This section is from the "Economics In Two Volumes: Volume I. Economic Principles" book, by Frank A. Fetter. Also available from Amazon: Economic
§ 4. Careless waste. The destruction of goods of unnecessarily large value to secure a given result is likewise justified as "making trade good." The blunder that compels the rebuilding of a wall in a rich man's garden is an occasion for congratulation to those who see in it a happy provision of work for the unemployed. It is easy to forget that the proper use of goods is the final step in production. According as goods are well or poorly used, the production - that is, the real income or gratification they afford - is large or small. Differences in skill in the use of wealth are great. A French cook, we are often told, can make a palatable soup from what goes from the average American kitchen into the swill-pail. Waste in the use of goods is more likely to be found in new countries where wealth comes more easily and necessity does not enforce frugality upon the masses of the people.
The praise of careless waste implies the error noted in the preceding propositions. Waste makes work for a certain class, but not more work (employment and wages) for labor as a whole. It appears to be good only when the interests of a small class of workers or of tradesmen are looked at for the moment; it is bad in the long run alike for workingmen and for all other classes of society. Far more of wisdom lies in the proverb, "A penny saved is worth two earned." The economic use of wealth as surely adds to wealth (and, ultimately, to the income of society) as any other mode of production.
§ 5. Waste in public outlay. Some government expenditures, as for local post-office buildings, and river and harbor improvements, are sometimes favored, not because their immediate purposes are good, but because they "make work" and "distribute money" throughout the country. This apology for public extravagance in all its forms has an incredible hold on the public mind. It seems even easier to rejoice that the big impersonal thing, the government, fails to get its money's worth than that one's neighbor fails to do so. The money for public expenditure comes from taxation, and no matter what the system of taxation, the burden falls upon some one, reducing the incomes at the disposal of the people to expend for objects of their own choice. If the work is not worth doing for itself, the collection of money in small amounts from many tax-payers and its expenditure as a large sum in one locality results in a net loss to society as a whole. Where the result is worth something, but not enough by itself to justify the expenditure, the fallacy of the destruction of wealth is present in a smaller degree. Examples are seen in useless offices, overpaid officials, the extreme use of pensions, and in some public subsidies.
§ 6. The fallacy of waste. Let us restate the ideas that have been touched upon. The fallacy of waste is due to a narrow and incomplete view of the effects resulting from a particular use of wealth. In many cases it is possible that some one person may benefit by another's mishap or folly in the use of wealth. The complex interrelations of men in society make this inevitable. But, to appreciate the dynamic effects of such action upon society in general, one needs but to go back to the essential thought of wealth and its purposes. As the average efficiency and bounty of the world fall, so fall the income and welfare of men. As it rises, the social and economic levels rise also. Economic wealth has potentially two kinds of uses, direct or indirect: to gratify desire - thus fulfilling its destiny - or to be converted into higher and more efficient agents. That the possibilities of the latter are boundless is overlooked in the fallacies here criticized. A bountiful and efficient world would be the result of abstinence and saving; a barren and used-up world, the result of the fallacy of waste.
§ 7. Definitions of luxury. Closely related to the problem of waste, but still more difficult, is the problem of luxury. It is not possible to define luxury absolutely; it is a relative term. The conception of luxury, however defined, involves always the thought of great consumption of wealth for unessential pleasures. Those opposed to it condemn it in their definition of it, as, for example: " an excessive consumption of wealth," or "devoting a relatively large amount of wealth to the satisfaction of a relatively superfluous want." Those who take a more moderate and favorable view say: "It is the enjoyment of forms of wealth not obtainable by the mass of men." Luxury is not entirely a matter of riches. Many a person of moderate income has relatively superfluous and expensive tastes. One spends more for music than many a millionaire does; another more for books. The difficulty in the definition as well as in the problem of luxury is that it involves a mixture of economic and of ethical questions.
§ 8. Luxury to give employment. Luxury, like waste, is justified by some as giving employment to labor. Typical instances are extravagant dress and elaborate balls where fine and costly flowers, decorations, music, and coaches require the expenditure of a large amount of money. It is said of the Empress Eugenie, wife of Napoleon III, that, in order to help the glove industry of France, she wore a pair of gloves but once; in order to help other French industries, she purchased many silks and laces. It is a very comfortable doctrine to some people that the oftener they change their dress, the greater benefactors to society they are. From time to time a great society "ball" is given in the metropolis, possibly little more elaborate and expensive than many another ball; but if it chances to be a dull time for news the papers all over the land give columns to its discussion. The newspapers at such times usually print many interviews with citizens of varied occupations, and the thought appears over and over that such balls have at least the merit of giving employment to labor, evidently meaning employment additional to the total amount which otherwise would have been possible.
§ 9. The fallacy of luxury. The fallacy of this is essentially the same as that in the argument for waste and destruction. From the fact that these particular tailors, musicians, and florists would have less employment if this ball were not given, it is falsely con cluded that, but for this ball, this particular income, or capital, would not be used at all. The average of employment in those special industries which minister to luxury is the result of and is determined by the average level of demand. There are more caterers and florists in a large city than in a crossroads village. It is true that a more than ordinarily gay season gives unusual profits to these enterprises, whereas an abrupt and extreme falling off in demand would cause them large losses and leave many workers lacking employment for that one season. But, if this limited demand became usual, capital and labor would shift to the other industries to which expenditure had shifted. Other modes of expenditure than twenty-five thousand dollar balls are possible, as, for example, twenty-five thousand dollar public libraries. Mr. Carnegie has preferred to take his dissipation in that form. That gives employment also; not less does investment in new houses, in new railroads, and in new factories. More employment of a particular kind of labor is caused in one case than in another, but not more employment of labor as a whole and on the average.