to have l)een the essential characteris- 
 tic of barl)aric money. Among nomads barter is coninioii 
 because the range of their wants is limited and l)e(;.ii.se 
 anyone cjf the few commodities wliich they uistd- 
 marily acquire by barter can almost always be utilizcJ 
 
BARTER AND MONEY 
 
 Russian money v;sexc,L!«i','';f'^' ^'•- ' -* '" -''-h 
 "i- sheep. ThisrckThpv^'^ " ' '''"^ ^'""^''"^ed a flock 
 
 ;«"i as they four c^i^r T^ rrr/"' ^^^^^ 
 
 ;.;eedtoone.HaintsoH,i„a,„JLf.rsret 
 
 effected; but whej tJe parS ti «'"7 ^ '*■'" '^""''^ 
 »tra.>gers to one another an, Je r *™'^»^t'™ «>•« 
 >vants of one another tt; ""fanuhar with the 
 
 -lence of L"s and ^^^^^ 
 
 This contin.enc^rntl est ;;~^^^^^^ 
 peditions whose members arp If y scientific ex- 
 
 'I'tions; and wlio arTtl^r f ""^^""''«'- ^^i"' t'^ade con- 
 t'cs in ravelin!" 5,1 rf"""' '^"'=°""t"ed by difficul- 
 10') pI 1 I '■'"^'-''■' P''*''^'^'^'^ ^^itJ' ease 
 
 'luced coins into tt crntry'JiTrtf^'r^ "''' '"'-"- 
 'ireulation of native money ;,f'r ''^''""^^ "^ "'« 
 
 ";•-). trade was ZZj^ "^'tZTT^^fT 
 "f brass rods and wJro i>„ 1 ■ ", an^ 01 the barter 
 
 ■ w ..H„ is^f i" J rr.:';"- ■■«■ 
 
 "I*, for fur. A, ' ,,, "' 7'P" '""H 'or ex- 
 
 ?'■ I't; 
 
106 
 
 ECONOMICS 
 
 in the rural districts, as it still is in some of the remoter 
 Scottish villages, where calves and pigs are customarily 
 bartered for groceries. A barter economy can be prac- 
 ticed extensively only by people who live a simple life, 
 whose surplus of production above their own require- 
 ments is slender and whose range of wants is slendir 
 also. But barter economy does not necessarily involve 
 stability in relative values. When fish is plentiful amoiifr 
 a community of fishermen, a quantity of fish which may 
 be offered in exchange for a harpoon or for a skin-boat 
 will be large, irrespective of custom ; when fish are scarce 
 and the community is famishing for want of it, weapons 
 and boats will alike be sacrificed to procure fish or otlier 
 food. Thus fluctuations in relative values antedate the 
 use of money. 
 
 110. The origins of money. — Like the origins nf 
 standards of weights and measures the origins of money 
 are lost in the remotest antiquity. Nearly every useful 
 thing known to early man in some place or at some time 
 has been used as money. 
 
 The essential characteristic of the commoditj' wliicli 
 is regarded as money is the universality of the demand 
 for it within the reach of its recognition as money. It is 
 thus universally acceptable on certain terms. The pre- 
 cise dividing line between barter exchange and money 
 exchange is sometimes difficult to determine. It seems to 
 be near the point at which particular examples of the 
 commodity, whatever it may be, cease to be utilized fur 
 the purpose for which they were previously customarily 
 utilized, and begin to be utilized exclusively for purposes 
 of exchange; or when the quantities of other commodities 
 for which the commodity in question is exchangeable 
 come to be more or less definitely fixed by custom ; and 
 when the worth of other commodities comes to be ex 
 
BARTER AND MONEY JO7 
 
 I.resse.1 in terms of the uei^W.t, Icn^^th or „„n,lK.r of pieces 
 "f the commodity used as money. Thus, for e'rp I 
 
 M...pes and made of various materials-iron, copper sil- 
 
 .ployed for the purposes for which weapons are usu- 
 ly made; but very many „f them could not Ix. used for 
 
 any such purposes. Their desi^^n in.licates the o 1 of 
 -form; but the pieces themselves coul.l onlv bf ut - 
 .a for purposes of exchan^.e, as indeed they were 
 
 throughout the Congo region. ^ 
 
 So also in China, the ancient Tartar knife came in 
 
 remote antK,u,ty to be used as monev. Its form was 
 
 ^Sj'ir"- ^* !"r*« p-t- "It lost H;",;:;! 
 
 s unt 1 ,t became a d.sk with a hole in it and with a 
 
 P aieU, and there remained only a flat disk still with 
 
 e.thcT a round or a square hole *'' 
 
 The so-calle,l hoe-money of China is regarded a- hav 
 
 :' « --■lar history. Originally hoes ap "ar to^W 
 
 'st ttialh th? r^"" *''''" *■''-' '^"" ^"^' ^-^ of 
 
 "^ s, of the hoe gradually diminished until it became 
 onl a^ut an .nch and a half long and about an .^^h 
 
 Chi for "°'-™T^ ''-^^ extensively circulated in 
 wiiiid tor many centuries. 
 
 Ill the Malay Peninsula where tin occurs in th • 
 
 ::tXt'„r "°- -">■ •"- "ii"X' 
 
 
108 
 
 ECONOMICS 
 
 side in such a way that the square hollow on one si<ie 
 showed as a square projection on the other. Within 
 cc)ini)aratively recent times this square tin currency was 
 extensively circulated in the Straits Settlements. 
 
 Fish-hook money, canoe money and many other forms 
 have l)een current in the islands of the I'acific. Wam- 
 pum made from the inner wh( d uf the busyon pcrvvr- 
 sum, a shell brought to the north from the Gulf of 
 Mexico, was extensively used by the Indians of North 
 America until it was replaced by European coins. 
 Masses of silver of various sizes and shapes have bewi 
 used in many regions for currency purposes. The 
 grvevna, a weight of silver varying in different places 
 and at different times, was the current money of the 
 Dnieper Valley from the eighth till the eleventh cen- 
 turies, or perhaps both earlier and later, and the siiccc 
 or shoe silver is at present used as the reserve cf the 
 Hongkong and Shanghai TJank and of other banks iji 
 China. 
 
 111. Gold and silver as money. — The position wliii'h 
 for many centuries gold and silver have held as widely 
 accepted money materials is due partly to the wide reiMjj- 
 nition of their beauty, to their durability (gold oxidizes 
 very slowly, and although silver oxidizes more rapidly. 
 its luster can readily be recovered), to their ready di\isi- 
 bility, to their easily attainable uniformity, to the readi- 
 ness with which they may be distinguished from other 
 metals, to the difficulty of imitating them, and to their 
 density, which enables them to receive and to retain 
 minute designs similar to those which for ages had he'-ii 
 engraved upon precious stones which possessed the same 
 property of high density. Although gold and silver are 
 neither of them unique in respect to any one of these 
 characters (some of them, indeed, they possess in com- 
 
BARTER AND MONEY ,„j, 
 
 »=■'" with many other substances), they combine th.-s^ 
 characters in a way that „„ other substanLT 
 
 The nearest metal to fr„U and silver in wide apnre- 
 c|at.o„ as money is bron.e; but bron.. is readily 3z- 
 abie, and ,t ,s not found in nature; it requires to be 
 manufactured Zine, one of the metals of which brone 
 ■s composed, is not alwavs found in the neighboZK^ 
 of copper the other principal constituent. Tlf emaT 
 1"^ consftuents are variable, and their presence in X 
 i^ronze .s r.o susceptible of determination excepting t 
 ana y,s.s. Althou^.h fine bronze is a very bc-auffu meta 
 11 bronze ,s not fine, and this variability renders "less 
 *-rable as money material than it wo^dd be couW 
 n, orm.ty be secured. Xevertheless, bronze 1 as be 
 sed for centunes even for large payments in spite oS 
 inferior character and of the inferior and variable valu^ 
 w .ch .t conseciuently possesses in relation to gl d ^^^J 
 ^'Her. In the mterior of China the writer has met Chi 
 nese merchants whose servants were carrying lar^e qSn 
 tes of bronze "cash" on strings for the por^^ose of mak- 
 nfe- purchases. The variability of the value of iL u 
 
 t I, f • u' * "'"'*' "''"'" °f '-'^^ t° the peasantry in 
 
 ntenor, who are frequently called upon to pay ex" 
 
 'ant amounts in cash in payment of taxes, the val^ 
 f the cash bemg frequently arbitrarily depr;cia ted bv 
 th ;..^ho„t.es for the purpose of -.« tax payment ' 
 
 Cxold and silver thus acquired in earlv «J. 
 •Jity of acceptance w-hichV/hr^lE^O::^^^^^ 
 
 Ji Ln !' """'""'■'^'^1 "«tions. Although the rec- 
 
no 
 
 ECONOMICS 
 
 advantage by controlling the currency seems to liiivt 
 suggested itself to rulers at a very early period. This 
 opportunity seems to have presented itself through the 
 payment of tribute which was frequently required to be 
 delivered in specific coins. 
 
 The history of coinage cannot be detailed here, but 
 the fact may be noticed that coins cut from flat piccfs 
 of metal with the stamp of rulers made their appearance 
 long before the teginning of the Christian era. 'J'lic 
 Greeks applied tlieir unrivaled skill in the plastic arts to 
 coin design, and in this they Mere followed by tbc 
 Romans, whose gold coins were in wide circulation 
 throughout the Roman Empire. 
 
 112. Monei/ a standard of value.— From the above de- 
 scription it ajjpears that gradually, by a social-ps; lio- 
 logical process supplemented by the edicts of rulers »\ lio 
 required that tribute should be paid in certain specified 
 currency, such currency or "current money" came ti) k 
 regarded as a standard by which the worth or value (jf 
 commodities in general might be expressed. Since all 
 commodities could be estimated in this way, the value 
 of any one of them in relation to the others could hn ex- 
 pressed in terms of money, which thus came to Ik." tiie 
 common denominator of value. Since the quantities of 
 commodities which were demanded could not always bear 
 the same relation to the quantities offered in s-uj)|)iy, 
 and since the quantity of money material which was sup- 
 plied for currency purposes could not always mc <r the de- 
 mand for it for these purposes, the terms of cxcliauge 
 were variable as the terms of barter would have l)eeii 
 variable had money not been employed for purposes of 
 exchange. 
 
 That fluctuations of value antedate money ecMiioniy 
 has already been noticed. It is at least a tenable hypoth- 
 
UAUTJiU AND AIOM;v ,,, 
 
 '''V^V*';%",f "^ '"""'^y' *"«^«'«^'- ^i«' tl.c ...so of 
 - .t, wh.cJ= follows, has had a steadying, influenc upon 
 
 tlK't til. al erat on or even M,,. al.olition of the measure- 
 ".^' rod, wh,ch s a fair description of „.oney, w3dnot 
 
 ^::::i:T'^'"'''r ;'''"''''"'' verbal deLminat Ins 
 anect the measure of thiii^rs. 
 
 A survey of this kind derived from arch^olopy and 
 
 from 1, story does not. however, explain what Z Z 
 
 .rounds for the various estimates of' the relative values 
 
 "f commod,t,es whieh are expressed i„ money, and to 
 
 I a discussion of this question we shall now proceed 
 
 'm »;»» ' 
 
 m] 
 
CHAPTER II 
 
 UTILITY AM) VALUE 
 
 113. Value based on utility or cxchangcahility. — It is 
 important to notice first that the process of valuinfj is a 
 mentai process. It may be affected by external inlln- 
 ences, but it takes place in the mind. It is important tn 
 notice, second, that the coneei)tion of value always in- 
 volves a relation between the person valuing and the dIi- 
 ject valued. The relation may assume one or the other 
 of two forms. We may think of the object as being valu- 
 able to us because we can put it to a useful purpose or 
 because we believe we can exchange it for sometliini,' 
 which will be equally or more useful to us or for its 
 equivalent in money. In the first case, we consider tlie 
 value in use of the object, and in the second case, the 
 value in exchange of it. 
 
 Since the value in exchange of all commodities 
 depends eventually upon their usefulness to some one, 
 although not necessarily to the temporary possessor, 
 it may be held that the two motives for valuation are 
 really identical from a social point of view. It is, how- 
 ever, convenient to regard the two motives separately 
 and to consider that goods are estimated in respect to 
 their value in use or their utility to us, as well as in re- 
 spect to their exchangeability. Indeed, we habitually 
 contrast the advantages which we derive from the pos- 
 session of an object with the advantages which we may 
 hope to derive from the possession of other objects for 
 which we might exchange it or which we might pureiiase 
 112 
 
UTILITY AND VaLIK „3 
 
 "ith the money „c might oI)taii. f„r it n e 
 
 .n',".'i' "1° o:;'°r'7" '""^ ■"■ "■"■»' "^■ 
 
 ,1 uiiienvise ot tins anticipated nlon^nPB \r i 
 
 « lo li,e nun^ber „7 St ; i "" "' "'"' "'»">■ 
 'mm them. '"* ™ ''l*" '» ™l™ 
 
 ;« Tr™:.r "tor,--!::;';.!'" rr 
 
 |.nj times the h.gnest pnce previously paid for 
 
114 
 
 ECONOMICS 
 
 the snnic Imok, and was iiii(ii>ul>tc(lly greater than could 
 have lK.fti obtained fcir the IkkjIc in the absence of two 
 c()nii)etitors wealthy enough to gratify their passion fur 
 colleetitig even if tiic cost should be excessive. 
 
 If inconvenience or pain is jiresent or imminent, and 
 if we are ottered the means of alleviation, our desire 
 for alleviation being thus urgent, we may be willing to 
 surrender a large part of our total resources rather than 
 dispense with the object which will relieve us of the 
 inconvenience or pain. In the dry areas of Africa, 
 Asia, America and iVustralia, where the region is cov- 
 ered with hot sand, where there is little rain, and where 
 the subterranean waters are too deep to be readily ac- 
 cessible, the possession of water is a matter of life niid 
 death. Under tJ— pressure of extreme thirst, a trav- 
 eler may give Lp .'ii he has for sufficient water to slake 
 his thirst. 
 
 Irrespective of the urgency or otherwise of the desire, 
 where the supj)ly is abiuidant and access to the supply 
 ])ossible with minimum exertion, there is no exchaiij,'i' 
 value. While boating on a lake or river of pure fresh 
 water, thirst may readily be satisfied by a minimum of 
 exertion. 
 
 llij. Various decrees of desire. — Between extremely 
 urgent demand and complete indifference because of 
 surrounding abundance or because of lack of desire, 
 there are numerous gradations. At one point on a scale 
 of this kind, a thing might offer to us a degree of use- 
 fulness, practically infinite, and at another point it 
 might offer itself in vain to a satiated palate. 
 
 l^sefulncss is an affair of the moment or of successive 
 moments, and is closely related to quantity considered 
 in reference to our desires and requirements. 
 
 Some things may be useful to us continuously or 
 
UTIUTY AND V.VLUE „3 
 
 IH-riodically, others only f)ccasionnllu I . ■ i- 
 
 A pair of spectacles r,L I 7 " " '"'''"Pcnsal'ly. 
 
 T "f the utility of tl... „ 1 1 '*^'' "'''"y t" "s 
 
 "- be seV lo' „, j;,;; ■ ^^ -^ <- ^"'- -f wat.. 
 -K "f thirst. Thlu ilitv of " '"""." "'"' '-^ I'"'"''- 
 -cliately after «:" 1 .eX" uf n"' -"'"'^'^ 
 
 ^'-t. the utility of the thir,X7 ;;'';;;' •""»«-• - 
 
 and so on; the utility ^f i ""> "*" Weat. 
 
 i»^"'». until thL i *^;!,S IITT';/^'"^^ '""""- 
 
 itma bVcret;;r' "^■•^'"";' ''- '^"■"^ ^'^ -»'«tion. 
 
 '"'^ '"-'ecd the"„; e^- tueTalll ' """ " '""« ^-'• 
 "^tl.e Irish peasantry tdlL ''"• '^ ^""*-''*"'-y 
 
 'cr>- earnestly. Presentl v " ^'"'""'* '''"" '''^''''•^d «">'' 
 *^-.K>. a hofe in'thTr^? o"f ^l^lj' 'f ^^^W-' 
 Piw .Iropped aii,I .n r, X '"' *'''^" """ther 
 
 "■e sold beele a ho " .''• '." '"'"' '"" »""« P-'^tests 
 ™^in and oT^lli"!"'"^'' "■'^"*"''"-^ ^"^-"^ "'^ 
 
 k requirements or 4^ ''^7 """; '''^"'^»*'' 
 
 -us.forthepu^-l£:rSyt:i 
 
k^lto 
 
 116 
 
 ECONOMICS 
 
 I 
 
 •or swimming, one 
 
 iHJOt 
 
 is practically useless. 
 
 Ik; less of an ciieumhrani-c tlinn two; nItliouKli even oiii 
 
 in such a case would Ik: n discomnKxIity. 
 
 118. Qualitjf of commoditi/ and character of need. ~ 
 While It mil y is a. characteristic of tliiiif<s attributed tn 
 tlicm by the mind which looks u])on thoni in relation tn 
 itself, to the physical and chemical pro|H.'rtics of bodks 
 is due the circiunstance that they can satisfy our di- 
 sires and can by this means be useful to us. If wt 
 desire a life-belt, we cIkmisc one made of cork for the 
 reason that the specific gravity "f cork is less than that 
 of water; if we desire a furnace which must sustain a 
 high temperature we choose fire-brick which has lutn 
 subjected to a test and has demonstrated its heat re- 
 sisting properties. For certain chemical operations, \n 
 use crucibles of porcelain, platinum, graphite, accord- 
 ing to the properties of the substances which we desire 
 to reduce. 
 
 The properties of bmlies are constant under continii 
 «)usly like conditions, but because of the variation "f 
 our needs they are not continuously useful to us. \Ve 
 warm ourselves at a hot stove; we become warm and 
 may soon become overheated. We must leave the stove. 
 We desire coolness. The first few minutes in an ice- 
 house are agreeable; but our desire does not go to tiie 
 freezing point. 
 
 Some commodities yield their' utilities in one dose as 
 it were; others yield their utilities in numerous and per- 
 haps in various doses. An orange which may have lieen 
 cultivated with infinite pains in California, Florida nrj 
 in Spain yields its utility in a few moments; and its si;iii 
 becomes an encumbrance — a disutility. A chair nr 
 table may be utilized for hundreds of years for tlie pur- 
 pose for which it was designed and made, and then tli 
 
UTILITY AND VALUE 
 
 wood of which it 
 Miiiii 'ous other 
 NiiKlit be hiiriied 
 
 117 
 
 was mnstnictcd 
 I»ir]>o.s( 
 
 nii^lit he iitilize<l fo 
 
 ■ssively iititil finally it 
 
 as a (liscoiiiiiKKlitv. 
 •S..n.e eo,n„uHlitie.s may he ntili^e.! for one or other 
 "' xfveral ,,„r,,oses indifferentlv. A „ie(v. f "• 
 
 r^^iirr ''""'" ^'^"^^''''---^^^^^ 
 XTL^'r;':'.;::::r:r,:^;'" 
 
 -y con,e a railway rli ' a , a r o "•"""■" """:' ""''"'^ 
 >.'",n's knife. * ' "" "* """"'"" "'"' « ""r- 
 
 - (the utilities of the commodities t'^^;^ f.-l'^t'- 
 
 fvil" ," ■ ■"'■ "r™ r °^ """ "">»"' 
 
 p 
 
118 
 
 ECONOMICS 
 
 electrical power for our own use instead of purchasing 
 a supply from a public or private source. Even if we 
 possessed control of water power it might or might not 
 be more advantageous to utilize that power or to pur- 
 chase electricity elsewhere. 
 
 While air and water may be obtained freely, we must 
 take them both in situ, that is, in the place in which na- 
 ture has put them, and we nnist be content with the 
 quality which nature has provided. Transportation of [ 
 water is costly as also are both ventilation and change 
 of air. [ 
 
 120. Exchange value.— In the second sense in which 
 the word value is customarily used by economists, we| 
 value a thing because we believe that we can, if we wish, i 
 exchange it for something else or for money. There! 
 are many cases of, so to say, mixed value or va'.ue in- 
 volving mixed motives. Thus we may possess a picture I 
 to which we attach a high value, first, because of its util-l 
 ity as a source of a'sthetic stimulus, and second, because! 
 of its salability for a high price. I 
 
 To the merchant, the motive which induces the ts-| 
 timate of value in purchasing and in holding a coiii-i 
 modity is. as a rule, quite simple. He is disposed to I 
 pay a certain price for it because he believes he can I 
 sell it at a higher price. In some instances prices are! 
 normally greater at relatively remote periods; in otlurj 
 instances they are smaller. Thus perishable goods likel 
 milk must be sold at once; some other goods gain liyl 
 being kept. Wine matures in the cellar, and is sonie-| 
 times kept there for years, the price eventually obtaincjl 
 being in general much higher than the price of the inil 
 mature wine. I 
 
 Utility is an individual criterion ; exchange vahie is i\ 
 social criterion, because although the owner of an ex-f 
 
UTILITY AND HLUE ,„ 
 
 are Dased upon their personal needs taken in relation to 
 1" "Wain. m. nr„Ti,l „^ '; T"""' "■'■'' ^^'^ 
 
 122. -y«;,p/2,.-Supply thus depends, not who Iv but 
 
120 
 
 ECONOMICS 
 
 in consequence of the abundance of the harvest, the local 
 stores will increase their stocks, the distant wholesalers 
 from whom they 'customarily order their goods will 
 place large orders with the manufacturers, and the man- 
 ufacturers will work overtime or will install additional 
 machinery, or even additional buildings, in order to meet 
 the demand. Their power to do these things will, how- 
 ever, depend upon their ability to increase the product 
 of their factories with their existing means of produc- 
 tion or to procure additional means of production by 
 purchase from their own resources or on credit. 
 
 The power of a manufacturer to utilize his existing 
 or increased means of production will also depend upon 
 the contracts lie is able to make with his workmen. 
 Since every manufacturer in the same branch of indus- 
 try may be supposed to be doing the same thing under 
 the same conditions, it may or may not be possible for 
 any of them to increase the prices of their goods, although 
 the mere increase in the product will give them an in- 
 creased total profit provided the competition is not so 
 keen as to result in <liminished prices.' Supply may be 
 restricted even though the demand increases and the 
 prices offered by those who desire the goods increase 
 also, because the supply of the raw material may be 
 restricted. 
 
 123. The law of substitution. — What is known as the 
 law of substitution is to the effect that when the price 
 of a commodity advances to a certain point, another 
 commodity may be substituted for it, provided the price 
 of the second commodity is low enough to render its 
 use more economical than that of the first commodity. 
 Thus, for some of the purposes for which silk is used, 
 
 * In the early stages of increase of demand, prices tend to rise and to continue 
 to rise, until the supply overtakes the demand. 
 
UTILITY AND VALUE 
 
 181 
 
 fine linen is nearly if not quite equally well adapted. 
 If the price of silk rises, fine linen will be used for some 
 of the purposes for which silk is customarily used. Sim- 
 ilarly for some of the purposes for which linen is used 
 «.tton will serve if not as well, nearly as well, and if 
 the price of linen rises cotton will be used. If the prices 
 of cotton advances, jute may be used for some of the 
 uses of cotton. 
 
 There are no doubt some substances for which no 
 substitute exists for any or many of its uses. Su' sti- 
 tiites for mercury are employed for some of its uses; 
 l)ut there are many laboratory experiments for whic 
 in the present state of knowledge, mercury is indis- 
 pensable. The same is true of platinum. 
 
 Substitutes for some of the uses of india-rubber have 
 been found, but no other substance possesses all of the 
 properties of rubber and for some of those uses there is 
 at present no subsitute. The enormously increased use 
 of india-rubber for the purpose of making the tires of 
 automobiles led to a demand for the raw material so 
 greatly m excess of the supply that the price of rubber 
 advanced rapidly. New sources of supply were sought 
 and found, but the price remained high because the rub- 
 ber plantations which are altogether in tropical coun- 
 tries subject to cyclonic storms, are occasionally de- 
 coyed, and because the organization of tropical labor 
 |s very difficult. Thus, although the supply has been 
 largely increased in response to the demand, there is no 
 Keess. 
 
 
 * ' 
 
CHAPTER III 
 
 MARKETS 
 
 124. Origin of local markets.— The relation be! 
 tween demand and supply is discovered in the market. 
 This expression is customarily used in two senses — one 
 derived from the other. The first sense is special and the | 
 second general. 
 
 Historically, a market is a meeting of persons fori 
 pi:iposes of trade. Such markets were held at some 
 pl've which was convenient for a concourse of people 
 to assemble. Among nomadic people, markets are held 
 on some neutral ground, more or less equally accessible 
 to the tribes which attend it or send their representa] 
 tives. Markets were thus frequently held at the eon 
 fluence of two rivers or at some strategic point on a 
 river bank which might readily be fortified in case of 
 attacks by hostile tribes. When especially su.'ablel 
 places were found, they were sometimes occupied in I 
 successive years at certain p.-riods, and eventually some 
 of these places became permanently settled. The asso- 
 ciation of markets with graveyards, and later with I 
 churches, is very frequent in Eastern Europe from the I 
 earliest times. 
 
 125. The market at Nijni Novgorod.— The most im-l 
 portant survival of an early, although perhaps not of a I 
 very early, market on a particular site, is the market I 
 of Nijni Novgorod, at the confluence of the rivers! 
 Volga and Oka in Russia. This great market which isl 
 attended by traders from Central and Northern Asia! 
 122 
 
MARKETS ,23 
 
 and by traders fron: Europe and America is held 
 a-mually ,„ August. The permanent city which is quite 
 MMall .s situated on the high right bank of the Yo\^a 
 a,.d on the r,ght bank of the Oka. The city where the 
 market ,s held ,s on the right bank of the Volga and 
 on the left bank of the Oka. It is built of perman^ 
 houses, which are, however, occupied only during the 
 jjcriod of the market. ^ ^ 
 
 Although nearly every commodity finds a place there 
 .ron cottons, furs tea and ikors (images which are to 
 be seen m every Russian house, shop and office) are 
 he most conspicuous commodities offered for sale. The 
 J.r trade of the world has been largely concentrated 
 there. J ur coa s which may be seen on Broadway. New 
 Wk have probably been purchased in the long street 
 of the fur-sellers at Nijni Novgorod 
 
 126. Protecting market routeo.-Vermanent settle- 
 ment m or near a market place and the more or less 
 «.ntmuous resort of people there, even though the 
 marke m.ght be held only periodically, necessitafed the 
 protection of the routes which led to and from the mar! 
 
 tC\JJ u '""*'' """^ ^''P"'^'^ *" h°*tile attack, 
 t "!r 7^" ™''*°'"-''y f"»"d their way to the mar- 
 ket mght f^ar to traverse the route or might be cut 
 off if they attempted to do so. 
 
 127. Some tirll-known market plaees.~As communi- 
 ations came to be more effectively organized and as the 
 ra<l,ng cit.es succeeded in offering improved facilities 
 for trade special markets came to be localized and cer- 
 Jw, localities became places of resort for merchants, 
 lluis the slave markets of Bagdad and of Constanti- 
 nople were of importance in early ages, as the Fur Pair 
 
 ? ^ ?r. ^u"" "^ ^"'P^'^ "^^ °f importance now. 
 ll.e market for hiring farm laborers, known as the Fal- 
 
 m 
 
 iil 
 
124 
 
 ECONOMICS 
 
 kirk Tryst, and the market in Glasgow for hiring domes- 
 tic servants, known as the Buchts, are examples of sur- 
 vivals of ancient i)eri(xlical markets in Scotland. Ex- 
 amples of continuous markets are to be found in thv 
 Bazaars of Eastern cities and in the markets of the Bel- 
 gian coast towns, and an example of a weekly market 
 is to be found in the Sunday morning market for old 
 clothes held in the square in front of the Hotel de Villi 
 at Brussels. 
 
 The commercial law of every country and much of 
 the municipal law have been developed from the regu- 
 lations of the market. The tolls charged for the use of 
 the market were almost the beginning of municipal tax- 
 ation. 
 
 128. Operation in a typical local market. — In mod- 
 ern times the small local market still plays a large rule 
 in urban and semi-urban life both in Europe and in 
 America. The reader is recommended to attend a 
 local market and to observe the transactions closely. ]?y 
 doing so he will have brought vividly before him on a 
 small scale precisely the same problems in value which 
 present themselves in the world-wide markets for tlie 
 great staples. 
 
 The proceedings of a typical market in a small Ger- 
 man town may be briefly described. In the early morn- 
 ing the farmers' carts begin to come into the market 
 place. Some of them have come from a great distance 
 and have started probably at two or three o'clock in 
 the morning. The carts bring hay, grain, vegetables 
 and fruit according to the season, and always poultry, 
 eggs and butter. They generally bring also some jjrod- 
 ucts of the domestic industry of the farmer's family- 
 lace and the like. 
 
 Sometimes the farmer transacts his business himself. 
 
MAKKETS 
 
 135 
 
 Frequently his wife or daughter acts as saleswoman. 
 C'lisiomers arrive early and look about. Habit plays a 
 large part in the German provinces, and customary 
 I)rices are still very prevalent ; but even customary prices 
 have their customary variations. Different prices are 
 expected at different hours in the market, and strangers 
 are usually called upon to pay more than friends. 
 
 Prices which had been paid at the height of the mar- 
 ket on the previous day are asked at the beginning of 
 the market. Few transactions take place. Jlore carts 
 come in and more customers arrive. It soon appears 
 either that tliere is a good supply of vegetaWes, or that 
 the supply for the day is not going to do any more, or 
 even perhaps may do less than will satisfy the demand 
 at the price of the previous day. Intending purchasers 
 hecome less keen if they find that the supply is large, 
 and more keen if they find that in relation to their es- 
 timate of the demand it is relatively small. 
 
 By eight o'clock in the morning the most fastidious 
 and the largest buyers have probably after discussion and 
 much higgling settled upon the prices and made their 
 purchases. Then those farmers who have sold out their 
 produce may leave at once; those who have not done so 
 endeavor to get the prices which have been fixed in pre- 
 vious transactions. The poorer customers wait until 
 the end of the market to pick up at low prices the re- 
 mainder of the vegetables and/ other produce, for as a 
 rule the farmers will sell at a low price rather than 
 carry the produce back to their farms. By ten o'clock 
 the market is practically empty save perhaps for some 
 booths which are erected by local people for the sale 
 of miscellaneous goods of town manufacture to the 
 farmers' wives. 
 The range of fluctuation in a restricted market of this 
 
1S6 
 
 ECONOMICS 
 
 kind is not usually great ; the variations result from tlie 
 relation of supply and demand with due consideration 
 to differences in (juality— for the village folk are shrewd 
 huyers — and from slight preference to favored regular 
 customers and to large huyers. 
 
 \A'hat goes on in the small local market, with its well- 
 informed and shrewd buyers and sellers, is very siniilai 
 to the proceedings in larger markets, in spite of the in- 
 significance of the supply and the demand in the former 
 case; yet in the latter the calculation of prohabilitiis 
 upon which bids are made and entertained are much 
 more comjjlicated tecause nmch wider influences must 
 be taken into account. 
 
 In the Corn Exchange at Liverpool there is a daily 
 market for wheat as there is also in the wheat pit at 
 the Board of Trade in Chicago. In the Royal Ex- 
 change at Glasgow there is a daily market for pig-iron 
 known as the Iron Ring. There are numerous otlicr 
 examples of the localization of the market for staple 
 products. 
 
 129. Market in the general sense. — It has been ob- 
 served that the cardinal characteristic of a market is 
 that it is a concourse of people assembled for the pur- 
 pose of engaging in trade. Various historical exami)les 
 of such concourses have been given above. There is, 
 however, another sense in which the word market is used 
 by economists. This sense has been derived from tlic 
 historical market. Actual assembling of traders in a 
 concourse is no longer necessary to constitute a mar- 
 ket in this new sense, although such assemblies take 
 place daily. The ocean telegraph cable has made "the 
 world one city," and has given the world one market. 
 
 The word "market" has thus come to be generalized. 
 It now means the invisible concourse all over the world 
 
MARKETS 
 
 I«7 
 
 or in the important centers where commerce is con- 
 iliicted on a large scale, of people who are engaged in 
 tradmg in particular commodities at a particular mo- 
 ment. Thus the market for wheat is, as it were, attended 
 hy wheat buyers and sellers throughout the world— in 
 (ireat Britain, France, Germany and other great con- 
 suming countries, as well as in Russia, Roumania. 
 Egypt, India, Argentina, Canada and the United 
 States, the principal producing countries. 
 
 Whatever influences the demand on the one hand and 
 the supply on the other, in respect to wheat in all of 
 these countries, influences the wheat market, which is 
 indeed the generalized expression for the total of wheat 
 demand and supply, present and prospective, through- 
 out that part of the world which is within the sphere 
 of international exchange. 
 
 In a strict sense the market means the combined state 
 of demand and supply in a particular commodity at a 
 given moment. Transactions are always taking place 
 in the great staples-supply is always being diminished 
 by the absorption of goods in consumption, and is 
 always being increased by production. So, also, de- 
 mand IS satisfied by supplies and revived by recurring 
 wants. The market for goods is like a reservoir 
 which IS being drawn from continuously, and which is 
 being contmuously replenished. 
 
 130. How to approach study of "the market."~A 
 concrete study of market practices has been suggested. 
 but without some guidancer such a study is very difficult 
 because for most people the practice of the market must 
 be looked at from an unaccustomed angle. 
 
 In scientific studies a common plan is to formulate 
 provisionally, certain assumptions and to build upon 
 these assumptions. If the reasoning is sound the conclu- 
 
1S8 
 
 ECONOMICS 
 
 sions will be sound for all cases in which the asccrtniiud 
 facts correspond with the assumptions. If the astir- 
 tained facts do not correspond with them, and if the di- 
 vergence between them can be ascertained, the nccis- 
 sary corrections may be made upon the assumptions iinii 
 therefore also uix)n the conclusions. 
 
 Thus, for example, the compass is adjusted to indi- 
 cate the North. Those who are skilled in such matttrs 
 know that it does not anywhere do so precisely, and that 
 it is necessary to make a correction for the local nuiK- 
 netic variation. The compass is, however, extreimly 
 useful because, given a knowledge of the variation, tlie 
 exact position can easily be ascertained by means of it. 
 
 In economic reasoning it is assumed that everyone 
 not only knows where his economic interest lies, but that 
 everyone is engaged in the constant pursuit of his own 
 interest. This assumption may not be well founikii, 
 but if we know the amount of self-regardlessness in an 
 individual case, a very hard matter te ascertain, we can 
 then find out what variation from the normal course of 
 action to allow for. Proceeding upon the assum])ti()n 
 that the pursuit of self-interest is the dominant motive, 
 we may ask what are the factors which determine the 
 relative values of commodities as expressed in market 
 prices. 
 
 131. Supply and demand illustrated. — Clearly, we 
 have to deal with ^wo sets of people in any market- 
 with those who desire to buy and with those who desire 
 to sell. Among the former set there are some who are 
 urgently desirous of buying. The commodity whicii 
 they want may be quite necessary to them, and their re- 
 sources being ample they are prepared to pay any price 
 which is demanded. In the same market there arc also 
 among the latter set some who are equally urgent sellers 
 
RIARKKTS 
 
 1«9 
 
 - ticy are prepare,! t.. sell for any price wl.ieh may be 
 ! nnr T f ."•"' """y ^ '■"""«' I'e"o..s who 
 
 TrTuT/ "":' '"'"'^^"' *'"^ ^■^"•'^""■••'' '■" each set 
 there will be found ma.iy who occupy intermediate p„- 
 s.l."ns. It IS clear also that in a market where there is 
 a |.re,]om.na„ce of the demand side, that is to say. where 
 there are more goods of a particular character de- 
 manded than the visible supply can provide. tJ>e most 
 urgent buyers will exert a strong influence toward S 
 ng the pnee. The price under such circumstances will 
 tend o approximate toward that ,.rice which can !« 
 paKl by the most urgent b.iyers. These buyers are 
 «)n,et,mes known as marfriru,l buyers, and the process 
 just^descnbed .s the operation of the law of marffi,uU 
 
 On the other hand, in a market where the supply is 
 .n excess of the deman,!, the price will tend to approxi! 
 mate to the pnee which the most urgent sellers will 
 ccept. In other words, we ha,e an exun,,,Ie of the op- 
 
 the law of marginal utility. 
 
 pon the desire to possess the commodity and to utilize 
 •t, and m the case of the sellers the urgency will de- 
 pen< upon the desire to dispose of a surplus" utility of 
 
 ne kind m order to acquire a utility of some other kind 
 lor the purpose of satisfying an immediate want. Thus 
 a farmer having a surj,lus of hay, and having not the 
 therewithal to provide food for his family, must sell the 
 
 a> m order to provide food, while another farmer hav- 
 "iR food for his family, but having no fodder for his 
 animals, must buy hay to feed them. 
 
 132. How prices arc established—The market price 
 
ISO 
 
 KfONOMKS 
 
 point on a scale of prices at which the most urgent ((ir 
 niar({inal) seller meets the most indifferent (or niiir- 
 ffinal) buyer or, conversely, where the most urgent 
 buyer meets the most indifferent seller, according to tiie 
 relations of supply and demand in the market. 
 
 But both demand and supply are elastic. If thcio ii 
 an inadequate supply to meet an urgent demand, there 
 will be a tendency for further supplies to be forthcom- 
 ing, and if there is an inade()uate demand to respond tn 
 urgent desire to sell, furtlier demand will tend also to 
 be forthcoming. The general tendency of the marktt 
 will be to draw out demand and supply alike in such 
 a way as to pro<luce an equilibritmi. AVhcre this proi'ess 
 cannot take place, because supjily cannot be ol)tainc(l (as 
 in the ease of india-rubber previously mentioned), tlit 
 phenomenon of rising prices will appear; or where dt- 
 niand does not respond (as in the case of over-produc- 
 tion), the phenomenon of falling prices will appear. 
 
 13.3. Ejctcrnal influences upon market. — liehind all 
 subjective estimates of value there are the external con- 
 ditions which are regarded in relation to the respective 
 individual desires. The characteristics of these external 
 conditions are very numerous. 
 
 With the universalization of the market through the 
 improvement of means of communicjiting the state (if 
 the market at different places almost instantaneously, 
 certain market centers exert an important influence upon 
 the general market under certain conditions. Owiiis to 
 the difference of time between the two great conimer 
 cial continents — Europe and America — and owing to 
 the fact that in the most important staples which form 
 the bulk of international trade — grain and cotton- 
 Europe represents demand and America represents sup- 
 ply, under all conditions in which demand is more in- 
 
MARKETS 
 
 ISI 
 
 rtucntial than 8upply, tlie Kuropcon markets arc m..rc 
 
 mrtuontml .,. (ktorn.ining the price than tl* Anieriean. 
 
 ).. the other han.J. when it hap,M;„s. as it .Kcasionally 
 
 as happened, that supply is deficient, the .lo.ninant in- 
 
 tlutnce IS on the Western side of tlw Atlantic 
 
 The difference of time is imp..'.,nt because European 
 business ,s a most ciosiuR for the day In^fore business 
 m the rmted States begins. The course of trading in 
 M.ncmff Lane m. Lond,.n, and in the Corn Exchange 
 at ..verpooi. thus influences inevitably the course of 
 tradmg in the Chicago Wheat Pit. 
 
CHAPTER IV 
 
 PRICES 
 
 184. A "fair exchange. — The medieval idea of a I 
 "just price" did not stand alone; it was one of a group 
 of ideas. Throughout the middle ages and in modern | 
 times in certain parts of the world (notably in Asia) 
 custom exercised an immense force and the custoniarv 
 price became the fair one. It was not always the same 
 price, although it was customary. The "fair price" to 
 a stranger was not a "fair price" to a friend; and a "fair | 
 price" in the morning was not necessarily a "fair price 
 when the market was about to close. Even where the I 
 "fair price" was a pervasive idea, bargaining was not 
 unknown. 
 
 The notion that from the social point of view it dnes I 
 not matter whether a bargain is advantageous or not to I 
 one or other of the parties to it cannot be accepted with- 
 out qualification. So far as the bargain in the strict I 
 sense is concerned, it cannot matter because the bargain I 
 is not of itself a productive operation. The bargain! 
 concerns itself with the value of a product, but does not I 
 of itself either increase or diminish production. Yet the | 
 result of a bargain or a series of bargains may be an I 
 increase or a diminution of production. 
 
 If, for example, a craftsman excellently skilled in I 
 his craft is unable to make a living from the sale of his I 
 wares because he is unable to make such bargains in the I 
 sale of them as will enable him to realize their full vahieT 
 and if in consequence of this circumstance he abandons| 
 182 
 
PRICES ,33 
 
 the making of the wares in question, the "social divi- 
 dend may thereby be diminished. 
 
 So also, if in a bargain about wages, a workman ob- 
 ta>ns for work m his proper craft less than a living 
 wage he may decide to absndon the craft in the prac- 
 tice of which he is skilled and to devote himself to the 
 practice of some other craft in which he is less skilled- 
 and the social dividend may suffer loss. 
 
 Or. in a larger case, if a group of wage earners are 
 so remorselessly exploited by their employers that they 
 receive wages of a less amount than will suffice to main- 
 am them at their normal level of efficiency, even though 
 they render services to their employer of much more 
 va ue than their wages r-present, the "social dividend" 
 Hill suffer from their inferior efficiency. 
 
 Thus in wage bargains especially and in some other 
 eases of bargain making the "fairness" of the bargain 
 IS not a matter of social indifference. Where, however 
 both parties to a bargain are equally productive, and 
 where their consumption is of a like character, it is mat- 
 ter of indifference in a social, although not in a private 
 
 a blrcr^n ""^ '"' ^^ ''^''" '^"''^^^ "" advantage in 
 
 The case is really the same as where one of two com- 
 pletely idle and dissolute gamblers wins from the other 
 a bet. In either case, the proceeds of the bet will be 
 
 fr"51'",!^'T'"*' '"''"^' """^ '" ""*''«»• «="''« will the 
 fact of the bet being lost or won affect production in 
 
 Where, however, a person who, under normal circum- 
 stances, expends his resources productively, loses a bet 
 or makes a bad bargain in a transaction with a non- 
 producer, the national dividend must suffer, as it might 
 
134 
 
 KCONOMICS 
 
 gain if the same person won a bet or made a good bar- 
 gain under the same conditions. 
 
 133. Customary prices. — While it is true that cus- 
 tomary prices are very widely spread, and that the fam- 
 ily and the caste exercise a powerful influence in the 
 determination of wages and prices alike (especially in 
 India, although not exclusively there), it is also true 
 that very considerable variations in relative values occur 
 even under conditions where customary prices are prev- 
 alent. Such variations are exhibited, for example, in 
 the fluctuations of the value in Chinese "cash" of tlie 
 Mexican dollar. These fluctuations are exceedingly wide 
 and they seriously affect the economic condition of a 
 community because, though eventually all prices follow 
 them, they do not do so simultaneously. The fluctua- 
 tions in the prices of land, for instance, usually lag be- 
 hind those in the pric of other commodities. 
 
 Relative values indeed are much more variable in 
 primitive communities than in those upon a higher level 
 of culture. The practice of bargaining is more continu- 
 ous. While there are usually several prices in the same 
 local market for the same thing — one for the stranger, 
 one for the fellow countryman and one for the friciui, 
 all of these are more or less individual. Some weight 
 must also be attached to the period of the day at wliich 
 the bargain is made. In China it is considered very un- 
 lucky to lose the first prospective customer, through 
 want of tact in bargaining, and a relatively low price 
 may thus be accepted from an early buyer. 
 
 136. Money as the standard of value. — The origins 
 of money have already been discussed; it is now neces- 
 sary to observe tlie role played by money as the standard 
 or measure of the value of commodities. The universal- 
 ity of the demand for gold and silver has placed tlicni, 
 
PRICES 
 
 135 
 
 ! s ^e have seen ,n an unique position as money ma- 
 terials. The.r relation to one another or the value of 
 one m terms of ^he other is therefore of great im- 
 I P";'""*^^:, If «"y °ther commodities were recognized 
 with similar universality, their relation to one another 
 would at once become of equal importance because of 
 the relation of the group to commodities in general 
 which such recognition would imply 
 
 The relation of gold and silver to one another in re- 
 spect to value depends upon three conditions. These 
 ar : first^ the quantities of each which are in existence at 
 any particular moment; second, the net prospective fu- 
 hire production within a given period, and third, the 
 status of each of the metals in monetary law 
 
 137. Quantity of gold and silver in existence -Tht 
 gold now m existence, in circulation as money, hoarded 
 I by govermnent. or by private persons, and in the form 
 of manufactured articles or objects of art-jewelry and 
 elike-and the quantity of silver existing in similar 
 fomis may not be susceptible of precise determination 
 and large quantities of both metals exist in forms which 
 can never come into the market in any serious sense, 
 let the two quantities, unknown though they may be 
 exercise an important influence upon one another, and 
 upon those portions of each metal which do come into 
 tlie market. 
 
 The net prospective production may similarly be dif- 
 
 cult to determine precisely. The production of gold 
 
 d of silver during a specific period may be known 
 
 '.thm reasonable limits of accuracy, and the prospective 
 
 rements durmg a similar period may be estimated. 
 
 tat the quantities which have been used up during a like 
 
 ^nod are more difficult to determine. The abrasion of 
 
 Min can readily be estimated, but it is more difficult 
 
136 
 
 ECONOMICS 
 
 to determine the amount of loss of gold and silver iisid 
 in the arts und the amount lost beyond reach of re- 
 covery. 
 
 The net increments, however, as they arc reveakd 
 from time to time, undoubtedly influence the value of 
 one metal in terms of the other. Thus a long-continued 
 excess of production of gold over the production of 
 silver would undoubtedly depreciate gold and appreci- 
 ate silver, as a long-continued excess of silver has dur- 
 ing recent years had the contrary effect. If suddenly 
 there were to appear in India, for example, a long- 
 concealed hoard of gol<l of enormous dimensions, by no 
 means an impossible contingency, the value of gold, 
 other things being equal, would necessarily decline. 
 
 138. National monetary lates. — If all countries had 
 an uniform and unalterable monetary law, changes in 
 the relative values of gold and silver would still occur 
 through changes in the international trade relations of 
 the different countries. But the monetary laws of 
 countries within the sphere of international trade rela- 
 tions are not uniform, and are more or less frequently 
 subject to alteration. 
 
 Thus, for example, Japan possessed at one time a 
 silver currency, but altered her monetary law in such 
 a way that gold became the standard instead of silver. 
 At one time, also, Germany used a large amount of sil- 
 ver currency and a relatively small amount of gold cur- 
 rency. After the Franco-Prussian war, Germany with- 
 drew a large amount of her silver currency and substi- 
 Mited gold. France, Belgium, Italy and Switzerland 
 (tlie Latin Union) had an uniform monetary law by 
 which the mints of these countries coined all silver 
 offered to them at a certain definite proportionate value 
 in respect to gold, and then, in 1873, suddenly changed 
 
PRICKS 
 
 137 
 
 tlie law and limited the amount of sUver which their 
 mints were pennitted to coin 
 
 ilartZn '" "r^'Tr '""" ™y P'°^^'^ effects sim- 
 t.t es of the metals extracted from the mines and se^t 
 mto the n.arket. either through the sudden or gradTa 
 
 The effect of alterations in the quantity of the metals 
 employed for the settlement of Uernational tr^nsae 
 t.ons however these alterations may be caused ^sto 
 
 ; 4 i : tdr'Tr-"*"^^' "- ex'pressed Tnlll 
 01 these metals. Thus, an increase in the oimntlt^ „f 
 
 sJver offered in the market depresses the excha^glVe 
 tween Ind.a and Gi^at Britain, because in India prices 
 re expressed m silver and in Great Britain price, a^e 
 xpressed m gold. Similarly an advance in the priL o 
 ver. due to excess of demand, will alter the excLnge 
 etween the United States or Canada and ChTna be- 
 cause pnces m Canada and the United States are ex 
 pressed m terms of gold, and prices in China are Z' 
 pressed in terms of silver. ^" 
 
 The fluctuations of international prices from tl,U 
 ca.se alone are very considerable. TheS rZn ft 
 t e faU m the pr.ce of silver may be very trifling 
 ^h.pment of a few thousand ounce^ may cZuse a f" LJ 
 
 wlVr-^^ ^"'^r'"* ''" thHrsatlonl 
 nich toilow are immediately affected by that ciro.™ 
 
 will be paid for at the rate of 40 
 
 or, and at the next moment, 
 
 cents 
 consequence 
 
 per gold dol- 
 
 of, 
 
 change 
 
138 
 
 ECONOMICS 
 
 in the value of silver, goods of the same kind will be 
 paid for at the rate of 41 cents or of 30 cents, as the 
 case may be. 
 
 140. Bimetallism a cure? — The steady decline in the 
 value of silver in terms of gold from the historical cir- 
 cumstances which have been indicated has at times so 
 seriously demoralized foreign exchange between gold- 
 and silver-using countries respectively that proposals 
 have been made from time to time, when the situation 
 became unusually acute, to fix once and for all the 
 value of silver in terms of gold. Proposals of this kind 
 have varied in form; but they are usually described 
 under the general name of bimetallism because they in- 
 volve the acceptance of both metals as a monetary 
 standard. 
 
 It has become obvious that only a general interna- 
 tional agreement involving also the control of the 
 mintage of silver by all countries could eflfect the desired 
 result. Such an international agreement has not yet 
 been arrived at. On the contrary, the tendency of the 
 commercial nations appears to be to regard silver not 
 as an international currency medium but as a com- 
 modity, and to allow it to reveal its relation to gold in 
 the market as do other commodities. This attitude has 
 been brought about largely through the increase in the 
 production of gold and through the rise in genera! 
 prices which has occurred from this and other causes. 
 
 Bimetallism, as a propaganda, arose during a period 
 of falling prices, and subsided during a period of rising; 
 prices. The object of bimetallism is to diminish those 
 fluctuations of prices which arise in consequence of the 
 variation of the value of silver in terms of gold. It is 
 thought by those who advocate bimetallism that fluctu- 
 ation of prices, involving as it does disturbance of the 
 
pnicEs 
 
 139 
 
 economic equilibrium, is an evil, and that it ought to be 
 prevented m so far as nossililp ti, . 
 
 fl.,„t..o*- , PossiDle. The causes of price 
 
 fluotuafons are, however, very numerous, and many of 
 them would not be affected by any change in ZL^^ 
 
 I 
 
 I 
 
CHAPTER V 
 
 SOME FACTORS THAT AFFECT PRICES 
 
 141. Climatic variations. — While the prices of com- 
 modities are determined in the market, either in the spe- 
 cial or in the general sense of the word, by the forces 
 of demand on one side and supply on the other, many 
 influences contribute to determine the extent and char- 
 acter of demand and supply, and to determine the state 
 of mind of buyers and sellers respectively. The prin- 
 cipal influences are described in this chapter. 
 
 A dry season will cause an advance in the price of 
 wheat through the indication which it gives of a short- 
 age in the crop. A drought in the United States, Can- 
 ada, Russia, Roumania, Germany or Great Britain 
 would have this eflFect. So, also, heavy rains in harvest 
 time would "lay" the crop and render harvesting op- 
 erations difficult. Some grain would be totally de- 
 stroyed. The cotton crop is peculiarly liable to be 
 affected by the weather. 
 
 The failure in the harvest of one grain will often 
 affect seriously the demand for other grains to take the 
 place of the grain in which the shortage has occurred; 
 for example, the failure of the rye crop in Eastern Eu- 
 rope will have t:.e effect of raising the price of wheat 
 and of potatoes because the peasants who customarily 
 consume rye will be driven to obtain a substitute. 
 
 Some part of the deficiency in the crop must be met 
 by deficiency in consumption, but the demand, in gen- 
 eral, will usually be great enough to cause an advance 
 140 
 
SOME l-ACJOUS THAT AFFECT PRICKS 141 
 
 in the price of u large range of consumable commod- 
 ities should there be a serious deficiency in any impor- 
 tant crop, although such a deficiency will dimhiish the 
 resources of the people affected by it. The failure of 
 tlie rice crop in China or Japan or the failure of the mil- 
 let crop m JManchuria will not only impose serious suf- 
 ferings on the part of the people in these countries, but 
 Hill tend to mcrease the price of other foodstuffs which 
 must be consumed at least to some extent in order to 
 support the population. 
 
 An abundant harvest, on the other hand, in any one 
 important grain will tend to diminish the prices of all 
 fo(Klstuffs as well as to increase the resources of the 
 lieople of the producing area, and thus to increase their 
 demand for the commodities habitually consumed by 
 them. An abundant harvest thus tends to diminish food 
 prices, and to increase the prices of other consumable 
 commodities. 
 
 142. Effect of war on prices.~The outbreak of war 
 affects prices in a complicated way. In the first place 
 the prices of war material will be raised in consequence 
 "f the sudden increase of demand for such material, 
 he extent and character of such price movements must 
 depend upon the locality and natur. of the campaign. 
 Ihe campaign against Arabi Pasha in Egypt, for in- 
 stance, led to a great advance in the price of mules 
 owing to the great numbers which were required for 
 military purposes. During the progress of the South 
 African Campaign large numbers of mules and horses 
 «ere purchased in Europe and in America for trans- 
 liortation and for the cavalry and artillery. The result 
 of this extensive increase in demand was a scarcity of 
 mules and horses for years afterwards. 
 War also increases the demand for canned meats and 
 
 
148 
 
 ECONOMICS 
 
 the like, for military clothing and for guns and ex- 
 plosives. It also tends to diminish supply through the 
 withdrawal of working force from field or factory, and 
 thus to increase some prices, even thougJi the total de- 
 mand should fall off in consequence of the absence of tlie 
 usual consumers. 
 
 During a great war the urgent demand for capita] 
 in the form of national loans and for increase of the 
 public income in the form of taxes tends to raise the 
 rate of interest and to divert capital from its customary 
 channels. A portion of the demand induced by the war 
 is thus diverted rather than reduced; but the diversion 
 of capital always causes disturbance to the industrial 
 and commercial equilibrium. 
 
 If the theater of war is a grain-producing country 
 like Russia, Roumania or Manchuria, for example, it 
 might have the effect of diminishing the export of wheat 
 either because the ports were blockaded, because of tlie 
 withdrawal of working force for the army or because (if 
 the actual military occupation of the wheat fields. In 
 Manchuria during the Russo-Japanese War the wlieat 
 trade of the country was practically destroyed by the 
 immense extent of the fronts of both armies extending, 
 as they did, over a great part of the plain of Central 
 Manchuria at Liaoyang and IMukden. 
 
 143. Effect of political elections. — In England a 
 general election affects trade to a comparatively small 
 extent. If it occurs, for example, between May and 
 August it affects the retail trade of London, and if it 
 occurs in harvest time (which is rare) it affects retail 
 trade in the rural districts; but in the absence of any 
 political issue affecting seriously the business of the 
 country as a whole, trade is not usually materially in- 
 fluenced. It is otherwise in the case of a Presidential 
 
SOMK KACTOUS THAT AFFKCT PRICKS ,43 
 election in the UnitcJ States. The relation, of ,K,li 
 t-cs and eom„,eree in that country are ... iZl H t" 
 >.uch an election always affeets prices „„,re " tss bv 
 |^.t^„t.eipations of ,„ ine J„. or a .,in,i:L£; S 
 
 U4. Change* in produclion.~\XUh the «erms of 
 the ffreat inventions nmde their appearai.ef in the 
 eiKhteenth century or e;irll,.r n. ■ " ", '" ^"^ 
 cntributed n,uch UheT ^.^^nt Th T1"''"' 
 - jroved. although nclf hy"'ny^„::«rpTr;e"eE 
 he railway was enormously improCed by thrannli™' 
 on of stean.; the steamship, 'the eleetHc eleSanr 
 «ht.ng by gas. the incandescent elcctne light tetde 
 
 distinguished itseii by h ' L ^^^^^^^^^^^ 
 n-achm^^^^^^ by the eLmous 'J^^^X^^Z 
 „ ^t- ? . '""""*'""^ ""•J improvements have great- 
 
 The appetite grows by what it feeds on TK 
 
 ts n a demand for new resources of supply Td /or 
 subsidiary mventions. The new demand fl \ 
 
 Zn th; .'=°'"P^t't'°n of sellers speedily brings 
 
 t: o r" '" 'P"? f ""''' i-'-l' primarily be! 
 uuie ot. the mcreased demand TIib r,, j i- . 
 
 ;;-'eseent gas .nant.es b'^ght Ito ? 1^^^^ "I 
 
 :;' '"''^^'f"'. ^h'-eh had been previously p^ Ld 
 
 filnVnf ^ susceptible of utilization for the 
 
 ^^- of .ncande^cent electric lamps. Many che^cal 
 
144 
 
 ECONOMICS 
 
 compounds which were iiscil, and even tlicn compnni- 
 tivcly rarely, as <lniKs. and pnHliiced in small <|iiaiiti- 
 ties for pharmaceutical purposes, have suddenly niadc 
 their appearance as ini]>ortnnt re-a^ents . . fheniical 
 processes on a nianufneturing scale. 
 
 To begin with, the wholesale dealers arc exhausfiil. 
 perhaps even tlie druggist shops are runsncked for sii|i- 
 plies, the manufacturers' stores are depleted, and tlie 
 price rises hecnuse of the urgent demand. Then the 
 manufacturer turns his attention to the new phenoiiii'- 
 non. lie begins to manufacture in quantity. The priif 
 may rise vigorously before he is able to put his first sup- 
 plies on the market. Then if the eomnuxlity can l)e niadf 
 from raw material readily j)rocurable, the manufacturers 
 are able ere long to place it on the market in quantity. 
 Under the assumed conditions competition will scmhi 
 become active, and the price will soon fall to a pi)iiit 
 even lower than it was before the new demand arose. 
 Increased demand has induced increased production, 
 and this has reacted upon price.' 
 
 While an increase in demand may induce an incn'.isc'il 
 production at a diminished cost, a diminution in denmiiil 
 resulting in a lower price may induce efforts towiini 
 reduced cost of production in order to meet without loss 
 of profit the conditions of a lower level of prices. This 
 is a familiar exj)erience in all manufacturing indu.strics. 
 When demand is brisk and prices are high enough ti> 
 yield a manufacturing profit above the average, costs of 
 production are not scrutinized closely ; but when deniami 
 and prices are falling the manufacturer may find him- 
 self encountered by the dilemma of reducing the cost 
 of production or of going out of business. Since the 
 
 ' An episode in the history o( Tartrate of Antimony, or Tartar Emetic, whiil | 
 occurred about 18H0, is used in the above iUuitratio.*. 
 
SOME FACTORS THAT AFFKCT PRIPES US 
 
 m>Vh- price will under such conditions tend to ap- 
 |.r..ach the sui.i,ly prjix- „f iIh.. nmrKinal manufacturer, 
 ihut IS to say, the manufacturer who can continue his 
 Imsmess at tin.- reduce,! rate of price, the nmnufacturer 
 «h<. IS able to economize in his cost of prrKluction to the 
 Kfc^test extent. «ill in a falling market so,-, ive longest • 
 ami will ,„ a rising market gain most. I.cc.u,-* nltl,,,,,.!, 
 his costs may advance later in aceordanc. ,, id, „ g,.ni.",; 
 upward movement of prices, they v. I! n.,t UkcU ad 
 vance all together, and some of hi, i. ,„„„i.,, ^ill l,c 
 found to be iHJrmanent. ExchanH. thus reads .m..,,. 
 |.nKluction. tending under certain io„diM„ns to rui.se 
 the cost of production, and under other cni'tions to 
 reduce It. Production also reacts upon x .LaMtr,.- f|,e 
 increase of supply tends to depress price and the diminu- 
 tion of supply to enhance it. 
 
 1*3. Variation in relations of commoditicg.— Such 
 variations are closely related to those caused by the in- 
 vention of new i)rocesses; hut they are also related to 
 tlie substitution of one commodity in a group for n- 
 "ther in the same group because of certain of the util- 
 ities of which the latter may be susceptible under 
 iwain conditions of prices. 
 
 Cotton will be substituted for linen for certain pur- 
 poses when the price of cotton advances; for certain 
 -^hcr purposes, for surgical dressings, e. g.. linen must 
 «>nt,nue to be used no matter what the price may be. 
 Lnen W.II be substituted for silk under certain .r,ndi- 
 ons of the price of silk. If the price of silk falls, there 
 I'll be a tendency for silk to l,e used in prcf^r-nce to 
 ™en; e. g., in the Far East and in Russia silk is made 
 ^ om the cocoons of the silkworms, which is not so fine 
 
 ? I? ,7". "^*''"'* """''" ^y silkworms under care- 
 Mn.ltivat.on of the mulberry. This rough silk is ex- 
 
 11 
 
146 
 
 ECONOMICS 
 
 tensively used for male clothing because it is light and 
 durable, and clotliing made of it is only twice the prict 
 of linen. If the price rose above tliis proportion, there 
 would be a tendency to substitute linen. 
 
 During the South African war there was a great 
 demand for light woolens, and the price of fine numbers 
 of woolen yarns advanced. The use of "unions" or mix- 
 tures of wool and cotton increased considerably, cotton 
 being substituted for wool in the manufacture in order 
 to diminish the cost of production. The manufacturers 
 were thus enabled to maintain the price (although the 
 goods were inferior), and thus to sustain the demand. 
 
 The preparation of attractive designs or styles in a 
 relatively, cheap material often diverts demand to it 
 from more expensive material in which the designs are 
 less varied and attractive. This is the case especially 
 during periods of depression when incomes are relative!;, 
 low. The use of French foulards or fine printed calico. 
 for which Mulhouse became famous, s 'ijcrseded to some 
 extent, between 1877 and 1886, the use of silk and satin 
 in ladies' dresses. Printed linen about the same time 
 superseded hair cloth and other relatively expensive ma- 
 terials in upholstery. 
 
 146. Applied to metals. — In the markets for metals 
 an advance in the price of iron will diminish the differ- 
 ence between that price and the price of other metals 
 like copper (which is even more suitable than iron for 
 many jnirposcs for which iron is customarily used when 
 the price of copper is relatively high.) If, for ex- 
 ample, copper nails were five times the price of iron 
 nails and lasted four times as long, iron nails would lie 
 less costly to use; but if iron advanced until the priee 
 of copper were otdy three times the price of iro-i. it wmilil 
 be more economical to use copper nails for t.I those pnr- 
 
SOJIE FACTORS THAT AFFECT PRICES 147 
 
 poses in which durability was an important considera- 
 
 ti(in. 
 
 On the other hand, if the price of copper rose instead 
 ..f the price of iron, there would be a tendency for iron 
 especially galvanized iron, to be used for many of the 
 purposes for which copper had previously been em- 
 ployed. For those purposes, however, for which copper 
 m the existing state of technical knowledge is indis- 
 pensable, copper would continue to be employed to 
 whatever height the price might go. For many electri- 
 cal purposes, for the construction of magnetic observa- 
 tories and for the outer sheathing of wooden ships, the 
 use of copper is at present indispensable. In the event. 
 however, of the price becoming very high, it would come 
 into competition for some purposes with silver 
 
 The diversion of demand from one member to another 
 of a complementary group leads to an advance in the 
 price ,n response to the increased demand, although 
 7'"g to the increased production in response to that 
 demand, the price may eventually fall below its previous 
 ponit. Thus a demand for aluminum, nickel and man- 
 Sanese has led to the production of these metals on an 
 increasing scale, and to reductions in their prices For 
 eertam purposes they compete with one another and 
 I 'utii other metals. 
 
 The expression "complementary commodities" also 
 "Pi.lics to groups of commodities vhieh are either man- 
 ufactured together and are therefore subject to joint 
 -St or are utilized together in one manufacturing 
 
 other metals than copper are produced, although tlieir 
 pro,hK.tion IS not the chief object of the process of re- 
 'J'letion ; and in the smelting of iron, coal is use<l Cop- 
 per, antimony, silver and sometimes other metals are 
 
 ill 
 
148 
 
 ECONOMICS 
 
 thus in one sense complementary, and coal and iron 
 are complementary in another sense. 
 
 147. Changes in consumption. — Increase in popula- 
 tion occurs from two causes; from natural increase — the 
 number of births minus the number of deaths — and net 
 immigration — that is, immigration less emigration. A 
 net increase of the population involves an increase of 
 demand unless the character of the new population in 
 respect to consumption and to effective demand is 
 inferior to that of the former population. There is. 
 indeed, always a diflFereiice ii. consuming power. x\n 
 increase in the birthrate does not necessarily mean an 
 immediate increase in the demand for food customarily 
 consumed by adults. Yet if this increase continues for 
 some years, the increased demand of the growing chil- 
 dren will become noticeable. 
 
 Italian immigrants on their arrival in New York were 
 reported a few years ago as being frequently so habitu- 
 ated to scanty fare that they were unable to eat a gen- 
 erous meal. Gradually they acquired the power tn 
 consume more largely. The great improvement in tlic 
 economical position of Southern Italy has probably 
 rendered this observation less tnie. The Italian immi- 
 grants to Patagonia are reported to have acquired the 
 habit of eating enormous quantities of meat, a di<-* tn 
 which they were wholly unaccustomed in their own 
 country. 
 
 The gradual assimilation in respect to quantity anfi j 
 character of consumjition of the new to the old ftoptila- 
 tion results inevitably in an increase of consumption I 
 and, as the added jjopulation l)egins to aflect prmlnction. | 
 eventually in a great increase of effective demaiMJ ami 
 of supply alike. 
 
 148. Growth of p(rpulation in urban center$.—\-dr'<i- 1 
 
SOME FACTOKS THAT AFFKCT PRICKS 149 
 
 tions in price which are due to increase of population 
 are „.ost conspicuously noticeable in the case of rapidly 
 grow.ng urban centers. The growth of towns is no new 
 phenomenon, no. .s it confined to America. The ancie,^ 
 emocrac,es were created by the towns as mode 
 democraaes are n.aintained by them. Concentration 
 population on particular sites has been due n t^e^ 
 .n es to many causes. Such a concentration may be due 
 
 the fact that the site is a strategic point for'de ens 
 
 n S « "^ "fr '^"'''^'^- '"'■ P""«-' administra- 
 
 l,^^' ""'^ '^°"'^""' ^°'- 1^«*^^ like Venice, Chi- 
 
 affo and Montreal, or for communication like New 
 
 ^ ork, whose harbor has made it the point of contact 
 
 between the new world and the old. Towns g ow 
 
 St2""" " ''";'°, '" ■'"P'"'' '"""'^ ecclesiaslicaT 
 >u.I<l ngs .s many of the cathe.lr.1 cities in England 
 round groups of scholars as Oxford and Cambridge, o 
 the center of agricultural regions like Moscow and 
 
 In d7h; ■,' "*r °' ^'"^^ ""^^ ^-'t-^ -hioh have 
 iH^en debberat. Jy planted like St. F^tersburg, Wash- 
 
 t' the,r s„.tabH,lj- U,r p^Witical administration. So„,I 
 - are founded with 4m.-n\ty upon their site" 
 
 wf '' "V'^ -"•* "* --l^»t«' occurrence. 
 ■t Jetersbtirg and Ch-ongo are largely U,ilt upon 
 P.l« .„ swamps; Venice a,Kl Amsterdam wer« built i" 
 
 lie ^6A* 
 
 HO Cau»e, for m oven, r.ts of population.-Concen- 
 
 I S ,!'•"'' ";" '"■'""' "''''' '" '""dern Indus- 
 
 .a countries occurs from one or the other of two gen- 
 
 1 groups of causes: first, tho.se causes which arise in 
 fl-e nfes an,l towns, the attraction of higher wages f,^ 
 
 tTf *'.'7,^ ««-"•*-■ employ„.e„t. the! r c- 
 "»ns ,.f socml life, facilities for education and the lik'- 
 
150 
 
 ECONOMICS 
 
 and, second, those causes which arise in the rural dis- 
 tricts, the isolation of the farms (especially in thost 
 parts of a country where the system prevails of grant- 
 ing to railways and to homesteaders alternate sections ) , 
 the arduousness of agricultural life, the deficiency of 
 comfort in the farmhouses, the absence of general so- 
 ciety, the frict»»n genenteil by intimate contact with 
 a small nuasber of persons unrelieved by variety, the 
 arfcitrariness of the chiefs of the farming community, 
 their deficient sense of justice, their sordidness and some- 
 times their inefficiency as agriculturists — defects which 
 render it difficult for the farmer to secure hired assist- 
 ance, and even to retain the services of his own family. 
 whom he habitually undervalues and underpays. The 
 flights of ])easants in Eastern Europe from excessive 
 burdens have their counterpart in the flight of the farm- 
 ers' sons from the yoke of farm labor in nearly all 
 agricultural countries under the conditions of commer- 
 cial farming. 
 
 Rural depopulation occurs through migration to other 
 rural districts, to the towns or through emigration. In 
 any case it tends to diminish the working force and to di- 
 minish local production. Migration may, however, ti^iid 
 to improve the condition of those who remain as well 
 as of those who migrate, the first through the increase 
 of agricultural wages due to the relative scarcity of 
 labor, and the second through the transference of their 
 labor to a more remunerative field. The congested dis- 
 tricts of Ireland, Eastern Austria, some parts of Cen- 
 tral Russia and many parts of Southeastern China 
 have been relieved at least temporarily by emigration. 
 Rural depopulation has occurred in Ontario in cotise- 
 quence of migration to the Ontario towns, to thi' jirairii' 
 provinces and to the T'nited States. In Great Kritain. 
 
 mm.. 
 
SOME FACTORS THAT AFFECT PRICES 151 
 
 rural depopulation proceeds at a rapid rate stimulated 
 by the mdustrial prosi)erity of tlie towns and by enii- 
 Krution. It is not a little remarkable tluit while in 
 (ireat Britain and in America complaints siiould be 
 made of the undue urbanization of the i>opulation pre- 
 (isely opposite complaints should be made in India 
 where the decay of industries in the towns has led to the 
 riiralization of the jjcople. 
 
 l.'O. Effect on prices.— The movements of popula- 
 tum result in diminished deman.I from tiie places which 
 the i>eople leave, and increased demand in the place to 
 wiirch they go. Deficient harvests in the upper valley 
 of the nnic,.er. in 1899. cansci so ^^,,,.1 a .lecline m 
 ttie deniand of the peasant villafrcs tl,.t the towns (like 
 M..hilev) were struck by industrial .lepression. Artisans 
 and traders were forced by this depression to leave the 
 towns for cities (Smolensk. JMinsk, Warsaw, etc.) or to 
 enngrate to America. The cities gained in population, 
 «aKes fell and there were industrial disturbances owing 
 » the fall of wages. Meanwhile the n.in of the small 
 towns affected the distributi.« of c-ountry produce, and 
 prices m the cities advar>ced in consequence of the in- 
 creased population (although the power of consump- 
 tion i)er head had doubtless diminished) and in conse- 
 quence of the restriction of supply. 
 
 But the advance of prices in the cities penetrated to 
 the producmg areas, and in course of time economK; 
 eil"'Iionum was again restored. 
 
 In the countries to which the emigrants went, the de- 
 mand was increased by the inrush of new consumers 
 and in sp.te of the increase of production, which was 
 "le result of the immigration of industrious people 
 Priws tended to advance because there was a net increa«J 
 "1 the consuming power of the newcomers. It is well 
 
152 
 
 IXONOMICS 
 
 recognized that no matter how frugally immigrants may 
 have lived in their native country, they quickly adopt 
 more extravagant habits whenever they are able to do sd. 
 
 131. Changes in utandard uf comfort. — Changes in 
 the standard of comfort, especially when they extend to 
 the mass of the people, exercise an imjiortant influence 
 upon demand. Such changes are induced either by in- 
 creased resources in the form of increased wages (ir 
 other incomes, or tliuy are induced by increased sup- 
 plies of certain commodities resulting in dimiriislud 
 l)rices. In the e'^nteenth century, the customary 
 household beverage was home-brewed l)eer. Tea «as 
 used .sparingly even by the well-to-do classes, lii 
 the early part of the ttinetcenth century tea was still 
 relatively exi)e!isive and was rarely consumed by the 
 working population. The development of tea planta- 
 tions, especially in India and in Ceylon, where tea plant- 
 ing is very skillfully conducted, has in competition with 
 the teas of China and .lupan resulted in a greatly in- 
 creased su])ply and a considerably reduced price. 
 
 The masses of the people in (Ireat Britain now cnn- 
 simip tea as in Continental Europe generally the masses 
 of the people consume coffee. Tlie greatly increaseii 
 demand has been responded to by increased sup])lits, 
 and jjrices ha\e tberefoi'e not risen, the change ha\ iiii; 
 been gradual and the business of tea-growing Imvinfi' 
 attracted abundant supplies of capital. 
 
 The situation is somewhat different in the case of l«'ei'. 
 In the beginning of the nineteenth century agrieult\nal 
 laborers and even small farmers consumed beef very 
 rarely. The town artisan did so less infrequently '"it 
 still seldom. 
 
 The advance of wages and, no doubt, also the greater 
 arduousness of laI)or, induced increased consumptinii (if 
 
SO.MK FACTORS THAT AFFECT PRICES 153 
 
 liecf, especially in the great industrial centers. The con- 
 sumption of beef per head went up enormously. The 
 supply was procured from the Western plains where 
 cattle ranchiiijT was conducted on a large scale. But 
 the drift of population westward caused the settlement 
 of large tracts of country previously used as cattle 
 ranges (as in Southern Alberta, for example). Settle- 
 nit'iit was more profitable than cattle raising and the 
 ranchmen sought remoter places or went into grain or 
 mixed farming. 
 
 The supplies of stock, instead of increasing with the 
 ileiiiand, diminished with it. Greater economies were 
 (xcrcised in dealing with beef, yet the price of beef has 
 iidvaiieed more or less steadily — a consequence on the 
 (iiic hand of the change in the standard of comfort which 
 induces the mass of the jjcople to consume beef when 
 I'oriiierly they did not do so, and on the other hand of 
 till relative diminution of the available sources of supply 
 ill face of the increasing demand. Changes in standard 
 of comfort divert demand into new channels and fre- 
 (luetitly lead to the disuse of commwlities previously 
 extensively used. In some respects such changes are 
 imlistinguishable from changes of fashion. 
 
 1.52. Changes of fashion.^Vor ages changes of fash- 
 ion have been important causes of variation in price. 
 Tills cause of variation affects particularly articles of 
 luxurious consumption, especially tlie finer textiles and 
 jewelry. Materials like Iximbazine and plush, which 
 were fnr.nerly in extensive use, are now almost unknown. 
 The factories where they were once made in quantity 
 are now closed or diverted to other products. 
 
 Risks of changes in fashion are so great that in order 
 ♦liat the businesses affected may be continuous, such 
 ■ isks must be taken into account in determining the 
 
154 
 
 ECONOMICS 
 
 supply price. A certain number. of the commo<litiis 
 subject to these risks may be sold in the beginning oi 
 the season at or near this estimated supply price. .\t 
 the cl >se of the season, the rema' .der are either sold iit 
 a reduced price— that is, at the demand price of the time 
 — or they are retained for subsequent sale or for remunu- 
 facture. 
 
 Fashions sometimes come round again and those who 
 have been able to keep their stocks may benefit. Some- 
 times, indeed, oi,' ashioned things attain a high value 
 because of the i< mand for them on account of the ex- 
 cellence of theii nanufacture or because their production 
 in the old manner has ceased. Examples of this plie- 
 nomenon are Paisley shawls and Sheffield plate. 
 
 Jewelry which has gone out of fashion is customarily 
 melted and remanufactured, hence the high prices which 
 antique jewelry of fine design brings in the market. 
 Precious stones are set and reset. 
 
CHAPTER VI 
 
 EFFECTS OF COMPETITION AND MONOPOLY 
 
 133. Competition.— In the history of all coinino<lities 
 there have occurred periods of relative abundance anU 
 relative scarcity — abundance when consiuners or pur- 
 chasers have had the advantage of producers or sellers 
 competing with one another, and scarcity when pro- 
 ducers and sellers have had the advantage of consumers 
 or purchasers competing with one another. Indeed, 
 there are few commodities in the production, transporta- 
 tion or retailing of which there is not discoverable at 
 some point an element of scarcity or quasi-monopoly. 
 It is useful to assume the existence of an atmosphere of 
 universal competition, because in the absence of some 
 assumption cf this kind no constructive reasoning could 
 be conducted; but it must be realized that continuous 
 correction must be made on account of the divergence 
 of actual conditions from those which would occur in 
 an atmosphere of unrestricted competition. 
 
 ^\'ithin the area of the market every buyer of gotxls 
 of a certain kind is a competitor of every other buyer 
 of such goods. So, also, every seller competes with 
 every other seller of goods similar to his own. The 
 competition of sellers determines the sellers' price and 
 tile competition of buyers determines the buyers' price. 
 If the sellers are many, and if their urgency to sell is 
 L'rnat, the competition may be almost fierce. A remark- 
 able instance of the fierce competition of eager and 
 
 IS5 
 
156 
 
 ECONOMICS 
 
 urgent sellers may be found in the narrow streets of 
 retail shops in Minsk in Poland. There the numerous 
 sellers of all kinds of wares crowd the pavement offer- 
 ing their grxxls to all passers-by, almost dragging tlitni 
 by main force into the narrow doorways of their little 
 places of business. Perhaps nowhere in the world is 
 competition for trade so manifestly keen. 
 
 If the buyers are many and their urgency to buy is 
 great the competition among them may be equally fiiicf. 
 Before places of amusement where there are no regular 
 arrangements for orderly purchase of tickets, the 
 struggle for admittance is often almost ferocious. 
 
 If, on the other hand, either buyers or sellers are few 
 in number, and if the quantity of goods which buyers arc 
 prepared to buy is known by them to be less than tiie 
 quantity offered in the market, or if sellers are indifferent 
 because they know that the quantity of goods available 
 for sale is less than the quantity demanded, the comiieti- 
 tion in either case is slender. Where buyers are in the 
 strongest position they will be able within certain limits 
 to dictate their terms ; and where sellers are in the strong- 
 est position they also will be able within certain limits 
 to dictate their terms. The limits will be defined in the 
 first case by the urgency of the sellers and in the second 
 case by the urgency (taking into account the resources) 
 of the buyers. 
 
 154. Monopohj.—\i there are many buyers or sellers 
 respectively, there is competition; if there were only one 
 buyer or seller there would be an economic monoi)oly 
 in the strict sense. For a private person to acquire a 
 monopoly either of purchase or sale is very unusual, hut 
 it does occur occasionally. A certain celebrated inter- 
 national banking house is understood to have a complete 
 monopoly of the supply of mercury throughout the 
 
C0.MPETITION AND MONOPOLY 
 
 137 
 
 world. This monopoly can only be sustained by this 
 hoiisf by tht immediate purchase of (|uicksilver mints 
 wherever these are reported to have been found, to- 
 jfctlier with the constant employment of e.\|)erts in 
 prospecting for ([uicksilver. This is probably tlie only 
 instance of a complete and absolute monopoly. 
 
 1.53. M< nopolji mces, — In the event of a private per- 
 son procuring by any means a complete monopoly he 
 might fix any price for the commodity he pleases, pro- 
 vided he were able out of other resources to defray the 
 cost of maintaining the monopoly and simply wait for 
 lliat price. If, however, he desires to make his monopoly 
 remunerative, this is not his best policy. The most re- 
 mmierative price for him is that price which will secure 
 the largest net profit. That price cannot be the high- 
 est prioe which he might secure from the most urgent 
 buyer— for in any market there are few urgent buyer.s. 
 It must be the price which will attract buyers for the 
 quantity which will yield the greatest profit. For ex- 
 ample, if a price of $10 per unit of quantity attracted 
 liuyers who purchased sufficient to give at this price a 
 profit of $1,000 a year, and if a price of $1 per unit of 
 quantity attracted buyers sufficient to produce a profit 
 nf .1*10,000 a year, clearly it would be more advantageous 
 for tlie monopolist to fix a price of $1 than to fix one 
 nf $10. It might be that as the result of experiment he 
 found that a price of 00 cents would yield only $9,000 
 a year, and in the interests of his business he would feel 
 liimscif justified in maintaining the price at $1. 
 
 15C. Government monopolies. — A more usual case of 
 cfjmpjete monopoly is the Government or legal monop- 
 oly in which within the boundaries of its own country a 
 liovernment declares itself to be the possessor of a mo- 
 nopoly of a service or of a manufacture and prosecutes 
 
MIOOCOPV RESOIUTION I6SI CHART 
 
 (ANSI ond ISO lEST CHART No. 2| 
 
 KUl^ 
 
 A APPLIED IN/HGE In 
 
 (716) 288 - 5989 - Foi 
 
158 
 
 ECONOMICS 
 
 any one who infringes this monopoly. Examples of the 
 first kind of monopoly are the Post Office service in all 
 countries, and the telegraph, telephone and railway 
 service in some countries and the municipal monopolies 
 of water, gas, electric lighting and power, and street 
 railway services. Examples of the second are to Ije 
 found in the tobacco monopoly of Austria, and the play- 
 ing card and vodka monopolies of Russia. 
 
 Monopolies of public services and of manufactures 
 held by a Government are subject to precisely the same 
 contingencies as a non-political and purely mercantile 
 monopoly, excepting that the Government may or may 
 not regard the acquisition of profit from its monopoly 
 as sound policy. This aspect of the question is discussed 
 more fully in a later section; for the purposes of the 
 present exposition it may be assumed that the Govern- 
 ment monopoly is worked in such a way as to secure a 
 maximum profit for the Government. 
 
 Here, again, it is clear that the price which will se- 
 cure the greatest profit is not the price which will he 
 paid by the most urgent buyer; but is rather the price 
 which will cause the utmost use of the monopoly to he 
 made by the largest number of persons compatible with 
 the maintenance of the service at the point of maximum 
 net yield of profit. 
 
 157. Monopolies subject to law of substitution.— li 
 should be observed, however, that the law of substitution 
 mitigates very seriously the advantages of all monop- 
 olies, public and private. The essence of the law of suh- 
 stitution is that when the price of a commodity reaches 
 a certain point, some other commodity will be substituted 
 for it. In the case of mercury this is very difficult be- 
 cause for nearly all the uses to which mercury is p\it, no 
 substitute has been found. Yet for some uses, other 
 
COAIPETITIO.V AND MONOPOLY 159 
 
 s.,bstances will serve nearly equally well. Ther- 
 mometers may be filled with alcohol or with mereury 
 almost .ndifferently; barometers may be made of other 
 metals than mereury, although they are not quite so re- 
 liable for long periods as mercurial barometers. In the 
 
 of pubhc funds ,s invested, it may become absolutely 
 necessary m order to protect the original monopoly, to 
 
 2T 'f '''''''' ^°' '^' "''^'"^J ^--ee i lorn. 
 modity as well. 
 
 138. Practical effect of a typical case.-The most con- 
 jcuous mstan^ of this is to be found in the history 
 of the English Post Office. When the first Post Oflic; 
 Art was passed, the Postmaster-General, under the ad- 
 
 entitle him to prevent any person not explicitly author- 
 
 Iv " rTJ? ^^ ''•" ^■■°'" '^'^y'^^ «»y ~ge for 
 payment. This sweeping monopoly was very difficult 
 to enforce ,n detail; but in general terms it was tho - 
 oughly enforced. 
 
 The railway companies were forbidden to carry let- 
 ters unless they were stamped with postage stamps in 
 2 ion to any charge the railway companies m^h 
 make for carrying them. 
 
 shed in England, the company was notified that the 
 business It proposed to conduct was a violation of the 
 ! ? ? monopoly. It was, however, granted a li- 
 cense by the Postmaster-General. 
 
 When messenger services were established in the large 
 " .es they also were licensed. Under the pressure of 
 pu he opinion the Government acquired the telegraph 
 ^ terns of the companies which were conducting the 
 "usmess. Under the same pressure the rates for tele- 
 
160 
 
 ECONOMICS 
 
 grams were from the beginning placed it a point which 
 has turned out to be hopelessly unremunerative. 
 
 When the telephone system made its appearance the 
 Postmaster-General at once notified the promoters that 
 they would require a license from him to carry on their 
 business. Eventually, in order to protect the telegraph 
 and the Post OflSce monopoly, the Government was 
 obliged to agree to purchase the telephone system. 
 When wireless telegraphy made its appearance again 
 the Government interposed and licensed it. Ere long, 
 doubtless, it also will be acquired. 
 
 In spite of all the force behind the Government, it is 
 with difficulty able to cope with the economic conditions 
 brought into being by streams of new inventions. Even 
 political monopolies are thus extremely difficult to main- 
 tain. 
 
 159. Quad-monopolies. — A more familiar example of 
 mitigation of competition is effected by quasi-monopohcs I 
 — in which not the whole of the supply of a commodity 
 but a large part of the supply is brought under the con- 
 trol of a group of persons who act in concert or in co- 
 partnership. This phenomenon, known widely as the I 
 "trust," will form the subject of further discussion in 
 another place; here it may be observed that the limit 
 to the action of monopolies applies also to quasi-monop- 
 olies whether they are in the hands of "trusts" or not. 
 The law of substitution applies equally to both as docs 
 also the principle of maximum profit. In the case of 
 the quasi-monopoly the highest price is not the most 
 profitable price; and there is also to be regarded as an 
 important factor in the determination of price, the fact 
 of the competition of the sometimes formidable rivals. 
 160. Monopoly prices excessive? — Whether the price 
 of a commodity like mineral oil would be lower or higher 
 
CO.MI'KTITION AND MONOPOLY 161 
 
 if the manufacture and distribution were in the hands 
 of a large number of competing producers, each adver- 
 tising his own product, instead of being in the hands of 
 a few powerful companies competing with one .inother 
 IS a question to which no decisive answer can be given 
 ^ Competition between two large producers may be as 
 effective m reducing the supply price, especially when 
 demand is doubtful or declining, as it would be among 
 hundreds of small competitors. Indeed, the fear of 
 trusts may be regarded as being due rather to the ag- 
 gressiveness of their competition than to the fact that 
 they exercise monopolies. 
 
 161. The situation in the V. ^.-The attacks upon 
 corporations in the United States may perhaps justly 
 be attributed to the fundamental individualism of the 
 American people. Their genius seems disposed rather 
 to independent, individual action than to corporate or 
 even co-operative action. It seems to have been so from 
 an early period. The intense local patriotism of the 
 several States rendered the Union hard to accomplish 
 and after it was accomplished it seemed likely at one 
 moment to break it up. 
 
 Industrially the earlier American enterprises were fur- 
 nished with capital frc iroad, and. eager as the peo- 
 ple seemed to be for loa... of money to exploit the re- 
 sources of the country, they could not avoid dislike of 
 their creditors. Capital in general thus bore a foreign 
 aspect, and the relations between the representative cap- 
 italists and the small merchantry were strained from the 
 beginning. The struggle between the large capitalist 
 and the small one really began in the United States in 
 the thirties of the nineteenth century; that struggle long 
 ante-dated the appearance of the trusts. 
 It is not a little remarkable that the co-operative move- 
 
 C-I— II 
 
 
162 
 
 ECONOMICS 
 
 mcnt which has taken sucl; a hold of Western Europe lias 
 obtained a very slender footing in the United States 
 and even in Canada. While undoubtedly the people uf 
 both countries have developed a remarkable power of 
 common activity — that is, of spontaneous organizutioii 
 toward common ends — they appear to be averse to Ibr- 
 mal association of this kind. They seem to think that 
 every man should have the opportunity to make the lust 
 of ins powers, by combined or by individual action as lie 
 sees fit, and that formal combinations militate against 
 this f.'eedom of action. The Americun maxim, "(Jive 
 every man a chance," expresses antagonism to those com- 
 binations whose operations appear to tend toward 
 diminution of such chances. 
 
 162. Land monopoly. — An important case of allejied 
 monopoly to which the above considerations apply is the 
 ownership of land. Although it is true that a pcrsrai 
 who possesses a particular piece of land to the exclusiiin 
 of everyone else, possesses a monopoly, the same is true 
 of the possession of any commodity similarly cf/ninici- 
 cialized. We have seen that the commercialization of 
 land or the imparting to land of the mobility as regards 
 pc session, which is characteristic of other forms of prop- 
 erty, succeeded earlier kinds of land tenure. These 
 earlic" ' ^nures fell into decay or were abolished because 
 of the decay and abolition of serfdom, because of the 
 :carcity of agricultural capital and because of the diffi- 
 ■ ilty of procuring free, hired agricultural labor. When 
 °nse areas of land were held by the State and 
 ited to military chiefs or to other influential jjersons, 
 land was neither bought nor sold and was held as 
 a, i.ionopoly. 
 
 Commercialization of land altered this and, so to say, 
 placed land at the disposal of the highest bidder. The 
 
COMrKTITIO.V AND MON'OPOI.Y 103 
 
 alteration of the laws of inlieritance an.l the a.loption 
 of the practice of paying for senices to tlic State by 
 means of money instead of by mer .s of grants of land, 
 have together brought about the commercialization of 
 land. 
 
 It is true that this fact does not prevent land from 
 being monopolized; but ^ here all land owning is com- 
 merciahzed, there is nothii.g so hard to monopolize as 
 and because there is so much of it. The owners of dif- 
 ferent areas of land compete «ith one another in the 
 market for land as the owners of goods compete in the 
 markets for goods. Real estate dealers advertise their 
 own lots m western towns in the same way as manufac- 
 urers advertise their wares, and they employ similar 
 evces m displaying the advantages of what they have 
 lo sell. •' 
 
 163. Fluctuation of land prices.-In all countries the 
 history of the prices of land has shown that the price of 
 land is subject to great fluctuation. 
 
 in ITT, \T u""^ ?''" *^ P'"'^^ °^ agricultural land 
 ■n England fell sharply. Many farms in the chief agri- 
 cultura counties were let at "peppercorn" rents-that 
 |s, for the mere payment of taxes upon them. Urban 
 ands advanced between about 1874 and 1876, but since 
 that period the prices have not advanced materially ex- 
 cepting in the business centers of the towns 
 In the United States and Canada, similar'fluctuation.s 
 
 s a as led to the abandonment of farms in the eastern 
 tates as the attraction of the prairie provinces has led 
 toniral depopulation and the fall in the price of land 
 in Ontario. 
 
 Booms and subsequent collapses are familiar incidents 
 in the cities of both countries. The acquisition oi farm 
 
164 
 
 ECONOMICS 
 
 lands at the normal prices for such lands and the build- 
 ing of a hotel by a shrewd and enterprising speculatDr 
 who skillfully engineers it into the position of a fashion- 
 able resort, will induce demand for land in the neighbor- 
 hood and will therefore increase its price. The stream 
 of fashion may make the surrounding country very val- 
 uable to the owners of land, until caprice or intertst 
 turns the stream in another direction. In former days 
 people went to Saratoga for recreation ; now they go to 
 Virginia Hot Springs, Atlantic City, Bar Harbor or_ 
 Newport, Rhode Island. 
 
 Round every growing city new residential districts 
 tend to develop, and these compete with one aiiotlicr 
 more or less vigorously. The difference between the 
 price of farm lands and urbanized land is represented 
 by the cost of organizing it for its new use by draitiai;e. 
 by setting off allowances for streets, by advertisinif it. 
 by interest upon the investment, and by the cost of ad- 
 ministration. The result of these operations may be the 
 sale of the land at a profit or, in the absence of demand 
 owing to miscalculation or misfortune, the whole region 
 may relapse into agricultural land or remain idle for 
 years. 
 
 164. Competition in land selling. — Continuance of 
 rapid growth of large towns cannot be counted upon. 
 It is true that land acquires a value through demand 
 in other words, through the settlement of a community 
 upon it ; but if the community does not settle or if it 
 leaves the place of its settlement, demand and value 
 alike decline. Much of the so-called site value of urban 
 property is peculiarly liable to fluctuation owing to the 
 caprice of demand. And at a street corner, whieh ap- 
 pears to offer a strategic point for the conduct of a i)ar- 
 ticular business — a bank, a railway ticket office or the 
 
COMPETITION- AND .MONOPOLY 1C5 
 
 like— clianges hands at a price greatly in exeess of the 
 |)rice of another part of the same block. Such a transac- 
 tion is not due to monopoly but is due to effective de- 
 mand of a sjx-cial cliaracter. Cases frequently occur of 
 mvners of an advantageous site of this kind holding on 
 t(Hj long and thus missing the market. 
 
 Cities and even countries compete against one another 
 in the land market. Thus if a manufacturing firm, de- 
 siring to establish itself in Buffalo or Toronto, found 
 that land was being held in both places at what was 
 regarded by its advisers as an exorbitant price, it might 
 Ik advantageous to purchase land elsewhere— at Toledo 
 nrat Hamilton— where land could be had more cheaply. 
 provided the business could be carried on with equal ad- 
 vantage in the smaller city. 
 
 Cases frequently occur in which it is a matter of in- 
 ilifference to the promoters whether an industry is es- 
 tablished in the United States or in Canada. In such 
 cases the local factors play a large part— facilities for 
 obtammg labor and material and the cost of the land. 
 If, oth r things being equal, a suitable site could be ob- 
 tained at a less price in Canada than in the United States, 
 tiie industry would be established there. On the fron- 
 tiers of the countries in Central Europe similar condi- 
 tions prevail. A local land "monopolist" who insists 
 upon exorbitant prices is a kind of scarecrow, frighten- 
 ing people away from his land and making nothing of it 
 1) nself. 
 
 165. Rates of interest affect land prices.—TheTe is a 
 definite connection between the demand price for land 
 and tlie rate of interest for money. When money is 
 scarce and the rate of interest is high, the demand for 
 land IS slender because the speculative element is limited 
 or eliminated. When the rate of interest on loans upon 
 
 in 
 
100 
 
 ECONOMICS 
 
 the security of land rises, some holders of land must sell, 
 if they can, and others, who would otherwise have hoiiglit. 
 will refrain from l)uyinp unless for purposes of tlieir 
 business they are oliliged to buy. 
 
 So, also, when the rate of interest falls, the price nf 
 land where property in land is mobile tends to rist 
 The phenomenon of an advance in the price of land ciin- 
 sequent upon a fall in the rate of interest has been il- 
 lustrated on a large scale in Egypt. Prior to the Brit- 
 ish ocaipation the rate of interest was very high, most 
 usurious rates being customarily exrcted, with the bas- 
 tinado as a penalty if the amounts due were not jjaiii. 
 Under the Egyptian regime, the price of land was low. 
 partly owing to the instability of the government, but 
 more largely owing to the high rate of interest wiiidi 
 deterred borrowing for the purpose of purchasing luiul, 
 and which it.duced the owners of capital to refrain from 
 lending for long periods. The International Tribunals 
 and, later, the Egyptian courts of law, supervised as 
 the latter were by the British Government in Egypt, put 
 and end to the bastinado and to usury. The rate of inter- 
 est fell to normal amounts because abnormal rates could 
 not be recovered and therefore would not be paid. 
 
 One of the immediate consequences of the fall in the 
 rate of interest and of the increased stability of the 
 government was an increase in the demand for land and 
 a rapid increase in the price. There was a furore of land 
 speculation in Cairo; but a more important iiicidint 
 was the increase in the value of agricultural land coupled 
 with its increased productivity owing to the control of 
 the Nile waters by means of the great engineering; 
 works erected by the British Government. The position 
 of the land-owning fellahin was greatly improved: but 
 the position of the landless fellahin was not so ob\ iouslv 
 
CO.MPETITIOX AND MONOPOLY 107 
 
 altered. He found that tlic prio f money Imd fnlltn, 
 but the price of lund had risen to a greater extent. His 
 annual payment on account of interest upon capfi! in- 
 «'ste(J in an acre of land had therefore increased. The 
 greater prmluctivity of the land enabled him more eas- 
 ily to meet the additional charge than he would other- 
 wise have been able to do, but there was little if any net 
 liecuniary advantage. 
 
 The extensive speculation in land by farmers in the 
 northwest of Canada has been due to the facilities for 
 borrowing which the farmers have enjoyed, ant' to the 
 relatively low rates of interest at which they could bor- 
 row. This condition led to npid advance in the price 
 of land so long as effective demund was sustained. With 
 the rise in the rate of interest the increase in the price 
 of land was checked. In the event of interest advancing 
 still further, the price of land must fall. 
 
 The price of land, like the price of commodities, thus 
 depends upon a series of complex causes acting through 
 demand and supply. 
 
 166. Changes in geographical relations.— The great 
 trade routes of "unchanging Asia" have retained their 
 importance for many centuries, many of them retaining 
 even their primitive character. Long lines of camels 
 may be seen carrying merchandise from Peking through 
 the Nankow pass and by Kalgan on the out r Great 
 Wall of China into Jlongolia for the Wongol traders, 
 as Marco Polo saw them nearly seven centuries ago. 
 Similar lines of camels may also be seen in the Trans- 
 caspian region, competing with the railways for distances 
 of a thousand miles. 
 
 The trade routes of European traders have, however, 
 altered many times, and alterations have sometimes im- 
 posed immense sacrifices. In the prime of Venice her 
 
108 
 
 ECONOMiCS 
 
 traders conducted a Inrjjc part of the traffic b< twtin 
 I'lrsin, India and Kiiropc tliroiifjh Asia Minor. The 
 discovery of the Ca|K; Itoiite to India diverted the ma.jnr 
 portion of \'tneiian trade to Lislwn and Lon<Ion, wliilc 
 Cape Town Iwcanic an important stratej^ic point. The 
 ojjening of the Suez Canal did not revive Venice, hut 
 it gave a new strategic importance both in a mercantilt 
 and in a mihtary sense to Egypt and to Gibraltar. Al- 
 tliough France built the Suez Canal, Cireat Britain 
 profited by it to the greatest extent. Her hold on India 
 was strengthened and her trade with that country, with 
 China and with Australia and New Zealand was greatly 
 facilitated. 
 
 The whole range of prices of the products of these 
 countries and of the goods consumed by them was al- 
 tered. Trade which was formerly periodical became 
 continuous. The voyages no longer depended upon tiie 
 monsoons. The increasing velocity of the returns to 
 capital, which the shorter route rendered possible, en- 
 abled larger and more powerful vessels to be employed. 
 There was a more eager competition for an enhanced 
 trade and freights were reduced in consequence. 
 
 The effects upon prices extended not merely to tiicir 
 amount, but extended also to their fluctuations. An in- 
 crease of the demand in the Bazaars of India, for ex- 
 ample, could not under the former conditions be felt in 
 Europe for months. After the opening of the Suez 
 Canal and the establishment of numerous lines of fast 
 steamers between Europe and Bombay, goods might be 
 ordered from India and delivered within about one 
 month. The whole fabric of Eastern trade was altered. 
 
 Scarcely less significant was the rounding of Cape 
 Horn and the development of European trade on the 
 Pacif slope of South America. The opening of the 
 
rOMPKTITION AM) .MONOI'OLV |o» 
 
 Paimnin Canal is <frtain to produce complicatccj rcac- 
 tiiiiw. Much of the external, and perhaps sonic of the 
 liiUrnal. trade of tlic United States must \k affected liy 
 It. Its influence upon the price of grain in Kurope. 
 iiwiMK to the diminution of freight rates Iwtween Cali- 
 fiiriiia, British Cohimhia and Europe, may result in the 
 rntrance into the European competitive market of grain 
 which at present cannot be shippeil there. If this occurs 
 the price should be less than otherwise it wor.. 1 have 
 been. 
 
 
 ^^0|t.^^i 
 
 
 
CHAPTER VII 
 
 MONEY AND CREDIT IN RELATION TO PRICES 
 
 167. Expandon and contraction of credit. — When 
 for any reason credit expands, more capital is availalile 
 for industrial purposes, more pe /pie are employed, more 
 wages are paid. Consequently, demand for conmiodities 
 increases and prices tend to advance. When for any 
 reason credit contracts, people refrain from making pur- 
 chases except for immediate needs, loans are recalled 
 and stocks of goods have to be thrown upon the marktt. 
 The visible supply of goods is thus suddenly increased 
 at a moment when demand is contracted. The conse- 
 quence of these conditions is a fall in prices more or less 
 widespread in proportion to the suddenness, severity and 
 duration of the crisis. 
 
 Contraction of credit may occur through anticipation 
 on the part of the lending and investing classes of a 
 deficient liarvest or of a war, or it may occur because in 
 the opinion of such classes speculation has forced prices 
 above the point at which there can be sustained demand: 
 or credit may be contracted merely because it is more 
 profitable under th' existing conditions of the money 
 market to hold highly liquid rather than less easily 
 realizable securities. Expansion of credit occurs wlien 
 the process of contraction has obviously gone too far. 
 when unemployed funds accumulate in the hands of in- 
 vestors and when their incomes fall in consequence. 
 When credit contracts, people begin to hoard money. 
 and they let it pass out of their hands again as the rate 
 170 
 
RELATION TO PRICES m 
 
 of interest for urgently demanded funds gradually ad- 
 vances. 
 
 Hi8. Effect of qiiantitij of monei/ in circulation —The 
 role of money in the process of exchange and the position 
 accjuired by the precious metals in the category of money 
 have already been discussed. The demand for money 
 for purposes of exchange and the demand for precious 
 metals is as real a demand as that for any commodity 
 m the category of commodities. Some gold and silver 
 are demanded for various purposes in tlie industrial and 
 hne arts-photography, dentistry, jewelry, medals and 
 the hke— and some for tlie manufacture of coins, either 
 immediately or potentially. If all transactions were 
 settled by means of cash payment in coins, it would be 
 clear that the larger the volume of trade-given a cer- 
 tain rate of movement of that volume— the greater 
 amount of coins would be necessary for the movement 
 of trade. When the conditions are as assumed, and 
 here occurs a shortage of currency, trade is impeded 
 from that mere fact because exchange is rendered less 
 easy. In so far as the actual conditions approximate 
 the conditions described, it comes to be very impor- 
 tant that there should be sufficient currency on any given 
 occasion to enable the required payments to be made. 
 
 169. Periodical payments.— In Scotland rents of 
 buses and of some lands are customarily paid at the 
 J>o half-yearly terms of Whitsunday (June) and Mar- 
 tamas November) It is usu.^l for the Scottish banks 
 withdraw from London, immediately prio- to these 
 term days, not less than from $10,000,000 to $15,000 000 
 mgoldin order to provide the currency necessary' for 
 
 leipated payments. The gold is used in circulation 
 
 J to a small extent; it serves chiefly as the basis for 
 "e issue of the bank notes which are employed for the 
 
 n 
 
 1 
 
 -1 
 
172 
 
 ECONOMICS 
 
 payment of rents. When these notes return to the 
 banks, as they do in the form of deposits within a fen- 
 days after the term day, they are cancelled and the gold 
 is returned to London. 
 
 Every week, or every fortnight, according to the cus- 
 tom of wage payments, large industrial concerns every- 
 where withdraw from the banks coins and bills wliioh 
 are payable in coin on demand, for the purpose of pay- 
 ing wages. The vse of checks or drafts on demand 
 upon the banks has been widely extended of recent years; 
 but unless the person to whom the check is given keeps 
 his account at the same bank as the drawer of the check, 
 the settlement between the banks concerned takes place 
 instead of between the drawer of the check and the per 
 son to whom the check is payable. In such a settlement 
 there are claims and counter claims which are customarily 
 set oflF against one another in the clearing houses, but 
 the balance, whatever it is, is customarily paid in cash by 
 the debtor bank to the creditor bank. 
 
 170. Settlement of bank balances. — Thus, no matter 
 to what extent instruments of credit are employed to 
 faciUtate exchange, there are certain large balances 
 which must be paid in cash. Such balances between 
 banks niaj' be, and customarily are, settled by means 
 of the transference of instruments of credit in which the 
 holder of funds common to all the banks is concerneil 
 or in instruments of credit issued by the Government 
 in return for previous payments in coin or its equivalent. 
 
 In Candida, "legal tenders" for $1,000 each are cus- 
 tomarily used by the banks in this way, fractions of this 
 amount being paid by checks on the Bank of Montreal 
 against deposits previously made in that institution. I" 
 London the clearing house balances are settled by cliecks 
 upon the Bank of England, where all bankers who use 
 
RELATION TO PRICES 
 
 173 
 
 the clearing house have accounts. In New York and 
 elsewhere the process is similar, the clearing house settle- 
 ments being made in actual cash or in some highly ap- 
 proved and immediately negotiable instrument of credit. 
 
 in. Gold required for internatiorud trade.— The in- 
 ternal trade of a country always greatly exceeds its ex- 
 ternal trade and therefore the amount of currency v hich 
 is required within the country is always much greater 
 than the amount required for the conduct of its export 
 or import business. Yet the latter amount in the case 
 of each of the great commercial nations is very large. 
 
 In international trade, instruments of credit are used 
 largely, but, notwithstanding the economy in circulation 
 which the use of these documents implies, there remain 
 large balances which cannot be settled otherwise than 
 by the transference of gold. When credits in favor of 
 the United States and Canada accumulate in the autumn 
 after grain shipments have begun, there begins as a rule 
 (although not invariably, see page 174) what is known 
 as the "autumnal drain" of gold to America from Eu- 
 rope. The amount of the gold shipped varies in respect 
 to the grain shipments, and also in respect to other 
 simultaneous debits and credits, but it is usually a factor 
 of considerable moment. 
 
 If we were to suppose that so much as ninety-eight 
 per cent of the aggregate amounts involved in all trans- 
 actions, domestic and foreign, of the great trading na- 
 tions, are settled by the transference of credits through 
 the use of credit instruments (and this proportion is 
 probably not far from the actual conditions in certain 
 of these countries), we should still have to suppose that 
 two per cent of tiic enormous total would demand gold 
 or silver for settlement. It is clear then that the greater 
 the volume of business and the greater the number of 
 
174 
 
 ECOXOJIICS 
 
 transactions, the larger the amount of gold and silver 
 which will be necessary in order to conduct them within 
 a given time. 
 
 While it is true that coin is economized to a greater 
 extent than ever it was, it is true, also, that capital is 
 transferred with greater velocity than ever it was. If, 
 for instance, a wholesale trading house turned over its 
 capital once a year in a given number of transactions, 
 and owing to increased trade at another period turns 
 over its capital twice a year in twice the number of 
 transactions, it is clear that currency facilities of one 
 sort or another will be necessary to an extent at least 
 approaching twice the amount formerly necessary. 
 
 172. Money in circulation affects prices through 
 crcrfiY.— Notwithstanding the influence of citdit, it is 
 clear, therefore, that the quantity of the precio\is metals 
 in circulation as money is not a negligible factor. Tiie 
 influence upon prices of an increase or a diminution of 
 the amount in circulation is, however, neither immediate 
 nor direct. The influence is indeed conveyed through 
 credit. When the banking reserves are re-enforced by 
 receipts of gold, credit expands, and when they are de- 
 pleted by withdrawals of gold, credit contracts. Tlie 
 expansion of credit induces increase of demand and in- 
 crease of demand induces advance of prices, while con- 
 traction diminishes demand and induces fall in prices. 
 In this indirect way an increase in the quantity of the 
 precious metals available for use as money induces an in- 
 crease of prices within the area which is affected by the 
 expansion of credit and a diminution of that quantity 
 has an opposite effect. 
 
 The "autumnal drain" of gold from Europe produces, 
 other things being equal, a restriction of credit there 
 and the receipt of the gold in America produces, other 
 
RELATION TO PRICES 
 
 175 
 
 an expansion of credit on this 
 
 things being equal, 
 
 side. 
 
 There are numerous historical examples of the effect 
 upon prices of considerable increases in the supply of 
 gold. For example, after the new supplies of gold 
 froni California and Australia in 1849-18.51 began to 
 reach Europe, credit expanded, and prices rose accord- 
 ingly. Similar results were brought about when, after 
 886, the yield from the South African mines was great- 
 ly increased, owing to improvements in the process of 
 reducing the ore, and new gold in great quantities began 
 pour into Europe. The resenes of the European 
 banks were substantially increased, especially those of 
 the Bank of France and the Bank of Eng' ,„d. 
 
 The accumulation of banking reserves caused the rate 
 interest to fall, industry was thus stimulated and the 
 long depression" which had lasted from 1876 passed 
 away. The stimulus to industry through the fall in the 
 rate of interest which was the consequence of the in- 
 creased supplies of gold and the replenishment of the 
 banking reserves which these new supplies provided, led 
 to increased <I mand for which the increased credits af- 
 forded effective resources. Prices rose sharply from 
 the low points to which they had fallen during the "lonjr 
 depression. ' It should be observed that only those 
 prices which applied to goods the demand for which was 
 increased by the relaxation of credit, were, strictly speak- 
 mg, advanced in consequence of that relaxation which. 
 m turn, was due to the increase of the gold reserves. 
 
 ishn! . f/""'' "^ '^^^--The process of the replen- 
 ishment of European currency by large new supplies of 
 gold was arrested by the outbreak of the South African 
 «ar. For three years the mines produced nothing, 
 "hen operations were resumed the stream of gold con- 
 
176 
 
 ECONOMICS 
 
 tinued. New sources of demand had meanwhile devel- 
 oped. Russia, Austria and Italy had already begun to 
 rehabilitate their public credit by the increase of <;ol(l 
 reserves against their fiduciary currency. Their im- 
 portations of gold, arrested by the South African war. 
 were now resumed to a greater extent than formerly. 
 Exportation of goods was encouraged and importation 
 checked by heavy duties. Immense exportation of wlieat 
 enabled Russia not only to rehabilitate wholly her de- 
 preciated ruble, but enabled her to accumulate an enor- 
 mously greater stock of gold than was necessary for that 
 purpose. The United States Government also adopted 
 the policy of storing gold. 
 
 In consequence of these large operations, notwith- 
 standing the greatly increased production, a scarcity of 
 gold in relation to the currency requirements of a greatly 
 increased volume of trade began to appear within the 
 range of probability. 
 
 Then, as nearly always under similar conditions, the 
 hoarding of gold became a considerable factor. Such 
 hoarding always goes on especially in Mohammedan 
 countries; and, when those countries enjoy prosperity in 
 trade, and when it appears that gold is difficult to get, 
 scarcity is regarded as imminent, goods are sold and 
 gold is secreted, only to be brought out again when 
 prices have fallen further and purchases may be made 
 with advantage. Hoarding thus went on sharply 
 India and Egypt. Public and private hoarding, to- 
 gether with the increasmg demands of credit for com 
 mercial and for speculative purposes, thus led to the 
 crisis of 1907, which was partly a credit and partly a 
 currency crisis. 
 
 174. Fiduciary currency. — The term fiduciary cur- 
 rency is applied to currency whose acceptanc : as money 
 
RELATION TO PRICES I77 
 
 depends not upon the material of which it is made but 
 upon the credit of the issuer— in other words, upon be- 
 lief m the reliability of the promise to pay at a certain 
 place on demand or at a certain date a si)ecific amount in 
 a certain currency material or its equivalent. The brass 
 tokens which the Hb Ison Bay Company issued were 
 redeemable by the company in goods equivalent to one- 
 quarter, one-half or one whole standard beaver skin. 
 These brass *okens were fiduciary currency because their 
 acceptability was determined by the faith that the com- 
 pany would keep its engagements. 
 
 At the present moment Chinese barbers issue small 
 bamboo sticks which entitle the bearer to their services. 
 These sticks are sold and used because the single service 
 of a barber is valued at a rate lower than the smallest 
 com m circulation— the "cash"— represents. Several of 
 the sticks are sold for one "cash." There is here also an 
 element of trust in the good faith of the barber. 
 
 i , 5. Paper Wioney.- Fiduciary currency, usually, al- 
 though not invariably, consists of a document of piper 
 or parchment upon which is written or printed the prom- 
 ise to pay. Such notes or bills have been employed 
 since very early times. Ancient Chinese notes or bills 
 of this kind are still extant. 
 
 It is clear that the reliability of the issuer of such docu- 
 ments must be subjected to repeated tests. So long as 
 the tests are satisfactorily passed, the credit instruments 
 will continue to circulate at their face value. If doubt 
 IS cast upon the reliability of the issuer, his issues may 
 still pass current; but they will do so at a discount. If 
 fresh issues are made while the issuer is still in default 
 m respect to previous issues, the discount increases and 
 eventually the issues become non-negotiable on any 
 terms. 
 
 C-l—lt 
 
178 
 
 ECONOMICS 
 
 176. An hypothetical case. — If we suppose a countrj' 
 to be a closed economic system, that is, a system which 
 has no contact with the external world, the issue of Gov- 
 ernment notes in such a country without any power of 
 redemption would be possible provided the people bad 
 confidence in the stability of the Government. If, how- 
 ever, they feared the displacement of the Government 
 and the repudiation by its successor of the obligations 
 it incurred, the irredeemable paper of the Government 
 would not be accepted even by its own subjects, and the 
 Government would be unable to ijsue a forced loan in 
 the form of irredeemable Government notes. If, how- 
 ever, confidence in the Government was such that the 
 people supported a policy of this kind, and accepted 
 Government paper instead of cash while the Government 
 justified itself on the ground of national exigency, the 
 paper would pass into circulation, but for doiiiestic j)ur- 
 poses only. 
 
 In such a case where such a policy is adopted there 
 cannot be any doubt about the reactions which will 
 take place. History affords numerous examples (no- 
 tably the situation in the United States during tlie 
 Civil War when forced currency was put in circulation 
 as a desperate financial expedient) . There would speed- 
 ily develop in the market two prices — one price for 
 payment in cash and the other and higher price for pay- 
 ment in Government paper. 
 
 Gradually cash would disappear. It would be 
 hoarded because of its increased and probably increas- 
 ing value (on the terms of the hypothesis it would re- 
 1 ;ain in the country, but if the circle were not closed it 
 would for the most part leave it) and paper alone would 
 remain in circulation. It would be necessary to increase 
 the issue of paper because of the disappearance of the 
 
IlELATION TO PRICES 
 
 170 
 
 cash which had formerly been current and because the 
 increase in paper prices caused an increased demand for 
 the paper for purposes of interchange. Such paper 
 could easily be printed and issued and the phenomenon 
 of o'.erissue would be manifest. 
 
 Tile rapid rise of pajjcr prices would disturb all exist- 
 iiijr contracts, j)eople with fixed incomes would be re- 
 duced to poverty and unless wages were advanced 
 immediately upon every advance in the prices of the 
 necessaries of life, industry would be dislocated, and the 
 ivhole economic system thrown out of gear. Return to 
 
 condition of equilibrium would be slow, and would in- 
 volve great sacrifices. The foundation of man/ great 
 .\merican fortunes was laid in the period of reconstruc- 
 tion after the war, but the personal sacrifices of the mass 
 of the people were tremendous. 
 
 177. Fiduciary currency in international trade. — If, 
 instead of a closed economic system, we suppose one 
 ivhich forms a part of the system of international ex- 
 change, we shall see at once that an irredeemable Gov- 
 ernment currency is impossible, and that since inter- 
 national balances must be settled in international money 
 -in a commodity which is universally acceptable — it is 
 necessary to maintain such a reserve of gold as will 
 suffice to meet these international balances. 
 
 It may, however, be objected that international trade 
 involves both imports and exports and that it is therefore 
 merely barter. If imports and exports over a short 
 period, say three months or six months, coincided precise- 
 ly or even nearly, such would be the case; but they do 
 not. Jloreover, there is a constant movement of capital 
 from one country to another, notably from Europe to 
 America and from America to Europe. Every day on 
 the Bourses and Stock Exchanges of Europe and the 
 
180 
 
 ECONOMICS 
 
 United States, American securities are bought und 
 sold. The payments for these securities have to be niiidi'. 
 
 For severiil years after tlie Civil War the Unitd 
 States borrowed lieavily from Kurope, tlicse loans W^'mg 
 transferred partly in goods and partly in gold. 'I'ht 
 funds so derived were expended in railways and in in- 
 dustrial enterprises. The accumulation of capital in tht 
 United States, especially during the period betwmi 
 1890 and 1910, led to the repayment of some of tliiy 
 loans through the' purchase of American seairitics in 
 Ivondon and elsewhere. Meanwhile, however, owiiijr ti 
 the development of American industries, large furthtr 
 obligations were incurred in Europe between 1900 and 
 1900. These obligations were intended to be of a tem- 
 porary character, so great was the optimism of the tiiiif. 
 The funds from these new loans were invested in hij;lii,v 
 permanent forms — in industrial enterprises and the like 
 The immense efforts to repay these obligations within 
 the stipulated period were aided to a certain extent bv 
 the expansion of industry and by the aceumulatidii of 
 capital during the later part of the period (in 1905 
 1906) ; but the strain was too great, and from this and 
 other causes, as already explained, arose the currenn 
 crisis of 1907 — a crisis which may in general be said to 
 have been caused by concentrated strain upon an un 
 concentrated system. 
 
 178. Money and credit combined influence jmas.- 
 It is thus very clear that the influence of the movements 
 of credit and the influence of the movements of gold 
 must be taken together. The greater the volume of 
 credits necessitated by the greater volume of business, 
 the greater the volume of gold which is necessaiy to siis 
 tain these credits. If the required volume of gold is, fi"| 
 any reason, not forthcoming, the credit system n 
 
UELATION TO PRICES 
 
 18- 
 
 lutomatically contract. This automatic contrarrion is 
 one of the cau «;s of cretlit crisci 
 
 While it is true tliat by fur the greater vohinic of 
 the amounts irvolved in tlie inlerchunj{e of commo<litii's 
 is transferred from the purchasers to the sellers of goinis 
 bv the means of instruments of credit, it is nevertheless 
 true that these instruments of credit would be valueless 
 «ere it not for the fact that on demand or at a certain 
 stated period they can be in turn exchanged for gold 
 or silver. So long as confidence exists that this ex- 
 ohange can be effected, the instniments of credit may 
 remain current, but the moi^ent a breath of suspicion 
 arises that the debtor, whether he is a banker or a mer- 
 chant, is not in a position to meet his obligations, it be- 
 comes impossible for him to issue any more instruments 
 of credit. Those which he has already issued come to 
 be presented at maturity and as he cannot replace them 
 by others, he must meet them in hard cash. 
 
 179. Bank reacrva. — The amount of hard cash which 
 isavailable for meeting credit obligations is thus not only 
 not a matter of indifference; it is a matter of the Wghest 
 importance. A banker, for example, who lends his cap- 
 ital and the funds with which he is entrusted by others, 
 must preserve a certain proportion in which three ele- 
 ments are concerned. He may lend some of his money 
 on relatively long dated securities, he may lend some 
 of it on short dated securities or on call and he must keep 
 » certain proportion of it in his safe. If he should not 
 maintain a reserve in his vaults, his credit would disap- 
 pear, because he might be unable to meet a legitimate 
 claim for some of the funds entrusted to his keeping. 
 
 Reserves are thus necessary in the ease of the individ- 
 '>«1 banker and therefore of all bankers. In the United 
 States and in Canada bankers customarily keep a portion 
 
 •i 
 
18« 
 
 El'OXOM'CS 
 
 
 
 "f their rcscncs in coin — gold and silver — and a prirlidn 
 in "kgal tenders" or notes of the (iovernnient. 
 
 If the bankers are obliged to hold "legal tenders" iiml 
 if the Government docs not retain agoinst thest' instni- 
 nients of credit an equivalent amount of coin, tlie "kj(al 
 tenders" are not in any legitimate sense a reserve, tin; 
 are really a forced loan to the (iovernnient. The "lixal 
 tenders" en Iw considered as a reser\e only if they are 
 instantly -Imngeable for coin or bullion. 
 
 If, then, the banker does not hold nil his reserve in 
 coin, the (iovernment must hold in coin that portion »f 
 his reserv'es which is represented by "legal tender," otliir 
 wise the (Jovernment imperils the solvency of tlie bniiktr, 
 for there con be no compulsion upon his creditors to ac- 
 cept the "legal tenders" in lieu of cash unless the creditnh 
 can convert them into coin should they wish to do sn. 
 The creditors of the banker may be in Europe wkre 
 "legal tenders" of the United States or of the Canadian 
 Governments are simply looked upon as a means of (ili- 
 taining gold. If they do not answer to this descrijitioii 
 they are valueless ihere. 
 
 While there cannot be held to be a direct relation Ix- 
 tween the quantity of gold in circulation and the raiifjt 
 of prices of consumable commodities, tliere is, nevertlit- 
 less, through credit an indirect relation. The sniootli 
 working of the intricate mechanism of international 
 credit depends upon the instant availability of sufficient 
 gold to meet any legal demand upon those who ha . e tiie 
 duty of settling balances. If, for any reason, such a de- 
 mand caimot be met, friction is developed which iiust 
 be more cr less disturbing to the whole fabric of credit. 
 5Iany remote causes may have contributed to produce 
 the situation which led to inability to meet the deiiiand. 
 but it is the inability to do so which brings to liglit tlie 
 
IlKLATION TO PUICKS 
 
 1H3 
 
 fact of the orf^anic rclntinn of the affairs of llie ilcfaiiltcr 
 to tlie general system of credit. If the defaulter is ini- 
 prtant, widespread doubts are east u|M)n tite solvency 
 of others. When Overend (Iiirney & t'onipany failed 
 an'l when Baring Brothers placed their affairs in the 
 hands of the Bank of Kngland, great shocks were given 
 to credit. The beginning of the credit and currency 
 crisis of 1007 was indicated by a few significant failures. 
 Such failures did not cause the crisis. They were merely 
 incidents in it. 
 
 180. Importance of clastic currency system. — No sys- 
 tem of currency or banking is pnxjf against all possible 
 crises, but a crisis may be precipitated or the conse- 
 quences of a crisis may be made more injurious or more 
 enduring by defects in such systems. The maintenance 
 of sufficient reserves and the automatic expansion and 
 contraction of credit are the most certain means of avoid- 
 ing acute crises and of mitigating their effects when they 
 occur. 
 
 It is possible, however, to go to excess even in gold re- 
 serves. The reser%es may be of such a character that 
 gold deposited in them does not enter into or remain in 
 circulation. When gold is hoarded by private indi- 
 viduals, it passes out of circulation during the period of 
 iioarding. The Governments may bnard gold with the 
 same effect a: private individuals. The war hoard of 
 the German Government, which it keeps in the fortress 
 of Spaiidau, is not of great magnitude, but it is with- 
 drawn from circulation so long as it remains there. No 
 fiduciary circulation is issued against it and it does not 
 act as a reserve for any but a military crisis. 
 
 The prosperity of Egypt and India have given the 
 Mohammedans in these countries increasing resources, 
 and as is their habit when they accumulate wealth, they 
 
184 
 
 ECOXOMICS 
 
 have hoarded gold. This hoarding has resulted in the 
 diversion to Egypt and India if a large proportion of 
 the annual pnxhiction and conscijuently to a diminuti(}ii 
 of the amount of gold which it was expected would readi 
 Europe, and would there be employed as the basis of 
 general international credits. Fears of political disturb- 
 ance and of war both in the near and in the far East have, 
 from time to time, further induced hoarding throughout 
 these regions. Aleanwhile the demand for gold for in- 
 ternational currency purposes has Increased with the in- 
 crease of trade. 
 
 A relatively high level of international prices indicates 
 either abundance of gold or expansion of credit. If it is 
 due to the foi-mer condition, it is likely to be permanent; 
 if it is due to the latter condition, it is bound to be tem- 
 porary. In so far as the expansion of credit bas been 
 due to the supposititious availability of gold for currency 
 purposes when such availability does not exist, the ex- 
 pansion of credit must be as temporary as if it vere not 
 based on any supposition of that kind. In so far as tiie 
 hoarding of gold has withdrawn the metal from reserves 
 available as the foundation of credit, such hoarding con- 
 tributes to the weakening of credit and therefore to the 
 fall of prices. 
 
CHAPTER VIII 
 
 EFFECT OF LEGISLATION ON PRICES 
 
 181. Changes in monetary laws. — Since the quan- 
 tities of the precious metals available for use as money 
 influence prices, the operation of monetary laws may, 
 through affecting the quantities so available, contribute 
 to a rise or fall of prices. If, for instance, silver is large- 
 ly used in a country for purposes of exchange and the 
 (Jovernment passes a law which removes silver from the 
 category of legal tender currency, there will tend to be 
 a rise in all prices stated in silver and a fall in all prices 
 stated in gold. This condition actually occurred in 1876 
 after Germany had "demonetized" silver, and when the 
 Latin Union (FraTice, Belgium, Switzerland and Italy) 
 had restricted their silver coinage. The effect of a law 
 which would attempt to force upon a country an irre- 
 deemable paper currency has already been noticed. 
 
 While direct attempts on the part of Governments 
 to influence the course of prices through monetary laws 
 have generally been defeated by unforeseen reactions, all 
 monetary laws influence prices more or less definitely. 
 Laws on banking may, for example, by restrictin'^ or 
 extending the kinds of security upon which a banker 
 may lend money, influence prices by enabling the bor- 
 rower to refrain from selling at a moment when by throw- 
 ing his goods upon the market (a course which in the 
 absence of accommodation he might have to adopt) the 
 price might be depressed. ' 
 
 182. Duties. — The influence of an excise duty upon 
 
 185 
 
 
 m 
 
186 
 
 ECONOMICS 
 
 the price of a commodity is in general to increase tlu 
 price by the amount of the excise duty. Thus, for ex- 
 ample, in the United States denatured alcohol, or alcolml 
 which has been rendered noxious to the taste in order tn 
 prevent its consumption as an article of drink, is sold tn 
 scientific institutions for scientific purposes at a certain 
 net wholesale price per gallon, no excise duty being 
 charged by the Government. In Canada, on the other 
 hand, the Government levies an excise duty upon this 
 commodity no matter for what purpose or by whom it is 
 intended to be used. The price, therefore, to scientific 
 institutions in Canada is the net price of tiie alcohol plus 
 the duty, making the price of precisely the same com- 
 modity in Canada five times the price in the United 
 States. 
 
 Excise duties on commodities manufactured in a coun- 
 try are of course always supported by customs duties 
 levied on the frontier. In the case of all commodities 
 which are subject to excise duties, under normal condi- 
 tions of trade, the consumer must pay all of the duty- 
 customs or excise. 
 
 The case in respect to customs duties, other than tliose 
 levied to support excise, is somewhat diiferent. The 
 following is the general principl upon which i: may be 
 determined in any particular case to what extent, if any, 
 the customs duty is included in the price paid by the final 
 consumer. It must be observed, however, that the prin- 
 ciple is extremely difficult to apply because of the diffi- 
 culty of following step by step the transactions by means 
 of which any given commodity passes from the exporter 
 in one country to the consumer in another. In some 
 instances, it is possible to follow with care the series of 
 transactions, but the risk of error is considerable. 
 
 It need scarcely be pointed out that statements to the 
 
KFFIXTS OF LEGISLATION OS' PRICES 187 
 
 effect that customs duties are always included in the 
 price paid by the consumer or that such duties are never 
 iiichided are eciually valueless; in general, statements 
 about the matter in a particular case are based upon im- 
 pressions and not upon evidence. The principle upon 
 which the evidence may be collected is as follows: 
 
 183. JVho pays the tax? How to test.— L.et us sup- 
 pose, in the first instance, an atmosphere of perfect com- 
 ])etition in which sellers compete with one another so 
 strenuously that all of them are selling at the marginal 
 profit — that is, at the profit below which none could sell 
 and remain in business. Unujr conditions of that kind 
 a tax upon the commodities which were sold would neces- 
 sarily fall upon the buyers of the commodity. If these 
 buyers bought to sell again and if they also were work- 
 ing upon a marginal profit, a tax upon the commodity 
 would necessarily be passed on by them to the consumer. 
 Tiie price being the lowest possible (under the condi- 
 tions, indeed, he woulJ himself have the larger share in 
 determining it), the consumer would be able to pay 
 the tax and would have to pay it or go without the 
 goods. 
 
 Let us suppose an exactly contrary case. In this case 
 the atmosphere is not one of competition, but is one of 
 monopoly. The manufacturer and seller of the goods 
 in question has been able to monopolize the sale of the 
 goods and has used his power to the extent that he ob- 
 tains for the goods the highest price which the consumer 
 can pay and live. If now a tax is placed upon such 
 goods, it is obvious that the consumer cannot pay be- 
 cause he is, so to say, at his last gasp. He can pay no 
 more for the goods than he has been paying. If the 
 price rises, he caimot buy. The monopolist manufac- 
 turer can sell only if he pays the duty himself, that is, 
 
 lit 
 
 
188 
 
 ECONO.MICS 
 
 !| 
 
 if he rontinues to sr'l the goods at the price which lie 
 obtained previous to the imposition of the duty. 
 
 If, however, the customs duty on the conmiodity he 
 manufactures is increased until it absorbs the whole of 
 the profit, which the manufacturer makes in excess of 
 what he could make in some other business, he will stop 
 exportation and divert his capital. 
 
 If this were universal the tax would yield no revenue, 
 the consumers would not consume and the foreign pro- 
 ducer would not produce. The Island of Sumatra pos- 
 sesses a monopoly of the supply of a certain kind of 
 pepper, the policy of the Dutch East India Government 
 having been to concentrate the cultivation of particular 
 spices in particular islands. For that reason, althoujili 
 Sumatra pepper competes with peppers of other vari- 
 eties, those who prefer it, provided they are numerous 
 enough to influence the market importantiy, would 
 have to pay the Sumatra price for it, which would, under 
 the conditions, be higher than that of other peppers. If 
 a new import duty were imposed or an existing duty 
 increased upon Sumatra pepper alone, a portion of this 
 advantage in price, although perhaps not the whole of it, 
 would have to be foregone by the Sumatra producer— 
 that is, be would have to pay the duty in the form of 
 diminished price. If, however, the Sumatra pepper en- 
 joyed no advantage in price, the monopoly notwithstaml- 
 ing, because it had to compete with other peppers of like 
 quality, and if the duty were indiscriminately imposed 
 upon all peppers, since the price would thus be arrived 
 at by competition, the bulk of the duty would probably 
 fall upon the consumer; only a small portion of it, if any, 
 would fall upon the pepper growers. 
 
 Such extreme cases are rare, but all cases come lie- 
 tween the two extremes. According as the element of 
 
EFFECTS OF LEGISLATION ON PHICES 189 
 
 competition or monopoly is dominant at each stage of 
 the process of manufacture, transport and sale, the tax 
 will be paid by one or other party to the transaction. In 
 general, the incidence of the tax is determined by an 
 explicit or an implied compromise. The tax may be par- 
 tially paid by the consumer and partially by each one of 
 the numerous persons through whose hands the com- 
 modity had passed, including the manufacturer. Such 
 is the general principle upon which the incidence of cus- 
 toms duties may be determined in partiailar cares. 
 
 In est.matin'r the effect of tariffs upon prices, much 
 importance must be attached to the question of quality— 
 the prices of ui;'=ke commodities ought not to be com- 
 pared with one a/iother— and importance should also be 
 placed upon the condition of the market at the time tlie 
 duty is imposed or a comparison instituted. A stable 
 market in which a customary price has thoroughly estab- 
 lished itself is very difficult to move either up or down 
 by the increase or diminution of a tariff. On the other 
 hand, a sensitive market will anticipate tariff changes, 
 even sometimes erroneously. 
 
 184. S'pcculation and prices. — Speculation on an im- 
 portant scale is most obsen able in the highly organized 
 markets (as in the cottrn, wheat, iron, copper, silver 
 markets), but it may be held as existing in all markets 
 and in connection with all commodities. The essence of 
 speculation is the purchase or sale of commodities not 
 immediately required, or the refraining from purchas- 
 ing or selling commodities tue sa le or pui jhase of which 
 is not immediately indispensable. 
 
 In fact, all buying and selling which is not merely 
 from hand to mouth is, in the strict sense, speculative 
 Imyiiig and selling. The farmer who refrains from sell- 
 ing his wheat because he thinks that an advance in the 
 
 -•m 
 
190 
 
 ECONOJIICS 
 
 market is likely to occur, speculates in wheat in the same 
 way that a miller, who buys weeks in advance wheat dc- 
 liverable in September, speculates in wheat. A line may, 
 however, perhaps be drawn between the genuine dealer 
 in wheat, like the farmer and the miller, and the groups 
 of persons whose business consists exclusively in buying 
 and selling wheat which they have no intention of ever 
 either receiving or delivering. 
 
 It may be obser\ed, however, that the presence of siieii 
 groups in the wheat market— groups, that is, who will 
 always buy and always sell at a price — has contributed 
 importantly toward the organization of the wheat trade. 
 Wheat not only is in universal demand because a large 
 proportion of tlie human race use it as a staple food, but 
 it is immediately salable because, whether there is a de- 
 mand for consumption at a particular moment or not, 
 people can be found who are willing to speculate upon 
 the future demand and to purchase immediately, 
 
 185. Cornering. — It is true that speculators attempt 
 sometimes to control the supply by "cornering." This 
 operation can be successfully performed only wlien ow- 
 ing to coincident increase of demand pnd restriction dI' 
 supply the surplus of wheat over the quantity necessary 
 for consumption is relatively small. A speculator with 
 extensive credit may under such conditions secure for a 
 time a certain position in the market, which may enal)le 
 him to dictate terms to other speculators who are dealing 
 in this surplus. Thus, the market quotations may for 
 some days exhibit violent fluctuations, these fluctuations 
 being due to the manipulations of speculators. 
 
 The great mass of transactions in wheat, honevcr, 
 which are conducted in advance of receipts and delirerits, 
 are not as a rule touched by the speculative fl\n-ries. 
 Yet, when speculation in the wide sense is considered, 
 
EFFECTS OF LEGISLATION ON PRICES 101 
 
 there can be no doubt that market prices are influenced 
 by the circumstance that sometimes the farmer withholds 
 his wheat from sale and somet: nes the miller buys great- 
 ly in excess of his immediate requirements. The 1918 
 Bank Act of the Dominion of Canada contains a clr ise 
 which entitles chartered banks to lend to farmers oi the 
 security of their wheat, the object being to enable the 
 farmer to hold his crop for an advance in price should 
 he desire to do so. It is the practice among millers 
 when buying wheat for manufacture into flour to sell 
 futures at the market price at the time of purchase in 
 order to protect themselves against a fall in the market 
 when the flour is ready for it. This is known as "hedg- 
 ing." « 
 
 When the population of Western Europe and of the 
 United States was increasing rapidly in the latter part 
 of the eighteenth century, and the beginning of the 
 nineteenth, and when prices of foodstuffs were in conse- 
 quence advancing rapidly, attempts to "corner" the 
 market became very frequent and, owing to the accumu- 
 lation of capital, some of them were more or less suc- 
 cessful. Old laws were put in force against the prac- 
 tice of "cornering," but an even more efl'ective check 
 upon It was imposed by the formidable "meal" and 
 "br.ad" riots in which the granaries of the merchants 
 were plundered and the contents distributed, the prin- 
 cipal inhabitants of the towns sometimes taking part in 
 these riots. The chief protection against "corners" in 
 the great staples must, however, lie in the increasing 
 magnitude of the operations which would be ntcessarv 
 in order to manipulate a corner. It may be repeated that 
 a corner can only be successful when the surplus i-f 
 small. It IS true that that moment is the time when a 
 corner" is most likely to cause distress by the restric- 
 
102 
 
 ECONOMICS 
 
 tion of competitive selling in an abnormally high mar 
 ket. 
 
 186. Regulation of price fluctuation*. — From the dis- 
 cussion of the complicated series of influences aft'eitinir 
 movements of prices in this and preceding chapters, it 
 is obvious that the elimination even of an important 
 member of the group together with its reactions upon 
 the others would not altogether obviate fluctuations, 
 although such elimination might diminish the range and 
 frequency of fluctuations. For instance, if the whole 
 of the influence of currency movements uprn prices 
 were eliminated (to put the case so extremely that tlic 
 condition would be impossible), there would still re- 
 main numerous other influences upon supply and de- 
 mand V hich would cause both of these to fluctuate, and 
 which would therefore cause variations in the relative 
 value of commodities, however these values might be 
 estimated. Nevertheless, the fluctuations of prices, 
 which are directly or indirectly due to currency move- 
 ments, are so important that regulation of thae move- 
 ments may be expedient in so far as such regulation is 
 coiiipatible with the economic laws which determine the 
 movements of goods and of money as well as to a large 
 extent the migration of people. If government regula- 
 tion conflicts with these laws, it must fail. Earthquakes 
 and floods may be taken into account and their efl'ects 
 sometimes minimized by appropriate precautions, but 
 1' ;islation against them is futile. Economic movements 
 on a large scale, however little we may know about 
 them, may be regarded as scarcely less invincible than 
 other movements of nature. 
 
 187. Cost of Iiimg.~The question of the cost (if 
 living is discussed under the head of eonsuuiptiuii. biil 
 here it may be observed that the movements of prices 
 
KFFECTS OF LKGISLATION ON PIIIC'ES 193 
 
 are not uniform nor are they coincident. The causes 
 of price fluctuations are so numerous that no uniformity 
 is possible. Tlicre thus arise great disparities. Peo- 
 ple who have one commodity to sell find that the price 
 has fallen, while in the same period the prices of the 
 commodities they desire to buy have risen. When 
 movements and prices are active these disparities are 
 most numerous, and the disturbance of economic re- 
 lations which they produce most pronounced. 
 
 If advances in prices were general, and if advances in 
 wages, salaries and other means of incon:e corresponded 
 closely and immediately to such general advances in 
 prices, there would be no question of the increased cost 
 of living under the standard of comfort prevailing. 
 Such a course of events does not happen, however. 
 W'ages must in general advance, but they do not do so 
 immediately, and they may fall when the prices of the 
 necessaries of life fall, but they do not do so immedi- 
 a..iy. In short, the curve of wages rises more slowly 
 and falls more slowly than the curve of the prices of 
 the necessaries of life. Wage* are not necessarily 
 affected by the prices of commodities other than the 
 necessaries, although statements of the movements of 
 prices include in general both categories of commodities. 
 These points will he more fully dealt with in connection 
 with wages and with the consumption of the working 
 population. 
 
 188. Trade cycles.— WhWt it is tnie that depression 
 and inflation of trade are "states of mind," it is also true 
 that these states of mind are induced by certain objec- 
 tive conditions. These conditions appear to recur with 
 an approach toward regularity in their frequency. 
 Thus, a period when demand is fully up to if not 
 slightly in excess of supply, when industry is fully oc- 
 
 C-I— IS 
 
104 
 
 ECOXO.MICS 
 
 cupied. when prices are advnncitiff and profits arc in- 
 creasing, is by general consent regarded as a perio<l „f 
 brisk trade. Wlien demand is greatly in excess of sup. 
 ply and when prices rise sharply, an increase of pro- 
 duction follows, and when this production is incrcasul 
 to such an extent that it meets the demand and scc.ns 
 hkely to be pushed beyond it, such a period is by gt„. 
 eral consent regarded as one of inflation. When sni). 
 ply is greatly in excess of demand, when prices fall 
 when profits decline, when production is reduced, wiien 
 employment diminishes and credit shrinks, such a period 
 IS by general consent regarded as one of depression of 
 trade. Clearly all of these conditions are relative to 
 some preceding condition. Trade is brisker or is more 
 depressed in relation to some antecedent state of trade 
 in which It was not quite so brisk or in which it was not 
 quite so depressed. 
 
 Efforts have been made from time to time to detect 
 a more or less regular periodicity in these fluctuations 
 and for nearly a century the economic history of the 
 commercial nations seemed to exhibit trade cycles each 
 cycle including a period of normal trade, one of inflate J 
 trade and one of depressed trade, which appe»re<l ap- 
 proximately every eleven years. These cycles Mere 
 found to be more or less nearly related to a similar 
 periodicity of harvests, and this periodicity of harvests 
 —normal, abundant and deficient— appeared to be co- 
 incident with certain changes in the solar envelope hv 
 which so-called spots in the sun exhibited periidicallv 
 certain changes in form 
 
 The uniformity of the coincidence of commercial 
 crises and solar phenomenon has, however, net been 
 maintained of late years. There may be several realms 
 tor this. In former times the state of general trade 
 
KFl-KCTS Ol- LKGISLATIOX ON PHICKS 103 
 
 may have hml a closer relation to hanests than it has at 
 tl,t. i,rc..,ent time or the extension <,f the area in which 
 a surplus of foodstuffs is produced may have resulted 
 ... more un.form total supply. A deficient harvest in one 
 c-untry d,«.s not necessarily mean a deficient harvJt 
 in all of the many grain-pro<lueing countries, and the im- 
 proved means of transportation and of storage of grain 
 have brought within the con.n,erc.ial network pfaeti- 
 cally all of the grain-prwlueing region. 
 
 The hypothesis on the other hand, may be nnso.md. 
 The occurrence of spots on the sun may not be related 
 as a cause either to harvests or commercial crises. I 
 . ohv.ous that even a century is too short a peL o 
 
 . i .st?v"7h r.' "^ " '"'"'^'■"'*'>' '=^*«"'^'l Character 
 IS^ *'"" '''""*'°""' ^'""^'"^-"^ "P°n the 
 
 Ortobtr, im. rroleaaor (.li»pm»n . review id Eamomw JoirnJ, 
 
tha 
 
 ofl 
 
 the 
 sclie 
 
 undi 
 It is 
 pass 
 of e 
 systi 
 and 
 Oi 
 ilistr 
 in^, 
 studi 
 must 
 tion 
 tribu 
 I>rodi 
 
PART III: DISTRIBUTION 
 
 CilAI'TKK I 
 
 PROBLEMS OF DISTRIBUTION 
 
 1 89. Significance of rfM/n7^«^on.— Distribution in the 
 .■conomic sense of the word means the pr.K;ess by which 
 I thasc who contribute to pr.Hluetion obtain their shares 
 nf that which is {.HKluced or of its value in the market. 
 In d.scus.s.nK this question, as in disaissinir all eco- 
 nonnc questions of a like character, we are concerned. 
 as students of economics, not with what ought to be 
 I the division of the result of production, but with the 
 scheme of division as it actuullv exists. If we desire to 
 waniine critically any project for the alteration of the 
 cxist.nff economic system it is advisable that we should 
 undeistand first of all, ],„„• the exi.stinK system works. 
 It .s expedient to do this even if we may determine to 
 |.ass from the field of economics proper into the field 
 of ethics or into that of politics in which ideal social 
 sys ems may appropriately be discussed in their ethical 
 and political aspects. 
 
 Our present business, then, is to learn in what manner 
 distribution takes place under the influence of the exist- 
 ing economic system, imperfect as it may be. In the 
 study of distribution, as in the study of production, we 
 must have regard not only to series of cases of distribu- 
 lon m individual economic groups but also to the dis- 
 tribution of what has been called the national aggregate 
 I-roduet. This has also been called the rent interest 
 197 
 
198 
 
 FXOXOAIICS 
 
 earnings fund or tlic national dividend. It is, however, 
 difficult to avoid ambiguity in phrases of this kind. '\'W; 
 aggregate cannot be regarded as constituting at any 
 particular moment a determinate fund in tlie comm.m 
 sense of the word. 
 
 Tlie product of a simple productive operation extr- 
 cised upon raw material which is the "gift of natuit" 
 to which no one lays any claim of ownership, may be tiie 
 result of the labor of one person or of many. If the de- 
 sign and the labor are wholly due to the activities of one 
 person there can be no (juestion as to the right of tliat 
 person to the enjoyment of the whole of the prrduct of 
 his labor, in a community which recognizes any rijjlit 
 of private property. If, however, the produc; is "tlie 
 result of the activities of several persons working upon 
 It together or successively, the respective rights of tlie 
 several producers may be subject to dispute. If tlie 
 product is of such a nature that joint labor is iidispeii- 
 sable, it may be very difficult, in the absence of any 
 recognized custom, to determine the respective rights, 
 and it may be quite impossil)le to determine them upoti 
 any principle of ideal justice. 
 
 Primitive people whose surplus is usually verv^ small 
 and who under the best conditions are engaged in a 
 more or less unremitting struggle with nature, have, as 
 a rule, a keen sense of fairness in the mass, as well as a 
 lively aptitude for securing their own interests. There 
 thus arises in such communities a habit of balancing the 
 bearings of disputed questions of labor and of owner- 
 ship. Russian and Chinese peasants are conspicuous 
 for the length and minuteness of such discussions. Tlie 
 writer on one occasion listened from ten in the morning 
 until five in the afternoon to a group of Russian pcisants 
 discussing in great detail and witli much power of aiialy- 
 
PROBLEMS OF DISTRIBUTION 199 
 
 sis an economic question of importance in their village 
 life; and in China, on more than one occasion, he has 
 been kept awake hy Chinese people discussing their busi- 
 ness affairs with much eagerness in the street in the 
 middle of the night. 
 
 WO. Difficulty of establishing an ide.l sysicir,. 
 Sometimes the question is insoluble and ej peri is ma(k- 
 to an external arbitrator; but more usuahy He (^^spu- 
 tants settle these questions among themselves on terms 
 which satisfy everybody, or perhaps sometimes satisfy 
 nobody. In the province of Archangel in Russia, for 
 example, the division of land of varying qualities among 
 peasants in such a way that each jjcasaiit has not an 
 tqual amount of land, but areas of land of equal pro- 
 ductivity under normal cultivation, is conducted by the 
 peasants themselves with marvellous skill, and without 
 surveying instruments, and with general acceptance. 
 
 Apart from questions which may arise between the 
 actual workers upon the simplest productive operation 
 which involves joint action, there is the question of the 
 social indebtedness of the worker. Not only is he in- 
 debted to the organization of his tribe or community 
 for the opportunity to practise his art in peace, whatever 
 his art may be, but he may be indebted for the design 
 which he uses to a long succession of primitive craftsmen 
 of his own or of other tribes or even of other races. In 
 any strict distribution of the credit of production, these 
 earlier workers would also have to be considered. 
 
 The demands of justice may be regarded as going 
 much farther than the mere labor of the moment. Even 
 in simple production individual labor is a contradiction 
 in terms; all labor is social. The labor of to-day could 
 "of !)e what it is but for the labor of countless artificers 
 of the re.iiote past. 
 
200 
 
 ECONOMICS 
 
 In complex production, where many persons are in- 
 volved—some in tlie primary exploitation of the raw- 
 material, some in its transjjortation, some in the mami- 
 facture of tools for its exploitation, transportation and 
 manufacture, others in the subsequent manufacture, 
 others in the sale and perhaps many others who con- 
 tribute the means of life to the workers while the lonj; 
 continued productive processes are going on— there are 
 almost infinite possibilities of dispute as to the respective 
 shares to which each member of these numerous groups 
 IS entitled. It is obvious that in long production proc- 
 esses, every member of the various groups cannot wait 
 until the total utility of the product can be realized even 
 by exchange. Obviously none of them could wait until, in 
 the course of a long process of consumption lastiig per- 
 haps through centuries, the utility of the product could 
 be completely exhausted. Some method of distribution 
 therefore must exist by means of which the utility which 
 IS contributed by each contributor may Iv estimated, 
 and the contributor compensated for that utility or use- 
 ful service as it is valued at the time when the service is 
 rendered— apar:: altogether from the eventual vilue of 
 that utility or of the total of utility to which it con- 
 tributed. Such a method emerged in course of time and 
 its characteristics are those of the present economic 
 system. 
 
 191. The present system.— Thus each member of tlie 
 group makes his contribution to the productive process, 
 receives the return to which he is regarded as entitled, 
 gives his quittance, and passes into the unknown, while 
 the product of the joint exercise of his functions con- 
 tinues to yield its utilities perhaps for many generations 
 of consumers. The process on the face of it seems 
 simple. It might be regarded as a perfect system if 
 
PROBLEMS OF DISTRIBUTION 201 
 
 each member of the group were concerned exclusively 
 with securing the interests of the group as a whole, re- 
 gardless of h,s own interests whene^ er these conflicted 
 wth those of the group. Under such a system there 
 would not necessarily be equality of possessions, for if 
 every contributor were rewarded according to his con- 
 tribution as estimated by some economic Aristides, there 
 might be inequalities because all might not have equal 
 J.I1, equal physical force or e.jually continuous health. 
 Ihis inequality would result even if there were no in- 
 heritance of property, and even if the means of produc- 
 u,n-land and capital-were possessed and adminis- 
 ered by the group as a whole or by representatives of 
 the group m the interests of the whole. 
 
 IQ2 Economic erjualit„.~Asmmmg, for the mo- 
 ment, that economic equality is a desirable social end it 
 IS clear that while the working of the social system'as 
 above described might make toward that end, it could 
 not necessarily secure it; because if there were inequality 
 of skill, for example, such inequality would reappear in 
 the result of any method of distribution which was based 
 upon an estimation of the value of the services rendered 
 or upon the estimated value of the product 
 
 The only system as yet projected which aims at 
 economic equality is the system of communism. In this 
 ystem the factors of contribution to production are ir- 
 
 to the extent of his power; his needs are met from 
 the common stock without reference to the quantity the 
 e aracter or the value of his individual service or prod! 
 uct. Such a system may be organized and maintained 
 J mutual agreement or by force. Experience has 
 Im. however that it is very difficult to maintain. 
 partly because of the variability of the human disposi- 
 
 III 
 
202 
 
 ECONOMICS 
 
 tion and partly because tlie pitch of emotion, whicli \W 
 voluntary adoption of the system involves, is difficult to 
 sustain. In cases where coninuinism is imposed by com- 
 pulsion, the desire for freedom sometimes beconus dnm- 
 inant and the system is compromised or even destroyuil 
 by flights or by revolt. 
 
 The most interesting and extensive communistic group 
 of this kind at present in existence, is the grovip ol' 
 Doukhobortsi or Spirit Wrestlers (a Russian dissentini; 
 sect), about 7,000 of whom form a strictly coniniuiilst 
 group residing partly in Saskatchewan and partly in 
 British Columbia. Their existing communism is liiit 
 partly to deliberate agreement among themselves and 
 partly to the moral force and social pressure ccercisid 
 by their leader. 'J.'lie communal character of thtir eodii- 
 omy has not been invariable; it has been marked In- 
 many fluctuations. About 2,000 have abandoned the 
 practice of communism and live chiefly in Saskatcliew an 
 in the same individualistic manner as the population 
 round about them. 
 
 193. Analifsif of distributive process. — We may now 
 proceed to analyze the process of distribution in •elation 
 to the process of production which we have alreidy tx- 
 HiTiined. We have found that apart from the indispen- 
 sable and contingent requisites of production, the fac- 
 tors of production are land, labor and capital. Tlie 
 expression land is held to include all raw materials ex- 
 tracted from nature and also natural agents such as 
 water power. I^abor includes manual, superintendiiif; 
 labor and directive labor. Capital includes fixed capital 
 in the form of buildings, machinery and like equipment. 
 and circulating capital in the form of funds whieh are 
 expended in periodical payments of wages and otlier 
 current expenses and which in normal cases are retuniei! 
 
PROBLK.MS OF DISTKIBUTIOX 203 
 
 wlienever the product is exchiaiged for money, the funds 
 being again available for similar purposes. 
 
 The land and the capital may lielong to one individual 
 and the labor may be exercised by tlie same individual. 
 In such a case the division of the value of the product 
 would be subject only to curious interest; it could have 
 no practical bearing. When, however, tlie land belongs 
 to one person or to many, the capital to another group 
 and when the labor is exercised by still another, main- 
 tenance of all of these persons and the ^ntiimance of 
 tlie exercise of their functions come to be matters of 
 supreme importance, because the continuity of the pro- 
 ductive process depends upon tliem. 
 
 In Western Europe throughout the middle ages, and 
 in Eastern Europe until the middle of the nineteenth 
 century, it was almost universally l)elieved that to leave 
 the determination of the rent of land, the rate of interest 
 and the rates of wages to unrestricted competition was to 
 incur a grave social danger. Rents, interest payments 
 and wagis alike were, therefore, determined by" public 
 authority, either that of the State or that of the munici- 
 pality. Survivals of public fixation of remunerations 
 are to be found in the limitation of charges for certain 
 legal services, in the regulation of railway rates, of pay - 
 ments for cabs, ferry services and the like, and, above 
 all, in the statutory limitation of the rate of interest. 
 The imposition of a statutory minimum wage would be 
 an instance of reversion to medieval practice. 
 
 194.. GuUds. — In addition to the regulative agency 
 of the State there appeared also the regulative agency 
 "f the trade guilds acting either directly or through the 
 municipality by means of the influence they exerted 
 upon it. The whole conduct of business and, indeed, 
 the whole conducl of life were subject to minute scrutiny 
 
 II 
 
 I 
 
20* 
 
 ECONOMICS 
 
 and to excessive regulation. No one could begin busi- 
 ness of any kind or enter into a trade unless he had ])ii- 
 viously pursued the course of education prescribed In 
 the guild to which his trade belonged, and unless he w a:, 
 accepted bj' the guild. 
 
 The story has often been related of how the improve- 
 ment of the steam engine by James Watt ran risk nf 
 being at least delayed through the stringency of guild 
 regulation and through the municipal power of tlu 
 guilds even so late as the middle of the eighteenth cen- 
 tury. Watt proposed to iiegin business in Glasgow 
 as a philosophical instrument maker. The incorporated 
 trade of Hammermen (the guild of master mechanics i 
 objected to his doing so on the ground that the trade 
 was really part of theirs, that Watt had not served a 
 proper aj. (,renticeship, and had not been accepted l]y 
 them as a member. It was, therefore, impossible lor 
 Watt to establish himself in any part of the city of 
 Glasgow which was under the jurisdiction of :he mu- 
 nicipality or the guild. 
 
 The precincts of the University were not in tlis posi- 
 tion; and the professors of the University, among whom 
 at the time was Adam Smith, offered Watt the use of 
 premises within its walls. It was there that he devised 
 the separate condenser and began the series of inprove- 
 ments by which he brought the steam engine from tlie 
 laboratory table into the field of industry. 
 
 195. Beginning of unrestricted trade. — The general 
 movement toward freedom, which may be said to have 
 had its beginning in the eighteenth century, was char- 
 acterized by resistance to direct or delegated control of 
 economic relations by the State. As a part of this 
 movement, serfdom was abolished and the peasantry be- 
 came free. Burdensome restrictions upon the employ- 
 
PUOBLE.MS OF DIS'I'KIBL'TION 
 
 205 
 
 ment of artisans were removed and e(iually burdensome 
 restrictions upon the sale of land and upon the employ- 
 ment of capital were seriously modified. 
 
 The effects of these changes in economic legislation 
 and in municipal regulation of trade were numerous and 
 complex, but important among them there were in West- 
 ern Europe, the re-enforeement, and in Eastern Europe, 
 tiie creation of a class of free lalwrers entitled by law 
 to liire themselves wherever they could find employ- 
 ment and for whatever wages they could procure. At 
 tlie same time, many of the guild restrictions upon trade 
 ceased to be operative, employers might enter upon new 
 enterprises without leave of the organizations which in 
 tiie eighteenth century had been all-powerful. The gen- 
 eral result of the movement for liberty was the begin- 
 ning of an era of competition in practically all the fields 
 of industrial and commercial enterprise. 
 
 Til, birth of the United States was almost coinci- 
 dent with the effective beginning of the European 
 movement for political and economic liberty. Indeed 
 in one of its most important aspects, the American Revo- 
 lution may be held to have been an incident in the strug- 
 gle between the newly arising capitalistic interests and 
 the old. The industrial development of Canada did not 
 begin in a serious sense until toward the middle of the 
 nineteenth century. It was stimulated by the commer- 
 cial movement of a subsequent epoch. 
 
 196. Competition the result. — The breaking down of 
 industrial and commercial barriers was not accomplished 
 witiiout struggle, nor was it otherwise than very grad- 
 illy brought about. Indeed it cannot be said even 
 now to have been fully accomplished, for while old regu- 
 lative methods fell into decay or were abolished, new 
 regulative methods speedily came into existence. Yet. 
 
 m- 
 

 306 
 
 ECONOMICS 
 
 in general, it may be said that the characteristic of the 
 new period was an atmosphere of competition in wiiioh 
 each member of each group of the contributories to pro- 
 duction competed more or less effectively with evi-rv 
 other member. In the course of this competition, the 
 value of \he services of each member came to be esti- 
 mated in the same manner as the utility of the product 
 was estimated in the market into which it was eventu- 
 ally brought. In other words, each member of each 
 group was a seller of his services in *he market to which 
 his larger group belonged. 
 
 Thus, for examp'e, as landownership became commer- 
 cialized, the landowner whose land was occupied by a 
 productive enterprise or who desired that his lanJ should 
 be so occupied or whose raw material was used by pro- 
 ductive enterprises, came to be subject to the compe- 
 tition of other landowners possessing other lands of 
 similar character or offering other raw materiils of a 
 similar description. So, also, the capitalist became a 
 seller in the market for capital where he found com- 
 petitors also offering capital for sale. The free hiraUc 
 laborer, no longer rendered immobile by restrictive prac- 
 tice and legislation, became a seller of his labor in tlie 
 ojjen labor market, competing with other laboreis offer- 
 ing similar services. In all of these markets tie con- 
 ditions as to competition varied from time ta time. 
 Sometimes in each competitive field the demand was in 
 excess of the supply and sometimes the reverse \pas tlie 
 case. 
 
 It should be observed, however, that while the removal 
 of burdensome restrictions induced competition ir. fields 
 where previously there had been little or none, competi- 
 tion did make its appearance even imdcr the restrictive 
 influence of State and guild regulation. The earlier 
 
PnOBLKMS OF DIHTHinUTION 207 
 
 stniggles of the small and the lar«e capitalists and the 
 earlier struggles of labor and capital show that at no 
 tune can it be said that competition was wholly absent 
 Regulations were not imposed without difficulty Per- 
 haps especially under the most stringent regulations, 
 flights of peasants and movements of artisans from one 
 town to another in defiance of regulations were most 
 frequent. State and guild regulations were thus suc- 
 cessful rather in mitigating competition than is prevent- 
 ing It; but as such regulations becaim of less effect 
 competition increased. ' 
 
',i, 
 
 CHAPTER II 
 
 PROCESS OF DISTRIBUTION 
 
 197. Factors of production. — We may now cxumim 
 the factors of production in respect to the sha-cs ttiiy 
 receive in distribution in their respective niarke:s. ^Vl■ 
 shall afterward learn that the value of the product us 
 determined in the market does not of itself afford any 
 indication of the value attributed to any of tht shares. 
 Nevertheless the value of the product reacts ipon the 
 respective values of the services of the contributorics. 
 through the operation of demand in their respective mar- 
 kets. The market for capital, f < r example, is affecttil 
 by the demand for additional capital which cones from 
 an industry in which the price of the product has in- 
 creased, and this also is the case in the markets for land, 
 for raw materials and for labor. Some of these reac- 
 tions will later be indicated more fully. 
 
 Since the co-operation of all of the factors in produc- 
 tion is indispensable, a detailed examination ir an in- 
 quiry into distribution may begin with any one cf them 
 
 198. Productive industries classified. — We miy con- 
 sider productive enterprises as falling into one cr other 
 of two classes: first, those which are organized by an 
 individual employer or by a firm consisting of partners 
 each of whom takes a more or less active share in the 
 business and each of whom is responsible to the extent 
 of his means for the obligations of the firm; and, teconl 
 
 208 
 
PROCKSS OK niSTHini'TION 300 
 
 those enteri»rises wliicli are cnrrieil 011 l>y joint stoek cmii- 
 panies with limited liability on the piirt of their sliiire- 
 linlders. The imlividuul eiiii)loyer in the firnt mentioned 
 class may undertake the employing funetion himself 
 or he may entrust it to a manager who mav receive a 
 fixed salary or a salary i)lus n share of the profits. If 
 the employer undertakes the duties of manager he must 
 be considered as earning the salary whieli he would other- 
 wise have had to pay in order to aeciuire the services 
 of a manager. 
 
 In the early part of the eighteenth century the typ- 
 ical individual employer was also the manager of his en- 
 terprise. He was a professional master of his craft, 
 lie had served an a[)prenticeship, and his was the skill 
 which conducted his business. 
 
 Toward the nnddle of the eighteenth century, as the 
 adoption of machinen,- became more prevalent the 
 skilled employer often found that neither his owp capi- 
 tal nor his individual credit was sufficient to enable him 
 to extend his business. Country bankers often came to 
 his assistance and became "silent partners" in the busi- 
 ness, providing the whole or the greater part of the 
 necessary capital and taking a previously stipulated 
 share of the profits. 
 
 As the general management even of manufacturino- 
 business became more and more an affair of bargain 
 making, and of finance, including control of financial 
 sources, the separation of function lietween the technical 
 management and the business management in the strict 
 sense became more and more common. The qualities 
 demanded for the exercise of the technical f.mction were 
 not the sane as those demanded by that of the business 
 function and, although iK.th were necessary, it became 
 common for the business expert to employ ihe technical 
 
 C —I — 14 
 
IVLI'dlil 
 
 S10 
 
 F.CONOMICS 
 
 fxpt-rl. Thus those employers who were tcchtiieally 
 qtmUfled and who at the snnie time hail an aptitude fcr 
 husiiiess frequently aeiiieved jjfrcat prominence and ik- 
 ((iiired fjreat fortunes, while those w ho were not so m. 
 dowed wereol)liged to sink from the position of niashr- 
 ship to that of employment. This proeess has (fme fur 
 in the United States, where tlie lieads of nianufactuiirin 
 businesses usually have had a legal, mercantile or finiin- 
 eial rather than a technical traininjjr. 
 
 In the second class of enterprise the function of em- 
 ployer is exercised partly by the elected directorate if 
 the joint stock company and partly by the j^eneral niicn- 
 ajfcr aj)poiiited by it. The service of the directorate is 
 remunerated by fixed payments voted to the <lireet(irs 
 by the shareholders and the services of the geu^.al nmti- 
 ajrer is remunerated by a salary fixed by contiact ami 
 sometimes supplemented by a share of the profits or 
 by a bonus voted to him either by the directors or by tin 
 shareholders. 
 
 The growth of company enterprise has been one of 
 the most conspicuous economic features of our time. 
 The company system is, however, not new. Tiiire wdc 
 immense companies in the later days of the Ronaii Ik- 
 public and in the earlier days of the Empire. In tlie 
 middle ages the Ilanseatic League, which in miny im- 
 portant respects was analogous to a modern trust, con- 
 trolled a large part of international trade. In :he six- 
 teenth, seventeenth and eighteenth centuries a lanje part 
 of the business of every country was controlled ar con- 
 ducted by mercantile companies with state charters. 
 
 199. Large corporations. — The large company witii 
 numerous shareholders, numerous estates in land, larfit 
 ca[)ital funds, luimerous ])roductive enterjirises, ind re- 
 lations with interlocking banks, and practising more iir 
 
i'i«Ki;s.s or DisriuiurioN ^u 
 
 I. vs rcmorwltss c)ii.,x.-titioii will, in.livi.lual trn.krs „„,| 
 niatiiilueturoi-s un.l with sninll firms, has possiw.! itsdC 
 "I ,i arKc part ,.f ,„„,l..rM l.usimss. The reasons f„r this 
 drvc ..pnicit have «Ire«,ly hvcnuv apparent. Thcv he 
 |...rtly in the nec-e.. ity for h.r^. «ce,„„„h,te,l capital, in 
 nnlcr to p-ovHle the control oC raw .Materials and the 
 niadrnjery of m.Hlein in.lu.stry «,„1 partly in the in- 
 .Teased economy of mannfacturc under wiu.lesale eon- 
 iMtions. 
 
 The continuity and scope of an in.h.strial enterprise 
 ■s "l"«ys more or less in ,„.ril when its success .iepen.ls 
 ;-l'«»' the skill. prest.Kc a.id health of one person. Km- 
 Imrrassment nmy readily ensue in the event of the sickness 
 "r death of an employer who conducts his own business, 
 .•|".l who 1ms no one trnincl to take his place. The trans- 
 tm-nec of a hus.ness to a joint stock company is thus 
 a measure of .nsuranee for its continuity and expansion. 
 Moreover he prov.smn of additional capital by a small 
 "-"ber of individuals becomes, after a certain noint a 
 -tter of difficulty. Such provision is ofZ 'ZV 
 (achtated by the division of the risk and of the prom 
 amon^, a lar«e number of persons. Hanks an.l ^,ther 
 creditors frec.uently insist upon the formation of a hi. - 
 ness into a jouit stock com.^.nv for these reasons. The 
 ''""'lance of techmV .. ■ persons on the one 
 "Kl and the alnuu. ., 'rahle labor on 1 
 
 "her, have also contn.„t.n u. H.c ^owth of the jo nt 
 l^'ok company ; and as the ,,ositio„ of the small employer 
 i* onies untenab e because of the effectiveness of [he 
 "-peti ,on of the company, he becomes a competitor 
 
 Ks:"'"""^"^ """"■- "^^'---^^ 
 
 uiuon of two or more mdustna] or other enterprises into 
 
 
 i 
 
212 
 
 ECONOMICS 
 
 one company for the purpose cither of uniting the forces 
 of competitors in the :!ame market, and so limiting com- 
 petition, of controlling the sources of supply and raw 
 materials, of economizing in the expenses of manage- 
 ment or of getting the goods to the market by means of 
 advertisement or otherwise. By combinations of tiiis 
 kind production may be controlled and overproductioTi 
 within the limits of the operations of the company 
 avoided. 
 
 The combination of two or more private firms in mm 
 joint stock company may lead to the abandonment of a 
 plant which in the combined enterprise has beer found 
 to be obsolete or unnecessary. When the United States 
 Steel Corporation was formed many plants were 
 "scrapped" because they were regarded as superfluous. 
 
 Further pursuit of such a policy in the combinitioii of 
 companies either by absorption or by alliances of a more 
 or less formal character has led to the building up of 
 what are known as Trusts. These united companies, 
 some of which have reached gigantic proportions — espe- 
 cially in the United States — have been of late years not 
 only conducting a large proportion of the domestic trade 
 of the United States, but have been entering very largely 
 into foreign trade. The operations of the Standird Oil 
 Company and of the Tobacco Trust are practically- world 
 wide. Some of these Trusts have become in effect huge 
 international combinations. 
 
 200. Effect of large enterprises. — The result of tlie 
 growth of large capital, when placed at the disposal of 
 employers, has in all ages been the same. It has always 
 led to a struggle between the large and the small capi- 
 talists and between the large and the small employers. 
 This struggle became very acute in the sixteenth anil 
 seventeenth centuries, and it has again become very acute 
 
PROCESS OF DISTRIBUTION 
 
 213 
 
 in the present time. The struggle of rival capitalist in- 
 terests was inevitably carried into the field of politics, 
 each interest endeavoring to enlist the State in aid either 
 of its defence or of its aggression. In all of the historical 
 cases, the struggle has not been a purely economic one. 
 The small merchants have always enlisted on their side 
 such democratic sympathies as the times afforded, while 
 the greater merchants and the large companies have been 
 able in general to enlist upon their side the influence of 
 the governing classes. 
 
 201. Employer's position in process of distribution.— 
 The individual employer or the privately organized firm 
 emliarking in an industrial enterprise, either uses already 
 accumulated capital or purchases that capital on more 
 or less remote terms of payment from some other person, 
 firm or group of persons. In any event, the entre- 
 preneurs either exercise the function of capitalists or 
 they arrange with others to do so. They go into the mar- 
 ket for capital and buy it on certain terms. These terms 
 will dvipend upon the conditions which affect the money 
 market at the time and they will depend also upon the 
 individual credit of the entrepreneurs or enterprisers and 
 upon the estimation which the market makes of the likeli- 
 hood of the success of the enterprise. 
 
 Similarly the enterpriser negotiates in the market for 
 land. He selects a site which he thinks will serve his 
 purpose and if he finds that the price asked for it is more 
 tiian he feels justified in paying, if he fails to bring the 
 owner of the land to his terms or near to them, he will 
 take a less suitable but a less expensive site. He will 
 either purchase the land with a portion of the capital 
 which he has procured (a usual case in the Un-ted States 
 and in Canada) or he will lease the land at a specified 
 rent per year for a certain number of years (the usual 
 
 \M 
 
 m 
 
914 
 
 ECONOMICS 
 
 case in Great Britain and in Continental Europe). In 
 either ease he will either exercise the function of land- 
 owner or he will allow someone else to exercise it, pay- 
 ing him the market price for his services. 
 
 The enterpriser will then proceed to arrange his staff 
 of employees by employing superintending labor and 
 manual labor; first, in order to erect the necessarj- build- 
 ings and to install the necessary machinery and, then, 
 after the purchase of the necessary raw material, to carry 
 on the process of production for which the factory (or 
 other industrial establishment) has been designed. 
 
 The enterpriser has now expended all his fixed capital 
 and a portion of his circulating capital, and he has thus 
 incurred certain periodical obligations in respect to the 
 payment of interest. He has also incurred certain peri- 
 odical obligations involving the payment of ai addi- 
 tional amount of interest in respect to the capital he 
 has invested in land or he has incurred obligations in re- 
 spect to the payment of rent for the land upoii which 
 he has built his factory. He has also entered into certain 
 contracts for the raw material and for the superintend- 
 ing and manual labor necessary for the production of the 
 product he intends to manufacture. 
 
 202. Hots> result of production is distributed. — Wlien 
 the finished product makes its appearance he sends it into 
 the market and he encounters the chances of that narket. 
 He offers an addition to the former supply ; if tie sup- 
 ply otherwise has remained the same while the demand 
 has not altered, he may be obliged to accept a price 
 lower than that of the previous market unless ie can 
 stimulate demand to such an extent as to cause an in- 
 crease of demand and thus to cause maintenance of the 
 price. As he sells his product and as he is paid for it, 
 his depleted fund of circulating capital is restored; as 
 
PROCESS OF DISTRIBUTION 
 
 215 
 
 he continues to produce, his fund is depleted again, and 
 again restored and so on. 
 
 If the total yield from the sales of his product just 
 equals the expenses of production including interest upon 
 capital, rent, purchase of raw material and wages for 
 superintendence and for manual labor, he will even then 
 not have been able to secure the continuity of his busi- 
 ness. In addition to the net return as above indicated, 
 it will be necessary for the enterpriser to have secured 
 out of the total value of his product as realized in the 
 market, sufficient to pay the taxes levied upon him by 
 tlie state and by the municipality, together with an 
 amount sufficient to pay the premiums upon a policy 
 of fire insurance, and the premiums upon a policy of in- 
 surance against his liability as an employer for accidents 
 which may happen to his workmen. It will also be nec- 
 essary for him to provide for repairs to his machinery 
 and for depreciation, and to provide for the creation of 
 a reserve fund against the risks of bad debts and any 
 other trade risks to which his business may be subject. 
 Only after all these obligations of various kinds have been 
 met out of the yield of his product in the market is he 
 entitled to regard himself as having earned anything. 
 If his business has yielded him only just sufficient to cover 
 his obligations, he has neither salary nor profits for him- 
 self. 
 
 203. Deficiency or surplus?— li his enterprise does 
 not yield sufficient to defray his obligations, he may 
 nevertheless carry it on for a time, meanwhile obtaining 
 fresh capital in the hope that eventually the yield will 
 increase; but if he exhausts his credit before the yield 
 does increase, the enterprise must come to an end. 
 
 On the other hand, if the yield over a certain period, 
 say one year, is sufficient to cover his obligations during 
 
SIC 
 
 ECO\O.MICS 
 
 that period, and to yield even a surplus, that surplus, 
 according to the current system of employment, beloiifrs 
 to him. He may regard part of the surplus as salary 
 an amount sufficient, let us say, for his personal and 
 household expenses — and part of it as net profit. This 
 portion may be devoted to the creation of a reserve fund, 
 against the possibility of diminution in trade or in tlie 
 price of his product ; or it may be devoted to the repay- 
 ment of some of his borrowed capital (in which case he 
 would to the extent which the amount represented, exer- 
 cise the function of capitalist) or to the extension of iiis 
 factory (in which case he would also exercise the function 
 of capitalist). 
 
 204. Employer's double function. — In the course of 
 his operations, the enterpriser or employer, as part of his 
 function as organizer, has exercised the function of dis- 
 tributing the value of the product. He has exchanged 
 the product in tV-i market for its value in money, and 
 he has distributed this money or a portion of it among 
 the persons who contributed to the productive process. 
 The individual shares of these contributories have not 
 been determined in the market for the product, nor hare 
 they been determined arbitrarily by the employer. They 
 have really been determined for him in the various more 
 or less competitive markets into which it was necessary 
 for him to enter in order to obtain the services aid the 
 material means whereby he conducted his industry. 
 
 205. Influence of supply and demand. — The employer 
 is thus, neither as employer nor by design, a benefactor. 
 He is engaged in an enterprise by which he expects to 
 make not only a living for himself but even to realize an 
 indefinite surplus. He is, in short, engaged in the pur- 
 suit of his own interest whether he is working up a small 
 business or conducting a large one which had been 
 
PROCKSS OF DISTRIBUTIOX 
 
 217 
 
 worked up to a position of magnitude by himself or by 
 otiieis from whom he acquired it. The other contribu- 
 tories to the production whose services he has organized 
 are also engaged in the pursuit of their own interests, 
 but their position is characterized by an element which 
 is absent from the position of the employer. They render 
 their services for certain definite periodical payments. 
 These payments are due, whatever may be the gross or 
 the net yield of the business. A fall in price of the prod- 
 uct may take place, but rent, interest, salaries and wages 
 are unaffected provided they have been previously stipu- 
 lated. In each case there is, of course, risk of eventual 
 loss, although the employer ■> Mable in the first instance; 
 out, in the case of salaried and wnge-paid labor, the risk, 
 owing to the frequency of the periodical payments, is 
 usually relatively small. 
 
 On the other hand, in the event of an advance in price 
 of the product or an increase in the gross or net yield of 
 the enterprise, these payments still remain unaffected. 
 If, however, such an advance in the price of the product 
 or increase in the gross or the net yield of the enterprise 
 takes place, even if the increase is due to economies in 
 management special to the enterprise, there will be an 
 inducement for other enterprisers to enter into business 
 of a sim,:ar character. In consequence, demand for land, 
 capital or labor will be diverted from other channels 
 of demand, and the prices of these for the particular 
 purpose in question will tend to advance. As the con- 
 tracts for the supply of these factors run out, the enter- 
 prisers earlier in the business must also pay increased 
 rents, interest and wages; and unless some other conflict- 
 ing factor enters they will have to continue to pay in- 
 creased rents, interest and wages until the net profits 
 of their enterprises come down to the rate or near to 
 
 
 d 
 
 .JMLi 
 
818 
 
 ECONOMICS 
 
 IM'I 
 
 the rate of the profits of other industrial enterprises of 
 
 the same general character. The reactions of the mai kit 
 
 us tend to c(]ualize profits of different industrial tn- 
 
 I'ises and to increase or to diminish rent, interest atid 
 
 '<.ges according to the demand and supply of land, 
 
 capital and labor. 
 
CHAPTER III 
 
 PROFIT AND WAGES 
 
 206. Source of profit.— In the analysis of the pro- 
 cesses of production and distribution which precedes we 
 have seen how the employer, as employer in the strict 
 sense, is an administrator and organizer. He is not a 
 landowner, he is not a capitalist and he is not a manual 
 laborer. He is a payer of rent, of interest and of wages 
 to other-persons who exercise the functions of which these 
 are the remunerations, in connection with the enterprise 
 which he (the employer) has organized. The primary 
 business of the employer, as such, is to continue his en- 
 terprise and to adopt the measures necessary to that end. 
 He must endeavor to obtain from the products of the 
 enterprise enough to remunerate the various agents he 
 has employed— the landowner, the capitalist and the la- 
 borer—he must provide the raw materials by purchase 
 as they are required, he must provide for the repairs of 
 his machinery as the parts wear out, he must set aside 
 a sum for a depreciation fund to replace machinery that 
 may have been wholly worn out or may have become obso- 
 lete.' When all of the charges upon his income have been 
 met and when he has set aside an amount for his own 
 
 ■erv 'LT.'^n"'*"''.^'' t''»J':^'«!''.«<»>,of machinery from both causes i, 
 U^^^T^L ?« 7? ^""i "' ','^''™ '"Pavement of electrical machinery, 
 
 or example careful user, customarily set aside about 1«H% per annum upon 
 
 Ln 1.°' ""■ "'■•"■•''r'^" ^""^'■''g "«" i' "o-W be p,ac^aiirva°ue"e»in i ™ 
 
 i X i/v™„Tior "' *" ""^ "■" "■"' ^^'^ " "" '"p"^'^ '■y 
 
 SI9 
 
280 
 
 ECONOMICS 
 
 personal maintenance, the employer may find that there 
 is a surplus or that there is a deficiency. If there is a 
 deficiency, it will be necessary for him to economize In 
 some way, otherwise the continuity of his enterijiin, 
 which is his first concern, will be compromised. If there 
 is a surplus, that surplus may be regarded as net prr)tit. 
 
 207. IIow is profit brought about?— 1{ a method nf 
 analysis is adopted, by which the whole of the receipts 
 of the employer, after he has paid the more obvious 
 charges upon his total receipts, is described as grass 
 profit, then the amount according to the above analysis, 
 after the additional deductions which have been detailed, 
 might be described as net pn^.it. The question is: how 
 does this profit arise ? It may arise from one or the other 
 of two main reasons. It arises either by design or ad- 
 ventitiously. 
 
 Profit is designed if the employer, through his shrewd- 
 ness in making bargains for land, capital, labor and raw 
 materials, and through shrewdness in making bargains 
 for the sale of his product, or through economy in the 
 management of his business, or by influencing legislation, 
 enhances his gross income. It arises adventitiously, if 
 from a change in market pricec of capital, labor and raw 
 materials which he buys, or in the finished product which 
 he sells, he is able to diminish the cost of production of 
 the commodity whose manufacture he has organized or 
 to enhance the aggregate price he obtains for that com- 
 modity. 
 
 Shrewdness and activity may be pushed too far, that 
 is, farther than is recognized as permissible by those 
 with whom he transacts business. For instance, some 
 part of the profit may be attributed to a too sharp bar- 
 gain in raw material where the buyer has taken advan- 
 tage of economic weakness on the part of the seller to 
 
I'HOI rr AM) WAGES 
 
 iil 
 
 beat down the price below the current market rate; or 
 I a part may he attributed to a too sharp bargain with 
 I workmen or other employees. In the latter case the em- 
 ployer may be accused of exploiting? them and of taking 
 ill profits what ought to have been paid to them in 
 wages. Or he may be guilty of adulterating his prr)duct, 
 or of some fraudulent practice of a similar kind. Such 
 cases, no doubt, occur, but even if they were universal, 
 which cannot be supposed to Ix; the case, they would not 
 account for that portion of the surplus which has been 
 described as adventitious profit. Against this adven- 
 titious profit there must l)e set adventitious loss, which 
 may occur even in cases where the most shrewd forecasts 
 have been made, and which may occur through neg- 
 ligence or intentional destruction by employees. 
 
 208. Profit distribution in joint stock com pan//. —The 
 case of the joint stock company is, so far as the main 
 facts are concerned, very similar, except that while the 
 actual function of employer is exercised by salaried of- 
 ficials who are not necessarily paid in accordance with the 
 yield of the business (although if their activities do not 
 result in the return anticipated, they may run risk of 
 discharge), the surplus, if any, is taken, and the loss, 
 if any, is borne by the shareholders. These shareholders 
 liave ordinarily no effective share in the management of 
 tiie business. In the case of large companies, where the 
 tx)dy of shareholders varies with the purchases and sales 
 of the stock in the market, they could not have any effec- 
 tive control. They, therefore, merely add to the function 
 of capitalist (since by them or through their credit the 
 capital is supplied) part of the function of enterpriser, 
 tile control or absorption of the profits and the sustain- 
 ing of losses acciTiing in the enterprise. 
 209. Employer's associations. — We have considered 
 
S22 
 
 FX'ONOMU'S 
 
 the cases of combinatinn of interest of employers in jnint 
 stock companies and of the combination of these i-iim- 
 panies into trusts. There are, liowever, other forms nf 
 combination which may be entered into by individiml 
 employers without sacrificing their independt-nce as sucli, 
 Of this nature are employers' associations formed for the 
 l)urpose of protecting the interests of their members In 
 commori action. Such associations have been forriinl 
 with, in general, two objects. One of these is to watdi 
 or promote legislation bearing upon the interests of cm- 
 jiloyers or to observe the administration of the liiws 
 affecting their interests. The other general object is 
 to take common measures, where these arc possibii' (ir 
 advisable, for the protection of their members in res|)«t 
 to their relations with landowners, capitalists and la 
 Ixirers. 
 
 Under the first object the emploj'ers' associations con 
 sider alterations in the bankruptcy laws, in the tariff und 
 tax laws, in the banking laws, in the immigration laws 
 and esjjecially in those laws which fall into the category 
 of social legislation. Under the second object, the ques- 
 tion of labor disputes is the most conspicuous. 
 
 Although the employers' association in one form or 
 another preceded the trade union, it represents in a man 
 ner the combination of employers in answer to the com- 
 bination of laborers. The collective bargaining of the 
 laborers has as its counterpart the collective bargain- 
 ing and the combination for mutual interests of the em- 
 ployers. 
 
 210. Superintending labor. — In modern industrial 
 enterprise, the labor of super' "lendence has assumed a 
 large place. As the use of complicated machinery lias 
 extended, as the organization of large bodies of men 
 has become more common and as the operations of tht 
 
rUOFIT AND VVAGKS 
 
 ««3 
 
 market (in the purchase of raw material and in the sale 
 of the finished pr(jduct) have become more intricate, the 
 n'ile of superintending labor has l)ec(>nie more impor- 
 tant. The technical heads of departments and the aux- 
 iliary technical heads in large enterprises form now, 
 ill the aggregate in all industrial countries, immense 
 ({roups. 
 
 Tliese groups occupy a position intermediate l)etween 
 the employers and the manual laborers; and the judicious 
 selection of individuals for the exercise of the function 
 of superintendence has become a matter of great impor- 
 tance. Superintending laborers are generally, although 
 not always, educated in some branch of technology; they 
 have more or less intellectual interests and are, therefore, 
 less exclusively concerned with the commercial interests 
 of the enterprise than their employers. They are also, 
 owing to their rarity in the superior ranks of their re- 
 spective professions, more independent of other social 
 groups than either the employer or the workman. 
 
 211. Salaries. — Although superintending laborers 
 have in some cases trade unions in the form of profes- 
 sional societies, these societies rarely act as combinations 
 for the advance of salaries, because collective bargaining 
 in cases of very divergent technical skill is not practi- 
 cable. Salaries under such conditions are regulated 
 partly by custom and partly by the market for superin- 
 tending labor. 
 
 In the higher ranks, salaries are sometimes very high 
 in relation to other professional employments because 
 the opportunity of gain to a business through competent 
 management is great, and the possibility of loss through 
 incompetent management is also great. A large in- 
 dustrial combination was effected in the United States 
 in 1908. The manager of the largest of the constituents 
 
 •i 
 
 
vu 
 
 EfONOMICS 
 
 If: 
 
 which were absork-u by the new company was appointtil 
 managing director of the whole at a salary in exit)i< 
 of his previous salary and for a period of five years. At 
 the end of six months it became evident to the directors 
 that they had made a mistake. They compromised with 
 their managing director, paying him a large sum bv 
 way of compensation for breach of contract, and tluv 
 appointed another manager at double the salary pay. 
 able in the previous case. They found themselves wors. 
 off than ever. In three months the new manager in- 
 volved them in losses amounting in the aggregate to ten 
 times his salary for a year. He was called upon to resijrn 
 and they offered a still higher salary, hoping by this 
 means eventually to secure a thoroughly competent 
 man. 
 
 The demands upon the occupants of such positions are 
 very great. The qualities which are necessary are not 
 easily acquired ; sometimes they cannot be acquired on 
 any terms of application. Those who are fortunate 
 enough to possess the germ of the requisite qualities at 
 the outset of their careers, and who will devote the ntces- 
 sary time to a study of the fundamental principles of 
 business, may go far. 
 
 212. Education of superintending laborers.^Tk 
 prospect of great prizes excites ambition and the junior 
 ranks of the professional class tend to become o\tr- 
 crowded and, therefore, to be underpaid. In the more 
 fluctuating branches, such as mining and railway con- 
 struction, there may indeed on occasion be much unem- 
 ployment in the professional class, because owing to tlie 
 conditions of scientific specialization it is not easy to 
 pass from one form of professional employment to 
 other. 
 
 The provision of instruction for the professional classes 
 
 VMIOI 
 
 than 
 
 conijj 
 
 nical 
 
 natel; 
 
 uries 
 
 measi 
 
 I so pn 
 
 cost o 
 
 In 
 
 p«)fe! 
 
 tlie fe 
 
 fessioi 
 
 cient t 
 
 The ol 
 
 of the 
 
 are rea 
 
 leads t 
 
 profes! 
 
 the ini 
 
 more t 
 
 insigni: 
 
 gained 
 
 numbei 
 
 of the ] 
 
 it to id: 
 
 jwill. 
 
 Immes 1 
 
 jorganizi 
 
 I'ight cc 
 
 c-i- 
 
PROFIT AND WAGES 
 
 rittd 
 
 At 
 
 'tors 
 
 H-itll 
 
 I by 
 
 tllfV 
 
 )a)- 
 
 cirst 
 ill- 
 ttn 
 
 iiKn 
 
 m 
 
 dumiK U,e pcnocJ „ tutelage they n,„«t undergo in 
 onlcr to ht thtn, for their work, has forn.e.1 a heavy tax 
 uiK.ri the educafonal instilutiorus which have un.Jertaken 
 this duty. Scientific apparatus is costly and the pro- 
 vision of technically comjatent instructors is more costly 
 than in some other branches of education. In^caiise of "the 
 competition for first-class men in the ranks of the tech- 
 nica professions. Currents of public opinion have alter- 
 Inately run m favor of assistance from the r^blic treas- 
 uries of professional education, and a«ains. such a 
 measure on the ground that professional employment is 
 [so profitable tl.at those who enter it should defray the 
 cost of their f>wn professional education. 
 
 In Rcneral. a compromise has been effected. In the 
 professional faculties in most universities and colleges, 
 he fees are m exce«i of those charged in the non-pro- 
 fessional schools, although they are ran."ly if ever suffi- 
 cient to defray the whole cost of professional education. 
 The objection that is sometimes heard that the interests 
 of the professional class and those of the employing class 
 are really Identical, and th-t the educational policy which 
 leads to the increase in the numbers or efficiency of the 
 professional class at the public exiK^nse is injurious to 
 the influence of labor is not vali.l. because labor has 
 more to lose through an incompetent or numerically 
 msignificant professional class than couJd possibly be 
 fit ^ 't^^'''''' «f it- Moreover, the increase in 
 umbers and the consequent probable proletarianisation 
 
 ! n wu i^ •*' '"*"■"'*' ""'^^ *'"'^« "f l^'wr for good 
 or .11. While It is difficult to organize labor when if be- 
 comes highly specialized, it is even more difficult to 
 organize the professional classes because of the "water- 
 tight compartments'" into which they tend to separate. 
 
 ■* 
 
 :> 
 
 4(1 
 
226 
 
 ECONOMICS 
 
 and because of the individualistic habits of life and 
 thought which are engendered by the absorption in pro- 
 fessional interests into which members of the professional 
 class customarily fall. 
 
 213. Classes of manual laborers. — All of the marl<ets 
 in which the contributors to production oflPer their serv- 
 ices have certain features in common, and each of them 
 has certain peculiarities. The labor market has, in com- 
 mon with the market for capital, the feature of division 
 into sections, which, in ordinary conditions of the market, 
 are non-competitive. In other words, the law of sub- 
 stitution does not normally apply to the relation of such 
 sections. 
 
 At the base, as it were, of the labor market, there is the 
 mass of general laborers, men, women and children, not 
 specially skilled in any craft but available for the rougher 
 manual or for light unskilled labor in many crafts. In 
 this ma&i, also, there are usually some who have dropped 
 into it from special handicraft, owing to changes in the 
 crafts through the adoption of automatic machinery or 
 otherwise, to their own inefficiency or defects of ciiar- 
 acter or to misfortune. In this group the competitinii 
 for employment is at all times considerable and is some- 
 times acute. 
 
 Above this mass is a plane of separate sections— each 
 containing the craftsmen in special industries — carpen- 
 ters, bricklayers, mechanical engineers and the like. 
 While there is normally more or less severe competition 
 within each section, there is little or no competition be- 
 tween the sections. Thus, for example, carpenters do 
 not compete for employment with bricklayers, nor do 
 watchmakers compete with mechanical engineers. When 
 trade is stagnant in the superior handicrafts, craftsmen 
 do not usually pass from one highly skilled occupation 
 
PHOFIT AM) WAGES 
 
 227 
 
 to another, but if they find it impossible to secure employ- 
 ment in the trade in which they have been trained, they 
 drop temporarily into some inferior employment where 
 skill is not so specialized. At all times, certain occupa- 
 tions afford a refuge for men who, for various reasons 
 have abandoned the trade for which they were originally 
 trained. Thus, men of all trades become street car con- 
 ductors, club and hotel waiters, teamsters, firemen, deck 
 hands on steamships and the like. 
 
 In the sections of the labor market in which specialized 
 skill is necessary, and with which there is little or no ex- 
 ternal competition, there is often acute competition 
 within the section itself. For example, if at a particular 
 moment there is a great demand for compositors in 
 Buffalo or in Toronto, which are important centres of 
 the printing trade, compositors will go to these cities to 
 seek employment. If they go in excess or ii' the demand 
 is only temporary, they will either have to go elsewhc e 
 or they will compete with one another for employment 
 even if the wages be uniform. 
 
 214. Uniform isMges. — The uniformity of wages 
 which has l)een imposed by some trade unions and de- 
 liberately adopted as a policy by some employers, has 
 mitigated this sectional competition and altered its char- 
 acter but has not removed it. An important mitigation 
 has also occurred in those trades in which the number 
 of apprentices is limited by agreement between the em- 
 ployers and their men. These measures have un- 
 doubtedly led to greater care in selection of men by em- 
 ployers. If they must pay equal wages to efficient and 
 inefficient workmen, they will endeavor to eliminate the 
 inefficient, and if they can have only a few apprentices, 
 there must be no idle apprentices among them. It is 
 probable that through the influence of trade unions in 
 
228 
 
 ECONOMICS 
 
 this direction there has been some increase in industrial 
 efficipncy. 
 
 On the other hand, it might be argued that tliesi 
 measures have not tended to humanize the relations lit- 
 tween workmen and their employers ; and that the uni- 
 form wage results in the dismissal of the workman s.^ 
 soon as he is past his prime, while otherwise he might be 
 continued at a reduced wage. 
 
 213. Old age pensions. — The adoption of a unifunn 
 wage seems to have as inevitable consequence the estab- 
 lishment of old age pensions, either by separate indus- 
 tries, groups of industries, or by the State; unless it is 
 to be supposed that the uniform wage during the years 
 of labor is sufficient to enable the normal workman to 
 save enough to keep himself and his family after he lia: 
 ceased to be worth the wages earned by him in his prime. 
 It is true, however, that there are many industries in 
 which tie years of activity are so f»w that adequate 
 saving is impossible, ai.d an old aj pension system, 
 which would be applicable in such cases, would require 
 to be given at so early an age that it could not be uni- 
 versally applied. The question whether recipients iii 
 pensions should be encouraged or even permitted to wnrii 
 has been much discussed in Great Britain since the pass- 
 ing of the Old Age Pensions Act. 
 
 The problem may be put in the form of a dilemma. 
 If the pensioners are allowed to work, they compete in 
 the labor market and reduce wages; if they are not al 
 lowed to work, the national aggregate is less by tiie 
 amount of their product than it would have been had 
 they been permitted to work. It is fairly obvious that 
 the balance of advantage lies in allowing pensioners to 
 earn wages if they can. There is another consideration 
 it is a doubtful policy to impose a direct penalty in the 
 
PROFIT A\U WAGES 
 
 229 
 
 form of compulsory idleness upon those who have a 
 pension from the State. 
 
 216. Labor organizations.— In those trades in which 
 specialized skill is not requisite, or in which the requisite 
 skill may readily be acquired in a short time, the compe- 
 tition is most acute, the changes of personnel in a work- 
 shop or factory most frequent and labor combination in 
 a trade union i.iost difficult. Spasmodic attempts are 
 made from time to time to organize garment workers 
 (men and women ), workers in box factories and the like. 
 Sometimes the activity of the organizers has resulted in 
 strikes and in the improvement of the conditions of la- 
 bor or in increase cf wages; but usually the casual and 
 fluctuating character of these occupations and the diver- 
 sity of nationalities have rendered permanent organiza- 
 tion of the workers extremely difficult. 
 
 The system of an uniform wage which is indispensable 
 in the maintenance of sectional trade unionism cannot 
 be applied over the whole field of industrj% and is, there- 
 fore, not an essential feature in a general labor organ- 
 ization. Such organization has indeed usually as its 
 unifying influence some political programme because of 
 tile variation in economic programmes which exists in 
 the ranks of labor. 
 
 217. Difficulty of transporting labor.— There are cer- 
 tain characteristics which are peculiar to the labor mar- 
 ket. For example, while capital in the form of con- 
 sumable commodities, or otherwise, is more or less mobile, 
 laiwr is not very readily transported. This characteris- 
 tic varies, however, in different races and under different 
 conditions. There is, for example, a strong inclination 
 toward migratory habits among the Russian people. 
 The same inclination exists, though not to the same de- 
 Rree, among people of German origin; the French, on 
 
230 
 
 ECONOMICS 
 
 the other hand, are reluctant to move. In many differ- 
 ent parts of the world there are periodical niigratidb 
 of great magnitude. About one million farm laborers 
 migrate during the Russian harvest season, going south- 
 ward from Central Russia and then travelling nortiiwarvl 
 harvesting as they go, toward the regions of the latii 
 harvests. Similarly vast numbers of Italian peasants 
 migrate to the Riviera for harvesting, and great num- 
 bers of Irish laborers cross annually to Scotland for the 
 same purpose. So, also, farm laborers go from the mari- 
 time provinces and from Ontario to the prairie pmv- 
 inces of Canada for harvest, returning when harvest is 
 over. In each of these cases distance is no barrier. 
 
 Apart from temporary migrations, there are the great 
 permanent movements of peoples of which the settle- 
 ment by Europeans of the two Americas and of Austral- 
 asia are the most conspicuous modern examples. People 
 even migrate from one new country to another. It is 
 a matter of frequent observation that people who have 
 with difficulty once uprooted themselves from a long ac- 
 customed home will have little hesitation in migratiiiij 
 a second time if they think it advisable to do so. Tims 
 groups of German and other immigrants, both in the 
 United States and in Canada, have emigrated and set- 
 tled ill the eastern portions of these countries and tiieii 
 after an interval have migrated westward or nortliwanl. 
 
 Nor does the extent of migration, except across the 
 Atlantic Ocean, appear to have increased materially 
 on account of improved means of communication. 
 Throughout Europe, in the early middle age, the great 
 difficulty lay in preventing people from wandering 
 about, not in inducing mobility. Adam Smith's dictmn 
 that the man oi" aii baggage is the most difficult to trans- 
 port was really true only of the Scots and the French, 
 
PROFIT AND WAGES 831 
 
 the only two peoples with whom Adam Smith was fa- 
 miliar, and since his day it cannot be said to be true of 
 Scotchmen. 
 
 This relatively great mobility of labor is, however, 
 qualified by the circumstance that while capital is, as 
 a rule, moved from one place to another by persons 
 skilled in such movements, labor is frequently moved in 
 great masses without intelligent direction. In northern 
 countries, the harvest is short, the information about de- 
 mand for labor is tardily distributed and it therefore fre- 
 quently occurs that there is abundance of labor in one 
 place while in another at no great distance there is 
 scarcity. Sometimes laborers in their own interest re- 
 frain from communicating to others the fact of demand 
 for labor, and the absence of organization among farm- 
 ers prevents them from procuring even readily available 
 supplies. This is particularly true of south eastern 
 Russia during harvest time and il is to some extent true 
 of the prairie provinces of Canada. Mobility or the 
 aosence of it may thus under certain conditions affect 
 the rate of wages over a wide region. 
 
 218. Labor cannot be stored.~The second important 
 special consideration affecting labor in its own market 
 IS that it is in the position of a perishable commodity. 
 It must be sold when it is available, otherwise it is irre- 
 trievably lost. If there were any means of storing la- 
 bor force in such a way that it might afterwards be liber- 
 ated in any desired direction, the position of the laborer 
 might be materially altered, provided he had himself 
 control of the ^eser^'oi^ in which his labor was stored. 
 The falling power of water is stored in this way, so also 
 ■s electricity in electrical accumulators; but no inven- 
 tion relating to labor storage has yet been promulgated. 
 Labor may be stored in the sense of being applied to 
 
 W^ 
 
332 
 
 ECONOMICS 
 
 production of utilities which are kept in reserve, but this 
 is not the same thing as storing the force which may Ik; 
 used at will at any time upon the production of iiny 
 utility. 
 
 In the absence of an automatic mechanism of the kind 
 suggested, the laborer must sell his labor, even in ujj 
 overstocked labor market, because he must live. He 
 may get for his labor barely enough to enable him to 
 exist; but "half a loaf is better than no bread." This 
 consideration is based upon the assumption, which in- 
 deed is very usually the fact, that the laborer is a laborer 
 pure and simple ; that is, that he is not in any sense either 
 a landowner or a capitalist. It is assumed, further, tiiat 
 he is destitute of credit. This, however, is not always 
 the case. The extent to which the small retail dealers 
 relieve distress during times of crisis by extension of 
 credit is very remarkable, and it accounts for the patron- 
 age of the large retail cash stores by the middle class 
 rather than by the working class. The Truck system, 
 a system by which the employer supplies his workmen 
 with the commodities they consimie, is very prevalent 
 in the United States. It has long been prohibited by 
 law in Great Britain. 
 
 Such being the case, the laborer is an urgent buyer 
 of the means of life and he has no resources to offer in 
 exchange excepting the labor of his head and his muscle. 
 While, however, the laborer, as laborer, is in this posi- 
 tion, he is not always laborer pure and simple. The elite 
 of labor in all countries has its savings and investments 
 in public securities or otherwise, yet it cannot be denied 
 that the mass of the proletariat or landless working 
 class — especially in Europe — is in the position charac- 
 teristic of the laborer as such. 
 
CHAPPTER IV 
 
 RATE OF WAGES 
 
 219. Value of product!, and value of waee»—We 
 must now ask what are the causes which, in gener"al, de- 
 termme the rates of wages, and what are the causes 
 which, in general, determine the share of the national 
 aggregate product which passes into the hands of the 
 laborer The causes which .letermine in any market the 
 value of the pro<lucts which are brought into it for ex- 
 change are, as we have seen, very complicated. Each 
 of these causes acts upon the labor market through the 
 pr.«« of commodities and through the demand for them. 
 
 „„f ,1 ."■ ""'^ '''"^ ^'"ges.-WMe the workman 
 
 naturally considers his wages high or low in respect to 
 the pecuniary or nominal amount of them, the spending 
 ^wer wh^h his wages afford constitutes their real 
 amount. His wages are thus really high or low in re- 
 pect o the quantity of food, clothing and shelter whil 
 they enable him to acquire. Thus the difference in 
 wages at different periods or at different places cannot 
 
 Zi nJ t. T '" """"^y' •'"* ^'^^ th^ purchasing 
 
 m^ot that money in the commodities respectively con- 
 
 lonJi^r "'"'"^''' *' '"'^' °^ " C'"'"^'* «'°Me are at 
 In^nod when nee is 4 cents per pound, and at another 
 equivalent to 138 pounds of rice when rice is 3 cents 
 223 
 
 SI 
 
834 
 
 IXOXOMICS 
 
 per pound, Iiis real wages, provided he consumes ni.ly 
 rice, have advanced 88 per cent., although his nouiiiial 
 wage may remain unaltered. 
 
 The bare statement that urban wages are higher tliaii 
 rural wages is insufficient without the explanation nf 
 the difference between the prices of food, clothing and 
 shelter in the respective areas. So, also, would be tiie 
 statement that wages have risen during the past fifty 
 years unless we are informed of the prices of the cdiu- 
 modifies in normal consumption, and of the rates of 
 rents for house accommodation in relation to tlie normal 
 rates of wages during the period. A curve showing the 
 rates of wages thus means nothing unless it is accom- 
 panied by a curve showing the prices of the commoditits 
 which enter into the consumption of the wage earners 
 whose wages constitute the data from which the curve 
 is drawn. 
 
 221. Efficiency of laborer. — The determination of 
 wages may be looked upon from two points of view. 
 From the first point of view we may consider the rate 
 of wages by the week or month or we may consider the 
 total amount of wages for the year, idle time due to 
 sickness, holidays, unemployment, etc., being accounted 
 for. From the second point of view we may consider not 
 the rates or amounts of wages in individual trades, but 
 the wage bill of the wage earners as a whole, regarded 
 as a portion of the "national" or "social dividen i." 
 
 Under all conditions, the efficiency of the laborer 
 varies widely, and uniformity of wage does not by any 
 means imply uniformity of return to labor in prodi.- 
 tion. If wages nominal or real were fixed arbitrarily 
 by public authority at a uniform rate, the method of 
 determining wages would appear to be simple, yet the 
 return to labor in production of one group of persons 
 
HATE OF WAGES 233 
 
 compared with that of another would exhibit wide varia- 
 tions. Under normal conditions of production, the pro- 
 ficiency of one group compensates for the deficiency of 
 another. •' 
 
 We may regard the services of labor in production as 
 being rendered by groups of varying efficiency. The 
 groups of the highest efficiency normally move in a rare- 
 fied competitive atmosphere, and when they sell their 
 labor, they have, therefore, an advantage over those of 
 inferior efficiency who encounter more numerous com- 
 petitors. Provided his efficiency is recognized by those 
 who are in a position to employ him, and provided also 
 there are no radical faults of character or habits which 
 compromise his efficiency, the highly efficient worker in 
 any field .s m the position of a quasi-monopolist. If 
 liere is demand for his services he can drive a favorable 
 bargam, although if there is no demand for the par- 
 ticular variety of efficiency which he possesses, it may 
 remain unutilized. ' 
 
 At the other end of the scale is the least efficient group. 
 Such a group ,s employed when industry is so brisk that 
 every willing hand must be enlisted in its service. When 
 for any reason, industry becomes less active and em- 
 plo.vers begin to discharge workmen, the members of 
 the least efficient group are normally the first to be dis- 
 charged. During periods of industrial fluctuation -his 
 group oscillates between employment and unemploy- 
 ment and between a self-sustaining status and the status 
 ot recipients of public or private charity. Whatever 
 may be the state of industry and whatever the period, 
 here ,s always such a group, and this group in this posi- 
 t.on may therefore be regarded as the marginal group 
 -that ,s to say, that group whose utility as productive 
 I agents is the least it is worth while to use 
 
836 
 
 ECONOMICS 
 
 222. Marginal wages.— Over the field of industry 
 there are numerous groups of this description, corre- 
 sponding with the number of occupations. The hilior 
 of these groups is marginal labor. To put the matter 
 concretely, an employer knows when he employs a worlv- 
 man that he will get at least the value in labor that is 
 represented by this margin; therefore, he will be williiiji 
 to pay a rate of wages equivalent to that value. 
 
 There will always be a marginal wage as there is 
 always a marginal group, and this marginal wage will 
 be just sufficient to attract into the industry the nunikr 
 required in it at any particular moment. If, in tun- 
 sequence of increased demand or otherwise, the price 
 of a finished product advances, the manufacturers of tliat 
 product will increase its production and they will there- 
 fore require more workmen. The reserve of labor may 
 be, however, under such conditions low, and the supply 
 price of labor may have advanced in consequence. But 
 the demand price has advanced also because our em- 
 ployer is obtaining a higher price for his product and 
 the marginal worth of labor to him has risen. He is 
 thus able to meet the demand for higher wages from 
 the workmen whom he already has in his employment 
 and from recruits whom he may wish to employ. 
 
 It must be observed, however, that if any of the sup- 
 ply prices of other elements of production should ad- 
 vance, the power to give an advance to any one of them 
 would be Limited by the urgency of the claims of others. 
 Thus, an advance in the prices of the raw materials 
 might render an increase in production of the finished 
 material uneconomical in spite of advance in its market 
 price. The demand for labor might thus be checked and 
 the marginal value of labor might not be altered in spite 
 of the increase of the price of the finished product. 
 
BATE OF WAGES 
 
 837 
 
 228. Demand and mtppli/ prices of Zafcon— Although 
 the rate of wages paid to all employees need not be at 
 the minimum rate, the demand price of labor will follow 
 in its fluctuations the marginal value of labor and will, 
 ill general, approximate it. The demand price of all the 
 lalmr in a factory cannot exceed tl.L total value of all the 
 labor, and that total value cannot be ascertained except 
 by the process of estimating the value of the labor of the 
 last and least efficient worker in each particular group. 
 
 Thus, if there were no trade union regulation impos- 
 ing uniformity of wages, there would still be a tendency 
 to uniformity — at all events among new employees — 
 because of the estimate which the employer places upon 
 the value of the labor of the last increment which he 
 adds to his labor force. 
 
 The demand price of labor is thus that amount which 
 will be just worth the while of the employer to pay to 
 the last man whom it is worth while to employ in a 
 particular kind of labor, and in the then condition of 
 the market. The supply price of labor is the price 
 which, from their point of view, the laborers fix as their 
 estimate of the value of their labor, and, so far as this 
 supply price is coincident with the demand price, labor 
 will hire itself and be hired. When the supply price 
 rises because of the scarcity of laborers or otherwise, 
 the demand price may or may not rise, because the value 
 of the labor may or may not ha\e risen; but if the de- 
 mand price rises, it will, of course, draw up the supply 
 price after it. Although all wages are not at the mar- 
 gin, the competition of wage earners seeking employ- 
 ment, whenever such competition is effective, will tend 
 to equalize wages in any particular industry; and the 
 competition of employers for labor, where this is effec- 
 tive, will have the same result in all industries, subject 
 
 m 
 
 m 
 
838 
 
 KCONO.MU'S 
 
 to the qualifications of comiictitioii forniei'ly mentioncil. 
 
 Tlic rate of wa^c!* apix-urM tliuit to dc'iKixl upon tlic 
 productivity of labor; but this prmhiotivity will dcptiid 
 in turn upon the value of the services of labor as esti- 
 mated in the lalmr market, rencted u]>on, as this markil 
 is, by the market for comnnxlities. The rate of v/agn 
 is determined by means of a burffain between the tin- 
 ployer and the wajje earner; but the terms upon which 
 this bargain is made, dei>eiid upon the conditions whicii 
 have been described. 
 
 224. Labor re»erve». — The above theory of the de- 
 termination of wages rests upon the assumption of free 
 competition between laborer and lalK)rcr for employnitnt 
 and between employer and employer for laborers. C'tr- 
 tain qualifications must be made upon this assumption. 
 
 Competition is not always t)ervasive. Wherever llie 
 laborer can place a reserve price upon his labor and can 
 work or refrain from working, he is in the position of 
 withdrawing from competition with fellow applicants 
 for a wage earning position if he choose to do so. Tiiis 
 reserve may either be possessed by himself, in whicli 
 case he is to that extent a capitalist, or the reser\-e may 
 exist in the form of another kind of occupation to which 
 it is possible for him, on occasion, to turn. 
 
 The occupation of independent prospector, which in- 
 volves the existence of such a resen'e, was resorted to 
 in British Columbia to such an extent that in 1896 and 
 1897 it was exceedingly difficult to procure miners, and 
 they could not be procured for a lower rate than the 
 lowest rate at which o prospector might be "grubstaked" 
 or supplied with the means of life by a speculator. 
 Similarly, the existence of available homestead lands 
 in the northwest of Canada, which may be taken up 
 on very slender capital, acts as a reserve in respect to 
 
HATK Ol' \V.\(ii;s 
 
 8^0 
 
 »atfcs. especially in the nei«hl,„r|„H„l „C ll.c hon.estcad 
 lands. A lalK.rer will „„f w.„k for unvoiic else fr.r kss 
 than he thinks he «,„|,| ,„„kt. |„, |,i,„,,.,f^ ,( ,,^. ^^.^^ 
 working iii)„n his own liin.l ohtainnl wiatiiitously. 
 
 Another example of the same «.n(lition is the prac- 
 tKc. common in the northwest of Canada, of home- 
 mlers hiring themselves out for railway eonstniction 
 or for work upon farms other than theii^ own. The.se 
 men dearly have a reserve priee upon their lab<,r. A 
 case of this kind in eom.eetion with railway constructioo 
 in western C'ana.la. in whieh a Kioup of M.me five hn„. 
 
 <lred homesteaders were eoneeri.ed. resulted in a Iw ..„ 
 
 in respect to a suh-eontraet kin^ made between li! ,„ 
 and the contractor for the section which pas.sed t|,,„„„h 
 their land. This ImrKain left the c-ontraetor no „,oHr 
 whatever The liomesteaders knew that they had to l« 
 employed; they were indifferent whether they were en, 
 {.loyed ,,r not, a,.d they, therefore, obtained the maxi- 
 nmn. price for their lalx^r-obtained. in fact, the whole 
 ot the value of the product, so far as the contractor was 
 concerned. 
 
 as3. Kfcct of pop„l„ti„„.-Whik the laborer is in 
 a chrome condition of urfjency as a seller of labor, there 
 are occasions when the demand for labor is such that 
 
 here ,s a very small surplus of unemployed laborers. 
 Wages under these circumstances tend to advance. On 
 the other hand, the existence of a large reserve of un- 
 employed laborers depresses wages and contributes to 
 spasniodic employment. Thus, when the population of 
 
 country IS growing rapidly, and when, therefore, the 
 ialH.r market ,s continually subjected to fresh acces- 
 sions, the reserve of labor increases,- unless the demand 
 for abor for mdustrial enterprises increases in the same 
 relative degree as the population. 
 
 :ii 
 
 ir 
 
240 
 
 ECONOMICS 
 
 If, owing to the increase of population, the resene of 
 labor increases, wages will not necessarily fall, notwith- 
 standing the increase of population, nor will wages rise 
 in consequence of a diminution of population, unless tiie 
 demand for labor varies. 
 
 Wages may also rise or fall from causes altogetlur 
 apart from movements of population. In Great Britain 
 wages advanced with great rapidity in the years be- 
 tween 1870 and 1874 although the population was in- 
 creasing at its normal rate. Germany has witnessed, 
 during recent years, a remarkable growth of population 
 simultaneously with an advance of wages. 
 
 Mere scantiness of population does not imply high 
 wages, otherwise wages would be higher in the rural 
 districts than in the towns, which is contrary to the fact. 
 Nor does mere density of population necessarily imply 
 low wages. Wages, therefore, may be said to depend 
 upon the relation between the supply of and the demand 
 for labor at a particular time and place; and the amount 
 of supply will depend upon the population in g-iK al, 
 primarily, but secondarily upon the reserve of labor or 
 the amount of labor seeking employment. The de- 
 mand for labor will emerge from the conditions pro- 
 duced by the numerous causes which have already been 
 detailed as influencing the fluctuations of prices. The 
 amount of the reserve of labor, or the available supply. 
 will depend primarily upon the economic position of the 
 people, and secondarily upon the influence of demand. 
 226. Other influences on labor reserves. — In a coun- 
 try where free grants of land are available and are 
 susceptible of cultivation with little or no capital, the 
 reserve of labor will consist of those who are unfitted 
 for or who are reluctant to undertake the labor of agri- 
 culture. If there are relatively few of these, or if tiiere 
 
RATK OF WAGES 
 
 241 
 
 are none of them and tliere is no reserve, wages will de- 
 pend almost exclusively upon the state of demand for 
 labor for mdustrial purposes. If such demand is urgent, 
 wages will be high. 
 
 In new countries this may be said to be a usual con- 
 dition. There the rese^^-e is low because agriculture and 
 other extractive industries offer advantages which com- 
 pete with those offered by industrial employment. 
 
 There is another case in which wages may be regarded 
 as high Such, for example, is the case of Iceland, 
 where there is no industrial development and where the 
 people are wholly occupied in attending to their own 
 farms. There is no reserve of labor and no organized 
 demand for it for industrial purposes. To induce an 
 Icelander, therefore, to leave his customary occupation 
 for personal service or the like, requires an offer of wages 
 relatively high when the course of prices in the island 
 IS considered. Thus the rate of daily wages for a guide, 
 for instance, amounts to about the equivalent of the 
 value of three sheep. 
 
 If there is no customary demand for labor, or if this 
 demand is small, there will be no inducement for the 
 presence of a -eser^-e of labor seeking employment and, 
 therefore, local wages will be high. 
 
 It is true that the rate of wages is either customary 
 or is the result of an individual or collective bargain- 
 but the conditions under which this bargain is made must 
 determine the character of it. If the competition be- 
 tween workers seeking employment is keen, the ad- 
 vantage in the bargain will, other things being equal, 
 lie on the side of the employer. If competition among 
 employers is keen, other things being equal, the ad- 
 'antage will lie on the side of the workers. 
 ?27. Minimum and majrimum wages.— There is how- 
 
 f 
 
S42 
 
 ECONOMICS 
 
 ever, a superior limit above which, under normal con- 
 ditions, wages cannot rise. This limit is determined by 
 the necessity of maintaining the reserves of capital for 
 the continuity of production. And there is an inferior 
 limit of wages which is determined by a similar condi- 
 tion, applied to the reserves of labor. The difference 
 between the highest possible amount which may be paid 
 in wages, and yet continue the production in the tlien 
 state of the market for land and for capital, and the 
 lowest possible amount which may be paid in wages, and 
 yet continue the supply of labor necessary for produc- 
 tion in the then state of demand in the market for goods, 
 constitutes the range within which disputes about 
 wages can take place. It is the interest of the workers 
 to obtain as much of this margin as they can, it is tlie 
 interest of employers to retain as mucli of it as they 
 can. In both cases continuity — in one case, of employ- 
 ment, and in the other case, of production — lies in the 
 background as an indispensable condition. 
 
 It is clear that the aggregate amount of this margin 
 will depend upon the productivity of productive enter- 
 prises taken in the mass. If, for any reason, the pro- 
 ductivity is inferior, as in the case of an inferior harvest, 
 there will be less to distribute than if the productivity 
 were high, as in an abundant harvest. Moreover, if the 
 product is small, there must be a more acute struggle 
 over it than if the product is large. When industry is 
 highly productive, when demand is brisk and the value 
 of the product is being enhanced by advancing prices. 
 there is less reluctance to increase wages than there is 
 to maintain them when prices are falling. 
 
 From the social point of view it is, then, important 
 that production should be as great as possible — not 
 any individual products but in due proportions — in siicii 
 
HATE OF WAGES 
 
 243 
 
 a manner as to supply the largest aggregate of utilities; 
 
 in order that, on the one hand, the productive process 
 may be continued smoothly and that, on the other, those 
 who contribute to it should be enabled to continue at 
 their maximum efficiency. 
 
 228. Labor not sole determining factor in value of 
 product.— While all products are the products of labor, 
 the value of the products is not due to that fact. I may 
 spend a month in making an object which I regard as 
 of high utility and to which I therefore attach a high 
 value; but I may be wholly unable to find anyone who 
 agrees with me either about its utility or its value. This 
 is especially obvious in the case of works of art, about 
 the value of which the widest difference of opinion fre- 
 quently exists. Nor does their value, as determined by 
 connoisseurs or as discovered at their sale by auction 
 under conditions of competition, depend upon the 
 amount of labor which their production hag involved 
 A picture by Raphael fetches a high price in the mar- 
 icet, not because Raphael ! bored upon it for so many 
 days, a detail which caiin.,; possibly be ku<m„, no"r 
 merely because the paintin-8 ^)y Raphael are few and 
 cannot be increased in number, !><»■ merely Ijecatiw- -rf 
 the high artistic excellence ,4 tl>e example in (|uestion, 
 nor because Raj>h«el was <>w of the grt-M «gures of the 
 RtnaisMnce: Imt because for these or, pertiajw, for (pike 
 thtr reawms, many private collectors and the directors 
 of many pu»>Hc museums who have the m^ans to gratify 
 their tastes, otnire to add a picture by Raphael to thei'r 
 "illcptioiis. 
 
 Ir.numerablc painters whose skill was probably not 
 tfreatly inferior to Raphael's and who, perhaps, labored 
 iM«ritely I<mger upon their works than he did, have been 
 totally forgotten and their works have been lost be- 
 
344 
 
 ECONOMICS 
 
 cause the generation to which they belonged did not 
 value them or thuik them worth preserving. There an, 
 no doubt, at the present moment unknown geniusts 
 whose works, worth next to nothing in the market now, 
 will be hotly competed for by excited connoisseurs whin 
 some day a critic in whose judgment they have confideuct 
 pronounces a favorable opinion upon them. It will then 
 be a question to whom the value i» to be credited — to tin. 
 artist or to the critic 
 
 229. Whif MHnbntirm i* not ha*ed upon product.- 
 That the laborer adds value to the product upon wliicli 
 he labors is, in the nornial case, although not in all ca^ts. 
 true: but what the amount of that value is, is not de- 
 termined and cannot be determined until the product 
 passes into the market where it is eventually valued ami 
 sold, and e\en when this takes place, the value which is 
 determined is the value of the commodity as a whole: 
 the increments of value are not indicated. In those cases 
 in which the profluction occupies a long time and in 
 which the labor of many hands is employed as in build- 
 ing an ocean liner, for example, the value of the finished 
 product as a whole affords no means for estimating the 
 value contributed respectively by the designer, by tlie 
 miner who took the iron ore from the face of the mine, 
 by the railway men who transported it, by the workers 
 at the furnace in which it was reduced, by those at the 
 steel rolling mills where the steel was rolled into plates. 
 by the rivetters who rivetted it into the form of a ship, 
 by the carpenters and other artificers who completed 
 the vessel. 
 
 Clearly an equal division of the proceeds among tlw 
 various persons, some of whom contributed much and 
 some little to the total result, would not necessardy be 
 just; even if every one of them could wait for a year or 
 
KATK OF WAGKS 245 
 
 more for the payment of their quota, and even if there 
 Here no other claimants for a share of the proceeds of 
 the joint lahor. Moreover, tlie vahie of the vessel does 
 not (le,)end exclusively ujion tlie circumstance that a 
 larfcre number of persons labored in the production of it 
 but depends very largely upon the circumstance that 
 a large number of persons desire to use the vessel when 
 It is produced. 
 
 Thus, even if the laborers had free access to the means 
 of production and if the raw materials out of which the 
 ves.sel was constructed, and the t.wls «liich were used 
 in construction were gratuitouslv placed at their dis- 
 posal, some means would still have to be devised of main- 
 taming the laborers while the ,essel was Inking con- 
 structed. Clearly tlie vessel would not ac,,uire its full 
 va ue until it was completed, nor could the value be 
 fully realized until years afterwards. 
 
 •m. Supporting labor during period of production. 
 -it a community whose economic system was character- 
 ized by thoroughgoing communism, attempted an opera- 
 tion of the kind suggested, it would be necessary- for it 
 to have previously accumulated a stock of f.K)d and 
 clothing sufficient to subsist all those of its members 
 «lio were engaged in the various and prolonged labors 
 necessary for the construction of the vessel during the 
 wliole of the period which elapsed from the beginning to 
 the end of that construction. In other words, they would 
 liave had to accumulate capital, because the means by 
 «lm'li the various workers are subsisted durin-r the op- 
 eration constitute the capital involved in it. The vessel 
 «lien It was completed, might be utilized by the com- 
 munist community or it might be sold. If it were util- 
 W(! by the community the net saving of the hire of 
 lother means of transportation, whatever that might 
 
 1/ i' 
 
246 
 
 ECONOMICS 
 
 amount to, would gradually enable the community tn 
 replace the capital expended upon the vessel and would 
 thus enable it to undertake another similar enterpiiv^ 
 and so on. The essential iwint is that, before the enter- 
 prise was entered upon, it would be necessary to possess 
 the means of subsistence for the workers upon it, or it 
 would be necessary, while it was in progress, for tlie 
 other memliers of the community to support those wlm 
 were engaged in the enterprise. 
 
 The city of St. Petersburg was built in precisely this 
 manner, not by a communist ^ciety but by enoriiidus 
 numbers of state peasants who were reijuired by Pettr 
 the Great to cut the timber in the forests, to bring it 
 to the site chosen for the city, and to drive the |)ilt 
 upon which the city was subse(iuently built. While tliiy 
 were doing so, the peasants could not cultivate tluir 
 lands and obtain subsistence, therefore thousands 
 other State Peasants were required to bring wheat and 
 rye for their support. 
 
 231. Foltintar// (inHodation. — Co-operation of tlii: 
 kind may be organized by a communist society such as 
 we have supposed, or by means of forced labor as in the 
 illustration, or by means of the voluntary association iit 
 immerous persons. A communist society is held to- 
 gether either by a high social ideal, or by some kind ( 
 force, moral or material ; forced labor of enormous num- 
 bers of peasants is only possible under conditions of })er- 
 sonal bondage ; voluntary association is the usual means 
 by which large enterprises of the kind suggested are 
 organized. 
 
 But there must be some motive for the voluntary as- 
 sociation. This motive is usually the pursuit of indi- 
 vidual gain. Desire to make a living, together w 
 avarice, appear to l)e sufficient to bring together at tiie 
 
RATK OF WAGES 
 
 247 
 
 call of some ijerson or grouj, of persons, those who will 
 be willing to render the various services necessary. In- 
 stead of waiting for problematical incomes from the fin- 
 ished vessel when it enters into the service for which it 
 is destined, those who co-operate are willing to compound 
 day by day or week by week for their share of the even- 
 tual product. 
 
 •232. Advantages of modern system.— This system of 
 ampounding gives them a certain freedom. They can 
 leave off working when they please, unless they are 
 bound by agreement. They are not in the position of 
 communists who must either remain members of their 
 groups or forfeit their share of the accimiulations made 
 by the group and by them as members of it; nor are 
 they m the position of serfs who must work at the call 
 of their owner. They are free hired laborers, or they 
 «re owners of raw materials, or they are owners of liquid 
 capital capable of being transmitted into any one of 
 many required forms. 
 
 Modern industrial organization has many disadvan- 
 tages; but one of its advantages is its voluntary char- 
 acter. Those who engage in it are, compared with those 
 who engage in other known methods of organization, in 
 the enjoyment of greater freedom. The essential fea- 
 ture of this organization is the voluntary supply of capi- 
 tal, on the one hand, and of labor on the other. Capital 
 has no inherent power to compel the laborer lo work; 
 nor has the laborer any inherent power by means of a 
 general strike or otherwise to compel the capitalist to 
 supply industrial capital. 
 
 Ml 
 
 m 
 
 ^<^sem. asit: 
 
CHAPTER V 
 
 PRACTICAL LABOR PROBLEMS 
 
 233. iMbor combinatiom Combinations of laborers 
 for the purpose of collect > ciy making demands upciii 
 their employers for improved conditions of labor, for 
 higher wages or for resisting reductions of wages, arc 
 not new phenomena. Strikes and mass fights of labor- 
 ers are known to have occurred in almost all ages. 
 
 The trade union, is however, an organization whicii 
 dates not earlier than about the end of the eighteenth 
 century Even then it was upon a very small scale. 
 Small local unions in individual trades were fornieil 
 more or less surreptitiously. In the beginning of the 
 nineteenth century such unions were found to be formed 
 for "restraint of trade" and were, therefore, forbidden. 
 From about 1880 several large general unions of all 
 trades were formed successively, and some of them as- 
 sumed considerable proportions. 
 
 It was not, however, imtil the third quarter of the 
 nineteenth century when trade unions were ermirted 
 to register themselves in Great Britain as Friendly So- 
 cieties that they were in any sense recognized as having 
 a legal existence. From that time onward, the trade 
 union has played a large role in labor politics, especially 
 in Great Britain, where the proportion of working iiiei! 
 who belong to trade unions is mvich larger than it is in 
 
 248 
 
PRACTfCAL LABOR J'ROBLEMS 349 
 
 any other country. Indeed, except in the British Em- 
 pire and in the United States, trade unionism in the 
 English sense can hardly be said to exist. 
 
 There are, however, on the continent somewhat ana- 
 logous bodies. These organizations are rarely purely 
 trade organizations. They have generally as an impor- 
 tant reason for existence, the promotion of" some political 
 propaganda although they have also certain economic 
 characteristics. Because of their political aspects such 
 organizations have generally, although not invariably, 
 been discouraged and their activities have even been 
 arrested by continental governnu ms. 
 
 Soon after acquiring in some measure a legal status, 
 trade unions in Great Britain began to promote the 
 candidacy of some of their own number as members of 
 Parliament, and they began to develop a Parliamentary 
 policy. This policy related chiefly to the .regulation of 
 certain dangerous industries, such as mining, to the fac- 
 tory acts and the like. The trade union movement in 
 the middle of the seventies of the nineteenth century was 
 confined to a few of the leading trades and the union 
 leaders m these trades determined the policy of the move- 
 ment. 
 
 -34. Ch inge in trade ttnion control— The first serious 
 invasion of their position occurred through the admis- 
 sion in 1876 of about a hundred thousand agricultural 
 laborers into the Trade Union Congress. This invasion 
 was followed in 1889 by the similar admission of the 
 dock latorers. The second of these invasions marks a 
 ne»- epoch in Trade Unionism. 
 
 The admission of a union composed of casual laborers 
 indicated a great change. The new recruits were repre- 
 ^nted by a group of remarkable men. Some of them 
 were natural orators and all of them were enthusiastic 
 
 J 
 
 m 
 
 
 i^j 
 
 
 ^|nR 
 
 w 
 
 
 '^ii 
 
 ri 
 
 ie 
 
 
 IS , 
 
 ,1 
 
 Hf 
 
 ' -A 
 
 18- ' 
 
iso 
 
 ECONOMICS 
 
 socialists of one or other of the numerous types of (!u 
 socialists of that period. Tiie influence of the oldir Imi. 
 of trade union officials then begun to decline. Hut I In 
 full meaning of that decline did not make its apptaruiut 
 until 1911, when what amounted to a general strilte was 
 declared in spite of discountenance of the movement by 
 the trade union officials. This event was indeed ahnost 
 as much a strike against them as it was against em- 
 ployers. 
 
 Although it was evident that the syndicalist move- 
 ment (see page 234) which had been developed in 
 France and Italy had had some effect upon British 
 Trade Unionism, the strike passed without any material 
 resort to violence. It meant, however, the practical pass- 
 ing of the control of the labor movement in Great Brit- 
 ain out of the hands of the older group of trade union 
 members of Parliament. 
 
 The so-called Labor Party cannot be held as yet to 
 form a homogeneous group; and its influence upon tlie 
 movement is by no means a dominant factor. The labor 
 movement as a whole is undoubtedly still largely in- 
 fluenced in Great Britain and to a problematical extent 
 in the United States by the powerful unions of the larger 
 trades — ^the engineers, the unions of miners, railway ser- 
 vants and the like, and these in general adhere to tlie 
 older methods. They have large funds and are not 
 usually in favor of strikes, excepting as a last resort. 
 Recent legal decisions which have rendered the funds of 
 the large unions liable to attaclunent, have had the effect 
 of diminishing the prestag^ of the more wealthy and 
 conservative unions and of thus contributing to the more 
 unstable and aggressive syndicalism. 
 
 It would appear, however, that the strike, especially 
 the General Strike, or simultaneous strikes of many 
 
PRACTICAL L.VBOR PROBLEMS Ml 
 
 trades, does not inspire the confidence in its success as 
 « weapon, which at one time it inspired. Trade Union- 
 ism in (Ireat Britain may thus Ik; said to have passed 
 through one of the phases of its history without as yet 
 having given any decisive indication of the character of 
 tilt next phase. This delay may probably be attributed 
 to the fact that durinp a period of extraordinary activity 
 in manufacturing industrj-, trade unionism and labor 
 agitation are in general quiescent. It may be expected 
 that the next industrial crisis will exhibit some fresh 
 features. 
 
 233. Strikes.~The trade union may be regarded as 
 representing an important and useful phase of the la- 
 bor movement. The habit of organization and the nec- 
 essity of subjecting individual interests to the interest 
 of the group have had important moral effects; the 
 economic effects a. e less certain. 
 
 The trade union to a limited extent, by limiting the 
 number of apprentices and by means of strikes, may 
 enable its members to place a reserve price upon their 
 labor. If the employer does not agree to terms pro- 
 posed by or in the interests of his workmen, and if the 
 branch of handicraft to which they belong is organized 
 m a trade union, a strike may occur. During the strike 
 the unemployed workmen receive strike pay which is 
 usuaUy one-half or less than one-half of their normal 
 wages. 
 
 If the finances of the imion admit of a long struggle 
 and if the spirit of the strikers is such that a long strug- 
 gle can be maintained, the men will probably gain their 
 point and will receive an increase in wages. They will 
 only do so in general, however, if the conditions of the 
 industry warrant an increase, and they will not do so if 
 there has been overproduction of their product and if 
 
 I 
 
MICDOCOPV DESOIUTION TEST CHAIT 
 
 lANSI and ISO TEST CHART No J| 
 
 A APPLIED IIVMGE In. 
 
253 
 
 ECONOMICS 
 
 manufacturers have large stocks of which they are de- 
 sirous of disposing. 
 
 In any case, the strikers will have depleted or ex- 
 hausted the funds of their union and, perhaps, comprom- 
 ised the solvency of their sick and funeral benefit funds 
 and the like. 
 
 236. Strike failures. — While strikes are sometimes in- 
 evitable, they are always very costly, both directly ami 
 indirectly to the workers themselves. Urder favorable 
 conditions, when demand for labor is active, the pres- 
 sure of a united demand, supported by the influence (jf a 
 large union, may undoubtedly hasten or even occas- 
 ionally force an advance; but in a falling market, wlien 
 demand is slack and the warehouses are overstocked, a 
 strike for higher wages or for the purpose of resistiii<; a 
 reduction occasioned by the exigencies of trade, is gen- 
 erally a failure. So also, strikes which occur at too fre- 
 quent intervals are in general failures because the finan- 
 cial strain of a strike is too great for frequent recurrence 
 and because the nervous strain of an important strike 
 is sometimes great enough to kill the leaders on either 
 or both sides. 
 
 237. Collective bargaining. — Individual bargaining 
 between workmen and employers has been practically 
 replaced by collective bargaining in most of those trades 
 whose members are organized in stable trade unions. 
 Prior to the drawing up of a collective bargain, how- 
 ever, it is almost, although not quite, indispensable for I 
 ■■he employer to recognize the union. This has often | 
 .jtien done with great reluctance because recognition of i 
 the union means discussion of the rates of wages payable 
 to employees with third parties — the officials of tiie | 
 union to which the men belong. 
 
 Many strikes have taken place having for their ol)- 1 
 
PRACTRAr. J,ABOIl PROBLEMS 253 
 
 ject the recognition of the union with the nlterior ohicct 
 
 he advantageous to the workers, however, it is necelrv 
 o have m the background an amount rf t ar ,Z 
 funds sufficient to enable the worL-^rc t„ i 
 
 strength of the trade unions, althougli it does not nltn 
 238. Economic effects of trade unionism — TI,» 
 
 members of the union, to refrain fr^L off" 1^.7 
 
 i stoek 1 '^°"%^"'=^«''f"IIy. production is restricted 
 r aic auvanced. Advances in wases usnnllv f^i 
 
 dispute. A strike of bakers would produce in- 
 
 &*' 
 
 - 4 
 
254 
 
 ECONOMICS 
 
 finitely more widespread and serious eflfects than a strikt 
 
 of tailors. 
 
 The policy of restricted output is sometimes adoptul. 
 the men refusing to work for more than three days a 
 week, for example, in order that the restricted output 
 may permit accumulated stocks to be sold and that tlnis 
 the way may be prepared for a demand for increased 
 
 wages. 
 
 When workmen are scarce and the supply prices ot 
 labor are high, the supply prices of the commodities 
 produced by them will be high also; but each increase in 
 the supoly price checks demand. Either the supply 
 price will have to be reduced or the production, and, 
 therefore, the employment will have to be diminished. 
 The results of increased wages under such conditions 
 would be either negative so far as prices are concerned, 
 in which case the increase in wages would have to be 
 paid out of profits, or positive in which case the increase 
 would be paid by the consumer, while fewer workmen 
 would be employed owing to the reduced demand. 
 
 239. Trade Unionism in the United States.— In the 
 United States trade unionism has passed through phases 
 of character similar to those through which unionism 
 has passed in Great Britain. Local unions and loca' 
 groups of unions were first formed and then wider na 
 tional unions of particular trades or groups of trades 
 then the American Federation of Labor corresponding 
 to the Trades Congress in Great Britain. The same 
 conflict of jurisdiction between unions also followed and 
 there has recently emerged the same doubt and suspicion 
 of the officialism of the unions, the outcome of whicli 
 has been a syndicalist wing of the labor movement repre- 
 sented by the Industrial Workers of the World. Tli» 
 latter movement has not yet attained any formidabl 
 
PRACTICAL LABOR PROBLEMS 255 
 
 numerical proportions, but it has developed great activity 
 and great organizing ability, especially in the Pacific 
 States and to some extent in the East and South The 
 most aggressive syndicalism has made its appearance 
 in the minmg and lumbering industries. Its aim ap- 
 pears to be to form one universal union. Instead of 
 adopmg a hostile attitude to Asiatic labor it has sought 
 to enhst both Chmese and Japanese in its ranks. The 
 purpose of this union appears to be a determined strug- 
 gle agamst capitalism in the United States 
 
 The development of trade unionism in the United 
 States has undoubtedly been influenced by the fact that 
 a very large proportion of tiie wage-earners in the great 
 mdustries-in mining and in the steel and textile in- 
 dustries-consists of comparatively recent immigrants 
 rom Southern and Eastern Europe. These workmen, 
 largely unskilled, are not only unaccustomed to trade 
 union organization but are imperfectly acquainted or 
 even ignorant of the English language. An- iven 
 group of them, also, is diversified in racial origin The 
 wages which they are able to secure without the aid of 
 any trade union are much higher, both nominally and 
 ally, than the wages to which they have been Lus- 
 tomed. Ma. f them contrive to save what for them 
 are considera. sums of money. 
 
 Trade union organization is thus very difficult In 
 some ca^es unions have trained and employed as speak- 
 ers and agitators Italians, Greeks, Bulgarian and 
 hers with the object of utilizing them as^trade Uon 
 organizers among their respective compatriots 
 no Trade unionism in Canada.-Tmch unionism in 
 anada owes its origin partly to the creation of branches 
 f unions having their headquarters in the United States 
 »nd Great Britain and partly to the formation of loci 
 
256 
 
 ECONOMICS 
 
 unions by immigrants from Great Britain. The cnni- 
 paratively rapid development of industry, and the scanti- 
 ness of population, together with the existence of fiir 
 land, have rendered the conditions of labor so favorat)k 
 and the rate of wages so high that the advantages pf 
 unionism have been less obvious than otherwise tlicy 
 might have been. The maintenance of some of tht 
 unions has thus been difficult and there have been many 
 fluctuations both in the local bodies and in the national 
 organizations. International unions play a large role 
 because there is much coming and going of workmen 
 across the line. 
 
 241. International trade unions.— So large a propor- 
 tion of the total wage-earning population in the United 
 States and Canada is employed in agriculture, and tlit 
 organization of agricultural unions on any large scale 
 never having been effected in either country, the num- 
 ber of trade unionists in America is, relatively to tlit 
 total number of employed persons, much smaller than 
 is the case on the continent of Europe and in Great 
 
 Britain. 
 
 The fact, however, that the important unions are inter- 
 national and that there is thus a very close association 
 between the wage earners of the two countries, con- 
 tributes an element of power to American unionism 
 which does not exist in unionism in Europe. This ele- 
 ment of power is also undoubtedly an element of danger 
 In order to promote the interests of labor in the United 
 States, it may be expedient to incite labor disputes in 
 
 Canada. . , 
 
 Difficulties arise in cases where trade union otticiab 
 from the United States present themselves to employers 
 in Canada to negotiate the wages of the members of tte 
 unions. Occasionally the question of the recognitw 
 
PIUC'I \l. I.AHOU I'UOIU.K.MS 
 
 ■iol 
 
 of the union has hccn foiiipmniised In- its iiiternationul 
 character. National unions liave sometimes been fos- 
 ttred by employers as an offset to international unions. 
 
 212. "Closed" and "open shop." — In certain indus- 
 tries the trade union is s. /ong enough to insist upon the 
 fixation of a lal)el to a commodity to indicate that it is 
 made by union labor. Some of the unions are also stronj? 
 enough to insist upon the exclusive emplo;-ment of mem- 
 bers of trade unions. A factory where oni> trsde union 
 members are employed is known as a "closed slioi)." 
 One in which any one may be einploye<l wiiether he is 
 a member of a trade union or not, is known as an "open 
 shop." There are a few industries both in Canada and 
 ill the United Statf.'s where trade union members are 
 excluded from employment. 
 
 243. Woman's labor. — The determination of the 
 wages of women has long been looked upon as deiiending 
 upon factors different from those which determine the 
 wages of men. The chief reason for this is that, as a rule, 
 women are not entirely self-sustaining. In the textile 
 manufacturing trades, in clothing manufacture, in the 
 canneries, and in confectionary works, for example, 
 where women are extensively employed, the workers not 
 exclusively, but largely, live in the houses of their par- 
 ents who also work in the same or in other factories. 
 Tiie wages of the women go to increase an already exist- 
 ing family income. Thus, so large a number of women 
 can afford to take 'a wage less than they would require 
 to have, to enable them to live independently, that their 
 attitude in making a. wage bargain, influences the bar- 
 !<ains made by all other women. 
 
 The arguments for the public regulation of the wages 
 of women are thus stronger than those for the regulation 
 of those of men. It is obvious that a rule which would 
 
 c— I— 17 
 
 m 
 
258 
 
 ECONOMICS 
 
 require the equal jittyment of men and women in like 
 employment might result in the employment of nmi 
 rather than women in those occupations which are opdi 
 to both sexes. In the teaching profession, for example, 
 if the salaries of men anil women were the same, men 
 would in most cases be employed by preference. 'I'lif 
 reasons for the preference are that once liaving entertd it 
 men, as a rule, remain in the profession, while wotnoi 
 do not, and that in general the discipline of men is 
 regarded as being superior to that of women. In tlic 
 lower grade schools, however, where the siipervisinn of 
 children is concerned, women teachers are frequently tin 
 better disciplinarians. In some occupations of the hifflur 
 kind, where competition is restricted, the salaries of men 
 and women of similar qualifications are alike. 
 
 244. Voluntary minimum tcages. — In many unskilled 
 trades, especially those in which women and girls arc 
 largely employed, employers have found it advantageous 
 to establish a fixed minimum wage. Under this system 
 candidates for employment are taken on probation for 
 a short period at the minimum rate. If their work 
 
 reaches a certain standard, the standard being ba 1 
 
 upon a piece work rate, they retain their positions ; if 
 it does not, they are discharged. 
 
 Since a certain proportion of those who are appointed 
 on probation do not attain the required standard, the 
 system must have one or other of two consequences, 
 either the deficiency of those who fall short of the stand- 
 ard must be met out of deduction from the wages of 
 the gainful workers; or it must be regarded h\ the em- 
 ployer as a premium of insurance against public criti- 
 cism of his business on the ground that he pays wages 
 which are inadequate for subsistence. 
 
 In a large, well-organized and generally profitablt 
 
PHACTICAI. r.AUOIt I'UOIII.K.MS ^^ 
 
 business, tl.is systt-n. nmy ho curricl „„ c.onti„„„„slv with 
 -vantage, l,„t the e.nph.ye.- on the n.arKin will fi„,, it 
 Jrtic, t to pay the prenm.n. i„v„lve,l i„ the system. 
 M.ould he adopt the syste... of a fixed „,i„i„„,„, the 
 average wape of his worker will probably be lower than 
 it might otherwise he. 
 
 Even in a trade .such as Karment-makinK. the skill of 
 workers vanes enormously. In one ease known to the 
 «r,ter two g.rls. one a fresh recruit and the other an 
 cxi.erieneed hand, were working side by side in a gar- 
 ..RJ. factory. Tlie n.ost assiduous toil of the recruit 
 yicMed at the end of her first week $1..,)8, while the 
 IJor of the experienced girl who probably exerted less 
 ettort yielded at the same j.ieee-.vork rate .1««. „r „„,re 
 than three tmies as much. In the second week the re- 
 mnt made a little more, but she despaired of attaining 
 the- proficiency of her fellow worker, nor di.l she succeed 
 ".ltd several weeks had elapsed in making even a living 
 wage. *" 
 
 Under some conditions the minimum wage may be 
 regarded as an advantage. It throws the cost nf the 
 education of the worker directly upon the employer, 
 although the incKlence of the cost will he likely event- 
 ually to fall upon the workers as a whole. It would 
 appear that there might be adopted a system of teeh- 
 '"cal education by means of which the teclini,,ue of 
 certain trades in which large numbers of working people 
 are employed, might be imparted at a minimum of cost to 
 tliose who intend to enter such trades; but even a system 
 tins kind would not be likely to meet the case of those 
 «h".lrop into inferior employment, like garment mak- 
 g. for instance, and who have neither time nor means 
 to enable tliem to take advantage of educational facili- 
 ties. Ihey must work for wages without delay. For 
 
 II' 
 
 
860 
 
 I'.(()N()MUS 
 
 
 1 ' 
 
 such workers tlie niiiiinuim waffe is ii real a<lvaiil;i«o 
 even if subsequently the deficiency "f their r<!cruit st;i}.'i 
 is met by dechietion from their subsequent want's. 
 
 245. Statuton/ iinnimuin tcfl^tx— The case of volun- 
 tary min'mum wages has been discussed above. 'I'in 
 case of statutory minimum wages depends upon soim- 
 what similar conditions. The statutory minimum wiifn 
 apparently fixes a leserve price for lalwr, but it (^ll^ 
 not enable the applicant for employment to live sImujI 1 
 he not be able to secure employment at the miniimini 
 Employers may by means of intimate inspection oi' tk 
 conduct o: their business lie prevented from payinjr kv^ 
 than a certain amount; but they cannot l)e compelled t 
 employ workers, the product of whose labor is not c(|ii;i 
 to that amount. 
 
 A statutory minimum wage would, therefore, rtiniin 
 to be supplemented by some system by which those wlm 
 were unable to obtain employment at the minimum wiifii 
 would be supported by the State. The higher the mini 
 mum the larger would be the number of workers wliicl 
 would l)e excluded from employment in the field of ffeii 
 eral industry and the strain of the maintenance of tlms; 
 who were excluded might become very great. A iiiu 
 nicipality may fix as a minimum for all persons em 
 ployed in any capacity in its service a wage of $2 ]>« 
 day, on the ground that this amount represents the mini- 
 mum of subsistence. If, during a period of industrial 
 depression, the city is inundated with applications fur 
 employment at this wage, it may be advisable to ext 
 its pay roll in order to provide employment for tlitse 
 applicants. The new workers may be set to some civic 
 improvement or to some other kind of employment f"r 
 which labor of an inferior or non-specialized sort maj 
 
ruAcricAi. i.Aiinn i'iiobi.kms 
 
 nn 
 
 Init til. ■ is nil ii'.o\ itiil)lc limit ti> such 
 
 tie scrvii-euMf; 
 cniployini'iit. 
 
 If till' iniinicipiil mitlioritii's diridc t'> t\|Kri(l a spwilic 
 •.mil ii|i(>M such work. bciiriiiK sninu iiropoilioii t<i the 
 total expenditure of the year, it will Ih.. possible to eiii- 
 ploy at the fixed niiiiiiiiiiiii only n certain niiiiiher of 
 persons, and other means of relief will re<iuire to I)e 
 provided for the other applicants. .Meanwhile, however, 
 the attraction of a fixed mininium will have drawn into 
 the city from the rural districts and from other cities 
 Hliere there is no fixed niinimiim. n ore applicants for 
 iinployment; with the conseciuenee that local charity will 
 lie overtaxed, while those districts in which no 'fixed 
 iniiiimuni exists wil' he relieved of pressure ujion their 
 iharities. 
 
 This illustration is taken from the ciiv of To-- *o, 
 ivhieh every winter is subjected to an invasion of unem- 
 ployed workmen, some of whom lea\e other centers on 
 account of the fixed Toronto minimum and others on 
 account of the numerous charities in the city. 
 
 If, however, a municipal minimum wage results in 
 ilrawin^r to the city which imposes it a lar^rer numl)cr 
 'if ap])licaiits for employment than would otherwise have 
 K'liie there, it is clear that, other things hfrng equal, the 
 imposition of a municipal minimum wage will tend to 
 ilcjiress the lalwr market by an over supply of later and, 
 therefore, to reduce wages in gem il industry. Even 
 if the city were able to employ a large number of the 
 applicants it could not do so in indoor employments be- 
 cause it has no organization for industries of an indoor 
 character. The city employment would he wholly out of 
 iloois and rather than endure the discomfort of winter 
 «"rk in the streets the fresh aj^plicant for employment 
 «oiild accept even lower wages for indoor employment, 
 
 
 m 
 
itii 
 
 l'.(()\().\IKS 
 
 2-10. Stalulari/ mujcimum iiY/^'C*. — The flxaticin ni ;i 
 liiaxiniiiiii wage uii.s ti very usual iiiuiiieipal aet duiin^ 
 llie earlier ajfes of free hired hilM)r. When sueh lulxiit i> 
 were few and when llieiUriMitid for them in the industrial 
 towns was inereasiiig, their demands for liigher ^va),'l^ 
 heeatnu insistent and these demands were sometimes nc 
 conipanied hy niueli turladenoe. Tills condition was 
 very usual after any serious epidemic in which the nniij- 
 l)ers of lalK)rers in a city were suddenly reduced wliilt 
 the exteriuil demand remaineil unaltered. The jjlagiiis 
 in the fourteenth eeiitiuy. whidi affected seriously tin 
 great conniiercial and industrial cities of northern Italv. 
 for example, reduced the lunnhers of luhorers so tliiit 
 wages advanced to a high point. 
 
 The I lunicipal authorities in several of the city ri- 
 puhlics endeavored to |)revent the advance of wages In- 
 imposing a statutory maximimi. On the other haml 
 A'enice, in general more shrewdly governed than any 
 other city of her time, widely announced that no maxi- 
 mum was imposed there, that on the contrary the highest 
 wages would he paid. The result was an immediute 
 migration of artisans and lahorers to Venice, and owinj,' 
 to the competition of these for employment wages fell 
 to a point below the maximum imposed by th'; other 
 cities. 
 
 The imposition of a maximum wage has a deterrent 
 effect upon inmiigration of workers into the region af- 
 fected and, therefore, a statutory maximum tends to lie- 
 come the uniform wage l)ecause the best wcrkers will 
 emigrate and only the inferior workers will remain. 
 
 2-47. Conciliation and arbitration. — With a view to 
 the mitigation of the struggle between capital and la- 
 bor, arbitration in wage disputes was adopted at «n 
 early stage in the development of the mechanical in- 
 
I'UACTICAI, I.AIIOK I'KOIII.KMS 803 
 
 d.istri..s on « |„r„c sculc. \Va„vs, f.,r cxu,.,,,lc. in the 
 lytf,,., .fnule and i„ the <,,„! „n,| i,„„ ,„„,^. j„ j.^^^^ 
 Bntuin «trf fixed l.y JMmr.ls of «.l)itrati..n ui.,,, i.itcl 
 
 •i ">■ ''>' ""^^ fiiipioyirs nii.l tlic ini|,|„vas. In tlie 
 
 trude.s nK'nti..nt.,|. arl>itrati..n Inmr-ls fixe.) tlie raU's ..f 
 wa^cs peri.Klicaliy and in tl>u \„rth of KnKh'M.l s.. Car 
 as the iron and coal in.l,.slri...s are fo,urr,u,i. an.l i„ 
 tlie Manchester .listriet, ,so far a.s the cotton indnstry is 
 cmccTned, they ha^•e k'en suecessfully co.uincted "for 
 more than forty years. (Jovernn t eoneiliation an.l 
 a.l..tr«t.o„ boanls have been appointed in Xew Zealan.l 
 and a somewhat sin,ih,r n.etluKl has been adopted in 
 Canada. Arbitration boanls have fro„, time t.. time 
 been appomted in the United States, under S ,te and 
 Kderal Acts, to deal with specific <lisputes 
 
 \Vhere there is a difference of opi„i„„ „« to the rate 
 "f wa^es and where the difference concerns a con.para- 
 tivly smoU amount, arbitration or conciliation I„,ards 
 Perform a useful function in effecting a .o„,pr„mise be'- 
 tween the parties; but where the <lifference is upon some 
 question of fundamental principle, such as the recouni- 
 lon of a union, a compromise is impossible and arbi- 
 ration ,s of little use. If a body of w.,rkmen refuse 
 to work unless their union is recognized, an.l if the em- 
 plo>;ers refuse to recognize the union, no iKinnl of arbi- 
 tration can settle a dispute of that kin.l because it cannot 
 enforce Its decision. The employers can onlv yield to 
 mmomic pressure; a:id the same is true of tl,; work- 
 
 mat"b'7'°-'T/''° '" "" contractor to the goyernment 
 maj be f,,rced to recognize a union or to increase the 
 «ages of his men by means of a threat that if he does 
 not d so he will be awardc.l no more goyernment eon- 
 tracts, or by threats of prosecution by the goyernment 
 
S64 
 
 ECOXOJIICS 
 
 for alleged violation of the Trust Act, etc. If he yields. 
 however, it will most probably be on the understandiii;,' 
 that the increase of wage will be taken into account in 
 the next contract. An arrangement of this kind results 
 in the taxpayer paying the increase and not the con- 
 tractor. There have been instances in the United States 
 of strikes for increased wages by the employees of a 
 government contractor and of the claims of the strikers 
 be!ng met after an a-rangement by which the represen- 
 tatives of strikers agreed to press for an increased price 
 to be paid by the government to the contractor. In 
 such cases, the strike is not ri.ally against the contractor 
 but against the taxpayer. 
 
 In the case of an employer who does not stand in tlie 
 relation of a contractor or of a j)ossible contractor t(i 
 the government, the latter has no direct power to force 
 an increase of wages or to force employment, althouijli 
 indirectly it may exercise such a power. In no ciise 
 has a government or a board of arbitration power to 
 enforce a decision against the men. If the men refuse 
 to accept the decision of the board, a strike or the con- 
 tinuance of a strike already in existence is their only 
 alternative. Unless it is presumed that the government 
 has absolute power, it cannot send the men to jail merely 
 because they refuse to work. Under common or statute 
 law they may be indicted for any violent act which they 
 may commit but they canot be prosecuted for refrain- 
 ing from labor. 
 
 This formidable fact has rendered arbitration of no 
 effect in frequent cases, in every country in which arbi- 
 tration legislation has been in force. The policj' of arbi- 
 tration is nevertheless useful in those cases in which tiie 
 dispute is about small differences in wages. In Canada 
 and in the United States the question of arbitration 
 
PRACTICAL LABOR PROBLEMS 265 
 
 con^p^cated by the existence of international trade 
 
 •■iiS. Trade unionism and economic th con, -The 
 earher phase of „,odem tr.Je unionism was cotciS 
 Y'\«'e development of a theory of labor which em 
 Phas^ed the .mportance t,f the relation of thetLaTe 
 of population and the rate of wages. It wa. heu7h!5 
 
 ence that is that given mcreased production, population 
 
 impossible tor the wage-earning class as a whole to in 
 
 aT '^irorS ^'^'^^ P-<luct:on; butl' e" 
 an ncrease of production must necessarily brinjr more 
 
 age earners into the field, it was in the long :^n hZ 
 less for the wage-earning class as a whnl. * ^ 
 
 i. standard of .mfort eLpTb; lim; ing itrnZbeT 
 one group of wage earners, by mean! of cZbina: 
 t.on or otherwise succeed in raising their wages rmnal 
 or real, other groups must suffer. ^ 
 
 While it has by no means been shown conclusivelv 
 that combination has raised the wages of the wort ^ 
 
 fort due? It M'ould apear that it is due chieflv to t 
 
 methods of production, the product jx^r labor uniTS 
 ing greater; and, second, to the fir^ tl.nt h, , • 
 
 Jas «.. increased in proportio^ 1 1 tcrearof 
 1 action. An increased standard of comfort aTd lH'- 
 h>fe to increase this standard still further have in ,! 
 l-ntries. but most notably in the UnitS tiraZ in 
 
266 
 
 F.CONOMICS 
 
 France, imposed a check upon the increase of popula- 
 tion. To use tlie expression of Malthus, "The hare lla^ 
 been persuaded to go to sleep, and the tortoise has over- 
 taken it." 
 
 This is true of the most progressive races in the in- 
 dustrial sense; but it is not true of two great and ex- 
 tremely prolific races, viz, the Slavic and the Chinese. 
 The growth of these two races appears to conform to tlie 
 theory of population of the latter part of the eighteenth 
 century. The struggle of the future may be between 
 those races, on the one hand, and the Western races 
 which are determined to maintain and to increase tlieir 
 standard of comfort at the expense of increase in num- 
 bers, on the other hand. It is interesting to notice that, 
 both in China and in Russia, labor combinations of one 
 type or another, have been in existence from a very 
 ancient date, and that they have not been effective in 
 maintaining any high level of comfort, although tiiey 
 have on occasion been effective in raising the rate of 
 wages. 
 
 Trade unionism, as distinguished from the more recent 
 industrial unionism, among Western nations has, in the 
 strict sense, accepted the system of employment which 
 is usually called the capitalistic system. It has in gen- 
 eral been opposed to systems of profit sharing and co- 1 
 operation as well as to any system of state socialism. 
 The fundamental reason for this hostility is, that under | 
 the existing system wages are certain, although employ- 
 ment is not certain, while under the systems mentioned, | 
 employment migh' be certain but wages would be un- 
 certain. 
 
CHAPTER VI 
 
 CAPITAL AND IXTERE.ST 
 
 2W. iikton, of Merest—The organization of a pro- 
 duct,ve enterpr,se involves, as we have seen, the pureC 
 of captal for the purpose of procuring la^d bSSdiZ 
 maeh,.ery and other necessary n^eans.'and f;r Se pT' 
 pose of meeting the current expenses until the returns 
 rom the productive process begin to come in. Jhe neTd 
 or capital p,ves rise to the problem of interest Tht 
 problem of mterest is-how is the amount determi'.cd 
 jn.the market and for what form of value is inTe^st 
 
 The history of the numerous views about the nature 
 of interest wh,ch have been advanced from time to time 
 c.n be recited only briefly. In early ages, before w"! 
 ^ known as capitalist industry assunted prominence 
 
 riT z r "' 'r* -'"^ P"^P"^^^ °^ consumpt^;: 
 
 ' xlrdb P™''"'^*'™- ^°'"^*™- forced loan 
 «ere exacted by governments or by nobles who were able 
 
 extort such " benevolences." For these, interel w] 
 
 ot usually paid. Otherwise those who desired oln, 
 
 ^"I'ly desired them for food, clothing and theSe T^ 
 
 end money for such purposes was looked upon as a 
 
 hnstian duty; and if interest was charged upon i! 
 
 needy. The State and the Church alike, in general 
 267 
 
 fli 
 
 -t 
 
 
 mm'. 
 
 41 
 
368 
 
 ECONOMICS 
 
 discountenanced and frequently forbade such transac- 
 tions. 
 
 The beginning of modern commerce, which may he 
 said to have occurred in the sixteenth century, resulted 
 in a change in views about interest. Many of the com- 
 mercial adventures in which the merchants of that day 
 engaged required capital to a greater extent than they 
 themselves possessed, and they therefore borrowed it. 
 Since the capital was intended to be pnxluctively eiir- 
 ployed, no moral offence was observable in the merchant 
 offering and in the owner of the capital receiving, when 
 the sum was repaid at the stipulated period, a larjjer 
 sum than that which had originally been transferred. 
 The merchant had made a profit out of the capital in- 
 volved in the loan, and it was neither unjust nor unrea- 
 sonable that he should surrender some portion of his 
 profit to the owner of the capital which had made the 
 earning of the profit possible. 
 
 250. Early theories of interest. — This practice led to 
 the ideas that interest was paid for the use of money, 
 and that interest was due to the productiveness of cap- 
 ital. The accumulation of capital in the latter 
 eighteenth and early nineteenth century gave emphasis 
 to another idea, viz., that capital was the result of sa\ing 
 and that interest was paid in return for the service of 
 saving. The expression which came to be employed was 
 ambiguous, interest was said to be the "reward" of 
 saving. 
 
 One of these expressions is now used as a defini- 
 tion of interest, although each expressed a certain aspect 
 of the tmth. Capital was used and interest was paid; 
 and to the individual lender the reward of his abstinence 
 came to him in the form of interest from the people 
 to whom he lent his money. Had he not abstained 
 
CAPITAL AND INTEKliST ggo 
 
 111 wnicn, nevertheless, interest is nmM at 
 »ct inrerest may be cliarffeable for it Vcf tu 
 
 really a part of the general problem of value. How d' 
 Thos. mtcre,, „„, j^ j,j„^j difference 1, 
 
 
270 
 
 ECOXOJIICS 
 
 future time; the amount of tliis difference is the amdiint 
 which it is necessary to add in order to j)roduce equivu- 
 lence between a i)resent and a future sum. This tlicory 
 of the mode in whcli interest emerges is known as the 
 agio theory because it regards interest as an agio which 
 is added to product equivalence. The tiieory is stated 
 in various terms by different writers, but in general it 
 is accepted as the current doctrine of interest. 
 
 252. Market rate of interest. — In the rate of interest, 
 as determined in the market, there are discernible tlirue 
 elements: first, the agio as above described, or interest 
 proj)erly so called; second, a jjremium of insurance 
 against loss; and, third, a commission or fee for the 
 management of the transaction. All of these elements 
 are variable. 
 
 The amount of the first element or agio will depend 
 upon the urgency of demand for immediately available 
 capital, on the one hand, and ujjon its supply, on tlie 
 other. The amount of the second element will jpend 
 upon the lender's estimate of the risk incurred in mak- 
 ing a particular loan or in his estimate of the avenijie 
 risk he incurs in his business of lending money or in 
 particular sections of it, and the third element will vary 
 with the character of the loan and the character of the 
 lender's business. 
 
 253. Four divisions of money market. — The 
 money market is customarily divided into what niiiy 
 be described as watertight compartments. In one (if | 
 these compartments appear the sums destined by tlieir 
 owners for permanent investment in those securities 
 which yield an annuity, which i-. not involved in uncer- 
 tainty and therefore is held to involve no risk. Tht 
 securities of the most stable governments are in thi' 
 class. The principal investors rre the governments 
 
^••APITAK AM, IXTKHtST 27, 
 
 ".^tutions and of l.;!::.,:;;;;;;:;'^ J'"'^''-"'! private 
 
 vestments in J ,! ' "V"'"^' '^''''"''^ *"°'- '"- 
 
 :^ t'-e section in whicl/ tl ^at e th^T^ !'"^'^' *''^''-'-' 
 
 investment at hi.J.er rat./ ' '^''*'"'='' f""- 
 
 Apart from t,.e -sei^L: I ma St t'''' ':T''''- 
 cntain tlie funds as >.I,n,. > ■ ' *''*P"'*' "'''fli 
 
 '- -j-'h -n;:;s ti Tunl";;; '7'' "'^^ -^ «•« - 
 
 i"an from day to day T '"'' """^ ''^'"''«'''« f"r 
 
 -li.emarket'i-orm™;,. tl^o h '" '/- '" '^^^"'"^'^ 
 "'.V ;Jescribed as constu" u,"'^ '^JXl ""'■" V^ " 
 
 interest (both gross and LT "^ ''"P'*'*^- 
 
 among these sections Tin "'* ."""y ^^^y widely 
 niarket for can^ a " ' '*'■*'"" conditions of the 
 
 - either o7t;el^r™* """' '^ "^^^'^ *» "- 
 P-ry deht at aTa! 'l^L'^n'T* °^ ''' *^'"- 
 at the same moment dav to!) P'^'" '^™*' ^^ile 
 
 a fraction of 1 pe" Z S "^ ,"""' "^"^ ^ '"«'!- at 
 ^■tions a governLnt m y be^'abtlT'" °*'" '^•'"■ 
 cent, while day to dav IopL '"'■''''' «* ^ Per 
 
 per cent. AltLugh the" wo dT ^°'"'"r'''"^ ^» °^ ^^ 
 *h- separated, thfy Je ^tir'' °^ '^'^ '"-ket are 
 'large part of the funds wl?. """"^^^^ed, because 
 
 -ent forms ma; t^: Se tXT"' '" '''■ 
 K day to day loans am) ,. "^ *''^ purposes 
 
 KloyedforL; poTe j;^^^^^^^^^ ■'''-'™'-''- ^^^ "e 
 foans. ' ' ''*™"""8^'noneyondaytoday 
 
 A peculiaritv of the dav tr, ,1 
 ''O'^e who deaf in monctl U '' """"'^ ""''^''' '^ *»!«* 
 
 '^1 
 
872 
 
 ECONOMICS 
 
 security they must lend, even if they have themsiU.s 
 to bor^w; otherwise they might as well give up tlair 
 business. This is the reason of the extremely low nit, s 
 for short periotls which are occasionally to be obtanRa, 
 The market rate of interest thus depends upon tin 
 amount of funds seeking employment in the particular 
 section of the market in which a given demand hiids 
 its appropriate supply. It must be realized that low 
 interest rates apply only to large sums. BorrowiiiK m 
 detail resembles purchases in minute quantities, the cost 
 of management which enters as an element into all loan 
 transactions constitutes a large part of the gross n.- 
 terest in small loans, in large loans it constitutes a small 
 
 ''*254 Influence of monetary comhinntU.ns.—Mmt)- 
 is so widely diflFused throughout ^he world that no at- 
 tempts to monopolize it in any effective manner co.iW 
 possibly succeed, -^he competition of capital is per- 
 haps more thorough than any other form of comj,e- 
 
 tition. , „ 
 
 Yet scarcity of available capital may occur irora 
 
 many causes. The owners of capital may be afrai. (.t 
 
 a financial crisis, and may be reluctant to allow their 
 
 money to go out of their possession, so that altho.i(ih 
 
 there may be an abundance of capital in existence, 
 
 there is a" scarcity of available capital. There may be 
 
 a scarcity of capital in the centres of commerce because 
 
 money has been drawn to the outskirts or has been 
 
 diffused so widely that it cannot be obtained quick 
 
 for the purpose of satisfying some anticipated denian , 
 
 Under these circumstances if a borrower goes mto 
 
 the market with an urgent demand for money, he ma) 
 
 have to pay a very high rate. Many large industm o 
 
 concerns require on occasion very large sums upon tb fo, 
 
CAIMTAL AM) INTKHKST 373 
 
 credit of their enterprises. n„d if their nee<I happens 
 at a moment when the funds are scarce in tlie market 
 ttiey may have to jmy a very high price for it. Thus' 
 the Pennsylvania Kailway required the considerable' 
 ^m of $30,000,000 in 1900 and required it at once 
 The money Mas obtained in Paris and the rate inclu.l- 
 ing commissions was, it is Iwlieved, about 7 per cent 
 The credit of the company was not in question. The 
 marivcl was depleted of money and the rate of interest 
 for all borrowers was abnormally high 
 
 On the other hand, .lay to day loans are fre.n.entlv 
 made m ^ew York under ordinary conditions of the 
 market at 2 per cent or less, while in London fractions 
 of 1 per cent are not unusual for very short perio.ls. 
 The rate of interest for all the world is practically .le- 
 ermined in the money market as a whole; but certain 
 ocal markets have a dominant influence. These are 
 London, Paris, Amsterdam, Berlin, A'ienna and \ew 
 iork. The capital laboriously save.l bv the English. 
 Dutch and Belgian middle class, and by the French 
 imants an.l small retired mercantile people, forms 
 really the bulk of the constantly increasing ^und" 
 credit from which all the rest of the world draws 
 
 The relatively high rate of interest in new countries 
 sdue to the .lemand for capital for the rapid exploita- 
 tion of the natural resources and for the construction 
 ot railways, harbors, cities, etc. Practically everybody 
 in a new country is a borrower. 
 
 2,5.5. The function of cnpifal.~We must now con- 
 s,der what is the precise function which capital exer- 
 oes .nt. mes so far as pro.luctive enterprises arc concerne.l 
 he ms From the description which was given of the reaninj 
 " A """1 ? P'-O'lu'^tion, it is clear that in the simplest 
 .pen tb|orm of^that production capital is involved. In order 
 
 
 iiiV 
 
 
274 
 
 Kt'OXOMUS 
 
 to obtain time to make a wenpon or tool it is necessary 
 to have a reserve of foot! sufficient to subsist the niakir 
 of the instrument while he is making it. If the pnKiss 
 of Liaking it denianils only a short time, a small quan- 
 tity of fcMxl is re(iiiire(l; but if the prm-ess deniauds a 
 long time, the quantity required is so mucli more. 
 
 Anyone who has really attemi)ted to live what !■, 
 known as the " simple life " must have been convirunl 
 that it takes a very considerable jjortion of a day, in tiw 
 absence of all adventitious assistance, to prepare fixid 
 for |)ersonal consumption. If to this portion we ailil 
 the amount of time necessary to procure the food liy 
 hunting, fishing or cultivation, it Incomes clear tliat 
 only tolerable expertness in all of these oijcrations lan 
 yield enougli for sid)sistence even if the whole day Ix 
 occuiiied in working. 
 
 If we eliminate altogether the jjroducts of previous 
 work and attempt an absolutely fresh attack upon na- 
 ture, we shall realize how difficult it is to make any 
 jjrogress at all. When we are able, however, to accumu- 
 late a sufficient reserve of food to enable us to find tinit 
 to make some implements which will facilitate (lur 
 further operations we can manage more rapidly. \Vi 
 invent means to save time, and gradually we are able to 
 accumulate more food and by means of that to inaiie 
 more instruments and so on. 
 
 2.56. Ilotc capital comes into play. — Human pros 
 ress has indeed been accomplished in that manner. The 
 accumulation of food and the instruments which wf 
 have made have together, as it were, lifted us from one 
 stage to another. The food and the instruments woe 
 our capital, and our capital lifted us from one stage 
 to another. 
 
 This lifting process is really the function of capital. 
 
fAJ'IlAI. AM) INTKUKSJ .,.7,5 
 
 If «f Imvc f„,„| „„,| i„sl,Minn.ts . i„„„|, we ran vvr- 
 
 'orm .„ts wind, .ko .v..„ a v..,v l.-i ti,.... 'Vims 
 
 '•'■pital saves l„m. i, „M-s ,.s to ,1., rapi.llv a„.l .asilv 
 
 mt >vlud, we nn^rl.t .,„,,,„.i,,, ,,„_ ,,,,4 ^^,__,^, ^, • 
 
 J'"'..oM.slv„n,l slowly, a„.l it ...al.lc.s „s to ,lo ......e 
 
 IliMiKs «l„cl, without it. we «,ul.l „„t ,lo at ull Tl.,- 
 >iei<i lor eai)ital is, therefore, ol.vious 
 
 I«>«t in order to ohtain eapital. we ,„„st either ae- 
 n.nM.late the food a„.l the i„stn..ne,.ts ourselves r 
 l-<;.|.;c> then. fro,u so,„eo„e else. If we ea„ hv u.eans 
 ;;' ""1'=^."^ the foo,| a„,l instruu.euts whieh ,ve"„n.e, e 
 inm. someone ehsc-. inerease our own resourees. .!r if we 
 
 tl'e food and u.strun.ents or their ivalent in so, c' 
 
 -•'K-M/cl form, it „,ay he ,ery advantageous for u s ^o 
 
 -e an arran,en..,t hy whieh we nmv return 1: 
 ••;' ajHl more mstnwnents than we ohtaine.l ori^ina 1 ■ 
 In ccl we must do so in the norn.al ease, for the fo i 
 ;""' '"^tn„n..nts „n>ht have l.en pro.luetivelv use 1 
 .r o^vners then.selves. Our position as fVunlless a ^ 
 'St »n,entless ,,ersons n-iwht, indeed, impel us to o/Pe 
 ".el. more at so.ne future tin.e, provi.lec we were We 
 H'C mm,e.h„te aeees.s to the eon.forts we wante 1 r 
 -r.selves .nstead of waiting, for them until .. , " 
 
 Bnefly, the., capital enahles production to lie carrie.l 
 im.VK n. the means for the aeco.nplishn.ent o 
 ,^.'no„s steps m the ,.roductivc process prior to the 
 -•mance of the operations involved in t at p, 1 
 -re nun,ero„s these steps and the lonier hi: 
 
 -Iw |ehn„,st elapse lK.n.re the ti,,shedeo„L„a 
 ---Js^ make the.r appearance, the n.ore capital is re- 
 It may be, as so„,e lune held, that capital is so 
 
 i 
 i 
 
i78 
 
 KCONOMKS 
 
 socially iR-ccMsiirv Hint it oukIiI to Ik; providfd l.y cm,- 
 
 niiiimlK'-'X'P'' <"• ''^' *''^" ^*"'^' "" '•^''■*"'" '^'""'' '" •'"'•■ 
 one who Clin utilise it; hut wliillar it is iirovidc.i U 
 such niciins or throuKh tiic ixistiiiK comiictitive iikuh v 
 market it is (luite essential to progress. In this s.n„ 
 capital is not the enemy of lahor, hut is the in.lis|..ii- 
 sahle sujiiMirt of it. 
 
 In accounting for the i)henomenon that present eaiu- 
 tal is, in general, scarce, r.'lutively to the (Icnimul, «. 
 arc driven to the conclusion that this scarcity is dm to 
 the excfssive al)sorption. in modern times, of capital in 
 the form of i)resent goods for the |)roduction of <rno,U 
 of a permanent character— goods, in other words. \w- 
 ing in their nature many and long continued umv 
 These uses are stretched out. as it were, over so iims! 
 a period of time that the numbers of them which ar. 
 susceptible of immediate utili/ation are small m pr"- 
 portion to the immediately realizable utilities that imve 
 been absorbed in the making of them. 
 
 237. Raihi-nii coimtniction in Vnited States.— M 
 illustration drawn from the history of railways may inak 
 this point clear. When the railway system was beiii^ di 
 velojjed rapidly, inmiediately after the conclusion of tl 
 Civil War, the United States was with difficulty al)lf I 
 borrow the amounts necessary for the construetinii > 
 lines over the immense unoccupied spaces which iiittr 
 vened between the centres of popula''ot.. It was. tlu'rr 
 fore, indispensable that the lines should be constructeda 
 a minimum of cost. The possible traf'5c upon them ((ui 
 not justify the method of construction which hii.l Ikj 
 adopted b"y countries in which the jH.pulation was n\ 
 lively den'se and ii which trade routes of impnitani 
 had already been establislied. Thus American railw: 
 construction was light and comparatively inexpcnsKi 
 
fAI'ITAI, AM) I.NTKHKST ^77 
 
 -l-ury .•a,..tal not ,.nly .s,,,.i,„,,, „,, ,,,,«„ ;, 
 
 -rcity of capitj ,.n,i «„„,;;,!;; ;;:,."'^'^^' '"'^•^'•-•^••''"^ 
 
 In order to ni.su.,- this <,uestion. ,ve must hear l,i 
 nm.. what h«.l ocn.rrc-.l. I„ the carlv seve .t ^ t 
 
 ". « States ,.ro.hK.e.laM i..siKnific«nt-„,„ou, /..l^ 
 IlKTc^ore ,nost of the iro„ for the raihvuvs had t he 
 |»'l".rted fro,.. K,.«Ian,l. The,e. the .len.«,.d f r ro^ 
 
 -Lausted. ,.ew furnaces ,vere " hlown in •■ a,. a1 ,^ 
 
 ;:;;;;;;;" "^ "•"" «"•' -«• »<-* were ..,.«e..tiv de. 
 
 ^Vages advanced enormouslv nn,l ti, 
 -ni..K the iron works i,. h X„r h of F , T^""? 
 i";l;e Clyde and Forth .iistrietstC.lfniS"; .^ 
 
 ra V " "*""'*"'fe' *'«^ permanent way and laving the 
 s, other groups were huil.iing locomotives and car ' 
 « others n-ere buil,li.,g bridges and railway statS, s' 
 ■ '1 were work.ng at high pressure and wages were 
 J t,vely h,gh. The capital subscribed chieSyL the 
 J. rnpean .nvestor went into payment of these ^Les 
 k>n..factunng and other profits etc Tb«tT t^ 
 ;P;;'vi.ied for the daily nfaintenar.:: for t 1;^ 
 
 'tnbut,..^ ,n various ways to the equipment of them. 
 
 
 11^ II 
 
278 
 
 ECONOMICS 
 
 Some of these lines niiglit yield a return to tlie capital in 
 the shajje of dividends at a more or less distant pciiixl. 
 Many were destined not to retiu'n it at all. 
 
 There was thus an enormous eonversion of consum- 
 able into unconsumal)le j^oods, or rather into gixuls 
 which wci'e consimiable only at some remote period. 
 When capital is circulating actively, when the produc- 
 tive process results in rapid return, capital is not rcla 
 lively scarce because it can be employed over and ovtr 
 again within a short j)eriod of time; but when tiie 
 velocity of the return of capital is low, capital niiisl 
 be relatively scarce because what there is of it is imt 
 exjjeditiously employed. Tlius, although the American 
 railways were inexjiensively constructed, they consunitd 
 an amount of liipiid capital which proved to be enibai- F 
 rassing not only for the United States but for Kurojic. I 
 
CHAPTER VII 
 
 THK I.AXDOWXERS SHARE 
 
 259 Value of land <lcpcmh upon rent- -The obvios- 
 n-s of rent as the share of one of the factorst ° . 
 ucfon vanes ,„ different countries. In Great 1 ri a n 
 ml m Continental Europe, with the exception o ce " 
 ta.n parts of France, land is eustomarilv .ossessed v 
 ..e person and cultivated In- another. In' the St d 
 States and ,n Canada the cultivator is, as a rule the 
 owner, although the practice of renting lan.l Is' ' 
 «.n.e common ,n the United States duri.^. recent via s 
 t .s sf rare in Canada. Even in the towns i'^. 
 ce of the past ,.- hoth countries was for the o upa,^ 
 of a house to own t, an.l althouj,!, the in-actice has C 
 "•■"•l. niochfied. es],ecially in the larir cities i st II 
 ta,ns in America to a much greater ex n' t a is 
 -•ase m Europe. The buildin,. of apartment hou e 
 ''o«ever, ,s causmg the gradual disappearar.ce of the 
 ^mall .ouse and lawn which up till the , resent 1 as b^n 
 charaeter.st,c of the towns in the United SMes an," 
 
 It is thus not customary in America to speak of 
 ndm terms of its annua, rent, but to speakTf it n 
 ems of the pnce at which it is estimated it mirf,t be 
 welmsed or .ts value "as between a wilhng 1, ve 
 -la wdhnp: seller." This practice has had sevcra 
 '-fons, one of them being the general adoption o 
 279 
 
 '■.ii' 
 
!280 
 
 ECONOJIICS 
 
 the method of taxing land upon its estimated value ami 
 not as in Great Britain upon its annual rent. Wliiie 
 rent as an element in distribution Is thus, in America, 
 somewhat obscured by the mode of estimating the value 
 of land, it is nevertheless present whether or not it is 
 readily recognizable. 
 
 260. Origin of rent. — The historical origin of tlit 
 rent of agricultural land has varied in different coun- 
 tries. In those countries in which serfdom survived 
 until it was surrounded by commercial economical con- 
 ditions (as, for example, in Prussia, where serfdom c(in- 
 tinued unt'l 1800, and in Russia, where it continued 
 until 1861;, rent appears to have originated during tlie 
 era of serfdom. Rent under these conditions was really 
 a series of periodical payments, not for the use of tlic 
 land, but for release from obligations sometimes at- 
 tached to the. occupation of land by the serf and 
 sometimes attached to the ownership of the serf by his 
 master. 
 
 These foundations of the payment of periodical rents 
 were often confused, although sometimes they wert 
 separated. The occupancy of the land did not dejiend 
 upon the payment of rent by the occupant. Even if 
 he did not pay his rent, he could not be removed from 
 the land. His movable property might be taken, if lie 
 had any; if it were taken, however, he might be de- 
 prived of the means of further payment. It was thus 
 expedient to flog or to imprison him. In any case, lie 
 could not be deprived of the land which it was his duty 
 to cultivate. 
 
 The periodical payments which he made in order to 
 secure release from the obligation to render personal 
 labor on his master's fields were not based upon tlif 
 area or upon the value of the product of the land occii- 
 
THK LA.NDOWXERVS SHAKE gsi 
 
 |.ied by him. but were based upon tlie value of the labor 
 wluch b,s master customarily exaeted from him 
 Ihe gradual change from the rendering of an indefi 
 
 of a dehn.te amount either in kind or in money cons 
 tuted an important step toward freedom. Yet\he la 
 
 VV hen the commercial system of landholding re„laced 
 l.e feudal and analogous systems, the payment ' ,' 
 omanly exacted by the owners of serfLnTof S" 
 
 »ere transformed into payments, exacted not in res^^ t 
 o commutafon for services, but in respect to tlieX 
 
 paney ox land, although they were in sVme regkTns s m 
 
 ;n excess of the amount which the peasant Sdp' 
 We hvmg upon the produce of the area occupied bv 
 
 J m. It was possible for the peasant to pay the amounts 
 
 I'lf ' "T:' ""* ""'^^ ^'^^^ -"'I't'-^ only when 
 'n 1 untmg. fishmg, domestic of factory industry he 
 could supplement his income from the land in such a wa! 
 s to pay the rent for it. Examples of Xse so called 
 non-econom.c rents abounded in Russia at the close o 
 Je era of serfdom and they survived in the Scottish 
 
 duced led to legislation upon the subject. 
 -01. Land a» a commodih/.-The rent of land in 
 
 oilier 
 pulsorv 
 
 ■ that is, until it could be 
 
 commodity, 
 attachment 
 
 bought and sold like 
 
 any 
 
 and untd there was no longer com' 
 
 to the soil 
 
 I'- 
 
 'li'' 
 
282 
 
 ECONOMICS 
 
 It cannot be denied tliat the system of indefeasi))!- 
 ownersliip of land lias certain social advantages, it 
 secures a country in the pc.session of an agriculluiMi 
 population. Under the pressin-e of con',>ulsory lalMJi- 
 upon the master's fields or upon the peasants' own fields. 
 in order to iiaintain themselves or to pay the oblijratioiis 
 due by them, there may be a considerable surplus nl' 
 product over the actual needs of the population. On the 
 other hand, in spite of a certain material prosperity 
 which is not incompatible with serfdom, experience lias 
 shown that the system breeds anomalous human rela- 
 tions and leads to deterioration of boih of the classes 
 concerned. 
 
 AVhen, however, a commercial relation is established 
 between the owner of the land and the occupier, ditli- 
 culties 01 another kind make their a})pearance. Where 
 the poinilation is dense, the commercial owner of land 
 is in the position of a quasi-moiiopolist. In other words, 
 where the land market offers a limited supply in relation 
 to demand, the landowners can exact a price which 
 may amount to a share of the total jiroduce of the com- 
 munity relatively much greater than the share obtain- 
 able by landowners in less densely populated regions. 
 
 262. Similariti/ to other productive enterprises.— 
 The causes of friction between landowner and land cid- 
 tivator are not, however, confined to such cases. Where 
 the agricultural po])ulation is deficient in or destitute of 
 agricultural cajiital, they occupy the same relative j)osi- 
 tion with regard to the owner of the land as landless 
 workers in factories occujiy with regard to their eai- 
 ])loyers. Both classes are weak ss-ilers of their manna! 
 labor. 
 
 On the other hand, where tlieie is competition aniotif; 
 landowners for skilled farmers (a condition vliicli 
 
TIIK LA.VDOW.VEirs SIIAHK 283 
 
 ,l!!! H.T' "*" "'^ "^"■''^"""™' -»'"ti« i" KnKlan,!) . 
 e „ , , ^ ^„^^,^,_^ UKricltural capita. 
 « .e.e the la,., ,s fertile and favorably situated with 
 fem,ce „ a loc-al n.arket for its produce, and .vhcre 
 tl e farm leases are fairly .lrau„, there is a suffieie, t 
 •■..Ivantage ,„ the division of risk a„d of the advane 
 
 Ld "■" "''*"" "'■ ""^ 'y'^''"' "*' "-".ting 
 
 of larul. o,v,ng cine.'ly to the din.inutio,, of the 
 1)0 .t,cal mfiuence of the landowners as a class esu^ 
 -lly ,n Englan.l and France, has had an i^ poS 
 eftect upon the lan.l market. Large estates ha^e be 
 l.ro.n upon ,t for sale with the consequence that tte 
 lue of iand, especial.v the land surrounding maZn 
 Louses together with the value of the houses has dec i^ e 
 J... ly^ except where the land is situateU on the S 
 
 rnti, the middle of the last cen,:::^:!;::;;':!;™;^ 
 
 '" "as sold at small prices in large blocks t 
 pnvate mdividuals or to groups of perLs J 
 
 ". -lerstood that these persons were to make erforts ^o 
 eolon,ze the r Krants. Don ,tless their grea ei adtan- 
 a^e would have lain i„ their doing so; but colonLa on 
 
 » er such conchtions is very difficult, and experien" 
 . n the Un.ted States an.l in Canada has sho.vn 
 'iiat it IS rarely successful. 
 
 Under the influence of the pressure of population 
 '>e pohcy was changed, homesteads were granted 
 «.atu,tously in certain regions and imnngratioT „o 
 
 
 i 
 
 
384 
 
 ECONOMICS 
 
 absorbed the free grant lands. When the Western 
 Provinces of Canada were opened to colonization 
 through the construction of the Canadian Pacific Rail- 
 way, the homestead grant plan was adojited, althoufili 
 large areas of land were granted to railway conipanii.s 
 in alternate sections. Immigration has here also bwn 
 absorbing the homestead grants until °re long there 
 may develop a scarcity of land in spite of the magnitudu 
 of the region. It may yet be shown that homestemi 
 grants of 160 acres per family were too generous and 
 that long before the country has been fully settled in 
 any real sense, the public lands will all have been 
 alienated gratuitously either to railway companies in- 
 to homestead settleis. 
 
 264. Increase of land prices. — The increasing sear- 
 city and remoteness of the free grant lands may ehfck 
 the flow of immigration; but if for any reason this flow 
 continues, the price of land must rise. A con-para- 
 tively small advance in price is likely to cause the break- 
 ing up of the larger holdings, especially if there is for 
 any reason a rise in the rate of interest, and the advance 
 will by this means be checked. The advance in tlie 
 price of agricultural land must have the effect of stimu- 
 lating production, and where the land is suitable for 
 intensive cultivation, this will have to be undertaken. 
 
 265. Who benefits? — The class which will chiefly 
 benefit by the increase in the price of land, which must 
 take place should the demand be maintained, will be the 
 presently existing farming class, for in anticipation "f 
 an imminent scarcity of land, farmers have been buying 
 land heavily in the vicinity of their homesteads. The 
 newcomers will have to pay the increased prices to these 
 holders or " old livers " as tliey are called in Eastern 
 Europe. 
 
TliE LAXDOWXKU'S SHAKE 885 
 
 Should tlie "neuconifis " be unable to purchase the 
 land for iarmi..s i)urposes, althougli tlicv niiglit pos- 
 sess eap.tal sufficient for the business of farm. ,g apart 
 from the amount necessary to purr' ase the land, the 
 system of renting land may he exj^ccted to extend as 
 It has done in Nebraska and other states of the Union. 
 (Already about one-third of the farmers in the Ifnited 
 States re..t the farms they cultivate.) This system of 
 renting from small holders of lan<l, tends to bring into 
 existence a class of small landowners who live -ii towns 
 upon the rents paid to them by the farmers of their 
 ands. In course of time, owing to pressure of ])„p„. 
 lation, some of those conditions which for hundreds of 
 years have been familiar in AVestern Europe, seem 
 likely to reproduce themselves upon this side of the 
 Atlantic' 
 
 2ea Theonj of rent.-Tlm commercialization of 
 landholding in Western Europe in the eighteenth cen- 
 tury led to tlie development of a theory of land rent 
 as the growth of capitalistic industry at an earlier 
 period had led to the development of theories of inter- 
 est. The theory of rent, as it emerged at the end of 
 the eighteenth century and the beginning of the nine- 
 teenth, has not been subject to any widely accepted or 
 serious modification. It is based upon the law of dimiii- 
 isliing returns which was at that time being pushed to 
 extremes in all directions. Stated in its briefest form 
 It may be put thus: Rent arises because the fertility of 
 any particular area of land is Unite and because' the 
 fertility of different areas varies. 
 
 If the application of successive amounts of capita] 
 
 Fl,;rl'/l'thrLl,"'-r''"' '"/""*"■'' "'"' "'•■ '■"".plicat,,! system of l«„,| tonur,- 
 M ■ VivWnn ft/? °' ■■'••""I'- «Ke», will l„. .iuplicat«i in .\morica; Imt t „i 
 
 .i^maa 
 
386 
 
 ECONOMICS 
 
 hm 
 
 and labor uixm a reitaiii area of land could yield con- 
 tinuously increasing (juantities of produce, or if all land 
 were of equal fertility, there would be no rent. Tlic 
 historical theory of rent which arises from this state- 
 ment is that rent arose through necessity, luider tii< 
 pressure of population and the conse(iuent demand I'nr 
 the cultivation of soils inferior to those ])reviously in 
 cultivation. The inferiority is due not merely or cMri 
 necessarily to inferior fertility, but to inferior pto- 
 ductivity, the facilities for cultivation and the distance 
 from the market being taken into account. Kent thus 
 appears as a surplus or net product which is yielded by 
 a particular area of land, over and above the returns to 
 the capital and labor expended in jjroduction, tlif 
 amounts of these returns being determined in the n- 
 spective eomjietitive markets. 
 
 207. Rent as surplus. — Looked at from t'" an^iis 
 of the other sharers in distribution, rent ai)pears as ii 
 surplus emerging above the normal level of wages and 
 interest. This surplus is described as ecotiomic rent. 
 It will be observed, however, that the idea of a sur))liis 
 arising in a scheme of distribution of a common stuck 
 among several claimants is not jjrecisely the same idea 
 as that of the productivity of the factor of land as sndi. 
 The landowner as landowner does not organize tiic 
 productive operation, and the sur])lus may or may not 
 arise out of the exercise of his function of landowniuf;. 
 The suri)lus may fall into his hands owing to tlif 
 strength of his economic ])osition: but if he were ccn- 
 nomieally weak he could not obtain it. 
 
 Thus, it is hardly a sufficient explanation of rent tn 
 say that it is a surplus. There is a sense, howe\er in 
 which rent, interest and ))rofit may be regarded as w\ 
 lectively constituting a surplus. In this sense labor is 
 
TIIK r.A.NDOWNKU'S SIIAHK 887 
 
 conceived as l)einff lml)itually rindiml at the margin 
 (if siil).si.stciice of the lulx.rer, and the whole cost of the 
 productive proc-ess is conceived as being referable to 
 labor. Therefore, all the value of the product above 
 the cost of the labor is suri)liis value, and rent, interest 
 luid profit constitute this suri)lus value. 
 
 2(i8. "Siir/ilim" t/iion/ not alicai/s npplicablc.— U 
 may be suggested that, while the theorv of rent which 
 has just been stated briefly is applicable to several im- 
 portant cases of rent, it is not sufKcient to explain all 
 cases, even though it may !« accepted as sound so far 
 as It goes. It docs not apply, for example, to those 
 cases of non-economic rents to which reference has been 
 made ahnc. The jiarticular case of rent upon which 
 stress is laid in this theory is the case of rent which 
 IS due to some differential advantage. Ti:is differen- 
 tial advantage arises from an irdierent property in the 
 land or in the natural agent. The fertility of' a piece 
 ot land A is twice as great as the fertility of a piece of 
 I-nd U; the rent of A would then be twice that of B, 
 ti.e respective fertilities l)eing calculated not from zero 
 but from the point which in either case is just .sufficient 
 to return the value of the capital and labor expended 
 iipon it, as estimated in the market for the produce and 
 in the markets for capital and labor. 
 
 Land is suscejjtible of a great variety of uses, and 
 the value of it at the time of purchase or the rent ar- 
 ranged for at the time of entering upon a lease may 
 l>e very distantly related to the use to which the land is 
 eventually ],ut. In the case of inci-easing superio-ity 
 "' """ productive 
 
 uases 
 
 ;seqi 
 would take this superiority int 
 
 purchas 
 
 »s it was j)racticabl,. to fr.resec the future. I,. ..,.„ .,. 
 the increasing mobility of huid, it may be observed that 
 
 o aecounl insofar 
 ti vii.'w of 
 
 mi 
 
 m 
 
S88 
 
 KCONOMICS 
 
 tliere docs not seem to be any c-onsiderablc odvantajje 
 (granting the commercialization and tlie consequent si li- 
 jection of it to competition in the market for land) in 
 separating the case of land from other cases of vnhii; 
 —such as commodities, capital and labor— except iiisi- 
 far as it is absolutely necessary to separate one categoiy 
 from another. 
 
 269. General application of the term rent.— Then are 
 many cases of differential advantage besides that (/f 
 land to which the term rent may be, and sometimes is, 
 applied. We may speak in this sense of the rent of 
 waterpowers, the rent of machinery of different types, 
 and we may s]>eak of the rent of chemical proccssts 
 arising from their differential advantages. We niiiy 
 even speak of the rent of ability as forming that part of 
 wages or salaries which is due to a man on account of 
 his possession of some special aptitude. Some work- 
 men acquire great dexterity in the management of fur- 
 naces for the production of steel; others for the manage- 
 ment of the immense lathes upon which the propeller 
 shafts of steamships are bored for the purpose of dimin- 
 ishing their weight, etc. Part of the wages of these 
 workmen may be described as rent of ability. A liustc 
 part of the salaries of the managers or managing di- 
 rectors of large industrial enterprises may be regarded 
 as "rent of ability." 
 
PART IV: CONSUMPTION 
 CH/PTER I 
 
 Consumption for social use 
 
 270. CUigsification of coK«Mm;;//on.— Although con- 
 stimption is the goal of production, and is, therefore, 
 of an im|H)rtance nt least ecjual to that of production, 
 the constituents of consumption as an economic depart- 
 ment have not been so definitely reduced to formal ar- 
 rangement as have those of production, distribution and 
 exchange. 
 
 In general, the department of consumption may be 
 said to concern itself with the demand side of the mar- 
 ket as production concerns itself with the supply side. 
 We may, therefore, consider as belonging to this de- 
 partment those causes of variation in demand to some 
 of which we have already alluded in discussing Ex- 
 change. 
 
 Consumption may be regarded as comprising th^ee 
 important categories: 
 1. Consumption for Social Use: 
 
 (a) National and Civic Consumption— involv- 
 ing compulsory demands upon the resources 
 of the people. 
 
 (b) Vohuitary — arising from benefactions, en- 
 dowments P' d the like. 
 
 C-I-id ggg 
 
 
 IP 
 
 
 
sso 
 
 KCONOMICS 
 
 2. Consumption for Personal Use — involving li 
 cussion of the Standard of Comfort or noriiial 
 level of consumption of the ;K;ople, inchuliiiK 
 variations from the normal level— the extremis 
 being luxury and famine. 
 
 a. Consumption for I'rrxluctivc Use— involving (K- 
 mand for the jnirpose of production of 
 
 (a) Machinery, raw materials and partially fin- 
 ished g(K)ds. 
 
 (b) Men — under this head might be disciissul 
 appropriately the using up of himian energy 
 and life in production, industrial hygimi; 
 and pathology, the economic value of po])ii- 
 lation, the mobility of labor and the move- 
 ment of population. 
 
 The reactions of consumption or demand 
 upon the other economic processes would 
 also fall to be discussed in this pleco. 
 271. National consumption.— The income of tlif 
 government insofar as it is derived from taxatiim 
 must be regarded as a deduction from the aggrejjatt 
 incomes of the people who contribute the taxes; insofar 
 as the income of the government is derived from direct 
 services to the people who enjoy the benefit and pay 
 the price of these services, the income of the govern- 
 ment cannot be regarded as a deduction because it is 
 received for corresponding utilities directly rendered. 
 
 Governmental demand may, therefore, be diviiled 
 into two classes: the demand which arises from cer- 
 tain services which are rendered by the government at 
 the general charge, that is to say, by means of the tax 
 fund; and the demand which arises from the renderlnj! 
 of specific senices which are paid for by the people tn I 
 whom they are rendered. Thus, the service of national 
 
(•()\sf.Mi"ri(,v lou sodAf. rsi; mi 
 
 .Icfencf is ,mi<l f„r „„t „(• iIh; kcmcvI Ihx f„„.N „r .,„ 
 ..'•ca.si..r. ,M.t of .pcrial «„r tax (•..n.ls. or ,«,t „( fh. „n,- 
 ocf.l.s of |„„„s ruist-.! «,..l dmrKcl „,,„„ ^,„,,„ .„ 
 s|.ec,«l f..„,|s. „„,l is ,,,.s.,.nf,l f„ k- raulcml in tho uni- 
 versal .ntercst-fhose who pay n„ taxes ..njovinK the 
 .same Ik-u.Ms us thnsc- who ,lo. ()„ t|,, „t„c.; Imn.l. the 
 ".St of the scrv,..e of the Post Ofllcv is. as a rule, .le- 
 fraycl out of the postal revenues. This is not always 
 the case. I-or n.any years after the penny post was 
 ".«t.t..te,l ,n KuKland. the Post Offle.. reven'.es were 
 msufheient to meet the expen.iitures. Th.- I'ostal Tele- 
 graph system has always been .on.h.ete.l at a loss which 
 IwKl to he n>et out of other sources of revenue. Kven 
 "-.w. .f interest upon the capital investe.l in the I'ost 
 Ofhee IS consMlercl, the Hritish I'ost Office l.arely pays 
 
 States Post Office are in a less favorable position he- 
 vMse of the u.fenor density of population. T!„. Post 
 ffice m general, may he said nearly to pay its way. 
 tlie balance against .t. where such a balance occurs be- 
 ".K met out of the general tax fund. The case of a 
 puM.c service of this kind making a ,,rofit is considere.i 
 
 There are certain forms of governmental expen.Iiture 
 
 ■ch do not directly benefit the whole of the peo I 
 
 wh,ch do directly benefit some at the expense of the 
 
 general tax fund. The maintenance of the ,.oor where 
 
 iicre IS a national poor law. the ,,rovision of education 
 
 " lere this is <lone gratuitously or below cost an<l the 
 
 a.lnnnistration of justice are examples of this order of 
 
 expenditure. Indee.l, i„ most countries at the present 
 
 '■me, governmental administration is lK..ing utilized 
 
 rm.re aiul more as an agent for the distribution of 
 
 «"lth, sometimes with the avowed intention of dimin- 
 
 i 
 
292 
 
 ECONOMICS 
 
 ishing the inequalities which are brought about by dis- 
 tribution unregulated by government — what Adam 
 Smith called "natural distribution." ' 
 
 272. Effect of government consumption upon ih- 
 mand.—The expenditure of the government invoKts 
 consumption and thus involves demand. The publir 
 offices, docks, state railways, roads, bridges, etc., con- 
 structed to the order of the government, constitute, 
 especially in new countries, a large part of the consuiii])- 
 tion of structural material and other commodities, and 
 a large part of the demand for labor. Some of tliisc 
 works no doubt would have been undertaken by pri\ ato 
 individuals or groups of individuals had the govern- 
 ment not undertaken them, but many of them woidd 
 not; because private enterprise is not sufficiently de- 
 veloped; because it is otherwise fully engaged; beeanse 
 the nature of the enterprise, useful though it may l)e, 
 is such that specific return cannot be expected, or he- 
 cause the enterprise would be difficult to organize ntlier- 
 wise than governmentally ; or because, as in the case cif 
 the Panama Canal, private enterprise has failed, or k- 
 cause the enterprise has been undertaken by the govern- 
 ment merely in obedience to local pressure and without 
 any prospect of eventual usefulness, the only objett 
 being the local expenditure. 
 
 273. Diversion of capitoL— Governmental employ- 
 ment of capital means, however, diversion of it from 
 use by other agencies. Even if the government re- 
 frained from using national accumulations and bor- 
 rowed abroad for its requirements, its operations wouW 
 restrict the credit of the nation otherwise. If -ve were 
 to suppose that the amount of capital available ' 
 
 ' How tar govcmajental distribulioD can reach the Jcsired end is di«< k 
 elsewhere. 
 
CONSUMPTION roR SOCIAL USE 293 
 
 either governmental or private employment is a fixed 
 <iuant,ty, which would be utilised in any event, then its 
 .l.rect,o„. provi,led it were .„.,.;. .yc.l ...ually produc- 
 tively, would not affect tlie " ational <llv„len<l" 
 
 But capital cannot be looktJ npon ,s ,, fixed quantity 
 m any one country The governn.er.t or private in- 
 < .viduals may draw capital from abroad, and sometimes 
 the government ca,i do so when private individuals 
 cannot. Moreover, if the government draws more than 
 a certam amount (this amount depending upon tl- 
 conditions of the market), private individuals in the 
 same country may find it difficult to draw enough for 
 he,r requirements or, indeed, any at all. Thus, unpro- 
 ductive expenditure by the government may act very 
 injunously by absorbing the borrowing powers of the 
 country as a whole. This applies also where the ex- 
 l.cnditure is not necessarily unproductive in tl,e large 
 run but only unproductive in the immediate sense, for 
 e demands upon the market are the same in amount, 
 although they are not the same in character 
 
 The heavy borrowing of municipalities in Great Brit- 
 am prior to 1903 exercised an important influence in 
 depriving the money market of liquid funds seeking 
 investment, and the heavy borrowing of the Canadian 
 So^ernments and municipalities during the decade be- 
 tween 1903 and 1913 had the same effect. 
 
 If the character of the consumption initiated by the 
 government is unproductive, or if the period during 
 «lnch it becomes productive is very remote, such con- 
 sumption may result in a greater diminution of the re- 
 sources of the nation than would have been the case had 
 the government refrained from the enterprise alto- 
 gether. On the other hand, governmental expenditure 
 n.^y te more wisely conducted than private expendi- 
 
 '!f?"l 
 
 iM 
 
294 
 
 ECONOMICS 
 
 ture and may, therefore, eventually conduce to greater 
 increase in the "national dividend." 
 
 '271. Voluntary consumption for social use, — In the 
 ^liddle Ages such consumption was probably propor- 
 tionately greater than it has been in modern times. 
 Bridges, hospitals, schools and colleges were built and 
 endowed by pious benefactors. Many of the functions 
 which are now exercised by the State were in earlier 
 times exercised by the people. The care of the poor, 
 for example, which in modern European countries is an 
 affair of the government, was in the ^Middle Ages an 
 affair of the pious. In modern times large benefactions 
 are continually being made for public purposes ; parks, 
 hospitals and other public places are being given by 
 individuals or are being subscribed for by many for 
 social consumption. Many of the sums of money so 
 devoted are withdrawn from individual expenditure 
 and from immediately productive uses. It is clear that 
 her;., also, a certain proportion between the productive 
 consumption and consumption which is not directly pro- 
 ductive must be observed. Even charitable endowment 
 may go too far. A charitable trust may be so heavily 
 endowed and so administered that it becomes a public 
 danger. Locking up large sums in endowments ami 
 the devotion of the proceeds of estates to charitable and 
 to ecclesiastical purposes have, in many countries, fre- 
 quently assumed so great dimensions that the practices 
 have had to be checked by legislation. 
 
CHAPTER II 
 
 CONSUMPTION FOR PERSONAL USE 
 
 275. Personal requiremcts.-Consumption for ner 
 sonal use may be considered under the same thr e head 
 as ho „^ „,, „^,„,,^, co„sumpt,o?hrs'^^: 
 uiimeu. iiiese are: nef pso f I'oo 
 luvnriVs Tf • • """• "^'^'^ss't'es, conveniences and 
 
 eauseXv "V''%P'-*'^^"* '""'"ent to be considered, be- 
 cause they do not necessarily or directly result n » 
 
 iitt sense result m consumption, 
 merent races, „ encounter fc rtd« difference. Po, 
 
 295 
 
 i 
 
 !• 
 
296 
 
 ECONOMICS 
 
 the nomadic life, food is essential always, clothing gen- 
 erally, shelter occasionally. For settled husbandry or 
 industry, shelter and clotiiing are almost, if not (luitc 
 as essential as food; indeed, social pressure is such that 
 in some races the desire for clothing to an extent wliich 
 might be regarded as luxurious is stronger than the de- 
 sire for food; and there are soii.c groups of people wlio 
 live penuriously in Iflrge houses because they attach im- 
 portance to an external appearance of wealth. Sudi 
 expenses may be unusual, but the relative importance 
 which people attach to the different orders of consum- 
 able ^raods affects demand profoundly. 
 
 276'. Food.— An inquiry into the history of food 
 would reveal an extraordinary diversity of plants, ani- 
 mals and even minerals which are used as food. Tiie 
 law of substitution plays a large role. When one 
 variety of food is difficult to procure, other varieties 
 are sought. Thus, when the grains possessing superior 
 nutritive power or superior attractiveness to the pal- 
 ate are scarce and expensive, other grains and even 
 other substances than grain are consumed. In Nortli- 
 ern Russia and in Sweden when the grain harvest i; 
 poor and the peasants experience a deficiency, they 
 mingle the ground inner bark of the pine with flour in 
 bread. The astringent property of the pine bark is 
 indeed valued to such an extent that even when grain 
 is not scarce, peasants may be found who adopt this 
 practice. When the grain harvest is poor, also, tlie 
 peasants habitually sell their grain, which they can do on 
 such occasions at relatively high prices, and buy potato.;s, 
 which though not so nutritious, nevertheless, satisfy 
 their craving for food. 
 
 Some races have invincible preferences for certain 
 varieties of food and approach other varieties with great 
 
CON-SLLMPTIOX FOR I'KUSOXAL USE 297 
 
 reluctance, although tliese may be consumed freely by 
 ot!.eis. Civilized man in general .h'slikcT food which 
 1ms become putrid; i)rimitive man is in general not 
 averse from consuming fish which has been, to his palate 
 improved by long keeping, and even civilized man likes 
 Ins game "liigh." So, also, the delicaces of one race 
 are the abhorrence of others, except in cases of. need 
 lor example, the so-called edible dog is regarded as a 
 luxury m Chifia, while other kinds of dog are not con- 
 sumed In Europe, the dog is not usually consumed at 
 a I, although during the siege of Paris in 1871 all kinds 
 of (logs were to be obtained on the stalls of the butchers 
 Horseflesh is extensively consumed in Cxcrmany; and 
 perhaps not at all in either England or America. The 
 tabu which plays so large a part in primitive social or- 
 (famzation has many forms, but among these there is the 
 tabu of certain plants or animals which have been found 
 Ml general or on occasion, to produce disease. In regions 
 vhere the species in question do not produce the same 
 consequences, the tabu does not exis*-. 
 
 The appropriateness of food depends upon latitude 
 and longitude. In the tropics, fruit is olentiful, but 
 at certain seasons its consumption is attended with dan- 
 ger. One of the difficulties of the acclimatization of 
 ij.uropeans in the tropics is the reluctance with which 
 tlie European consumes the same food as that which 
 IS consumed by the native tropical races. 
 
 The relation between food and work has been to 
 some extent worked out in connection with the formu- 
 lation of army and prison dietaries. Details cannot be 
 given here; the dietaries themselves should be consulted 
 -t IS very clear that industrial efficiency, insofar as 
 . depends upon the exercise of muscular energy, must 
 'lei'end eventually upon the constant recuperation of 
 
 I 
 
«98 
 
 KtoNo:\ncs 
 
 that energy by appropriate and readily assimilai)k 
 food. 
 
 277. Clotlihig.— The customs regarding clothing 
 have radically changed since the end of the eightee:itli 
 century. Until about that time the people of eacii coun- 
 try, each district, and in some countries, each villaf>i', 
 wore a characteristic dress, and their dress was furtliir 
 differentiated according to the class, profession or traik' 
 to which they belonged. This state of matters was not 
 due to legislation, although legislation sometimes en- 
 forced an already established practice. It was due to 
 the independent evolution of design in clothing on tlie 
 part of people who made their own clothing for tlie 
 special purposes of their own handicraft or profession, 
 and who sometimes bestowed skill and leisure upon its 
 decoration. 
 
 The art of embroidery and lace-making were miieli 
 practised throughout Europe, and the products of these 
 arts in different regions were cliaracterized by the differ- 
 ence in design which arose from the circumstance tliut 
 in each place the growth was indigenous. The laces of 
 Venice, Valenciennes, Brussels and Honiton were 
 among the most celebrated. The people of Brittany 
 and those of the Landes, in France, and many of tiie 
 villagers in different parts of Austria still wear the 
 characteristic costumes of their villages. In Somerset- 
 shire in England embroidered " smocks " may still be 
 worn by farm laborers as the "blouse" is still worn by 
 the Parisian artisan. The Japanese artisi' wears a 
 coat upon which his trade is indicated by the sign for it. 
 Survivals also occur everywhere in the preacher's gown, 
 in the gaiters and apron of the bishop, in the doctor's 
 hood, in the silk gown of the King's Counsel, and, ahove 
 all, in the uniform of the policeman and the soldier. 
 
COXSUMPTIOX FOH I'KUSONAL USE 299 
 
 Since tlie growth of variety in design was due to 
 mdigenous nmnufaeture in various places, tl.ere was a 
 tendency toward general unifoiniitv so soon as the 
 nmnufaeture of certai.i textiles became concentrated in 
 one or in a few places. The risk attending the wear- 
 ing "f expensive clothing and tlie destruction of aris- 
 tocracy in France contributed to the cliange, but the 
 policy of centralization and uniformity of the Xa- 
 poleonic regime did more to carry the change in cloth- 
 ing into effect in that country. Throughout Europe 
 generally, the decay of class .listinctions contributed 
 «iti, the causes relating especially to manufacture, to- 
 'vards other results which may now be seen. 
 
 It IS quite impossible from the clothing of a person 
 to determine to what country in Europe he belongs, 
 and It cannot be affirmed with certainty, except in 
 extreme cases, what is his profession, trad"e or position 
 ■n society. The same is true, also, of America. The 
 manufacture of ready-made clothing was practically 
 unknown m 1830; now the ready-made clothier mav be 
 said to clothe both man and woman kind. The stand- 
 ardization of clothing has followed tlie extension of its 
 manufacture, and uniformity has been the necessary 
 consequence. Formerly, where every stranger in Paris 
 wore an unique costume-the Arab in his burnous and 
 he peasant of the Landes in his velvet jacket and silver 
 buttons might be seen any day and no one turned to 
 ook-now where everyone looks alike, a strange cos- 
 tume attracts unwelcome attention. This is true of al- 
 most every city in Europe or America. In Asia, Japan 
 only has to a slight extent, and only in the cities, adopted 
 i-uropean uniformity. 
 278. Shelter.^ The question of housing people is not 
 ss important than that of clothing them. Housing 
 
 4 
 
 M 
 
 "ii 
 
 :.1 
 
300 
 
 FX'ONO.MICS 
 
 also has a long and varied history. The growth of 
 domestic comfort is, however, a very modern affair. Tiie 
 ])alaces of the I'haraohs and of other Eastern sovereiniis 
 of early civilization were sometimes very extensive. 
 They had numerous rooms and evidently were maiuifrtd 
 by a formidable administration; but there is little evi- 
 dence of comfort in their interiors. 
 
 Glass is an ancient invention, but its production in 
 large sheets is comparatively modern. Until the cldse 
 of the Middle Ages there was very little glass even in tiie 
 great houses. Rooms were dark and ill ventilated or 
 they were open to the wind. Horn was used to some 
 extent, but even when thin it is not extremely trans- 
 lucent and cannot be obtained in large pieces. Oiieil 
 paper has been used in Jaj)an for ages, but it does not 
 appear to have been used for windows in Europe. 
 
 Chimneys were uncommon even in great houses un- 
 til after the Middle Ages, and there are numerous eoin- 
 forts of a minor kind which in the medieval house were 
 unknown. 
 
 Those who have seen a peasant cabin lighted by a 
 single rushlight will realize what the interior of a house 
 was like before candles were introduced. There was, 
 indeed, little light in any houses until the use of gas 
 as an illuminant was adopted in the beginning of tiie 
 nineteenth century. There are, or were, until recently, 
 towns in northern Italy where oil lamps were hoisted at 
 street corners by means of a rope and pulley. Tiie 
 darkness of the towns until the middle of the nineteentii 
 century offered facilities for crime and diminished tlie 
 duration of the working day in many industries. Elec- 
 tric lighting has transformed the streets and has led in- 
 cidentally to great improvement in gas appliances. 
 Numerous inventions have made the interiors of houses 
 
CONSUMPTION 1-OU I'KHSONAL USK 301 
 
 potentially and to a great extent actually, vastly more 
 ab,table than they were a hundre.l and fifty yearsZ 
 l...t tl e same .mprovement cannot Ik; said to have taken 
 place externally. Domestic architecture has not kept 
 pace with Hiterior domestic devices. 
 
 279 Philanthropic housing crperimenU in Europe. 
 -In the villages and small r to«ns of western Europe 
 workmen frequently own the houses they occupy; but 
 
 iw 0^7 "■■'>:" *'^'"'"«" ^"■■^^- *'-- «- P"i''t "f 
 r. 1 , r ""*" '* '' "°* "'*''*<^*''^'- 'l^'^i'-'^We that 
 klZ ^'° 7'V^ '* "^'•^ «"''"^'«»y practicable. 
 I be ownership of a house limits his freedom of move- 
 ment and thus, on occasion, fixes him to a particular 
 employment and thus limits his earnings P"*'™'""^ 
 
 The earlier experiments in the housing problem- 
 Jose for example, of the Peabody Trust and Lord 
 Rowton in London; those of the municipalities of Glas 
 
 urhin r '''V"'''"^ °"* ^'^"'^ '^' development 
 urban transportation. It was then supposed that 
 
 lb "dtirrr^'.^ r "^'•' "^ J'™^"''*^ '" the scene 
 <i bis daily labors; that he could afford neither the time 
 or the money to transport himself from a d ta." 
 consequence of that doctrine, the tenement house.^ 
 
 m liLnf^ °''"P"u'"" "^ -"'•kingmen under these 
 
 mi-ph.Ianthropic schemes were invariably built within 
 
 f. industrial districts, and fi^quently on land wS 
 
 t ef" eT". 'f '"*""' P^'-P"^^^ ""'» "■"-'' -««. 
 
 xneWr "^ '" ''•^"'- '^'"^ S^""«l "-^^"It of those 
 
 ET ^ 7,' ""'• "'"'""'•'^- '■•^' «">' -"-- - -ti- 
 ts « . "'" «"f-P«ted. Even at rents which 
 
 s ed tT r "' """"^ * '"•• '•"'* "P™ the capital 
 
 ested the rents were so high that only the elite of 
 
 the working class couh? occupy them, and those for 
 
 ^mBm 
 
3(H 
 
 KCOXO.MUS 
 
 whom tlicy were primarily intcniled coulJ not aironl \u 
 do so. 
 
 At a time when the professional classes and oUrts 
 ■with incomes only a little higher than those of workinu- 
 men were mi.xious to get into the suburbs of towns, 
 where they might have fresh uir, cheap land, modiTiiti' 
 rents, the workingman was provided by well-meaning 
 but mistaken i)bilantbroi)y with houses in the centiv nl' 
 towns at a ruinously low rent to the promoters ol' the 
 enterprise, and a ruinously high rent to the workinu- 
 man. In some cases counsel that appeared to Ik; \vis(r 
 j)revailed, but even this was rendered of little ettVct \n 
 neglect of some fact in human nature which slidiild 
 have been taken into account. 
 
 280. Tjipiciil re-'iltx. — Nothing, for example, conlil 
 be more magnificent vr more dismal than Pullman City. 
 near Chicago, or the similar experiment of M. (Jddiii 
 at Guise, in France. Both of these housing experi- 
 ments were carried out in newly created industrial 
 centres, and they might have been successful ha<l tlit 
 promoters not desired to standardize houses as tiiev 
 standardized, on the one hand, sleeping cars, and on tiie 
 other, kitchen stoves. 
 
 While enthusiastic interest in any social scheme is 
 very valuable to the promoters as p discipline, it is usu- 
 ally of small importance to those who most need the 
 aid of philanthropy, and who are also, no doubt, re- 
 luctant to ask for it. The reason for the disapiioint- 
 ment which usually attends i)liilanthro])ic housing' 
 schemes is that such housing experiments are usually 
 accompanied by efforts for the improvement of tlie 
 people. Working people in steady employment do not 
 care to be patronized, do not care to have the locality 
 where they must live determined for them, and, above 
 
CONSIMPTIOX FOU I'KUSONAL U8K .,03 
 
 all. .lo rH,t en,-e to k- en>l,nrra.s.sc.l by regulations. Tl.cy 
 are .l.sposc.i to I.„y their l,ous.s or to ret then on the 
 
 ILe extension of municipal iHmn.larie.s nn.l the ,1c- 
 veIo,.n.ent of urban an.l radial transportation as al 
 -.1 he problen. „,„terially. Vet tul arbitr ry s le . 
 
 kelvt " "'•; """l"''"^' '"• -ni-pl.iI„„tbropic a^eney 
 IS likely to result in (lisai)i)ointnient 
 
 281. Krpcrimch h,/ r,«y,%r«.-Experiments in 
 
 it the e in r".-' '"'* '"■• *''^' >■"""«- '"-»'«- 
 
 ' "tcupj the owner's houses. An instance of both of 
 
 tiese objections is to be found in an expeWment 
 
 l"c;h was made many years ago bv the wV 
 
 a Zy^ ■"'"''' "'"^ '""^■^ '■'•"'" Glasgow 
 P"^es. As .t was at a eonsiderable distance from the 
 -rest centre of population, the com^anv bu^lt a 
 •n.ber of houses for the purpose of providing accom! 
 "XHlation for its workers. The workers who were r^ 
 ™.ted by ,t bad lived in the extreme east end of the 
 ne :': ^ "7'" " " '•^•^'"•"^ *'- -*--e west end 
 
 .s.ely while the ,vomen were extensively employed 
 '" the factories in the east end. ^ • 
 
804 
 
 ECONOMICS 
 
 Partly for this rea«<iri anil partly because the nun 
 conceived that they would in sonic measure place tlma- 
 selves in the power of the company and would diminisli 
 their opportunities for changing tlwir employment il 
 they wished to do so, they continued to travel daily Hi, 
 twelve miles which intervened U-tween their accustom. d 
 houses and the works where they were emi)loyed. Tin y 
 did this in spite of the fact that their houses were situ- 
 ated in what may fairly he called "slums," while tlic 
 works were in a healthy suburl)an neighborhood, at 
 that time almost unbuilt upon. T»>cy were enabk.l to 
 perform the daily journey by means of extremely low 
 weekly (conmmtation) tickets on the railwa\'. 
 
 282. U0U8CS oxcned by workmen.— Jn the industrial 
 towns and on the boundaries of the great cities in Can- 
 ada, the workmen own the houses they occupy, to an 
 extent quite unknown in Europe. The relative elas- 
 ticity of the municipal building regulations, as com- 
 pared with those of European cities, accounts for tins 
 condition to a large extent. 
 
 In 1905 and 1906 a ring of workmen s houses ot tli. 
 simplest kind of construction grew up round Toronto 
 Most of the groups of houses were built upon lainl 
 which at that time had not been brought within the 
 municipal boundaries. There were no streets, altl.(.u^'ll 
 there were street allowances; there was no drainage, no 
 water supply, nor were there any civic services -.Mat- 
 ever The 'land was cheap; $4 per foot frontage 
 (amounting to about 5 to 6 cents per square foot) was 
 the normal price. Thus, for $100, payable in msta 
 ments, a workman could acquire fifty feet of land fr»" 
 age; for $50 to $100 he could build a rude "shack ^vhlcll 
 was sufficient, after a fashion, to house his family. >^ 
 long as these new, imperfectly urbanized areas «ere 
 
CONSUAirTION FOR PKKSONAL USIi a03 
 
 seantilr inlml.ite.l, conditions were <|uitc endurable; Imt 
 as the Jmcks" l)ecanit more nunRroiis luid flic |)oi)„- 
 Uion more dense, the al)sence of j)ro|H.T sanitation, fire 
 protection and the like Rndcred the existence of this 
 •nng of shacks" more or less of a puhlie danger. The 
 iKHindaries of the city have 1h;-.:> extended, and the 
 •sliacks" hove been gradually replaced by brick houses 
 "r have been repaired with brick. The value of the 
 land has advanced considerably and the generation of 
 Mi.rkmen who built "shack town" has benefited by this 
 advance. Hut the problem of botising for those who 
 « tre not forttmate enough to arrive in time to take a.l- 
 vaiitage of the conditions of 190.-, and 1900, is as acute 
 as it was before "shack town" existed. 
 
 '2HH. Subject to economic laxis.— It is obvious that 
 the provision of housing accommodations upon a scale 
 commensurate with the growing industrial population 
 IS quite beyond merely philanthropic or semi-philan- 
 thropic agencies. The demand for houses, in so far as 
 It is effective, may be counted upon eventually to result 
 in an adeq-^^ v ^.. This has been the «iK;rience 
 of aU citie- \- n,ay, indeed, as it does occa- 
 
 sionall}-, t ..J .. tive demand. In Great Brit- 
 
 am the normal course of the history of housing is as 
 follows : 
 
 When industry is brisk, when peo|)le crowd into the 
 towns in consequence of the difference between urban 
 and rural wages, there is a great demand for houses, 
 rents advance and there is a strong inducement to build. 
 But the high rents notwithstanding, capital invested in 
 house property rented to working people does not as 
 matter of experience yield a high net return under nor- 
 mal conditions. The depreciation, the trouble of col- 
 lecting rents, and the risk of loss are all considerable. 
 
 C— I— 40 
 
308 ECONOMICS 
 
 Compared with the profits which may be obtained from 
 manufacturing industry in periods of brisk trade, the 
 business of house letting is not remunerative. It is thus 
 not until the period of brisk trade is over and capital, 
 which has been occupied or has just been made in busi- 
 ness, is seeking investment, that building begins before 
 rents fall from a cessation of the influx of population. 
 The same conditions obtain, other things being equal, 
 in new countries, with this qualification, that under a 
 system of protection, where such exists, the profits of 
 Manufacturing or trading enterprise are even under 
 normal conditions so much greater than the customan- 
 yield from rented property, that there is. little induce- 
 ment to embark in the house proprietary business, 
 Housing is thus more likely to be a continuous problem 
 in a new country than in an old one. even though the 
 price of urban land may be low. If. however the price 
 of urban land is fbrced upward by iemand for manu- 
 facturing or trading purposes, working people and 
 others who desire houses at moderate rents or at a mod- 
 erate price must go outside of the boundaries of the 
 cities to procure them. , 
 
 It should be observed that insofar as by means o 
 philanthropic or semi-philanthropic effort commer.a 
 house building is met by subsidized competition, th 
 may be a temporary reduction of rents, because o the 
 "creased supply of houses, but if this occurs the induce- 
 mrtsten^'r into the business will be diminished an^ 
 unless increased philanthropic efforts are maj * « 
 will be a tendency for rents to advance to their former 
 level, provided the demand for houses increases. 
 
 When the supply of houses is deficient in relation to 
 the demand for them, there is usually much overc o. 
 ing. When this condition occurs it is necessary, in 
 
CONSUMPTION FOR PEKSONAL USE 307 
 
 interests of public health, to enact and to enforce strin- 
 gent measures to prevent it. If the enforcement of 
 such measures is not continuous and uniform, it may 
 lead to further increase of rent in certain localities. If, 
 however, it is continuous and uniform, it will tend to 
 disperse the population and to prevent undue density in 
 iny one locality. 
 
 284. Miscellaneous personal consumption. — In the 
 rural districts of all countries, miscellaneous consump- 
 tion is much less than in towns, although during the 
 past century the general increase of such consumption 
 has been manifest. The extent and character of mis- 
 cellaneous consumption varies, however, in different 
 races, and varies also with the income among people of 
 the same race. The Italian peanut vendor in New 
 York, no matter how slender his income, spends his 
 evenings at the Marionette Theatre, as the Jewish gar- 
 ment worker spends his at one of the Yiddish theatres 
 or at one of the numerous Jewish clubs in New York. 
 In Russia, a concertina has I)ecome almost as necessary 
 to the peasant as a red shirt for holidays. The so-called 
 "millinery openings" at Winnipeg indicate a large "mis- 
 cellaneous consumption" in farmers' families in the 
 North West. In the towns everywhere amusements of 
 many kinds absorb much of the earnings of people of 
 all classes. 
 
 Among workingmen, as among the professional 
 classes, miscellaneous expenditure has increased with 
 tlie leisure obtained by the shortening of the hours of 
 lalwr and by the increase of professional incomes. Life 
 ill general has become less rigid and more varied. Life 
 involves more strain and requires more relaxation. It 
 has become evident that in times of prosperous trade, 
 the miscellaneous expenditure of all trading classes as- 
 
 
 
308 
 
 ECONOMICS 
 
 sumes large proportions. Luxurious expenditure ui)oii 
 automobiles and the like accounts, indeed, sometimes for 
 a very considerable proportion of income. The con- 
 centration of the population in towns has contributed 
 largely to the increase of the total of luxurious expend,- 
 ture bv the people. 
 
 Increase in miscellaneous exi^enditure is, m general. 
 a decisive indication of a change in the standard of 
 comfort, even though the miscellaneous expenditure 
 may not be judicious. That there has been a very fjen- 
 era! rise in the standard of comfort throughout tk 
 world during the past century there can be no doulit. 
 It may be that fhe total of human toil has not been 
 lightened; but the total of human production has been 
 greatly increased and fliis increase has gone partly, al- 
 though not wholly, into increased consumption by the 
 mass of the people. This increased miscellaneity »f 
 consumption may be held to the due to change in the 
 plane of economic life. 
 
 For example, during the period since the revohition 
 in Japan, that country has become gradually commer- 
 cialized, and the mercantile class has been adopting 
 American and Western European modes of transacting 
 business. They have been doing business on a larger 
 scale and have been incurring increased responsibilities. 
 The simplicity and frugality of Japanese life has thus 
 become no longer possible for the more important mer- 
 chants. Although, so far as practicable they retM 
 the older mode of life for their families, they find the; 
 cannot do so for themselves. They find that the cus- 
 tomary Japanese diet does not provide them with the 
 additional amount of nervous energy which they require 
 for larger affairs. They, therefore, adopt a « 
 promise-living partly in the Japanese and parti> « 
 
CONSUMPTION FOR PERSONAL USE 309 
 
 the American or European niuniier in resiject to food, 
 and increasing their miscellaneous expenditure even in 
 ways distinctively Japanese. 
 
 285. Proportions of the constituents of consumption. 
 -ilany inquiries have been made by means of the col- 
 lection of family budgets into the proportions of ex- 
 penditure upon the various kinds of consumption. The 
 general conclusion has been arrived at, that in the case 
 of the lowest incomes, the actual cost of subsistence ac- 
 counts for the larger part of the expenditure, amount- 
 ing approximately to 60 per cent of the total. The 
 proportionate cost of clothing is very small in the lower 
 incomes, increases in the intermediate incomes and de- 
 clines again in the higher incomes. The proportionate 
 cost of house rent, fuel and light is ajiproximately the 
 same whatever the income, although in cases of very 
 liigii incomes it is somewhat less than in the case of 
 intermediate incomes. In the very lowest incomes it is 
 often greater in proportion than in the intermediate in- 
 comes. iMiscellaneous expenditure increases steadily 
 with the income; in the case of very high incomes it 
 forms a large proportion of the total expenditure. 
 
 286. The cost of Kwn^.— V^ariations in the cost of 
 living may arise in one or the other of two ways; either 
 the consumption has varied in quantity or in character, 
 or, the quantity and character remaining unaltered, 
 prices of the consumed commodities have changed. The 
 standard may be reduced or raised without altering the 
 cost of living if, when prices rise, the comfort is reduced, 
 wif, when prices fall, the comfort is increased, provided 
 the rise and fall of prices apply to the commodities 
 «hieh comprise the consumption. A farmer, for ex- 
 ample, who has reaped an inferior harvest of wheat or 
 rje. will sell what he has of tliese grains and buy inferior 
 
 ' 1 
 
 
 t 
 
SIO 
 
 ECONOMICS 
 
 grains or potatoes. His cost of living will be dimin- 
 ished, if he previously consumed wheat or rye; luit liis 
 standard of comfort will have declined because he has 
 been driven to consume less nutritious food. On the 
 other hand, an artisan accustomed to the use of potatDcs 
 may find if there is an unusually abundant wheat nr 
 rye harvest that he can raise his standard of conifort 
 and can consume more nutritious food than he had \mn 
 accustomed to consume because the fall in the price ()f 
 these grains brought them within his reach without in- 
 creasing his expenses or cost of living. 
 
 When, owing to some wide general cause, the prices 
 of the commodities customarily consumed by the mass 
 of the popuh ti m advance, the cost of living increases 
 and at the s-. e time owing to the difficulty of adjust- 
 ipg incomes to the increased expenses necessitated by 
 the advance of price, consumption diminishes and the 
 standard of comfort declines. 
 
 This condition was experienced in "the dear years 
 (1802 and 1803) when the necessaries of life rose m 
 price and when people normAlly above the pitich of 
 want found that they had to stint themselves of things 
 that they were accustomed to regard as necessaries. Salt, 
 for example, rose to so high a price ths: even. well-to-do 
 people had to forego the use of it. 
 
 During a period of rising prices, possessors of stocks 
 of commodities gain, and their standard of comfort 
 tends to rise because with their stocks they can purchase 
 more of certain commodities than they could formerly 
 purchase. In the verv rare case of a general rise ot 
 prices of commodities, holders of stocks of commodities 
 could employ more labor or they could hoard the funds 
 derived from the sale of their stocks. 
 
 When prices of the necessaries of life fall, the stand- 
 
CONSUJIPTIOX FOR PKRSOXAL USE 311 
 
 ard of comfort of the mass of the people rises, provided 
 thtir incomes remain the same. This seldom occurs, 
 for although the wages of labor do tend to rise and 
 fall because the prices of necessaries rise and fall, the 
 movements are rarely coincident. In the interval the 
 wage earner gains when prices are falling and loses 
 when prices are rising. The sharp fall in the price of 
 wheat which occurred after the battlp of Waterloo had 
 dosed the epoch of the Napoleonic wars, ruined the 
 farmers, but benefited the people. Although wages of 
 agricultural laborers soon fell, the wages of artisans 
 were probably not seriously affected, at all events, for 
 some time afterward. 
 
 287. Changes in 1850 and 1875.— The rise in prices 
 which occurred in the fifties of the nineteenth century 
 affected chiefly those commodities which entered into 
 sliipbuilding and railway construction, as also did the 
 rise in prices which occurred in the early seventies. 
 Rents advanced in the towns owing to the migration to 
 them from the rural districts on account of industrial 
 activity and agricultural depression. Wages in the 
 to« - were high and the standard of comfort of the 
 mass of the population was raised. In some industries 
 (in mining, for example), wages rose to a very high 
 point and the mode of life of miners was for a time 
 entirely altered. 
 
 About 1873 industry declined and prices of the stable 
 commodities fell, so also did wages and the former stand- 
 ard of comfort was, in effect, resumed; and as the de- 
 pression deepened, although prices were low, the stand- 
 ard of comfort was low also, because wages had fallen. 
 It was not until 1886 that prices began to advance. 
 The labor market improved, wages rose and an advance 
 I" the standard of comfort followed. Low prices thus 
 
312 
 
 ECONOMICS 
 
 o not necessarily involve improved comfort nor do 
 liigh prices necessarily involve diminished comfort. 
 
 288. Prices in 1890-1009.— It is obvious that not all 
 commodities enter into normal domestic consumption, so 
 that a curve showing the increases in prices of the great 
 staples would not necessarily throw light upon the cost 
 of living. It is possible, however, to take certain se- 
 lected commodities which enter largely into domestic 
 consumption and to inquire what the course of prices 
 of these commodities has been over a certain period. 
 By way of illustration, we maytake the prices of grains 
 (wheat, barley, corn, etc.), of animals (beef, l)aciiii, 
 mutton, fowls, etc.), of dairy produce (milk, butter, 
 cheese, etc.), of fish, of groceries (tea, coffee, sugar. 
 etc.), of textiles (cotton, wool, etc.), and of animal 
 products (leather, etc.), during the period from 1890 
 until 1909; that is to say, during a period of twenty 
 years. The method of calculation by means of index 
 numbers has already been described. The following 
 index numbers reveal the fluctuation of the commodities 
 in question, the average price of each group of commod- 
 ities for the whole period being regarded as equal to 
 100, and alternate years only being taken. 
 
 
 1890 
 
 1892 
 
 1894 
 
 1896 
 
 1898 
 
 1900 
 
 1902 
 
 1904 
 
 1906 
 
 1908 
 
 1909 
 
 Grains. . . . 
 
 116 
 
 106 
 
 94 
 
 86 
 
 100 
 
 100 
 
 116 
 
 116 
 
 118 
 
 148 
 
 150 
 
 Animals . . 
 
 110 
 
 110 
 
 100 
 
 83 
 
 97 
 
 104 
 
 122 
 
 112 
 
 130 
 
 129 
 
 149 
 
 Dairy 
 
 
 
 
 
 
 
 
 
 
 
 
 produce. 
 
 104 
 
 106 
 
 105 
 
 90 
 
 93 
 
 109 
 
 108 
 
 107 
 
 ISJO 
 
 137 
 
 \ii 
 
 Fish 
 
 102 
 
 91 
 
 96 
 
 103 
 
 100 
 
 107 
 
 112 
 
 119 
 
 121 
 
 12^ 
 
 134 
 
 Groceries. 
 
 120 
 
 104 
 
 95 
 
 87 
 
 95 
 
 93 
 
 98 
 
 101 
 
 103 
 
 110 
 
 lOD 
 
 Textiles. . . 
 
 111 
 
 102 
 
 97 
 
 97 
 
 95 
 
 110 
 
 102 
 
 110 
 
 124 
 
 111 
 
 109 
 
 .\ n i m a 1 
 
 
 
 
 
 
 
 
 
 
 
 
 products 
 
 101 
 
 100 
 
 00 
 
 94 
 
 104 
 
 114 
 
 118 
 
 114 
 
 128 
 
 121 
 
 m 
 
 289. Important increases. — These figures suggest 
 that the principal increase in price during the period, 
 
CONSUMPTION FOU PEHSOXAL USE 313 
 
 although tlie increase is by no means continuous, has 
 taken place in tlie products of the extractive industries- 
 agriculture and cattle raising. The increase in the prices 
 «!■ grains may be attributed to the relatively inferior har- 
 vests of the later years (1908 and 1909) ; prior to these 
 years the price had not advanced materially. The in- 
 crease in the price of beef and other meats may be at- 
 tributed to the diminution of ranching and to the high 
 Fice of fodder, which rendered the feeding of stall-fed 
 cattle unprofitable. For the same reason, dairy and 
 animal products exhibit an increase. The price of fish 
 l.a. probably advanced owing to the increased consump- 
 !">n, due to the substitution of fish for beef. Textiles 
 >vl..eh are the product of manufacturing industry, al- 
 liough primarily also the result of extraction, have 
 lallen and so also have groceries, the latter being lareelv 
 imported mto the United States and Canada 
 
 The advance in price of grains and of animals and 
 animal products appears thus to indicate an advance in 
 tlie cost of living between 1890 and 1909, with inter- 
 mediate fluctuations of approximately 30 per cent. But 
 these statistics do not afford the whole of the data con- 
 wted with the cost of living. In addition to food and 
 dothmg, the relative costs of which the index numbers 
 ndjate. there are shelter and fuel as important items 
 f domestic expenditure. In the urban centres, owing 
 the increased population of these, rents have undoubt 
 e% risen, how much it is very difficult to determine. 
 J^rom various inquiries it would appear that in general 
 
 1 t.f '7?u ^*? *° '""^^ Pl^''^ '■" ^901 ^nd that it 
 btmued throughout the whole of the remainder of 
 
 tee"^ T[T- '''' ''"''''' °'' '-* wears to 
 we been checked in 1911 or 1912. owing to the in- 
 
 5^«se ot building. Advances have, however, varied so 
 
 
 n 
 
314 
 
 ECONOMICS 
 
 widely in different centres that it is impossible to giv( 
 any figures which would fairly represent the geneial in- 
 crease. 
 
 The costs of house building have increased materiallv 
 owing to the advance of the wages of skilled labor and 
 to the great advance in the price of hunber (another ex- 
 tractive industry). The index number of lumber was, 
 in 1892, 104: in 1897, 164, and in 1909, 154. The 
 prices of all fuel have, on the whole, varied slightly 
 from the average, but furnace coal exhibited violent 
 fluctuations during the period, as follows: 
 1890 1892 1894 1896 1808 1900 1903 1004 1906 1908 lOnil 
 122 106 6? 110 98 136 158 97 157 100 IIR 
 
 Coal oil (U. S. standard) fell from 111 in 1892 lo 69 
 in 1908 and 1909. 
 
 The cost of the necessaries of life appear thus to have 
 advanced materially during the past twenty years; but 
 they have not advanced uniformly. So far as may lie 
 gathered from the scale of general prices— that is, tiie 
 scale of the bulk of the commodities which enter into 
 consumption, not merely of a domestic but also of a 
 productive character— the present period compared with 
 the past periods is, however, not a period of high prices; 
 but from about 1896 it has been a period of rising prices. 
 Even now, notwithstanding the advance in price whicii 
 has taken place, the scale of prices is little higher than 
 it was in 1886 when prices reached the lowest pniiit 
 which, until that time, they had reached in the present 
 century. They were destined to reach a still lower point 
 
 in 1896. 
 
 290. Conclusion to he draww.— The general conclu- 
 sion may be hazarded that the sharpness of the advance 
 since then, very much sharper than the decline from the 
 
CONSUMPTION' FOR PERSONAL IISK 315 
 
 high prices of 1874, has disturhe.l the economic enuili- 
 bruim and that this sharjj.iess ratlier than the magnitude 
 of the rise of prices lias also disturbed the minds of tlie 
 people. It is important to notice that in respect to 
 agricultural products, in which the chief advance has 
 taken place, there can be no question of the influence of 
 trusts, while in most cases where the influence of trusts 
 IS supposed to be considerable, for example, in coal and 
 in coal oil, prices have either not been materially altered 
 or have fallen.' A possible exception is the case of beef 
 Kven, however, if the "beef tnisf has manipulated the 
 market in such a way as to control the price, which is 
 open to doubt, the method of meeting this condition by 
 a boycott, which api)ears to have been attempted, is by 
 no means likely to attain the desired result. The higher 
 the price of beef becomes the more inducement there is 
 to produce it, and any artificial reduction of the price bv 
 means of a boycott, if such a measure were successful, 
 would simply act as a deterrent and would tend to pre- 
 vent capital and labor from embarking in the industry 
 of cattle raising. 
 
 It remains to be noticed that while some portion of the 
 increased cost of living is undoubtedly due to the in- 
 crease in the prices of some of the necessaries of life, the 
 other element in an increase of the cost of living, namely 
 the increase in the standard of comfort, has also to be 
 taken into account. This is a matter difficult to 
 investigate from a statistical point of view. There ap- 
 pears to be among dealers an impression that the price 
 of clothes has not risen, but that the mass of the people 
 wear better and more expensive clothes than they used to 
 wear; and there is also the impression that their miscel- 
 
316 
 
 ECONOMICS 
 
 laneous expenditure has increased considerably. Wt 
 may, therefore, arrive at the provisional conclusion that 
 at least some portion of the increase in the cost of living 
 is due to the fact that the mass of the people demand 
 and enjoy living at a higher standard of comfort than 
 they enjoyed or demanded a few years ago. If this 
 conclusion is correct, it accounts for at least some portitin 
 of the advance of prices through increased demand due 
 to the increase in the standard of comfort. 
 

 CHAPTER III 
 
 PRODUCTIVE CONSUMPTION 
 
 291. (Consumption of Tmturalre»ource».~^^atura\ re 
 sources may be divided into three kinds: ^^''*"™' '^'=- 
 ttrst those resources which when once utilized are 
 
 supply ,n effect conl.nuous, although the quantity nmv 
 not be unhm.ted-of this order is the power wlS 
 may be denved from falling ..ter and the resour c 
 
 ? Zlu^'^P^y ^"•' "'''" *'"'" P°«" purposes 
 Second, those resources which are simSarly "to- 
 matically renewed but in a manner which makes the 
 
 r/j>d, those resources which are also automaticallv 
 renewed, but which are variable and uncertS 2 
 supply ,n any particular area, as rain. 
 
 Fourth, those resources, the supply of which mav 
 be made continuous, partly through unconrolkble 
 and partly through controllable natSral force a the 
 breed,ng of fish in the fisheries and the preplrat on 
 of t^^e sod and cultivation of plants as in a^riXe 
 . Fifth, those resources which are sometimes replen- 
 ished by natural forces, but which may be repleSed 
 by the appropriate application of laLr aS caS 
 
 rtt^:::r'^'°"^^"*-*-*--'^'-«pS^ 
 
 3V, 
 
 ' period - 
 
 !and 
 
SIS 
 
 ECONOMICS 
 
 the supply of which, however relatively ample it may 
 be, is nevertheless susceptible of exhaustion, as all 
 minerals. 
 
 These resources in the aggregate constitute the ma- 
 terial part of the potentially productive capital of a na- 
 tion, and each nation possesses all of them in a greater (ir 
 less degree. Some nations possess, as well, other natural 
 resources, the exploitation of which in one way or an- 
 other contributes to the natural income. The chief nat- 
 ural resource of Switzerland, for example, is the mouii- 
 tuin scenery, which attracts tourists from other countries. 
 The Grand Canyon of Colorado is a natural resourci' of 
 u similar kind, as are the hot lakes and pink terraces »( 
 New Zealand. Mount Vesuvius may be considered as a 
 natural resource of the same order. 
 
 292. Contcrvation of natural resources. — Anxitty 
 about the conservation of the natural resources of a 
 country is chiefly concerned with the economical expli)i- 
 tation of these resources, which are non-renewable, or 
 the supply of which is renewable only after a more or 
 less extended period of time. It is, however, also con- 
 cerned with the economical exploitation of those natural 
 resources which afford several different kinds of utili- 
 ties, in order that care may be taken that they are not 
 exclusively utilized for some of these to the exchision 
 of others. For example, the preservation of the natural 
 beauty of waterfalls, like the Niagara Falls, is held 
 to be as desirable from the point of view of utility as 
 the exploitation of the falls for the purpose of obtain- 
 ing power, and thus a limit has been placed by interna- 
 tional agreement upon the amount of water which may 
 be drawn from the river above the tnWs for industrial 
 purposes. 
 
 Those natural resources which have mainly attracted 
 
PHODtJCTIVi: (ONSIMPTiov 3,„ 
 
 the attention „f consen atmn c-onnnk,!,,,,., an.l associa- 
 W are n.a.nly tl. f„r.t. t,.e fi.l.nes aid'ti^X 
 
 L/n.ted States, toward -.,.: nul of the eii/hteenth ccn 
 
 tury. the natural resources ,c.n.ed limitle.sf al^ .^Tst 
 
 xtended,n every .lireetion. an.l only the s emlernes^ 
 
 the popuat,on. which affor.Ic^l hnt a rclativel smi 
 
 exploitation. Mere abundance in.h.ced habits of ,.v- 
 -vaKanee so far as material was concerned. Th rclil 
 t.vely high cost of labor led to the invention o ]« , " 
 avng devees. but there did not appear to be anv real 
 for saving „,aterial. Time was invaluable, but e Z 
 danee of material was even embarrassing ' V f, S" 
 for example, were diseomn.odities whicj had to rt' 
 
 zz:r.::^i,-L':' '-^''-'■'- -■ ^^^^^^^ 
 
 Conservation commissions have advocated the reten 
 on of the balance of the national resourc by t, : ^ 
 taml government a.ul the careful granting of "the e f^ 
 exploitation un.ler a regulative system; others have a 
 vocated a campaign of education of the Sc w th a 
 v.ew to the adoption of increasingly strii^ tgit iV; 
 
 ouners of coal fields in order to induce them to consider 
 
 rivTr;- "":;. ^""^ ^*'" "*"^^^ >-- p-p- - 
 
 Vn J . "' *''" '^'**'"« '^on-litions of exploitation 
 
 ^o doubt some or all of these measures would, if .; 
 
 >_^end, but for our present purposes it is necessary 
 
 State, m 1900. U an example o( the l,.°l.-r ^'"'"""'"- "^P-n.zed in the United 
 
320 
 
 ECONOMICS 
 
 to inquire why it is that the conditions are as they are, 
 as an indispensable preliminary to the serious discussion 
 of means for their alteration. 
 
 298. Exploitation of natural resources.— In new 
 countries, like the United States and Canada, a rapidity 
 of production greater than that of older countries is 
 essential for the national existence. The reasons for this 
 condition may be put as/oUows: in European countries, 
 which may be taken as types of long-settled communi- 
 ties, a large part, indeed by far the larger part of the 
 social fixed capital (that is, capital invested in public 
 buildings, roads and bridges) is the product of the lalwr 
 of previous generations; the capital invested in them has 
 long been subjected to the process of amortization, and 
 the sole social burden is the maintenance of the fabrics. 
 
 In a new country there is, to begin with, no fixed 
 
 capital and no organization of life. The early settler 
 
 finds himself in a more or less constant struggle with 
 
 nature. If he brings into the new country the desires 
 
 of the old he may have to subject himself to enormous 
 
 inconvenience to satisfy wants which, in organized life. 
 
 are among the most common and most easily satisfied. 
 
 While driving on the Northern Canadian prairies m 
 
 1904 the writer encountered on the trail, about 150 miles 
 
 from the nearest railway station, a boy driving an empty 
 
 ox-wagon. The boy was 50 miles from his home and 
 
 the same distance from the destination. The latter was 
 
 a small town in which he was going to buy a few pounds 
 
 of sugar, wanted for the use of the household to whieli 
 
 he belonged. At the usual rate of progress of an ox- 
 
 20 miles per day— the boy expected to accomplish Ins 
 
 journey of 200 miles in a fortnight, leaving four days 
 
 for rest. A farmer's wife at an even greater distance 
 
 from a town or a railway station complained at the 
 
PRODUCTIVE COXSUMPTION 3^1 
 
 z L" ™n:t.7'" "■■' "" ""-" "■"- - — 
 
 The absence of organized life is, of course, felt more 
 or less acutely in p-^portion as the settler has been 
 accustomed to it, wearied of it, unacquainted with it or 
 indifferent to it. Alost of the European settlers in Amer- 
 ica, at all epochs, have been accustomed to some kind 
 of organized life, while many of them have migrated 
 from cities. Demand for the conveniences of life is 
 thus long antecedent to the full supply of them 
 
 At the beginning of the settlement of a new country 
 It IS indispensable that the most necessary of the forms 
 of socially usable capital should be obtained as soon as 
 possible. Therefore, compared with those to which the 
 settlers were formerly accustomed, they must be crude 
 Ihe easiest and quickest method is the best. The only 
 «)nsideration is satisfaction of the immediate want. The 
 first house is a "shack" of logs, trees being remorselessly 
 felled for the purpose. If the only available tree near 
 the site IS walnut or mahogany it is used without con- 
 sideration of its exchange value under other conditions. 
 Thus in the early settlement of parts of Ontario, walnut 
 was used for ordinary building purposes and even some- 
 toes for fences. In the construction of the Cuban 
 Hallway at least one bridge was built of mahogany be- 
 cause that was the only available wood in the neighbor- 
 Hood of the site. 
 
 As time passes and the population increases, social and 
 private capital grow together. The generation of early 
 settlers passes away but leaves behind it for the inheri- 
 tance of the next generation an unexhausted balance of 
 "tihties. The new generation utilizes this balance ex- 
 hausts some of it and adds to it and so on. The prospect 
 ot extensive natural resources to which access is eiven 
 
 c— I— 21 " 
 
322 ECONOMICS 
 
 more or less freely (as by homestead laws and the like) 
 induces immigration, and the new immigrants pass 
 through the same phases as the earlier settlers. 
 
 Peasants from Galicia and Bukovina in Eastern Aus- 
 tria, for example, have left the villages in which tl-.y 
 lived in comparative comfort— their houses being more 
 or less well built— to live for a time in Canada in dug- 
 outs.* So soon as they could accumulate sufficient sav- 
 ings, or so soon as they could establish credit sufficiently 
 to borrow the necessary amount, they purchased timber 
 and built houses for themselves, or they hired horses, cut 
 down the timber on the government lands and drove it 
 to their settlements for building purposes. 
 
 294. Settlement in a new country.— U settlers have 
 to rely entirely up~n their own exertion, apart from any 
 possible aid frOi.. external sources, their progress to- 
 wards comfortable and stable settlement, even though 
 they are industrious, may be slow. It may be greatly 
 increased in rapidity, although it may be rendered less 
 stable, by borrowing capital with which they purchase at 
 once the means of establishing themselves and of en- 
 gaging immediately in agricultural production instead 
 of providing makeshifts. 
 
 It is entirely possible for a farmer who is accustomed 
 to hardship and who has the necessary skill of various 
 kinds to establish himself without any external aid and 
 without any capital to begin with; but the process re- 
 quires a very vigorous constitution and frequently has 
 its victims. Such a farmer would live on natural fruits 
 and roots while he is finding the materials for and mak- 
 ing makeshift agricultural implements. Exchange oi 
 wild fruits and herbs gathered by him would procure 
 
 over with clay. 
 
rKODUCTIM-: (•OXSIAII-TIOX 323 
 
 a nfan would to .^^^^^^^ "' '''' *-"^'- f- --■!. 
 
 been adopted by so^LfllSlr'?" '''^ "'""^ ''"^ 
 who have settLTn the r ^ x"°P'""P'=''^«"^*' 
 
 group found lar^ uppL ofste" ^T^^'f" «'"^ 
 were able to sell fnrT "^^i^^eca Root which they 
 
 knowledge orhe^wt tTic;"^ I^T^"^' ^"^'"^ 
 their capital ' '* P"^"''^*^' «■ Part of 
 
 Tl»y thu, embark ih. „ J „, E '""' '«*'.' '"'"'"trf. 
 1 pemclly K„„„„ „j,,„„^ ^,..,^^^ in,l„r,„c„f „f 
 
 aji 
 
324 
 
 ECONOMICS 
 
 Thus borrowing, public and private, involves increas- 
 ing annual interest payments. The community must, 
 therefore, tax itself to meet the public charges, and it 
 must exercise its individual industry actively in order 
 to meet at once its public and its private obligations. 
 Repudiation of interest charges would lead to an im- 
 mediate check in the inflow of capital, as it always has 
 done in such cases, and this check would affect not only 
 those municipalities or states which had repudiated b\it 
 all others because a new element of risk would be in- 
 troduced and would have to be compensated for. 
 
 The relatively high rate of interest which obtains in 
 new countries and especially in the outlying parts of 
 these is due partly to the difficulty of inducing the lend- 
 ing of capital in remote places because of the great pro- 
 portionate risk under any circumstances, and partly be- 
 cause of the greater cost which compulsory recovery 
 involves in isolated as compared with settled regions. 
 
 If the argument has been followed, it will now have 
 become apparent why the United States and Canada 
 must be occupied by people who work hard for an im- 
 mediate return. The payment of interest cannot be 
 postponed without serious, ulterior economic effects. 
 The accumulated capital of the United States is not yet 
 sufficient to enable it to avoid borrowing abroad without 
 greatly restricting the rapidity of its development, the 
 rapidity of its development being due in a great measure 
 to the capital which it has borrowed from abroad. 
 
 295. Effect of leffidntion upon tJie borro-cinf!; of 
 capital. — A sudden restriction of its industrial enterprise 
 through legislative interference with the object of im- 
 posing a check upon the exploitation of the natural re- 
 sources, if such legislation were effective, would have th? 
 same result as a restriction of the supply of capital 
 
PRODUCTni, VOSSVMPTIOS 
 
 '•rough a rise in the rate of interest In^ . 
 'ation, by diminishing the imluZ w"*' '""'' ''^*'"''- 
 .-nto such enterprises H,.;;r" " '"""'*'" *" *-'" 
 miniediate returns wo. M . '"''' ""P'««' "Pon 
 
 capital fron^entlri it " " '''''* "' '''''''"'^ 
 try altogether. ^ * *'"" ""*"'-^ »«• ^om the coun 
 
 extreme case) with "rfoT"' '"^"^ ^*" ^'"^"^ «" 
 eigners were to be ad„ft« the. '"^"^*'""'*'' "^ f"- 
 purchased at reduced pSstn^t-"'"""''' """''^ ^ 
 would, however, also be tme that r' fP^™^"*'"-^- It 
 q»ent supplies of foreiln^L ' ""'-'' '^""''1 ''"^se- 
 capital would tend tlTe inXI ^ "",1^'^ '"* ""*'- 
 .lin.-nished. security of ii'S Te^ts "f '"T °^ '""^ 
 causes the supply of caDitn^.u^".^'''"'" ""^"^^ t«'o 
 price of it enLnLd ^ ""'"^ ^' '^™'"'''''«d and the 
 
 ea^tliSt:;:^;:^;:';^^^ States in the 
 
 obligations by some 3 t''Pr.^^''''*""°<' '"*«'•«* 
 
 tWn upon the cr"ditTfl"rT''*'"' '^°"''*'' ^-^ 
 result was the sale of n^ '""n'opal.t.es in general. The 
 
 and other invLSir :tnro7'"^^ '' ^--" 
 the consequent advance 0//^, T"'^ abroad and 
 
 nmnicipal borrowhigs '"*' °^ '"^^'•^^t f^r all 
 
 evenVXe4";!rtt':b "f '"' ^-'"^'^ '^ - an 
 -Pid developm^nt^"^ rjf;;^^^^^ The 
 
 «as due largely to tbT " ^^" ^^"» ""d 1912, 
 
 'oan of externaf capital eST"* ""' *''^ ^^-P"-^' 
 °rder to pay the fnter^f ^ T ^^'"'' ^^''t^'n- In 
 production L aV^SaTr'It ^^ ""''"'' ^'"^ -«- 
 the stream may notZtllT'^ '' "^■^•^^^-^ ^ ^""^ 
 
326 
 
 ECONOMICS 
 
 the social point of view it is extremely important that the 
 life of the community should be continued at as high 
 a level as possible. The human resources of a nation 
 are, after all, its most important resources. Attempts 
 have often been made to form estimates of the value of 
 men considered in terms of capital. Every mature per- 
 son has cost society a certain amount. He has enjoyed 
 the protection and the services of the State. He has 
 been educated largely or wholly at the cost of the State. 
 He has been the cause of expenditure to his parents and 
 to the public, during the whole period of his infancy and 
 adolescence, and when he reaches maturity he may fairly 
 be said to be a debtor for this amount, with interest and 
 compound interest, if an exact calculation be made. It 
 is, therefore, highly important to the community tliat 
 each person who survives to maturity should survive 
 long enough to enable him to repay this substantial debt 
 by means of production of one sort or another. If his 
 energy is worn out prematurely by too exhausting labor, 
 or if for any reason he succumbs before the debt is paid, 
 the community loses. 
 
 297. Reactions of congumption upon production. — 
 Consumption reacts upon production from the movement 
 of the population, from changes in the standard of 
 comfort and from other causes, and results either in di- 
 version or in net increase or diminution of demand. For 
 instance, increase in the demand for cotton, due to the 
 requirements of the Russian and Japanese soldiers in 
 Manchuria (quilted cotton being the customary winter 
 clothing of the region in which the campaign was 
 fought), led to an increased production of both cotton 
 and wool, and the high price of woolen yarns led to 
 change in the production of mixtures of woolens and 
 cottons, more cotton yarn being employed to replace 
 
PnODUCTIVE COVSUMPTIOX 
 
 387 
 
 diminished consumption i^^th ^ u " '^^"'*'^'> ^t-'t^s 
 -d reacted upon thf;X«t:atT^^^^^^ '" ""'^^ 
 
 T^— f---=r"-"- 
 ;nd then an increaselTe ^roduX: T •'"'* "' ^' 
 
 tion win diS^Ve^c:^: t^-thodofproLr 
 
 A change in consumption^ .l "o ^^'^"r'"*"'-^-- 
 nence a large number of new cLmn,, V ^ 'f ° P"""™'" 
 practical disappearance To heT e "rf "T *''^ 
 phenomenon have been indipJ J ^Examples of this 
 of change of fashion upon rr^s" """'"« '"' ^^^^ 
 
 di-nishes^n amoun XeTs ''n'™ '"'"•^''-'' - 
 consumption onhTlToTT?^^, '" '"'^''^^^^ '" 
 tion belongs. When thl , "^ ''""'"* '" 'l"^^" 
 - wages,^the ^nd'wn " he" T^ '" ""*' '"*'-* 
 * receives that advan^ tot m"' " '""^ '^"^^^ 
 "eases the total of hilex^"?. 'u ^ customarily in- 
 
 -Ptionfromone'cSroSrt;^'::^'!^^ d' ^"^ 
 I whose rents havp «.«.„ . anotner. A landowner 
 
 «new one. and a capitalTf T'^^J ''^ """''^ - ^""'^ 
 
 joyment of allZ^T ^'''^' '"''"^'^ '" th« en- 
 
 iarger mcome m consequence of a rise in 
 
 y? 
 
328 
 
 ECONOMICS 
 
 the rate of interest may discard his carriage and horses 
 and begin to use an automobile. 
 
 When wages advance, the reaction upon consumption 
 is almost immediate, the standard of comfort rises, 
 greater variety and quantity of food are demanded, bet- 
 ter clothing and larger or more comfortable houses. 
 When wages fall, the contrary effects are produced. 
 When wages are at a low level, the workers consume 
 large quantities of bread; when wages advance, they 
 adopt a more varied diet. During the recent years of 
 relatively high wages, the quality of the clothing cus- 
 tomarily worn by working people has risen sharply. 
 This improvement in quality accounts in a large measure 
 for the increased cost of clothing in individual budgets 
 because textiles have not shared in the advance of prices. 
 
 299. Reactions of consumption and exchange. — The 
 reactions of consumption upon exchange have already 
 been discussed in connection with price movements. 
 Here it may be noticed that price movements have an 
 important effect upon consumption. The first effect of 
 an advance in price is normally a diminution in con- 
 sumption. Those consumers who are just able to af- 
 ford a weekly consumption of, let us say, five loaves of 
 bread when bread is at ten cents per loaf, will, if their 
 resources remain unaltered, be unable to afford more 
 than four loaves if the price advances to twelve and a j 
 half cents per loaf. Those consumers who are just able i 
 to afford five lojves plus the equivalent of one more loaf 
 in miscellaneous food will have the option of cutting off 
 either the miscellaneous food or one loaf; they cannot [ 
 afford both. 
 
 Thus an advance in the price of bread will lead to I 
 diminished consumption of bread and also to diminished | 
 consumption of other foods. If, on the other hand,] 
 
PBODUCTIVE COXSUMPTION sj, 
 
 pen^s of highways ^h «^P"d.t,,re than during 
 account of this fact. depression on 
 
 
 W' 
 
 u> 
 
PART V: THE ECONOMIC ASPECTS 
 OF THE STATE AND MUNICIPALITY 
 
 CHAPTER I 
 
 PHOTECTION AND FREE TRADE 
 
 found i„th ..ation. ^,,e,.. uls^'z^^^z:;: 
 
 industry andtadJt Tc'T^ '""T. '"*"^^""^ -'*»> 
 
 loQuial .^^ ^stomary to apply the expression in a col- 
 
 •rio,l „f I^ •" .^° ""*'' "•'""t '-Syo. This was the 
 "'' °f the mitmt,on and development nf f,^ f- J ^ 
 
 growth ( 
 
 Bets TU^ L r--— ". iiitr growtn 
 
 r '• ^'"^ subsequent period from 1870 
 
 331 
 
 e factory 
 until the pres- 
 
 JSv 
 
334 
 
 FX'OXOMK'S 
 
 ent time has also l)een a period of free trade; Init it lias 
 lieen characterized by an unprecedented anioiint of pa- 
 ternal k'^istlation. 
 
 The (tniiinds of objection to tlie interti< ice of gov- 
 ernments with iiuhistry and commerce are that the f{<iv 
 ernnient is less likely to know what should Ik; done in tlii' 
 case of a particidar industry than the persotis who currv 
 it on; that the consumer or buyer may generally lie 
 trusted to l(K)k after his own interests; and that if lie 
 were not to lie trusted the inter\-ention of the State would 
 be inexpedient, because it would tend to destroy or to 
 prevent the growth of self-reliance. The doctrine grow 
 at a time when the State was not conspicuous for the 
 competence ot its functionaries, and when remorsck'ss 
 exploitation of the people by the State in industrial en- 
 terprises had assumed great importance, as in Russia, 
 for exani])le — especially from about 1720 until 17j0. 
 The doctrine of lamez-faire assumes prominence as a 
 reaction whenever, either under an absolute or under a 
 democratic rule, the State threatens to absorb industrial 
 enterprises and to exploit the labor of the people. 
 
 801. Regulating foreign trade. — The State may at- 
 tempt entirely to prevent foreign trade by means of de- 
 crees or enactments, as in the case of the Berlin Decrees 
 issued by Napoleon I as a war measure against Great 
 Britain. 
 
 On the other hand, the State may attempt to excludt 
 by means of very high tariflFs, which have the effect ot 
 prohibiting the importation of all or some commoilitifi 
 which might be imported if there were no prohibitory 
 tariff. Such prohibitory tariffs are generally retaliaton'. 
 that is, they are imposed for the purpose of forcing com- 
 mercial or political concessions from other nati"!'.'- 
 They may, however, be intended for the purpose of pn> 
 
nioTi;(r..,N and k,„,,, thadk 3.,., 
 
 ttcti,|K native in,l,«tries l,y i,„,,„,i„^ ^ , ■ ,, ^ , 
 im|)ortation i:. in.,H.ssil,lc. If Huv «r.. »~l. «"'«y "at 
 ".c-asurc..s which have- the- .ffect •"' "'^"'^•""^ ''X 
 
 Italy. """'''^* «••"'«"« a. Austria ami 
 
 802. Protective tariff— A i,r,.f r 
 
 tivo maniifaftiirer can compete uitl, ti f "" 
 
 ic jjoiicy ot protection, one or Imtl. ,.<• +. 
 'luences ensue. Either the t«Wff ,™ ™"'*- 
 
 to nrevenf fl,„\i f- "^ '* '""eased in order 
 
 prieeto ^^'"^TT" ^•"'"P^t't'™ from reducing the 
 i^ c mXo or^t"^'' *''« <;-'> exporter c„n fnter 
 bine andC a trist t7: T T""^-*"-- ^^m- 
 
 the tn,;V • ^ ''"■'''^' '""' *?"en rise. If. howerer 
 
 «'e tn.sts compete with one another, to the e^tenTthat' 
 
 1^ 
 
 ? •»•« 
 
 
334 
 
 ECONOMICS 
 
 the price is diminished to the point at which the foreign 
 explorer can enter into competition, the price may be 
 farther depressed unless the tariff again becomes protec- 
 tive by being increased. 
 
 The principle upon which the effect of tariffs upon 
 prices may be determined has already been explained 
 (p. 186) . The more general effects under the conditions 
 discussed briefly. A tariff system under the conditions 
 of a rapidly developing modern nation has an obvious 
 tendency to become very intricate because it must follow 
 the increasing intricacies and inter-relations of industry 
 and commerce. If it did not do so, the law of substitu- 
 tion would render it of no effect. As the values of goods 
 alter in relation to one another the tariffs must follow 
 these alterations; otherwise the manufacturers of some 
 goods would be deprived of their protection while those 
 of others would be over-protected. 
 
 The increasing intricacy of the ta "iif and the apparent 
 or alleged need for frequent revision makes it notably 
 a political issue. The effect of this condition is that tlie 
 Government is drawn into the vortex of commercial re- 
 lations. At one moment the interests of commerce are 
 sacrificed to political exigency, while at another moment 
 the wider political interests are sacrificed to commercial 
 exigency. The interests of the two fields of politics and 
 commerce are not identical because the first concerns 
 what are assumed to be the permanent interests of the 
 nation and the latter what are, in general, the temporary 
 interests. 
 
 303. Tariff for revenue. — A tariff, no matter what 
 its intention may be, acts as a protective measure uniiss 
 it is offset by an excise duty upon native PiAnufactures. 
 It may, however, be a tariff for revenue jiily if it is im- 
 posed exclusively upon goods which cannot be the sub- 
 
PROTECTION AND FREE TRADE 335 
 
 jects of domestic manufacture. The tariff of rr... « ■. 
 am imposes import di.t.Vc '"^ ^«"" o* trreat Brit- 
 
 in practice depend chlfll u "' '"'^'""^- ^^ "'""t 
 
 liquors and on"! smatnun rV"' ''"*'^'' °" "'^'''«We 
 enee has .shown th^JuT, T™°^'*'«- Experi- 
 
 relied upon to X^t Zi:!:^--"-^^^^^^^ ^^ 
 supplemented by other source, nt t- / ^ """'* ^ 
 beenmadeinanoVrpLrp 85 "'"' '"^"*'°" ''^^ 
 . 304. "Free trade" in Great Sin -The 9t . 
 jmpose uo tariff except upon e^ZZ^^^ *"*! ""^^ 
 impose neither customs nor exd "du ier A I'r ""'I 
 this kmd would be a policv of fr. T ^ • ^ ^'"^ °^ 
 
 -se No nation adopts Xspo^^ *%tel*'^ f"'* 
 preach is made bv Pr^af u -^ .''""f- -Ine nearest ap- 
 
 IS true of India. revenue. The same 
 
 ti^stri;r:a^tiis?n^^" *° '^ p°>'^-^' °^ ^-e 
 
 circumstanceY Th fmpoi^^^^ °"-'"^ historical 
 
 ments of mechankTal IZr '"r"*'°"* «"d improve- 
 
 ei.hteenth a^dT ;S'Ta7';t"^^^ """^^ ^ ^''^ 
 turv were nnf „^i f • ^ * °^ ^''^ nmeteenth cen- 
 
 poT;E;irLriL';r ,];*"■ '-^ "» «■ 
 
 forbidden and ,0 fnr ? ^""'^ "iventions was 
 
 But these in en'olrc^.ir'^/''^'^*'^^'^ P™*^^. 
 
 there not exredrGrtliT"",'''^" "^'^^^'J had 
 xistea m Great Br.tam a class of free hirable 
 
 m 
 
 if 
 
 L-«'4 
 
336 
 
 ECONOMICS 
 
 laborers, which at that time ' did not exist in any consid- 
 erable numbers in any other country. This class was free 
 of obligations of the kind generally known as feudal — 
 susceptible of being hired by any one and more or less 
 mobile. The class was greatly re-enforced by the decline 
 of agriculture, which took place upon the importation of 
 foreign grains in spite of the duties which were then in 
 force. These grains were imported largely from the con- 
 tinental ports in the earlier and from the United States 
 in the latter part of the period. 
 
 When, under the pressure occasioned by the potato 
 famine in Ireland, and by the fall of prices and the stag- 
 nation of wages in the early forties, the com laws were 
 repealed and the duty upon wheat gradually removed, 
 agricultiu-e was rendered still more unprofitable and tlie 
 class of hirable laborers was still further re-enforced by 
 the stream of unemployed agricultural laborers. 
 
 These conditions were contemporaneously almost abso- 
 lutely reversed in the United States. There agriculture 
 was a profitable industry, land was cheap and ferlllt. 
 Grain could be produced in competition with the Euro- 
 pean farmer at a price that secured the market. Capital 
 was attracted by the prospect of large profits from agn 
 culture and the exploitation of raw materials, chicHv 
 timber. Wages were high, the consumption of the work- 
 ing population came to so high a level that demand f ' 
 commodities increased and prices rose. In the thirtit s o: 
 the nineteenth century every traveler in the United 
 States was struck by the enormous activity. Yet this j 
 activity was concernetl almost exclusively with prinwrv 
 exploitation and with trade; industry had hardly be>;un. 
 Great Britain, on account of the causes indicated j 
 above, had thus a great start in industrial development 
 
 • Approiimately between 1T7S and ISSp. 
 
PROTECTION AND FREE TRADE 337 
 
 phase. In many important mdustries. especially in shin- 
 buJdmg. the advantage is still maintaineS ^ 
 
 a hTSlvlt?" °^ !''' '■"''"'*"'^' ^^"t--- h«« become 
 a highly skilled population, partly through heredita-v 
 
 mfluences and partly through praciically cfn inuous !„,! 
 
 ployment m industries requiring technical skill. The 
 
 engineers and ship-builders of the Tvne. the Clyde and 
 
 the Mersey Jong ago acquired the skill ;hich they have 
 
 retained and developed, so that on these rivers is buit 
 
 he larger part of the ocean shipping of tJie worl 
 
 Under the influence of this advance fn sSp-buildinrati 
 
 under the influence of early navigation acts and th.lr 
 
 reactions. Great Britain has re'.aiLl. in a arg^ mea 
 
 ure. the position she obtained as the chief o^L":;. 
 
 ^cause of her carrying trade, fhe incom,. from which 
 ^o™« a co„.4.,.ble portion of tl. total natlaT^ 
 
 o adopt, and ,t has t^.„ in,ii.s,^„sable for her to main 
 
 "hR-h did not ,>eed protcrtw, when they were younff 
 |»dustrie«. have redly ,.ver had the exp.:,i.,„: of pro^ 
 te^t.., and with few exceptions h.r malf^U J „. 
 terests have never advocated it. ^ 
 
 30.5. "Fair Trade" movement-Bunn^ the "lon^ de 
 pr™" from 187« till 1886, a movement sprang into 
 ex.stence known as the "Fair Tra.le" movement ""Thi^ 
 
 "v^L'^ir tf "T^"^ "^"*^-^^'""= ^"* '^^- *-^ 
 hea d of th '. "^"*''""" '"''•"'■•'"' ""-^ ""thing was 
 fteard of the subject m ,,olitical spheres until the later 
 .«on^for "Preferential Trade,'^ This aJZ'Z 
 
338 
 
 ECONOMICS 
 
 however, deprived of its force by causes similar to those 
 which put an end to the previous movement, that is to 
 sav, by a revival in trade. 
 
 It remains to be said that, in the event of the present 
 sources of taxation in Great Britain being found to be 
 inadequate t» nisUin the burden of public expenditure, 
 an expanded tariff for revenue might have to be de- 
 vised; and further that, if, owing to the adoption of 
 free trade or of even quasi-free trade by the United 
 States, the costs of production of any considerable num- 
 ber of manufactured articles were diminished in conse- 
 quence of the adoption of that policy, it might be urged 
 upon British statesmen with a cogency which could not 
 be resisted, that the manufacturing interests of Great 
 Britain ran risk of being ruined by American competi- 
 tion. On the other hand, the fact that the major part 
 of industrial production in Great Britain is for export, 
 renders it inevitable that foodstuffs, raw materials and 
 partially manufactured goods must be imported by tliat 
 country, duty free. 
 
 ,: 
 
 ^I^'W 
 
 fISTKJ*'! 
 
CHAPTKR II 
 
 REGULATION OF DOMESTJC TRADE 
 
 try ITtlf S"' ';^«'«''--The re^,I„tio„ , indus- 
 nieipahty. The rates of naires were Hv,vl , i ' 
 
 Jjent at these rates .. oft^^.:.,: XX ^'"S 
 
 n-eTbiT ; '"""^ ^^""" ^■^■^»"' «-- -re- 
 served bj the burgesses of tlie towns. The strinffenev 
 
 of the regulations and the effectiveness of he JaJ 
 
 monopohes wh.ch they involved led to appeal byThose 
 
 who were excluded from trading privileges to th^ ^T 
 
 or the larger unit of ad„^nist..tL' T ^^etens o„^^^^^^ 
 
 he towns were held in d>eck by the curtien" „" X 
 
 aboht,on of the,r pnvileges, and the State either threw 
 
 -ndustry and trade open to unrestricted con^petTtion „T 
 
 "t adopted regulative measures to replace those of the 
 
 n.un.cjpaht,es Occasionally, the State confirmed a m^! 
 
 n-cpahty m the possession of some privilege ^ in The 
 
 power of enforcng some of its regulations ThI cen! 
 
 rah.at.on of administrative authority, in which Fra"^ 
 
 M the way m the e.ghteenth century, enabled the State 
 
 o exercse regulative power over industry much mo^ 
 
 k?ai? T'-^7"' '""f ' """ •""■'■"™'*3- than the m" 
 incpahties ha,i been able to accomplish. 
 
 307. State jr^°-«/«//o«.-Leglslation intended to pre- 
 unt engrossing" or, in more „,odern phrase, 'Wr- 
 •■-S the market," to prevent the use of false money a^d 
 
 339 
 
 tit' 
 
 Mil 
 
a40 
 
 ECONOMICS 
 
 false weights and measures, and to prevent adulteration 
 of goods, is found in many countries. When the fac- 
 tory system developed, humanitarians urged the regu- 
 lation of the hours of labor of women and children and 
 of the conditions of labor in general. In spite of the 
 opposition of those who doubted the wisdom of state 
 regulation of industry on theoretical grounds and of tlie 
 opposition of some of the manufacturers, and in spite of 
 the apathy of the ' . orking people, the Facton,' Acts were 
 passed in Great Britain. Then came the Mines Act for 
 the regulation of mines and other acts of a like character. 
 Legislative measures regulating industry in this sense 
 were gradually adopted by all coimtries, beginning about 
 1840. In the United States, factory legislation is the 
 prerogative of the several States, and its character, there- 
 fore, varies. In general, however, the English legisla- 
 tion has been taken as a model. In Canada, such legis- 
 lation is in the hands of .lie provinces; and here, alsd, 
 the English model has been followed by Ontario. Tlie 
 other provinces, although not highly developed indus- 
 trially, have in the main followed the example of that 
 province. 
 
 The factory system greatly facilitated the control of 
 industrial conditions by the State. The most reliable 
 contemporary authorities agree that prior to the wide 
 extension of the factory system, the conditions under 
 which labor was carried on were sometimes extremely 
 bad. The labor of children >vas, for example, remorse- 
 lessly exploited even by the parents of the children, both 
 in Great Britain and in the United States. Indeed, labor 
 carried on domestically is extremely diflfieult to regulate 
 without an amount of interference with domestic privacy | 
 which would be inipraclieable. The factory system, no 
 
RKGULATIOX OF DOMESTIC TRADE 34, 
 
 £• an^t. r '^.''"^hmprovement is strongly advis- 
 conditions. T ,enue iwr.'T'' *" ""''-It'-ful 
 
 health. g^'^'a^J increased regard for public 
 
 ff:;^>^^L;-^n;:;Sr;;-^^^^ 
 
 ;?it%^^rnt;^--~Arn 
 &n:^t;;xtti:-s:irf 
 
 silL t„ r ', " ^'""■''' '^'*^' '^«'" confined osten- 
 a el -Td 'if ^"^^ T ^■'"■'^'' — -d ehild'n 
 ^-ted. Ihe ground of the distinction is that ad^Un 
 
 M 
 
 ■n 
 
342 
 
 ECONOMICS 
 
 are bc'^tcr able than women and children to insist on 
 what tiiey regard as proper treatment. The distinction 
 is not maintained in the Klines iVcts, which are based 
 upon provisions for tlie safety of worl^ers, irrespective 
 of their sex or age, nor can it be really maintained in 
 factories where men, women and children are employed 
 together. 
 
 309. Miscella: I jus state regulations. — The compara- 
 tive failure of iii' astrial combination to achieve by itself 
 any great improvement in conditions had led the working 
 class to demand legislation for the purpose of limiting 
 the hours of labor. The struggle for a statutory eight- 
 hour day, which has been going on for at least fifteen 
 years in nearly all the European countries,' has been 
 most acute in those countries in which the organization 
 of labor has been least effective. There has, however, 
 been in progress throughout the working class in all the 
 industrial countries, an internal struggle between those 
 who desire a larger share of political power in general 
 for the working class and those who advocate the acqui- 
 sition of benefits (like the eight-hour day) from govern- 
 ments under the existing political systems. 
 
 In addition to such interference with domestic trade 
 and industry, nearly all States encourage invention by 
 the granting of patents or tempora.y monopolies, and 
 some States grant bounties upon manufactures. Can- 
 ada, for example, grants bounties upon the nianuf aeture 
 of pig iron. Some States give direct Ijonuses to indus- 
 tries, and some municipalities grant land and cash 
 bonuses, together with immunity from local taxation, fur 
 a period of years. This practice is extensively adopteii 
 by Canadian municipalities. 
 
 * An important incident in the Russian revolutionan' movemrnt at 10OJ-fl _ 
 waj the strucfle for an eight-hour day. ™ "- 
 
REGULATION OF DOMESTIC TRADE 343 
 
 In the case of states, tl.c practice of granting bonuses 
 to industries is not undiluted by the spirit of coZIh 
 t.o„ . th other states, as the practice in^e c«se77 £ 
 
 them. It IS not unusual for towns to compromise their 
 nninicpal credit by excessive grantmroTTnis 
 
 trrurdeTof";""!'^' " "'^'''" "««-«''**^ — " 
 ™! I 1 ^!. , ^'^"''' '° ^^"'-y as to affect the 
 
 kcal labor marke^ Under such circumstance? the 
 
 «n?, r """"'' '""'** "*>■ t*-^ *««'' through the r 
 -g^bill, otherwise they would be unable to obJain l" 
 
 310. Control of quasi-mompolhtic enterprises—The 
 most important series of regulations of the'^sort apply! 
 mg to specific classes of enterprises are those S 
 ^late to enterprises which in their natui^ are of a quast 
 monopolistic character. Among these the most consp J- 
 uou are banks, insurance companies, railways. eS ic 
 l-ghtmg companies, telephone companies. expr;ss S^! 
 pan.es and the like. The feature which ill of theseT 
 erprises have m common is that each of them comesTn 
 ontact with very large numbers, and in some cases 
 practically with the whole of the public. This fact is 
 the fundamental reason for attempts to regullte such 
 enterprises and their predecessors in all ages The irv- 
 ice of the post (which corresponds to the modem rail- 
 way) was regulated in Arabia at least as early as Se 
 enth century The services and charges of wate4 'n 
 
 .men. and the like, were regulated throughout™ u 
 rope from remote times as the services and charges of 
 ^mUar persons have been and are regulated throughout 
 
 The fundamental reaso.i for such regulation is not the 
 monopoly of the service, for many rVgulated services 
 
 m 
 
344 
 
 ECONOMICS 
 
 are not monojwlistic and many quasi-monopolies are not 
 regulated. The reason is tlie universality of the demand 
 for the service. 
 
 811. UniiLn.— The regulation of banks by the limita- 
 tion of their right to lend money, by the limitation of 
 their right to issue notes, by the requirement that they 
 should publish summaries of their periodical balance 
 sheets in a certain form, by provision for the inspection 
 of their financial position and the like, is intended for 
 the protection of the public, all of whom are assumed to 
 avail themselves of the services of banks in one form or 
 another. Thus, regulation of banks exists \i\ all coun- 
 tries in respect to some or to all of these particulars. 
 
 In Canada the charters of all chartered banks expire 
 at the same time, and are all simultaneously renewed 
 by a decennial Bank Act. While anyone may start a 
 bank, only chartered banks can issue notes. They are 
 permitted to do so to an amount equivalent to the amount 
 of their capital stock. Chartered banks are not required 
 by law to maintain specific proportions of reserve to lia- 
 bilities, but they must hold a certain proportion of their 
 reserve in "legal tenders" of the government. Against 
 these "legal tenders" the government holds gold, so that 
 the government really holds a certain proportion of the 
 reserve of the banks. 
 
 312. Responmhility of government.-— When the gov- 
 ernment undertakes duties of the kinds specified in its 
 acts, there is an implied obligation that these duties will 
 be efl^ciently performed. In most countries there is iin 
 express provision in the law that the government cannot 
 be sued in its own courts without leave from its own law 
 ofllcers. Such leave is never wisely withheld ; because if 
 it is refused, confidence in the justice and good will of 
 the government must be diminished. Whether such leave 
 
HEGULATION OF DOMESTIC TRADE 345 
 
 citizens. The gotrnrnnr V"'"'"*^'' ''•°'" "'-• ' 
 to regelate. .LTneSlv 7 '' ^'"■•^'' "'"^^^akea 
 
 '1— The «J.:e„"%f :°r'"'^^'''■*^"'*- 
 owes its position to a poDuJar .\ ^"''""'"'-'"t H-hich 
 <lisiiiis.sed. ^^"'"'^ '"*^ 's f'at it may be 
 
 eonti?*rh';"g:rtf °' r^"- "^ -n '-plied 
 
 '" compensate in son,e"..„s!. e t. r'"" ^"^^'•'""ent 
 '"in defaulting banron th^ "P""'*"" '" » «"- 
 
 <i'''^swerenotlkeni;tl.!:/r"^*''''* '^"^ P'-^cau- 
 'ificate to the banTin /„ '"f ;^ '^' '"•'■«''>«1 «'- 
 
 I-ncipJe of resporbilHyST'""' ^^ "•'''- The 
 effectiveness of reguattn is If r'"""'"* ^"'^ '^- 
 ^ems an inevitablfcoiv "f tT "P^''''*'°"' ^"* ■* 
 One of the argument aS,/ '■'^"'''*''^^ f"""^"""- 
 
 i^ that it rendis Cpff Se- TT^^^ ''^'^'^'^"^ 
 ^■^ts,andthatiteauses themT 1 ''' "'"''' "^" '»*"- 
 ♦« )"ok after then? Ex„l ' ^ r^"" ^''^ «°^'^™ent 
 "■ent is to a lar^ eS ., T S""' ""** ^^is argu- 
 l'«'ple wJ,o have^ol thf J ' ^"* '" P"'"* »' f«ct. 
 "-'selves on so ilJate ^I «"- ^''^ '''" *° ^"^''''^^ 
 "'estabilityofabankTi *™'* "^ l"^-**'"" a^ 
 
 'f-- itseemsr':itabts-;r"'°"™'*^^^- 
 
 ^'""■e the risk which a t^arlnV •^"''""'"'"* ^^o^W 
 "•"..Id share under Lila?;"*"" '"^"'•""^^ <='>mpany 
 ;^''ic^. the ^overnl t"t^ ~--; ^^ the'feel 
 
 ^'^'"•'ng this risk or a share of tt^ J " ' "^ '*'' 
 
 tn l>e increase,! Re^H- \^ ^'*' ^""^ "-equire 
 
 I 
 
 
 n 
 
MI<:«OCOI>Y IfSOlUTION TEST CHAIT 
 
 (ANSI ond ISO TEST CHART Nr, 2) 
 
 ^ /APPLIED IM/IGE Inc 
 
 j^y. 1653 Ea5t Mom Stieel 
 
 — -— Rochestoi, Ne* fori. U609 USA 
 
 '.^S (716) *82 - OJOO - Pfone 
 
 ^= (716) 28a- 5989 -To. 
 
346 
 
 ECONOMICS 
 
 314. Regulation of railKays. — The most conspicuous 
 example of government regulation of special classes (it 
 enterprise is the regulation of railways. This is effectc; 
 by various means. In England the railways are rejiu- 
 lated partly by general acts, and partly by specific acts 
 in respect to individual companies. The administration 
 of these acts is entrusted to a Railway Commission and 
 to the Railway Department of the Board of Trade. The 
 former deals with disputes between railways, although 
 these may also come before the Law Courts, and with 
 disputes between the railways and the public, althouj^h 
 these also may be made the subject of ordinary legal 
 procedure; the functions of the latter are chiefly to ad- 
 minister the acts relating to safety apphances and the 
 like, to hold inquiries into accidents and to act as inter- 
 mediary between the public and the railways in case of 
 need. 
 
 In the United States, the railways are regulated partly 
 by State Railroad Commissions and partly by the In- 
 ter-state Commerce Commission. The former deals with 
 questions arising within their respective states and the 
 latter with those questions which relate to traffic be- 
 tween one state and another. 
 
 In Canada the railways are regulated partly by Pro- 
 vincial Commissions, as in Ontario, but chiefly by the 
 Dominion Railway Commission. This Commission 
 deals with all questions relating to railways. It ap- 
 proves and disapproves of rates submitted to it by the 
 railway companies; and when these are approved they 
 cannot be altered without notice. It decides questions 
 of terminals and the like, and may within very large 
 limits order the railway companies to do certain things.' 
 
 315. Economic effect of railvsaji control. — The eco- 
 
 ' See also the section on "Traffic," Volume III of the Modern Bobinem tPit 
 
REGULATION- OF DO.MESTIC TllADK 347 
 
 nomic effect of the r .gulation of railways may be briefly 
 considered. Although the function of regulation of rail- 
 ways was primarily urged upon tlie State by tlie trading 
 public with the expectation that by some means the Stat^ 
 might diminish the cost of railway transportation, it is 
 doubtful whether this expectation has been realized to 
 any material extent. In some cases, no doubt, where 
 the rate charged by the company has been a rack rate 
 -that IS, a rate which was the highest rate which could 
 he charged under conditions of effective monopoly— such 
 a rate has been reduced by the action of a commission. 
 But whether rates in general are lower than they would 
 iiave been without any commission, is an extremely diffi- 
 cult question to answer. 
 
 If we assume that until the present, rates in general 
 have been materially reduced below the point to which 
 they would have been reduced by the railway companies 
 spontaneously, we must conclude that the profits of rail- 
 way enterprise have been also reduced. In that case 
 It must be more difficult than it would otherwise have 
 been to induce the investment of capital in railway 
 enterprise. A check upon investment of capital means 
 restriction of competition, and restriction of competition 
 means relatively high rates. It might therefore be 
 argued that government regulation of railways, in so 
 far as it is effective, is not necessarily productive of a 
 net diminution of the cost of transportation as a whole 
 and over a long period. 
 
 A conclusion of this kind must, however, in the 
 absence of sufficient data, be regarded as provisional. 
 [ihe regulation of railways in so far as it is concerned 
 ^«ith compelling them to use safety appliances, how- 
 ever pecuniarily costly such regulation and its effects 
 "la.v I)e, may well be regarded as socially advantageous 
 
348 
 
 ECONOMICS 
 
 l)ecause it tends to diminish tlie number of railway acci 
 dents. 
 
 316. The regulation of trustn. — The most conspicu- 
 ous example of government regulation of special fea- 
 tures which occur in many enterprises is the regulation 
 of "trusts." The expression "trust," as widely used in 
 the United States, appears to have derived its special 
 application to the form of industrial combination, which 
 it now implies, from the Standard Oil Trust which wa 
 formed in 1882. This trust united, by means of a formal 
 agreement, the large number of oil companies whidi 
 had previously formed an "alliance." The original 
 "alhance" was formed for the purpose of securiiij; 
 transportation for the product of its constituent com- 
 panies by means of pipe lines and by means of agree- 
 ments with the railways companies to carry the oil i 
 reduced rates. Other combinations of oil companies 
 were formed at the same time as the "alliance." Be- 
 tween it and the most important o^' 'hese combinations 
 there was a prolonged struggle whi :. lasted until 187 
 when the opponents of the Standard Oil "alliance" were 
 defeated. As consolidated in 1882, the Standanl Oil 
 Trust absorbed altogether forty companies besides the 
 
 iness of a number of individual oil producers. Such 
 , ..s the original form of the typical "trust;" but as tiie 
 expression afterwards come to be used, any grou]) of 
 persons who combined together with the intention of 
 restraining competitive trade or of fixing the prices of 
 commodities was regarded as a trust.' 
 
 The modern trust is thus the successor of the "en- 
 grosser" of the early part of the nineteenth century; and 
 it has acquired a similar unpopularity. The "engrosser" 
 
 ' This definition is fthhre^-iated from the definition given by Mr. S. C. T. DodA 
 Solicitor of the Standard Oil Company, in an article in the Harvard Law Re^n^ 
 for November, 1893, on "The Present Legal Status of Trusts." 
 
nKGULATION OF DO.MKSTIC TRADK 34!) 
 
 Imiffht up all the grain or other commodity which his 
 capital and credit enabled him to buv, fixed h-r own 
 price and endeavored to hold the grain until he o. .dined 
 that price. Sometimes he was successful; sometimes a 
 (,'ood harvest rendered his scheme impracticable; some- 
 times his granaries were broken open by a mob and his 
 grain distributed gratuitously; and sometimes he was 
 prosecuted by the government. The modern trust may 
 be regarded as being exposed to similar experiences. 
 
 317. Standard Oil Trust. -The formation of the 
 Standard Oil Trust was accomplished by the appoint- 
 ment of a board of trustees, to whom the stock in the 
 constituent companies was assigned by the owners- the 
 trustees issued trust certificates in exchange, and divi- 
 dends were paid to the holders of these certificates. This 
 process gave the trustees the control of all the con- 
 stituent companies. 
 
 This method was evidently adopted for the purpose of 
 avoiding an accusation of acting in "restraint of trade " 
 The Standard Oil Company had several imitators, and 
 in 1890, one of them, the Sugar Trust, in respect to one 
 of Its constituent companies, was prosecuted. 
 
 The Supreme Court of the State of Nev/ York de- 
 clared that the trust was illegal, and in 1892 the Supreme 
 Court of Ohio ordered the dissolution of the Standard 
 Oil Trust. The Sugar Trust then organized a new com- 
 pany, which purchased all the shares of the constituent 
 companies; but the Standard Oil trustees simply divided 
 the shares of the constituent companies among them- 
 selves and retained the control as formerly. 
 
 In 1899, however, the Standard Oil Company of 
 •imerica was formed under a charter of the State of 
 New Jersey, and this company absorbed the stock of the 
 constituent companies. The wide extension of the busi- 
 
 m 
 
 >9 
 
 I 
 I 
 
 •M> 
 
350 
 
 ECONOMICS 
 
 ness of the company, not only in America, but over 
 nearly the whole world, the extent to which it influenctd 
 or controlled railways and steamship lines, and the eni- 
 ba-kation of the group of financiers which administered 
 its affairs into many other enterprises, attracted uni- 
 versal attention to the proceeding. They did not have a 
 monopoly of the production of oil, although in 1004 
 they controlled abou*; 84 per cent of the domestic and 
 90 per cent of the export trade. 
 
 Hostility to the company grew with its own growth, 
 It was subjected to a series of prosecutions, and once 
 again it was ordered to dissolve. The dissolution of the 
 company does not appear to have effected any change in 
 the control. The group which effectively controlled the 
 company continue to control the elements of which the 
 company was composed. The dissolution seems to have 
 affected only its form, not its substance. 
 
 318. Objections to trusts in the United States. — Tlie 
 great furore against trusts in the United States is easily 
 intelligible. The large company with its power over 
 capital, esj)ecially through the banks which it controlled, 
 o\ier railways, and even over governments, appeared as 
 a menace to the small trader. He could not compete 
 with it; and it might intentionally or otherwise com- 
 pletely crush him. To the small .trader such influence 
 upon his banker and upon his railway company as the 
 trust could exert are impossible, and he naturally regards 
 the trust as an unscrupulous competitor. 
 
 In so far as the proceedings of the trusts are dishonor- 
 able, they cannot be defended ; when they are illegal it 
 is not beyond the power of the law courts to deal witli 
 them; but the demand that they should be abolished has 
 been shown to be very difficult to satisfy. The trust 
 is apparently an inevitable development of the joint' 
 
REGULATION OF DOMESTIC TRADE 35, 
 stock company and is not really fundamentally dissimi 
 
 forjhe purpose of making profit: the Lst I n^rj' 
 
 t J siaStr'-f "^ f'"'''"^ tru.t.-n, notion that 
 ortn 1 r V" '*" P""'^' *° P"^^^"* the growth 
 
 leaj Joubtfu? a"" r*'r''* ""•"• ^'^ ""*'- " «t 
 
 -rrfr^2siE;:-:srts 
 :traS;^.-r=----^^ 
 
 or a court of law place an arbitrary limit uponTZu P 
 •ng together of persons for the purnose nf „„,f ^ 
 an act or conducting a busines! S ^i^L^^^^ 
 performed or conducted by an apparent!y sSer or 
 different groupof persons? Evenif the State succtded 
 P miposmg an arbitrary limit, in what manner ,^uW 
 this procedure increase the "national dividend" oTthe 
 national welfare? In so far as the question of prefer 
 nces m railway rates or otherwise is concerned, it would 
 appear o be practicable to prevent these by th^ consist 
 nt app .cat onega, measures to those'who pract^ 
 
 nat"n of thai"?!? ""''"*°°'' ''"'' ^^^^ J'«'« '««<="mi- 
 nation ot that kind now exists. 
 
 Beyond that, however, it is difficult to go. A chance 
 
 ^veral is quite ummportant if the same group of per- 
 «'ns remain m command. • Public hostil^v is indeed 
 argely directed against specially conspicuou groups 
 be ause they use or are alleged to use the power Zy 
 possess unscrupulously, not because they possess the 
 
 I 
 
352 
 
 ECONOMICS 
 
 power. If, then, unscrupiilousness is prevented, a large 
 part of the hostility must disappear. 
 
 820. Stock ■watering. — Apart from the public objec- 
 tion to the operation of the trust, interest has been 
 troused by the methods which have been employed in 
 their organization. The aggregate capital invested in 
 the physical plant of the constituent companies having 
 been ascertained and deduction from or addition to this 
 aggregate being made in respect to forced sale or forced 
 purchase, the aggregate amount was usually increased 
 by the amount estimated as representing the good will 
 of the going businesses which were brought into the 
 trust. This was sometimes done by means of a pool, 
 without any re-issue of capital. But where the constitu- 
 ent companies were absorbed in a new company, which 
 was formed for the purpose, or where the capital of each 
 company was subjected to readjustment in view of the 
 altered possibilities of the business, the aggregate of the 
 elements above indicated were customarily converted into 
 bonds or into bonds and preferred stock. These bonds 
 or shares of preferred stock were transferred to tiie 
 shareholders of the constituent companies as payment 
 for their enterprises, or the shareholders were paid in 
 cash as was arranged. In any event, the bonds and the 
 preferred stock represented the whole of the cost to the 
 amalgamating syndicate (generally composed of the 
 chief among the oiRcers of the constituent companies), 
 of the plants and businesses which had been combined. 
 The intention of the promoters of the combination was 
 to increase the aggregate value of their properties by 
 means of the combination. 
 
 Since the bonds and preferred stock bear a fixed rate 
 of interest and dividend, it is clear that if a balance of 
 profit should remain after the payment of the fixed 
 
REGULATION OF DOMKSTIC TRADK 333 
 
 charges upon tlie bonds and the pitltTrcd stock, there 
 would exist no means of pro rata .livision cxeeptin^ by 
 occasional or i)eriodical bon.i.s as the profit accrued 
 The effect of such a plan would be that if a bonus were 
 anticipated or declared, the bonds or preferred stock (the 
 holders of which being entitled to participate in the 
 bonus) would rise in price. Under normal conditions 
 the price would be the amount which the market -sti- 
 mated on the value of the bonds at the determined rate 
 of interest plus the value of the bonus. If the holders 
 of the bonds and jjreferre.I stock would sell neither the 
 securities they held nor their rights to the bonus, there 
 would, of course, be no market, nor would there be a 
 market if all securities of the kind in (juestion were so 
 depressed that no one wanted to buy either the bonds or 
 shares or their contingent rights at any price. 
 
 The only practicable alternative to the bonus system is 
 the cr-ation of common stock to be held by the possess- 
 ors of the bonds and preferred shares for the exclusive 
 purpose of providing a means whereby surplus earnings 
 over and above fixed charges under the original financial 
 arrangement, might be distributed. In one sense, this 
 common stock is usually wholly fictitious because it is 
 not at the beginning of the new enterprise represented 
 either by capital in a physical sense or by good will as 
 estimated by the parties to the original bargain. 
 
 Yet sometimes the stock eve- at the beginning has a 
 present value, apart from a prospective value,' because 
 a part of the price of the bonds is paid for them in con- 
 sideration of their being accompanied by a certain num- 
 Der of shares of stock. This discounted value is taken 
 into account in the price of the bonds. The shares are, 
 therefore, not in the position of being valueless, but 
 are in the position of having attached to them a dis- 
 C-l-23 
 
354 
 
 FX'ONO.MUS 
 
 rounted value in respect to possible future earninj? 
 , wer. 
 
 If the company is successful, a dividend will eventu- 
 ally be paid up i. the common stcwk; if it is not success- 
 ful, no dividends will be paid and the company may even 
 default in the payment of the dividends on its prrferre(' 
 stock and on the interest upon its bonds. In the form< 
 case the public will clamor for the stock in the market 
 and will compete for tho purchase of it, hoping to gain 
 a share of the further anticipated profits of the successful 
 ei.terprise; in the latter case, common stock and bonds 
 will be alike unsalable. 
 
 It must be allowpd that the practice of issuing common 
 stock in this manner affords opportunity for fraud, 
 through misstatements of the possible profits of the cii- 
 terp'ise. The owners of the bonds and preferred stock 
 usually retain in their han sufficient amount of com- 
 mon stock to enable them to retain effective control of 
 the property. This ma kes it possible for them to man i p- 
 ulate the market in the common stock of their own entor- 
 prise with advantage to themselves. 
 
 Such reduced to a simple form 's the process of stock 
 watering. The effects of the process do not differ from 
 those of the inflation of prices of land, with which indeed, 
 some of the stock-watering operations are closely con- 
 nected. Legislative measures against fraud are some- 
 times suffir '^ntly enforced to diminish or prevent it; l)iit 
 no legislative measure can suffice to prevent people 
 eager to possess something for A-hich they have not 
 toiled, from entering a trap baited with the thing tiicy 
 want to acquire. When fraud and ignorance have, how- 
 ever, been eliminated from the process known as stock- 
 watering, there remains in it an element of deliberately 
 accepted and discounted risk which is an inevitable eon- 
 
HWSIt.ATIO.V OF IKIMKSTK THADE 3M 
 
 coniitant of cntinuoM.s Lusincs and wl.ich must be pro- 
 \ Klcd for III sonic appropriate niantier. 
 
 The practiec of stock watering as almve descril)c<l. is 
 «.der than the tn.st; l,„t in ,„ost of the newer trusts it 
 appears as an iiisq.arahle incident. Kxecpt in so far as 
 tlie practice may be accompanid by deliberate fraud and 
 "xcept in so far as it may. .viii^ to its nature, divert 
 capital from really pro,lucti\oenter|.risos to apparently, 
 but not really, productive enterprises, it cannot fairly be 
 held o be socially disadvantageous, no matter how many 
 people Ignorant of business may Ik; involved in loss in 
 consequence. Such people may be expected to make 
 loolisli investments in any case. 
 
 821. Conclusion of indnnlrial com mimon.— The con- 
 clusion of the Industrial Commission of the United 
 .States regarding trusts is that, assuming the cost of 
 production of the commo.lities. which have Iieen sub- 
 jected to their influence, to l.ave .liniinished, the margin 
 ot profit obtaiiutl by the trusts has increased, since prices 
 to the consnnur ha^ either remained the same or have 
 advanced. Such « ^icl.iMon would be equally difficult 
 to defend and to re, ,ae. The assumption upon which it 
 IS based is, howew • „robably ?n many cases question- 
 able. The law ,. . : l,„ig returns in mineral ex- 
 ploitation, for ex!. tenis to lead rather to an in- 
 crease in tlie cost .,. r,„|uction than to a dii.inution. 
 f'ven if it were soumi. in an economic sense, to attribute 
 to the trust all the evi v|„H, popular imagination has 
 suggested, the trust i " 
 ,»?rowth, like a goitre, cm 
 to cut off. 
 
 322. National ou-ncrslu 
 "btain the land of a counti 
 or by purchase. It may eithi i- i 
 
 b( regarded as a morbid 
 1-i. iCti'ijs to sustain and 
 
 'nM 
 
 'I'lic State may 
 'v, by coiKjuest 
 and manage it 
 
 'A. 
 
359 
 
 KCONOMICS 
 
 by State offlcinls, or it nmy stll, lease or give it away 
 ill free grants. If the State retaiiieil and udininistereil 
 the land, it would \ie necessary, if it were to iic utilized, 
 to do so by meons either of for-ed or of free hired lal)or. 
 There are importont historieol instances of large ureas 
 of land being held and administered by the State both 
 by forced lulnir (as in Ri'ssia, especially in the times of 
 Peter the (Jrcot and Katherinc II) and by free bin I 
 labor (as in Russia at the present time). 
 
 Given ade(|uately skilful administration, there is, in 
 the nature of .nings, no reason why the produce of a 
 State domain should not be as large as that of a private 
 domain of the same dimensions under similar manage- 
 ment. Kxperience has shown, however, in every histor- 
 ical case, that considerati' is other than economic havo 
 compromised the economi .1 success of State administra- 
 tion of land. The administration has been either too 
 lax or too rigid. ^Vhen it was too \px the State suf- 
 fered, and when it was too rigid the p' , le suffered, and 
 often relielled. Ifk both cases the Sta . lost materially 
 and in prestige. 
 
 823. Dktribution of land a general polic;/.— The 
 practical difficulties which arose from the intimacy bt- 
 tween the State administration and the economicol rela- 
 tions of the people were so great that, in all highly devel- 
 oped modern nations, the policy of alienating the public 
 lands has developed. This policy appeared to be neces- 
 sary in newly discovered or newly conquered countries in 
 which the population was scanty and to which it was 
 impossible to induce immigration on other terms tliaii 
 by liberal grants or sales of land. Such grants or sales 
 were made to individuals on conditions of settlement 
 or to companies on condition of obtaining settlers. 
 Direct revenue from the land, even if such a revenue 
 
HKorr.ATio.v or noMvsrir ti.adi; ,,,7 
 
 <^ul<l l)c recovered hv tlip "<fiit.. ...„ i 
 
 ; o,e of the public ,„„.,. .,f borrLc-f^TS: '^ ^ 
 
 ated or .s .n course of alienation, at all event, n .If 
 as any desire for possession has n^'ade^ ^e^ deT 
 ll.e pubhc lands having been alienated, eTumption 
 
 irfhase Th?/ 1 •' '« T'^' ''-^ conflseutionTr by 
 ZZ«T , , '* '"^^"'"'^ '""y '^^ 'Jismissed as bein^ 
 
 npract,cable, apart from any question of justice tS 
 Lose who have been induced to become citizen" Jthe 
 respect,ve countries by promises of free land Z f a 
 method appears to be Equally impttlcT ^ "17^ 
 
 tJnf "'^j,''""' '''^ the community and the releasVof 
 great numbers from the labor of production The 
 
 ^i 
 
 
 4 
 
338 
 
 ECONOMICS 
 
 economic disturbance which such an operation would in- 
 volve would be incalculable. 
 
 The same considerations apply to the acquisition by 
 the State of the means of production other than land. 
 The complicated mechanism of modern industry could 
 not be acquired by any State without formidable inter- 
 national difficulties. Such difficulties would be great in 
 proportion to the magnitude of the interests involved. 
 The result of the operation, if it were carried out, might 
 not be an increase, but rather a diminution of the 
 "national dividend," unless it is supposed that produc- 
 tion for the State went on as actively as it now does for 
 individual advantage. 
 
 324. Nationalization of industry. — That it would be 
 possible for a modern State to undertake gradually 
 the administration of all industries and of all sys- 
 tems of transportation and the like — in other words, 
 to possess itself of the means of production — may be 
 granted. But when this is accomplished would the 
 "national dividend"— that is, the aggregate of product- 
 be less or more than it is now? If the characteristic of 
 production under the capitalist system is a feverish haste 
 in exploitation and manufacture, and if on social grounds 
 this is a matter of objection, is it to be concluded that 
 production under a system of State collectivism would be 
 less in the absence of this feverish haste than it is now? 
 
 Even if the system of distribution under State man- 
 agement were ideal, there seems grave reason to believe 
 that there would be less to distribute. It may be that 
 the world is too well off and that it consumes too much; 
 but it would be hazardous to diminish production on that 
 hypothesis. 
 
 The fundamental social question is not, after all, one 
 of distribution, but is one of production. The methods 
 
REGULATION OF DOMESTIC TRADE 359 
 
 of distribution are no doubt defective, but to diminish 
 production is not necessarily a means of mending them. 
 It IS suggested that this test of production may be ap- 
 phed to any project having for its object the national- 
 ization of any industry. The experience of govern- 
 ment management in all countries and among all races 
 seems to show that it is, at least, doubtful if under na- 
 tionalization of industry, so large a "national dividend" 
 would be available as under the existing system. It is 
 possible that the "national dividend" might be dimin- 
 ished even though the system of compulsory service in 
 the army, which obtains in Continental Europe, were 
 applied to industry, for experience has not shown con- 
 clusively that forced labor is as productive as voluntary 
 labor. 
 
 The socialist Premier of France, M. Briand, did not 
 act illogically, from the socialistic point of view, in call- 
 ing out striking railway men as reservists and requiring 
 them to return as soldiers to the work which they had left 
 as railway servants. The close connection between com- 
 pulsorj' service in one branch of the activities of the State 
 and the probability of compulsory service in another 
 could not have been more fully demonstrated. 
 
 325. Trusts are a step towards national ownership.— 
 Such a test as is suggested above would not, however, by 
 any means exhaust the subject. Neither increase of pro- 
 duction nor improvement in the system of distribution 
 are the sole ends of social life. Desire for political power 
 to the extent of complete control of the executive gov- 
 ernment by the working class, in so far as such desire 
 exists, is not likely to be diverted by fear of what must 
 appear to it as the remote contingency of a possible 
 diminution of the product of labor. For those who en- 
 tertain the idea that the evolution of society is making 
 
360 
 
 ECOXOJIICS 
 
 for the nationalization of the means of production, the 
 trusts have no terrors. The greater the combination, 
 the more effective the monopoly, the more definite the 
 control over prices which the trust exercises; in short, the 
 more nearly the power of the trust approximates to the 
 power of the State, the more is proved, from this point 
 of view, at once the necessity of owning, rather than of 
 controlling the trusts by the State and the practicability 
 of the management l,y the State of large enterprises. 
 This view is, however, based on very large assumptions. 
 
 Apart from the question of the possible diminution 
 of product under a system of complete nationalization 
 of the means of production, there are also the questions 
 of the international character assumed by modern com- 
 merce, and of the international character of modern 
 capital. 
 
 The question of the position of those industries which 
 the State might absorb is an important one. At present, 
 holders of industrial securities are subject to the fluctu- 
 ations of the market for such securities. When profits 
 are high and trade is brisk, dividends are high. When 
 trade is dull, dividends may disappear. If the State as- 
 sumed the industries and undertook to pay interest upon 
 the capital invested, on any conceivable basis of valu- 
 ation, the State credit would be involved in the payment 
 of a fixed rate of interest. At the present moment, there 
 is a large class of security holders in all countries. Un- 
 der the nationalization of industry this class would be 
 enormously increased. Its interest would be by no 
 means identical with those of the workers in the State 
 workshops. A new and serious class struggle might 
 easily develop between the security holders and the work- 
 ers, even if a large number of the latter were to be found 
 among the former. The security holders would require 
 
REGULATIOX OF DOMESTIC TRADE 361 
 
 to secure and to exercise considerable political power 
 m order to prevent the possibility of repudiation. Tv- 
 proposal o absorb industrial enterprises by merely con- 
 fisca .ng them would not only divide society into Two 
 hosfe camps, but would involve, in effect, the ex er- 
 rmnatjon of one of them. In any case it w;uld appear 
 hat the socahst State would encounter problems not 
 ess senous than those which are now encountered un.le 
 the capitahst system. 
 
CHAPPTER III 
 
 TAXATION 
 
 326. The revenue. — The peculiarity which distin- 
 guislies the revenue of the State from private revenue 
 is that while the amount of private expenditure depends 
 upon the amount of income, the amount of the State 
 revenue is determined by the amount of expenditure, 
 (liven certain expenses, the finance minister of the State 
 is obliged to find the revenue to meet them either bv 
 collecting it fr^m the people or by borrowing it. 
 
 Collection of revenue may be effected in two ways— 
 by taxation or by receiving payment for direct services 
 rendered to certain persons by State officials. The rev- 
 enue from taxction is derived from the people. Under 
 whatever form it may appear, it is a deduction from tlie 
 incomes of those who contribute to it, or it may be re- 
 garded as a deduction from the available aggregate 
 national income. 
 
 327. Taxes on income. — Taxes may be imposed di- 
 rectly upon those upon whom it is intended their burden 
 should fall, or they may be imposed upon persons by 
 whom they may be transferred to others. An income 
 tax is an example of a direct tax and an import duty is 
 an example of an indirect tax. The policy of a country 
 as to the method of taxation must depend largely upon 
 the customs methods to which the people have become 
 accustomed. A tax which causes irritation is primn 
 facie not a good tax. 
 
 see 
 
Taxation 
 
 363 
 
 For example, the people of Great Britain have become 
 accustomed to an income tax, wliile in the United States 
 the new meome tax is unpopular because the people are 
 not habituated to it. Income tax is levied in Canadian 
 cities without formidable objection, but in Berlin an 
 attempt to impose an income tax led to widespread re- 
 fusal to pay it. A municipal income tax in Great Bri- 
 tain would be likely to meet with similar opposition. 
 \\ hile heavy import duties upon manufactured goods 
 and upon agricultural produce are in force in the United 
 States and in Canada, such duties are not levied in Great 
 Mntain, and two recent movements, one in 1884 and the 
 other since 1900, having for their obiect the levying of 
 such duties, have met with hostility. 
 
 328. Imports and cxports.—'The interest of a ere .itor 
 country, that is to say, a country whose people have a 
 large part of their capital invested abroad, must lie 
 rather in the facilitation of imports than in imjjeding 
 them, because the interest of its foreign investments and 
 the repayment of capital invested abroad are insured by 
 tliese imports. 
 
 On the other hand, the interest of a debtor country, 
 that is, a country which has borrowed heavily, may lie in 
 discouraging importation, and in encouraging e.xporta- 
 ♦■in, the latter being the means by which it meets its 
 ^ign obligations. When a country is borrowing, 
 hurt-ever, it must import, although it may not do so from 
 the country from which it borrows. Canada, for in- 
 stance, has been borrowing heavily from Great Britain, 
 but has not been importing heavily from that country. 
 The loans effected in Great Britain have entered Canada 
 as imports from the United States. The transference 
 has been conducted by means of the extensive credits 
 established in favor of Great Britain, in the United 
 
 H&i 
 
 :|j 
 
 jifc 
 
364 
 
 ECONO-MICS 
 
 States through the interest upon investments there, and 
 through the repurchase by that country of some of tii( 
 securities formerly held in Great Britain. In the main, 
 Great Britain has been selling United States securities 
 and buying Canadian. This process accounts to some 
 extent for the falling off in price of United States securi- 
 ties, because the domestic demand for them has not been 
 sufficient to digest them at the price at which they stoiKJ 
 when the British and European demand was greater 
 than it is now. 
 
 The credit of a country depends very largely, although 
 not exclusively, upon the character of its imports duriiij; 
 a period of borrowing. If its imports during that 
 period consist, in the main, of articles of luxurious con- 
 sumption, its credit must diminish because it will be evi- 
 dent that the money which it has borrowed has not been 
 productively employed. If, on the other hand, i.s im- 
 ports consist in the main of iron for railway and other 
 construction and of machinery, it is evident that the 
 money it has borrowed has in the main been expended 
 productively. It must be realized, however, that it is 
 possible to strain credit by borrowing even for' these '' 
 purposes, because the expenditure in highly durable 
 forms of capital may be greater than the general eco- 
 nomic conditions justify. 
 
 329. International trade depends upon comparatke 
 prices. — Since the quantity of goods which a country 
 exports must depend upon the comparative prices of the 
 goods in that country and the countries to which it ex- 
 ports, it is evident that a country in which all manufac- 
 tures are protected by a high tariff is not in a favorable 
 position to export manufactured goods unless these :■■ 
 sold abroad at a lower price than they are sold at home. 
 This condition, which is known as "dumping," ncca- 
 
TAXATION 
 
 365 
 
 sionally occurs. When it does occur, however, it is im- 
 mediately followed by a reaction against protection, on 
 tiie ground that the foreigner is placed in a more favora- 
 ble position as purchaser than the native customer. 
 
 In general, a country which protects its native manu- 
 facturers heavily, and which therefore holds these at 
 higher prices than countries in which they are not so 
 iieavily protected, if it exports at all, must export raw 
 materials or the products of exploitative industry. Thus 
 Canada exports wheat and lumber and the United 
 States wheat and cotton. 
 
 A prohibitory tariff, if it be successful in excluding 
 goods, cannot contribute revenue to the State. Even 
 a protective tariff is not necessarily productive of rev- 
 enue. For revenue purposes, a relatively low tariff 
 must be adopted or other means of taxation must be 
 found. 
 
 330. Chmfication of revenue.— 'Rtvmw may be de- 
 rived from the sale of natural resources (as in the case 
 "f timber, lands or minerals) ; it may be derived from 
 leases (as in the case of lands) ; it may be derived from 
 license fees or special taxes imposed upon certain busi- 
 nesses. It may be derived from a series of special taxes 
 upon business, based upon income or upon capital, or 
 otherwise; or it may be derived from a general tax upon 
 property, or by a general tax upon income, in both cases 
 with certain inferior hmits, or by means of a graduated 
 scale. Or, revenue may be derived by means of a tax 
 'Don land, urban or rural, or both. All of these methods 
 'ia>e been adopted in the United States and in Canada. 
 
 In Upper Canada, before Confederation, licenses to 
 carry on certain businesses formed a large part of the 
 revenue. Later, licenses to cut timber and to engage 
 m mining in certain places brought in a considerable 
 
 >'A\ 
 
am 
 
 ECONOiMICS 
 
 income. Import duties were levied at Quebec as well 
 as at the upjxjr Canadian ports, and were afterwards 
 divided in certain proportions between the upper anil 
 lower Provinces. When the "casual and territorial 
 revenues of the Crown" were transferred to the provin- 
 cial governments, a small amount was realized from sales 
 of land and from an insignificant land tax which was 
 generally in arrears. 
 
 After Confederation the import duties were with- 
 drawn from provincial control, and the revenue collected 
 by the provinces was supplemented by a Dominion sub- 
 sidy. The revenue, as thus constituted, did not suffice 
 for the provincial .'xpenditures, and further sources of 
 revenue had to be found. A beginning was made in 
 Ontario by the imposition of Succession or Death duties 
 and later by the taxation of corporations. 
 
 In the United States the revenue from certain licenses 
 and the import duties are reserved for the Federal Clov- 
 ernment, while states have separately engaged in experi- 
 ments in other means of raising a revenue. 
 
 Notwithstanding ardent advocacy for many years. 
 land taxes form nowhere the bulk of the revenue of mod- 
 ern nations. In new countries, where the population is 
 scanty and the primary need of the country is immigra- 
 tion, a heavj' land tax or an illiberal policy respecting 
 land would act as a deterrent of immigration. In older 
 settled countries, a heavy land tax is more feasible, liut 
 its imposition tends to throw many burdens upon the 
 shoulders of the landowner because the prestige of land- 
 owning has been diminished and the price of lanil 
 reduced. The ownership of land has been wholly cdDi- 
 merciali/.ed. Through the influence of taxation anil 
 otherwise, the landowner refuses to bear the social bnr- 
 dens to which he formerly submitted as an incident d 
 
'I'AXATION 3„7 
 
 lii. position. For exan.plcs the maintenance of hn-al 
 
 mtahy thrown upon the States. The jjain, if any 
 from taxatum. is thus at least pa.tially '^ff.s^t by Tn' 
 ...crease .n the publie bunlens. The soeiul a.Jva,fta«e 
 wh.eh may be hel.l to aeerue from the elimination "f the 
 n<m.eeonom,c element in lan.lhol.ling is not necessarily 
 acc-ompanied by a net econonuc j^nin ^ 
 
 381. Graduated income ta,v.~lu must be allowed that 
 popular conception of taxation has l.en changing 
 «th the changes u. the doctrine of the functions of the 
 State. Smce the State has come to be regar.led not 
 -nerely as a regulative agent, but also as cJlector a 
 .st.butor of w;ealth. the idea of discriminating betwee 
 ose forms of mcome which are presun,e,l to I,e earned 
 abor o some kind and those forms of income which 
 appear to be due to adventitious gains or unearned in- 
 c me. as ,t .s called, has crept into the taxation policy 
 of many countries. ^ ^ 
 
 A rough and ready method of effecting this discrimi- 
 na .on .s the graduated income tax. In^'this svsteT t 
 IS assumed that up to a certain point the receiver of an 
 .ncome may earn it, and that above ti,at point his income 
 .s reccved, but not earned. Sin.ilarly i is proposed to 
 apj-ropr-ate for the purposes of the State b/mean^of a 
 special tax upon sales of land, at least a part of tha^ 
 "rt.on of the increased value of land, where such t 
 rease occurs, which is presumed to be due to adventi- 
 .ons causes for example, to the general increr.se in the 
 numbers or m the wealth of the population 
 
 It should be observed, that while a graduated income 
 ax may react by driving persons who enjoy large in! 
 comes out of a country where these incomes are. in thdr 
 op....on, exorbitantly taxed, a heavy tax on land might 
 
 i 
 
 
368 
 
 KCONOMlf'H 
 
 react in diminUhing the nobility of property in land l)y 
 rendering such pr<)j)er y insecure, an(I might, therefort, 
 resui. in tlie diminution of the value of land in such .' 
 way as to diminish, instead of increasing, the reveniio 
 yielded by a land tax. 
 
 882. Two theories of taxation. — It is clear that in hII 
 such experiments in taxation, those who are respon.sil>le 
 for the policy of the State must consider not mertly 
 what the State may presume it has a "light" to take 
 from the people, but what economic reactions may take 
 place owing to the exercise of that "right." 
 
 There are, broadly, two theories of taxation. By one 
 theory it is explained that the taxation which is imposed 
 by a well-ordered modern State, is simply a payment li ;• 
 the citizens for services rendered by the State to tliini 
 — services of organization, defence, etc. — and that, thirt- 
 fore, the increased taxation is not a net increase. Imt 
 merely an addition;d payment for more numerous or 
 more valuable services. In fact, from this point of view. 
 there is really no tax burden because the State returns 
 at least as much value as the tax represents — that is, at 
 least as much value in the consumers' sense, since tlie 
 State is presumed to render the services at their cost 
 taken as a whole. 
 
 The other theory explains that all taxation is a burden 
 upon the people, that it means a deduction from tlieir 
 disposable incomes, and that, although the services which 
 are rendered by the State must be rendered, their 
 cost is so much greater than the cost when rendered by 
 private persons that the more services the State under- 
 takes the greater the disadvantage of the people. This 
 is so because they have to pay more in taxes than they 
 would have to pay for the services. According to this 
 theory, it is not expedient for the State to take out of the 
 
ind l)y 
 refiirt, 
 nicli .' 
 
 : in hII 
 )n.sil>l(' 
 licroly 
 [> take 
 y take 
 
 }y one 
 
 iposcil 
 eiit li. 
 ) tliiiii 
 thtri- 
 le, Iiiit 
 Dus or 
 f view, 
 •etiinis 
 t is, at 
 ice tlie 
 ir cost 
 
 burden 
 n tiieir 
 i which 
 , their 
 red by 
 under- 
 This 
 ,n thev 
 to this 
 : of tlie 
 
 TAXATION ,,„ 
 
 IxK-kets of the Hoplc any .....re than is nb.solutcly .„ ■«- 
 s«ry. 1 Ins ca.um wo.,' | n-duce the .sc-rvicc.s „f the S ate 
 t" a m.„,„u .... unless it cnM he shown that these ser ' 
 Kes were bc.,nff ren.lere.i hy the State as econon.iry 
 (- the^^^^^ sense) as they c.uld he rendered by prii^ 
 
 ;^st!^:!:;';!: *:!:'^- '-'"'-•>-•-■- «.o 
 
 Tc fhaii 
 •hid) is 
 external 
 !>en(" N. 
 'Wic ail- 
 m fiitili 
 fcssa \' or 
 
 services rendered by ,.,e State compensate 
 compensate for it. aj.pears to in.luce tic I., 
 niore or less prevalent, that ihc State is 
 heneheent a^ent. which Rratiiitously l,c«« 
 I his view apjHjars to lead to extiavaKanw , 
 'nmistration, to the embarkation of the St« 
 enterprises and to the employment of n,. 
 ".competent functionaries. The other t;„ „ry is ^ 
 ciated with two famous doctrincs-the .hx-trhu fife 
 ab.so ute sovereignty of the State „n,l the doetrin, Z 
 
 results from the exercise of the function, of the *< 1 
 and IS. therefore, wholly due to the St.. Tl . f ^Jr 
 
 ecttd. but ,ts implications remain in such for,, „ ... 
 theory of taxation in que ,tion. The latter .lo..tr s 
 qurte at variance with the idea that any share ..• u.e 
 
 oduct IS due to any of the contrihutories to p, ., .t 
 
 St ' f 't''"'I''"* '"^"' "' ''"e t" the exercise of th. 
 State function as a condition precedent to the realisation 
 fanv surplus private or public, this is equally tr..e of 
 the value of abor. It is true of ..1! ,.„i i 
 
 -"";»'■ -.e. T;::,:L';t'>:^r"f,s 
 
 ProJMt, fcirf for He p„,p„,e rf ncqnirfng „„„,„, 
 ..I». p,.«„..I h,v, ,„„g l,,„, . „,rt«„ r„li„„i„|,,Ld 
 
 C— I— 24 
 
 m 
 
 *i?i 
 
370 
 
 ECONOMICS 
 
 some of their have been incorporated into the tax laws 
 of vuriotw countries. In so far as siicli projects arc car- 
 ried out, the effect of them is a diminution of individual 
 liberty. 
 
 388. Who paya <(WM?— While certain taxes cannot 
 fail to he borne by those ujion whom they are directly 
 levied by the state, the class of taxes customarily know n 
 as indirect may be transferred from the shoulders of 
 the person upon whom they arc, in the first instance, im- 
 posed, to the shoulders of other iiersons. For example, 
 an excise duty upon tobacco or spirits is levied upnn 
 the manufacturers, and a customs d\ity upon the siiiiie 
 commodities upon the importers; but usually, the duty 
 in both cases is tran-iferred to those who purchased the 
 commodities for consumption. The case of other im- 
 ported goods is less obvious. 
 
 The question is, can the incidence of taxation bi' de- 
 termined with any appro«ch to precision? The prin- 
 ciple upon which it may t j determined has already Imp 
 described in connection with the effect upon prices it 
 the imposition of a tariff. It is indeed through prices 
 that the reactions of taxes occur. By means of trans- 
 actions in which the goods which are the objects of tax- 
 ation pass from one hand to another, the taxes are trans- 
 ferred from one shoulder co another. 
 
 If reference is made to the previous statement it will 
 be gathered that in respect to taxes, in gene il, as in 
 respect to import duties in particular, the state of the 
 economic atmosphere will determine the classes of per- 
 sons upon wliom they will fall. If the atmosphere were 
 highly competitive as regards production of the com- 
 modity upon which the tax is imposed, then the ta\ 
 would tend to fall upon the consumer; if it were cnm 
 pletely monopolistic as regards production, the 'is 
 
TAXATION' 
 
 371 
 
 ""^^ 
 
 tax Ihws 
 s arc car- 
 individual 
 
 es cannot 
 c directly 
 ily knoHii 
 lulders of 
 tance, iiii- 
 • exampio, 
 I'ied upnii 
 
 the sill lie 
 , the duty 
 :hased tlit 
 
 other iin- 
 
 ion he lie- 
 Tiie i)rin- 
 •eady liwii 
 I prices if 
 ugh pricfs 
 i of trans- 
 cts of tnx' 
 ; are tranS' 
 
 lent it will 
 e l\, as in 
 tate of the 
 ses of per- 
 phere were 
 f the com- 1 
 en tlic taj| 
 were en"!' 
 1, the 'mI 
 
 «;.M.I<I tend to fall upon the pr.Hh.ccr. In all intcr.nc 
 <liutc positions the tax would Ik- .livided 
 
 nai. ilarfrin,,! pro.i,urr.- -There are. howc•^•er. cvrtain 
 miphcafons of tk- general tli.,.,-y «hi..|,- „,,,,,,. ,„ ,,;.' 
 «,n taxes. J „-e a.ss.nne that the c-o,„petitlon' of lalK,rcr 
 uth lahorer for en>ployn.ent is so keen that all lalK,rcr, 
 re In nK at the lowest possihle ,v„Ke upon which it is 
 poss-hle for then, to subsist, it is clear f.at to in.pos. a 
 .=x upon w„Kes nouhl he ahsur.l-under such con htion, 
 la H,rers could pay no taxes. If .e assume that „,,- 
 .l".vers are all working upon ,„,.rKi„„l ,,r„Ht.,. that is. 
 or subsistence wa^es of superintendence, it is clear, also 
 tim a tax upon the gross income of such employers 
 -u d not he realised. If „„ „t,.,„,„t t., ,„„,,, Y, ^'j;^ 
 "..ule. all such employers must he driven ou» of business 
 S.m.lar conditions might be assumed in respect to 
 -n-l and to capital. If the land yielded no rent' a tax 
 • on .t conid not be realize.I unless the lun.lowner had 
 ..tlier sources of income. If the capital viel.le.l r-.o in- 
 terest a tax upon it would diminish tlie "amount of I' 
 and If he tax were continue.!, that amount would 
 actually be exhausted. If all the various economic 
 groups were on the margin, that is to sav, at the very 
 j'"-nn.um of subsistence, the collection of taxes would 
 e impossible. If any one member of the group is at 
 he minimum, the eollect:.n of a tax upon that member 
 would be imi)f.ssible. 
 
 335. Economic strength of ^roups.-Afram, if the 
 
 conom, eonditions of the time (a time. L instance, 
 
 J^e tl,at immediately succeeding an epidemic) enabled 
 
 1!S7T *".''^'"""'l t'"^ "•'•":'■ "f tl>e net product. 
 
 «stence of the employer, capitalist and landowner, the 
 
 I 
 
37e 
 
 ECONOMICS 
 
 whole burden of taxation must fall upon the laborers. 
 The same is true of the other groups. 
 
 If, for example, the landowner absorbed in rent all the 
 net product— all the value of the product of productive 
 operations in excess of the bare subsistence of laborers, 
 employers and capitalists — the burden of taxation must 
 fall upon his ample shoulders. If the capitalist absorbs 
 through usurious rates of interest all the excess income 
 of the community above bare subsistence, he in turn will 
 have to contribute all that is collected for the main- 
 tenance of the State. This is, however, only anotlitr 
 way of saying that everybody must pay taxes either 
 directly or indirectly through reduction of his income in 
 some form or another. The essential point to remem- 
 ber is that taxes are borne by persons and not by things. 
 A tax upon a commodity is a tax upon the consumer 
 of the commodity or upon the producer— a tax upon 
 land is a tax upon the person who uses it. 
 
 It is true that a tax upon land might be paid by a 
 person who possessed land but did not use it. In tiiat 
 case he would require to pay the amount of the tax nut 
 of resources other than those yielded by the land in 
 question. Thus, the tax, although levied in respect of 
 his land, would really be paid from income, derived 
 otherwise than from land and would therefore be a tax 
 upon that income. If he borrowed the money to pay 
 the tax upon land, he could do so only up to the limit 
 of the security which the land represented. This seeiir- 
 ity would be' determined by the use to which the liiiiJ 
 might be put and the amount of the tax which had liecu 
 paid would form a deduction from the jirice recoi^illllt 
 for it, if it were eventually sold, or from the- rent nli- 
 tained or idealized by tlie use of it. 
 
 In any case a tax upon land must be paid by a persni 
 
TAXATION 
 
 373 
 
 
 or group of persons. It <locs „„t appear as a mvsteri- 
 OJ.S product fro„. tl.c land or (Von. anvthinK c-S I. 
 .'tier words, a tax is ahvays a .leduction rn„„ i con." 
 and the taxes of a nation are therefore a deduct of 1 
 the aggresate national income 
 
 tion of nricr''"" ".'"''' "'" "'™'^'"' '" *'"^ determina- 
 tir buver 'T "'" T ^-"^f-'-ed from the seller 
 
 ng to the economic strength or weakness of the buyer 
 nd seller, respectively. The least economic strengSf s 
 o be found ,n tl,ose buyers or sellers who are just fbove 
 l.e margm. They are able to pay without pLSng ou 
 of existence, and they are too feeble in an eco„o2 
 sense to res.st. The greatest economic strengthTto be 
 ound m the indifferent buyer or seller. He vJi H be 
 e at once to buy or sell at his own price and this price 
 "'11 "1 general contain as little of the tax as may be. 
 
CHAPTER IV 
 
 THE BUDGET AND PUBLIC DEBTS 
 
 336. Public experuUtnrcH. — The expenditure of the 
 State is customarily classified in the same manner as 
 that of any individual may be classified — according as 
 the expenditure is on account of necessaries, conveni- 
 ences or luxuries. Clearly, the things necessary to a 
 State are those which concern its existence as a State. 
 The form of the State will determine what these things 
 are. If it is an independent individual State or a federa- 
 tion of states, it will be necessary to secure itself against 
 foreign aggression or even foreign insult by means of 
 a suiBcient military force, and ■*: will be necessary to 
 secure itself against internal disorder by means of a 
 sufficient police force. It will also be necessary to pro- 
 vide for the administration of the government by tin 
 appointment of judges to administer the law and liy 
 provision for the legislators appointed or elected to 
 make the law. 
 
 According to the modern idea of the State these an 
 the primary necessities. Among the conveniences may 
 be reckoned the maintenance of a diplomatic service tor 
 the purpose of transacting business with foreign nations. 
 and for the assistance of its own "nationals" who travel 
 aboard. Among the luxuries may be considered tin 
 maintenance of more or less dignified and luxurious 
 establishments for the conduct of the government and tlu 
 374 
 
THE BUDGET AND PUBLIC DEBTS 375 
 
 rewarding of persons who have rendered service to the 
 State. 
 
 In modern times, tlie largest individual item in the 
 catalogue of expenditures in nearly all the great nations 
 IS the expenditure for military purposes. But many 
 nations have undertaken large expenditures on other 
 grounds. Germany and Great Britain, for example, 
 expend very large sums upon education and the latter 
 has undertaken huge expenditure in the reorganization 
 of the system of land tenure in Ireland. Germany, 
 Russia, Italy and Canada have devoted immense sums 
 to the construction of canals and of railways; and the 
 United States has undertaken the completion of the 
 Panama Canal. 
 
 The expenditures of all modern nations for civil pur- 
 poses have increased with the demands upon the State 
 for services in various directions. The State is regarded 
 as the universal servant of the public, and when private 
 enterprise is lacking the State is called upon to render 
 the service. In democratic countries it is difficult for 
 governments to resist the pressure to extend the func- 
 tions of the State. The cost to the community as a 
 whole is frequently disregarded, • d it is often assumed 
 and sometimes eloquently announced in Parlit .ents 
 that great enterprises may be undertaken by the State 
 without cost to any one. It is obvious that this is an 
 illusion. 
 
 A check upon and audit of expenditures is imposed 
 in Great Britain by the Treasurer, and in Canada by the 
 auditor-general and the Treasury Board. It is the 
 business of th.; auditor-general to see that only legally 
 authorized expenditui-es are n-ade and that the various 
 departments keep witliin the votes made on their ac- 
 count by Parliament. 
 
 I 
 
37(1 
 
 ECONO.'MICS 
 
 387. Annuul budget— The liudget or annual state- 
 ment of revenue and expenditure by the finance minis- 
 ter is a very usual, but not a universal, feature of public 
 financial methods. In France and Great Britain an 
 approximately similar method is employed and the 
 method adopted by Canada is the same as the method of 
 Great Britain. 
 
 Immediately upon the dose of the financial year it is 
 the custom for the Chancellor of the Exchequer in Eng- 
 land and for the Finance Minister in Canada to make a 
 statement regarding the revenue and expenditure of 
 the year which has just closed and to announce his 
 estimates of the revenue and expenditure of the year 
 which has just commenced. The statement and the es- 
 timates are, of course, prepared by the permanent 
 officials of the Treasury acting in consultation with the 
 ofr.cials of the revenue and of the spending depart- 
 ments. 
 
 The estimates of revenue for the coming year are in 
 the first instance based upon the yield of the past year, 
 the amount being added to or subtracted from, accord- 
 ing as the view is taken that the ensuing year will be 
 -nore or less productive than the previous year. When 
 the Minister of Finance ainiounces the changes whidi 
 he proposes to make in the revenue, he may reduce or 
 increase one or more taxes, and then the necessary modi- 
 ficatior i upon the gross revenue which these changes 
 involve will be stated by him. 
 
 In case the Finance Jlinister announces the reduction 
 or the increase of taxes, the reduction or the increase 
 takes effect from the moment of his uttering in Parlia- 
 ment the words concerning them. This practice does 
 not, of course, prevent speculation in respect to the like- 
 lihood of a particular increase or reduction being made, 
 
siate- 
 niinis- 
 public 
 ain an 
 id tlie 
 hod of 
 
 ir it is 
 Eng- 
 fiake a 
 ire of 
 ce his 
 ; year 
 he es- 
 lanent 
 th the 
 spart- 
 
 ire in 
 year, 
 !Cord- 
 iU be 
 i\'^hen 
 rthicli 
 ce or 
 Tiodi- 
 iriges 
 
 ^ ^ ^ THK BUDGET AND PUBLIC DEBTS 3,, 
 to Xiy L'^Sr "'°" "" ^'^"'•^ ^°°*'"« in respect 
 
 government. The cS ,r T"'.* ''" ™''"*^ ''y the 
 -vereign. otherwise he to^I"" "''°'^ '^ *'"'**''« 
 n>oney and that pXZT^Z' t' '''' r^'^ ''' 
 grant the supply. For a nr ! "^^ °'' ''°« "»* 
 
 ment to granTsf.pplvlXlfer"?^ *° "^"^ ^'''^^- 
 The budget statemeT ? ''" ^ anomalous. 
 
 trodueed whifrc'ntat Tn •'• " ''"f """^ ^^* ^ '"- 
 of the change in the Z In^. T""'^ ^'^'^ ''*«*^'"^"t 
 sl-ould these be necessTry "" ''''""" "'^t" ^""ow. 
 
 -tltTSf;; Xp^^^^^^^^^^^^ '-^ -«-^y <iealt 
 
 •nto detail in respect to Z" > ' '^^''' "''' 8° 
 departments. cCst tutt.aT"''^"''^ °' '''^ '^'^^'-^nt 
 that an adminis^t ^whTch ff '"T"' ^'' "^^^^^-d 
 House of Commot thitugh^l^^^^^^ '" '"^^ 
 
 '-.negatived, does not netsl ly'S ""'""°"^ 
 
 or in Canada, they gTone toT x"/ '" ^'''' ^"ta-n 
 the second to the Do^ c' *'°"'^ °^ Lords and 
 P^ctice prevent eith^rTt'b" ^T' ^^^titutional 
 money bill. Thev mlv r • ^°'^"' ^^^ «'tering a 
 amend it. ^ ""'^ ^''^^^ 't out, but they cannot 
 
 'he items properly XaWetir^" ™"'^ "" '"'^^"'^- 
 -^- --s-ofm^rt^-^ear 
 
 
378 
 
 ECONOMICS 
 
 one year and paid in another, this system, although con- 
 ducing to accuracy, also conduces to delay in closing 
 the accounts. T- it for two or three years after the close 
 of a particular ; ear can the accounts properly belong- 
 ing to it be finally closed. 
 
 The English system, on the other hand, provides for 
 all payments on government account being made by the 
 Treasury ihrough the Bank of England. Only those 
 amounts actually paid or received within the year are 
 taken into account in the finances of the year. Thus, 
 at the close of business on the 31st of March m each 
 year, the exact state of the public accounts is known 
 and is generally published on the following morning. 
 
 838. Public debts.— IS! ationai debts are a product of 
 modem financial conditions. Their rise is coincident 
 with the beginning of modern discovery and the 
 struggle for colonial empires which ensued upon tlie 
 discovery of America and of the Cape route to the East 
 Indies. Prior to that epoch, governments borrowed 
 money from individ als or groups of individuals ot 
 their own or of other nations. But the loans were cus- 
 tomarily made on the personal credit of the sovereign 
 since, in general, there was no distinction between the 
 finances of the public administration and the finances 
 of the sovereign's household. 
 
 As constitutional government developed in the coun- 
 tries of Western Europe, the finances of the nation were 
 sharply separated from the finances of the sovereign, 
 and loans upon the general credit of the State became 
 possible. The general credit of the State depended 
 upon the stability of the government, upon its taxing 
 powers, and upon the powers of the people to sustam 
 the burden of any taxes which might be imposed. 
 The power to lend the State the large sums of mone; 
 
THE BUDGKT AND ri'RUC DKBTS 37!) 
 
 which it wanted, when it wanted any at all, could only 
 arise whr the accumulation of cujiital had rendeieil 
 possible 11 joneentiation on particular occasions. This 
 condition began to arise toward the end of tlie seven- 
 teenth century, with the increased activity of foreign 
 trade, especially with the countries which during the two 
 preceding centuries had come to be exploited by Euro- 
 pean traders. 
 
 The protection and encouragement of trade by means 
 of an aggressive colonial policy could be effected only 
 at considerable cost and the cost was in general so great 
 that to seek to recover it by means of general taxation of 
 the people would have been to incite the people to re- 
 bellion. The cost might probably have been recovered 
 by large direct taxes upon the profits of external trade, 
 ■but to impose these was to impede the growth of that 
 trade by deterring capital from entering into it. The 
 expedient of borrowing from the same class of persons 
 whose activities rendered the expenditure necessary 
 was therefore obvious. 
 
 839. Early government Zoans.— The train of events 
 M in England to the first government loan from the 
 Bank of England, the governors and directors of which 
 were all merchants, and to similar loans from the Bank 
 of France. These loans were made in the form of ad- 
 vances upon salable and transferrable documents of 
 obligation on the part of the respective governments to 
 pay a certain annual rate of interest forever, or alterna- 
 tively to repay the principal sum with interest, the option 
 lying with the government which incurred the obligation. 
 We have here the gei-m of public debts in any con- 
 siderable sense, and as well the germs of the money 
 niarket and of the stock market alike. For, when the 
 Kovernment stocks were taken up by the banks, it was 
 
380 
 
 ECONOMICS 
 
 (lone in general for the purpose either of selling them 
 themselves or trailing or horrowing upon the security 
 uliieli they represented. 
 
 340. Government securities. — In other words, the 
 negotiation of a government loiin by a banker or group 
 of bankers did not diminish their credit, unless the credit 
 of the government was doubtful or unless the bankers 
 had made a doubtful bargain. They could count upon 
 being always able to dispose of a portion or of the 
 whole of the government debt should they require to 
 do so. A market was thus created for gc -nment se- 
 curities because every one knew that he could sell these 
 securities whenever he wanted to do so, although the 
 price which he could obtain for them might be expected 
 to vary with the abundance of such securities in the mar- 
 ket. Should he desire to hold the government stock lie 
 would receive a rate of interest which did not vary. 
 
 Government stock thus became an important factor in 
 the money market, because of its ready salability. It 
 might be held with advantage temporarily, because in- 
 terest was always accruing upon it and the stock might 
 under all normal conditions of the market be immedi- 
 ately converted into cash. The amount of it which the 
 banks held might thus be regarded as quite equivalent, 
 under ordinary conditions, to actual coin and nearly 
 equivalent to coin under any conceivable conditions. 
 The high liquidity of government stock thus rendered a 
 money market in the large sense possible, and even in 
 a smaller sense, greatly facilitated monetary dealings. 
 
 The frequent purchase and sale of government stock 
 thus led to similarly frequent transactions in the stocks 
 of companies issued in a manner similar to that adopted 
 by the government, and thus led to the development of 
 the stock market which, althouj.Th it must be regarded 
 
THK BIDGKT AM) I'l'BLIC DKHTS 3h1 
 as separate from the money market, i.s. nevertheless. 
 
 arZ?' Trr' '7 "• '''"'"" governments a.i..,; 
 various meth<.,]s of issuing loans. The principal 
 methods Hill now be described. principal 
 
 J*!' ^'r^-'^ /«"'*-l'"".led or permanent loans 
 are usually issued in large amounts. Thev bear a 
 
 t The' Z! 7^r "","■'' "' ""'''•''^' ««"••" "''-'•ding 
 . the state of the market. In.Ieed, the same loan may 
 
 .e purchase.1 at many .lifferent %un..s. Sometimes 
 
 offe.ing to take so much of the stock at a certain price 
 A loan issued by a government of higl, standiii. or 
 issued under exceptional conditions, may be tendered 
 in «,e aggregate, for several times the amount of the 
 
 Tliis was the case in the Japanese loans of 1905. The 
 
 largelj to the pro-.Iapanese enthusiasm which existed 
 at that time, and partly to the hostility with which the 
 anti-Semitic riots in Russia had inspired the Jewish 
 hnancial circles of western Europe. 
 
 When such conditions are anticipated, tenderers in 
 general apply for more stock tlmn they expect will be 
 allotted to them. The conditions of tl^ money marked 
 may be such that the previous issues of stock by the 
 
 an( that further issues , ul.l also be salable only 
 <m<ler a more or less heavy discount. This does not 
 necessarily imply a .leficiency in credit of the issuing 
 government, although it may do so. 
 
 For instance. Russian Government stock fell ^U.^htly 
 n ter each important defeat of the Russian armfes in 
 Manchuria and fell heavily during the revolutionary 
 
 
 1 
 1 
 
 ■;:.'< "I 
 
38li 
 
 lU'ONOMIfS 
 
 movement in 1903. The reasons for the decline of the 
 stock were, in the first case, tlie likellliood of the pro- 
 longation of the war or the cessation of it, involving the 
 jiayment of a large indemnity to Japan with consequent 
 increase in the amount of government del>t; and in 
 the second case to the diminished stability of the gov- 
 ernment on account of the serious character of interior 
 disorder 
 
 On the other hand, British consols or consolidated 
 stcK'ks have fallen, not because of the diminished credit 
 of Great Britain, but because of the conditions of tiiu 
 money market, which have caused an advance in the rate 
 of interest. 
 
 842. Market declines of government securities. — ^V 
 discount upon government stock or a decline of it in tlit 
 market may be caused, and in the case of the issues of 
 the great powers usually is caused, by the scarcity of 
 funds seeking investment and by the higher rate of in- 
 terest which is in consequence demanded by the posses- 
 sors of those funds. Since the gcvernment rate of 
 interest is fixed, the only method of expressing the 
 advance of the market rate of interest is by means of a 
 discount upon the principal of the issue. 
 
 But government loans may be depreciated for an- 
 other reason. The demand for such issues, althoufj;h 
 not invariable, is, nevertheless, limited because at any 
 particular moment the amount of ca^^ital in the market 
 for investments is limited. 
 
 343. Effect of other securities. — We have seen ()). 
 270) that the money market is divided into compart- 
 ments, which, though not absolutely self-contained, aie, 
 nevertheless, relatively so, partly from causes whi<'li 
 arise 'i the minds of owners of capital and partly from 
 legislative causes. Under the law in many coimtries. 
 
THK BLIKJKT AM) PlBI.IC 
 
 DlCins 383 
 
 ve ments ,„ such seeuritic. cannot bo invested .^ a ^ 
 otiier. ll„s circumstance increases the amount JZl 
 may be invested in first-class securities anTS.miniS 
 the amount available in the money marke forTnel 
 investment. The rate of interest fn the general marke 
 nil be mcreased if. for any reason. funSare d^ert'S 
 f om general to special use. The advance of the « n 
 eral rate wll prevent the flow into the investment ma!- 
 
 ttisrrrihr'' sr"'"' ^■'"' "'.-"* °"'-- 
 .r^S:r-s^r:tr^-z^: 
 
 Thus the mere uicrease in the amount of ffovernmen 
 
 for what they are issued, brings about a rise in tiTratl 
 o^^mterest and a fall in the capital price of all su h s ocks 
 inrolvrng both past and present issues. ' 
 
 If a government is obliged to issue stock for purposes 
 of war or for the purpose of interior developmenrand 
 f these .ssues are of sufficient magnitude to aTso i, the 
 
 Jits %K' "^''"^ '"^■^^*'"-* ■■" ^--™t e! 
 cur.ties. the discount upon all government securities 
 
 marS o"n " r^ """""* "' *""*^ ^*"* than 
 market could readily bear at that time. An advance 
 
 '.* 
 
 the 
 
3H4 
 
 KCO.NO.MICS 
 
 in the rate of intcroit wns the result, thix oilvuncc cx- 
 prcssitif^ itself in a ht;ivier discount upon all govern- 
 ment securities. 
 
 If in consequence of national peril any government 
 increases its issues largely and there is difflruity in ali- 
 sorbing these issues owing to the state of the s])ecial and 
 of the general market, the result must Ite heavier dis- 
 counting of all government seairities in projiortion to 
 the magnitude of the operations. T'hese considerations 
 apply to all forms of government issues whether thiy 
 are of a permanent or a temporary character. 
 
 844. Public debts of various countries.— The puhlic 
 debt of Great Britain is very extensively held by bankers, 
 not under compulsion (excejjt by the Bank of Englnnd 
 to a certain extent) , for the reasons explained above, hut 
 because of the facility of manipulating large funds w 'mIi 
 the public debt affords. It is held largely by the van. , 
 government departments where balances of funds arc 
 kept for special purposes. It is held largely by officers 
 of the law courts by way of investment of funds held liy 
 them on behalf of litigants, wards in chancery and the 
 like. It is also held largely by trustees and as the fortune 
 of many wealthy families. 
 
 The Canadian public debt is held principally in Great 
 Britain. It is on the list of stocks in which trustees 
 may invest without personal liability and its fluctuatidiis 
 are subject to the same influences as those which affect 
 other stocks of a like character. The fact that the lar- 
 ger part of the Canadian debt has been incurred for 
 productive purposes — for the construction of caii'!- 
 railways, etc.— does not affect its value in the man^.; 
 That value depends ui)on the general.credit and recog- 
 nized stability of the government of the country, u])nn 
 its taxing power, upon the assumed ability of the penjile ' 
 
rm- ,n-,KiKT .v,. ..,„...■ „K«rs ,ns 
 
 to niwt thtir lax hunk. 
 
 - -"■» •"Will 
 
 'or Canadian swnritiV 
 
 -pply of .nd.,..„.a„., for capital f" 
 
 tlit- 
 
 •"». ii|«.ti tlie state 
 •1. OS a whole, as 
 
 of the market 
 well as ufmn 
 investment in 
 
 ric 
 
 Keneral, 
 
 i.ew a w ;;;;;;:;;: ;;;'^;;"'*-' state, w„s at one time 
 
 iJritain. Duri ^ .c OV T" '"•'"'•''"'"y i" <J'c«t 
 was low. and 2r ta ' o'lri/'"^ '■"*'-' "-«' 
 -H-rous eauses of wf:,:' L"!- J ;"- J'-' '-- 
 "«'< one. . period of fi„„„eial strai „ kZZ T"" 
 itan Ijonds thus fell i„ v.l,. i ^'""•"pe. Amer- 
 
 i»K. 'Vf„, 1m ■ fl>e.~n,l™,,i„„ „f puMie |,„||,|. 
 
 Sre "Money and nanking, " Vol V7I ,.f il,. \t 
 
 C— 1— 25 ' "' "" -^'"DERN Busixtss text. 
 
 
386 
 
 ECONOJIICS 
 
 ing for redemption of the principal. The principal may 
 be subject to repayment by instalments — annual or 
 semi-annual — togfi},f , with the interest, in which case 
 the stock or bond is called a . " -minable annuity, to dis- 
 tinguish it from tie permrin- nt annuity of the funded 
 debt. Or the priuci^jiil i-sny be subject to repayment 
 in instalments or in one payment, either at given periods 
 or at one period. It may be payable by lot or in some 
 rotation or the whole of the principal debt may be paid 
 off at the termination of the period agreed upon. 
 
 Terminable annuities are an important feature of Brit- 
 ish finance. They are largely adopted to supply 
 means of dealing with sinking funds,* and they thus 
 lead to gradual -extinction of debt. Large blocks of 
 terminable annuities are frequently created and the 
 funds involved are, therefore, removed from the con- 
 solidated fund of the permanent debt (colloquially 
 known as "consols"). 
 
 Temporary loans may be effected in a great variety 
 of ways. They may be issued as Treasury Bills whicii 
 are practically promissory notes drawn by the govern- 
 ment and payable for large round sums in six montlis, 
 for instance. They are usually drawn in anticipation 
 of receipts from taxes, although they may be drawn for 
 the purpose of providing funds urgently required at a 
 moment when the market for permanent loans or even 
 for terminable annuities is not favorable for the issue 
 of such securities. Of a similar character are the Eng- 
 lish issues known as Exchequer Bonds. 
 
 846. Conversion and redemption of public debts.— 
 The conversion of a public debt from a debt ftt one 
 rate of interest to a debt at a lower rate has occasionally 
 been accomplished under favorable conditions of the 
 
 'See "Investment and Sp«*u!aUon," Vol. IX of the Modeen Business text. 
 
THE BUDGKT AM) ITBLIC DEBTS 387 
 
 money market, and by means of financial skill. If a 
 . ebt ,s contraeted during times of monetary pressure 
 .t may be .ssued at the rate of the marked ^rt^t 
 case the assue will be made at par; or it may be issued at 
 a customary or fixed rate of interest and at a discount 
 which bnngs the price below par 
 
 In the former case it may be expedient, if possible 
 o soon as the monetary stringency ceases, to ende «; 
 
 replace the h.gh interest bearing loan by another loan 
 at a lower rate This process is known as conversion 
 
 .e tmie of issue, the period at which conversion would 
 
 poss,blem,ght be more extended because the financial 
 
 n .thont.es would require to wait until the market rate 
 
 interest ell to the point or below the point of the 
 
 previously fixed rate. 
 
 Conversion can only be effected advantageously at a 
 me when the capital value of a stock is hi Ji andVL 
 «.e rate of interest is low. When Mr. (afterward Lord) 
 RrV r-v/r"',*'' '" '^""^"ting the means of the 
 Bntish .National Debt, from a 3 ->er cent stock to a 
 21-2 per cent stock, the 3 per cents were above par and 
 crcumstances wholly favored the operation. As Chan- 
 cellor of the Exchequer, he utilized his authority o.er 
 he various public offices and institutions which were 
 la.-Se fiduciary holders of consols, and also his influence 
 «ith the banks to efl'ect the conversion of the debt bv 
 means of a step and an inducement. The step wa's 
 from 3 per cent to 2 3-4 per cent for a period of years 
 
 h automafc reduction to 2 1-2 per cent after the 
 lapse of this period, an.l the inducement was in the form 
 ot a commission to the bankers who aided in carrying 
 «"t the scheme. The operation cost a temporary mone- 
 
 :! 
 
388 
 
 KCONO.MICS 
 
 tary sacrifice to the exchequer, and a suhsequent annual 
 saving in the amount of the annuity necessary to dis- 
 charge the interest of the debt. 
 
 It has been customary in Great Britain for many 
 years to provide in the annual budget a fixed sum for 
 the payment of interest upon the national debt. Tills 
 sum has generally been fixed for an indeterminate series 
 of years at a sum in excess of the requirements of tlie 
 interest charge on the debt. The surplus is then by 
 law devoted to redemjition of the debt automatically. 
 So, also, is any general surplus of the finances of tlit 
 year from whatever source it may be derived. 
 
 A realized surplus must be devoted to the redemptidii 
 of debt. A general natiojial balance cannot, tberefoii.', 
 be carried forward. In addition to automatic measures 
 of this kind, there are frequent reductions of del it 
 through the falling in of terminable annuities, and some- 
 times an explicit amount is set aside for the dischaifie 
 of a particular form of debt or for the purchase of the 
 public funds. 
 
 347. Industrial activity of the State. — The State iiiny 
 undertake to render certain public services or may un- 
 dertake certain industries. In either case it may c- 
 tablish a legal monopoly or it may permit competitinii. 
 
 I^egal monopolies established by the State are com- 
 mon in Europe. The tobacco monopoly of Austria. 
 the vodka monopoly of Russia, the match monopoly of 
 France are examples. Where substitutes for the 
 monopolized commodities cannot be procured or cannot 
 readily be procured, the monopoly may be effectivelv 
 maintained by means of the exercise of the j)owers of 
 the State and the exaction of heavy penalties foi- in- 
 fringement. 
 
 These monopolies are sometimes established for tl; 
 
THE BUDGET AM, PUBLIC DEBTS 389 
 
 morn^^r"^, -ntrolling public consumption of the 
 nmnopohzed commodity, as in the case of the Russ an 
 vodka monopoly. „nd son.etimes for the purpo e J 
 
 rS • '""'*"'" "■''*^*''^''- "' ""t tl'e state is 
 
 t^ -Tni '^'"'^ '"*° P'-onii-'ence chiefly thronffh 
 
 the analogous case of municipal enterprise. ^ 
 
 roL liV '"■"'"" """•^""^ '•>' ««^ St«te or where the 
 
 The conditions of universality and equality some 
 t"..es ex,,t m the case of bridges and of ferr es Thev 
 
 ;;;;i;:eik"^T*"'^t*^""'^^^^^°^^*^^'^^'S 
 
 t le like. The maintenance of the services renre 
 
 sented by these is therefore usuallv. although no i n-ar " 
 
 ay defrayed out of the general revenues ^ he 
 
 e of commod.t.es which are not in universal use or 
 
 cl , bemg m universal use, are used in varying quan- 
 
 Caph irr, '7'^' " '" *'"^ '^^^^ "^ *'- p-' 'ffi- 
 
 lelves to « ^^ "' ""''"^■^' "^ "''■■^'^ P-P'« --il 
 
 exercise of the monopoly by the State, in tlie same man 
 
 ner as it would be exercispri I„r o „ • V , 
 
 very strong. ^ '^ P"^***" monopolist, are 
 
 318. Responsibilities of State industrial enterprises - 
 Tl.e exercise of any monopoly, whether by the I ate 
 he mi: rrT^' "''J^'^* *" certain-limitati n 
 
 5.Trl f / '"""opolv. the price which he will 
 
 charge for it cannot be the highest price, but must be 
 
 ii 
 
 I* 
 
3!)0 
 
 ECOXOAIICS 
 
 the price which will result in a demand which will give 
 the larj^est amount of net profit. Since the State may 
 he prevented hy public opinion ffoni obtaining the laij;- 
 est amount of net profit, the price charged by it for tlie 
 service or for the commodity may not in practice be de- 
 termined with that in view. It may, indeed, be so low 
 a price that the cost of the service is not met by it. Tliis 
 is the case in the British State Telegraph System. Tiic 
 price of transmission of telegrams was iixed when tlie 
 government took over the business of the companies at 
 the low sum of sixpence for twelve words, with an addi- 
 tional charge of a halfpenny foi each additional word. 
 It was supposed that the revenue from the telegraph 
 service at so low a rate would suffice to pay the cost of 
 the service. Experience has shown that the price is tnn 
 low and that it does not meet the cost. The telegrapli 
 service has thus been maintained to some extent at tlie 
 cost of the public. Other points in connection with tlie 
 difficulty of maintaining the legal monopoly at cost are 
 discussed elsewhere (p. 157). 
 
 On political or humanitarian grounds it may be ex- 
 pedient for the State to render scTvices without explicit- 
 ly charging for them to the people to whom they are 
 rendered; but fairness to the general taxpayer demands 
 that such gratuitous services should be confined to tliose 
 which are in their nature universally available. Fair- 
 ness also demands that the commodities produced by the 
 State should be sut. >lied at a price to those who want 
 them, such as they would have to pay to any private 
 concern. 
 
 The extent to which the State may advantageously 
 engage in industrial enterprise must vary with varj-ing | 
 conditions. Where t!,e credit of the State is !ii 
 enough to enable it to borrow capital at a lower rate of 
 
rUE BUDGET AND PUBLIC DEBTS 391 
 
 enee between the amount of dividend which the private 
 
 pm.,e company, m, St.,e „1gh, „ „i;;7„" t 
 * *" ?/°-., "^"^ °Pi"i™ '"iBht demand „r;,h 
 
 41 
 'if 
 
CHAPTER V 
 
 LOCAL AND MLMflPAL FINANCE 
 
 349. Local government in its economic aspects.— Far 
 present purposes, local government may be divided into 
 two sections — State or provincial government, and mu- 
 nicipal or city government. The powers of administer- 
 ing revenue and expenditure possessed by the State or 
 provincial government depend upon its relation to the 
 central or national government. In the United States 
 tlie several states possess the permanent power; that is. 
 the central government possesses the powers with which 
 it is endowed by the constitution, and the several states 
 possess, each within its own territory, all other powers. 
 
 In Canada, the constitutional arrangement is exact!} 
 the reverse. The provinces are explicitly endowed with 
 certain powers by the British North America Act ami 
 subsequent acts amending it, and the Dominion Parlia- 
 ment or central authority is endowed with all other pow- 
 ers in so for as such powers are consistent with the Act 
 mentioned. 
 
 In the United States, the national revenue is thus 
 practically confined to indirect taxation because powers 
 of direct taxation have been retainr d by the several states. 
 In Canada, the Dominion Parliament derives the na- 
 tional revenue from customs and excise and from the 
 lands which remain at the disposition of the Dominion 
 as distinguished from the provincial governments: but 
 it would appear that the Dominion Parliament might, 
 
 092 
 
LOCAL AND .MUXUIpa,, FINANCE 393 
 
 if it elected to do so, impose direct taxation. The prov- 
 es cam,ot, however, impose any customs or excl 
 ut,es, although they have imposed export duties uZ 
 loffs and other commodities. ' amies upon 
 
 350. Provincial taxation in Canada.~ln provincial 
 
 Pl^ ation of the other provinces bears to the province 
 of Quebec winch ,s taken as the unit of calculatb^ 
 
 .i-e.pendin,body.^%rirclS^^^^^^^^^^ 
 
 assauTtI e d ffi U . """""^ "^ "''^ ^"''^''^y- «»d tlse 
 Jssauits are difficult to res st. The senaratjAn «c « 
 
 "siay, the sale of timber lands and the grantinj^ nf 
 
 furVr.' °''" '"^''^' -«-d t° -eet th expendi 
 fures of the respective provinces. The growth of de 
 
 on ot public works-roads, bridges and the like-»nH 
 t e enormous growth of the demand for expendh^ f"^ 
 educational purposes, brought about the ^^^^ 
 
 eri ed bv the H - "5 ' ''"'"'"'^ "' °"*''"° ^^ '^hara- 
 1 1 f^ ^ diminution of the revenue from the timber 
 ™ a^the large timber of the province came to be ex 
 
394 
 
 KCONOMICS 
 
 Under these circumstances the provincial government 
 imposed, to begin with, succession duties, and followed 
 these by taxes upon corporations — banks, trust compa- 
 nies, telephone companies, insurance companies and the 
 like. The system which has been evolved is a highly 
 complicat -d ot.';, each different kind of company being 
 assessed fov taxes in a different manner. At present 
 the taxes, as a rule, are not heavy, and for that reason 
 they have not excited any serious antagonism; but the 
 complexity of the system and the impossibility of com- 
 paring the burdens which are borne by different cate- 
 gories of tax-paying corporations, contain the germs of 
 future difficulties. 
 
 331. Corporation tax an income tar.— The effect of 
 the imposition of the taxes upon corporations irrespec- 
 tive of the method by which they are assessed, is a tax 
 upon the income of joint stock companies; but under 
 the method of assessment the revenue does not increase 
 as that income increases, because the taxes are, as a rule, 
 imposed upon the capital of the companies in some form 
 or another — on railway per mile of line, on banks upon 
 their capital and the like. The absence of automatic 
 elasticity of the revenue is a serious drawback to provin- 
 cial finance because more or less irritating changes will 
 have to made in order to provide for an increasing ex- 
 penditure. 
 
 When Confederation of the Canadian provinces came 
 into effect in 1867, the Dominion administration took 
 over all the existing public works of the provinces, tak- 
 ing over at the same time the public debts of the prov- 
 inces. These public works consisted chiefly of canals, 
 dock<!, lighthouses and the like. Until the period of 
 Confederation, the provinces had not constructed any 
 
LOCAL AND AIUMtlPAL FINANCE 39a 
 
 railways, although they had granted subsidies to rail- 
 way companies both i.. land and in money. 
 
 Ihe Provinee of Ontario has more recently con- 
 rueted a hne which extends from the Canadian X 
 chc and Grand Trunk Railways at North Bay into 
 "orthern Ontario. This line, known as the Temi ka- 
 ".".g and Xorthem Ontario Railway, was intendedTr^;. 
 ...ally to iachtate the transportation of lumber from thft 
 .•y,n and to facilitate, also, its colonization. a« thT tim! 
 ic areas became gradually available for settlement 
 le d.scovenes of silver and gold in the Cobalt. Porcu- 
 I'...e. Gowganda and other districts gave unexpected 
 opportun.t.es to the railway. The line fvhieh is operated 
 by a commission appointed by the Ontario government 
 has hus been a financially successful undertaking The 
 capital for the consti-uetion of the line was raised in Lon- 
 (Ion on the general credit of the province 
 
 332 Vtilhing prison Mor.-The Province of On- 
 tario has embarked upon an experiment in prison admin- 
 strafon wluch has important economic aspects. PrTson 
 arms have been established in which prisoners who have 
 en entenced for misdemeanors for periods of not more 
 Hum two years are set to outdoor instead of indoor labor 
 Ihey are occupied in building the necessary buildings' 
 making roads and bridges, in cultivation, and in tte 
 
 st-tutions. The advantage from the point of view of 
 n^rhl/^""' '' very manifest, but the experiment has 
 
 u tif! ; ;7™^'-r '"'-.'^ ^"ffi«'-t Wth of time to 
 justifj a judgment upon its cost. Experience elsewhere 
 
 as shown that the system possesses 'great advanlag 
 
 ot simple confinement, owing to the inefficiency of forced 
 Pnson labor. It is obvious that in so far as the prison 
 
390 
 
 ECONOMICS 
 
 farm produces a surplus overwnd above the requirements 
 of the prisoners on the farm, it competes in the market 
 with the produce of tlic free fanners who contribute to 
 its maintenance. Even if the surphis produce is used 
 in other governmental institutions, it competes with the 
 produce of the free farmers, who otherwise would con- 
 tract for supplies for them. The question of prison labor 
 is, however, insoluble on exclusively economic grounds. 
 
 853. Municipnl finance. — On the continent of Europe 
 a large part of the revenue of municipalities is derived 
 from market tolls and from octrois or municipal import 
 duties collected at the entrances to cities. The latter 
 form of revenue is impracticable excepting where the 
 cities are walled and where entrance to them can be regu- 
 lated at a comparatively small number of barriers. In 
 Great Britain, market tolls form a considerable part ol 
 the revenue of some of the towns, but the major part of 
 the revenue is derived from taxes upon real property. 
 These taxes are imposed not upon the estimated value of 
 the property, as is customary in Canada and the United 
 States, but upon the actual or estimated rental. Tliis | 
 system has the result that property which is not 
 actual use is not assessed for property tax; it also lias 
 the result that frequent revaluation of real property 
 not necessary, the amount of rent being known, the tax 
 follows automatically. 
 
 On the continent of Europe and in Great Britain, ex- 
 emptions from taxation are rare. National and munici- 
 pal property is exempt from municipal taxation, but 
 otherwise all occupied premises are taxed. 
 
 The system of municipal taxation in vogue in Canada 
 and the United States involves generally an annual valu- 
 ation of real property in order to assess it for taxation 
 purposes, the tax being levied upon its estimated value 
 
LOCAL AND MUNICIPAL FINANCE 397 
 
 whether it i5 occupied or not. This system has arisen 
 
 bc-cause o the prevalence of the practic^ of holding 3 
 
 , "'""•> "'('an areas for speeulative purposes. It w^^ 
 
 to ell ,t or to occui,y -t. \\'hile after the eollapse of 
 «.-al estate booms. land is often sold in quantity for tlxi 
 .0 effect of the system ,I,k>s not appear to ha4 S 
 the d,s«,ura«ement of speculation, eicept b • weak hold- 
 ers of sn.aU lots. Strong holders have l.een able to pay 
 ■e taxes out of other sources of income or to born.w 
 tbe amount necessary to pay then, and hold the land ^ 
 an anticipated advance in price. 
 
 3.54. r«.r ej,emptio„.~ln the Canadian cities and 
 towns the area of exempted land and the vafue of ex 
 empted buddmgs is very great. All ecclesiast cal Ip- 
 
 than ecclesiastical purposes, is exempt; so. also is all 
 3^0 h,"t™'"""'P"'''°^^'-'''^*herit'ispos 
 Son 0/ tT ."'■ '' ""''''' '-''t^tions. The compe- 
 Itol " f" "'1'"' ''''^ °"« ""°*''-'- has aL 
 tor a period of years, as well as to the payment of 
 
 etmntio: ^^'•'^'"/-^--- The aggregL of Ll 
 exemptions is great enough to make a material differ- 
 ence upon the tax rate. 
 
 3.55 Municipal expenses dependent upon age of cit„. 
 Canada t:" "' *'%''*[" '" '""^ U"''*^^ States an 
 
 they often do large spaces unoccupied or only partially 
 occupied, have together resulted in exceedingfy Tr^e 
 
 nor hem towns causes the streets to deteriorate rapidly, 
 no street nak.ng material which will resist the effects 
 
308 
 
 ECONOMICS 
 
 of the jjreat range of teiiiptratiire l)etwcen summer a 
 winter, and of sudden ehanges of temperature, havi 
 yet been diseovered. 
 
 When conii)arinff the expenditures of different citi 
 and espeeially tlie expenditures of cities in America w 
 iiiose of Kurope, the difference in the iiffc of cities mi 
 he taken into account. Mudi municipal expenditure 
 of a permanent character. There are cities in Kurn 
 whose civic biiildin|?s were erected in tlie middle aj 
 and whose Hridffes, boulevards and parks have all hi 
 provided by previous ^fenerations. In America all tin 
 have been provided out of taxation almost within t 
 current generation for a great many large cities a 
 for all cities well within one century. 
 
 356. Municipal debts.— The debts of the municipii 
 ties in Canada and the Unite<I States are thus very lai> 
 and they are, moreover, increasing rapidly. The piili 
 continually demands that the municipality should uiuli 
 take fresh civic duties, that it siiould undertake t 
 administration of street railways, electric lighting, tl 
 provision of electrical power and the like. The tot 
 of municipal obligations is thus steadily mounting, ai 
 municipal finances are not always skilfully manaj;c 
 In Europe, although compared with the population ( 
 the cities in America, the municipalities are less heavil 
 burdened with duties, municipal offices are customiiril 
 filled by well-paid professional persons. In the T'liitc 
 States and in Canada there is a disposition to unckrpa 
 civic officials, with the result that the services are of'ti' 
 less competently rendered than are similar services i 
 private employment. The duties imposed upon miinici 
 pal councillors are also so burdensome that it is oftei 
 difficult to obtain competent persons to undertake tln-ni 
 and they are frequently left to be undertaken by inferioi 
 
LOCAL AND MVSUiVM. MnaNc ,.; .,„„ 
 
 types of lwal,,olitk,„„.s. The result „f H, 
 I Imvc fro„, ti„r,o t e I. ' """""''"' "^"'"'"'^ "'"''• 
 
 ^.■Sc:u;^3:::r;;:';;/ ^■^/"""'— as 
 
 value, while the system ,„ , '^"'"" "' rc;.i , annual 
 
 ^«tesanai,;cr:^rs:'^:':;s'';^V'''"' 
 
 of estimated total value In t „ • ' ' *'"""'"" 
 
 tion of .iiseri„,inati„„ tt,u , .""'"; r'' *''^' ''"'■''■ 
 
 "'•tneee«arily„n ! ntho f "': "'"' '"''''""«'' •'"^"' 
 "lly arrived a l.v ah i^i .,■::• * ^' •"!"'/"'- ^ '- 
 
 '-1 to the estimate iVf,;;;;;'';'^''' ^"'r- "^ "- 
 
 exist upon the land '"'i^linKs where sueh 
 
 *i"n. In some of ttc^i \wl''''"' 'T"!': '"' *"^''- 
 , ''""l are beinir h,.|, f ■ ".n.suierahle areas of 
 
 Ject the eliminaln of ,Ss'""r^ ''"• *'"^'" "»" 
 
 ^ from the assessment rolls a i^, ""'' "'!I!'-"^ements 
 
 larger portion or of «II H '"'position of the 
 
 estfrnateVvZe of 1 nd AnT"';'"'*' ^-^'^^^ ">'"" "- 
 
 wupon income ^ "^e- jle tax will he a tax upon capital 
 in qL^tion iMr"' '^"^ "!'"^'- ^™ *'•«" "'e land 
 
 to hold the land they will in all likelihood do 
 
 m 
 
 
-100 
 
 ECONOMICS 
 
 so. If the holders are weak fiiiancially or are pessimis- 
 tic as to the eflFect of special taxation upon the market, 
 they will throw their land on the market. Should the 
 latter class be numerous and should the land owned by 
 them represent a considerable proportion of the unused 
 land a fail in the price of such would be inevitable. As 
 the price falls, so must the yield of taxes, and as tiie 
 yield falls the tax rate must be increased in order that 
 the revenue may be maintained. The idea seems to be 
 prevalent that under the pressure of increased taxation, 
 unused land will be forced into use, but land cannot be 
 used unless there is demand for it, and demand cannot 
 be forced, although it may sometimes be induced by a 
 fall of price. 
 
 Where land is used, the taxation will fall upon the 
 user and will be paid out of the gross rent. Under con- 
 ditions of mobility of property in land, the net rent re- 
 ceivable wiU detei-mine the price of it, estimated future 
 increments of value being discounted. Excessive taxa- 
 tion must in this case also depress the price of the land. 
 The increase of taxation upon land and the elimination 
 of improvements from the assessment rolls may appear 
 to induce improvements, but improvements cannot be 
 effected by this negative means. They can only arise 
 from demand; and if they do so arise, the tax will fall 
 upon them irrespective of nominal elimination. Jlean- 
 while, however, a disturbance of the economic equilibrium 
 of the area must take place. The magnitude of the ef- 
 fects described must depend upon the magnitude of the 
 tax. It should also be observed that the ostensible 
 elimination of buildings and other improvements from 
 the assessment rolls may affect municipal credit, even 
 if it only apparently diminishes the security for miumi 
 pal loans. 
 
LOCAL AND MUNICIPAL KINAXCK HH 
 
 358 Municipal admini»tration.~Tlw policy of ce„ 
 raLzahon. which began with the gradual ex Lto^ If 
 he mdependence of the medieval towns, waf "r Ij „, 
 
 nr^r' "' ^^"'■"P^ "^ '*^ hig'- t point the 
 eighteenth century, France leading in sEbordinlti u! 
 local to national interests. The English system of i 1 
 
 z^zr^ri rrT ^^^^^^^ 
 
 model. Unt 1 the date of the reform of the municipal 
 c rporafons m 1835. there was a considerabira Zn 
 of local autonomy. The powers retained by the Engh h 
 to,vns were not. however, always wisely exercised Ihe 
 appears to have been a considerabk amount of civ c 
 corruption and in general, there was a parochial sp riT 
 
 fn tb t the "nion between Great Britain and Ireland 
 
 a pohcy of centrab.at.on which, however, was not ear- 
 ned so far as was the case in France. T) -ivic eola- 
 tions were shorn of much of their ancient powersTnd 
 pISw "* ""^'^^^^^ ^"'^j-*'^'^ ^° the'coJtrorof 
 This process had two results. It overloaded Parlia- 
 ment with local affairs, and it diminished civic pride and 
 
 Z ? ^^^ntu^JIy to delegation of the powers of Par- 
 mment w.thm certain hmits to local aufborities. Th L 
 change endowal the cities and towns with, in some re 
 
 although they remained subject to the control of Par 
 S I „ ,"" r;™'-' "-^-'-^t-tion through th r 
 
 C— I— 26 
 
402 
 
 ECONOMICS 
 
 359. Local Government Board in England. — The 
 local Government Board is a board only in name. The 
 political head of the department is usually a cabinet 
 minister; the effective functionaries are permanent civil 
 servants. The function of the Board is to supervise local 
 administration, to make inquiry into the nature of civic 
 expenditures whether by Town Councils or by Boards 
 of Guardians (Poor Law boards) as occasion arises. 
 Municipal loans are sanctioned by the Board, often after 
 a local inquiry as to the need of the loan conducted 
 publicly by an official of the Board. These loans are 
 made by the Commissioners f the National Debt, on 
 terms which simply defray the cost of the loan, whi-h 
 is effected by means, not of the c vie, but of the national 
 credit. Periods for the amortization of the loan are 
 arranged according to the purpose for which the loan 
 is made. 
 
 Under this system, municipalities are not permitted 
 to raise money except for essential services, until they 
 are able to show that these services are fully rendered. 
 Thus, municipalities were prevented from establishing 
 telephone services on their own account because their 
 system of sewerage or their water supply was inade- 
 quate. 
 
 860. Local independent action. — This system of 
 checks and balances notvnthstanding, the English and 
 Scottish cities embarked in many enterprises in conse- 
 quence of the facilities which they enjoyed of raising 
 money at low rates. Some of them, owing to the posses 
 sion of ancient funds (as is the case of Glasgow, where, 
 although the city had a civic debt, it had also an en- 
 dowment known as the Common Good) , or owing to the 
 possession of exceptional powers under special Acts of 
 Parliament, were able to raise funds otherwise than 
 
LOCAL AND MUM^.i.AL FINANCE W3 
 
 through the Local Government Boards.' By means of 
 such special powers, some of the cities received money 
 on deposit, paying a rate of interest slightly in excess 
 of the rate allowed by the banks and some of them 
 issued promissory notes at short dates. These uotes 
 usually for amount of ^100.000 ($486,666). were sohl 
 in the money market, occasionally being sold abroad. 
 
 361 Mnmapal enter prhe. -Thtse facilities, taken 
 toge her. enabled the cities to build docks (as at Liver- 
 pool) to engage in the construction of canals (as at 
 xManchester). to acquire and operate water works, gas 
 works, electric lighting plants, tramways (street rail- 
 ways), water works for hydraulic power at high pres- 
 sure, works for the supply of pneumatic power, tele- 
 phone systems, and the like. 
 
 These enterprises were established from various mo- 
 tives. Sometimes the services had been rendered by com- 
 panies which held franchises for short periods only with 
 doubtful prospects of renewal. Under such circum- 
 stances. It was impossible for the companies to secure 
 capital sufficient for needed extensions owing to the pos- 
 sibihty of practical confiscation at the end of a short 
 penod. Sometimes the revenue from the sendees was 
 msufficient to attract the necessary amount of capital 
 even where the franchises were indeterminate. In such 
 cases the city was practically obliged to undertake the 
 services on its own account. Sometimes the franchises 
 were a source of considerable profit, and it appeared to 
 the municipal authorities that this profit might be earned 
 by a municipal department and might be employed in 
 the reduction of general civic taxes. Occasionally, mu- 
 nicipal services were undertaken out of enthusiasm for 
 
 ' There are three such board,, one fur ™oh ..f the three kingdoms. 
 
 IK'l 
 
404 
 
 ECONOMICS 
 
 municipal ownership. This motive, however, arose at a 
 
 late stage. 
 
 362. Increased municipal indebtedness results.— Ttu: 
 consequence of the embarkation of many municipalities, 
 practically simultaneously, in enterprises of various 
 kinds, each involving the investment of large sums, was 
 a great increase in municipal indebtedness. Municipal 
 securities became a drug in the market, and the addition 
 to the national borrowing on municipal account con- 
 tributed, with the general advance in the rate of inter- 
 est, to depress the price of national securities. The de- 
 velopment of municipal enterprise was thus checked; 
 and ihe margin of difference between the rate of interest 
 which the municipality was obliged to pay for the 
 capital borrowed by it, and the rate of interest or divi- 
 dend yielded by investment in private enterprises dimin- 
 ished. 
 
 Meanwhile the difficulties inherent in all public en- 
 terprises developed. The people who availed them- 
 selves of the municipal services began to clamor for a 
 rediiction of the prices of the services rendered by the 
 municipality under conditions of legal monopoly. In 
 some cases the prices were temporarily or permanently 
 reduced and the profits dwindled or disappeared ; in some, 
 the prices were maintained and the profits used to dimin- 
 ish the rates; in other cases, the profits were too slender 
 to excite interest. 
 
 863. Municipal enterprise in England not wholly a 
 success.— The general provisional conclusion from the 
 available evidence upon municipal enterprise in Great 
 Britain to be drawn is that, in that country, under the 
 most favorable circumstances, municipal enterprise is a 
 qualified financial success. It has not resulted in mate- 
 rial diminution of the local rates, but it has undoubtedly 
 
LOCAL AND MUMCIPAL FINANCE 405 
 
 contributed to the revival of civic spirit and to greatly 
 increased interest in civic affairs. 
 
 In its more purely economic aspects, the chief diffi- 
 culties which huxe arisen are tliese: reluctance to re- 
 munerate technical ability to a sufficient extent to pro- 
 cure competent management; reluctance to provide a 
 sufficient amount for depreciation of plant; and a ten- 
 dency to transfer to departments which are exclusively 
 spending departments (such as the department con- 
 cerned with tlie maint-nanee of streets), charges which 
 properly have been incurred by earning departments, in 
 order to make the latter show a profit. Tlie influence of 
 the employees of the civic enterprises, who are also voters 
 on the municipal list, has occasioimlly been aggressively 
 exerted m order to procure for themselves benefits at the 
 public expense. 
 
 364. /„ the United Stntes.-ln the United States 
 the cties have not been subjected to the centralizing in- 
 fluences which we have recognized as characterizing the 
 relations between the cities and the national government 
 both in P'rance and in Great Britain. The cities of the 
 L nited States have retained much of the independence 
 which was possessed by the English cities at the period 
 of the Declaration of Independence of the American 
 Colonies. 
 
 The civic independence in the American colonies was 
 however, used by the American cities in a manner very 
 similar to that in which the English cities used theiV 
 quasi-mdependence. They became corrupt and paro- 
 chial. The municipal reform of 1835 did not touch the 
 United States, and the reform of the municipal corpora- 
 tions there was long delayed. Apart from the individ- 
 ualism which in general characterizes the people, there 
 has been a certain distrust of local authorities. These 
 
 m I 
 
406 
 
 ECONOMICS 
 
 have rarely enjoyed the confidence of the people to an 
 extent sufficient to entitle them to endowment with tin 
 powers necessary to the successful conduct of municiiial 
 enterprises. Occasionally these powers have been given 
 and withdrawn. There have, however, from time to 
 time, arisen demands for the extension of municipal en- 
 terprise. 
 
 363. In Canada. — In Canada, the case is somewhat 
 similar except that the growth of the cities is more re- 
 cent than is the growth of cities in the United States. 
 The rapid expansion of the Canadian cities and tiie 
 difficulty of finding adequate capital to provide plants 
 for the performance of the civic functions, even upon a 
 modest scale, have retarded the growth of municijial 
 enterprise. But desire to emulate European cities in the 
 management of public services by the municipalities, and 
 the desire to relieve the burden of taxation by the con- 
 sequent profits, have combined to create a large body 
 of opinion in Canada toward the extension of municipal 
 functions. 
 
 866. Municipal officials. — The effect of this extension 
 upon the character of the municipal bodies has already 
 been noticed. The greater the number of enterprises, 
 the more arduous become the duties of municipal coun- 
 cillors and the more difficult it becomes to obtain mem- 
 bers of the councils sufficiently public-spirited, disinter- 
 ested and able to undertake these duties. This difficulty 
 has emerged in every country. The growth of the cities 
 and the increasing complexity of their administration 
 has brought it more and more into relief. 
 
 In Germany the difficulty has been overcome by pro- 
 fessionalizing municipal administration. Those who en- 
 ter the service of civic governments are educated for the 
 purpose, and those who exhibit special qualifications are 
 
LOCAL AND MUXICIPAL FINANCE 407 
 
 promoted from one municipal office to another, often in 
 different towns, .mtil tl.ey arc appointed civic chiefs. A 
 burgomaster who has suc-cessf ully administered the affairs 
 of a small town is promoted to be burgomaster of a 
 larger one. Th.s system undoubtedly contributes to effi- 
 ciency m civic government, but it dep- Ives municipal life 
 of Its democratic character and subordinates it to the 
 general bureaucratic system of the State 
 
 Great Britain hi.s not adopted this plan. Until recent 
 t.mes there has been a sufficient number of public-spirited 
 members of the leisure class to draw upon for m«- 
 
 f Zl" K, " P"^'''^ '''^'"^' ^"hout compensation 
 from the public purse. There has. moreover, long been 
 in practice the method of appointing highly paid pro- 
 fessional men to the important civic offices^ a^nd wWle 
 the direction of the policy of the municipal govermnent 
 has remained in the hands of the unpaid elected repre- 
 sentatives of the citizens, the actual administration has 
 been entrusted to these officials. This practice, however, 
 of iate years has been considerably modified 
 
 In the United States and in Canada, the numerical 
 insignificance of the leisure class has rendered it neces- 
 sary m the first instance, to compensate the members 
 of the mumcipal councils and, in the second, to pay the 
 avic chief such a salary as will enable him to devote 
 the whole of his time to the affairs of the city 
 
 The mayor is not, however, as in the English cities, 
 elected by the mumcipal council nor, as in continental 
 cities, IS he appointed by the government. In America 
 he ,s elected by the citizens at large. The period during 
 which he holds office varies in the United States The 
 usual period is four years. In Canada the period is one 
 year, although the holder of the office is customarily 
 elected for a second year. The method of election and 
 
4U8 
 
 ECONOMICS 
 
 the shortness )f the period appear to militate against tlic 
 selection of first-rate men. Such men will not abandon 
 professional careers under these conditions. 
 
 367. Agitation for commission government. — The re- 
 sults of municipal administration in the United States 
 and Canada are widely regarded as having not beei) 
 favorable. With the object of reforming it, some cities 
 have adopted the plan of reducing the number of the 
 municipal body to three or five, and have attached to its 
 membership a salary sufficient to attract professionally 
 qualified persons and to enable them to devote the whole 
 of their time to municipal affairs. This method, known 
 as commission government, seems to be a step toward 
 professionalizing municipal administration. It is, how- 
 ever, in a transition stage, for the commission is usually 
 elected by popular election for a short i>eriod, and tliis 
 circumstance renders the eonmiissioners dependent upon 
 popular favor. So long as the municipal councillors had 
 their own means of livelihood they were independent of 
 the electors whom they represented, but the commis- 
 sioners are public servants on short tenures, and are there- 
 fore peculiarly exposed to the temptation of endeavoring 
 to conciliate particularly influential interests. Like the 
 German system, commission government diminishes tlie 
 democratic character of municipal life, but, unlike the 
 German, it does not present the advantage of a system 
 of training experts for municipal administration. 
 
 368. Economics of municipal enterprise. — The mu- 
 nicipal debts of the European cities are generally held 
 in the cities themselves, owing to the large numbers of 
 the investing public who reside in them or have con- 
 nections with them. The municipal debts of cities in 
 the United States and in Canada are, in general, hclii 
 elsewhere than in the issuing cities. A very large part 
 
lOCAL AND msiciVAU FIXaNTK 4OO 
 
 of tlic funds borrowed by them h»v„ 1 
 
 tl.e open market abroad. eZZ ^T ^'""'^''^ '" 
 
 taken by the cities invnl .. \ enterprise un.Jcr- 
 
 each„ewde„,rnd u on he „"" "''''"'"" *" '^' '^'^''t- «'"1 
 with diminished fair The '' '""''''' '" '""''^'^ "P"» 
 cially whencapitafZL;.. T'"''^""'"^^"-' '"' ^h"*, espe- 
 eities find it n ess^v "o 7 'T*'"^"' '^ '''''''-' '^e 
 interest and the m2„ / "T ""''"'"'"'y ''*'' -"t^s of 
 -d public o^?*"^:;;^^^^^^ private 
 
 inte^^stuponinvestedVn 1^ T"* "'^ "'"'^^ "^ th« 
 the possession b- 1 S^oTtt f/'f r *° '"'"'■"'''''• ^^'"■'- 
 i"<lispensable to its evL ' ' '''"■"'"* ^■'''«^'' are 
 
 eitif If rr tJe ""'""'"^' "'^"''-^ - - 
 difference betw^n he in T'"''' .*° *''^' P"^'''= °f the 
 
 -ved on theTuWi t d t'af^ "" "P'*"' •"■- 
 
 earned by a co^^y relrt J Ih^ ^'"^ P™«*^ 
 
 and other tave. „li„ "^^"''^/"'S' the same service, civic 
 
 all kindrbet; U W^^^^^ '"' ^7-*'"" ^"^ "^^s of 
 
 agement befnf assumed aT ""' ^'1"''' ^'^'" '" '"«"- 
 in the avoidance ofTi / ^^'^^ntage would also lie 
 *e abse„; of ;: dt^l^LV''"*^"' '^{'^^ ^t-ets. and in 
 
 *- is enteredlntrd :t\"ra"'^".f ^ '^'"- 
 nation. " '* "earmg its termi- 
 
 ,"nd"ct of the business bebl let ^'f'^''^ °^ '^' 
 «ther than on ecor^om c Z f*^™'ned on political 
 
 kt and as re^^^rc^^Xt ^ub^f \r^^- 
 '*■ A municipal service for I ^ "^ ^^^ '^"■ 
 
 h^ned with eVo™;nd itTr^'. '' °"^" °-'- 
 i""> ees, and it is sometimes conducted 
 
 i 
 
410 
 
 ECONOMICS 
 
 at ineconomical rates. In either case, the general tux- 
 payer must suffer. 
 
 Municipal services are peculiarly liable to inertia 
 People will tolerate in a service rendered by themselvis 
 or in their name incompetence which they will not tol- 
 erate in a service rendered by a company. This inertia 
 makes its appearance most conspicuously where, in con- 
 sequence of the necessity of protecting a legal monopoly, 
 a city finds itself obliged to acquire a substitute for it 
 which may appear as a rival. For instance, if a city 
 ac(iuired a street railway and obtained a legal monopoly 
 of such a method of transportation, it might be neeessim- 
 for the city to acquire also motor omnibuses if they 
 threatened to compete with the established system. 
 
 Cities which possessed a gas plant and a legal monop- 
 oly of the supply of gas have been obliged to aniiiirc 
 an electric lighting system in order to avoid external 
 competition with their gas, and have also been oblised 
 to check the development of electric lighting because it 
 interfered with their gas business and diminished the 
 value of their gas plant. 
 
 The circumstances that a loan for a municipal enter- 
 prise constitutes an addition to the civic debt and that 
 each addition to debt renders each further addition 
 less easy and in general more costly is a further disail 
 vantage. 
 
CHAPTER VI 
 
 SOCIAL LEGISLATION 
 
 869. Factor,, «r/,._While each of the topics which 
 .re the subjects of the followi„« pages n.ight have been 
 discussed approprmtely under one or other of the foreao- 
 
 Zht,l' '' " '"*""' '"^''"'*'*«« '» grouping to- 
 
 gether those numerous legislative experiments which 
 have been m progress for about thirty years, and which 
 are known collectively as s.K-ial legislation. During that 
 period many plans, not in themselves new. have been 
 given a new direction. 
 
 The social legislation of modern times may be held to 
 have had its starting point in the English Factory Acts. 
 No other country by the mi.ldle of the thirties of the 
 nine eenth century had advanced so far in individual 
 development by means of mobile hired labor as had Eng- 
 an,., and none of them had experienced the concentra- 
 tion of industry to the extent to which England had 
 experienced rt Practically, at that time, the factory 
 was an English affair, and it was. therefore, inevitable 
 hat English legislation concerning factories should be 
 the hrst. 
 
 The earlier factory acts were chiefly concerned with 
 sanitation because in the nish of the beginning of the 
 factory industry, many buildings were used for factories 
 jvhich were not constructed for and were not suitable 
 tor factory occupation. Under the domestic system 
 411 
 
Hi 
 
 WONOMirS 
 
 workers had been crowded into siimll rooms, and flic 
 eoiiditions, in general, were prolmlily siniilur to those 
 which may lie seen now in the siiiall workshops in tht 
 l''ar Kast. 
 
 In the cities of South China, weavinjf shops, w.urc 
 half a dozen hand \'^"u weavers are employed, are oftiii 
 almost without any li^ht and are destitute of any kind 
 of comfort. They are mere holes in which naked weii\ - 
 ers toil at their looms. 
 
 There were some industries in which workmen em- 
 ployed themselves and used their own simple tools under 
 conditions which were healthful ind ajfreeable. Sonic 
 of the handloom weavers in country villages were exaiii- 
 jjles of this. But throughout western Europe there were 
 others, as there now arc- others, the factory industry not- 
 withstanding, in which the conditions of lalwr were and 
 are extremely undesirable from a social point of view. 
 although it is almost impracticable to legislate in resjieet 
 to them. These domestic industries are no doubt griid- 
 ually disappearing, but recent conspicuous examples 
 were umbrella covering antl paper bag making. A con- 
 siderable amount of ready-made clothing is partially 
 made by workers in their own homes. Chains are also 
 made in this way in England in the Sheffield district. 
 
 The conditions of the period of domestic industry wen' 
 carried forward into the new era ; but the greater con- 
 centration of workers together with the greater pressure 
 due to the employment of machinery rendered contin- 
 uance of these conditions highly undesirable. It was in- 
 evitable, however, that public opinion and legislation 
 should grow slowly. The factory industry wa.s strag- 
 gling into existence. I'^ndue severity in legislation 
 might easily have retarded its progress by diminishing 
 the margin of advantage between the new and the old 
 
«<H'IM. I.K(JISI,ATION 4,3 
 
 ;,'::,:'■ -""'"^ — -:;* i:l'L:;;,,:;! 
 '">•"»,«.,„„,; ;:;;::,r : z™ ;r "r ""■; 
 
 ,....cg,.., , :;':;,;;, J;;, >* -■. 
 
 ./«";kS £*:t,s,K:!? "■■•"■"■■ -' "» >- 
 
 '■'"l-Ioyed: "' ' "' •" ""^"^^ «"^y «ere 
 
 In (Jreat Britain, the D-i-sinn- nf n, • , 
 ''"■Slid, factories ]JlJ-\T """ """^^-''""r law 
 tries ThTZ\ """'"'■ '^*?"'''*ti"n in other coun- 
 
 '-• The ™ost .niportant check upon the workinHf 
 
 i^ 
 
414 
 
 ECONOMICS 
 
 children in factories was the institution of a system of 
 compulsory education. Provision was made for half- 
 timers, or children who attended school for half the day 
 and worked in the factory for the other half. This 
 system had the drawbacks or the advantages, according 
 to the point of view which may be taken, of practically 
 binding the children to factory labor and of forming a 
 special class of half -educated persons. This latter re- 
 sult has been considerably modified in the larger cities 
 by the establishment of a system of "continuation 
 schools." 
 
 But the question of a statutory working day has long 
 ceasiii. to apply exclusively to women and children. The 
 claim has been urgently advanced in every country that 
 the workingman is entitled to a greater amount of leis- 
 ure and that, trade union regulations notwithstanding, 
 the hours of labor in many industries have been excessive. 
 The case of railway ser\-ants appeared to be especially 
 strong because it was shown that engine drivers, brake- 
 men and signalmen, whose alertness was of the greatest 
 importance for the public safety, were frequently on 
 duty for a longer period than it was considered possible 
 for a human being to remain in a state of unremitting 
 attention. Legislation, for the benefit of such cases, 
 has been passed by many countries and railway com- 
 panies have been prosecuted for imposing too prolonged 
 duties upon certain classes of their workmen. 
 
 371. Factors to be considered. — It is obvious that all 
 occupations cannot be dealt with on the same footing. 
 Some labor is too exhausting to be continued for many 
 hours. The driver of an express train over a difficult 
 section of a line may find himself exhai'sted at the end of 
 two or three hours, while the driver of a slow train may 
 be able to perform iiis duties perfectly well for two or 
 
SOCIAL LKGISLATION 4J5 
 
 three times that period. From the point of view of 
 physical fitness, therefore, a hard and fast rule appheaWe 
 to al occupations cannot be laid down. From the same 
 pomt of view, while there is an invincible a^" 
 agamst workmg a man for, say, forty-eight houf^" ^ 
 tinuously. whether he is willing to work or^not. ?he ar2 
 ment acquires less force with the diminution of Th 
 hour. When the number of working hours is brought 
 
 meit "'' •* '° ''«^' °^ ^'^ ^y J^g'^J'^t-e enact- 
 
 Apart from the question of physical fitness, there is 
 the question of the working force requisite for a certain 
 
 shifts of workmen are employed, each shift working 
 
 Hill result. If four shifts are employed, each shift 
 Hwkmgsjx hours a day, either the labor of the six-hour 
 day must be as productive as that of the eight-hour dTy 
 the product will be less. Even if the workmen were 
 btaining the whole product of their labor, it is clearTh J 
 hey would require to produce as much in six hours as 
 they formerly did in eight, or the amount receivable by 
 
 earlier hours of work is in general more productive and 
 
 es,it /r T' ''™'' Progressively less until ex- 
 
 cessive fatigue puts a stop to labor altogether, but it is 
 not necessarily an advantage to concentrate exertion into 
 
 a i^ff'^^ ^"'^ """'"'"^ eight-hour day would be 
 a great advantage to those workmen who could employ 
 ttar leisure time in promoting their own welfare in a 
 h'gh sense; but there would be little individual and no 
 
416 
 
 ECONOMICS 
 
 social advantage in work at high pressure for a few 
 hi jrs with empty leisure at the end of it. While mere 
 quantity of physical product is not in itself a desirable 
 social end, it is desirable from a social point of view that 
 sufficient production should take place to enable the 
 various communities, of which the working world is com- 
 posed, to enjoy as high a standard of material comfort 
 as possible. That this sufficient production should be 
 effected without the exploitation of any, either by a part 
 of the community or by the whole of it, is certainly a 
 desirable social end and this end would appear to be 
 accompUshed more certainly by improved organization 
 of production in such a way as to diminish exhausting 
 toil, rather than by the negative process of imposing, 
 arbitrarily and universaUy, a statutory number of hours 
 of enforced leisure. 
 
 The problem of the working day must, indeed, be 
 attacked in detail. In those occupations in which labor 
 combinations are ineffectual in securing reasonable con- 
 ditions as regards the number of working hours— because 
 the pressure of competition for employment is so great 
 or because of inherent difficulties of combinations in the 
 particular occupations— it may become the duty of the 
 State to prevent the exhaustion of its working force by 
 limiting the number of working hours. The influence 
 of the diminution of working hours upon the methods of 
 wage payment would have to be taken into account. 
 If it led to an extension of the piece-work system and if, 
 in this way, it rendered the combination of labor more 
 difficult, the reactions might be unfavorable to the inter- 
 ests of labor taken as a whole. 
 
 372. Accident com pennation.— Under so-called Em- 
 ployers' Liability Acts, which were in force in manv 
 countries, employers were liable to the extent of their 
 
SOCIAL LEGISLATION ^7 
 
 means for damages to workmen in consequence of injury 
 received by tliem in the course of their employment. 
 The employer could, however, in certain cases, plead in 
 defence at comm.Hi law that the injury was committed, 
 not by his negligence, but by the negligence of a fellow 
 employee of the injured man and that, therefore, the 
 employer was not liable. The employer could also plead 
 contributory negligence on the part of the injured work- 
 man. 
 
 The defences of common employment and contribu- 
 tory negligence appeared to neutralize 'le benefits of 
 the statute law of employers' liability, and there arose 
 gradually in Great Britain, on the continent of Europe, 
 and in America, a demand that the basis of the law 
 should be altogether altered, and that injured workmen 
 should be compensated for industrial accidents provided 
 these occurred out of or in course of their emjiloymcnt, 
 whether a fellow servant had been guilty of negligence 
 or not, while the onus of proof of contributory negli- 
 gence on th ? part of the workman himself should be 
 thrown upon the employer. It was widely held that the 
 mdustrial system should, by some means, b( compelled 
 to pay compensation for injuries received in its service, 
 instead of leaving injured workmen to their own re- 
 sources or to those of public or private charity. 
 
 This view led eventually, after much discussion, to 
 the adoption in Germany, Austria and France of some- 
 what varying types of compulsory insurance against in- 
 dustrial accidents and. in England, to successive Work- 
 men's Compensation Acts. In the United States, in the 
 present state of the Constitution, it would appear that 
 the regulation of industry within each state is the affair 
 of that state and that the Federal government would be 
 encroaching upon the rights of the several states if it 
 
 C— 1-27 
 
 fj 
 
418 
 
 ECONOMICS 
 
 were to administer a general law. The chief industrial 
 states have thus separately attacked the question. Sev- 
 eral acts have been passed, varying in important details. 
 Some of the legislation and proposed legislation has fol- 
 lowed the English model ; but most of the acts which have 
 already been passed have followed the model of Ger- 
 many. The German system may, for this reason, first 
 be described briefly. 
 
 373. German accident insurance. — Every industrial 
 enterprise in Germany, upon an extended list of indus- 
 tries, must belong to one of a series of groups which are 
 arranged chiefly with regard to the relative hazards, the 
 most hazardous industries being at one end of the scale 
 and the less hazardous being at the other. In each in- 
 dustrial center, the local industries are classified in these 
 groups and for each group there is formed an association 
 of employers in the industries of the group. There is 
 also formed a similar association of workingmen in each 
 group of industries. The administration of the whole 
 system is in the hands of the Imperial Insurance Depart- 
 ment. The direct cost of the system is divided between 
 workingmen, employers and the State. All working- 
 men must contribute to the so-called Sick Funds. Thest 
 are maintained by the contributions of insured persons 
 and of employers. The proportional burdens are, upon 
 insured workmen, two-thirds and upon employers one- 
 third of the amounts necessary to maintain, at a certain 
 fixed rate, injured workmen for four weeks after the 
 expiration of three days from the date of the accident. 
 
 The same proportions apply to the funds necessary to 
 provide sick allowances to such workmen, with the addi- 
 tion of sixteen and two-thirds of the previous earnings 
 of the workmen, which amount is contributed by the 
 employers or by the accident associations composed of 
 
SOCIAL MXilSLATIOX ^,g 
 
 dent assj2n""oZ^7"''"' ?*'"'-^' '•>- "^ -- 
 contributor. Th beSs '' •IT'"^''''-^ ""^ ""^ ->- 
 for temporary dirbibtval ^f /" '"J"''*^'" "orkmen 
 to one-half of tt a^ ["^^^^ '"'" "" '^"^ ^^^ --"^-^ 
 craft of the injured ToSml? ITT"^''' '" *"^ 
 upon uhich the con,..^,>«„/ • ^ , maximum wage 
 
 teenth week o dZuuViU """ *'" '^"'' *" '^' *hir- 
 "f such averaii % ^.Th'''';"*'"" '"^ *"'-*''-'^ 
 a ion.er periS «r thS^! ^^^^ ' tf ^' '"'''"' '"' 
 category of permanent disability ^""'^ '"'° ^'^^ 
 
 .ic^n;;Sr^;;£,f -,r^^«- -^ -r. 
 
 nation. I„ cases of .Hrn^ . r ,'*'"" *" "'^ compen- 
 n>aximum an^r oft^Sjtj'^^t; T- "^ " 
 
 - the ^^^J:^::'::r'icz:^;:^^^'^ 
 
 s.on vanes in respect to the disabiSy ' "' *'^ P^"' 
 
 -"-•ty, and annul i s a e^ai" Hmm ^^^ 
 a'taintheageofsixteenyearr Teetotal J T' """^ 
 t-es must not exceed 60 per c^nt of the n '" """"' 
 earnings of the deopn. J 7 Previous annual 
 
 Burial^expen /a'ra To .^H ''" '"''^"'''*'^^ «^ «'«'-• 
 annual earn Ws iS f "'' *° ™c-fifteenth of the 
 
 0" the dea h o \ ft^'-'.cases, a lump sum is paid 
 
 m 
 Ml 
 
420 
 
 EC'ONO.MICS 
 
 aiice arbitration courts. Conii)ulsory accident associ- 
 ations, composed of accident associations to which em- 
 ployers must belong, are empowered to formulate "-egula- 
 tions for the prevention of accidents and to impose nnes 
 upon the employers and upon workmen who infringe 
 these regulations. 
 
 374. German si/stem not financ. I by State. — The 
 German system is thus not a system of State accident in- 
 surance in the strict sense; it is controlled by the State. 
 but the funds remain in the hands of the accident and sick 
 associations. The sick associations were in existence 
 before the accident insurance law was passed. It is very 
 difficult to compare the costs and the results of the (ier- 
 man system with those of other systems, for that and 
 other reasons. The accident insurance funds do not 
 stand by themselves. For the first four weeks of dis- 
 ability the compensation is jiaid exclusively from the 
 sick funds, and for the next nine weeks it is partly paid 
 by these funds. In the early years of the operation of 
 the German system there was much malingering or 
 fraudulent application for sick and accident relief, in 
 spite of the expectations that the intimate relations witli 
 one another of the members of the sick funds woiilil 
 result in the prevention of fraud. It is understood that 
 this feature has been to some extent diminished by care- 
 ful medical superintendence. In the German system, 
 accident insurance is also aided by the police and by the 
 postal departments, and the costs of these services do not 
 appear separately in the accounts. 
 
 The success of the German accident insurance law may 
 perhaps be referred partly to the fact that the law was 
 not applied to an already highly developed industrial 
 system, but that it grew up with it, and partly to the 
 fnct that the highly regulative character of the German 
 
SOCIAL LEGISLATION 
 
 421 
 
 administration to whieli the people are lial)ituate(l has 
 ciiablea the government to force employers and employed 
 alike into associations controlled hy the State. The 
 ffreat commercial prosperity which (Jermany has en- 
 joyed during the period in which the iiisnrance legisla- 
 tion has been in force has facilitated the hearing of the 
 hurden of accident and old-age pension funds alike. 
 The employers have, however, been complaining of the 
 great increase in the cost of social legislation and the 
 l)ressure of it upon certain industries. 
 
 873. Workvicn's Compensation Act in England.— 
 The Workmen's Compensation Act is of a different 
 type. It applies to accidents in all employments and 
 to twenty-four occupational diseases (this number may 
 be added to by the Home Secretary). The Act pro- 
 vides for compensation for injuries by accident arising 
 out of and in course of employment which prevent a 
 workman fi nn earning full wages for one week or more, 
 or which cause his death. In case of wilful misconduct, 
 resulting in partial disablement, no compensation is 
 paid, but if the workman is permanently disabled or 
 killed, compensation is payable. All manual labori^fs 
 and any regularly employed person whose wages are 
 less than £250 (.$1,216.63) per annum comes under the 
 operation of the Act. The benefits are as follows: for 
 partial disability, there is a weekly payment during life 
 not exceeding that loss in earning power, beginning one 
 week after disablement; for permanent total disability, 
 a weekly payment after the first week of not more than 
 one-half of the average weekly earnings, but not more 
 than£l ($4.87) payable during life; for temporary dis- 
 ability; and for death, a sum equal to three years' earn- 
 ings. If the amount is less than between £150 to £.300 
 (>^729.98 to $1,459.95) the compensation is giv. i to 
 
 I 
 
 f 
 
Hi 
 
 ECONOMICS 
 
 wholly dependent persons, the amounts payable to par- 
 tial dependents are settled by arbitration and all sums 
 are to be invested by order of the county court. Burial 
 expenses to the amount of £10 ($48.70) , including med- 
 ical attendance, are jjrovided for. Free medical attend- 
 ance is given only in cases of death. The entire cost of 
 the compensation rests on the employer, who may insure 
 against his liability in any certified insurance scheme. 
 There are sjjecial provisions for the payment of com- 
 pensation ill case of the bankruptcy of the employer. 
 Disputes arising under the Act are settled by arbitration 
 or by the county court, and not by a specially established 
 tribunal. 
 
 The English system is thus a system in which the cost 
 of compensation falls directly upon the employer, who 
 may, if he chooses, insure against the liability. Insur- 
 ance is, however, not compulsory, nor are the employers 
 grouped together as under the German system. The 
 prevention of accidents, being in the hands of the Fac- 
 tory Inspectorship, is not mingled with the compensa- 
 tion scheme, as it is in Germany. 
 
 376. Federal compensation for accident in the United 
 States.— A Federal act was passed by the Congress of 
 the United States in 908 providing for compensation 
 for accidental injuries sustained by employees of the gov- 
 ernment. This special act is by no means so liberal in its 
 benefits as either the German or the English general 
 acts. The "waiting time," or the time which must 
 elapse after the accident until benefit begins to accrue, 
 is fifteen days, against the German three days and tlie 
 English seven. The amount of compensation for death 
 is only one year's wages, and that is subject to deduction 
 of the amount paid in the current year up till the time 
 of death. Xo burial expenses are allowed. In case 
 
SOCIAL LEGISLATION 4^3 
 
 of disability, one year's wages only are paid, whether 
 the chsabihty IS total or partial, temporary or permanent. 
 In case of d.spute. there is no appeal. The measures 
 adopted by the various states or projected by them can- 
 not be detnled here. Some of them, notably the State 
 of Washington, have adopted the German system with 
 modifications. 
 
 877. Question of respomibilit,,.— The questions of 
 economic interest arising out of this form of social legis- 
 lation are mainly these; first, the relative advantage of 
 ■"dividual and of collective responsibility; secoJ^ as- 
 sumption of the cost; third, the economic effect 
 
 Individual responsibility, which is the feature of the 
 Knghsh system, appears, on the whole, the system most 
 Jikely to result in the prevention of accidents by em- 
 ployers and by workmen alike. The employer has to 
 pay compensation and the workman has to suffer the 
 loss of a week's pay for any accident. In the English 
 system, the whole scheme is aided by a highly efficient 
 tactory inspection by qualified inspectors. The em- 
 ployer who is individually responsible may insure his 
 risk under conditions which enable him to do so at a 
 minimum cost for such risks. He can, if he chooses, 
 pay his premiums to a mutual insurance company com- 
 posed of all employers in a district or in a country, or 
 he can do so to a company whose risks are international. 
 Ihe larger the total area of risk, the smaller is likely 
 to be the cost of the individual risk. 
 
 Collective responsibility under the German system 
 involves compulsory mutual insurance in relatively small 
 groups, and mutual inspection within these groups If 
 the groups are very small, the burden of the accidents 
 may be very great and the careful employer is burdened 
 to the same, or even to a greater, relative extent than 
 
 I 
 
4«4 
 
 . r.rovo^iics 
 
 the careless employer. If, for example, an employer 
 succeeded in altogether preventing accidents in his works 
 hy the installation of certain machinery and by close 
 supervision, under the system of individual responsibil- 
 ity his risk would lie nil; but \uider the collective sys- 
 tem he would still be responsible for comjiensation for 
 accidents in the works of his less careful fellow employ- 
 ers. The careful employer might thus have a high in- 
 surance rate to pay in addition to the cost of tlie measures 
 by means of which he had eliminated accidents in his 
 own establishment. 
 
 The disadvantage of the system of individual respon- 
 sibility ii that in cases of pensions given by way of com- 
 pensation (a point to be considered later) , the individual 
 employer cannot be regarded as being able always to 
 offer undoubted security for the continuance of the pay- 
 ment of the pensions, since he cannot be compelled to 
 continue to carry on his business against his will. This 
 difficulty might, of course, be avoided, as it is avoided 
 in the English system, by the payment of a lump sum 
 by the employer, which sum is invested by the order of 
 a court. In the case of large and stable enterprises, such 
 a difficulty need not arise. The cardinal objection tii 
 the mutual system, as applied to small groups, is that 
 the area of each is too small to permit of economical 
 insurance. 
 
 The system of collective responsibility in groups in- 
 volves either the collection of premiums in excess of tlie 
 amount of the annual sum expended in compensation, 
 for the purpose of providing a reserve against the future 
 payments arising out of accidents of the year, or the 
 collection of assessments coinciding precisely with the 
 amount required within the year, to discharge the cur- 
 rent obligations of the group. 
 
SOCIAL LlXilsl.ATION 443 
 
 Zu. «;'*«"tW "f the fir.t ,„otl«xl i. tl,«t if t 1. 
 
 >.x-m.u.n. are ba.s«| .„,..„ ,„.„,,er ac-tuarial cal ll , " 
 
 uun en of the accidents of the vear. A iwrtlnn «f .1 
 funds remain, in hand hec-ause Vtdl pa^.^^; ,1 : 
 cmpensation or in pensions has not -S;;;:! ."""^ "' 
 llie advantage of the second, or assessment „»>fl i 
 ;s^ hat nothing is taken fron. th; co-S:! ' .'S^t 
 eon.e for compensation, except Mhat is necessary for 1 1 
 annual payment, while the employers can S 
 "seo/ the.r busmess. th.. f„n,|.s which represent the ,li 
 
 J r ^d :::^rfr:;:'=^^ 
 
 required and that accumulation involves expense of n.m. 
 agement and risk of loss Tl,^ ,i- ,'-''''^"*^ "' "'a"- 
 second method are thntti, ''"'"'Ivantages of the 
 
 '"""oa are that the assessments irraduallv i>i 
 crease as the cumulative effect of the granling " ad 
 jonal pensions annually makes itself fe and t't" 
 anges m the personnel of the group migh lie le th e 
 «ho gave up business and left the g oupOf Ta t of tJS 
 ol.hgat,ons, while newcomers would ij calS .1 ' to 
 
 An assessment system in a mobile grouD mi^ht +!,..» 
 Jesuit in insolvency of the fund. AccmnlreXl g 
 t'ons in respect to long past acci.lents mi..ht eventuSlv 
 
 by the State or the scheme would hav 
 
 e to l)e aban- 
 
4«0 
 
 ECONOMirS 
 
 iloned. A wheme ha.sed \i]K)n iisitcssnientR levied on in- 
 (luKtrial groups on the ground that the industry in which 
 un accident occurs ought to l)ettr the burdenof conii>ensa- 
 tion, thus seems likely to drift, in the first instance, into a 
 scheme in which all industries bear the burden out of a 
 common fund and, later, into one in which the whole 
 of the burden is throvMi directly npon the general tax- 
 pu_,wr. Unless sucii u .,ysi.eiji * eic supplemented by a 
 very rigid factory iiibptction, tl'- Itulustrial accidents 
 might become imvhIi mo;'c fr'niuri! than would be the 
 case under almost ain irMr '^ysu-.i!. 
 
 879. Asiiumi)tion of rr. •</,■*. — In tlie Germansystem the 
 main cost of conipensiitid i is divided between the em- 
 ployer and the worknmn. Ilit- State bearing only a ])art of 
 the cost of administruti >n. The contributions are levied 
 directly upon the workmen and the employer respti ' 
 ively. In order that the employers may have more ii 
 fluence in the distribution of the benefits of !■■ s;i-k 
 associations, they have even asked that they be i^i'i niil,i..<l 
 to contribute more than the lav originally pro\ ,.!i i • 
 In the English system, the wiiole of the cos' (s ') . 
 directly by the employer and this method also is n c.:! 
 mended in several of the projects which have 'ui'i ■■ 
 brought forward in the United States and Canada. In 
 the report upon Workmen's Compensation by Sir Wni. 
 R. Meredith to the Ontario Government, the advisa- 
 bility of this is strongly urged. On the other hand, the 
 Canadian Manufacturers' -^-ssociation has suggested 
 that the workmen contribute. 
 
 The important question "s not, however, upon whom 
 the cost is imposed directl;. , but by whom the cost must 
 be borne eventually. It has been argued that if the cost 
 is thrown upon the employer, and if he is unwilling <ir 
 unable to bear it, he will be able to add it to the price of 
 
soci.vi, i.i;f:isi..\TK)\ 447 
 
 h« pr.Hl,.ct If he c,.„I,l .lo (hi, ,J,, e„.t.,„ur w„„l,| l,„vo 
 " -r the hunlen. Jr,ver.„„„, ,„ ...t of '^ 
 
 ... for a«.„k.„ s as „ ,a., „,„, „ ,„ -^ „,^. J^ 
 
 of forwanl «„.l |,„,kwar.l shifting « hid, wc have al 'a v 
 e.xa„„„e.l ... „„ atnu.,,,,h..r. of perfect «„„petitir' the 
 consumer woul.l have to k-ar the cost, either i, e 
 crea.se of the priee or in the ahsenee of a redue ^.r 1 ^ . 
 a re,h.ction «„„ld have taken ,.huv. 
 If the employers are in the position of monopolists 
 
 must pay the eomiK..nsation out of their profits from 
 th.s rack pr.ee. Hut if the con.petition is such t a "e 
 pr ee cannot be increase.1 and that the en.ployers are 
 o a.nu,« only a n.ar^inal profit, while the XkJ, 
 a e recavm^ wages in excess of their „.ini„„m. subsist- 
 ence the c.«t of tte insuruM., will fall „p„„ them i„ 
 tl e form of reduced wages or „. the forn. of the absTni^ 
 -f an .nerease. u-hich would otherwise have taken place 
 It should l^ ohserve.1. however, that very small costs 
 •mm m general where they are first impoied. and it 
 -he cost of insurance is inconsi.lerable its direct impo- 
 ■'<";n upon the employer would not necessarily result 
 " .ts be.ng shifted either to the consumer or 1^"" 
 Workman. 
 
 If an attempt is to be made to impose the b.irden of 
 
 cmpensafon for accidents upon the industrv, from the 
 
 ^ln,m,stra hvc point of view, it is undouhtcdlv' less c"«tlv 
 
 o .mpose .t upon the employer than to impos'e it directly 
 
 !?• 1 7'^'"""- «"■■■"'? t" the greater cost of collec- 
 
 ■on m the latter case. Since the workman is usually in 
 
 a weaker economic position than his employer, it is likely 
 
 "^at. m the normal case, all burdens such as the cost of 
 
 -mpensation. vh.le levied directly upon his employer. 
 
 'See Page (187). 
 
 ill 
 
428 
 
 ECONOMICS 
 
 will, at least during certain periods, eventually fall upon 
 liini. For this reason it lias been advocated that all sucli 
 burdens shoidd be l)orne by the state; that is, by the 
 general tax fund, but the ulterior result of such an ar- 
 rangement might involve not only a greater amount of 
 malingering than presently exists, but a larger number 
 of accidents. 
 
 380. Economic effects of workmen's compensation 
 sjistcms. — Experience has shown that when a new sys- 
 tem is established in response to philanthropic agitation, 
 there is a disposition on the part, not only of those for 
 whose benefit it was intended, but of others, to take ad- 
 vantage of it and that there is thus a possibility of even 
 a soundly based scheme being compromised at the out- 
 set. This is peculiarly true of all schemes which are 
 organized or aided by the state. 
 
 The experience of the English Act immediately after 
 its coming* into force showed that the duration of sick- 
 ness of workmen regulated itself according to the act, 
 Since the act required a workman to be sick for seven 
 days before he could receive sick allowance, the period 
 of sickness began to lengthen. In one mutual society 
 operating under the Act, during the six months prinr 
 to its operation, 1.9 per cent of workmen under its i)ii)- 
 visions suffered from illnesses lasting between seven and 
 fourteen days, while 3.5 per cent suffered illness lastiii}; 
 longer than fourteen days. In the first six months cif 
 the operation of the act, 7.4 per cent of the workmen 
 had illnesses lasting the shorter period and 6.9 per cent 
 had illnesses lasting for longer periods. In other words, 
 the claims for compensation fully doubled in number. 
 From the point of view of production, a lax administrn- 
 tioii of a workmen's compensation act must l)e disadviin- 
 t:igeous. 
 
SOCIAL LEGISLATION- 429 
 
 881 Old-age K««o»,.-Cl„.se]y coniiette,] «itl, tl.c 
 ta^,.c of sickness insurance is that of old-age pension 
 The pay„,e„t of annuities to persons who haveCn r ." 
 uted to funds, established for the purpose of givinran 
 
 new Th s method was practiced by the me.lieval 
 gudds and by their successors, the Liveried Co.Zanics 
 Incorporated Trades and the Friendly SocS Z ' 
 
 boLs"?ch'^ ^'t ^^™'^ "' ''^ existe„c?:f C 
 bod,es Such a practice, widespread as it was, and sup- 
 plemented as ,t was in the early ages by bene/acfons o f 
 
 state schemes unnecessary. Schemes involving the 
 ^-rantmg by the State of pensions on the ground of aJe 
 were however frequently advanced from th eid ff 
 l.e seventeenth century onwards. So far as the write 
 
 aware .e earliest of these schemes were all advan e 1 
 ".England; ,t was not until 1880 that the German Old- 
 
 f«ri r"'"''*-^' ^"""'•ance Law was passed. 
 JS2 Wston, of pension acts.~The earliest Eng- 
 sl schemes were Daniel Defoe's public and com- 
 ulso,,^ scheme of ,692 or 1603 (published in his EssTv 
 u,K,n Projects m 1607) ; and Dowdeswell's Bill of 177,3 
 
 out Iv hrrV'*^ ?""" "' ^''"™°"^' ^"* «- «-o-i 
 
 Uurke ' ''''"■''' *^' ^"PP""-* °f Edmtmd 
 
 Both of these schemes involved contributions bv those 
 
 ar,es. Defoe s scheme was compulsory, DowdeswelFs 
 '"^ olved payment of deficiencies out of the rates. 
 
 RollesBdl (1787) provided for payments into a fun.l 
 n nch and poor alike: the poor alone .-eceiving from the 
 fund benefits for acci.lent, misfortune or old Ige 
 
430 
 
 ECONOMICS 
 
 Thomas Paine, in his "Agrarian justice" (1795-96), de- 
 velops a plan for a Xational Fund, raised by means of 
 heavy succession duties, out of which there was to be 
 paid to every person attaining the age of twenty-one 
 years, £13 by way of compensation for the loss of natu- 
 ral inheritance through the introduction of the system 
 of landed property, and on attaining the age of fifty 
 £10 per annum during life. Lansdowne's Bill (1837) 
 proposed to add from local funds 25 per cent to the 
 amounts contributed by the members of Fri?ndly Socie- 
 ties. Corrance's project (1869) also involved assist- 
 ance to Friendly Societies by the State in order to enable 
 them to provide pensions to other members on attaining 
 the age of sixty or sixty-five. 
 
 Canon Blackley proposed ifi 1879 a comprehensive 
 scheme of state |)ensioiis for tlie aged. This scheme was 
 followed immediately by that of Mr. Rankin, and in 1889 
 by that of Mr. K<le. In the same year the German Old- 
 Age and Invalidity Law was passed. 
 
 The provisions of this law werf very similar to those 
 of < ari/m Blackley's m-hfme of 187i*. Several projects 
 for i)i<i-»j(f j)ension funds were ndvam-ed after the ado])- 
 ti(>n of tiif plan l)y Germany and in England several 
 ( omniissiofi A^s on the question (1893, 1895, IS'S, 
 IH'M. 1900, 1908^ 
 
 EventuaMy an Old-Age Pwision Act granting pen- 
 sions without previous coritriluitMms was passed in 190H. 
 An Old-Age Pf-nsion Act was passed by Xew Zealand 
 in 1898, by Xew South Wales in 1900, and by Vic- 
 toria and Queenslaixl later. The Commonwealth nf 
 Australia adojited n uniform pension law in 1908. In 
 the \ 'nited States there are numerous partial systems 
 for pensioning certain classes of ])ersons under Feder.il 
 and under state laws, but there is no general law. 
 
 ■w'-'-ww^' 1 
 
SOCIAI, LKGISLATIOX 43, 
 
 383. Canadian situation.~In Canada th^r» • 
 eral pension Jaw. In January 19 ' " sJ' '^' «" *"'- 
 Committee M^as appointed bv H,. '* ^P"'"*^ 
 
 purpose of hearing evEe and r^ government for the 
 number of person! t. S ?f^'"^ ' '"'^P'"-'- The 
 
 would „pp,rruTd i;L7 z tzr''-- ^•"*^'" 
 
 ;"e pension is given, an'd b) pU ^ c wTofl"'''^' 
 to whom it is to be given ' ^ ^ '^'^^^^ of persons 
 
 gave a pensL of $f pe W ioTbr" ""' "'"''^'^ 
 having reached that age were unall' '^"°"'' "'''°' 
 selves MhoUv from th^ir I *" mamtain them- 
 
 visionaJly as^o lows ThJ? .T"'' ""'^ "" P"* P™" 
 sixty-five years and ; , '' ""'"'^'' "^ P^'-^ons of 
 
 a.Ia is aboitTpe? cerrTf-fb T "" r"'^*'°" "^ ^an- 
 "f these were unable t'l. P"P"'''*'°"= if one-fifth 
 
 like Canada where fl P*'' •''''"■• I" a country 
 
 ".at an o^age :rsoril P^T '^-' " -«>' be 
 U'hether its clt should iT T' ^'"'"' "^^^^''"y- 
 
 .-ralreveneoJtSrrSSllI^^t'rr*''^ 
 
 r^^t^jr^-sHftS-;^ 
 
 iMtenton of the fund. ™'' ""•* *•>« 
 
 nrttf£:sl^:&b^^''''--^-ges or emp.ov- 
 
 -t,havernts;;L;i;Lr-^^^^^^^^^ 
 
 Jo>n,ent„.r:;^f:f;^;::;'';,~^;;"nem- 
 
 /'■ them. also, employers are exacted o rfr 
 tiiey want workers. " '^■^I'ected to refer when 
 
 ¥"" ■ W '^Tll" 
 
432 
 
 ECONOMICS 
 
 II 
 
 Government exchanges were established as a part of 
 the general scheme of dealing with the question of unem- 
 |)loynient and also to provide an alternative to the pri- 
 vate bureaus of the same kind which had led to serious 
 evils, to excessive commissions and to cases of fraud. 
 The lalwr exchange has, on the whole, been shown to be 
 a great benefit. It lias aided in the separation of the 
 chronically unemplo>i d lioni the unemployed workmen 
 who really desire employment, and it has prepared the 
 way for dealing w ith the former class by other methods. 
 
 383. A neii: experiment. — Steps 'have been taken in 
 Great Britain, in contiection with the labor exchanges 
 supplemented by boards apjx/inted partly by the gox 
 ernment niid partly b\ educational and similar institu- 
 tions, towards finding suitable emiiloyment for boys and 
 girls immediately when they leave school. This interest- 
 ing experiment in paternal legislation has not been in 
 force for a sufficient length of time to enable any but 
 \ery provisional conclusions to be arrived at. However, 
 the period during which it has been in operation has been 
 ;i period of great activity in industry, during which the 
 need for assistance in finding employment has not been 
 so great as it would be in an industrial crisis. 
 
 The experiment, however, suggests certain difficulties. 
 If a boy, for example, applies to the lx)ard, or if iiis 
 parents apply for him, even if the board is at once able 
 to provide employment, to what kind of employment is 
 the boy to be ])ut? His record at school affords only 
 certain indications, and it may be used so far as it avails 
 lut even with this record before it, how is a board to 
 decide a matter which must have been difficult for the 
 parents to decide (otherwise they would not have made 
 the application) ? 
 
 So far as the experiment has gone, there seems to b« nent 
 
SOCIAL LKGISLATION 433 
 
 father and to find hm ^ "^"^'^ "'^ t™'!^ of his 
 Prenti. . Z^^i^TZ^ ^^ T' T ^ '^^ 
 deed, indirectly exercise soL , '"""^ '^""' '"- 
 
 who has been dealt J , bTlT"'''"'"""' ^'-^' i^ « boy 
 to an en,ployn,ent se cte ,',.^^,^ t? "n '" '•^^" ''-* 
 streets, having Jeft this em ^1 "^ ''*'^*^'"S '" "'e 
 
 he may be seni back t^ , s eSr"'* "! '"' """ ''^-•'^' 
 to being sent to jail or t iTn ?T"* "" ^" alternative 
 . It is obvious tha a Xre*;;'?" ?T^™"* ^•- 
 involves compulsory iZTZf T "'^ ^''^ "^"^^-^ 
 '"^ a hoy into his fatherTt'raJe i fofl' ''T-'"' °' ^^"'^- 
 so far as it is effective to th! "■^'^' '* ™"*t lead, 
 
 tradesn.anship. It •«! tr T.*""'"" "' ''^'•^ditarv 
 already very coning «, 2?,, '"'''""■'"' ^'«'*- '^^'- 
 follow the trade of H^iv S„l; f """"■'■*-^' °^ 3^°"t''s 
 
 beena voluntary and nit ItZ 1 ' ""*" """' *''''' ''«'* 
 3«6. "i?,^,,-,„ '.S''™j7"-^"'->'l--tice. 
 
 bureaus and in the adoption? t' '"'"'"''">" "f lalor 
 
 with unemploy„.ent ^Xl^t""^ "' •^^''>'"^' 
 
 make it clear that thelJi" nTtI ^'' ^'deavored to 
 n>ht to work. The IZ ^ '^"^^ ""t «dnnt the 
 
 -uld involve th^ d ,ty r r ^'^ " "^''* *" -"'-k " 
 -Ploy-nnrt for alUpp It 'tW ' '"^ '*"*^ *" «'"' 
 refrained from adn.ittn'rtl, ■ u. ^"^■^'""nents have 
 rf serious importrce alH,! ut ""'' *''*^ ''"*>• '^ »ot 
 'ion with res^r^t^^^^^^^ "^ '^*^'-^'a- 
 
 can work will obtai,, «n !? ^^* everyorH> who 
 
 ^, ^^ive Of the stte'lfTsC"";? -tl ""'"^ -^^ •-- 
 T t te th,s result under circumstance! of **' ""* «^'"'-"^e 
 
 made ,s dear that supplen enta" T "'^^ "'^^''t'-'al pressure, it 
 I" the T^nite^Stl • l'^' '""" ""'"' ^'"""w- 
 
 to ^ »ents have norb^ltdrld'hytir^ '^"^' --- 
 >' -i-«8 " •* '"^"^ respective iegisla- 
 
 L 
 
434 
 
 ECONOMICS 
 
 tures with powers to deal with unemployment. The rea- 
 son for this lies in the fact that although employment 
 fluctuates in both countries, the number of unemployed 
 in industrial crises of the past has not been in excess of 
 the local means of dealing with the problem, either by 
 municipal measures or by measures of private charity. 
 As the conditions in America approximate European 
 conditions, unemployment legislation, as also other 
 forms of social legislation not now obviously necessary, 
 may become so. 
 
 387. Unemployment.— The medieval system of ob- 
 ligatory labor and corresponding obligations on the part 
 of the masters of the laborers has already been described. 
 In theory each man had his place in medieval society, but 
 he was obliged to remain in that place, tliough practice 
 did not always conform to the theory. Obligations were 
 evaded on both sides. Cynical injustice and excessive 
 cruelty often made hard the life of the medieval culti- 
 vator. 
 
 Above all there was no freedom of movement, unless 
 everything was abandoned by flight. The modern sys- 
 tem has given mobility, but many of the compensatidiis 
 of medievalism have disappeared. The legal right to a 
 definite place in a social group is no longer recognized, 
 and unless a man can gain a footing by some means lie 
 finds himself in the same position as an outlaw with the 
 difference that the outlawry is not always due to iiis 
 own act. 
 
 All governments are reluctant to encounter the diffi- 
 culties which would ensue upon the recognition by tiie 
 State of the right to employment, but in all couiitrie; 
 there exist more or less effective measures for dealinj 
 with unemployment. 
 
 The chief point of interest durng recent years ha: 
 
 J 
 
 P'-w-r :rwn 
 
SOCUI. LKGISLATION 
 >>een the systematic attempt t« diff .■ 
 fy une„=p]„yed from tK, , f n? "*' *^ ~""'- 
 f';rmer c|«..s has been dealt ,72" '""""P^"^^'^- ^he 
 "fiabor colonies and in Ho^lat '"'"'^' ''J^ '"^«"' 
 
 labor eolonies. but more esltLl " *"""" ^^*^"* ^^ 
 "orks. The latter class hafl^ " • "'' """""^iP"! •^Hef- 
 Pauperism properly soll^:.";/',; 'T' '''''''' '"*" 
 from encroaching upon the mp„ i '..'^" P'^^^^nted 
 workmen who are haZuaH^ '."^ '^'"^*' '"-"^'"J^fl f'>r 
 -•"nally, are obli^St seek'^rT";''.-"'' ''"* "^o, occj 
 "f employment from ,Ses: "l '"'""■^•^ ^''^^ '^'^ ""* 
 other like causes. ' '^^l'"^*'""" of trade or 
 
 «.aStXwmrtirf--'--'--e 
 trade unions and's^e fS. h" *'' r'"'""" P-"-*- "^ 
 '- regarded as one of thT?^H°" fv'' ^"^ ''^^» *" 
 clear that the strain upon an l'"' "' '^' '^*«*'^- I* - 
 during a long period of^preiitS tT?" ""* """^ 
 epidemic of strikes. P'^ession oi trade or during an 
 
 sot^tn-l 
 
CHAPTER VII 
 
 SOCIALISM 
 
 389. Origin and histor/i of ,vo«Vi/(*;n.— Socialism may 
 be provls.;)nally d«;fiiie(l as a grouj) of ideas, partly of 
 an economical aiul partly of an ethical character, con- 
 cerning the future of society. These ideas, the more 
 general aspects of which will ujjpear from the following 
 pages, have been promulgated and iield by some who 
 have regarded them as embodying a new science of 
 society and by others, with so much passionate devotion, 
 that the group of ideas is frequently regarded by them 
 as a religion. 
 
 The historical origin of what is usually called mod- 
 ern socialism may be attributed to the combined effect 
 of the ideas of "political freedom whose divelopmciit 
 was the characteristic of the eighteenth century, and tlie 
 development of the large industry which was character- 
 istic of the first half of the nineteenth century. On its 
 literary side, socialism owed its origin to the almost 
 contemporaneous writing of two groups: one in Eng- 
 land and Ireland, represented by the cotton manufac 
 turer, Robert Owen, and by the Irish gentleman. Will- 
 iam Thompson, who was inspired by .Jeremy Benthani 
 v-hose destructive criticism of English law broujilit 
 about Its revision; and the other grou)) in Paris, consist 
 ing of Saint-Simon (whose Nniivemi ChrintiaiiisP'.v m- 
 si)irc<! the social views of Cai-lyle and Ruskin; Fourier 
 430 
 
 r^i 
 
SOCI.AMS.M 
 
 (who,se iniluence „,«,„ Frend, 
 
 437 
 
 thoiijK-lit 
 
 (lis greatest IkjIw 
 
 political and econoni 
 
 lie 
 rather tl.at of chr,; eie L^ '";•"'"""*• "'"'-^^ '"'^ -as 
 
 Ti.e soeiaiis„/o t; "a :ir'''"';'''- • 
 
 contained tJ.e ffern.s ,./„, r .T "'"' '■""^''' ^ut it 
 the subject. It Z, r * " '"'•'■sequent ideas on 
 
 "^ the tiKhtee^tht , 7^^^^^^^^^^ ^ ^7", »'- """'"e 
 
 •'-"■te.l pro,luced «,, ,.,'"* ""''"**'■>' "■«•" «'"- 
 ••''vi"»s an,l ine ita e 't,:,"'"^-'" """'*^ '''^terioration 
 
 «''-i. be,.n aetiveljabo rST"' '"' "'"*"*'"" 
 "ational education which I. . "'"venient for 
 
 " hieh did not cZe t ?n.&." n « "" ^""'^ *™*^ '^"^ 
 '"•"eteenth century he ' '''"'*''"'' "^ ^^'^ 
 
 Reform whici c"m; J" "'.'"^l^"* f"r Parliamentary 
 '■-r free irnptarn of h :;'\'" ''''' "'^^ '— nt 
 I-ws,allaL beda ar;e;:yifr^^ '" ""^ ''°-" 
 practical reformers of thaftime Th ""*''"'*"'■ ^''^ 
 
 either p<:s,ti^..lv „r nel't i . f"' ^^'^'''^ '■^"''^ted 
 
 «l.o Mere ., ]" e " ^7 !?''' '"'"'''' *''«" t^"- 
 
 ''y -hich tiK .uhs; •;? s :" T? "--^--tion 
 
 These studies involve, it . ' f.'^*'"«"'^h^d. 
 of eomm.mities ^rJi^^T "'^ *''^ ^'"owth 
 
 ^■i'-.a"<lthusth Xt;Lo Tirl ""'^ '^^'•' P"'"* °f 
 '^-I'.eed to a forn.u at . '''''^' "■'"'^'' ^""'^ f'^en 
 
 -turie, came ;" ^v^ ed" '^'?;^""^ "'"' ^'^'^^-t'' 
 
 •'-ore or less settled cl:;;j'—--tf^ 
 
 
438 
 
 ECONOMICS 
 
 setitially, not merely a pulitical mechanism by means (if 
 which sundry |)()litical ciiils nli^ht i)c served, Init that it 
 was related also to the old idea of a community in the 
 respect that it vnus the orj^an of a (jroup of persons 
 whose mutual interests bound them together, the essence 
 of iiiis unity being the mutuality of the social relations. 
 
 The community thus ajipeared as a spontaneous so- 
 cial organization the end of which was the interest of its 
 members in all senses, and the state apjx'iired as the 
 indissociable organ of this community by means of 
 which the various ends of the community might be 
 served. The state came to be no longer represented 
 characteristically by a policeman, a soldier and a judgi-. 
 but rather by the medical officer of health, the post- 
 master and the fireman. In other words, emphasis 
 came to be laid rather upon the heljiful functions of tht 
 State than upon its purely repressive and regulati\e 
 functions. The former conception of the state as a 
 merely negative regulator has, in effect, passed away, 
 and the criticisms upon the state which were based upon 
 that conception, in so far as that conception has decayed, 
 have come to be no longer applicable. 
 
 390. Progrens a result of circumstances. — The vari- 
 ous stages in the process have not, however, been acconi- 
 j)lished to any material extent through the pressure of 
 propaganda, but rather through the pressure of circum- 
 stances. Indeed, the propagandists were often the last 
 to realize that an important step toward their ideal State 
 had already been made, and they were apt to display 
 indifference to such steps and even sometimes to resist 
 them. The German socialists, for example, were at the 
 beginning either indifferent or hostile to the state insiir 
 ance policy of Bismarck. It was only after it had been 
 in operation for a number of years that they were pre- 
 
430 
 
 ""'ication of social , .C« in ' ' " ""^'^'^"y "" 
 counter disa.lvantaL Zlv If *"""• ^"*«'n 
 advantage which the chanLT ^•'^.''"* '«"'"»' t''*' 
 ea«. for the in.hvilal S tfl'7 "''• ^'^^ «''"^*'^ 
 maniferte,! may be Iccomn ,""' "PP*""" »" '"♦ve 
 
 extent that the S.vLual ^ . ' 'I '"""'"^ *° ""^^ «" 
 •ndifferent to Pe^lran ^^^.^ St^^^^ 
 have noticed, even in new i !."">• ^"^e observers 
 -hieh they attribute toTheXll' J ^"' "' r"""- 
 -option of wide powers bv Sfst^ T." "' *'' "" 
 "Wy a net balance of a,lv»nt„ u ^'"''"^ '* P'of" 
 
 -dents are ta J„1:;' "a S^r'^jrca "f ^'^^"^ 
 posed that the process of ,1^^! """"* ^ ""P- 
 
 can it be predicfedlow lo. L H "^'"'"* " "* "" «"''' -«• 
 
 Having sketchedXfy tlTth^'^'r '"''■ 
 «)cial progress let „c „ot ?!?^ *''^ incidents of 
 
 'ion ofs^i^:::^;^;^ -''-* ^^ the .la- 
 
 fully developed here on v th T. '" *^'"'"°* ^^ 
 
 ^'■ven. Spedal tre" i;^!^. "k" "'^ 1 *''^'" ^^ ''^ 
 of them. """"^'^ ''^ consulted upon each 
 
 tivf i ^l'"'^fi'''ti^ of socialist doctrines Tr. 
 
 '"e of the hstorieal orH^, „<• ti, . , '^"^*-— JiTespec- 
 
 --..^2y^--^W. these 
 
 "- laborer has the .th?:;'?.' *''«\t''erefore. 
 J'ro,luce. ^ *° ^''^ ^'"'l*-- of the 
 
MICROCOfY lESOlUTION TEST CHART 
 
 (ANSI ond ISO TEST CHAST No 2| 
 
 III 1.0 Irl^ i^ 
 "'^ ? [f IS 
 
 II I.I I •« ilM 
 
 1125 i 1.4 
 
 1.6 
 
 gg*. '65J East Main Street 
 
 rJ!= (715) *aZ - 0300 - Phon« 
 ^SSS <"E) zee- 5989 -Fo. 
 
440 
 
 FXONOMICS 
 
 (b.) Those which arc based upon denial of any 
 "rights" of individual property, regarding the com- 
 munity as the sole custodian of the "rights." 
 
 (c.) Those which are based upon the view of his- 
 tory which regards it as chiefly a record of the 
 struggle of classes, the earlier struggle having been 
 conducted against the aristocracy by the middle class 
 — the class intermediate between the large owner of 
 property and the owners of no property or the prole- 
 tariat — the later struggle being between the middle 
 c'ass and the proletariat. Acording to this doctrine 
 the middle class has now attained political preponder- 
 ance in all countries by wresting it from the land- 
 owning class. What is called democracy is thus really 
 the rule of the middle class. According to this doc- 
 trine, also the struggle for political and economic 
 power, which is now going on, is between the prole- 
 tariat or non-propertied class and the middle class. 
 Those who entertain this view lay great stress upon 
 the inevitability of political evolution, and they regard 
 the victory of the proletariat as quite certain, the 
 period of the victory alone being undiscoverable. 
 
 (d.) Those which are based upon the idea that by 
 means of the spreading of education, and of the 
 steady application of legislation as well as by means 
 of voluntary agencies of many kinds, the principles 
 of brotherhood and altruism or self-regardlessness 
 will become so dominant that there will arrive a 
 society in which the only competition will be competi- 
 tion in well-doing. 
 
 (e.) Those which are confined to the idea that the 
 nation should possess and retain under its own ad- 
 ministration all the means of production and tliat 
 every one being offered equally an opportunity to 
 
SOCIALISM 
 
 441 
 
 to group then^selves sponta 1 :' i, td,"';' '^■" 
 
 those who exploit the labor of others ^ 
 
 392. Ewplanation of socialist doctrines -It h h.» 
 to associate the complex exnressi,.,. ■ r "J'^"^'' 
 
 misunderstood. For the .nk^ 7 • ^'"^'^^' ''^ 
 
 (a.) The .loctrine that labor is the sole source of 
 
 Thompson in his 'X«wi.l ^^^J bt'otl "^ 
 
 peciallybyKarlMarx.whopi,;:!;;^;::';; 
 
 
442 
 
 ECONOMICS 
 
 gestion from Thompson, although he worked out the 
 doctrine in greater detail.' 
 
 (b.) This doctrine is poinilarly ktiown as commun- 
 ism. Its chief advocates of it in moili;rn times ha\o 
 been Proudlion and Prince Kropotkin. The best 
 statement of the doctrine is to be found in the numer- 
 ous pamphlets of the latter. 
 
 (c.) The materialistic view of history was stated 
 by Montesquieu, but it was fully developed and con- 
 nected with the view of the class struggle by Kail 
 jMarx who, indeed, seems to have regarded himself 
 as the originator of both these views. Statements of 
 them will be found in his works. 
 
 (d.) This is the view of large groups in Europe 
 and America who are customarily described as Chris- 
 tian Socialists; similar views are held in Germany and 
 France by academic socialists. 
 
 (e.) Many who call themselves socialists, or more 
 accurately coUectivists, hold the views described under 
 this head. They are not interested in the class 
 struggle and would, indeed, regard with complacency 
 a coUectivist state in which the dominant political 
 class would consist of those annuitants who had sur- 
 rendered their enterprises to the state in return for 
 perpetual annuities. 
 
 (f.) "Direct action" is advocated as a policy by the 
 syndicalists who regard the workers as the only right- 
 ful possessors of the means of prodiiction and "ho 
 suggest that factories, mines, etc., should be taken in 
 detail, by force if necessary. If they cannot be taken, 
 they may be destroyed in order to bring the capitalisti 
 system to an empasse. 
 
 * In connection with this doctrine Marx's "Capital '* should be read, altlioupl 
 it is a difficult book for any but an anient student, with some preparation in 1"|.t| 
 ami in the history of economic theory. 
 
resent a reaction a«aLt ot !, ' . ' "'""' "■'"''- 
 state, but asainst atZll ''^^ "" ""t"^'atic 
 
 resented, for exTrnp e t e 'V" '"'^' '""^■"""'*- "'^ 
 Karl Mirx wasT i;"*''""*'^ '^''^""^"t "^ "'-•'' 
 tional WorkZllJ ! ■^?"'""'* '" *''^ ^"t^rna- 
 
 t"collecthsn"Sn tt r'\*'""' ''"' ''^ "''J-t'^J 
 
 Ploitation nf t. *'^^ff'"""""''' that it involved the ex- 
 
 e.>.itation^r£S-;-j^:2™ 
 
 name of socialism, vary wi eh "'''""'"^ *''" ^""^^'•'■''' 
 have one essential ]Zl-n':^^iTrT T'''' ^'"^-^' 
 the assumption that human^T .^''^^ «» >•«* "P"" 
 
 c-ptibleofimprovemenrb^^- " ' Vr' ""'"'^'y ^"^- 
 This assumptfon herj wLl /^ I ■ [rd"" "^ 
 sions on soc ml proeress in tJ, • v! , " "'^ '^^^ -'s- 
 has ever since bTenTJten tor"^ ^l'"' "'""'-^ ' ""'' '* 
 socialistic doctrines. Suln oM "TJ-"™ '" ''" 
 ammption is b.-.nd ourfield ' ""'"'^^ "'' ""'^ 
 
 ^"^-Xt^are'r^-^-J-neof 
 either with onf^^od'orlt;?;;"'^^ """^ '^ ''™^^'^ 
 
 •>ra"i:ra£\:nirTr't '''^ ''^'^ --'- of 
 
 !-eoutline;t-^-^M-(c)^. 
 
iU 
 
 KCONOMICS 
 
 uul iiiciins or it may be iitttinptcd !)>• violent revoliitioi 
 iiry nicuiis with ii view to its iiiiint-diiiti; cstiil)lisliiiifii 
 ]Miirx was not ol)li\ioiis to tlic fact tliat tiie organi/.atid 
 of a sinfTJc socialist state in his sense, while all othei 
 remained in the capitalist phase, would he an affair ( 
 great difficnlty, and he, therefore, urged the need ( 
 an international movement in order that all of the ii 
 dustrial nations should be brought to the point of adop 
 iiig state socialism simultaneously. His watchwor 
 therefore, was, "^^'age workers of all nations, unitel" 
 While snuill international groups have lieen form( 
 from time to time, and while attempts have been ma( 
 to turn international peace movements into directioi 
 favorable to international organization of labor, the 
 attempts have not been conspicuously successful. T 
 deed, the socialist parties in Germany and France a 
 strongly national. Their members are Germans ai 
 Frenchmen first and socialists afterwards. Intern 
 tiotial socialist congresses notwithstanding, internatioii 
 socialism does not seem to have increased in *'orce durii 
 the past forty years. 
 
 The present position of revolutionary socialism, 
 the sense of Marxists' collectivism, may be put brie) 
 thus. There is, to begin with, the party of devo 
 Marxists for whom "Capital" is a sacred book, and w 
 read the writings of ISIarx in a dogmatic and uncritit 
 si)irit. Then there are the Revisionists or Marxis 
 who, in general, believe the credo of Marxism, but w 
 are disposei' to make critical emendations. They ii 
 not convinced, for example, that Marx's doctrine tl 
 every nation must pass through these phases, the ag 
 cultural, the capitalist industrial, and the socialist i 
 (l.istrial, is valid under all circumstances. The dispu' 
 between these two jiarties in the Marxist camp hii 
 
SOCIALISM ^^. 
 
 n.r some years ,K-c,„,ii.,l tlidr .nin.ls i„ ,.«-,„„lito and 
 so.net,na.s futile .liseussions, „„., thev Iw.o ,, k" 
 t ^.r e„er«.es The suecess of syndicalis.n „ „v tit 
 tributed largely to tlia* faet. 
 
 he Marxist ,mra,l,se secncl to he «l«avs heeo.ninK n.ore 
 
 Zh-rrh"""/"-^*"" ''''"•■ '•"■"•^--- ■""''•-• '•^• 
 
 Znl- T""* *'" '"'■'""'^' l'r"P..K»n.h. as also J.ave 
 I ances of wages ar.d ,.e„er«l hrisk-.ess of e-nplovn-ent. 
 
 • ieh n. . -'r/'"' ''''''' ''^■^•"•"^' t'"-''-'^^ '^ «> '" <>I'er,.d 
 Mch matenal for agitation." The soeialist n.oven.ent 
 
 !"! '" ^"'""r "''.'• *'"•■ -""-■ P«rti« have developed. 
 
 ,'!', "^S""'. '" ''"^•'"^^■■^ ''^*"<^^^-" <"-t'>"'I"^ Marxists 
 « nd the Revsionists or other newer groups hav ^a 
 
 irih wT'lf'^^ Vet,it„„yUapsfai:jX 
 said that hy far the larger nuniher of reeent for-i.rn 
 .mmigrants helong to one or another of the s ei'lS 
 groups, and that any industrial disturbanee „ ii , 
 .only reveal a fonnidahle latent foree in the soei ! t 
 
 39. T"/"'™"-^- '"' ^''^'^-^ •"«>• ^^ viewed 
 S9i. Siffrn/icancc of the vwveinent.-h^ general it 
 njst be allowed that socialism has done „,u 'i, 
 
 tellee uahz.e the workingman. The reader even of -e 
 
 ZLl n [ """* ^'""''' "'""*>• "»'^1' af'ove the 
 
 rage. Constant assertion of the elass struggle and i 
 ■stence upon "class consciousness" has had the effec f 
 nnging many workingmen to the position I at kn ,w 
 
 fof3;V7""''r '" '"'""^^ »''^ exclusive ;:;. 
 
 r, L > , P""''"'- ■"""'• '"'"'etimes laboring und Ir 
 
 stand the difficult questions in which the relations of 
 
446 
 
 KCONO.MICS 
 
 cupital and labor iiir involved. It is very dear that 
 those who have the adiiiiiiistratioii of labor must he, 
 at least, as well informed. 
 
 ti. 
 
 [tr 
 
 I tic 
 
 of 
 
 S0( 
 
QUIX QUESTIONS 
 
 I 'J'/ic numbers rffrr //. //. . i 
 
 rcjer to the numbered welun.s in the 
 
 lext) 
 
 TART I: niODUCTIO.V 
 
 CHAPTER I 
 
 1- What is the science of economics? 
 
 i.D,sc„ss the social aspect of economics 
 In.sine^st'nV''^ ^^"'^ "' '""'""'- ""I-tant to the 
 ^. J .What is the economic side of governmental ac- 
 
 trial societies r ""'^^'^^^*™«*-'l '" individualistic indul 
 
 ''--^S^:s^E:f-"^-----di. 
 
 wial mstability affect tlie Pr-n,,. P'^^^^sses? How does 
 s uri i ■ / ""<-i^i iiie economic processoj' 
 «. Wha .s the purpose of the economic : esses ^ 
 10 T'"'''^"^-* "^y "-e "national dividen rT- 
 ^i^J^SZ^^^f-- ~P-n ^i- 
 447 
 
HH 
 
 r.coNOMic's 
 
 CHAPTER 11 
 
 11. Define Prodiiftion. 
 
 12. Of wliiit iiiiportiiiicv is the system of prodiietion 
 to the nutioii as ii wliole^ 
 
 l.'J. What are tiie charaeteristies of simple production ? 
 llhistrate. 
 
 14. What are the recjuisitcs of simple production f 
 Why is it sometimes necessary to restrict access to r.iw 
 materials? 
 
 15. Di.scuss the division of labor in simple production. 
 10. What are the characteristics of complcjc produc- 
 tion? What is the function of the instrument? 
 
 17. What requisites appear in complex production 
 that are not present in simple production? 
 
 J 8. Is it possible to determine the owner of the fin- 
 ished product ? If so, how ? 
 
 ciiaptp:u III 
 
 19. Why is it that ideal economic justice is unattain- 
 able? 
 
 20. Would it be just to allocate the whole of the prod- 
 uct to labor? If not, wiiy? 
 
 21. What are the factors of complex production? 
 AVhy is each of them necessary? 
 
 22. What is meant by fixed and by circulating ca])i 
 tal? 
 
 23. What are the sources of capital? 
 
 24. Describe the functions of each of the contiili 
 utories to production. 
 
 23. Give an account of the law of increasing re- 
 turns. 
 
re- 
 
 Ql'K Wl ESTIONS ^g 
 
 «<• wnat conditions must be present fnr ti.« 
 ful operat on of tlie Inw ,.*• ■ '"^^'"^'" '"r "le success- 
 28 Desor h^ ♦ '""easing returns? 
 
 CHAPTER IV 
 
 of trl^Sr^tio^f ™™^ •^^-*^ "^ -P-ements 
 81. Is transportation wasteful? Why? 
 
 CHAPTER V 
 
 38" Whaf te't^^T '" ^'^ P'"*^^'^ of production, 
 or LlteTtageV''"^"^*^™"- °^ ^'^ Exploitative 
 
 «^^:;^rrLicr^-^-^--'- 
 
 c— 1— » 
 
 il 
 
4S0 
 
 KCONOMirS 
 
 40. What were the land owners' priviloni-s niid ihities 
 under compulsory cultivation if In wliat country di<l 
 free hired labor first appear? 
 
 41. Account for the chaii^c from the system of bond- 
 age to the system of free hired lalK)r. ^Vecount for the 
 commercialization of land ownershij). 
 
 42. What system of land ownership preceded the 
 medieval and modern systems? Kx])luin it. 
 
 43. IIow did the traditional objection to the sale ol' 
 land arise in certain European Countries? 
 
 44. \Vhat are the relative advantages of large and 
 small farms? 
 
 45. Siiow how the increased nobility of lalxir due tn 
 the cessation of bondage facilitated the growth of in- 
 dustry. 
 
 40. Descril)e the effect upon European agricidture i 
 the development of wheat cidtivation in America. 
 
 47. Account for the fact that in Great Britain tin 
 price of land was maintained while rents fell. 
 
 48. Describe the system of metayer tenancies. Give 
 a sketch of the condition of landowning in Europe. 
 
 49. Why is the production of wheat assuming groat 
 importance? Which are the great wheat-growing coiiti- 
 tries? 
 
 30. Account for the great increase in the cultivation 
 of wheat in Russia and in the Argentine. 
 
 CHAPTER VI 
 
 51. What causes have resulted in the change of tlie 
 ■wheat-growing areas in the United States and Canada' 
 
 52. Why are there specialist wheat farmers? Wlia' 
 are the economic cfTccts of this specialization? 
 
M. \Vlivi 
 
 r.i 
 
 WIIZ QIKS'Jioxs 
 
 zi:::':;^'.:^'"*"^-'f'-'yinuno,.ii.. 
 
 •54. ^*ll"K>K-i.lti.ral«.nniiu..it 
 "IIS stuti'iiicnt 
 
 "( nlmMlf(lc■tllrin^^. '"mmiff w,tli tlic Im/nrds 
 
 *''""ti.,.o;nL::';:n;;i;:;:;!''^''---'.....iation 
 
 •listniife from the r,.nt,.,.„ c "^ '",'■"."""" • How dins 
 .'" farn. nK-rt^;.;" ^"''••''"*'"" ""■^•^' "- -'.• 
 
 noS;„^f i. the f„rn.i„« situatu... I„ tl. Canadian 
 
 formal or^::!.''''"''' '^"'"''"''''''^ ^-''* -"«>"* 
 <i.'?"«trC::^r-^-^'''^-'^*--'-ssar,„s 
 
 <i«. ^^'llat considerations ninst tlip f„. i 
 "'■"<i in marketing, his wheat crop' '^''^^' '" 
 
 C.- How does tl,e Unmer market his produce^ 
 
 (.8. How does grading affect the price? 
 
452 
 
 ECONOMICS 
 
 C9. Trace the course of wheat from the local elevator 
 to the market. 
 
 70. How is the crop movement financed? 
 
 71. What are the advantages and disadvantages of 
 speculation by the farmer in prain grown by himself? 
 Discuss this (1) from the point of view of the farmer; 
 (2) From the point of view of the consumer. 
 
 72. Account for the diminution of ranching in the 
 prame provinces of Ct.nada. 
 
 CHAPTER VII 
 
 73. Why is capital sometimes diverted into gold min- 
 ing, in excess of possible production? 
 
 74. Give an account of the chief incidents in the his- 
 tory of the Rand mines in South Africa. 
 
 75. W^hat are the reasons for the relatively slow de- 
 velopment of gold mming in British Columbia? 
 
 76. Trace the changes in the value of silver expressed 
 in the term of gold. 
 
 77. AVhat are the principal causes for the fall in the 
 value of silver in terms of gold ? 
 
 78. Give an outline of the legislation of the United 
 States on the silver question. 
 
 79. What has been the effect of this legislation? 
 
 80. Indicate the effect on the demand for commodities 
 which enter into ordinary consumption of a new mining 
 camp. 
 
 81. From what coim tries has the labor and capital 
 used in copper mining been drawn? 
 
 82. Where are the large nickel mines? 
 
 83. Describe the early developments in iron mining. 
 
QUIZ QUESTIONS 453 
 
 84. What were the effects of the war of 1812 1^ I 
 
 i-eace of 1815 on iron profhictfon ? 
 83. What are the chief i-easoiw f„r fi,«> 
 
 C'L^"" .he *.,,o„„,e„„ „, „„ i„„ i J„«;'- 
 
 o». What are the caiisp"! nf tu^ ■ v 
 
 of coal mining in tl,e I nTted St . ''"""'""^"l ""^th"<J« 
 those in use in Europe/ ^''''' '' '^"'"P^^'l '»^^^ 
 
 CHAPTER VIII 
 
 ^ JJ.^Deseribe the function of the manufacturing em- 
 
 ealStir:fStZtH:s.~^.*'''^,--'l-nces of lo- 
 in, bonuses l^^i^^r^^^^SZ^ ''^- 
 W. Give a llet ,,f M I -1 "'oustnal enterprises. 
 
 ^or anTndLtS :^/':;£''^^"*^ ■" ^'^^^'^^^ « 'o-h'ty 
 verstcfarr ''^ ''' ^^°^™"'*>' ^^ ^"''-^-^ "f a di- 
 prolctfr '"" ""^ °' ""^ ™P-*-* — of over- 
 97. Why is it that a certain proportion must he oh- 
 
 il\ 
 
 [ill 
 
454 
 
 ECONOMICS 
 
 served between the production of high durable but there- 
 fore not immediately wholly consumable goods and that 
 of goods that are immediately wholly consumable? 
 
 98. What are the economic effects of over-production 
 of railways? Mention some conspicuous instances. 
 
 CHAPTER IX 
 
 99. Is over-production of agricultural products pos- 
 sible? 
 
 100. Is marketing a phase of production? 
 
 101. Does the making of a favorable bargain by one 
 of the parties to a transaction increase the wealth of a 
 nation to which both parties belong? 
 
 102. Is "exploitative bargaining" injurious to the 
 "national dividend"? 
 
 103. Is advertising economically justifiable? 
 
 104. Under what conditions may advertising benefit 
 the consumer? Illustrate the laws of increasing and di- 
 minishing returns from the practice of advertising. 
 
 105. Discuss the economic justification of the middle- 
 man. 
 
 106. What are some of the implications of the growth 
 of distributive co-operation? 
 
 107. Describe the conditions in seasonal trades. Illus- 
 trate. What would be the economic effect of a charitable 
 endowment for the purpose of maintaining tradesmen in 
 seasonal trades during the period when they are not em- 
 ployed? 
 

 QUIZ QUESTIONS ^^^ 
 
 PART II: EXCHANGE 
 CHAPTER I 
 
 J*^:£::^^:^.°'•?^-r"•■•'=°"■■ 
 
 CHAPTER 
 
 II 
 
 113. What are the foundations of value? Vvnl • 
 the expressions "value in use" ami " i • ^ "'" 
 change." ' """ ^a'ue in ex- 
 
 .^^114. What are the most conspicuous criteria of util- 
 
 117. Ilhistrate disutility 
 
 •neant by the word commoc^Hv ^ "'" ^'"'* '" 
 
 JS' W ''"*i' *"'""* ''y " ^^'^ gift «f nature? 
 
456 
 
 ECONOMICS 
 
 122. Discuss the relation between supply and demand. 
 What are the immediate and remoter effects of an in- 
 creased demand upon the supply of a commodity the 
 raw material of which is abundant? 
 
 123. What is meant by the "law of substitution"? 
 
 CHAPTER III 
 
 124. Explain the different senses in which the word 
 market may be used. 
 
 125. Describe the market at Nijni Novgorod. 
 
 126. Do safe routes benefit a market? 
 
 127. Name well-known modern and ancient market 
 places. 
 
 128. Give .some examples of local markets. Narrate 
 from personal observation the course of affairs in some 
 local market. 
 
 129. Describe the characteristic features of the market 
 in a general sense. 
 
 130. What should we consider in a study of the mar- 
 ket? 
 
 181. Indicate the groups of which a market is com- 
 posed. 
 
 132. How is the market price arrived at ? Under what 
 circumstances do prices fall in a market? Under what 
 circumstances do prices rise in a market? 
 
 133. Account for the influences of one n.-rket upon 
 another. 
 
 CHAPTER IV 
 
 134. Discuss the medieval expression "a just price." 
 
 135. Are customary prices and variations in prices in- 
 consistent? Explain. 
 
 Jim 
 
QUIZ QUESTIONS 4^^ 
 
 sZlZ'll'^fr' 'y ^"^ "P-on "Money i. the 
 
 J^lZ^X.Z'l't"' .f "'^ -'«ti- values of 
 in the quantities of ?»; ^^'''^.'''^''^ «'«= effects of chan.^es 
 currency puiS:;' ^"^ P'— -etals available £ 
 
 Latin Union? *'^ *''^ '"fluence of the 
 
 140. What Ts btetall'i^ -ternationnl exchanges? 
 metallism be a LttI oT'"' ^^'^^ «"-* "^i- 
 What is the objert of bil/'!"'""*"'"''' "^'-eement? 
 
 CHAPTER V 
 
 pritsVll^Sj"--/" clin,at.^^^ ^'^-ges affect 
 Je«.eney in the wheaT^T T^ wl T''- ''' " 
 fluence supply and demand? Wh"! Ll '' "" '* '"■ 
 effects of an abundant harvest? '•""' °^ ^''^ 
 
 '*• What effects ZstllZo^T T''"'' '"^''^'y divert 
 of foodstuffs? DiscriS/be" ten dT' T '"'^^'^ 
 
 143. Account for the varvfnrrnfl '"* ""*"• 
 
 «ents upon prices ^ ^ "''""""^ °f Political 
 
 Cst;tduc^!r"^ "'^ '•"«-- upon prices of 
 
458 
 
 ECONOMICS 
 
 the cost of production? What is meant by the marginal 
 manufacturer? 
 
 146. Discuss the action of the law of substitution m 
 relation to the process of these. 
 
 147. Explain the expression "complementary groups 
 of commodities." 
 
 148. Under what conditions does an increase in the 
 population result in an increase in demand? 
 
 149. What are the causes of the concentration of 
 population in urban centers? 
 
 150. What are the causes of rural depopulation? 
 
 151. Discuss the economic effects of migration in re- 
 lation to prices. 
 
 152. How do changes in the standard of comfort 
 affect demand? How has increased demand reacted 
 upon the price of tea? What are the chief causes of the 
 increase in the price of beef? 
 
 153. Give illustrations of the manner in which the 
 change of fashion has influenced pri>.v!i. 
 
 CHAPTER VI 
 
 154. What is the role of competition in the new de- 
 termination of prices? 
 
 155. Explain the expression "monopoly." 
 
 156. Does a monopoly of supply necessarily mean an 
 excessive price? What is the monopoly price? 
 
 157. Distinguish between a legal monopoly and an 
 attempt at commercial monopoly. 
 
 158. What contingencies affect the exercise of mo- 
 nopolies? How does the law of substitution affect tiie 
 exercise of monopolies? 
 
 159. Give a sketch 'f the history of the monopoly ui 
 
QUIZ Ql-ESTIOXS 455 
 
 Of": kij;;::r" """"""• -' "»"■« • -«r<"^ 
 
 161. Discuss the operation of a "trust " 
 
 162. Are monopoly prices excessive ? 
 
 168. What is the reason for the attiti,H» «f i r 
 aversion from commercial combinations? °' P"'''' 
 
 164. Examine the statement "landowning is natu- 
 • monopoly." Why is land hard to monopoi ' S" 
 WhatT: .*!' r "^ "' eommerciali.at'ion"f land 
 
 65. What ,s the h.story of fluctuation in land prices ^ 
 
 167. Describe the connection between the price of 
 land and the rate of interest and account fir it.' ' 
 
 caused bv tTe " "''"'^' '" ^-^'-phical relations 
 
 caused by the openmg up of the new routes has affected 
 
 ettects of the openmg of the Panama Canal. 
 CHAPTER VII 
 
 |ti^::Sirr:^::^'^-^-'--«— 
 
 lafFcrtprYcr?'"'' ^'^ '^""'*'*'' "' "'""^-^ '■" ^'^^J"*-" 
 \prZl] ^^^^^ '" ^^' '^''' "^ I'"'«"'^''l Payments on 
 
 rCte^'nri'iied.^'"""^ ''""^'^ ^^'^*'^'"- "- - 
 
 173. Wiiat is meant by the "autumnal drain of gold" ? 
 
460 
 
 ECONOMICS 
 
 174. Explain the expression "velocity of return capi- 
 
 *" ns What is the relation of gold and ''Hver to credit? 
 What have been effects of large new increments of goUH 
 170 How may customs duties upon imports affect 
 the amount of goW in circulation? How may differen- 
 tial railway rates be employed to mcrea^ a gold re 
 serve? What is meant by "gold reserves i 
 
 177. Define fiduciary currency. «,..„;„,„ 
 
 178. What are the limits of the issue of a fiduciary 
 
 T;. What is the effect upon prices of commodities 
 of an excessive issue of fiduciary currency? What is 
 1 effec upon the character of the money m cir^- 
 lation when excessive issues of fiduciary currency take 
 
 ^^Tso. What are the chief constituents of international 
 
 ^tsT What are the chief causes of credit crises? 
 182 Why are banking reserves necessary? 
 83-. Describe the means which may be taken to avo. 
 credit crimes. Can gold reserves be excessive? What .s 
 the effect of hoarding gold? 
 
 CHAPTER VIII 
 
 184. Explain the expression "demonetization of sH- 
 ver? What is the influence exerted upon prices of fa 
 cilities for obtaining credit? • » An 
 
 185. How does an excise duty affect the price? An 
 
 import duty* dUcovered 
 
 186. Upon what principles can it be discovere 
 .vhcther the consumer or the foreign producer bear t 
 burden of an import duty? What conditions ought t. 
 
QUIZ QUESTIONS 
 
 461 
 
 be kept in mind in investigating the economic effects 
 of an import duty ? 
 
 187. What is the general effect upon prices of specu- 
 lation? What is the justification of wheat "futures"? 
 
 188. Examine the provision regarding bank liens 
 upon wheat in the Canadian Bank Act, 1913. Under 
 what circumstances may a "corner" in wheat be success- 
 fully carried out? 
 
 180. Examine the statement that if there were some 
 other "measuring rod" than gold or silver, there would 
 be fewer fluctuations of prices of commodities. 
 
 190. Is a general advance of prices a usual phenom- 
 enon? Discuss. What is the relation between prices 
 and wages? 
 
 191. State the theory of trade cycles and discuss its 
 validity. 
 
 192. Why is distribution necessary? Is distribution 
 necessary under a system of simple production? 
 
 An 
 
ECONOMICS 
 
 PART III: DISTRIBUTION 
 
 CHAPTER I 
 
 198. Why is "ideal justice" impossible of realization? 
 
 J 04. If every one were rewarded with the whole value 
 
 of his product, would there be equality of possession? 
 
 195. Communism is the only system in which complete 
 equality is possible. Discuss this statement. 
 
 196. Show the relation between the factors of pro- 
 duction and the shares in the value of the product. De- 
 scribe the medieval practice in distribution and discuss 
 its advantages and disadvantages. 
 
 197. Describe the influence of the guilds upon in- 
 dustrial regulation. 
 
 198. Indicate some of tlie consequences of the decay 
 of the medieval system of control. Account for the rise 
 of the class of free hirable laborers and describe the effect 
 of this upon wages. 
 
 199. Account for the emergence of competition. De- 
 scribe some of the economic effects of the mobility of 
 labor. 
 
 CHAPTER II 
 
 200. Why does the value of the product in the market 
 afford no indication of the relative share of the con- 
 tributories to production? Illustrate. 
 
 201. How are productive enterprises classified? What 
 is the present tendency in productive enterprises? Why! 
 
 202. What factors have contributed to the growth of 
 large corporations? What are the consequences of this 
 development? 
 
QUIZ QtESTIO...S ^ 
 
 20n. How has the develoi nent „r i-, 
 
 « "" »"y "» »■' «: ,livi,l„lr 
 
 CHAPTER III 
 
 K.vpWn''"'"' ""'" ''""' ''•'■ •'"''" "' «'l'"'itiou.ly. 
 ioinla^r"!* "" "°™" "* '"■ ""■ 'l»'rf«l,fc,. in 
 
 sre^:;i;ri, "■"■'■ " " '™™" '- "-- - 
 
 pi". Cr'entr "'•"•■"" ""^ -'"■•' " ■»- 
 
 v„!^' T*"^ " " ""npetent superintending class of ad- 
 antage to manual labor? Is it econoJcally advan- 
 tageous for a country to extend public funds forJhe 
 provision of technical education? "=> "t tne 
 
464 
 
 KCONOMICS 
 
 216. What are the characteristics of the labor market? 
 Classify niaiuial laborers. In nhat way is competition 
 in the lalM)r market mitigated? 
 
 •J 17. Discuss tlie advantages and disadvantages 
 of the establishment by trade unions of an uniform 
 wage. 
 
 18. Discuss "old age pensions." 
 
 . .!). Why is it (lifHcidt to organize labor in trades in 
 whicli the reciiiisitc skill is low if What is the relation of 
 the system of uniform wages to the organization of 
 labor? 
 
 CHAPTER IV 
 
 220. Discuss the question of the mobility of labor. 
 2*il. In what sense is labor n ;)erishable commodity? 
 What are the characteristics of a laborer as such? 
 
 222. Is the value of wages determined in the same 
 manner as that of other commodities? 
 
 223. Distinguish between nominal and real wages. 
 
 224. How are wages determined? 
 
 22.5. What is meant by marginal wage? 
 
 226. Discu.ss the demand and supply prices of labor. 
 
 227. Explain the meaning of reserve price of labor. 
 
 228. What is meant by the reserve of labor? 
 
 229. AVhat factors influence the labor reserve? 
 
 230. Discuss minimum and maximuni wages. 
 
 231. Examine the doctrine that the value of products 
 is due to the labor which is exercised upon them. 
 
 232. Why is distribution not based upon the product 
 
 233. In what sense are wages advanced by capitalists! 
 
 234. How does voluntary co-operation accomplish the 
 same object as capitalism? 
 
Q'^IZ QtrKSTIONS ^. 
 
 Ml 
 
 CHAI'TKU V 
 
 dinary dispute a W wa^L''"'"'" '""'^" '™'" "" '"- 
 
 ea^Js Si^r wLt'r'r ""■^"'"'"^^ '-''- 
 
 dustrial Workerf If the VVorld. ""*'' *" '^ ^'"^ ^"- 
 
 -^;^*^^e:s:^l;r7r^^--f trade 
 
 Ca^darii^'/tLtL''"''' ""'■''"'■^'" °- '■*'' -iKin in 
 
 2^4. Acc'ornlltrrwtro?'"/'''""'"^ ^"^^ 
 ""ionism in America and ^k '"*""««°n«l trade 
 
 2 •3. What i^m ant bv tt ''"'^"' '* '" ^'"^P- 
 "closed shop"? ^ *''^ expression "ope,, shop." 
 
 th'n tho?i;:::„f ^"^^^ -^ ~" '« genera, less 
 -n-J- w^erpS' ^'^'^"-*-- a- -h.ntary union 
 
 I c-i-so * ■ 
 
466 ECONOMICS 
 
 ^50. Examine the argument for conciliation and arbi- 
 tration in labor disputes. 
 
 251. Give an account of the relation of trade unionism 
 and economic theory. 
 
 CHAPTER VI 
 
 252. Why did all interest appear in the middle ages 
 to be usury? Account for the idea that interest is paid 
 for the use of money. 
 
 253. How did the idea that interest is the reward oi 
 saving arise? 
 
 254. What element of truth lies in each of these ideas? 
 
 255. Explain the agio theory of interest. 
 
 256. Analyze the constituents of the market rate of 
 
 interest. 
 
 257. Distinguish between the different compartments 
 
 of the money market. 
 
 258. Why is there more competition in the money 
 market than in any other? Why is concentration of cap- 
 ital indispensable under modern industrial conditions; 
 Give a list of the important local money markets 
 and explain the reason for the place of each of them m 
 the international market. Account for the relatively 
 high rate of interest in new countries. 
 
 259. What is the function of capital? 
 
 260. Why is the accumulation of capital indispensable 
 to progress? Account for the chronic scarcity of capital 
 in relation to the demand for it. Illustrate the answer, 
 using an illustration other than railways. 
 
 261. Why were the American railways constructed 
 at a minimum of cost? 
 
 262. M''hat was the effect of American railway con- 
 struction on Europe? Explain the expression "velocity 
 of return of capital." 
 
CHAPTER VII 
 
 467 
 
 263. Distinguish between the practice in Europe an.I 
 ofknd '""" '■^''"-''^*'"^' ownership an.I oeenpaney 
 
 264 Account for the eniergencies of rents in a coun- 
 try where obligatory labor has been in vogue. Upon 
 what valuable consideration was the pavu.ent of such 
 rents based? What is non-economie rentV 
 
 263. What were the a.lvantages of indefeasible occu- 
 pancy of land? Account for the commercialization of 
 land. 
 
 266. Discuss the benefits and drawbacks of farming 
 under conditions of tenancy. 
 
 267. On what grounds, does the policv of speedy 
 alienation of public lands commend itself to the govern- 
 ments of new countries? 
 
 268. What is the result of the increase in land prices? 
 
 269. What are the social results of the growth of a 
 landowning and non-cultivating class? 
 
 270. Show the connection between the commercializa- 
 tion of land and the development of the theory of rent. 
 Relate the doctrine of economic rent to the law'of dimin- 
 ishing returns. Rent is a "net product. ' Explain this 
 statement. 
 
 271. Is it a sufficient explanation of rent to say that it 
 is a surplus? Why? 
 
 272. Examine the theory of rent which bases rent 
 upon differential advantage. 
 
 273. How far may this theory of rent be extended to 
 account for rents other than those for land? 
 
468 
 
 ECONOMICS 
 
 ■ 
 
 TART IV: CONSUMPTION 
 
 CHAPTER I 
 
 274 Into what divisions may the department of con- 
 sumption be separated? Account for the expediency of 
 
 this separation. 
 
 275. How may the demand of governments for pur- 
 poses of national consumption be divided? 
 
 276. What is the effect of governmental consumption 
 upon consumption in general? 
 
 277 How do the heavy borrowings of government 
 and municipalities P<Tect the general money market^ 
 
 278. What are some of the economic effects of pri- 
 vate benefactions? 
 
 CHAPTER II 
 
 279. Discuss the classification of personal consump- 
 
 *'°280. Illustrate the law of substitution as applied to 
 
 ^°°28l What was the effect of concentration of manu- 
 facture upon the character of clothing? How has de- 
 mand been influenced by standardization of clothing? 
 
 282. Is the mechanic of to-day likely to have mor 
 doniestic comforts than Queen Elizabeth had in her 
 
 ^'Isa 'Discuss the advantage and drawbacks of owner- 
 ship of their house by workingmen from the point ot 
 S of the expediency of nobility. Under what con- 
 
QUIZ QUESTIONS 
 
 4G9 
 
 ditions were the earlier experiments in semi-philan- 
 thropic hoiisinjT sclienies carried on ? 
 
 284. Account for the disappointment which has at- 
 tended many housing schemes. 
 
 285. Why did the employes of the Singer Sewing 
 Machine Company in Glasgow travel twelve miles daily 
 to their work rather than live in the houses provided 
 by the company? 
 
 286. What are the chief reasons for the greater prev- 
 alence of ownership by the occupants of houses in Amer- 
 ica than in 1 urope? 
 
 287. Why is competition in the business of building 
 houses to let them for rent not active excepting after 
 the close of a period of industrial activity? Why is the 
 housing question most acute in new countries? What 
 are the economical reasons against philanthropic hous- 
 ing? What would be the economic effect of the sudden 
 enforcement of drastic public health laws? 
 
 288. Account for the growth of the miscellaneous ex- 
 penditure of all classes. 
 
 289. Give an account of the constituents of consump- 
 tion and account for their relative proportions. 
 
 290. Explain the different senses in which the ex- 
 pression "cost of living" may be used. What are 
 some of the effects of an advance in the price of 
 wheat? 
 
 291. Do high prices always mean- a low standard of 
 comfort and do low prices necessarily mean a high stand- 
 ard of comfort? 
 
 292. What commodities have been subject to the most 
 important advances between 1890 and 1909? 
 
 293. What are the reasons for the appearance of the 
 ])roducts of the extractive industries among the more 
 important commodities which have increased in price 
 
470 
 
 ECONOMICS 
 
 during the last twenty years? Show how the sharpness 
 of the advance of prices disturbs the economic equilib- 
 rium. 
 
 294. Discuss the relation of the question of the trusts 
 to the question of the cost of living. Illustrate the 
 danger of the adoption of artificial means of checking 
 advances of price. Illustrate the connection between 
 movements in the standard of comfort and movements 
 in prices. 
 
 CHAPTER III 
 
 295. Distinguish diflferont kinds of national resources 
 in respect to the uses of which they are susceptible. 
 
 206. What are the reasons for the indifference to the 
 rate of consumption of natural resources in the United 
 States and Canada in the earlier states of exploitation? 
 
 297. Why is rapid exploitation of natural resources 
 necessary in new countries? 
 
 298. Account for the rapid growth of organized life 
 in new countries. Why must the people of new coun- 
 tries borrow largely? 'Why must the people of the 
 United States and Canada produce immediate returns? 
 
 299. Discuss the limits of legislative restriction upon 
 exploitation. 
 
 300. Why is the community interested in the pro- 
 longation of the lives of the persons which compose it? 
 
 301. Describe some of the reactions of consumption 
 upon production. 
 
 302. How does distribution react upon consumption? 
 
 303. Do price movements affect consumption? 
 
QUIZ QLESTluNS 
 
 471 
 
 CHAPTER I 
 
 , ^ propaganda for protection ? uiri,™* • 
 reciprocal ta/iff? l'"ie<-nonf What is a 
 
 CHAPTER II 
 
 "fX^tl^ltdt "r P^^^"^^'''^ -'^^ the 
 system? '^"'''^ *'^'*" ""'J^'" the domestic 
 
 ■^tate regulation of industry^ ^''g^'nents for 
 
 "y ne state or by the municipality. 
 
472 
 
 ECONOMICS 
 
 813. What is the reason of the state regulation of rail- 
 ways, banks and similar enterprises? 
 
 816. What is the relation between the government and 
 the banks in Canada? 
 
 817. What are some of the implications of govern- 
 mental regulation ? 
 
 318. What are the disadvantages of government con- 
 trol? 
 
 319. How are the railways regulated in Canada? In 
 the United States? In England? 
 
 320. On what grounds may the reduction of railway 
 rates in general by railroad commissions be regarded at 
 least doubtful? 
 
 821. Define a "Trust." 
 
 822. Illustrate the above answer by a brief account 
 of the history of a trust other than the Standard Oil 
 Company. 
 
 323. Account for the furore against the trusts which 
 exists in the United States. 
 
 324. Indicate the difficulties of regulating trusts. 
 
 325. Describe the usual process of the formation of a 
 trust. 
 
 326. Account for the practice of "stock watering." 
 
 327. Examine the conclusion of the Industrial Com- 
 mission respecting the influence of trusts upon prices. 
 
 328. What light does economic history throw upon 
 state administration of public lands? 
 
 329. Why are liberal land grants expedient in new 
 countries? Account for the large land grants to rail- 
 ways in the United States and Canada. 
 
 330. Why must unoccupied areas be colonized as rap- 
 idly as possible? What difficulties lie in the way o 
 resumption by the state of the public lands? Would th 
 
QUIZ Ot'KSTIONS 
 
 47s 
 
 t-naf dS C:^^^^ "- increase of tl.e na- 
 
 .833. Ho. far is the """"I T™ ''^ ''"'"'^"'^ 
 
 ^•ith collectivism? AVhat effl " *'""''* '^""'^''^^-'t 
 
 merce and upon the movement ?"" I"**^™"*'"""] co„.- 
 <luced by a coUectiv^rc f °^ '"P'^"' """'J ''e pro- 
 only? '°"^'=*"«t ^^•^t'^'n adopted by one na i", 
 
 CHAPTER III 
 
 -:!^t:t;^^-t-«'epnhliere.m.e. 
 
 ^^f:?ss;^:er---^^^^ 
 
 adS" •^o^tr^itCt'i"' "' "'f''' ''-"W- t" 
 --e of the economireffS "f T'T"*^- ^"'^''-''^ 
 of .oney by Canada f^^^^^^"^^ ''—in, 
 
 hiSyp^fe'ct::,!:::: e^tar'r. '"""^*"'- - 
 
 •^ept by "dumping" arul riu ^ r"'*"'^'' ^°"'^' «■-- 
 raw materials or pttia;Zn,frr "'^P*"-* ^'"'er 
 
 ii- 
 
474 
 
 ECONOMICS 
 
 pie of the United States and Canada to impose heavy 
 taxes upon land. 
 
 840. Indicate the changes whicli have taken place in 
 the doctrine of the functions of the state. How does 
 the state endeavor to equalize wealth ? 
 
 841. Give an outline of the theory of taxation. Wh.it 
 is the relation of the doctrine of the absolute sovereignty 
 of the state to the theory of taxation? 
 
 842. Who pays the taxes? 
 
 343. From what source is a tax upon unused land 
 paid? 
 
 344. Who must shoulder the burden of taxation when 
 manufacturers are operating their industries without a 
 profit? 
 
 CHAPTER IV 
 
 843. Discriminate the different classes of public ex- 
 penditure. Why is public expenditure increasing? 
 
 346. Describe the procedure connected vfith the intro- 
 duction of the Budget in the British and Canadian Par- 
 liaments. Contrast the English and French systems of 
 keeping public accounts. 
 
 347. Account for the growth of national debts. 
 
 348. What is the connection between the development 
 of the money market and the growth of government 
 loans? 
 
 849. Describe the method ir which banking is facili- 
 tated by the existence of government securities. 
 
 330. Explain the various methods which are adopted 
 in issuing government loans. 
 
 351. Account for the fall in the price of the securities ] 
 of a stable government. 
 
Ql'155 QfESTIONS 47^ 
 
 largely iiel.l ? " "^ """^ Caimdian bonds 
 
 354. Describe the terminable annuity system 
 
 tw,^s;s:r"''°^^"--'^-^-'^emp- 
 
 the diW^rSarisH ';beT7 "'■^'^^'^ "'"'-^^ 
 -vices by joint stock rmpanl'sr™""" '' *'"^^ 
 
 CHAPTER V 
 
 the DominrorS™e?tTnd onh"p^''' ^""'^"^ "^ 
 ernment. "^ °^ ^'^^ Provmcia) Gov- 
 
 succession duties? i'"'""""* and the imposition of 
 
470 
 
 FX'ONOMICS 
 
 804. Account for tlie lieavy expenditure of municipal- 
 ities ill Canada and tlie United States. 
 
 363. Why are municipal debts increasing so rapidly 
 in America^ 
 
 360. Discuss the reactions of the taxation of land and 
 the exclusion of improvements. 
 
 807. Describe briefly the course of municipal history. 
 
 308. How does the Local CJovernment Board aid in 
 financing municipalities? What is one of the practical 
 results of this method ? 
 
 309. Account for the growth of municipal enterprise. 
 
 370. Discuss the relative advantages of utilizing the 
 profits from municipal enterprises in reduction of tax- 
 ation and in the reduction of the price of the services 
 or in the improvement of tliem. 
 
 371. Indicate some of the difficulties encountered by 
 municipal enterprise. 
 
 872. What has been the effect of the extension of mu- 
 nicipal functions? 
 
 373. What is the status of municipal enterprise in the 
 United States? 
 
 374. In Canada? 
 
 373. Describe the German municipal system. 
 
 876. Account for the demand for commission govern- 
 ment in American cities. 
 
 377. Discuss the reactions of the extension of munici- 
 pal enterpristo. 
 
 CHAPTER VI 
 
 378. Account for the leadership of England in fac- 
 tory legislation. 
 
 379. Discuss the expediency of a statutory fixation of I 'lea 
 
tiVlX yiESTIONS 
 
 477 
 
 Pensation for indusl'-^^S:'/"' -.„..... ...... 
 
 it Z s?c:rjr ^^™- ^•"»- «"a„ce.i. M,,v ,.„. 
 pensaiio^:"""^ "'^ ^"«"^'' ^>-^*- "^ -rk.ne..'. eo„.. 
 hnesT "^'"^ ""^ ^''^ ^"'■^'^'^ «t«tes done aio„, these 
 
 887. Examine the"; tem of r^""**°"- 
 industrial accidents ^ ^ responsibilitv for 
 
 pent;,™ :;:;.r it S' °" "" "'^°"" °' "» — 
 
 ^m. i„ „h„ „„„,^ ^ ^^ _^ __^^^^._^^^ ^^^^^ ^^^ 
 
 '■ta to l,b„, e.vcbmge. e»«rnmenf, re. 
 
478 
 
 KCOXOMILS 
 CHAPTER VII 
 
 807. What is the status of insurance against unem- 
 ployment? 
 
 808. Define Socialism. Trace its historj'. 
 
 800. Account for the rise of modern socialist ideas. 
 DeserilH! the changes in the doctrines of the state which 
 are related to the growth of socialism. 
 
 400. Classify the various socialist doctrines. Kxam- 
 ine the policy of "direct action," 
 
 401. Discuss the derivation of the various socialist 
 doctrines. 
 
 402. Why IS international socialism at once necessary 
 ( from the socialist point of view ) and difficult ? To what 
 circumstances may the growth of syndicalism be attrib- 
 uted? 
 
 408. Explain the meaning of "Class consciousness." 
 Examine the policy of collectivism in the light of the 
 discussions in the text upon the economic aspects of the 
 state. 
 
INDEX 
 
 Act, 
 
 Approprlatinn, SM. 
 Bunk, Cnnnilian, »a-i\1, 
 
 niami— Alllsnn, rg-79. 
 
 Canada and statn of fhe Union. 
 14-13. 
 
 CiMtnnM, 371. 
 
 Emanrlpallon, RuMln, «. 
 
 EmploycM- I.laliili'v, 411-tH. 
 
 Factory, .138, 3(i». 
 
 Manitoba (irain, 88. 
 Minn, .138. 
 
 Old-a(tr Peri.slon.s 227. 
 Sherman, 79. 
 Trust, 2(i.1. 
 
 Workmen's Compensation, 4I«^ir 
 420.li>l. ' 
 
 Accident Compensation, 
 Cost, 42J-427, 
 Economic eiTect, 427. 
 Employer.,' Liability' Act,,, 415-H8 
 English system, 420-t2I, 424-437. 
 German system, 417-420. 
 Responsibility. 422-425. 
 V. S. System, 421-422. 
 Workmen's Compensation Acts 
 415-416. 
 Advertising, 99-I0O. 
 Agio, 
 
 Explained, 270. 
 Agriculture, 
 As exploitation, 39. 
 Capital of, S3-45. 
 Commercial, 41-43. 
 Compulsorj-, 39-4.3. 
 Co-nperntive irrdit, 6a-66. 
 Farm loans, M-S9. 
 
 470 
 
 Agriculture (ro«/(„,rf). 
 
 Farm mortgages, 60.«2. 
 
 l.alHir in, K7. 
 
 Meal priMluction, T3-7t. 
 
 Rent in, 27»-.'H0, 
 
 Scienll(\c, 48- (9. 
 
 Technique of, J|. 
 Anarchism, 412. 
 
 Arbitration, .',l3.m (,« Wag,,) 
 Autumnal drain," 174. 
 
 Bakiiln. 412. 
 Bank (see Credit), 
 Balances, I72.J73. 
 R'Kulated by state, 34». 
 He,er>e„ lSI-183 
 Barter, 
 Economy, 101-105. 
 Primitive, 104-lOS. 
 Bargain, 
 
 Effect on production, I.32-I3I 
 Bentham. Jeremr, 4.15. 
 Bimetallism, 138^1;l9 (see Gold) 
 Birth-rate, 
 necline In France, 48. 
 Effect on consumption, 1 18. 
 Bi,,marck, 
 Slate insurance policy, 437. 
 
 Capital, 
 
 Agricultural (see Agricultural). 
 Circulating, 21-23. 
 Diversion of, 291-293. 
 Fixed, 21-22. 
 
480 
 
 INDEX 
 
 Capitnl (Continued). 
 Function of, :27^-^75. 
 Govprnmcnt expenditure of, J89- 
 
 293 (see Public Kxpenditure). 
 In long-settled communities, 319. 
 In new countries, 333-3ij!5. 
 Relation to interest, 36fi-26S. 
 Requisite of production, 201-303. 
 Scarcity of, 375-277. 
 Sources of, 33-33. 
 Charity endowment and legislation, 
 
 293. 
 Christian socialists, HI. 
 Clothing, 
 Customs regarding, 297. 
 Standardization of, 298. 
 Collectivism, Ul, U2. 
 Commission government, 407. 
 Communism, 
 Doctrine of, 4H. 
 During production. 345-247. 
 Explained, 200-201. 
 Spirit Wrestlers, 201. 
 Competition, 
 Between America anl Great Brit- 
 ain, 33G. 
 Explained, 155-15fi. 
 In labor market, 325-226. 
 In land selling, 164-165. 
 Of capital, 271. 
 Perfect, 187. 
 Protective tariff, .^"11-332. 
 Result of unrestricted trade, 201- 
 
 206. 
 Tending toward monopoly (see 
 Monopoly). 
 "Complementary commodities," 147- 
 
 148. 
 Complex production. 
 Defined, 16. 
 Functions in, 23. 
 Ownershiji in, 18. 
 Possibilities of dispute in, 200. 
 Requisites of, 17. 
 Conciliation, 263-965 (see Wages). 
 Conservation, 
 Commissions, 318. 
 O^ natural resources, 317-319. 
 
 Considerant, 486. 
 Consumption, 
 
 Classified, 288-389. 
 C(tst of living, 182-183. 
 Distribution, reacting upon, 326- 
 
 327. 
 National, 289-293. 
 Of human life and energy, 324- 
 
 325. 
 Of natural resources, 316-317. 
 Personal, 294-295, 306-308. 
 Proportions of constituents of, 
 
 308. 
 Reaction upon exchange, 337-328. 
 Reaction upon production, 325- 
 336. 
 Corporations, 
 
 Effect of, 211-212. 
 Importance of, 209-211, 
 Reason for, 25. 
 Standard Oil. 346-348, 
 Cost of living, 308-315. 
 Credit, 
 Agricultural (see Agriculture)* 
 Among laborers, 231. 
 Bank balances, 172-173. 
 Bank reserves, 181-183. 
 Contraction of, 170, 180. 
 Crisis of 1907, 175-176. 183. 
 Expansion of, 170. 
 Fiduciary currency, 176-180. 
 In new countries, 322-323. 
 International, 173-173, 361-363. 
 Crisis of 1907, 175-176. 183. 
 Crop movements, 
 Financing, 71. 
 Currency (see Money). 
 Crisis of 1907, 175-176, 183. 
 Elastic system, 183. 
 Fiduciary, 176-180. 
 "Legal tender," 172, 182, 185. 
 
 "Dead point," 27. 
 Demand, 
 As affected by Government cor 
 sumption, 291. 
 
 Rxl 
 
 Pac 
 F 
 
pon, 326- 
 
 Iture). 
 
 83. 
 180. 
 61-363. 
 
 INDEX 
 
 rgy, 334- 
 
 S-317. 
 
 18. 
 
 uents of, 
 
 , 327-398. 
 ion, 33S- 
 
 Diiitributlon, 
 Explained, 5, 7, 197. 
 Present system, 199-200. 
 Reaction upon consumption. 3^8- 
 
 327. 
 Relation to production, 19. 
 Significance of, 19(;. 
 
 Why not based on product' "13 
 3U. 
 Duty. 
 Customs, 186-189. 
 Excise, 185-186. 
 
 E 
 
 Efficiency, 
 
 Dependent upon food, 296-297. 
 Employer, 
 Aim, 21S-216. 
 Associations, 230-221. 
 Double function, 215. 
 Entrepreneur, 23. 
 In I8tli century, 208. 
 Position in distribution, 212-213 
 Profit, 218-220. 
 "Engrosser," 3*6-347. 
 Emancipation Act, Russia, 42. 
 Exploitation, 
 Agricultural, 39-42. 
 Bargaining, 99, 
 First stage in production, 37. 
 Meat production, 73-74. 
 Mining, 75-88. 
 Process of, 38. 
 Kxchange, 5-7. 
 (See Barter.) 
 (See Money.) 
 As reacted upon by consumption, 
 
 327-328. 
 Markets (see Markets). 
 Prices (see Prices). 
 Utility and value, 112-121. 
 Rxtraction (see Exploitation). 
 
 481 
 
 Factory system. 
 Facilitating industrial conditions 
 338. 
 
 C— I— 31 
 
 "^ rfir cx'.'.V.nirc," l.''2-134. 
 " uir Trade," 3S.'i .06 
 
 i-.'iii>f!, -"Og. 
 Food, 
 
 Diversity of, 293-296. 
 
 History of, 295. 
 
 Law of substitution, 295. 
 
 Necessity for, 295. 
 
 Relation to work, 296. 
 Free grant. 
 
 Area of, 51. 
 Free trade. 
 
 Beginning of, 329. 
 
 In Great Britain, 331-3.10. 
 Fourier, 436. 
 
 George, Henry, 
 
 Propaganda in California, i' 
 Gold, 
 
 -Amount in existence, 115, 
 
 As money, 108-110. 
 
 ".\utuninal drain," 171. 
 
 Bimetallism (see Binielallism). 
 
 Hoarding, 176, iai-18t. 
 
 International credit, 173-171. 
 
 Mining, 75-77. 
 
 Panic of 1907, 175-176. 
 
 Relation to prices, 137-138 171- 
 
 176, 180-181. 
 Reserves, 181-183. 
 Government, 
 Expenditures, 989-293 (see Con- 
 sumption). 
 Functions of, 4. 
 Industry, 387-389. 
 Industry and, 329-359. 
 Labor exchanges, 4.10-432. 
 Legislation, 337-359. 
 Loans, 377-378. 
 ■l.ocal (see Municipal Govern- 
 ment). 
 N'oles, 177-179, 181-182. 
 Securities, 378-380. 
 Grain Growers' Association, 70. 
 
483 
 
 INDEX 
 
 H 
 
 Hanseatic League, JIO. 
 "Hedging" (see Sjwulation). 
 Homestead grant plan. 
 
 In Canada, ^83. 
 Housing, S99-313. 
 
 I 
 
 Immigrants, 
 As exploitative laborers, 88. 
 As members of trade unions, 254. 
 Italian, In New York, 148. 
 Immigration, 
 Effect on population, 148. 
 Induced by natural resources, 3^0- 
 321. 
 Indu.strial, 
 Commission on trusts, 353. 
 Unionism, 265. 
 
 Workers of the World, 252-253. 
 Industry, 
 P .'cident compensation in (see Ac- 
 cident Compensation). 
 In middle ages, 337. 
 Localization, 90-92. 
 Nationalization of, 356-357, 387- 
 
 389. 
 Regulated by state, 337-359. 
 Trade unionism (see Trade Union- 
 ism). 
 Interest, 
 Current theory, 268-269. 
 Defined, 2i)8-269. 
 Early theories, 267-268. 
 History of. 266-267. 
 In new countries, .321-323. 
 Market rate, 269-272. 
 Statutory limitation, 203, 
 International trade. 
 Credit In, 173-174. 
 Fiduciary currency in, 179. 
 
 -loint stock company. 
 Conducting productive enterprise, 
 908-209. 
 
 Joint stock company (Condnued). 
 Growth of, 210. 
 Profit in, 220-221. 
 Result of, 910-211. 
 
 K 
 
 Kropotkin, Prince, 441. 
 
 Labor, 
 Accident compensation (see Ac 
 
 cident Compensation). 
 Bargaining and, 98-99. 
 Coniliinntlons, 247-248 (see Tradf 
 
 Unionism). 
 Determining rent, 979-280, 285 
 
 286. 
 Difficulty of transporting, 228. 
 Directive, 20. 
 Dhislon of, 15, 20, 93. 
 Does not determine value of prod 
 
 uct, 242-943. 
 Efficiency, 23.3-234. 
 Elements of, IJ. 
 Exchanges, 430-432. 
 In exploitative industries, 87-88. 
 .loint, 18-19. 
 
 Location of industry affected, 9J. 
 Manual, 20, 39, 225-296. 
 Marginal, 236. 
 Mobility of, 229-230. 
 Of women, 256-957. 
 Organlzatlon.s, 228. 
 Party, 949. 
 
 Perishable commodity, 230-231. 
 Requisite of production, 14, 202. 
 Reserves, 237. 
 Superintending, 20. 
 Supply and demand prices of, 2:til 
 
 237. 
 Support of, during production 
 
 244-945. 
 Transportation affecting, 35. 
 Lalssez-faire, 
 Defined, 399. 
 
INDEX 
 
 483 
 
 La.-d, 
 As a commodity, 279-280. 
 Distribution liy state, ai4-:U8. 
 Increase of prices, 283-281. 
 Monopoly of, 162-163. 
 Occupntlon of, 17 (see Produc- 
 tion). 
 Ownership of (see Land Owner- 
 
 sliip). 
 Prices of, 163-167. 
 Requisite of production, 202. 
 Synonym for "nature," 38. 
 Taxation on, 369-370, 371, 398-399. 
 Transportation affecting, 35. 
 Uses of, 17. 
 
 Value and rent, 278-279. 
 Land ownership. 
 Advantages of, 281. 
 Commercial, 43-t5, 20.5, 364-365. 
 Distinction attending, 47. 
 European, 48-50. 
 Landholder, 21, 23, 44-45. 
 Medieval, 39-40, 42. 
 Modern, 41-42. 
 Monopoly in, 162-16.1. 
 National, 353-354. 
 Policy in U. S. and Canada, 282- 
 
 283. 
 Quasi-monopoly in, 281. 
 Small farmer, 45^6. 
 Tribal, 43. 
 Lnw, 
 Accident Insurance, German, 418- 
 
 419. 
 Canadian Homestead, 14. 
 Of diminishing returns, 26-28, 85- 
 
 86, 100, 
 Of diminishing utility, 115. 
 Of entail, 47. 
 Of family, 2. 
 Of household, 2. 
 
 Of increasing returns, 24-28, 100. 
 Of marginal disutility, 129. 
 Of marginal utility, 128-129. 
 Of primogeniture, 47. 
 Of substitution, 120-121, 158-160, 
 295. 
 "Legal tenders," 172, 182, 185. 
 
 M 
 
 Manufacture, 
 Division of lalror, 93. 
 Fini.shed product, 17-19, 30. 
 Instruments of, 16-17. 
 Localization, 90-92. 
 Over-production, 93-95. 
 Second stage in production, 37. 
 Specialization, 89-90. 
 .Marginal producer. 
 
 Taxation, 363. 
 Marginal profit. 
 Defined, 187. 
 Morltet, 
 Kxternal influences, 130-131. 
 For capital, 270-271. 
 For money, 269-270. 
 General meaning, 126-127. 
 Marginal buyers, 128-129. 
 Marginal dis-utility, 129. 
 Marginal utility, 128-129. 
 Origin of, 122-123. 
 Prices, 129-130. 
 Protecting routes, 123. 
 Supply and demand, 128-129. 
 Typical operation, 124-126. 
 Marketing, 
 Farm produce, 67-70. 
 Third stage in production, 38, 97. 
 Marx, Karl, 440-444. 
 Metayer, tenancies, 48. 
 Middleman, 101-103. 
 Migration, 
 
 Permanent, 230. 
 Temporary, 229-230. 
 Mining, 
 Coal, 84-86. 
 Copper, 80-81. 
 Gold, 75-77. 
 Iron, 81-84. 
 Labor in, 87-88. 
 Legislation affecting, 79. 
 Nickel, 81. 
 
 Prices and camps, 80. 
 Silver, 77-79. 
 Money, 
 Combinations, 271-272. 
 Effect of quantity, 171. 
 
484 
 
 INDEX 
 
 y.imn- (Continued). 
 
 Gold nnil silver as, 109-110. 
 
 Laws, 130-137, 184. 
 
 Miirkct, 3T0. 
 
 Oripiiis of, 106-lOS. 
 
 l*Hper, 177. 
 
 IVrioclinil payments, 171-172. 
 
 I'rices, 170-194. 
 
 Prospective produetio.-, 133-136. 
 
 .Standard of value, 110-111, 131- 
 137. 
 .Monopoly, 
 
 Government. 157-159. 
 
 Law of sulistitution, 158-160. 
 
 Prices, 157, 100-161. 
 Quasi, 160-161. 
 I'nited .States, 161-162. 
 -Montesquieu, +11. 
 Moscow, 
 
 Political strike of 1905, 7. 
 Municipal government. 
 Administration, 400-402. 
 Ca-.adian, 405. 
 Commission form, 407. 
 Debts, 397-398, 403-401, 407-409. 
 Economic jispeets, .390, 407-409. 
 English, 40i-103. 
 Enterprise, 40J-10.3, 407-409. 
 Finance, 394-395. 
 Officials, 405-407. 
 Prison labor, 393-.394. 
 United States, 404-405. 
 
 N 
 National dividend. 
 
 Advertising affecting, 100. 
 
 Bargaining affecting, 98-99. 
 
 Diminution of, 8-9. 
 
 Distribution of, 196. 
 
 Meaning of, 8. 
 Natural resources. 
 
 Conservation of, 317-319. 
 
 Plxploitation of, 319-321. 
 
 Inducing immigration, 330-321. 
 
 O 
 
 Octrois, 394. 
 
 Old-age pensions, 228-239, 428-430. 
 
 Over-production, 
 Manufacture, 93-94. 
 Railways, 95. 
 Wheat, 52, 96. 
 
 Owen, Robert, 434. 
 
 Panic of 1907, 175-176. 
 Paper money, 177-179. 
 Pension law, 
 Canadian, 430. 
 History of, 428-430. 
 Old-age, in Great Britain, 227. 
 Population, 
 Concentration in cities, 149-151. 
 Prices affecte<l, 151-152. 
 Wages affected, 238-239. 
 Post Office, 
 
 English, Canadian, U. S., 290. 
 "Preferential Trade," ;«5-336. 
 Prices, 
 
 Bimetallism, 138-139. 
 Changes in consumption, 149. 
 Changes in production, 143-145. 
 Changes of fashion, 153-154. 
 Climate affecting, 140-141. 
 "Complementary commodities," 
 
 147-148. 
 Consumption affecting, 328. 
 Customary, 134. 
 "Fair exchange," 132-134. 
 Important increa.scs, 311-313. 
 In 1850-1875, 310-311. 
 In 1890-1909, 311. 
 Land, 283-284. 
 
 Legislation affecting, 183-195. 
 Monopoly, 157, 160-161. 
 Movements of population, U9-JW. 
 Of metals, 146-147. 
 Political elections, 142-143. 
 Regulation of fluctuations, 192. 
 Standards of comfort, 132-153. 
 Supply and demand, labor, 236- 
 
 237. 
 Trade cycles, 193-195. 
 Primitive people. 
 Barter and money, 104. 
 Causes of dispute, 18-19. 
 
IXDKX 
 
 48/; 
 
 I'riinilive people (Continued). 
 I.ulior unci ownership. 197. 
 I.'irui ownership, 13. 
 I'ottrrv, U-18. 
 Priviite luxury. 
 In reintion to "national dividend." 
 9-10. 
 Privnte ownership, 
 Cause for dispute, 18. 
 Of weapons, 18, 
 I'rmluetion, 
 Changes in, 1+3-113. 
 Complex, 16-18 (sec Complex Pro- 
 duction). 
 Defined, 5-8. 
 
 Dependent upon capital, 37?-?*.5. 
 Detail, 11. 
 Factors of, i'Ofl. 
 Industries classilieil, im-JOH. 
 Mass, 11-12. 
 Reacted upon by consumption, 
 
 333-3^6. 
 .Simple, 13-lfl. 
 Stages of, 37-38. 
 Profit, 
 Gross, 319. 
 
 How brought about, 219-320. 
 In joint stock connpany, 330. 
 Xet, 319. 
 
 Source of, 318-319. 
 Proudhon, 436, Ml. 
 Public expenditure, 
 Classifled, 372. 
 Debts, 370-377, 382-387. 
 Funded loans, .379-380. 
 Government loans, ?*77-378. 
 Government securities, 378-379. 
 Kecording, 373-376. 
 
 Q 
 
 Quasi-monopoly, 160-161, 233. 
 R 
 
 Railwars, 
 Construction in V. S., 373-377. 
 Over-production of, 9,-.. 
 Regulation by state, 314-346. 
 
 Hate of interest. 
 
 Affecting land prices, 163-167. 
 Haw material, 
 l''.xtraction cf, 37-39. 
 P'ixed capif.il. 31-33. 
 Heiuisitc- of production, 14-13 
 Rent, 
 As sur|ilus, 38,5-387. 
 .Austrian, 48-49. 
 
 General application of term, 387. 
 In new countries, 303-300. 
 "Of ability," 387. 
 Origin of, 379-380. 
 Relation to law of diminishing re- 
 turns. 38. 
 Russian. -19. 
 Theory of, 391-385. 
 Rent interest earnings fund, 197. 
 Retail trade, 101-103. 
 Revenue. 
 Classified, 303-363. 
 State, 360. 
 Revisionists, 443-444, 
 Ru.sso-Jaj.anese War, 8, 
 Russo-Turkj.:h War of 1876-77, e. 
 
 Saint-Simon, 435. 
 Settlement in new countries. 
 Details of progres.s, 331-,'i33, 
 Kxjiloiting natural resources, 3->0- 
 331. 
 "Shack town," 303-304. 
 Smith, Adam, 
 T' 'ory of labor, 440. 
 "Ine Wealth of the Nation," 8. 
 Socialism, 
 Contributors toward, 433-436, 440- 
 
 444. 
 Doctrinev. 4,38-443, 
 Origin and history of, 433-137, 
 Progress, 437-438. 
 S'jfn .Icance of, 444-443. 
 "Social dividend" (see "Xational 
 
 Dividend"). 
 Social legislation. 
 Accident com|)ensation (see Ac- 
 cident Compensation). 
 
486 
 
 INDEX 
 
 Soolnl Ifjjlslation (Conliniieil). 
 
 F«rtoiy Acts, 410-4U. 
 
 Old age pensions, Jil, 4JH- IM. 
 
 I'ncmplojiiient, lj:l-43t. 
 
 Working day, .iU-415. 
 Spec-Illation, 
 
 Characterized, 189-190, 
 
 Cornering, 190-192. 
 
 Hedging, 191. 
 Spirit Wrestlers, 201. 
 Stock watering, 3^0-333. 
 Strikes, 
 
 Failures, 252. 
 
 Probable results, 251-252. 
 Silver. 
 
 -Amount existing, 135. 
 
 As money, 108-110 (see .Money). 
 
 Dimttttllism, 1.1S-139. 
 
 F.ffect on prices, 137-138. 
 
 Mining, 77-79. 
 Standard Oil Trust, 316-349. 
 Superintendent, 
 
 Demands upon, 223. 
 
 Educat'on, 223-225. 
 
 Function of, 221-322. 
 
 Salaries, 222-223. 
 Supply and demand. 
 
 Houses, 304-308. 
 
 Influence of, 215-217. 
 
 Interest, 269, 271. 
 
 Labor, 236-237, 339. 
 
 Market, 128-129. 
 Syndicalism, 
 
 British trade unionism affected, 
 249. 
 
 "Direct action," 441. 
 
 Industrial Workers of the World, 
 252, 253. 
 
 Method, not doctrine, 442. 
 
 Success, reason for, 443-444. 
 
 Tariff, 
 For revenue, 333-333. 
 General, 185-189. 
 Of Great Britain, 3,3.3. 
 Protective, 331-3,32, ,335. 
 
 Taxation, 
 Canadian provincial, 391-392. 
 In nnmopoiy, 1R7-1H9. 
 In perfect competition, IH7. 
 .Municipal, :I94-:195, 39H-399. 
 On corponitiiuis, 302-393. 
 On income, 360-361, :«ij-.366. 
 Xfttlnnal c«)nsumptlon, 289. 
 Two theories of, 36t>-368. 
 
 Thompson, William, 435, 440. 
 
 Trade, 
 Cycles, 193-195. 
 Guilds, 203-304. 
 Unrestricted, 204, 
 
 Trade unionism. 
 Capitalistic system, 365. 
 "Closed," "open" shop, 356. 
 Collective bargaining, 251-252. 
 Congress in 1889, 248. 
 Economic cifects, 252-253. 
 History of, 247-248. 
 In Canada, 354-355, 
 In Great Britain, 248-250. 
 International. 355-256. 
 In U. S., 353-254. 
 Purposes of, 247-248. 
 Strikes, 350-251. 
 
 Transportation, 
 
 Factor of production, 29. 
 Labor and capital affected, 35. 
 Land affected, 35. 
 Jlethods of, 31-.34. 
 Opening new markets, 34. 
 Relation to manufacture, 29-31. 
 Rents affected, 35-36 
 
 Trust (.see Corporations), 
 Act, 263. 
 Beef, 314. 
 Defined, 160. 
 
 Difficulty of dissolving, 343. 
 Industrial Commission, 353. 
 National ownership, 357, 359. 
 Objections to in U. S., 342-343. 
 Kcgulation of, by state, 346-347. 
 Standard Oil, 346-348. 
 Sugar, 347. 
 
INDKX 
 
 487 
 
 Unemplojinfnt, 4.');i-l34. 
 L'niform wage. 
 
 DilBoully of nppliciition, -33H. 
 
 Effect on sectlonul eomiietition 
 Si's. 
 
 Implied hy collective bargaining, 
 
 Otlier effects, -iKl-Jir. 
 L'swry, 
 Ajtricultural, :,H-r,a. 
 Oiminution of, in. 
 
 W 
 
 Wages 
 
 Cnncilialion anri arbitration '(il- 
 3U. 
 
 Demand, 239-240. 
 
 Wages (CtnUaufd). 
 Marginal. 2Ho. 
 
 Mininium and maximum, IM-lu. 
 Mobility nf labor, -I'M. 
 Nomhinl and real, 2*.U-2;W. 
 Population affecting. 338-3;»), 
 Productivity of labor affecting, 
 
 l-niform, 2.'(i..'« (see l-niform 
 Wage). 
 
 Working day, -US. 
 Watt. .lantes, 30i. 
 Wholesale trade, 101-103. 
 Wheat. 
 
 Cultivation of, 4!)-5I. 
 
 From 1790-1810, 45-41!. 
 
 JIarkct. 73. 
 
 Over-production of. :,3, 96. 
 
 Specialist farmer, .53. 
 
 Speculation in, 190. 
 
 f