Elementary Economics | by Charles Manfred Thompson

With Special Reference To Social And Business Conditions In The United States

Title	Elementary Economics
Author	Charles Manfred Thompson
Publisher	Benj. H. Sanborn & Co.
Year	1919
Copyright	1919, Benj. H. Sanborn & Co.
Amazon	Elementary Economics

By Charles Manfred Thompson, Ph.D. Professor Of Economics Dean Of The College Of Commerce And Business Administration University Of Illinois

To The Great Army Of High School Pupils Who Enter Industry Every Year This Book Is Respectfully Dedicated

Preface: Recent events have brought the people of the United States face to face with numerous new economic problems, many of which are likely to remain unsolved for years to come; besides, they have complicat...

Part I. Introduction. Economics As A Social Science Elementary Economics. Chapter I. The Social Viewpoint. 1. The Social Sciences. Nature And Content Of The Social Sciences: The subjects of study that deal with the various phases of human activity, as expressed in social groups, are known as the social sciences. Those which we may profitably notice in this connection are ...

Close Interrelation Of The Social Sciences: We have spoken of the social sciences as if they were independent and distinct one from the other. Such, however, is not the case, for they are merely different aspects of the same science, each regar...

2. The Individual And Society. The Individual Viewpoint Of Industry: The normal individual very naturally regards all industry from his own narrow point of view. He is inclined to feel that his business is the hub of industrial activity, that it is essential to the wel...

Social Viewpoint Of Industry: While it must be admitted that the individualistic, or selfish, viewpoint of industry is the force that drives men to seek improved methods, we must not lose sight of the fact that the welfare of soci...

Industry And Free Public Education: The interest of society in private industry is one of the chief reasons for the establishment and maintenance of free public education. Clearly, children as well as their parents have the correct noti...

An Efficient Industrial Society: In spending enormous sums on public education, society has in mind an improved citizenship from the standpoint not only of culture and government, but also of industrial efficiency. At one time educat...

3. Wealth And Welfare. Free Goods And Economic Goods: The word good has two slightly different meanings. When a business man speaks of goods he means commodities, such as hay, wheat, clothing, and furniture. The student of economics gives the same wor...

Nature Of Wealth: In discussing wealth two important facts must be kept constantly in mind. First, the wealth of an individual may or may not be wealth in a social sense. Second, an increase in wealth may, owing to inc...

Wealth And Natural Resources: Obviously, the foregoing discussion leads to the conclusion that wealth and welfare are not necessarily identical terms. Any social group that is compelled, for example, to consume great quantities of...

Wealth And Its Distribution: We must also remember that a large social group, as such, may be relatively wealthy and even enjoy a high degree of total welfare and still have among its members many who suffer from a lack of the co...

Exercises And Problems. Economics As A Social Science Elementary Economics.: A 1. Why should history be called a social science? 2. What is the essential difference between political science and law? 3. What is meant by the expression legal ethics? 4. Under which social ...

Note: The references found at the close of each chapter are confined to standard college texts in economics. For additional references, see the classified bibliography at the end of volume, pages 411-414. ...

Chapter II. Nature And Content Of Economics. 4. Nature Of Economics. How To Study Economics: Before taking up the study of any new subject it is desirable, in order to avoid wasting time and effort, to learn something about the best methods to be employed in mastering it. Some subjects, like ...

The Nature Of An Economic Law: Economics, like other sciences, has certain important laws which must be mastered as we progress in our study. It is desirable, then, at the outset to understand as accurately as possible the nature o...

Economics As An Art: Hitherto we have spoken of economics as a science, which it is; yet like all other sciences it has an art side, which, in the minds of many, is by far the most important. The physicist, to draw anothe...

Material For The Study Of Economics: The most important field for the study of economics is not found in books, but in the business world. He who would master even the most elementary problems of economics must study the motives and acti...

5. Divisions Of Economics. Consumption: The most fundamental notion in economics is consumption. It came first in the history of mankind, and it seems likely to continue to the end of time as the chief motive for economic activity. Desire t...

Production: Following consumption comes the notion of production. Primitive man soon found that nature did not supply a sufficient amount or variety of goods to satisfy his wants. Then and only then did he turn t...

Exchange: Soon after primitive man began to produce he found himself in possession of a surplus of goods for which he had no immediate need. Naturally he sought for a neighbor who desired to possess his goods a...

Distribution: As used in economics the term distribution means apportioning - that is, the division of the entire social income among those who produce it. Ordinarily, we are likely to think of distribution in th...

Exercises And Problems. Nature And Content Of Economics: A 1. Define the word laboratory. 2. Describe briefly a laboratory experiment. 3. What did this experiment teach? 4. Why is the laboratory method called the inductive method? 5. What is the diff...

Part II. The Consumption Of Economic Goods. Chapter III. Nature Of Consumption. 6. Motives Behind Economic Activity. Preservation Of Life: Obviously, the most fundamental motive for economic activity is the preservation of human life; yet most people, we may assume, have never experienced any mental or physical pain owing to a lack of fo...

Desire For Comforts: Fortunately for the progress of civilization the normal individual is not satisfied with a bare existence. He desires more and a greater variety of food than will merely sustain his physical strength ...

Desire For Luxury And Ostentation: A third motive for economic activity is the desire to consume what we may unmistakably call luxuries, and by their consumption to be recognized as superior beings. Evidences of such a desire are to be...

Desire For Power: Wealth is power. It gives its owner an influence which he otherwise would not possess. It manifests itself in politics, government, industry, education, and even in religious affairs. The owner of wea...

7. Nature Of Demand. Demand Is Effective Desire: The word demand is used in our everyday speech in a variety of ways, but in economics it has a particular significance which we shall attach to it hereafter. The mere desire for goods does not lead...

Relation Of Demand And Price: Much more common, however, are the cases when desire becomes demand as a result of the willingness of the one having the desire to pay the current market price either in money or in other goods. Suppo...

8. Elasticity Of Demand. Nature Of An Elastic Demand: All demands are more or less elastic; that is, the demand for any particular good tends to increase as its price falls. In the case of some, the increase is very rapid, of others, very slow. Somewhere...

Inelastic Demand: The demand for necessaries and comforts is less elastic than the demand for luxuries. A slight decrease in the prices of common table salt or matches, for example, would be unlikely to increase apprec...

Elasticity Of Demand And Price Fluctuation: On first impulse one might think that price fluctuation would be greater under an elastic than under an inelastic demand. But such is not the case. The very moment the price of a good with an elastic ...

Exercises And Problems. Nature Of Consumption: A 1. Name as many motives for economic activities as you can. 2. Do these motives cause the same activities in all localities? in all groups? 3. What is the distinction between necessities and luxu...

Chapter IV. Laws Of Consumption. 9. Human Wants Are Unlimited. Variation In The Intensity Of Wants: We have seen already that human wants can be arranged in a general way in the order of their intensity. Any individual at any moment of time has a variety of unsatisfied wants, which he proceeds to sa...

Wants And Social Progress: The very fact that wants are incapable of being satisfied has led to our present state of civilization. Any individual or social group, such as a people or a nation, that has all of its wants satisfi...

10. The Law Of Diminishing Utility. Statement Of The Law: Although the sum total of human wants is incapable of being satisfied, each individual experiences daily the satisfaction of particular wants, in any one of which he can observe the law of diminishing...

The Law Illustrated: The most obvious illustrations of the law of diminishing utility are found in the consumption of food. A healthy boy with a plate of apples before him will eat the first one eagerly. The second he wil...

11. The Law Of Marginal Utility. The Law Stated: We have already established the principle that the possessor of a suit of clothing values that suit more highly than he would a second one exactly like it, and that a third would yield even less satis...

The Law Further Illustrated: We can understand more clearly how the law of marginal utility operates by selecting our illustrations from fanciful though striking conditions of life. Let us suppose that a lone traveler in a large ...

Applications Of The Law: The law of marginal utility, though we may not be conscious of the fact, is closely related to many of our everyday acts and to many of our comparisons of values. Usually, for example, when we purchas...

Consumers' Surplus: The rectangle F in Fig. 3 represents not only the marginal utility of the six chairs, but also the price paid for each of the six. The total price, therefore, of the six is represented by the rectangl...

Exercises And Problems. Laws Of Consumption: A 1. What evidence is there that the sum total of human wants cannot be satisfied? 2. Why does a clothier often advertise without mentioning prices? 3. How does variety affect consumption? 4. Does...

Chapter V. Demand, Supply, And Price. 12. Relation Of Demand And Supply To Price. Nature Of Demand And Supply: No two terms employed in the language of economics are better known and oftener misused than demand and supply. One of the most severe critics of our subject once said that a parrot could be made an e...

Effect Of Demand And Supply On Price: From what has just been said we may conclude that the price of any good is determined by the demand for, and the supply of, that particular good. Generally speaking, such is the case; but a few modifi...

The Effect Of Price On Demand And Supply: Usually when the statement is made that price is determined by demand and supply, the one making the statement does not realize the full significance of the effect of prices on demand and supply. Let ...

13. Determination Of Market Price. Maximum And Minimum Prices: When buyers and sellers come into a market, each buyer has in mind the maximum price he will pay for a good, while each seller, on his part, has determined on a minimum price. Provided nothing occurs ...

Buyers' And Sellers' Surplus: Assuming that the buyer's maximum price exceeds the seller's minimum price, we may conclude that an exchange will take place at some point between these extremes. If the exchange is for one unit of go...

Four Possible Market Conditions: A market price may result from any one of four conditions: (1) One buyer and one seller, (2) one buyer and several sellers, (3) several buyers and one seller, and (4) several buyers and several seller...

14. The Competitive Market Price. Buyers' Schedule: To simplify matters, let us suppose that seven men, each desiring to purchase one bicycle, attend a bicycle auction where the goods offered for sale are alike in every respect, and where both buyers a...

Sellers' Schedule: Each seller, as we have seen, has in mind a minimum price under which he cannot go without sustaining a loss. Accordingly, each of the sellers of bicycles - seven, let us say, with one bicycle each - ...

Fixing The Market Price: - Before proceeding to determine just where the price would be fixed, it will simplify matters to eliminate those buyers and sellers who clearly have no chance to participate in the auction - that is,...

Exercises And Problems. Demand, Supply, And Price: A 1. What is meant by the expression supply and price? 2. How is price affected by demand? by supply? 3. How does price affect demand? supply? 4. Why do sellers have minimum prices? 5. How does...

Chapter VI. Some Practical Aspects Of Consumption. 15. Harmful Consumption. Consumption From The Standpoint Of Economics: Strictly speaking, the student of economics, as such, must confine his attention to demands for goods, however much as an individual he may deplore the manner in which many goods are produced and the ...

Nature Of Harmful Consumption: It is impossible, we may as well say at the outset, to draw a line through consumption, marking off, on the one side, the satisfactions of desires that bring nothing but an increased welfare both indi...

Consumption And Efficiency: It will readily be seen that consumption is an important factor in efficiency. Large industries clearly recognize this fact; hence their insistence on sobriety among their employees. The manager of ma...

16. Unwise Consumption. The Meaning Of Economical Consumption: Another type of consumption, which in itself is not positively harmful to the body or mind, we may designate as unwise consumption. Whenever either of two goods is capable of satisfying a want, obvio...

The Gospel Of Plain Living: Closely related to economical consumption is plain living. At the very outset we must rob our minds of any feeling that plain living is something mean or contemptible, or that it is associated with po...

Social Unrest: Unwise consumption is one of the several causes of the social unrest which has manifested itself in this country during the past generation. The consuming standards of most individuals are set to some...

17. Conservation And Thrift. The Sin Of Waste: Americans are proverbially the greatest wasters the world ever saw. It is a common expression among European travelers in this country that a frugal French housewife could easily feed her family with ...

The Twofold Aspect Of Thrift: The practice of thrift may result in a twofold benefit. First, the individual is sure to profit if he does not permit his thrift to degenerate into parsimony. The very spirit of wholesome saving stimu...

Some Avenues For Saving: Thrift, we have every reason to expect, would be stimulated by a better understanding of the avenues through which savings can be made. The most outstanding institution in this respect is the savings ...

18. Substitution. Force Of Habit In Consumption: Very naturally one of the first points where thrift begins is the substitution of one good for another. Strongly opposed, however, to substitution - or to any other change - is the force of habit. All...

Extent Of Substitution: The rise in prices which began about 1896 and which was accelerated by the Great War naturally turned the attention of both producers and consumers to the question of substitutes. The result has been ...

Merit In Substitution: The first feeling toward substitution is that it is more or less of a fraud, and that no substitute can possibly possess the merits possessed by the good it attempts to displace. Obviously, no such sw...

Exercises And Problems. Some Practical Aspects Of Consumption: A 1. What is the economic viewpoint of consumption? 2. How does this viewpoint differ from the ethical viewpoint? 3. How is consumption related to industrial efficiency? 4. Distinguish between unw...

Part III. Problems of Production. Chapter VII. Organization Of Industry. 19. Historical Background. The Domestic System: Until less than two hundred years ago practically all of the productive processes were carried on in the homes, either by hand or with the aid of crude tools and machinery which showed little improvem...

The English Industrial Revolution: Beginning about 1760, with the invention of improved spinning and weaving machines and with the successful application of steam to machinery, English industry soon underwent radical changes. Home manu...

The American Industrial Revolution: Fifty years later (1810) the American industrial revolution was under way. Samuel Slater, twenty years before, had introduced the factory system into the United States. The repressive commercial measu...

Later Developments In Manufactures: Both in England and in the United States the factory system spread until in time it characterized all forms of production. Home manufacture in either of these countries at the present time is a rarity...

Railroad Development: Railroads, like manufactures, have undergone important changes since the first line in the United States was opened for business in 1830. Originally projected as local enterprises with local capital, ...

Developments In American Agriculture: Unlike manufactures and transportation, agriculture has undergone no radical changes in the matter of organization. Now, as has been the case for centuries, the typical farmer operates a single farm l...

20. The Single Enterpriser And The Partnership. Place Of The Single Enterpriser In Production: The organization of a productive industry may take any one of three different forms: the single enterpriser, the partnership, the corporation. Each possesses advantages as well as disadvantages. Usual...

Advantages And Disadvantages Of The Partnership: A partnership, to be brief, is nothing more than a mutual agreement between two or more individuals to undertake an enterprise. In business such an agreement is usually confined to production. Compare...

21. The Corporate Form Of Organization. Nature Of The Corporation: The corporation was the last of the three forms of organization to develop; and it developed only when single enterprisers and partnerships found that they could not, usually on account of insufficien...

Advantages And Disadvantages Of The Corporate Form Of Organization: The corporate form of organization has an advantage over its two rivals in at least three respects: (1) it diffuses financial responsibility, (2) it survives the death of its owners, and (3) it permit...

Stockholders And Bondholders: Strictly speaking, stockholders are enterprisers; that is, they are the individuals who assume the risks of business and enjoy the profits of their enterprise. In other words, they are the owners. The...

The Stock Exchange: With the beginning of the corporate form of organization there also began a desire on the part of persons to buy and sell stocks and bonds. Soon a need was felt for some sort of central market where b...

Corporations And Funded Incomes: Corporation development has made savings and investments permanent as well as easy. Not many years ago it was a common saying that in America it was but three generations from shirt sleeves to shirt ...

Exercises And Problems. Organization Of Industry: A 1. What was the essential difference between the English Industrial Revolution and the American Industrial Revolution? 2. What does an industrial revolution mean? 3. Is there likely to be anoth...

Chapter VIII. Division Of Labor And Large-Scale Production. 22. The Factors Of Production. Primary Factors Of Production: We have come thus far in our study of production without stopping to inquire about the factors, or forces, that make production possible. But there is need at this point to classify these factors and ...

Secondary Factors Of Production: Obviously, the third factor of production, capital, came after labor and land. Primitive man soon learned, in a blundering way perhaps, that he could well afford to spend labor on the making of a bow ...

23. Division Of Labor. Varieties Of Division Of Labor: In the early life of a people and on the frontiers of older nations, every man must necessarily be a jack-of-all-trades. He must clear his land, build his fences, construct his cabin and sheds, make h...

Human Qualities Necessary For Effective Division Of Labor: The more complex forms of division of labor have developed with, and depended on, a corresponding development of the spirit of cooperation and mutual helpfulness among individuals. In any highly devel...

Economic And Social Advantages Of Division Of Labor: Obviously, the first economic advantage of division of labor is an increased production. The early shoemaker, by confining his attention to the making of shoes increased his skill, with the result tha...

Disadvantages Of Complex Division Of Labor: Not all of the results that arise from highly developed division of labor are advantageous, either to the individual or to society. The monotonous repetition of simple operations tends to stunt the in...

24. Territorial Division Of Labor. Principle Of The Territorial Division Of Labor: Quite as important as the division of labor among individuals and among groups where each performs a highly specialized piece of work, is the division of labor among localities and regions. This we ma...

Territorial Division Of Labor In The United States: In no other country has territorial division of labor developed more rapidly and to a greater extent than in the United States. Here we have a diversity of natural resources, which are utilized to adv...

25. Large-Scale Production. Advantages Of Large-Scale Production: One of the most common phenomena to be observed in business at the present time is large-scale production. Almost every line of industry has felt its influence. Rapidly our factories have been enlarge...

Restrictions On Large-Scale Production: There are several restrictions on large-scale production, one or two of which we may profitably examine at this point. First of all, any industry is likely to grow so large as to become unwieldy. Such...

Exercises And Problems. Division Of Labor And Large-Scale Production: A 1. Why is land the most fundamental factor of production? 2. Why is capital less fundamental than either land or labor ? 3. Distinguish between capital and land; capital and consumers' goods. 4....

Chapter IX. Land (Natural Resources). 26. Land As A Productive Factor. Nature And Definition Of Land: We have noticed already that land, which is a short and expressive term for natural resources, is one of the factors of production; and that the other two chief factors, labor and capital, are useless...

Varying Costs In Production: From what has been said it will readily be understood that, inasmuch as nature is stingy and has seen fit not to distribute her bounties everywhere alike, the productivity of land varies from one piec...

27. Natural Resources Of The United States. Agricultural Lands: The most outstanding feature of American industry is the abundance of fertile farm lands. Upon no other country has nature lavished this gift so freely, and no other people have appropriated this gift...

Forests And Mines: The United States is rich also in forests, despite the prodigal waste of timber that has gone on for more than a century. Oak, pine, cypress, and other kinds of trees are found in abundance, which acc...

Water Power And The Fisheries: The third group of natural resources which we will notice in this connection comprises water power and the fisheries. For many years after steam began to be successfully applied to drive machinery, th...

28. The Law Of Diminishing Returns. Statement Of The Law: The most important economic law under the head of production is known as the Law of Diminishing Returns. This law applies alike to land, to labor, and to capital. Stated in terms of land in the simp...

Application Of The Law: The operation of the law of diminishing returns is best observed in agriculture. Obviously, the product to be gained from a plot of land by one man unaided by machinery of any sort would be relatively...

Intensive And Extensive Margins Of Cultivation: We may now notice in an elementary way the notions associated with intensive and extensive margins of land cultivation. When our farmer has reached the point of greatest efficiency (G in Fig. 7), he ...

Application Of The Law To Other Kinds Of Land: The law of diminishing returns also operates in the use of other forms of land, such as mines and building sites. In mining, as well as in agriculture, there is a point of diminishing returns. Likewis...

Exercises And Problems. Land (Natural Resources): A 1. Define land. 2. How does land differ from natural resources ? 3. What are the chief factors in determining the productivity of farm land ? 4. Does the improvement of rural roads increase th...

Chapter X. Capital As A Factor In Production. 29. Source Of Capital. The Surplus Above Subsistence: According to our definition capital is the product of past industry used to further production. Just when and how the first capital appeared it is impossible to say, difficult even to imagine. Primit...

Saving: Merely to curb desires and appetite in one direction is not enough if we permit them to run rife in other directions. Our primitive man when he discovered the surplus fish, might very well have refrai...

Investing: The surplus of income over outgo must be not only saved but also invested. If, after completing the canoe, our primitive man had hidden it away in some cave, obviously it would not have been capital; ...

30. Nature Of Capitalistic Production. Advantages Of Indirect Production: Production without the aid of capital, which in this connection we will call direct production, is primitive in its very nature. The early pioneer, in Iowa let us suppose, quenched his thirst for the ...

The Place Of Capital In Modern Industry: Since the indirect, or capitalistic, method of production is ordinarily more advantageous than the direct method, it characterizes, as we might expect, modern industry, with its enormous capital, its ...

31. Different Kinds Of Capital. Fixed And Circulating Capital: Capital may be classified in a variety of ways, two of which concern us here: fixed and circulating, in which time is the important element; free and specialized, in which the use element is the chief...

The Replacement Fund: The length of time and the number of operations that any piece of capital good lasts are of prime importance relative to its replacement fund, which is the capital that must be accumulated to provide ...

Free And Specialized Capital: Here again, as in the case of fixed and circulating capital, we are compelled to deal with relative terms. No capital is entirely free, and only on rare occasions do we find capital so highly speciali...

Gold Is Not A Free Capital Good: Because of its universal acceptability gold is often mistakenly spoken of as free capital. Such is not the case, however, in the sense in which we have just used the word free. Aside from its utiliz...

Individual And Social Capital: In our ordinary thinking we seldom go beyond the notion of individual capital - that is, capital possessed and directed by individuals. Society, also, has considerable capital which is of no small amo...

Exercises And Problems. Capital As A Factor In Production: A 1. What was the origin of capital? 2. Name the three steps necessary to create capital. 3. Are any individuals or groups unable to take these steps? Explain. 4. Which is the more useful member o...

Chapter XI. Competition Versus Monopoly. 32. Impetus Of Competition. The Doctrine Of Laissez Faire: Business men and public officials for centuries held the view that business could best be conducted if minutely regulated by the government. To that end the various nations granted monopolies of all s...

An Inquiry Into The Nature And Causes Of The Wealth Of Nations. Book I. Chapter XI. Of The Rent Of Land: Rent, considered as the price paid for the use of land, is naturally the highest which the tenant can afford to pay in the actual circumstances of the land. In adjusting the terms of the lease, the la...

Competition And Improvement: The chief economic argument for competition is that it serves as the basis of business improvement and business development. Who has not heard the common saying, Competition is the life of trade? Sp...

Wastes Of Competition: Competitive methods often show a loss, however, which society should, and will in time, eliminate. Spurred on by a desire to increase trade, competitors sometimes uselessly duplicate plants and equipm...

33. The Law Of Monopoly Price. Getting The Largest Net Return: The feeling prevails that a monopolist will always sell his goods at the highest price. On the contrary, he sells them at that price which brings him the largest net return, whether that price be high...

Supplying Different Demands: It often happens that a monopolist can, by changing slightly the character of his product, supply different demands at different prices. Recurring to our soap manufacturer, let us suppose that instead...

34. Limitations On Monopolists. Dangers From Competition: It would be incorrect to gain an impression from what has just been said that the monopolist has nothing to fear, or that he can always fix a price that will bring him the largest net reward irrespect...

Dangers From Substitution: Monopolists must also take into account the power of consumers to substitute one good for another. Usually as the price of a good rises, those consumers who are on or near the margin cast about for a ...

Dangers From Government Regulation: A monopolist still has cause to worry even though he be secure from competitors and his product be free from the competition of substitutes. Despite the doctrine of laissez faire, society through gove...

Concealment Of Monopolistic Returns: As we might expect, the monopolist fearful of attack from these directions often attempts to hide excessive returns. He may pay himself, and even to relatives, salaries out of all proportion to the ma...

Exercises And Problems. Competition Versus Monopoly: A 1. What is the difference between laissez faire and mercantilism? 2. Why should the government desire to regulate industry ? 3. Who was Adam Smith? 4. Why is he often referred to as the father ...

Chapter XII. Transportation. 35. Stages In The Development Of Transportation In The United States. Natural Waterways: The first settlers in the English colonies came by way of the sea, and here they found a land blessed with a coast admirably adapted to navigation. Also, as they became acquainted with the interior, t...

Wagon Roads: As settlement spread there arose a demand for wagon roads, which the colonial governments ordinarily met by compelling each householder to expend a certain number of days' labor yearly on the public h...

Canals: Simultaneously with the building of turnpikes was the construction of artificial waterways known as canals. The former method was not, as some writers have stated, a forerunner of the latter. Nor was ...

Railroads: The railroad history of the United States may be said to have begun in 1830 with the opening of the Baltimore and Ohio to traffic. After many experiments in respect to roadbed, rails, engines, and car...

Recent Tendencies: Owing to a number of disconnected causes - to the inability of the railroads to handle readily all of the freight' offered, to improvements in automobiles, and to the use of cement for road-building -...

36. Railroad Competition. Railroads Operate Under The Principle Of Diminishing Costs: Producing under conditions of decreasing costs, as has already been explained, simply means that the cost per unit declines with an increase in the number of units produced. Most manufacturers and r...

Discriminations: We have just seen how discriminations originated. We may now properly turn to a study of their nature and character. Briefly stated railroad discriminations may be grouped as follows: (1) discriminati...

Nature Of Railroad Competition: To understand the nature of railroad competition we must revert to an earlier section in this chapter in which the principle of doing business under conditions of diminishing costs was noted. Since th...

37. Rate-Making. The Principle Of Joint Costs: Since a large portion of a railroad's expense goes on from day to day irrespective of the amount of its traffic, and since the same equipment is used to haul a variety of products, railroads find it p...

Charging All That The Traffic Will Bear: Every railroad manager has faced such a problem, and we may now concern ourselves with his methods of solving it. Suppose he is called on to fix a rate for some product which his road has never handle...

Long And Short Hauls: To a great majority of people the most inconsistent practice of railroads is to charge absolutely less per ton, or car, or train, for a long haul than for a short haul. Their reason for so doing becom...

38. Government Regulation Of Railroads. Attempts Of The States To Regulate Railroads: The first serious attempts to regulate the railroads were made by the various states. Nothing was more natural, for many of the states had assisted financially in the building of railroads and all of ...

The Interstate Commerce Act: Since the states had no control over interstate commerce, it was plainly the duty of the federal government to enact a comprehensive law for the regulation of all commerce that crossed state boundary ...

Amendments To The Law: The railroad lawyers did in fact create the impression that the commission was weak, also, to their own grief, that the law needed to be amended so as to give it more authority. Accordingly, in 1891 t...

Meaning Of Government Regulation: The regulation of railroads by the government has a deep significance. It came only after the public was thoroughly convinced that the railroad business was necessarily monopolistic in character, and ...

Exercises And Problems. Transportation: A 1. What is the character of the rivers that empty into the Atlantic ? 2. Mention and locate the most important harbors along the Atlantic coast. 3. How do they compare with the Pacific harbors in...

Chapter XIII. Marketing The Products Of Industry. 39. Separation Of Producers And Consumers. Producing For The Market: It is a mere truism to say that production leads directly to the market - that is, that each producer expects not to consume his own products, but to sell them. Aside from those engaged in farming, th...

Buying For Consumption: Producing for the market implies that the market is the source of want gratification. Our shoe-factory worker goes into the market and there he supplies his wants by exchanging, not shoes, but the wag...

40. Indirect Methods Of Marketing. The Primitive Market Place: The first bartering, as we have already noticed, was characterized by the higgling of two individuals alone, uninfluenced by other traders. The next step was the primitive market place, which owed its...

The Place Of The Retailer: Clearly, the most important link in the chain which binds production and consumption is the retailer, for it is he that must anticipate the wants of the consumer, provide beforehand for supplying thes...

Place Of The Middleman: The economic justification of the middleman - jobber, commission merchant, broker - is less evident, though even he renders a service which the business world would find it inconvenient, if not imposs...

Basis Of Indirect Marketing: It must be clear by this time that there is some good reason why producers and consumers do not ordinarily deal directly with each other. It must also be equally clear that no middleman or group of mi...

Wastes In Indirect Marketing: The mere fact that certain groups of retailers and middlemen meet demands made by producers and consumers is not evidence in itself that there are no sources of waste in our present system of marketin...

41. More Direct Methods Of Marketing. Nature Of The Problem: The need for eliminating every unnecessary expense involved in getting goods into the hands of the consumer is real; and no proposal that offers to meet this need should be neglected, even though its ...

The Department Store: The department store claims to effect economies in marketing: (1) by eliminating jobbers, brokers, and even importers, and (2) by saving, through combination and organization, much of the expenses of ...

The Mail-Order House: The mail-order house goes even beyond the department store in an effort to bring producer and consumer closer together. Working from the production side, the typical mail-order house is a manufacturer...

The Chain Store And The Variety Store: The typical chain store resembles the department store in that it attempts to eliminate the middleman. Unlike the department store, however, it deals in one general line, and has many different sites....

Direct Sale To The Consumer: It will be noticed that in the preceding discussions the attempts to lessen the distance between the producer and the consumer have been made by neither producers nor consumers as such, but by third p...

Exercises And Problems. Marketing The Products Of Industry: A 1. What is the significance of producing for the market? 2. When is a product finished ? 3. How did markets arise? 4. What determined their location ? 5. What kinds of goods were first produced...

Chapter XIV. Government And Production. 42. Patents, Copyrights, And Trade-Marks. Hope Of Reward A Factor In Improvement: The hope of financial reward stimulates enterprisers, as we have seen, to exert themselves industrially. The same hope stimulates inventions and literary productions, though the opinion prevails among...

Patent Law Of The United States: The law under which patents are now issued in this country states that any person, native or foreign, who has invented or discovered any new and useful art, machine, manufacture or composition of mat...

Copyright Law: In principle a copyright resembles a patent. Each is the basis of a temporary monopoly. The most common copyrighted productions are books. Songs, pictures, magazines, and even news items may also be c...

Trade-Marks: In registering a trade-mark the government grants to the owner its exclusive use in marking certain commodities. Whether or not it will ever possess any value depends entirely on the owner's ability t...

Objections Urged Against The Present Patent Law: In spite of the obvious benefits that arise from granting monopolies to inventors, there are those who argue that better results could be obtained by withdrawing government protection from all such en...

43. Regulation Of Industrial Monopolies. The Early Trusts: The years following the close of the Civil War saw in many lines a bitter struggle for business, which produced cutthroat competition and consequently a loss of profits. The natural result was combina...

The Trust Movement: The dissolved sugar trust immediately reorganized into one gigantic corporation under a New Jersey charter. The oil trust followed a different plan. Mr. Rockefeller and his associates, having secured ...

Popular Feeling Aroused Against The Trusts: The rise and development of the trust movement was caused and accompanied by a general rise in the prices of goods, which began about 1896. The public soon saw the rise in prices, and very naturally t...

Evil Practices Of The Trusts: The most outstanding objection which the people had to trusts was based on their treatment of independent competitors. For years it was the common practice of the Standard Oil Company, as we have alre...

Trust Regulation: The first attempt by the national government to curb the monopolistic powers of the trusts came even before the trust movement proper had got under way. The practices of the old Standard Oil Company o...

Significance Of Government Regulation: The interference of the government in industry is a radical departure from the older notion that business should be free from all state regulation or oversight. Radical as it is, the change from laiss...

44. Regulation Of Public Utilities. Early Experiences: Our notice of the monopolistic character of public utilities in discussing the nature of monopolies paves the way to an examination of the methods designed by the state to regulate them. Early in the ...

Form Of Regulation: In the matter of regulation each city may take one of two courses. It may by an ordinance, as is usually the case, set the maximum which a given system may charge for public service; or it may own and...

45. Fixing Prices. Nature Of The Problem: This movement, toward what many call socialism, manifests itself almost exclusively in the regulation of railroads, public utilities, and trusts. We have had little experience in fixing prices except ...

Experiments: Under the stress of the Great War the United States government undertook to set prices on numerous articles of everyday consumption. The price of wheat was set at a figure double the average price for...

Exercises And Problems. Government And Production: A 1. What are the chief features of the United States patent laws ? 2. Point out the good and the bad phases of the patent system. 3. What is the value of a trade-mark to the producer? to the consu...

Part IV. The Exchange Of Economic Goods. Chapter XV. Use Of Money In Making Exchanges. 46. Characteristics Of A Good Money. The Process Of Selection: The universal use of certain commodities for money rests on social experience, and not, as many believe, on some fine-spun theory evolved by statesmen and the law courts, that in making exchanges one ...

Value Characteristics Of Good Money: Clearly the chief characteristic which any commodity must enjoy, if it is to become a medium of exchange, is use value; that is, society as a whole must value it highly enough to desire to possess it ...

Physical Characteristics Of A Good Money: Scarcely less important are the physical characteristics which a good money should possess. Five such characteristics may properly be examined at this point: (1) durability, (2) portability, (3) homog...

Characteristics Of Gold: Of all the commodities known to mankind gold possesses in the highest degree the characteristics of good money. Since the earliest time it has been desired for its own use as a commodity. Primitive ma...

47. Uses Of Money. As A Medium Of Exchange: The general desire for a commodity, such as gold, stimulates its acceptability in unlimited amounts, since each individual knows that his neighbors will gladly accept it in exchange for their surplus ...

As A Standard Of Value: Money serves also as a standard of value. It is a common denominator to which all other values may be reduced. We speak of wheat as being worth two dollars a bushel, meaning thereby that two dollars e...

As A Standard Of Deferred Payments: Since money serves so well as a medium of exchange and as a measure of value, it is but natural that credit transactions should be expressed in the -same unit. An enterpriser, wishing, for example, to...

48. Kinds Of Government Money. Gold: The standard money unit of the United States is the gold dollar, weighing 25.8 grains and comprising nine parts of fine gold to one part of alloy. Other gold coins are double eagle ($20), eagle ($10),...

Silver, Copper, And Nickel: The United States government mints also several different kinds of silver coins - dollars, half-dollars, quarter-dollars, and dimes. The silver dollar, which, as we shall presently see, was at one tim...

Government Credit Money: Somewhat different from representative money is the credit money of a government, which is backed not by an equal amount of gold or silver, but by a reserve fund plus government credit. The credit mon...

Exercises And Problems. Use Of Money In Making Exchanges: A 1. Name various commodities that have served as money. 2. What must be the chief characteristics of a good money ? Why ? 3. What is meant by the expression, large value in small bulk? 4. Would...

Chapter XVI. Monetary Laws Illustrated From The History Of The United States. 49. Some Important Monetary Laws. The Bimetallic Ratios: Until a comparatively recent period bimetallism prevailed among the more advanced industrial nations - that is, they employed both gold and silver money standards. Each government authorized its mints...

Gresham's Law: Under a system of bimetallism the coins made from the undervalued metal tend to go out of circulation. The reason for this is not difficult to understand, since the undervaluation of a metal means tha...

Principle Of Elasticity Of Money: A third important monetary law involves the relation of the supply of money to the fluctuations of the demand made on this supply. In every modern business community there is more or less of a seasona...

Quantity Theory Of Money: Whatever the permanent supply of money may be, it will adapt itself to the social needs for money. A given quantity of money, say 10a:, effects the exchanges of a country. If this quantity were increa...

50. Monetary History of the United States. Notes Of The First And Second United States Banks: During the greater portion of the first half century following the organization of the national government in 1789, the notes issued by the two United States Banks (first, 1791-1811; second, 1816-1836...

Government Coinage: Very soon after the organization of the first United States Bank, the government provided a bimetallic coinage system (1792) in which the ratio was to be 15 to 1. For many years after its establishmen...

National Bank Notes: The year following the issuance of the first greenbacks Congress passed the National Bank Act (1863), which provided for the establishment of banks with federal charters. These banks were required to ...

Resumption Of Specie Payments: Soon after the close of the war there arose an agitation to retire the greenbacks from circulation, and to return to a hard money basis. Many people objected. Finally the issue was compromised, with...

The Silver Question: Two years prior to the passage of the resumption act, the government, in revising its coinage laws, omitted any mention of the standard silver dollar. In other words, the law demonetized silver. This ...

Federal Reserve Bank Notes: The final settlement of the silver question went far to stabilize our monetary system, but it did not add elasticity to our money. Finally, under the stress of a panic (1907), the large banks of the c...

Monetary Stock Of The United States: As a result of the various monetary laws we have, exclusive of one-cent and five-cent pieces, ten different kinds of money, all based on the standard gold dollar. Gold Coins. Gold Certificates. Silve...

Exercises And Problems. Monetary Laws Illustrated From The History Of The United States: A 1. Distinguish between the mint ratio and the market ratio. 2. Under what circumstances is gold undervalued? 3. Why is a system of bimetallism difficult to maintain? 4. What is meant by the expr...

Chapter XVII. Banking And Its History. 51. Development of the Principle of Banking. The Medieval Money-Lenders: Even in the Middle Ages, when industry was backward and most of the exchanges were carried on by barter, there were accumulations of capital in the form of gold and silver. Kings levied taxes and main...

Discovery Of The Balance: In the course of time the moneylenders (bankers) made an important discovery. They found that their neighbors (depositors), possessing a variety of money habits, left a portion of their combined dep...

52. Different Kinds Of Banks. Commercial Banks: The most common bank of all is the commercial bank, which may be a national bank, a state bank, or a private bank. It gets its name from the fact that it confines its business largely to business men,...

Savings Banks: A savings bank differs materially from a commercial bank. First of all, a true savings bank is a mutual affair conducted primarily for the benefit of its depositors, though in some sections of the cou...

Trust Companies And Investment Banks: Many of the states charter trust companies, which perform in general the functions of commercial banking with some additional functions, such as executing trusts, and guaranteeing titles to land. Some...

53. A Bank Statement. Form Of A Bank Statement: Banks from time to time are called on for financial statements. Such a statement indicates clearly the condition of the bank making it. On one side are arranged the bank's resources; on the other its ...

The Statement Explained: Obviously the largest and most significant item among the resources of a commercial bank is loans and discounts. The difference between a loan and a discount is not important for our purpose in this c...

54. Banking In The United States. Periods Of Banking History: Some attention has already been given to the banking history of the United States in so far as it relates to note issue - issuing of paper money. We may now properly examine with some detail the part ...

The United States Banks: When the national government was organized in 1789 there were but four banks in the whole country. Alexander Hamilton, secretary of the treasury, and others recognized the need for a banking instituti...

State Banking: It must not be thought from what has been said that either of the two United States banks had enjoyed a monopoly. Numerous state banks competed with them, and opposed them at every point. This opposit...

National And State Banking: The National Bank Law of 1863 did not abolish the state banks. It merely set up another system of banking alongside them. Since that time the two systems have grown and prospered; the chief difference...

Federal Reserve Banking System: Profiting by an experience of more than a half century, the federal government in 1913 provided for uniting the banking strength of the country without robbing the banking business of its competitive ...

Exercises And Problems. Banking And Its History: A 1. Who were the Lombards? 2. Why did not the Christians ordinarily loan money? 3. Why may a banker expect to have a balance in his hands? 4. What is the difference between bank deposits and bank...

Chapter XVIII. Domestic And Foreign Commerce. 55. Nature And Volume Of The Trade Of The United States. Local Trade: Despite the elaborate territorial division of labor which this country enjoys, there still remains, in addition to retailing, a considerable volume of local trade. Most farmers have surpluses of eggs ...

Inter-Regional Trade: In a large country like the United States the value and importance of the trade and commerce among the various sections are very great. Each section specializes in a few products, thus creating surplu...

Foreign Trade: Foreign trade is essentially no different from domestic trade. It rests on differences in climate, soil, capabilities of workers, and standards of living - that is, on territorial division of labor. M...

56. Paying Trade Debts. Payments In Money: Obviously the simplest method to be employed in paying trade debts is for the debtor to discharge his obligation with money. If, as is often the case, the debtor should hold obligations against his cr...

Payments In Bank Checks: A more common practice, in most urban communities at lease, is for debtors to discharge their obligations with bank checks. In that case the local bank, supposing for simplicity there is but one, beco...

Open Accounts And Trade Acceptances: Inter-regional trade debts are usually handled in a somewhat different manner. Sellers of goods (goods, wares, merchandise, or agricultural products, including live stock), such as manufacturers and j...

Domestic Bills Of Exchange: Some sellers resort to a third method to collect from their debtors - a domestic bill of exchange. Let us suppose that a corn-buyer in Iowa has an order for a carload of corn from a cattle-feeder in P...

Foreign Bills Of Exchange: Generally speaking, foreign bills of exchange resemble domestic bills of exchange. Foreign bills, however, have two features which domestic bills do not have. First, there is the necessity of converti...

57. The Balance Of Trade. Par Of Exchange And The Gold Points: To simplify matters let us confine our attention in this discussion to trade between the United States and England. Let us also assume that all sales are made with the agreement that debts are to be p...

Fluctuations In The Rate Of Exchange: We are now prepared to examine the causes for fluctuations in the rates of exchange. Let us suppose that New York importers desire to buy a million dollars worth of sterling exchange with which to dis...

Other Factors In The Balance Of Trade: Hitherto we have noticed only the importation and exportation of goods between the United States and England. We must now give attention to other factors that enter into determining the balance of tra...

Flow Of Gold And Its Effects On Prices: We may now turn to a consideration of the last step in settling the balance due English exporters, which, according to the assumption above, is $65,000. Export bills of exchange are no longer to be h...

Exercises And Problems. Domestic And Foreign Commerce: A 1. Why do individuals exchange goods? 2. What is the essential difference between domestic trade and foreign trade? 3. What is the basis of foreign trade ? 4. What is a bill of exchange ? 5. ...

Chapter XIX. The Tariff In The United States. 58. Historical Sketch. Advances To A Protective Rate: The first forty years' experience of the United States in tariff legislation resulted in a movement from moderately low rates to rates too high to be endured by certain sections of the country. The fi...

Decline Of The Tariff Rate: The situation now grew worse instead of better. South Carolina declared the tariff law of 1832 to be null in so far as its operation in that state was concerned. President Jackson, who was determined ...

The War Tariffs: The heavy expenses of the Civil War prompted Congress in 1862 and again in 1864 to raise tariff rates to a point higher than they had ever been before. Compared with the Morrill Tariff, the war tariff...

A Period Of High Tariff Rates: Two years later (1890) the Republicans, being in power both in Congress and in the White House, enacted the McKinley Tariff Law, which placed the rates on many imports even higher than the war tariffs...

A Return To Lower Rates: The Payne-Aldrich Law served to widen a split which was already making itself felt in the Republican party. The more progressive leaders of the party felt that it was not living up to its best traditi...

Basis Of Tariff Legislation: Practically every one of our tariff laws has been the result of compromise. Protection cannot escape being sectional, or even local, in any country; and in a government like ours, where each lawmaker ...

59. Basis Of Free Trade. Advantages Of Territorial Division Of Labor: The chief argument for free trade - and some are bold enough to insist that it is the only one needed to prove the case - is based on the advantages arising from territorial division of labor. We have...

No Buying Without Selling: The free trade advocate next takes safe ground by declaring that there can be no buying without selling - that is, no importing without exporting. He points out that our purchases abroad in cheap mark...

60. Economic Arguments For Protection. The Infant-Industry Argument: The soundest argument for protection is known as the infant-industry argument, which means simply that a society is justified in burdening itself to protect new industries temporarily against the comp...

The Home-Market Argument: Second in point of time is the home-market argument, which Hamilton outlined in his Report on Manufactures, and which Henry Clay enlarged and extended during the tariff debate of 1824. The essence of ...

The Wages Argument: The most potent argument for protection at the present time is the wages argument, which assumes that protection causes higher wages than would otherwise be the case. Its exponents hold that protectio...

61. Protection And Nationalism. The Spirit Of Nationalism: Protection is essentially nationalistic. Its ideal is a nation industrially strong and self-sufficient to a high degree. Any force that increases the spirit of nationalism increases also the desire fo...

Military Self-Sufficiency: Many of the most ardent friends of protection agree that it has little economic justification, and that it imposes a heavy financial burden on any society which adopts its principles and practices. Th...

Exercises And Problems. The Tariff In The United States: A 1. What is the difference between a protective tariff and a tariff for revenue only ? 2. Why were the first tariffs not protective ? 3. Why was the South generally opposed to protection ? 4. Why...

Chapter XX. Fluctuations Of The Price Level. 62. Effects Of Fluctuating Prices. Fluctuations In The Value Of Money: The general notion is that money, especially gold, possesses a constant value. Yet any one who has had experience in making purchases over a period of time, realizes that a gold dollar will, in genera...

Effects On Individuals: Appreciable variations in price level are soon noticed by individuals, in a variety of ways, especially by those whose incomes are constant. A rise in prices has exactly the same effect as a decrease ...

Effects On The Government: A rise in prices quickly affects governments - national, state, city. All of the states, for example, expend large sums annually on charitable institutions, the amount of which is usually determined a...

63. Measurement Of Price Fluctuations. Payment Of Long-Time Debts: In the preceding discussion we have confined our attention to short-time transactions in which the effects of price fluctuation may be difficult to see. Let us now turn, merely for illustrative purpos...

Principle Of Index Numbers: For measuring these changes in general prices a convenient device known as index numbers is employed by the government and others. The prices for any year may be taken as a standard by which the price...

Applications To Industry: The principle of index numbers is applied in a variety of ways to the adjustment of industrial problems arising from price fluctuations, though it is not yet generally accepted by business men as a pr...

64. Price Level And Industry. Different Phases Of Industry: The accepted explanations of what economists call cycles of business are too involved for detailed discussion at this point in our progress. We can, however, notice with profit the three phases throug...

Period Of Prosperity: Rising prices and industrial prosperity are intimately related. Just as soon as prices begin to rise producers begin to enjoy increased profits, which in turn stimulate them to increase the volume of ...

Malproduction And Credit Expansion: The struggle for extra profits overreaches itself in due time. Producers overestimate the capacity of the market for consumption at a price that will return costs of production. Here is the key to the...

Period Of Falling Prices: After the first few months of the crisis, business begins to readjust itself on a new basis. Conservatism becomes the watchword. Producers exercise great care in determining the markets. They give mor...

Experiences Of The United States With Panics: It may happen, as our own experience shows, that the panic comes at the close of a fall in the price level rather than at its beginning. In 1873 we experienced one of the worst panics in our history. ...

Exercises And Problems. Fluctuations Of The Price Level: A 1. Why cannot the value of all commodities, gold included, rise or fall at the same time ? 2. What is the relation between the price level and the value of an ounce of gold? 3. How does a change ...

Part V. Distribution Of The Social Income. Chapter XXI. Distribution Of Wealth In The United States. 65. Differences In Wealth And Income. Meaning Of Distribution: Distribution, as we have already seen, means the sharing of the products of industry among the factors of production - land, labor, and capital. The shares that go to these factors are respectively, r...

Distribution And Free Land: We may say, with reasonable assurance, that the problem of distribution is a modern one. At least its importance, so far as the United States is concerned, is now many times greater than it was a cent...

Present-Day Distribution: Under more primitive conditions the typical, individual income, as we have just seen, was made up of several indistinct parts. For his labor he received wages; for his land, rent; for his capital, int...

Distribution Of Income And Wealth: We may, with no regard to the source of the income of each class, also examine the distribution of incomes and wealth among classes. Yet it would not be far wrong to say that the lower income groups a...

Expenditure Of Family Incomes: Quite as important as the differences in the sizes of incomes is the manner in which families of various groups expend their respective incomes. Some years ago the United States Commission of Labor ma...

66. Some Social Problems Arising From Distribution. Class Antagonism: We can now see that the members of our modern industrial society may be grouped according to the shares of income - wages, rent, interest, and profit; also according to total income irrespective of it...

67. Proposed Solutions. Voluntary: We have already noticed the attempts of individuals and associations to equalize distribution by carrying charity and education to those who need help. We may now examine briefly some ambitious attemp...

Compulsory: Society has through taxation already done something in the way of equalizing distribution. The poorest child in New York has as many privileges in the city parks as has the largest taxpayer. Nor are d...

Exercises And Problems. Distribution Of Wealth In The United States: A 1. Define distribution. 2. Why are profits and taxes shares in distribution? 3. What is the intimate relation between free land and distribution ? 4. What shares in distribution went to the ...

Chapter XXII. Return To Labor (Wages). 68. Noncompeting Groups Of Workers. Existence Of These Groups: Practically every one engaged in economic activities may be said to be a worker, and as such to receive wages in some form. Employees are not the only ones who earn wages. A portion of the income whic...

Movement Among The Groups: Certain forces tend to accelerate the movement of individuals from one group to another, while other forces tend to retard such movement. We like to boast of the opportunities which every boy has in t...

Education And Income: If, as we have said, the students of a professional school or college belong to the upper income groups, the question naturally arises, What is the relation between public education and income ? One o...

Choosing Among Income Groups: Obviously, the boys belonging to the higher income groups have an advantage over those of lower groups in the matter of choosing their life's work, and hence, roughly speaking, the size of their wage ...

69. Efficiency And Wages. Conditions Affecting Efficiency: Differences in efficiency of workers may be easily observed on every hand. Sometimes these differences exist in the workers themselves. Two men working side by side at similar tasks often produce uneq...

Wages And Industrial Efficiency: Since there are such great differences in degrees of efficiency, the question naturally arises: What is the relation of efficiency to wages ? In the case of the two workers side by side, the more effi...

Women In Industry: One of the pressing industrial questions of the present generation is the relation of the efficiency of woman labor to wages; and this question has been accentuated by conditions growing out of the Gr...

70. Methods Of Wage Payment. Time And Piece Wages: The most common method employed to remunerate labor is to pay according to time or to the labor done. Obviously, time wages are based on piece wages for a group if not for the individual. The same ind...

Profit-Sharing: Numerous schemes have been devised by employers to increase output by giving the employees an interest in the product. One of these, profit-sharing, because of its importance, deserves passing notice....

Exercises And Problems. Return To Labor (Wages): A 1. What is the difference between wages, and wages of management ? 2. On what ground may workers be divided into hard-handed and soft-handed groups ? 3. Why are railroad men often referred to as ...

Chapter XXIII. The Labor Problem. 71. Rise Of Organized Labor. Rise And Growth Of The Trade Union: The forces which have combined during the past generation to cause employees to organize were of slight importance prior to the Civil War, and even for several years after its close. Then the number o...

Knights Of Labor: The unions which we have just noticed are organized according to trades; that is, the carpenters, the plumbers, the bricklayers, and others, have each their own organization. In 1869, however, a Phila...

American Federation Of Labor: Membership of the Knights of Labor reached its highest point (about five hundred thousand) in 1886. Already it was feeling the oppositional influence of the American Federation of Labor, which had bee...

Industrial Workers Of The World: A sharp distinction must be made between a trade union and an industrial union. One includes only workers in a particular trade. The other, and in this respect it resembles roughly the Knights of Labo...

72. Aims And Methods Of Organized Labor. Bargaining Power Of The Worker: The more zealous advocates of the laissez-faire doctrine in business have insisted that the wage any worker should receive ought to be determined by a bargaining process between the worker and his emp...

Open And Closed Shops: Less important, largely because it is less widespread, is the demand of organized labor for the closed shop. The closed shop is one in which only union laborers are employed, while in an open shop mem...

Methods Employed To Force The Demands Of Labor: The chief weapon employed by organized labor to get higher wages, shorter working hours, and better surroundings has been, and is now, the strike. To strike means to quit work in a body. No other meth...

Public Opinion And The Strike: Both employers and labor leaders recognize the importance of securing the moral support of the general public, for the side which secures it almost always wins. The public, however, usually has little...

Employers' Weapons: It would be a mistake to suppose that the employer is defenseless against his striking employees First, there are various employers' associations, such as the American Manufacturers Association, orga...

73. Methods Of Settling Labor Disputes. Conciliation: A variety of methods for settling labor disputes has grown up in this country. One of these is known as conciliation. Usually neither party to a labor dispute can see the merits of the other's claims....

Voluntary Arbitration: As soon as the employer and his striking employees are agreed to try to settle their differences peacefully they are ready for arbitration. The usual practice in this country has been for each side to...

Compulsory Arbitration: In some countries, particularly New Zealand and Australia, arbitration of labor disputes is a government matter. There the state steps in when troubles arise, and compels the employer and his employee...

74. Labor Legislation. Need For Labor Legislation: Up until a century ago practically all labor legislation favored the employing classes. The evils growing out of the English industrial revolution, however, forced Parliament to give attention to legi...

Obstacles To Labor Legislation In The United States: Legislation for the protection of workers in this country has encountered several obstacles, three of which deserve notice in this connection. First, the typical American has always strongly insisted ...

Character Of Labor Legislation In The United States: In spite of these obstacles, the national government and the various states have enacted a great many labor laws. In many of the states women and children are fairly well protected, not only against u...

75. Foreign Immigration. Immigration And Labor: Immigration, since it affects wages and standards of living, is essentially one of the aspects of the labor problem. Since the organization of our government in 1789 approximately thirty million forei...

Influence Of Immigration On American Life: The coming of such a vast army from widely scattered quarters of the globe has exerted a marked influence on American life; so much so that our people have come to have a national identity of their ow...

Exercises And Problems. The Labor Problem: A 1. What three forces operated before the Civil War to prevent the organization of labor? 2. How did the war itself affect these forces? 3. In what essential respects do the Knights of Labor diffe...

Chapter XXIV. Return To Land (Rent). 76. Nature And Source Of Agricultural Rent. Contract And Economic Rent: The word rent is used in our everyday speech in a variety of ways. We speak of renting an automobile, or a team of horses, or even a dress suit or a pocket camera. Usually in such cases, the term h...

Source Of Agricultural Economic Rent: Economic rent, unlike contract rent, cannot be determined by bargaining. Nor is it necessary that a piece of land be rented to a tenant in order that its economic rent may appear. The owner of a farm ...

No-Rent Land: We may assume, to continue our island illustration, that the ten families compete among themselves for the one fertile piece of wheat land to the point where the family which secures it merely gets re...

77. Urban Rents. Different Kinds Of Urban Sites: We are now prepared to extend to urban rents, with some modification, the principles we have just learned. Obviously, fertility is not a factor in determining the selection of an urban site. Hence, lo...

The Unearned Increment: Closely associated with economic rent is what is commonly called the unearned increment, which means the added value given to land by society and not by landowners as such. For the sake of clearness w...

78. Economic Rent And Price. Economic Rent Does Not Enter Into Price: The usual notion is that economic rent is one of the factors in setting price. This notion, however, is incorrect. Economic rent does not determine price; rather price is the chief factor in determini...

Economic Rent And Agricultural Values: Those accustomed to buy and sell farm lands determine land values by fertility, location, and height of interest rate. Their first consideration is to ascertain the average yield of the piece of land ...

Economic Rent And Urban Values: Compared with agricultural lands the process of determining the value of urban sites is usually a more difficult matter. Farm products are tangible, easily measured, and have a well-known market price...

Exercises And Problems. Return To Land (Rent): A 1. Distinguish between economic rent and commercial rent. 2. Why is one piece of farm land preferred to another piece ? 3. What factors determine this preference? 4. What is no-rent land? 5. Ju...

Chapter XXV. Return To Capital (Interest). 79. Interest Peculiar To Modern Industry. Attitude Of The Medieval Church Toward Interest: The church fathers of the Middle Ages looked on the taking of interest as a sin. In assuming this position they were influenced no doubt by the fact that most loans were consumption loans - that is, l...

Rise Of A Money-Lending Class: Despite the attitude of the medieval church many Christians loaned money. Especially widespread was the practice of moneyed men to evade the spirit of the law without violating its letter by becoming ...

80. Why Interest Is Paid And How Much. The Viewpoint Of The Borrower: We have learned already that labor and land, when assisted by capital, produce more than when working alone. The best evidence of this fact is the tremendous volume of modern production compared with ...

The Viewpoint Of The Lender: The lender also knows that capital is productive, but that in itself does not explain satisfactorily why he saves rather than spends his capital. Saving means abstinence for the ordinary individual, a...

Fixing The Current Interest Rate: We may now inquire how the current rate of interest is fixed. Since the borrowers are really buyers of capital and the lenders sellers of capital we can apply the principle developed in the chapter on...

81. Variations In The Interest Rate. The Risk Element: So far in our discussion of the interest question we have considered only pure interest, and the current rate of pure interest. We may now examine some of the forces that cause (1) the current rate of...

Fixity Of Investment: Some loans or investments are preferred to others even where there is the same element of risk involved. A railroad bond, for example, usually bears a lower rate of interest than a first-class farm mo...

Variations Among Industries: It often happens that a certain industry is prosperous above the average. Usually, under these circumstances, enterprisers, eager to enlarge their business, pay a higher interest rate than is current ...

Variations Among Localities: In a large country like the United States there is a wide variation in the interest rate. Even the states recognize this fact in their usury laws. Some restrict the legal rate of interest to 6 per cen...

Exercises And Problems. Return To Capital (Interest): A 1. Just why did the medieval church oppose the taking of interest? 2. What is the difference between a consumption loan and a production loan ? 3. In the conversation between Shylock and the merc...

Chapter XXVI. Return To The Business Man (Competitive Profits). 82. Place Of The Business Man In Industry. The Business Man Combines The Factors Of Production: Hitherto we have discussed the place of land, labor, and capital in production, and the share of distribution going to each, as if these factors were guided in their work by internal forces. Both land...

Responsibility Of The Business Man: Since it is the function of the enterpriser to combine land, labor, and capital in such a way as to make them productive, it naturally follows that he must assume all of the risks involved in his unde...

Characteristics Of The Business Man: The business man of this country possesses certain characteristics which we may examine at this point. First of all, the typical American enterpriser is daring; so daring in fact, that foreign observe...

Source Of The Business Man's Characteristics: Enterprisers, in common with all other members of the human race, get their business characteristics from two sources: (1) heredity, (2) education. Some are especially endowed by nature; some acquire ...

83. The Nature And Source Of Profits. Profits Are Residual: With the place of the business man established in modern industry, we may now turn to the nature and source of the distributive share which goes to him for his services. The enterpriser, we have seen...

Guarding Against Price Fluctuation: In the last sentence above we have the key to the source of profits. Price fluctuations - in wages, interest, rent, raw materials, and finished products - are at the bottom of all profits or losses. I...

Competitive Profits Resemble Rent: There is one striking similarity between profits and rent. Rent, as we have seen, is a differential; that is, it arises from differences in fertility or location. Profits likewise owe their existence ...

Competitive Profits Tend To Disappear: The fact that A, B, and C, in the illustration above, enjoy profits, will cause them to enlarge their operations in order to increase their profits by increasing their output. The demand for this part...

84. Cooperation And Profits. General Attitude Toward Profits: Most of us regard profits as something entirely different from rent, wages, or interest. When a friendly manufacturer says that he will sell us one of his products at cost we assume at once, and corre...

Cooperation Aims To Eliminate Profits: The most ambitious attempts to eliminate profits have taken the form of cooperation. Everywhere groups are planning how to carry on this or that kind of industry without the assistance of professional...

Basis Of Successful Cooperation: Since competition tends to eliminate profits, and since the profits of any particular enterpriser are likely to come from a relatively large number of individuals, the saving to any one individual by ...

Success Of Cooperation In Various Industries: Cooperation is, by its very nature, more successful in some industries than in others. Retailing appears to offer the best opportunity: a relatively small amount of capital is required; no great amoun...

Exercises And Problems. Return To The Business Man (Competitive Profits): A 1. Why are profits a share in distribution? 2. What is the chief function of the enterpriser? 3. Just why are profits residual? 4. Characterize the typical American enterpriser. 5. Why in the s...

Chapter XXVII. Socialism. 85. Nature And Purposes Of Socialism: What is socialism? - The spread of socialism throughout the world during the past generation, with its doctrines and claims so out of harmony with the established order of things, is the most striking...

Basis Of Socialism: The socialists themselves claim that the system of private industry has broken down; that labor is being exploited to pay profits and interest; and that there is no prospect of better things unless th...

Different Socialistic Programs: As is to be expected, different men have arrived at different conclusions regarding the socialistic program which the state ought to undertake. We may in this connection notice four different groups o...

The Communist Manifesto. Chapter I. Bourgeoisie And Proletariat: The history of society in the past is the history of class struggles. Freemen and slaves, patricians and plebians, nobles and serfs, guild members and journeymen - in short, oppressors and oppressed, ...

Socialism In Operation: The usual argument advanced against any proposal for the government regulation of industry is that it is socialistic. Every legislative act of Congress which has had for its end government interferenc...

86. Criticisms Of The Socialistic Program. Character Of Human Motives: Criticism of the socialistic program may be made on several different grounds. Even those who are inclined to be friendly toward the views of socialism feel that socialistic leaders have minimized the...

The Institution Of Private Property: A second obstacle to the socialistic goal is the institution of private property. For centuries individuals the world over have been accustomed to hold various forms of property to the exclusion of al...

Difficulties Of Administration: Assuming that a state has advanced to the point where its members are willing to exert themselves just as efficiently as they do now and to give up portions, at least, of their private property to the...

87. Some Substitutions For Socialism. Government Regulation: Earlier in the chapter mention was made of the fact that society in this country has undertaken a variety of industrial activities which show unmistakable tendencies toward the socialistic program. So...

Government Cooperation: The government has also cooperated in some industries. The most familiar example in this respect is the ship subsidy, whereby the government for a nominal economic service pays to shipowners stated su...

The Problem Of Government Operation: Our government has had too little experience in the operation of industry, to permit of any judgment being formed as to the merits of government ownership. We have conducted the post office with a fai...

Exercises And Problems. Socialism: A 1. Why may socialism be considered a distributive problem? 2. May it be also a productive problem? Explain. 3. Why should every one carefully examine the claims of socialism ? 4. Account for the...

Chapter XXVIII. Social Insurance. 88. The Risks of Industry. Nature Of The Risks: One of the most outstanding features of modern industry is the constant risk to which laborers are exposed. Equally important is the inability of the laborer either to avoid the risk or to bear the fi...

Inability Of Individuals To Carry Risks: Since it is a self-evident fact that workers are endangered on every hand, why do they themselves not adequately prepare for enforced idleness or old age? A complete answer involves many consideration...

Arguments For Social Insurance: If the individual will not or cannot protect himself against industrial mishaps, it is the duty of society to come to his aid. Society has a varied interest in the welfare of its workers. First, the w...

Risk An Element In Costs Of Production: Employers have generally protested against social insurance on the ground that the payments they are called on to make are an unbearable burden. Every one of these same employers provides for the wear...

89. Kinds Of Social Insurance: Europe. Accident Insurance: Of the various kinds of social insurance the most important in many respects is accident insurance. In 1884 Germany provided that employers must form mutual accident insurance associations, which shou...

Insurance Against Illness And Old Age: The German plan of insuring against illness was instituted in 1883. There the state requires each employer to purchase weekly from the post office, insurance stamps for each of his employees. At least...

Insurance Against Unemployment: The most difficult of all forms of social insurance to administer is unemployment insurance. Dishonest employees may pretend to be ill or injured only at the risk of having their dishonesty easily det...

90 Progress And Outlook Of Social Insurance In The United States. Constructive Legislation: The only important step taken in this country toward state regulation of social insurance has been in connection with industrial accidents. Until recently the old common law, which lays a great deal o...

A Comprehensive Program For Social Insurance: Leaders of American thought have given careful attention to the question of social insurance in the hope of being able to formulate a set of general principles for the guidance of legislatures in enac...

The Outlook: The awakened consciousness of the people to the burdens which society for centuries has been laying on its weakest members is a sign of social health and social progress. It points to the day when the...

Exercises And Problems. Social Insurance: A 1. Why are manual laborers, more than others, exposed to sickness, accidents, and death? 2. Just how expensive, both from the individual and the social viewpoint, is each of these forms of disabil...

Chapter XXIX. The Share Of The Government In Distribution (Taxation). 91. Government Revenues And Government Expenditures. Revenues Of Various Taxing Bodies: The number of taxing bodies to which any particular individual may be subject varies from a few to twenty-five or thirty. Farmers as a rule are subject to only four or five such bodies, while a dwelle...

Receipts And Expenditures Of The National Government: Since the second year of the Civil War the receipts of the national government, aside from loans, have been largely derived from import (tariff) and excise (internal tax) duties. From approximately si...

State And Local Expenditures: State expenditures go largely to the militia, to schools, to charitable institutions, and to the maintenance of the courts. Their chief sources of revenue are real estate taxes, and license fees of va...

Definition Of A Tax: It will add to clearness of the subject, if, at the outset, we distinguish between a tax and two other revenues that resemble taxes. A tax is a payment, usually in money, exacted by the government fo...

92. Bases Of Taxation. The Benefit Principle Of Taxation: One of the very generally accepted principles of taxation is that taxes may be levied according to the benefits derived; that is, the amount of each person's tax should correspond to the services whic...

The Ability Principle Of Taxation: It accords more with our sense of justice to levy taxes according to ability to pay. This policy we follow in asking for Y. M. C. A. and Red Cross subscriptions, and even in urging the people to purch...

Justice And Expedience In Taxation: Every one that has had experience in levying taxes lays emphasis in discussing them on the justice of taxation. It would be nearer the truth, however, to say that expediency is more often the basis on...

93. Kinds Of Taxes. Shifting And Incidence Of Taxation: An important phase of taxation relates to shifting and incidence. We have just noticed that the purchaser of a cigar gives little or no attention, if indeed he be aware of it, to the fact that a porti...

The General Property Tax: The best-known tax of all is the general property tax. As the term suggests, this is a tax on wealth irrespective of its nature - that is, a tax on real estate and personal property. This tax is asses...

The Income Tax: The practice of imposing taxes on incomes has been general in Europe for years, and even in this country several of the states have had income-tax laws. During the Civil War the national government co...

Inheritance Taxes: An inheritance tax is collected on estates as they pass into the possession of heirs. Practically all states have such a tax, though less than a generation ago the right of the state to share in the e...

Exercises And Problems. The Share Of The Government In Distribution (Taxation): A 1. Why are there often so many taxing bodies in a community? 2. What only restricts the power of Congress to lay taxes? 3. Is this restriction important? Why, or why not? 4. In what ways are tax...

Classified Course Of Reading: In the brief lists that follow, the standard college texts referred to at the close of each chapter are listed as a matter of convenience, together with additional titles, under General Economics. In ...

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