This section is from the "Economics In Two Volumes: Volume I. Economic Principles" book, by Frank A. Fetter. Also available from Amazon: Economic
§ 6. Labor and its environment. Decreasing and increasing returns are cases of changing proportionality, involving social, rather than individual adjustment; not the adjustment of enterpriser's money cost to prices, but of the whole labor supply in relation to the employment afforded by its environment. The individual employer thinks of the supply of labor as consisting of men seeking employment in his special industry. In this view it is the demand of the employers that apportions the workers among the various occupations, and seems to determine wages. The social view of the opportunity for labor, however, looks at the whole field. The opportunity for labor is then seen to be represented ultimately not by human employers, but by resources and agents which labor can use. The rich acre, the tool, the machine, all material wealth needing the human touch to utilize it, represent opportunity for labor in this sense. The employers' demand for labor, therefore, is but a reflection of the opportunities embodied in resources. A million men are a great or a small population according as they occupy a little island or a large continent, according as they are equipped with a small or a large supply of agents.
3 The wage-fund doctrine of wages once held a central place in economic discussion. It was that wages were determined by the relation of the number of laborers to the capital. "Capital" was taken in the narrow sense of a special fund set aside (it was never quite clear how) by the employers for the payment of wages. The element of truth in the doctrine was the recognition, somewhat dim, that wages are favorably affected by the efficiency of the whole economic environment in which labor works.
§ 7. Aspects of wealth. Wealth is the general term for those things which are felt or seen to be related to the gratification of desires. This definition is wider or narrower according to the senses in which the various words are taken. What is included in " things" ? How deeply are they felt and how far-sightedly are they seen to be related ? How immediate is the gratification? Individual wealth is usually taken to mean the valuable things the individual owns. Some would include "internal goods," such abstract qualities as honesty and cheerfulness; others would include not abstract qualities but men themselves with all their capacities of body and mind; the free man owning himself and his powers to serve his own desires, the slave being owned. More frequently, and properly, the term individual wealth is limited to valuable agents objective to men, not including free men. There is much popular usage in favor of including documentary evidences of ownership such as notes, mortgages, stocks, and other credit instruments, by so doing making private wealth (tho not always consistently) synonymous with capital in our definition. There is good reason to keep the term wealth for the concrete things while using capital as the value expression of business power embodied in those things. Thus, the factory is wealth, the economic basis for the capital represented by stocks and bonds; the farm is wealth, the economic basis of the mortgage and of the owner's residual claim to the unmortgaged capital value.
Social wealth is a broader term and includes all the weal-bringing environment of the nation. It is more than the sum of concrete individual wealth (factories, farms, etc., of course all conflicting claims being canceled) ; it includes the valuable things held in governmental possession, such as parks, forests, public buildings, libraries, bridges, highways, and public-owned wealth, etc., and also all the natural advantages of climate, rivers, harbors, lakes, and oceans. The better and more beautiful these advantages, the less may be the need of individual wealth; one nation with natural waterways may be truly wealthier than another with canals costing millions of dollars and owned by corporations; and a nation with abundant cheap lands of low price is more happily situated than one with high-priced lands that yield great private incomes to the owners.
§ 8. Welfare. Welfare, in an immediate or narrow sense, is the same as gratification of the moment; in a broader and truer sense it is the abiding condition of well-being. We have here a distinction very much like that often made between pleasure and happiness. If only the present moment is thought of, welfare is the absence of pain, and the presence of pleasurable feeling; but if a longer period in a man's life or his entire lifetime is considered, it is seen that many things that afford a momentary gratification do not minister to his ultimate, or abiding, welfare. The difference is illustrated by the thoughtlessness and impulsiveness of a child or savage as contrasted with the more rational life of those with foresight and patience.
Now it is evident that a large part of the value of individual wealth rests on the basis of foolish and shortsighted choice. But whether tobacco or alcohol or morphine minister to the abiding welfare of the consumers is not the question in explaining the value of these things.4 Here again it is seen how poor an index the value of individual wealth is to the permanent welfare of men and society.
In studying the question of social prosperity we must rise to the standpoint of the social philosopher and consider the more abiding effects of wealth. Desires may be developed and made rational, and the permanent prosperity of a community depends on this result. Any species of animals that continued regularly to enjoy that which weakens the health and strength would become extinct. Any society or individual that continues to seek its pleasures in ways that do not, on the average, minister to permanent welfare, sinks in the struggle of life and gives way to those men and nations that have a sounder and healthier adjustment of choice and welfare. We touch here, therefore, on the edge of the great problems of morals, and while we must recognize the contrast that often exists in the life of any particular man between his "pleasures" and his health and happiness, we see that there is a reason why, on the whole, and in the long run, these two can not remain far apart. The old proverbs, "Be virtuous and you will be happy," "Honesty is the best policy," and "Virtue is its own reward," have a sound basis in the age-long experience of the world. Cynics or jesters may easily disprove these truths in a multitude of particular cases.
4 See also ch. 19, note on value versus utility of labor.
§ 9. The paradox of value in practice. A necessary condition of value is scarcity. The business incomes of individuals depend on the price of the agents and uses they control. It appears in the paradox of value (Chapter 4, section 11) that up to a certain point the total value increases with the number of units offered in a market, and beyond that point it decreases. In the period of increasing total price (tho declining unit price) any one who owned the whole supply would gain by abundance and his interest would be in harmony with the interests of the buyers of his goods; beyond that point he would gain by greater scarcity. This individual gain sometimes may lie in social want rather than in social wealth. Broadly speaking, so long as value is on the ascending curve and income grows with abundance of goods, the individual interest is bound up with the social interest. So soon as value is on the descending curve and private income grows with social need, the individual interest is at conflict with the social interest, and a problem of social control is presented. Fortunately, in most cases the individual is concerned only with the ascending scale of total value and can increase his private income only by striving for abundance, increasing the number of units he has to offer. A social problem is presented wherever individuals or corporations control such a large proportion of the whole supply at a particular time and place that they are tempted to increase their private incomes by artificially enhancing scarcity.
In other cases scarcity grows inevitably, as in the exhaustion of natural deposits or the relative decrease of favored building sites for commerce and of tillable land for food when population grows rapidly. Each individual controls such a small portion of the supply that he gains only by striving for abundance (planting new forests, discovering and developing new mines, clearing, draining, irrigating, and fertilizing more fields) ; but with growing scarcity of the whole supply, price per unit rises. Where supply is absolutely falling off (exhaustion of natural stores of timber, coal, and metals) this rising price per unit partly, wholly, or more than, compensates the owners for the decreasing quantity; where supply is only relatively declining (same supply at a higher price) each owner gains and the whole group of owners gain by the scarcity, without themselves helping to bring about the change. Thus again it is seen that value is not identical, indeed may be in contrast with utility. Individual incomes depend primarily upon value, and therefore individual gain may be associated in many cases with scarcity and not with abundance.