Front Page Titles (by Subject) CHAPTER 1: NATURE OF ECONOMIC PROBLEMS - Economics, vol. 2: Modern Economic Problems
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CHAPTER 1: NATURE OF ECONOMIC PROBLEMS - Frank A. Fetter, Economics, vol. 2: Modern Economic Problems 
Economics, vol. 2: Modern Economic Problems, 2nd edition, revised (New York: The Century Co., 1923).
Part of: Economics, 2 vols.
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NATURE OF ECONOMIC PROBLEMS
§ 1. Increase of economic problems. § 2. Opinions and feelings in economic discussion. § 3. False contrast of theory and practice. § 4. Superficial thinking and popular error. § 5. American economic problems in the past. § 6. Main factors in economic problems. § 7. Range of economic problems treated.
§ 1. Increase of economic problems. The present volume deals with various specific problems in economics, as an earlier volume deals with the general economic principles of value and distribution. The word “problem” is often on our tongues. Life itself is and always has been a problem. In every time and place in the world there have been questions of industrial policy that challenged men for an answer, and new and puzzling social problems that called for a solution. And yet, when institutions, beliefs, and industrial processes were changing slowly from one generation to another and men’s lives were ruled by tradition, authority, and custom, few problems of social organization forced themselves upon attention, and the immediate struggle for existence absorbed the energies and the interests of men. But the present time of rapid change seems to be peculiarly the age of problems. The movement of the world has been more rapid in the last century than ever before—in population, in natural science, in invention, in the changes of political and economic institutions; in intellectual, religious, moral and social opinions and beliefs.
Some human problems are for the individual to solve, as whether it is better to go to school or to go to work, to choose this occupation or that, to emigrate or to stay at home. Other problems of wider bearing concern the whole family group; others, still wider, concern the local community, the state, or the nation. In each of these there are more or less mingled economic, political, and ethical aspects. Economics in the broad sense includes the problems of individual economy, domestic economy, of corporate economy, and of national economy. In this volume, however, we are to approach the subject from the public point of view, to consider primarily the problems of “political economy,” considering the private, domestic, and corporate problems only insomuch as they are connected with those of the nation or of the community as a whole. Our field comprises the problems of national wealth and of communal welfare.
§ 2. Opinions and feelings in economic discussion. The student beginning economics, or the general reader, is likely to think that the study of principles is more difficult than is that of concrete questions. In fact, the difficulty of the latter, though less obvious, is equally great. The study of principles makes demands upon thought that are open and unmistakable; its conclusions, drawn in the cold light of reason, are uncolored by feeling, and are acceptable of all men as long as the precise application that may justly be made of them is not foreseen. But conclusions regarding practical questions of public policy, though they may appear to be simple, usually are biased and complicated by assumptions, prejudices, selfish interests, and feelings, deep-rooted and often unsuspected. When the casual reader declares that he finds the study of practical questions in economics much easier than that of theory, he really means that the one seems to require little or no thought, while the other requires much.
In many questions feeling is nine tenths of reason, and one’s sympathies often dictate one’s conclusions. In the following pages the reader is repeatedly warned when the discussion reaches such a danger point. When, however, in this work, outlooks and sympathies are expressed or tacitly assumed, they are not so much those personal to the author as they are those of our present-day American democratic society, taken at about its center of gravity. When the people generally feel different as to the ends to be attained, a different public policy must be formulated, though the logical analysis of the problems may not need to be greatly changed.
§ 3. False contrast of theory and practice. Still another word of caution should be given to those who find theoretical economic questions hard but who imagine that the understanding of “practical” economic questions is comparatively easy. The very contrasting of theoretical and practical study in this way is erroneous and misleading. The true understanding of every so-called “practical” question requires the understanding of theory, both the general theory (treated in Volume I) that underlies all economic activity, and the special theories that are related to the particular problems (treated in this volume). Indeed, theory as it is here used, and as it ought to be used, is hardly more than a synonym for “understanding”; it is logical analysis, insight, orderly arrangement, in our thought, of the forces, motives, and material conditions that help to bring about certain results. The more clearly the student has thought through the general theories of value, price, time-preference, wages, etc., the better prepared he is to take up the study of such practical problems as money, banking, tariff, labor and capital, etc., every one of which involves more special theories of price levels, fiat money, international trade, the open shop, and minimum wage, respectively.
§ 4. Superficial thinking and popular error. A practical economic problem is always presented as a question: What is the right thing to do or the best course to pursue with respect to some matter that is tied up with many other matters; so that the whole situation is usually very complex. The first answer of the untrained mind is almost certain to be a wrong one—just as to the natural man the earth seems flat, though it is round, the sun seems to circle around us, whereas we revolve on the earth’s axis daily, and at the same time slowly circle around the sun; the echo seems to be a mocking spirit answering us, whereas it is our own voice reflected back. Thousands of erroneous ideas were held by primitive man, and still are held by the savage, the child, and the untrained adult mind, regarding the simplest affairs of every-day life. In a like manner, the first answers to economic problems are usually superficial.
Since almost every economic matter affects various interests, there is the additional difficulty that some groups of persons, often influential and powerful, have something to gain by continuing to think superficially and by getting those who would benefit by the truth to keep on thinking superficially. Indeed, to think clearly, even if one suspects that it would be to his advantage to do so, is even for the ablest minds a difficult task, and for the mass of men, under the conditions, is often impossible. It should not surprise us, therefore, to find that nearly all economic improvements have been opposed not only by the few who would lose but by the many who would gain by the change; and to find, likewise, that the projects of reform that most quickly win the belief and support of the mass of men seeking relief from hard conditions have usually been as superficial and false in their theory as the errors they were meant to displace. Truth, when at last found, is simpler than error, but often it is to be attained only by the hard road of analytic and abstract thought that follows through to the end the workings of each separate force and factor.
§ 5. American economic problems in the past. What, then, are the politico-economic problems in America? They are problems that are economic in nature because they concern the way that wealth shall be used and that citizens are enabled to make a living, but that are likewise political because they can be solved only collectively by political action. With the first settlements of colonists on this continent politico-economic problems appeared. Take, for example, the land policy. Each group of colonists and each proprietary land-holder had to adopt some method of land tenure, whether by free grant or by sale of separate holdings or by leasing to settlers. In one way and another these questions were answered; but rapidly changing conditions soon forced upon men the reconsideration of the problem as the old solution ceased to be satisfactory.
In large part our political history is but the reflection of the economic motives and economic changes in the national life. Thus the American Revolution arose out of resistance to England’s trade regulations, commercial restrictions, and attempted taxation of the colonies. The War of 1812 was brought on by interference with American commerce on the high seas. The Mexican War was the result of the colonization of Texas territory by American settlers and the desire of powerful interests to extend the area of land open to slavery. The Civil War arose more immediately out of a difference of opinion as to the rights of states to be supreme in certain fields of legislation, but back of this political issue was the economic problem of slave labor. Illustrations of this kind, which may be indefinitely multiplied, do not prove that the material, economic changes are the cause of all other changes, political, scientific, and ethical; for in many cases the economic changes themselves appear to be the results of changes of the other kinds. There is a constant action and reaction between economic forces and other forces and interests in human society, and the needs of economic adjustment are constantly changing in nature.
§ 6. Main factors in economic problems. The particular economic problems in America at this time are determined by the whole complex economic and social situation. Two main factors in this may be distinguished: the objective and the subjective, or the material environment and the people composing the nation. The one is what we have, the other is what we are. These factors are closely related: for what we are as a people (our tastes, interests, capacities, achievements) depends largely on what we have, and what we have (our wealth and incomes) depends largely on what we are.
I. The objective factor presents two phases:
(a) The basic material resources, consisting of the materials of the earth’s surface and the natural climatic conditions which together provide the physical conditions necessary for human existence, and which furnish the stuff out of which men can create new forms of wealth.
(b) The industrial equipment, consisting of all those artificial adaptations and improvements of the original resources by which men fit nature better to do their will. These two (a and b) become more and more difficult to distinguish in settled and civilized communities, and become blended into one mass of valuable objects, the wealth of the nation.
II. The subjective factor presents two phases:
(a) The people, considered with reference to their number, race, intelligence, education, and moral, political, and economic capacity.
(b) The social system under which men live together, make use of wealth and of their own services, and exchange economic goods.
The particular economic problems that are presented to each generation of people are the resultant of all these factors taken together. A change in any one of them alters to some extent the nature of the problem. The problems change, for example, (I a) with the discovery or the exhaustion (or the increase or decrease) of any kind of basic material resources; (I b) with the multiplication or the improvement of tools and machinery or the invention of better industrial equipment; (II a) with the increase or decrease of the total number of people, and the consequent shift in the relation of population to resources; (II b) with changes in the ideals, education, and capacities of any portion of the people whether or not due to changes in the race composition of the population. Many examples of these various changes may be found in American history, and some knowledge of them is necessary for an appreciation of the genesis and true relation of our present-day problems.
§ 7. Range of economic problems treated. Of numberless economic problems that are calling for solution in a modern nation like the United States of America, only the more important in relation to present needs can be discussed in their main aspects within the limits of a single volume. The ones here chosen, as may be seen by referring to the table of contents, include a wide range, from the more impersonal financial questions connected with money and the medium of exchange, to the most burning issues of class interests and conflicts; and from those that seem to do merely with the individual (as incomes or wages or taxes) to the most fundamental questions of the form of economic organization and the displacement of private property by communism. In truth, these contrasts are often misleading; for the welfare of individuals is affected in many ways, often remote and unsuspected, on the one hand by impersonal factors such as the production of gold or the invention of machinery, and on the other hand by the form and function of the social organization of which each of us is a part.
Some conceive of the economist’s task narrowly as being merely the study of market prices; others broaden the field to include the study of individual valuations and gratifications; and still others make it include the solution of all problems of economic legislation affecting the general welfare of society. No practical problem in the field of economics can be rightly solved as if it were an economic problem in any narrow sense untouched by political, moral, and social considerations. In this volume the broadest of these conceptions is taken, prices and values being studied because of their bearing upon social welfare. Welfare economics rather than price economics is our ideal.
The titles of the chief encyclopedias of economics and of several good collections of general readings are given in the Manual of references and exercises in economics, for use with the author’s Economic Principles, published by the Century Co., New York. (References to the author’s Source Book in Economics  have been dropped in this edition, as that work is now out of print.) Several American general texts on political economy treat more or less fully the questions taken up in the present volume. Some of the texts are listed here, and are not referred to specifically in connection with the various chapters following.