This section is from the "Economics In Two Volumes: Volume I. Economic Principles" book, by Frank A. Fetter. Also available from Amazon: Economic
§ 4. Indirect agencies for hastening the uses of goods. Our present concern is with the use of indirect agents for the purpose of controlling the time at which the uses of goods become available. Man contrives agencies both to hasten and to postpone the processes of nature, and thereby makes goods better or worse for his purposes. Greenhouses are built and equipped with heating apparatus in order to produce early vegetables and flowers; incubators and brooders are employed to provide the market with the tender broiler earlier in the season than the mother hen would do it; apparatus for making artificial ice is operated in the summer time in places where ice is sure to be a free good a few months later; southern fruits and vegetables are shipped north by fast freight to places which within a few weeks will have an abundant supply of their own home-grown produce. In all these cases the thing that man is striving to do is to make things available at an earlier point of time. And he employs a very considerable amount of apparatus (indirect agents) to accomplish his end.
Likewise the time of indirect uses may be hastened by the use of other indirect agents (of "lower rank"). The sapling is planted in the forest to hasten the process of nature in growing wood to be used in industry; the drying-kiln makes it possible to use the lumber newly cut; gas and electricity lighting the factory make possible overtime work to fill rush orders; fuel is burnt in the locomotive to bring to the factory the materials needed just then. A large part of the transportation by express is to bring machinery and supplies to the factory when urgently needed, and hundreds of dollars have been paid thus for the shipment of a single machine across the continent, when a few dollars would have paid the cost of shipment by slower freight.
§ 5. Agencies for postponing the uses of goods. Of as great importance perhaps are the various agencies for keeping goods in proper condition for use at some future time. Grain is regularly kept for months in barns and elevators where it is protected from the weather. Fruit, vegetables, dressed poultry, and other meats are preserved in refrigerators and cold-storage plants, and fruits and vegetables are also kept fresh by chemical means or by being "canned" in jars or other vessels from which germs are excluded. Large stocks of building materials and other things not ordinarily spoken of as perishable are nevertheless kept under roof to safeguard them from the elements. In some cases the indirect agent is many steps removed from the final gratification of desires. There are factories employed in making paint, cement, creosote, pitch, tar, roofing, etc. - things destined to be used in turn to make, repair, or preserve structures which shelter stocks of other indirect agents for uses that are still in the more or less distaut future. There is method, of course, in the whole complex process. The end finally achieved is the production of "direct" goods at the particular time when they are most desired by men.
§ 6. Increasing control of man over nature. The technical processes of industry have been growing more complex, and the stocks of agents used in these processes have been increasing since the beginning of history, but never so rapidly as in the past century. This has resulted in an enormous mass and variety of indirect agents, the existence of which is an essential aspect of civilized life. Many materials are found in forms and in places where they cannot serve man's purposes. Energy is found dissipating itself in ways useless to him. As man grows in power of control over nature, he strives to apply these forces and materials in such ways and at such places as will best serve his purposes and gratify his desires. If he can arm himself with the energies of mine and torrent, he can react with giant strength upon the material world. He refuses to accept passively its conditions and to live on its grudging gifts. He becomes its fashioner - in a sense its creator. His intelligence and his desires are more and more potent in determining the substance, form, place, and order of the physical things about him. He transforms the world in which he lives. Accompanying and guiding the complex processes of industry are numberless acts of choice and valuation. Man's desires for direct goods and his resulting valuations motivate and direct his productive activity. The technical processes of production, in turn, have their reflex influences upon values. To arrive as fully as possible at an understanding of these interrelations is the task of the theory of value.
§ 7. Natural diversity both of direct and of indirect goods. One of the basic facts in the situation we are trying to analyze is the natural diversity of things. All the efforts of men in the most developed economy can not annul or obliterate the differences in the quality of goods. Desirable goods are limited in quantity and vary in quality. Hence they have value, and some are more valuable than others. If they were all alike, they would all have the same relation to human desires, and would all have the same value. Likewise durable material agents and sources of power are limited in quantity and vary in convenience of location and in their efficiency. As men seek to gratify their desires, they attach importance to these agencies for the achievement of their ends. Each is valued for its uses. Anything which is seen to have a relation, direct or indirect, immediate or remote, to the gratification of man's desires, is brought within the circle of economic goods.
§ 8. The improvement of technical processes and methods. The invention, improvement, organization, and use of the various agencies which we have been considering, makes up the whole of man's economic activity. This is, of course, a very broad field, difficult of comprehension as a whole. It comprises a vast range of technical achievement. In the list of those who, from the beginnings of human culture, have made contributions to the slow task of improvement, we should find Adam the gardener, Abel the keeper of sheep, Tubal-Cain, "artificer in brass and iron," Jubal the "father of all such as handle the harp and organ," Archimides, Gutenberg, Watt, Fulton, Elias Howe, Samuel Morse, Bessemer, Edison, and countless others, known and unknown - peasants, artisans, natural scientists, and practical inventors.
The technical improvements made by such men have been among the most important of the instrumentalities of economic progress. They involve in practically all cases some better combination or joint use of complementary agents. The technical problem is usually a matter of the most efficient proportioning, combining, or utilizing of different indirect agents.
In a mechanism, if one part is increased without increasing the other parts, a point is reached where it does not add to the result. If in the building of a bridge the weight of the floor is increased beyond a certain point, the rest of the bridge being left unchanged, the bridge is weakened instead of strengthened. If the weight of the iron in the framework is increased beyond a certain point without strengthening the piers, the structure as a whole is weakened. If the piers are greatly enlarged, the added materials and effort may not weaken the bridge absolutely, but they dam up the stream, and thus increase the force of the waters pushing against the structure. At the same time, in flooding the adjacent lands they cause another result which was not intended or desired.
A bicycle frame, like a chain, is no stronger than its weakest part; if the strength of all parts of the wheel and frame is in proper proportion to the strain they must bear, added weight to any single part weakens the whole machine. The development of the modern type of bicycle, by many experiments, is a good example of the adjustment of materials according to the principle of technical efficiency.
A variation of the same principle is seen in chemical combinations. Exact proportions of materials must be used to get a certain result. Increasing one ingredient will not increase the desired product. Either the added part, not entering at all into the compound, remains as a useless or an injurious impurity, or it unites to form a product different from the one desired.
Thus it is in all the practical arts. The farmer must have rain to water the crops, but too much may ruin them. The cook must have fuel for heat - enough to bake but not enough to burn. The smith watches the glowing metal and puts it upon the anvil when it is just at the welding point. The laundryman puts a tinge of blue in the white clothes; with less or more the clothes are either too yellow or too blue. The painter must use the proper proportion of oil and white lead or the paint will not be durable. The plasterer must mix neither too much nor too little sand with the lime if he will make a lasting coating on the wall. The potter seeks to have the heat of the kiln exactly right to give the perfect glaze to the stone- and china-ware. There is this technical problem of the right proportion quite independent of the value of the goods. The idea of economic utilization arises when man recognizes these technical facts and their relations to value in his use of a limited supply of agents.
§ 9. The economic test of technical improvements. It is a notorious fact, however, that not every improvement of technical method is advantageous from the economic point of view. The Patent Office at Washington is a veritable graveyard of ingenious inventions that are not commercially profitable. The inventor, in order to gain material rewards and at the same time to benefit mankind, must study not only the technical side of his problem, but the question of value as well. Many technical improvements of method cost more than they are worth. The market may be too small to warrant the increased investment, or many other difficulties may stand in the way.1 The ultimate test determining whether a new process or a new device is better to use than the old one is not technical, but economic. It must effect a net increase in value. If it occasions extra costs, the additional advantages must more than offset them.
§ 10. The psychology of indirect valuation. We have now pointed out the logical relationship between the desires of man and the valuations which he puts upon indirect agents. Nothing seems more simple or obvious than that the agent is valued as an agent - as an instrumentality in the gratification of desire. However, it is well to recall that the process of valuation is not always as logical and as consciously calculated as it would seem. The reactions of men are in large part impulsive, instinctive, imitative, and habitual, rather than rigorously logical. But experience and reflection alter the choices and extend their range. The desire which at one time was aroused only by the direct good, becomes more or less spread over all the indirect goods connected with it. Thus men, without deliberately and consciously reasoning on the matter, desire directly many of the things which technically are of only indirect use. In many cases instincts have probably evolved to affect desire for indirect goods whose real relation to desires is never fully perceived or understood by the person choosing. The desires of civilized men have become diffused over, and now pervade, the immense complex equipment of the economic world, and both the direct and the remotely indirect goods color the feelings and influence the conduct of men. They are alike the objects of desire. Hesitation and conscious calculation do, however, occur in some choices, and have occurred in many other choices which have now become habitual. And in all highly organized business, where production is for the market, the business man calculates not only consciously, but laboriously and with great care, both the desires of consumers and the relation of indirect agents to those desires.
1 See, for example, ch. 38, on Abstinence and production.
§ 11. The element of time in the valuation of indirect agents. There is one more important aspect to the problem of the valuation of indirect goods. If the value of the indirect use is but the reflection of the direct use, it might, on first thought, seem that it should always be of the same magnitude. If an agent, A, used indirectly, produces a limited number of direct uses, x, y, z, it would seem that the sum of their values should be the same as the value of the agent, A, itself. If the indirectness of the process were the only factor in the case this would be true. As a matter of fact it normally requires a certain period of time for the direct use to be obtained. The uses of an agent are frequently spread over many years. Because of this lapse of time the value of the agent A at the present moment is not by any means the same as the aggregate value of its uses in the future when they will occur. The element of time introduces a different problem which will call for consideration at a later point in our study of the problem of value.1
1 Particularly in Part IV on Time-value and interest.