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Introduction To Economics | by Frank O'Hara



The attempt is made in the following pages to present the elementary principles of economics clearly and in a small compass. The author trusts that this presentation in brief form will prove helpful not only to the general reader but also to the student who is making a beginning in economics and who often finds that the diffuseness of the text serves to obscure the principles which he is trying to grasp.

TitleIntroduction To Economics
AuthorFrank O'Hara
PublisherThe Macmillan Company
Year1919
Copyright1916, The Macmillan Company
AmazonIntroduction To Economics

By Frank O'Hara, Ph.D., Associate Professor Of Economics Ik The Catholic University Of America, Washington, D.C.

-Preface
The attempt is made in the following pages to present the elementary principles of economics clearly and in a small compass. The author trusts that this presentation in brief form will prove helpful n...
-Chapter I. Definition. 1. Economic Activities
Nature furnishes freely and without trouble to man many of the things that he needs. She furnishes him air to breathe, water to drink, and daylight in which to work or play; but there is another class...
-2. Economics Is A Social Science
One could easily imagine a world in which economic activities were individual activities in the sense that each person was active only in providing for his own needs. But the world in which we live is...
-3. Sciences Are Differentiated By Point Of View As Well As By Subject Matter
Here is a teacher giving a music lesson to a class of children. This is a social activity. Within the province of which of the sciences does it fall? Our answer depends upon the point of view from whi...
-4. The Relation Of Economics To Other Sciences
Economics is closely related to many other sciences. The whole discussion of value, as we shall see, depends intimately upon considerations of psychology. In fact, the school of economics which has de...
-5. The Meaning Of Economic Laws
The term law is used in several senses. For example, in jurisprudence it means a rule of conduct set up by a state for the guidance of its subjects. But in the sciences generally, where there is regul...
-Chapter II. Economic Development. 8. The Economic Stages
The consideration of the economic stages through which society has progressed in arriving at its present development will contribute to a clearer understanding of our present economic system. These st...
-10. The Stage Of Town Economy
Through a long period of development the former self-sufficing household economy ceased to be self-sufficing and came to depend upon outsiders to supply many of its needs. This second stage is represe...
-11. The National Economy
It now became the purpose of the leading statesmen to encourage a nation-wide trade by removing the local restrictions that surrounded the individual towns. The town economy had been carried on with l...
-12. The Development Of Business Enterprise
By a business enterprise we mean an undertaking which is entered into for the purpose of making a profit. As a general thing there are two sides to the business enterprise. First there is the technica...
-16. The Commission System
In the third economic stage of national economy with the development of national and international markets, there grew up a class of business enterprisers whose business it was to supply goods for the...
-17. The Factory System
Under the commission system the employer's main interest was directed towards marketing the laborers' product. Under the factory system the employer not only markets the product but he also organizes ...
-18. The Industrial Revolution In The United States
The United States has passed very rapidly through the process of development leading up to the factory system. Among the earliest settlers the housework system prevailed. Although there was some excha...
-19. The Factory System Does Not Entirely Supplant The Earlier Forms Of Enterprise
Alongside of the present factory organization many households still produce much that they consume and to that extent the housework system still exists. There is still much hiring of labor by the indi...
-Consumption. Chapter III. Wants - Utility - Demand. 20. The Meaning Of Consumption
By the consumption of wealth is meant the using of wealth in the gratification of human wants; the carrying out of the purpose for which the wealth was produced. Consumption does not involve primarily...
-21. The Expansive Nature Of Wants
There are certain primary wants or desires which must be satisfied at any cost, such as the desire for a sufficient quantity of food to preserve life or for enough clothing to keep us from freezing to...
-22. Goods Defined
We say that a thing is good if it serves as a means to a desired end or purpose. We may therefore define a good as a thing which satisfies a want. Many of our wants are satisfied by goods which exist ...
-23. The Meaning Of Utility
We say that a thing is useful or that it has utility when it may be used to gratify a want. Utility, then, means a capacity to gratify a want. Just as we speak of both flour and whiskey as goods becau...
-24. The Law Of Diminishing Utility
If we make an examination of our various wants we shall find as a general thing that they follow the principle illustrated by the case of the boy with the five apples. Any one of our earthly desires i...
-25. Total Utility And Marginal Utility
In the illustration in 23, when the boy had eaten the first apple, he experienced a certain amount of gratification, the result of a certain definite utility. The second apple had a smaller uti...
-26. The Margin Of Consumption
Since it is impossible to gratify all of our wants we must from time to time make a choice and decide where we shall increase our expenditures or where curtail them. For most of our wants the choice w...
-27. Value In Use
The English word value is derived from the Latin, valere, which means to be strong, to have power. It is usual to distinguish between two different kinds of value, value in use and value in exchange. ...
-28. Value In Use And Marginal Utility
As we have seen, the gratifications obtained from the same amount of expenditures for a, b, and c at the margin of indifference of consumption are the same. Likewise the values in use of the amounts o...
-29. Engel's Laws
Various attempts have been made to learn how consumers actually apportion their expenditures in the satisfaction of their different needs. Such a study was made by Le Play, in the early part of the ni...
-30. The Law Of Demand
In economics the demand for a good means not simply desire for it, but desire accompanied by the ability to pay the current price for it. In other words demand is effective desire. Willingness to pay ...
-31. Elasticity Of Demand
The demand for a good is said to be elastic if the amount demanded increases much as the price is lowered, and decreases much as the price is raised. On the other hand the demand is relatively inelast...
-32. The Principle Of Substitution
In the case of alternative demand, that is, where a want may be satisfied by any one of two or more commodities, an increase in the price of one commodity may cause a serious falling off in the demand...
-33. The Satisfaction Of Future Wants
The boy with the five apples and with the five-apple appetite may not think of to-morrow's need for apples, and in that case he will probably consume all five to-day; or he may think of to-morrow's ne...
-34. Wealth And Income
If we desire to make a definite statement of the amount of economic well-being which a man possesses we may say that he is worth a hundred thousand dollars. Or we may state the same thing in another w...
-35. Classification Of Expenditures
Expenditures may be divided into expenditures for necessaries, expenditures for comforts, and expenditures for luxuries. Under the head of necessaries are here included all of the things that are esse...
-36. The Justification Of Luxurious Expenditures
The utmost exertion of the average individual who lives apart from human society will scarcely suffice to secure for him the necessaries for efficiency. Therefore when an individual is able to secure ...
-Production. Chapter IV. Factors In Production - Land. 37. What Is Meant By The Production Of Wealth
The production of wealth means the bringing of wealth into existence. It does not mean the creation of matter, for that is beyond the power of finite man. The production of wealth is rather the creati...
-39. Primary Factors In The Production Of Wealth
Man and nature are the two primary factors in production. In the process of creating utilities to gratify man's wants each acts upon the other and with the other. Man acts upon nature, as for example ...
-40. The Four Factors Or Agents In Production
When writers on economics are preparing their chapters on the production of wealth they keep in mind the chapters on the distribution of wealth which they are to prepare later and try to secure a conf...
-41. What Is Land?
By land the economists understand not only the firmer portions of the earth's surface but the whole surface, water as well as what is ordinarily called land. Land, as the economist understands it, mea...
-42. Geographical Influences In Production
The production of wealth is influenced seriously by the fact that the various materials and forces of nature are not uniformly distributed over the earth's surface. The unequal distribution of heat an...
-44. The Cause Of Extensive Cultivation Of Agricultural Land
The agricultural population of our country is scattered over the continent instead of being confined to one or two of our most fertile states. The total farming population could without difficulty fin...
-45. The Law Of Diminishing Returns
In the cultivation of a given area of land there is a certain amount of capital and labor which when supplied will produce the greatest amount of produce per unit of capital and labor. When we supply ...
-47. The Margin Of Cultivation
In a new country where land is abundant and absolutely free, it would pay just to work it to the point of diminishing returns. If it were of the quality represented in the table above, six units of ca...
-48. Diminishing Returns And Urban Land
The law of diminishing returns applies not to agricultural lands alone but to other classes of land as well. A simple hut erected upon a large building lot in the heart of a prosperous city will furni...
-49. Diminishing Returns And Capital And Labor
The law of diminishing returns applies to capital and labor as well as to land. To illustrate its application to capital, a fixed quantity of capital invested in a manufacturing plant may be considere...
-Chapter V. Labor. 50. What Is Labor
Goods which_ possess value are known as wealth. Such goods are sometimes furnished freely by nature, but the fact that they are furnished freely by nature does not make them free goods. They are free ...
-57. The Labor Supply
The productivity of labor depends upon the manner in which it is combined with the other factors' in production, and upon its quantity and quality. The quantity of labor is in general modified by the ...
-58. Malthus' Theory Of Population
In 1798 Thomas Robert Malthus, an Anglican clergyman, published his Essay on the Principle of Population, in which he asserted that the human race was not capable of making any marked progress in a ...
-59. Criticism Of The Malthusian Theory
A great deal of criticism has been directed against the Malthusian theory on the ground that it advocated the practice of vice as a restraint upon the tendency of population to increase more rapidly t...
-60. The Quality Of Labor
In the production of wealth the efficiency of the laborers is of as much importance as their numbers. For efficient labor the health and strength of the laborer are of primary importance, although the...
-Chapter VI. Capital. 61. Two Meanings Of Capital
The term capital is used in a number of different senses, two of which we shall take note of here. Capital originally meant money which was loaned and from which interest was received. But since inter...
-62. Roundabout Methods Of Production
Nature and man are the primary factors in production. The tremendous forces of nature are as ready to destroy as to create the material forms which man desires. Man's part in the productive process is...
-64. Capital And Capital Goods
A manufacturer who has fifty thousand dollars in cash uses a part of it to purchase machinery, a part to buy raw materials, and a part to pay rent and wages, etc., until he has left in cash only as mu...
-65. Fixed And Circulating Capital
In the example given in the preceding paragraph the machines which contribute their uses over a considerable period of time are called fixed capital goods, and the raw material which is used up at onc...
-66. Free Capital And Specialized Capital
From the point of view of durability capital is distinguished as fixed and circulating. From the point of view of mobility or readiness to be changed from one use to another, it is distinguished as fr...
-67. How Productive Capital Grows
In popular phraseology, people save money and thus capital comes into existence. This does not mean that in order to increase the amount of productive capital in a country the amount of money must be ...
-Chapter VII. Industrial Organization - Division Of Labor. 68. Industrial Organization
We have already discussed land, labor, and capital as separate factors in production, but we have yet to speak of these factors combined in a cooperative effort to get the best results from all. This ...
-70. Division Of Labor
By a division of labor we mean the transferring of work which has formerly been done by one person to several persons in such a way that each of these performs only a separate part of the previous tot...
-72. Division Of Labor Favors The Introduction Of Machinery
As soon as a complicated process of making an article by hand has been broken up into several simple processes, and each simple process has been assigned to a separate worker, the workers soon learn t...
-76. Disadvantages Of Division Of Labor
The territorial division of labor is sometimes carried so far that a particular section of the country comes to depend upon a single crop. When this crop fails the section is much worse off than it wo...
-77. Large Scale Production
The division of labor and the introduction of machinery together with the closely related extension of the size of the markets have done much to increase the size of the typical business unit. Where t...
-Chapter VIII. Industrial Organization - Business Enterprise. 79. The Enterpriser
The typical business man of two or three centuries ago was the master craftsman who owned the tools which he used with his own hands upon his own material and in his own house. He sold his wares direc...
-84. The Partnership
Where two or more persons agree to conduct a business together and to share in the profits or losses, we have the partnership. The partnership is like the single enterpriser and unlike the corporation...
-86. The Corporation
In order to secure greater concentration of capital, limited liability of the enterprisers, and greater continuity of policy, the corporation form of management has been widely adopted. In this form o...
-88. Cooperative Management
Under the plan of cooperative management the attempt is sometimes made to do away with the profits of the enterprisers or rather to secure those profits for the workers by dividing the enterpriser fun...
-90. Government Industry
A final form of business management is that in which the state is the enterpriser. Many forms of business enterprise which were formerly the concern of individual citizens have now been taken over who...
-Exchange. Chapter IX. Demand And Supply. Value And Price. 91. Exchange As A Division Of Economics
Under the head of consumption of wealth were discussed wants and the means of gratifying them. The theme of consumption in economics is the explanation of demand. In the chapters on production which f...
-94. Value And Price Defined
Value is a power of attraction in a good which leads men to choose it in preference to other goods. A good has such power only when its supply is limited relatively to the demand for it. Value is of t...
-95. The Relation Between Value In Use And Value In Exchange
At first thought it may seem strange that value in use and value in exchange are the same thing looked at from two different points of view. We are accustomed to think of value in use as varying with ...
-96. Value And Weight Compared
A comparison of value with weight will aid in arriving at a clearer understanding of the nature of the former. The weight of a body is the force which draws it to the earth. The value of an object is ...
-97. No Intrinsic Value
When we say that an article possesses value we do not mean that it possesses it in the sense that value would remain with it if the article were taken out of relation to human beings. The utility of a...
-98. The Meaning Of A Market
In many of our cities when the housewife takes her basket in the morning and says that she is going to market, we understand her to mean that she is going to a public square where there is a large ope...
-99. Demand And Supply
Value depends upon the relation between demand and supply. As we have already seen, demand varies inversely with the price; that is, as the price increases the demand decreases. When the price is very...
-100. The Demand Schedule
The demand schedule for a good in a market, that is, the statement of the varying amounts of the good which will be demanded at different prices, is a combination of the individual demand schedules of...
-101. The Demand Curve
The demand schedule in the preceding paragraph may be graphically represented by the following demand curve. Figure III. - Demand Curve. In the above figure the quantity of the good x is m...
-102. The Conditions Of Supply
As a general rule the cost of producing a unit of a good depends upon the number of units that are to be produced. While a person's demand for a good depends upon the utility of the good to him and hi...
-103. The Supply Schedule
In the market represented above in which A, B, and C are the purchasers, let us assume that there are two sellers of the good x, each of whom is attempting to secure for himself as large a share of th...
-104. The Supply Curve And The Combined Supply And Demand Curve
The first of the two following figures is a graphical illustration of the supply schedule contained in the preceding section. It costs sixty cents to produce the second unit, seventy cents to produce ...
-105. Constant Costs And Diminishing Costs
In the preceding illustration we assumed that the competing producers D and E produced the good x under conditions of increasing costs. This condition resulted in making the supply curve an ascending ...
-106. Monopoly Defined
Where competition prevails, price, as has just been seen, is regulated by the forces of supply and demand. Under a condition of monopoly, prices are still fixed by the law of supply and demand, but th...
-107. Classification Of Monopolies
Monopolies may be classified as public monopolies and private monopolies. Public monopolies are those enjoyed by the state and its subdivisions, and are further classified as fiscal and social monopol...
-108. The Law Of Monopoly Price
Under monopoly, as under competition, price is regulated by supply and demand, with the difference that in the case of monopoly the supply is artificially regulated by the monopolist in his endeavor t...
-109. Law Of Monopoly Price Illustrated
Suppose that a producer controls the whole supply of a given good in a certain market and that he wishes to make use of his control to secure as much profit for himself as possible. Suppose further th...
-Chapter X. Money. 110. Difficulties Of Barter
In his celebrated work, Money and the Mechanism of Exchange, Jevons tells of a Parisian singer who made a professional tour around the world and gave a concert in the Society Islands, where she was ...
-111. Definition Of Money
Whenever an article is generally acceptable in exchange in a community so that B will take it from A in exchange for what A wants, not because B desires the article but because he knows that practical...
-112. The Functions Of Money
Money serves as a medium of exchange. It is the intermediary third commodity which makes exchange possible where direct barter would be impossible. This is the first and most important function of mon...
-113. Forms Of Money
Many different commodities have served mankind as money. In the Homeric poems oxen served as a measure of value. Where slavery has prevailed slaves have often served as the medium of exchange and the ...
-114. Qualities Of A Good Money Material
There are certain qualities essential to a good money material which makes certain of the metals, and especially the precious metals, peculiarly suitable. Among these qualities are general desirabilit...
-115. Coinage
In the earliest use of metals as money they were not coined but passed by weight just as formerly in California, and more recently in Alaska, gold dust passed by weight. A later development was the fo...
-119. Classification Of Money
Money may be classified as standard, token, credit, and representative. Standard money is money to the value of which the values of other kinds of money are referred. Standard money is further classif...
-121. Money In Circulation In The United States
According to a statement issued by the United States Treasury Department, there was in circulation in the United States on January 1, 1916, money of various kinds in the following amounts: ...
-122. Legal Tender
Any commodity which is generally acceptable in exchange is money. Money has been developed through the needs of commerce and not on account of the sanction of the government. Where the government rein...
-123. Oresme's Or Gresham's Law
Not only do dishonest persons sometimes clip coins, but even governments have often resorted to the dishonest practice of debasing the coinage by putting into the coins a smaller amount of the preciou...
-124. The Value Of Money
Value is power in exchange. The value of money is its power in exchange. The value of money just like the value of anything else depends upon the demand for it and the supply of it. Its value depends ...
-125. The Demand For Money
Simple desire for money does not constitute demand for it any more than desire for any other economic good constitutes demand for it. Demand is effective desire. It is desire coupled with the ability ...
-126. Supply Of Money
Where free coinage is permitted the supply of money depends upon the relative cost of producing the money material, as compared with the cost of producing other commodities. The value of the money com...
-127. The Equation Of Exchange
Professor Fisher has stated the relation between money and prices in a form that will do much to facilitate an understanding of the subject. In his equation of exchange he lets M represent money; V,...
-128. The Quantity Theory Of Money
The equation of exchange as given above is a modified form of the quantity theory of money. That theory states that an increase or decrease in the amount of money in circulation is followed by a propo...
-129. The Cost Of Production Theory
Opposed to the quantity theory of money is the cost of production theory, according to which the value of money depends upon the cost of producing it, rather than upon the supply of it and the demand ...
-130. Bimetallism
In the United States at the present time gold is the standard money from which the value of other forms of money is reckoned. The value of the gold coins, in turn, is regulated by permitting the free ...
-131. Index Numbers Of Prices
Where the prices of a number of commodities increase or decrease during a given period, but at different rates, it is possible to indicate the general increase or decrease by the use of index numbers....
-132. The Multiple Standard Of Value
Since it is unfair to force the debtor to pay his debts in money which has increased in value and consequently which is harder to get than the money which he borrowed, and since it is unfair to force ...
-133. The Compensated Dollar
A plan having a similar purpose in view is that of readjusting the official amount of gold in the gold dollar from time to time so as to keep the value of the gold dollar constant. This plan does not ...
-Chapter XI. Credit And Banking. 134. The Nature Of Credit
The word credit comes from the Latin, credere, to believe. The term is used in many different senses but for our purpose we may define it as confidence that a borrower will give back money or money's ...
-136. The Promissory Note
Suppose that in the illustration given in the preceding paragraph, when John Doe and Richard Roe came to make a settlement it was found that Richard Roe owed John Doe a balance of one hundred dollars ...
-137. The Bank Note
John Doe must pay one of his creditors one hundred dollars and it would simplify matters very much if he could pay him with Richard Roe's promissory note. But the creditor is unwilling to accept the n...
-138. The Check
But perhaps John Doe, instead of receiving bank notes for the promissory note which he sold to the bank, accepted a deposit of one hundred dollars; that is, instead of receiving the money he received ...
-139. The Clearing House
The Second National Bank now owns a check signed by John Doe and indorsed by John Robinson directing the Riggs National Bank to pay to the order of John Robinson, one hundred dollars. The Riggs Nation...
-145. Weakness Of The National Banking System
While the national banking system has had the merit of issuing notes that were absolutely safe it has also had certain defects. Among these the most important have been the inelasticity of its note is...
-146. The Federal Reserve Act
When the need for banking reform was sufficiently recognized the Federal Reserve Act was passed (1913) modifying the national banking system in many important features. A Federal Reserve Board, consis...
-Chapter XII. International Exchange. 147. The Balance Of Trade
Where a country exports to another country more goods than it imports from that country it is said to have a favorable balance of trade. Where these conditions are reversed it is said to have an unfav...
-148. Domestic Exchange
A resident of Chicago who owes a debt of one thousand dollars in New York might conceivably cancel the obligation by sending one thousand dollars in currency to his New York creditor. It is very impro...
-150. The Rate Of Exchange
The rate of exchange is the cost of paying foreign indebtedness per unit of money. Exchange between England and the United States is quoted in dollars and cents per pound sterling; exchange between Fr...
-151. Financial Bills Of Exchange
Bills of exchange that have their origin in commercial transactions are called commercial bills of exchange. In contradistinction to these are financial or bankers' bills of exchange. These are bills ...
-153. The Effects Of The Shipment Of Gold
Where a country's exports exceed its imports it might seem at first sight that there would be a tendency for that country to continue to import gold, to balance the account. A moment's reflection, how...
-154. Other Influences Affecting The Rate Of Exchange
We have discussed the situation as though the rate of exchange were affected only by the balance of exports and imports. It is, however, affected by all influences which occasion international payment...
-Chapter XIII. International Trade. 155. Causes Of International Trade
International trade is trade carried on between the inhabitants of different countries and is due to the same causes as domestic trade; that is, trade carried on within a country. Exchanges may be car...
-156. Restrictions On International Trade
A century and more ago there was a common belief in Europe that a favorable balance of trade, that is, a condition where the exports of a country exceeded the imports, was a good thing because the bal...
-158. The Case For Free Trade
The general argument in favor of freedom of international trade is the argument in favor of division of labor. The man who does one thing, and does that well, and exchanges his products for the produc...
-160. The Protective Tariff In The United States
After the war for independence from England, trade jealousies and restrictions among the colonies proved such a nuisance that when the Constitution was adopted the power to levy duties on interstate t...
-Distribution. Chapter XIV. The Distribution Of Wealth. 161. The Meaning Of Distribution Of Wealth
Under the head of consumption was treated the using or the utilization of economic goods. Under production was treated the bringing into being of economic goods, or the creation of utilities in econom...
-163. The Real Income
Rent and wages and interest and profit are usually paid to the sharers in the distribution of wealth in the form of money, or of purchasing power which is equivalent to money. But the real income cons...
-164. The Stream Of Income
It will help us to a clearer view of the meaning of distribution if we think of the real income to be distributed as a stream or flow which is constantly being produced by the agents of production and...
-165. Distribution And Exchange
Leaving aside for a moment our figurative distribution, let us consider the relation of exchange to distribution. In the independent household economy where each family was self-sufficient there was n...
-166. The Problems Of Distribution
The first problem with regard to distribution is to find out what are the facts in the case and what are the forces at work tending to make the division what it is. In other words, when the stream of ...
-167. The Principle Of Distribution
Various attempts have been made to show why the shares in distribution are what they are, and not something else. Sometimes an attempt is made to establish a different regulating principle for each of...
-169. What The Principle Of Distribution According To Marginal Productivity Does Mean
When we say that the owner of a unit of one of the factors tends to get the marginal product of that unit, we think of the unit as a relatively small part of the whole supply of the factor. The smalle...
-170. The Marginal Product And The Law Of Diminishing Returns
If the student will recall the law of diminishing returns, he will remember that with a given supply of land and capital and organizing skill the application of ten units of labor might result in a pr...
-171. A Simplified Illustration
In the following chapters the principle of distribution according to marginal productivity, as it affects the different factors, will be considered in detail. In this preliminary chapter we shall cons...
-172. The Substitution Of Factors
It is not at all to be supposed that according to the marginal productivity theory of distribution the reward of each factor is settled independently of the reward of other factors. On the contrary, t...
-Chapter XV. Business Profits And Rent. A. Business Profits. 173. The Meaning Of Profits
In the general discussion of distribution in the preceding chapter it was shown that the enterpriser tends to get his marginal product; but in that discussion certain assumptions were made which requi...
-174. The Sources Of Profits
Profits are the difference between the selling price and the cost to the enterpriser, this cost including wages paid to his employees, interest, rent, and upkeep. If there were no variations in the de...
-175. Competitive Profits
In any kind of undertaking the enterprisers are likely to vary greatly in their talent for conducting business. Their profits are equal to the difference between their selling price and their cost pri...
-176. Monopoly Profits
In the case of competitive profits which we have just been discussing the far-seeing enterpriser was able to reap competitive profits from price fluctuations, although he was not able to regulate pric...
-177. The Capitalization Of Monopoly Profits
When an enterpriser is in possession of a secure monopoly which gives him large monopoly profits, he is often in a position to capitalize the monopoly profit and to sell out the business on such terms...
-B. Rent. 178. Rent Defined
Rent is the payment which is made for the use of land and other natural agents. Popularly, a clear distinction is not always made between rent and interest; thus, we sometimes speak of the income whic...
-179. Contract Rent And Economic Rent
Economic rent is not always the same thing as contract rent. A landlord may agree to let his tenant have the use of land for a smaller sum than competing renters would be willing to pay for the land i...
-180. The Distinction Between Land And Capital
Certain economists do not distinguish between land and capital. There is so much similarity between land and capital and between rent and interest that they classify land as a form of capital and cons...
-181. The Cause Of Rent
People pay for the use of land for the same reason that they pay for other things; namely, because of the utility and scarcity of the thing for which payment is made. If land were not useful, of cours...
-182. The Measure Of Rent
Whether we consider agricultural or grazing or forest land or land for any other purpose, there are tracts of different degrees of productiveness employed in producing for the same market. For example...
-183. The Importance Of Location
In the illustration given above we have supposed all of the land to be of equally favorable location. If, however, it should happen to be the case that the land of the first quality was so poorly loca...
-185. Rent And The Price Of The Product Of Land
When the increasing population referred to in the preceding discussion found that the wheat produced on first quality land would no longer supply their need for that commodity, they did not call a tow...
-186. Rent And The Capital Value Of The Land
The price for which land will sell; that is, its capital value, is related to rent as effect to cause. Rent is the cause and the value of the land the effect. The value of the land is ascertained by c...
-187. The Justification Of Rent Taking
In our illustration in a previous section we showed that the rent of land increases with the growth of population. The land has no value independently of the presence of the population. Certain reform...
-Chapter XVI. Interest. 188. Interest Defined
Interest is popularly thought of as a payment made for the use of money. Commonly, however, the person who borrows money desires to use not the money but something which he buys with it. The borrower,...
-189. Gross Interest And Net Interest
When a rate of interest is named in a loan contract it often covers elements which are, strictly speaking, not interest at all. Where a capital good is loaned which is to be returned it often happens ...
-190. The Rate Of Interest Depends Upon The Supply Of And The Demand For Capital
Interest is a price which is paid for the use of capital and like other prices it depends upon the supply of capital and the demand for capital. But when we have said this we have not gone very far in...
-191. Why Is Interest Paid
The person who borrows has found by experience that he cannot borrow without paying interest and his answer to the question as to why interest is paid is likely to be that that is the only way in whic...
-192. The Productivity Theory Of Interest
The existence of interest has often been explained simply on the ground that capital is productive. An artisan who works with elaborate machinery can turn out a much larger product in a day or in a ye...
-193. The Use Theory Of Interest
The use theory of interest has much in common with the productivity theory. According to this theory the capitalist not only gives to the borrower the capital for the period of time of the loan but he...
-194. The Abstinence Theory
We have already said that the rate of interest depends upon the demand for capital and the supply of capital. The two theories which we have just investigated, namely, the productivity theory and the ...
-195. The Exploitation Theory Of Interest
The socialists contend that the whole of the value of the product is due to the labor expended in producing it. They assert that the reason that capitalists are able to collect interest for the use of...
-196. The Discount Theory Of Interest
The true explanation of the cause of interest is bound up with the explanation of the fact that present goods are, as a rule, worth more than future goods of like kind and number; that is, goods which...
-197. The Rate Of Interest
The rate of interest, or the rate at which people discount the future, depends upon the characteristics of different individuals as well as upon the size and character of their incomes. Persons who ha...
-198. The Marginal Productivity Theory Of Interest
The discount theory of interest which we have just examined emphasizes the supply side of the problem of interest. It calls attention to the strength of the forces which are conspiring to defer the co...
-199. The Value Of The Machine
The marginal productivity theory explains the amount of rental which will be paid for various capital goods. It does not explain the rate of interest, for the rate of interest is not an amount of prod...
-200. The Justification Of Interest Taking
To the socialistic claim that interest is robbery and that, therefore, interest taking ought to be prohibited, the popular answer is, interest is justifiable because capital is productive. This answer...
-Chapter XVII. Wages. 201. Definition Of Wages
Wages are the share of the product of industry which is assigned as a remuneration of labor. Wages as here used includes salaries as well as what is more popularly known as wages. The term includes no...
-203. The Mobility Of Labor
By the mobility of labor we mean the ease or difficulty with which it is moved from one place to another or from one occupation to another. Over a short period of time labor is not mobile. For a diffe...
-205. The Cost Of Labor
Free and fair competition tends to equalize, not wages, but labor cost. If one man does only half as much work as another and receives the same wage, the first man's labor costs the employer twice as ...
-207. Time Wages, Piecework Wages, And Efficiency Wages
The laborer may receive time wages; that is, he may be paid for his labor by the day, or by the week, or by the month, or by the year; or he may receive piecework wages; that is, he may be paid a cert...
-208. Inequalities In Wages
We have spoken of a tendency of competition to equalize wages but a very little observation will suffice to show us that wages are very unequal. It will aid us in arriving at an understanding of this ...
-210. Other Causes Of Differences In Wages In Different Occupations
Adam Smith enumerated the five following circumstances as accounting for the difference in money wages in different occupations: First, the agreeableness or disagreeableness of the employments themse...
-211. The Shortened Workday
In the factories of a hundred years ago a working day of fourteen or sixteen hours was by no means uncommon. When the laboring population of England began to demand a universal ten-hour day factory ow...
-212. Collective Bargaining
We have seen that under competitive conditions the laborer tends to get his marginal product. He may, however, fail to get this amount because he is a weaker bargainer than his employer. His weakness ...
-213. Labor Organizations
The general type of labor organizations in the United States is according to craft. Thus, for example, in a given city there are as many labor unions as there are trades or crafts represented among th...
-214. Strikes And Boycotts
Labor organizations secure their end, namely, the improvement of the conditions of the workers, mainly in two ways, - first through militant efforts directed toward the employer, and secondly, through...
-215. Conciliation And Arbitration
Where differences exist between employers and employees which seem likely to disturb the industrial peace disinterested outsiders are often able to bring the two parties together and thus prevent an o...
-216. Cooperation And Profit-Sharing
Two other methods which seek to fix the remuneration for labor in such a way as to avoid industrial disputes are cooperation and profit sharing. Under the plan of cooperation the workers become the em...
-Chapter XVIII. The Single Tax And Socialism. 217. The Need Of A Fairer Distribution Of Wealth
In a primitive community producing with little capital, the material conditions of life are likely to be hard for the generality of the people. But under these conditions the need of improvement in th...
-A. The Single Tax. 218. What The Single Taxers Propose
Many single taxers in the past and notably Henry George, their leader, have proposed that the state collect as the one single tax the whole of the rental of land and that all other taxes be done away ...
-219. The Argument Of The Single Taxers
The single taxers point out in the first place that in a new and sparsely settled community the land has little or no value; but as the population grows by natural increase and by immigration the rent...
-220. In Criticism Of The Single Tax
In reply to the claims of the single taxers it may be urged, in the first place, that there are a great many other forms of monopoly value which are due to the growth of society and not to the activit...
-221. The Conclusion As To The Single Tax
Private monopoly in land should be treated on the same principles as other forms of monopoly. Where it is on the whole beneficial it should be retained and where its disadvantages outweigh its advanta...
-B. Socialism. 222. The Meaning Of Socialism
From decade to decade the meaning of the term socialism undergoes such marked changes and even at any one point of time different writers assign so many different meanings to the term that in order to...
-223. Our Definition Of Socialism
Since there is no universally recognized meaning of socialism, and since our present interest in socialism is an economic one, we shall understand by socialism, economic socialism. The socialism which...
-224. The Marxian Theory Of Value
According to Karl Marx, commodities are exchangeable for each other in proportion to the amount of abstract human labor embodied in them. The value of the commodity, says Marx, is in proportion to the...
-225. Surplus Value
Marx's theory of surplus value is another important part of his system. In half a day, let us say, the laborer can produce a value equivalent to the cost of his labor power; that is, he can produce in...
-226. The Law Of Capitalistic Development
According to Marx, capitalistic production results in the creation of an industrial reserve army of unemployed laborers. This reserve army of men who are constantly looking for employment places the w...
-227. A Criticism Of Economic Socialism
To show that Marx's theories and prophecies are invalid is not by any means to establish the weakness of economic socialism. If Marx's theories and prophecies were well founded, they would constitute ...
-Chapter XIX. Practical Economic Problems. 228. State Activity In Economic Matters
In the preceding pages little has been said concerning the proper attitude of the state with regard to questions of economics. This has not been because the importance of the influence of the state in...
-A. The Trust Problem. 229. History Of The Trust
The combination of sellers of commodities for the purpose of restricting competition and securing higher prices has a very ancient history. Sometimes such monopolies have been carried on in violation ...
-230. The Causes Of Trusts
Among the foremost of the causes usually assigned for the formation of trusts is cutthroat competition. Where competition has reached that degree of ferocity where each competitor is mainly interested...
-231. The Evils Of Trusts
While the matter is one about which there is a great difference of opinion, the evidence on the whole seems to point to the conclusion that trust prices are higher than the prices which prevail under ...
-232. Remedies For The Trust Evil
In the early days of the trust the attempt was made to regulate or to abolish it by state laws. It was soon found, however, that this method was ineffective, and so in 1890 Congress passed the Sherman...
-B. Labor Legislation. 233. Child Labor Legislation
With the introduction of the factory system in the textile industry in England in the latter part of the eighteenth century, it became possible to substitute in a large measure child labor for adult l...
-234. Hours Of Labor Legislation
The objection is made against legislation designed to limit the length of the workday that it is unconstitutional in that it restricts the freedom of contract of the worker. This objection is not urge...
-235. The Legal Minimum Wage
Although there has been much experience of minimum wage legislation for men in Australia and a certain amount of it in England, it has not been tried in this country. In this case, as in the case of t...
-C. Social Insurance. 237. The Meaning Of Social Insurance
Insurance, in general, is a device by means of which risks are distributed in such a way as to lessen the economic burden to those upon whom it would otherwise fall more heavily. In case of fire insur...
-238. Workmen's Compensation
When a workman is killed or injured in the course of his employment his family is deprived permanently or temporarily of his income. Formerly the view was held that this stoppage of income was the con...
-239. Sickness Insurance
In the United States up to the present time there has been no compulsory sickness insurance with the exception of those cases where occupational diseases are included in the scope of the workmen's com...
-240. Insurance Against Old Age, Invalidity, And Death
For the purpose of taking care of the workers and their families in their old age two different plans of relief have been worked out: first, compulsory old age insurance, and second state pension syst...
-241. Unemployment Insurance
An evil almost as serious to the wage earner's family as sickness or industrial accident is unemployment, with the cessation of wages that it entails. In either case the family income is cut off and w...






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