The Online Library of Liberty

A project of Liberty Fund, Inc.

• Foreword to Economists and Teachers
• Economic Principles
• Part I: Elements of Value and Price
• Chapter 1: Purpose and Nature of Economics
• Chapter 2: Choice and Value
• Chapter 3: Goods and Psychic Income
• Chapter 4: Principles of Evaluation
• Chapter 5: Trade By Barter
• Chapter 6: Money and Markets
• Chapter 7: Principles of Price
• Chapter 8: Competition and Monopoly
• Part II: Usance and Rent
• Chapter 9: Agents For Changing Stuff and Form
• Chapter 10: Agents For Effecting Changes of Place and Time
• Chapter 11: Consumption and Duration
• Chapter 12: The Principle of Proportionality
• Chapter 13: The Concept of Usance-value
• Chapter 14: The Renting Contract
• Chapter 15: Principles of Rent
• Part III: Valuable Human Services, and Wages
• Chapter 16: Human Beings and Their Economic Services
• Chapter 17: Conditions For Efficient Labor
• Chapter 18: The Value of Labor and the Choice of Occupations
• Chapter 19: Principles of Wages
• Part IV: Time-value and Interest
• Chapter 20: Time-preference
• Chapter 21: Rate of Time-preference
• Chapter 22: Money and Capitalization
• Chapter 23: Capitalization of Monetary Incomes
• Chapter 24: Saving and Borrowing
• Chapter 25: Capitalization and Interest
• Part V: Enterprise and Profit
• Chapter 26: Enterprise
• Chapter 27: Management
• Chapter 28: Profits and Costs
• Chapter 29: Various Shades of Profits
• Chapter 30: Costs and Competitive Prices
• Chapter 31: Monopoly-prices; Large Production
• Part VI: Dynamic Changes In Economic Society
• Chapter 32: The Problem of Population
• Chapter 33: Volitional Doctrine of Population
• Chapter 34: Decreasing and Increasing Returns
• Chapter 35: Basic Material Resources: Their Use, Consumption, and Conservation
• Chapter 36: Machinery and Wages
• Chapter 37: Waste and Luxury
• Chapter 38: Abstinence and Production
• Chapter 39: Value Theory and Social Welfare

PART VI

DYNAMIC CHANGES IN ECONOMIC SOCIETY

CHAPTER 32

THE PROBLEM OF POPULATION

§ 1. Introduction: static and dynamic problems of economics. We have now to shift our point of view from that we have held thus far and, in concluding this volume, we are to survey our subject more broadly and with a somewhat different purpose. Our study of value began with individual choice and we have followed this process of individual choice in its manifold workings in the various problems of value and price. Men in their economic affairs are never absolutely at rest either in mind or in body. (See Chapter 4, especially section 6 on changes of desires and of valuations.) Desires wax and wane every day, and each day goods for daily existence and gratification must be secured through the labor and wealth of the community, even in the most unchanging form of society. Each individual is seeking to find the best adjustment for himself—a never-ending process. If for a moment (and in so far as) this is attained, there results an equilibrium for each individual, where he has no motive to change.

This process of the individual’s adjustment is a part of a larger adjustment; his change goes on within a larger process of change, that of society as a whole. There is a real need, however, to distinguish in many economic problems between that play of individual motives and forces which merely results in maintaining a status quo, and that which transforms the whole society into, or carries it to, a different condition. The one is a static adjustment, the other a dynamic adjustment, or process. To draw an analogy: the human body between about the ages of twenty and forty is constantly renewing itself, is the seat of ceaseless processes, yet is comparatively static, is changing only slowly. Earlier was the dynamic period of childhood’s growth, and later will be that of age’s decline. So an economy may through long periods show slight changes, and again, rapid changes either upward or downward in respect to any feature.

Where the whole economic situation is one of balanced forces, giving a comparatively stable adjustment of labor and wealth, and of prices, it is a static situation. And an economic society where this stable condition is normal is a static economy.1

§ 2. A static economy. Let us form a picture of a static economy. The number of persons is unchanged from generation to generation. Each year the number of births is just balanced by the number of deaths. The average natural ability of the new born must be just equal to that of the deceased, and that this should be so, either there must be no differences whatever in the natural ability of the families, or each class and family of the population must contribute in the same ratio to the number of surviving children. The industrial education and training of each oncoming generation is the same as that of the last, and this extends to every faculty of the mind and habit of life that affects thrift, industry, and choice of goods. Minor variations in particular families might offset each other and maintain an unchanged average. The population of a static economy is in quantity and quality like a reservoir of water fed by a pipe at an even rate and having an outlet of just the same capacity, so that the level and quality remain unaltered.

In a static economy the production of goods from year to year is the same in kind, quality, and quantity. Seasonal changes within the year cause many values to move up and down, but such changes as this—each year the same and completing their cycle within the year—are accounted a mark of a static rather than of a dynamic economy.

The area of land as well as the kinds of resources and the ease with which they are obtained, are unchanging. This means that they are used in an absolutely durative manner. Technic is stationary; the same kinds of tools, processes, and methods pass from father to son. Abstinence is solely of the conservative kind. Under these conditions the “normal” equilibrium of prices of commodities, labor of all sorts, uses of goods, capitalization, and rate of interest would be unchanging. Not that this equilibrium is maintained in a mechanical, automatic manner, in which men have no part. These levels of values and prices can be maintained only as a result of ceaseless choices, bids, and efforts on the part of all the members of the community. Men in a static society, each seeking to make advantageous choices, are just as much active factors in maintaining a level of prices as are men in a highly dynamic state. But given the static conditions of population, culture, resources, and technic, the subjective and objective conditions combine to give a static level of values.

Such a state of human society in this absolute degree never has been known, but it has been more or less approximated in many times and places. Examples are many primitive societies, such as the Esquimaux, native Australians, etc., continuing unchanged for many centuries; ancient Egypt and medieval Europe. Until the twentieth century China, indeed the Orient generally, has been synonymous with the unchangeable in social and economic conditions. “Better fifty years of Europe than a cycle of Cathay.” Many features of a static society are present everywhere much of the time. This conception is a type or norm by which we can study and judge the effect of each kind of forces separately, and not as they occur in haphazard combinations.

§ 3. Dynamics and the social point of view. Heretofore our study has been purposely confined as far as possible to the static aspects of the value and price problems. We were bent upon tracing the process by which individuals adjust their funds of wealth and labor to a general economic situation or level of valuation which they find and which they must accept as a fact given. We have recognized, however, that the individual finds himself compelled, again and again, to adjust his choices to a somewhat altered general situation, or in turn, may, by his action (discovery, invention, enterprise) start new forces into motion which will eventually alter the situation further. In the foregoing discussion of value and price, this distinction between static and dynamic forces, problems, principles, and societies has been more than implied. We have repeatedly referred to the more or less general changes as influencing the personal gains and losses of individuals, and even of whole classes of society. (See Chapter 27, section 13, note.) But in these references the purpose was still primarily to show the effects upon individual fortunes. We have now to take the larger view, and to consider these changes with reference to the effects upon the whole body of society.

Any state of economic forces may be studied in relation to value and price. If the situation were quite static, the price of every factor would be unchanging. A new cumulative factor would carry the level up or down in the period of dynamic change. There it would remain until other forces again raised it or lowered it to a new level, permanent so far as that one force can determine it.

§ 4. Rhythmic change and cumulative change. Into an economy that is characteristically static, disturbing influences are constantly entering. Some of these forces make a considerable temporary change which, however, is but rhythmic, as it calls into operation counter-forces, bringing back the old level of equilibrium. Other forces are more lasting.

Dynamic problems in economics are not always easily distinguishable from static problems; but in most cases the difference is clear. Changes may range from very slight and temporary departures from a certain static equilibrium to

those that are relatively great and lasting. Accordingly, two types of dynamic change may be distinguished. One is the rhythmic change, the stato-dynamic change, where the movement more or less regularly oscillates above or below a “normal equilibrium”; it is cyclical, in that the change runs a cycle above and below the normal and back to the starting point. This is dynamic in any brief period, but merely an unstable static when considered as a long-time average. Another type of dynamic change is cumulative, or transformational, or permanent, meaning that the forces at work are not such as will of themselves generate resistance (as does a swinging pendulum) sufficient to carry them back to the starting point.

§ 5. Some forces making for change. With many of these changes there is nothing that makes for permanent progress. There is a maximum and a minimum of prosperity, but the pendulum has a limited swing. There is in a rhythmically dynamic society far more of risk and uncertainty, of need and opportunity for judgment, of range for enterprise and alert management, than in a purely static state. None of these forces and influences change with perfect regularity, and even when the general average is pretty even from one cycle to the other, there is an element of the unpredictable any year about the total movement as well as about the details.

Only a few of the influences that bring about rhythmic changes are mentioned here. Political forces are constantly changing and bring economic results. In the past it has been almost proverbial that in each generation a nation must have a war, having had just time enough to recover from the last one. A vacillating policy of taxation, of foreign trade and tariff duties, and of economic legislation keeps business in a constant process of adjustment.

The discovery and production of the precious metals, gold and silver, follows always a somewhat irregular cycle. There result changes in the supply of money and in the scale of prices. The treatment of these particular questions is reserved for a later volume, but some other dynamic changes will be here considered.

§ 6. Population-change as a dynamic force. Every kind of dynamic change involves a shift in the ratio of the various factors of production in the community. On one side of this ratio is always the human factor; and the most general and far reaching of all dynamic problems is presented by changes in population. The effects of the saving and conservation of material goods, of waste, luxury, and destruction, of multiplying tools and machines and of improving them in quality by invention, all are relative to the number of people in that economy. If the number of people increases in exactly the same ratio as the area of land (having like qualities) that is brought into use, as the number of tools and machines, and as the whole economic equipment, it is as if no change took place. But if any one of these factors moves faster or slower than any one of the other, or if other changes occur of a moral, political, or educational nature affecting the capacity, efficiency, and habits of choice of men, then the static equilibrium is disturbed. A new normal equilibrium is involved in every new setting of the population in its economic environment. Some of these changes may involve little more than a substitution of one material agent for another, such as electricity for steam, or cement for lumber; some of these changes affect the relative positions of various individuals without altering much the general or average level of income; but all of them involve more or less a shift in the general level of welfare, the most important economic change in the eyes of the social student.

We shall therefore take up first the problem of population, and ask what are the effects of a change in the number of people in and of itself, other things remaining equal. Then we shall consider what are the effects of changes in the objective factors, the area of land, its fertility, the discovery, use, and using up of natural resources, and the invention and increase of machinery. Finally we shall consider the subjective factor, human nature, in its use, saving, and accumulation of wealth.

§ 7. The Malthusian doctrine. The subject of population was brought into prominence in economic discussion by the writings of Malthus.2 Before that some thoughtful comments had been made here and there, but it had been generally assumed that the larger the population the better for the country. Malthus, an interested student of contemporary projects of social improvement, was struck by the significance of some facts of observation and of history, and arrived quickly at the conclusion that the excessive growth of population is the cause of much of the misery and poverty in the world. He believed also that this excessive increase would be sure to occur in a state of communism, and would alone be sufficient to wreck the ideal societies which the reformers of that period of the French Revolution were fond of picturing.

This was the general idea, but in some respects the thought was hazy and there is even yet room for discussion as to just what the Malthusian “principle of population” is. Some think it is expressed in the proportion of the opposing ratios; population has a tendency to increase in a geometrical ratio, and food in an arithmetical ratio. Thus, says Malthus, while food increases 1, 2, 3, 4, 5, 6, etc., population increases 1, 2, 4, 8, 16, 32, etc. This was the thought of Malthus: that population was always “pressing upon” the means of subsistence, and keeping large numbers on the verge of want.

§ 8. Tendency versus actuality. “Tendency” of population does not mean here an actual movement, for self-evidently population could not increase in such a ratio, for each individual mouth must have additional food. When population has reached 2 its rate must slacken, for one fourth of the total population in the next period would starve, or, distributing the food evenly, all would have to live on an even scantier diet, until pestilence, the effect of want, reduced the numbers. “Tendency” in respect to population meant latent possibility of the population reproducing and multiplying itself provided food increase kept pace; tendency in respect to food meant actual possibilities of the food being increased by the additional hands working on the same area of land.

Bearing in mind this ambiguity the principle may be expressed apart from the two ratios as follows. Population has a tendency to outstrip means of subsistence, with the result of poverty, misery, and famine. Tendency here if carefully examined is seen to be a very complex idea, neither a simple force, nor an actual increase of numbers, but a combination of the physiological maximum of birth rate, of the natural unlimited philoprogenitive impulse, and of adequate care and sustenance to rear the enormous number of children that would be born under these supposed conditions. But there can not be food enough, hence misery and death. “Tendency” is what would happen if there were food enough, but in reality population can not increase beyond 2, the limit of the food supply. Likewise, in reality, the food can not increase beyond 2, for the increase of food from 2 to 3 is merely what would happen if twice as many hands could be put to work upon the same area, as in fact they can not be. Hence it is implied in the argument of Malthus (tho he does not clearly express it) that there is in any country a natural point of equilibrium between population and food which in the figures he has chosen as illustrations must be at 2 and 2. Evidently the food supply depends upon the stage of the arts of food production. As society changes from hunting to agriculture, from hand culture to plowing, etc., the food possible on the same area with the same labor increases, but population would quickly increase to this new equilibrium, of 3, 3, or 4, 4, etc. Population can not actually increase much beyond that point, for disease and other ills will then set in and again reduce the numbers.

Hence in Malthus’ view the law of population, expressing the relation of the number of people to the actual food, is essentially rhythmically static. Population moves in cycles up to and slightly beyond the quantity of food it can produce, then is cut down by some catastrophe, and again slowly rises to the former equilibrium. Any margin, or surplus of food production made possible by a cumulative dynamic force changes the normal static level around which population thereafter oscillates. Malthus shows by many historical examples how again and again war, or the chance failure of crops, or pestilence has greatly reduced the population of a country, and how almost invariably this loss has been made up by a rapid increase in numbers in a single generation up to the limit of the food supply, followed by another period of stationary numbers.

§ 9. Food limit versus moral restraint. Another notion very unclearly expressed and doubtless very cloudy in the mind of Malthus was the nature of this limit of the food supply. He assumes that there is such a limit at each time and country, but nowhere carefully analyzes the idea. He vaguely implies that it is all the food that the people can get, and his principle of population usually has a materialistic, a fatalistic character, with its picture of a limited food supply predetermined, in a way not quite clear, by forces outside of the choice and control of men, and setting the subsistence limit to the total population.

Yet in making his main argument against communism he shows that at least those families with private property do not put their whole incomes into food, but keep their numbers down, and direct toward other things than food a large part of the agents they control. This choice, or quality of mind, is recognized in the first edition of the essay and in the second edition is named moral restraint. A psychological factor enters here to take a place alongside of the materialistic factor, and the two never are reconciled by Malthus. Moral restraint, Malthus seems to think, is limited to a small section of the population, does not act upon the masses, and plays no appreciable part in explaining the total population of the country. He still thinks of population on the whole as regulated by the food supply. Yet Malthus does not think it useless to advise the working classes for their own welfare to postpone marriage and thus limit the size of their families. This notion became the starting point for the propaganda called neo-Malthusianism (which has advocated proposals very different from that of Malthus) to prevent very large families among the working classes.

§ 10. Inadequate recognition of psychic factors. Indeed the work of Malthus is replete with suggestions and with keen observations of history, not sufficiently analyzed or organized, and often expressed in ambiguous terms. The Malthusian doctrine of population has been the center of a continuous, and often bitter, controversy ever since its appearance, both as matter of economic theory and as to its bearing upon radical social reforms. Because of the features in it we have just noted it is futile now to line up for or against Malthusianism. Hardly any two persons mean just the same thing by that term. We may agree that Malthus got hold of a great biological principle without understanding its full bearings. Darwin was struck by this in reading Malthus’ book, and made it the starting point of his great doctrine of natural selection in explaining evolution. Since 1859, therefore, we are in a position to see the subject in much broader perspective. It is best therefore to put aside from our thoughts prejudices and controversies clustering around the Malthusian doctrine, and to find a basis for a doctrine of population in the ideas of modern biology and psychology and in the statistical facts of our times.

§ 11. The overplus of blossom. A doctrine of population is the grouping and explanation of the various influences that combine to determine the number of people in the several localities and in the world as a whole. The most fundamental fact in the doctrine of population is the surplus of life germs. In every species of living organism, vegetable or animal, the production of germ cells in each generation is vastly greater than the number that develops into living offspring. Yet the number of offspring born is much greater, in most species vastly greater, than would suffice to maintain the number of living individuals undiminished if all the young lived to maturity. Each species has an average or normal birth rate, great or small. Insects produce thousands of eggs each, fish produce hundreds, the rabbit a score of young in a year, and the elephant but one in three years. Clearly there is a general inverse relation between the intelligent care that the parents of any species give to their offspring, and the number of life germs produced. Nature economizes the forces of the species by a gradual reduction of the real surplus, but always leaves what the engineers call a “factor of safety.” There are so many chances of accident, that if the number of germs is enough only in favorable conditions, the species will become extinct under any conditions in the least unfavorable.

§ 12. Limit of the food supply. These myriads of seeds seeking for a chance to germinate, these myriads of young in every species seeking to survive, can not possibly grow to maturity. Even the slow-breeding elephant, with a period of gestation of three years, and producing one calf at a birth, would cover the entire earth and leave no standing room in a few centuries if every calf born could live to maturity. In how much briefer time would the fast-breeding animals and insects cover every foot of the earth! The limit of the food supply alone would prevent this. This has been demonstrated repeatedly when herbivorous animals have been placed on an island from which they could not escape, and where there were no large beasts of prey. This demonstration was made on an enormous scale when the rabbit was introduced into Australia, that peculiar and long isolated continent containing none of the rabbit’s ancient enemies. The rabbits increased and devastated great areas, and tho they have been hunted, trapped, and poisoned by the millions, and great numbers of them have died of starvation outside the wire fences erected to stop their progress, they still continue to be a pest. If there were no other limit earlier interposed, this ultimate limit of the food supply would quickly check the increase of any form of animal life.

§ 13. Eater and eaten. The destruction of one kind of animal by another limits numbers in another way. The number of lions is limited by the number of their prey in the region where they roam. The number of deer, therefore, is limited in two ways, by the amount of their food and by the number of lions which catch the deer. The more numerous the lions, the fewer the deer; the fewer the deer, the greater the supply of vegetable food; as the pressure increases on one side, it decreases on the other, until an equilibrium is reached. Some carnivorous animals will in times of great hunger eat the weaker members of their own species, even their own young. The actual limitation here is thus not starvation, but violence induced by hunger.

Geology tells the story of a slow and steady change that has gone on in the earth and in the species of animals that inhabit it. History records some rapid changes due to convulsions of nature or to interference by man with the natural conditions. But the usual condition is an equilibrium of numbers, long maintained. Tho each species of animal has a capacity for unlimited multiplication, throughout nature each keeps its customary place, changing little despite its efforts to increase and to crowd into the habitat of other species.

§ 14. Features of the biologic stage. Every species of animals thus presents the problem of the adjustment of numbers to environment.3 Among wild animals this adjustment is in the biologic or instinctive stage, which is characterized by these features: (a) A physiological factor, the physical capability of developing reproductive cells, and of nourishing and protecting them up to the time that they become separate living beings through various processes in the oviparous and viviparous animals. (b) A psychological factor, the instinct of reproduction impelling to the realization of this physiological factor. (c) An absence of any knowledge or understanding of the relation between the instinct and the birth of offspring, and consequently the lack of any attempt to restrain or regulate the birth rate. (d) “The physiological maximum birth rate,” being the number of births relative to the number of individuals capable of reproduction, that results from the unhindered operation of the two prime factors, physiological and psychological. (e) A certain degree of parental care after birth, normal to each species, to help the young through the early period of life. (f) The survival of the individuals thereafter depending on their inherent strength, vigor, and habits of life (including gregariousness and coöperation), and on the objective conditions of accidents, disease, food supply, rivals, and enemies.

§ 15. Primitive populations in the biologic stage. The long life of the human race on this globe has been spent almost entirely in this instinctive stage of population. In many savage tribes when first visited by European travelers, the physiological maximum birth rate seems to have been nearly attained. In some tribes it was well nigh normal that a woman of forty years of age had given birth to twenty children—yet those tribes had only a stationary population. Every Esquimau girl is married in her ’teens and carries a baby on her back each summer, yet the population of Esquimaux does not increase. To the simpler native peoples even to-day the nature of birth is a mystery (paragraph (c) above). A recent scientific observer of the Australian tribes found them still in this state. Every girl is married, and every widow is remarried within six weeks after the death of her husband. This is the biologic stage of population, remarkable in that with a maximum birth rate the total population is either stationary or merely rhythmically changing.

Few human societies known to us are so primitive that they have not passed this stage, but many societies have risen only little above it. In most savage tribes, where starvation, disease, and war are constantly at work, the difficult task is to maintain the population. The birth rate is enormous, but few of those born arrive at maturity. It would be hazardous to tribal existence under these conditions to limit the birth rate. The custom of the adoption of captives from hostile tribes is wide-spread, because the efficiency—the very survival—of the tribe depends on keeping up its number of warriors.

§ 16. War and the pressure of population. War is the normal condition of most primitive tribes. Its cause usually appears to be standing feuds and ancient enmities, but the deeper and abiding economic cause is the struggle for hunting grounds, for pasturage, and for control of natural resources. When resorting to war as the rude remedy for overpopulation mankind is hardly above the animals, who fight for food against other species of animals or against their own kind. Hunting, fishing, or pastoral people, or those in the earlier stages of agriculture, require a large area for a small population. Distant excursions and frequent forays, when food fails, develop rival claims to favored districts, and war is the only settlement. Fighting under these conditions is an activity of such economic importance that much of the energy of the tribe must be strenuously given to it. The ceaseless loss of life in savage wars is almost incredible to modern minds. The successive invasions of the Roman Empire by the Teutonic tribes, and the later inundations of medieval Europe by the fierce pastoral tribes of central Asia, were undoubtedly due to the increase of population and the outgrowing of resources by these barbarian peoples, or to the failure of their food supplies because of seasonal or of climatic changes.

Note

Definitions. Statics (status, state, stationary) is that phase of a science which has to do with an equilibrium which must result in time from the existing group of forces, operating in unaltered magnitude. Dynamics (dynamic force, movement) is that phase which has to do with the changes in process as the result of new or stronger or weaker forces, which are more or less permanently unsettling the static equilibrium and are carrying the point of normal equilibrium itself to higher or lower levels. The terms static and dynamic in economics, therefore, may be applied to forces, prices, equilibriums, problems, situations, and economies (altho the forces may meet with increasing resistance that at length puts a limit to their effects, as the resistance of a spring balance checks the weight at a certain point). The change may be either progressive or retrogressive, and a higher or a lower level may be reached and maintained until some quite different force coming from another direction is operative. There are changes that in a brief view appear to be cumulative, which on longer study are seen to be rhythmic. Again and again men have been forced to revise their judgments, either hopeful or discouraging, of current tendencies, after time had enabled them to see a larger segment of the curve of change returning to its former level.

CHAPTER 33

VOLITIONAL DOCTRINE OF POPULATION

§ 1. Volitional control; beginning and development. The action of mankind with relation to population gradually changes from merely instinctive to volitional control. By volitional control is meant any purposeful act of mankind by which the effects of the biologic factors determining the birth and survival of children are weakened. This may be done directly or indirectly in a great variety of ways, by individual men or women or by social customs, beliefs, and institutions which individuals share and which influence their actions. One of the crudest, earliest, and most general methods is the destruction of offspring before or after birth. The student of savage races finds in the methods applied to prevent the birth of children an almost inconceivable brutality. Infanticide was practised in ancient times among the most advanced peoples, as, for example, in Sparta and Rome, where not only deformed and weak children, but unwelcome ones, were destroyed. The practice is permitted even to-day by public opinion among some classes in the densely populated districts of the world. It is one of the dark spots on our own civilization.

In all savage tribes marriage is surrounded by ceremony and in many by economic obstacles. Usually the young man is unable to marry until he has become skilled in all the arts and learned in all the traditions of the tribe, and has proved his prowess in the hunt and in battle. It is the merit system with a qualifying examination for matrimony. Even then the young man must have enough pelf to buy a wife from her family, or (in exogamy) must steal her from a neighboring tribe or clan (not being allowed to marry within the clan). In modern days every artificial taste and sentiment that encourages bachelorhood or spinsterhood is an element in volitional control. Postponement of marriage (as recommended by Malthus) beyond the natural mating time, is one of the chief methods of volitional control. It is rare that the motive for postponing or altogether avoiding marriage is directly and immediately the wish to escape parenthood; now it is religious zeal (monasticism and celibacy of the priesthood); again it is disappointed sentiment; here it is conflicting duty (education, family ties); and there it is the individual’s selfish wish to retain an undivided income for his own enjoyment. By countless strands of motive in the form of sentiments, social institutions, and interests the primitive impulses of humanity are firmly bound; and in varying degrees, in different classes, the enormous possibilities of reproduction are controlled by human volition.

§ 2. Volitional control and private property. Along with enmity for other tribes is found in many early societies an approximation to tribal communism. A condition of communism means that all enjoy together when food and wealth are abundant, and all starve together when food becomes scarce. In truly communistic conditions, if population increases all must sink together into want. Private property alters the nature of the struggle for subsistence and of the motives for limiting population. Society divides into a number of partially independent classes or family groups, each holding its share of wealth apart, not in common with the tribe. The pressure of increasing numbers upon resources is confined by individual industry and by private property to special portions of the population. A society with private property is like a ship divided into a number of water-tight compartments. The worst effects of famine, the growing want of food due to growth of numbers, the increased disease and starvation, are confined to the propertyless members. Both the rewards of industry and the penalties of idleness, incompetence, and improvidence are made more definite and calculable. This affects volitional control of population in two ways: it strengthens the motives for the production of wealth and for abstinence by individuals and in family groups; it gives a motive for the limitation of the number in the family, the consumers of the wealth. A smaller family with larger resources means a wider margin between numbers and misery, and less “pressure of population upon subsistence.” This converts the problem of population from a material one of a balance of food and physical needs, to a psychic one of a balance of motives in the minds of men. When this stage is reached, the extreme objective limits either of the birth rate or of increase of population are no longer attained in the well-to-do classes; and at length every class down to the most improvident becomes in some measure affected by these motives.

§ 3. Class differences in volitional control. No wonder then that volitional control is effective in very different degrees in different families and industrial classes. The possession of property is both a sign of forethought and an incentive to it. Concern for the welfare of children is one of the most powerful motives, especially after social distinctions become marked. It may become abnormally strong, leading parents to sacrifice their own welfare or their own lives foolishly for their children, as is done often in the accumulation of property. Among the classes with property the provision for the children depends not only upon the amount of wealth, but upon the number among whom it is to be divided. It is simple division: wealth the dividend, number of children the divisor.

Among the poorer classes very different motives operate. After the first few years of the children’s lives the parents’ incomes are increased by the earnings of the children, both on the farm and in the factory districts if the laws do not prohibit child labor. Moreover, when the children are grown, their incomes (wages) will depend on the general labor market, not on the number of their brothers and sisters. So according as the family income is mainly from capital or from labor, the motives of the parents differ.

This view is supported not only by general observation but by many statistical studies wherein the marriage rates, birth rates and survival rates of different states, districts, territorial divisions of cities, and industrial classes have been compared with the economic forethought as indicated by some phenomenon such as per capita wealth, taxes, savings, education, etc. The correlation between volitional control and the economic factor is remarkable when large numbers are involved. Those detailed studies have shown that volitional control is not as clearly dependent on the amount of accumulated riches as it is on frugality, prudence, or abstinence, as one may prefer to call it. The middle class of shopkeepers, artists, professional workers, and small capitalists, striving to get ahead, and to give their children a good education and a start in life, show as a class the maximum of restraint of population, having smaller families than either the richest classes or the poorest.

§ 4. The standard of life. The phrase, “standard of life,” expresses the complex thought of that measure of necessities, comforts, and luxuries considered by any individual to be indispensable for himself and his children; that measure which he will make great sacrifices to secure. This standard differs from land to land, from class to class, and from time to time. In the Asiatic countries it is so low that it touches in large classes the minimum of subsistence. Despite adverse influences and a remarkable series of famines, the population of India in the last century under English rule increased from two hundred millions to three hundred millions. Such a population “lets out all the slack” of income, and never takes up any. The great public works of irrigation, forestry, and transportation, and the development of industry under English rule increased production, made it more regular, and gave an opportunity for a higher standard of living; but much of this opportunity was used instead to permit the existence of a greater number of men in the same old misery. These facts have a bearing upon the question of Oriental immigration to America. The emigration of millions of the lower class laborers of China and of India from their native lands would leave no void in their numbers. Those races, while peopling their own lands constantly down to their own standard of living, have the power, if they are tempted hither in great numbers, to people this continent also to the same density. On the other hand, a people accustomed to a goodly income and to a large measure of comfort of surroundings is restrained from early marriage and large families by far different motives than the fear of starvation. When the increase of population ceases to be actually limited by objective restraints and is limited by psychic means, there is no telling how strong the new forces will become or where they will cease to operate.

The desire to maintain and raise the standard of life is the most effective motive limiting population in our society. The American standard of living, while it differs in different classes, is on the whole the highest found anywhere in the world. The increasing appeal to individual selfishness, the greater ease of travel and taste for it, the multiplied and costly pleasures and pastimes, make children a greater and greater burden. The conditions of city life call for greater sacrifice to support children, and give less value to their services in the home. In the greater cities are large areas where no family with a child can rent an apartment. Despite the increasing incomes of the masses of the population, the number of childless homes is increasing, and while the standard of comfort grows, the size of the average family dwindles.1

§ 5. The quality of population. The quality of population is of quite as great import as its quantity, alike in its economic, its social, and its ethical results. The productive force of a population is not measured merely by numbers. “Who” make up the population at any moment is no more a matter of indifference than “how many.” One new-born child, unintelligent, incapable, foredoomed to become a burden, represents a negative addition to society; another, with energy, thrift, inventive genius, comes to enrich and uplift his fellow men. Quality counts for much. Social progress is not necessarily the biological betterment of the native ability of men. The education of the average member of society is becoming yearly better; it is doubtful whether the innate capacity of a new-born babe in Europe and America to-day is greater than it was among our Germanic ancestors in Roman times. Indeed, the progress of the past two thousand years has been in social organization, in the enlargement and simplifying of the mass of knowledge which has to be reappropriated by each new individual, rather than in racebreeding and in quality.

Few thoughtful persons now hold the view that the race can be improved biologically, rapidly if at all, by the process of educating the individual. Education is cumulative in so far as it builds up a better environment into which other children will be born, but the betterment is not due to the inheritance by the child of the acquired knowledge and skill of the parent. If this question is open to dispute among biologists, it is only as regards a minute increment of improvement. Practically, selection preserves the better variations as they appear, and to eliminate the bad variations is the only means of improving the innate capacity of any species in any large measure. Many forces were at work in the past to lift man above the brute, and especially to increase the average brain-power of the human race. The weak, the ignorant, the incapable, in primitive societies were ruthlessly killed off. The strong, the sagacious, and the enterprising left the largest numbers of descendants.

§ 6. Decrease of the successful elements. Under modern conditions, volitional control is acting with the greatest force in the more capable classes and thus threatens to reduce the quality of the population. The successful elements of society are the less prolific. Large families were the rule among the capable pioneers of America; now they are rare except in the lower industrial ranks. The average number of children reaching maturity in the families of the American colonists was six; the average number to-day in families of colonial ancestry is about two, except in the rural districts of parts of the South and West. Since many of these children do not live to maturity, and of those who do survive many do not marry, the stock does not maintain itself in numbers. Much larger families are found among the poor whites of the mountains, the newly arrived immigrants in the cities, the negroes in the black belt of the South,2 and, in general, those in the lower ranks of labor. Forces are at work to sterilize or reduce in number the elements of the population that are more prosperous and enterprising. The “new woman” movement, tempting into “careers,” takes away from family life many of the women most worthy to become the mothers of succeeding generations. Self-interest is at war with the social interest. The individual asks, “Am I bound to sacrifice my comfort and happiness to the general good?” The effect of this is a steady decline in the proportion of the population (referring, of course, only to general averages and not to particular cases) born of the successful strains of stock, and a steady increase of the descendants of the mediocre and duller-witted elements. This is a paradox, that the fittest to succeed industrially are, by that very fact, beaten in the race for biologic survival.

Democracy and opportunity favor this process of increasing the mediocre and reducing the excellent strains of stock. Caste and status in the past kept successive generations of capable men in humble social ranks from which only by chance some remarkable individual could rise. In a democracy, those of marked ability can more easily move into the better-paid callings and professions. This individual good fortune, however, reduces the probability of offspring. In the higher ranks of business and the professions are more bachelors and old maids than in the lower ranks, and fewer children are born to each marriage. It has been found that one fourth of the graduates of Harvard in the last generation remained single, and the average number of children of the married graduates is two. That group of men, therefore, has left only three fourths enough descendants to maintain its numbers, and as the population has doubled within the same generation, that class represents only three eighths as large a proportion of the American stock as in the preceding generation.

§ 7. The menace to progress. This sterilization of ability has cumulative results. If society were composed in equal parts of two distinct strains of stock, not intermarrying; if the total population remained unchanged in numbers from one generation to another (say each period of thirty years) but the superior strain contributed only three fourths of its own number, at the end of five generations it would have sunk from one half to a little more than one eighth of the population. A period brief in the life of nations would serve to leave it an almost negligible factor in the community. There can hardly be a doubt that at present our society is on the average increasing more from the less provident, less enterprising, less intelligent classes. There has not yet been time for many of the cumulative effects of this process to appear. Progress is threatened unless social institutions can be so adjusted as to reverse this process of multiplying the poorest and of extinguishing the most capable families. The object of the eugenics movement is to introduce an element of rational direction into the process of perpetuating the race, so that disease, weakness, and degeneracy may be diminished, and health, strength, and superior capacity shall be increased.

§ 8. The net resultant of population. Whether the population on the whole shall grow, stand still, or diminish depends on the relative strength of contending forces making for life or death; on the one hand, those favoring a high birth rate and low death rate, and on the other those limiting births and survival. This control of the movement of population loses its cruder aspect and is waged in the realm of motive. More and more it is volition that controls in human society the growth of population; less and less it is the objective limit of the food-supply. Dire need resulting in ill-health and even in starvation is still acting in some portions of society, but less to-day than ever before. The growth of population in this stage is not “fatalistic,” as there is no inevitable tendency to increase or to decrease. It depends on the interaction of a number of forces, clearly distinguishable, by which population actually is kept far within the limits of food resources. Human choice is the guiding influence, choice shared by every normal member of the community.

§ 9. Volitional control decentralized. Volitional control is not exercised by a central and unified despotism determining human action, but it is effected by motives of the most complex sort, diffused throughout society and acting upon every member of it. Volitional control, in its very nature, is decentralized. Each individual and family group, by its own choice, places limits upon its addition to numbers, decides how much margin shall be left between its standard of life and bare subsistence, and how it shall use the income which would permit earlier marriage and larger families on a lower standard of living. The whole population, it is true, is an arithmetic resultant of the population changes within the separate family groups; but large classes and districts show certain average differences, which continue for long periods with little change (e.g., the rural peasantry has a higher birth rate than the city artisans; French Brittany higher than the departments near Paris). There are easily observable causes for these differences among classes and districts, yet there is no organic connection between the parts, such as, for example, might make it necessary for Brittany to make up the deficit of the Parisian neighborhood in order to maintain a stationary population in France. In any community with a population stationary because of volitional control (e.g., France between 1900-1914) and not from objective checks (war, famine, etc.), it is both possible and probable that the population will begin to decrease. This must happen when the ideas, customs, ambitions, and practices of the groups which do not maintain their numbers, gradually spread to the groups which only a little more than maintain their numbers. The opening up of opportunities for young men to marry as population declines (as by farms becoming tenantless, houses vacant, etc.) retards the decrease of population, but the standard of living and individualistic desires may advance more rapidly than the incomes, and cause population to go on decreasing. A check to this movement can come, it would seem, only through changes in ideals as to social duties and race culture already foreshadowed, but too complex to be foreseen in detail.

§ 10. Conclusion on Malthusianism. In the light of the preceding discussion what is to be the judgment on the doctrine of Malthus? Can the question, “Was Malthus essentially right?” be answered with yes or no? It is best to decline to answer the question put in that way. His outlook on the matter was so different from ours, and the doctrine involved various elements some of which have stood and others have fallen. Let us distinguish. He was right in his assumption that the physiological maximum birth rate is excessive for modern conditions. The purely biologic parts of the doctrine of population have since his day been given a much broader justification. Man is physically an animal, and if he were not more than an animal mentally and morally, the adjustment of population to resources would be no different from the struggle of animals for existence. He was right in this hypothetical conclusion, and there are those who take this to be the most essential part of the Malthusian doctrine.

But Malthus himself did not look upon this as his principle—but only as a premise, a fundamental fact from which he reasoned. His “principle” was that there actually is and must be this pressure of population against subsistence. It involved the notion that the food supply, as a thing somehow outside of the power of men to control, determined the size of the population. It was offered as an explanation of misery, and as a prophecy of inevitable misery to come. This does not accord with past experience or with present conclusions of reasoning. Indeed, Malthus never rightly adjusted his idea of “moral restraint” to his ideas of objective checks. He never adequately comprehended the rôle of the volitional factor. He thought of it as modifying in certain circles, but not as transforming for whole populations the process of the adjustment of numbers to resources. He tried to keep his doctrine on a material basis, as the ancient philosophers put the earth upon a giant and a tortoise. He did not conceive of population as removed from this material basis, suspended in space, held (as is the earth by gravitation) by the intangible forces of volitional control.

Finally, Malthus had no conception of the importance of quality of population and the way that quality modifies the relation of numbers to material resources. He did not appreciate the dynamic influence which the very pressure of population and its necessities may have in stimulating effort and invention. He conceived of population movements as rhythmic, but essentially static. His was a static doctrine of population. Only in his somewhat crude biologic doctrine (no small matter, however) has he stood the test of time. In all other regards his views have had to be greatly modified, corrected, and developed to fit the needs of modern thought.

CHAPTER 34

DECREASING AND INCREASING RETURNS

§ 1. Estimates of the world’s population. The movement of population can be known with approximate accuracy only where a census of the population is regularly taken. This was done nowhere until the end of the eighteenth century, and even now is done for only a small part of the world. In all other places and times, movements of population can only be estimated, usually from very insufficient data. It is certain, however, that in ancient times a considerable density of population was attained only in a few centers of empire (Egypt, Babylon, Persia, Greece, Rome, etc.), where peace, trade, fertile soil, comparatively advanced methods of agriculture, accumulated wealth, and extended political power with tributes from subject people were combined in an exceptional degree. Nearly the whole of the habitable globe was possessed by hunting tribes or by pastoral nations very sparsely peopling the lands. It has been estimated that the population of the earth at the death of Augustus (19 ad) was about 50 million.1 Since 1800 there is more of knowledge and less of guess work in the figures, which have been estimated as follows:2

Repeating the warning that these figures are mere estimates, it may yet be believed that a great increase had taken place between the first century and the year 1800, of which a large part, about half, had been in the Chinese Empire, numbering then about 300,000,000 people. But the most enormous increase occurred between 1800 and 1910, about one billion people being added to the world’s population, the total in 1910 being nearly three times as great as it was in 1800.

The population of Europe is said hardly to have exceeded 50,000,000 before the fifteenth century3 at which time England had about 2,500,000 people.4 Population grew rapidly from the end of the fifteenth century with the increase of centralized government, better agricultural methods, foreign trade, inventions, etc. An enormous loss of life took place on the Continent during the Thirty Years’ War (1618-1648), still a term of dread in Germany which, during that time, lost through violence, pestilence, and famine about two thirds of its former population. Despite numerous wars the population of Europe, according to a widely quoted estimate, was 130,000,000 in 1761,5 and was about 175,000,000 in 1800.6

§ 2. Population growth in Europe since 1800. Population increased in Europe at an unprecedented rate in the nineteenth century. It numbered about 175,000,000 in 1800, over 250,000,000 in 1850, about 390,000,000 in 1900, and 400,000,000 in 1910. Many things helped to increase the food-supplies available for Europe. The resources of the American continent were hardly touched until the great western movement of population began and new agencies of transportation brought American fields thousands of miles nearer to European markets. The improvement of machinery and of other economic equipment in Europe, and better methods of cultivation aided to increase production rapidly. Population followed, tho not with equal step. The increase has gone on at undiminished pace in eastern and southeastern countries but recently there has been a notable decline in the rate of increase in several of the countries of western Europe. France has been nearly at the stationary stage since the beginning of the twentieth century, and England probably will have reached it by the middle of the century. The great war begun in 1914 must, in the warring nations, greatly reduce the marriage rate, increase the death rate, and reduce the birth rate, until the end of hostilities. The men killed in battle are fewer than the children never to be born, who but for the war would have come into the world.

A stationary or declining population throughout Europe sometime after the return of peace is a possibility. But this does not destroy the significance of the fact that there is inherent in humanity a great potential power of increase, the realization of which would be disastrous, the limiting of which either by crude objective means (famine, war, illicit measures) or by violitional means is inevitable. It does not disprove the great biologic proposition in the Malthusian doctrine.

§ 3. Increase since 1790 in America. The growth of the population of the United States since 1790 (the date of our first census) has been proportionally much greater than that of the European countries. But it has been in two respects different from theirs, and abnormal: in being so greatly aided by immigration (while many of them lost greatly by emigration); and in spreading over wide new areas of land, almost uninhabited before, instead of merely increasing the density of population on the same area of land.7

The population the first three decades increased almost entirely extensively, moving toward an ever-widening frontier, spreading itself over a great territory. Twice did great additions of territory cause the average density to decrease (1800-1810 and 1840-1850). Cities, meantime, were growing, and decade by decade from 1850 on the growth of population was in nature more intensive. The increase in the number of persons per square mile in the first thirty years was almost nil, .7 of a person; in the second (1820-1850) was 2.4 persons; in the third (1850-1880) was 9 persons; and in the last (1880-1910) was 14 persons per square mile. The increase in density was 20 times as fast in the last thirty as in the first thirty years, having almost doubled between 1880 and 1910. A large part of our area is desert, greatly inferior to the sandy northern plains of Europe, and a large part is barren mountain (the Rockies), greatly inferior to the well-watered Alps, as a place for human habitation. Still the population of the United States is sparse compared with the countries of Europe.

§ 4. Relation of population to resources. We can account for this wonderful growth of population throughout the world only in the light of the increased power of production of wealth. The population of different countries, and of different sections of a country, is seen to bear a general relation to their resources. A community with a poor soil, little wealth, and no machinery is doomed to remain few in numbers. Mountains, districts poorly watered, the frozen regions of the North, are sparsely populated because natural resources are lacking. If food production alone is thought of there are apparent exceptions to this statement, but there are no absolute contradictions of it. A favored harbor may make possible a flourishing commerce on a rocky coast; an infertile soil may support a large population when great deposits of coal or iron insure, by exchange, great food-supplies. Productivity must be measured under modern conditions by the purchasing power that is possible in the environment.

The whole world has been coming more into the condition of political security, settled industry, and improved methods of production. The result has been a great reduction in the extent and severity of famines, an increase of the real incomes of the masses, and the survival of large numbers of people, young and old, who formerly would have been cut off. The increase of wealth, made possible by the new conditions, has gone largely to increase the number of people. The biologic factor in population is great and ever present.

§ 5. Birth rates. The increasing population has not been due to any general increase in the birth rate. In most countries where there are any records it has been decreasing, and in some cases more rapidly than has the death rate. The world’s birth rate in 1911 is estimated to be 36.5 per thousand of population; that of the more advanced industrial countries is much less. In the quarter century between 1886 and 1912 the birth rate decreased in certain countries as follows:

§ 6. Death rates. A general decrease of the death rate makes possible a growth of population even with a decreasing birth rate. The food production has been increasing and famines have been decreasing, while great improvements in medical and in sanitary science have at the same time been made. The death rate in a community is a rough index of its general welfare: the death of a large proportion of the children before they arrive at maturity indicates poverty or ignorance. The urban death rate in Europe in the Middle Ages was tremendously high, but during the nineteenth century, as a result of engineering and sanitary progress, it sank nearly to that of the country districts. The race of man, ever since the beginnings of volitional control, has had a smaller death rate relative to the total number of individuals coming into existence than has any other species of living creatures. Even in the most miserable industrial population where one half the children die before they are five years old, the death rate is much less than among the young of the lion or the eagle. The average human death rate became much less in the nineteenth century than it had ever been before. The death rate in the world as a whole in 1911 is estimated to be 28.9 per thousand, which is far greater than that of the more advanced countries. The decrease in a quarter of a century in certain countries is as follows (for comparison with preceding table):

The estimates of world population indicate that the increase of numbers was at the greatest rate in the half century from 1830 to 1880 and that it is now much less. Population increased so rapidly that the limit of resources began to be felt. The pressure of population makes itself felt in various ways, and on various levels of national culture in Japan, India, Germany, the United States, and in almost all other lands.

§ 7. Population growth and intensive cultivation. Let us analyze the process of change when population is a dynamic factor. A growth of numbers disturbs an established equilibrium of cultivation on the extensive and intensive margins (see Chapter 12), changes the relation of the value of labor-services to land uses (and to all instrumental uses), and leads to new levels of adjustment. Real changes are, of course, always complex, and along with population-changes go changes in machinery, area, methods, use of fertilizers, etc. Our question is as to the effect of population-change in itself considered, other things being equal, and for simplicity is limited here to the case of staple food crops.

A population on an area varying in fertility would apply its labor to the best tract. This, in an earlier example (Chapter 15) would be A, where, by hypothesis, 10 days’ labor produces 24 units. Wages would stand at the level of 2.4 bushels and rents would be nil. When the pressure of population requires that B should be cultivated, the wages on A would be 22 bushels and rent about 2 bushels. When cultivation moves to tracts C and D, rent arises successively on B and C. If each tract continued to be cultivated with the same amount of labor as before, the rent on A would be first 2, then 4, then 6 bushels when tract D first came under cultivation; the rent on B would then be 4 bushels, and the rent on C, 2 bushels. (See Figure 59.)

But with each extension of the margin of cultivation there should occur increasing intensity of cultivation on the older tracts, so that the return to a unit of labor should be equal in the two uses. When labor will yield but 2.2 bushels on B, it will be applied on A as long as it yields as much as 2.2 bushels (not 2.4 as before). Then this would work out as to rents and wages (in bushels) as shown in the table. (The amount of increase of labor for intenser cultivation is arbitrarily assumed. It would vary in practice but always be more intense as cultivation extended.)

So far as the rent results from differences in fertility, it depends on the maintenance of the fertility. If the fertile qualities of the better fields are not restored and maintained, the yield on the once better land would fall at the same time that cultivation extended to the poorer land. Rent may, however, in some cases result from mere advantage of location as population extends.

When a change in the relative quantity of land (or other agents) occurs that imputes to labor less bountiful results, it is a case of decreasing returns; a change in the opposite direction (through discovery, opening of new lands, increase of agents, etc.) is a case of increasing returns.

§ 8. Law of increasing and decreasing returns. The law of increasing and decreasing (or diminished) returns may be thus stated. The amount attributable to the labor element of a whole population varies with the amount and efficiency of the material agents at the disposal of labor, increasing if they increase more rapidly than population, and decreasing if the population increases more rapidly than they do. It is one aspect of the law of proportionality as applied, not to a private enterprise, but to the relation of the whole population to its resources. The law of decreasing returns received a name first, and the term has been loosely applied to many very difficult problems.8 It was first used in England about 1815 with reference to land in agriculture under steadily increasing intensity of cultivation of the soil year by year in order to get more food per acre. It was called the law of “the decreasing returns of capital and labor as applied to land.” The course of events in England called attention to the subject. Population was growing rapidly, and there was need for more food. During much of the time from 1793 to 1815 England was at war, and it was hard to obtain food from abroad. The English farmers, tempted by the higher prices, took poorer lands (marshy, cold clay, infertile) into cultivation and sought to get larger crops from the older fields. This took more labor per acre, and yielded a larger total product, but less per day’s labor. Grain and other produce rose in price, land rents and land values increased, wages fell, and therefore the peasant’s day of labor bought less food than before. The worst period of all for high wheat prices was from 1800 to 1813; the year of highest recorded annual average price was 1812, $3.80 a bushel. It was a lesson in dynamic economics on a large scale.

§ 9. Increasing returns in the nineteenth century. Other forces were at work to create better dynamic conditions in western Europe. The great war ended in 1815 and wheat prices in England fell to a much lower level by 1822. This level was nearly maintained in English markets until 1877. Then again was a great fall to the lowest point in 1894. Returns in agriculture after 1815 were on the whole increasing

until 1894. Accordingly, a day’s common labor exchanged for more food than before. Population grew, but still improved methods of agriculture produced more with less labor. Methods of transportation improved and the additional food was imported instead of being produced by very intensive cultivation of the limited area of England. After the forties a great Irish emigration actually reduced year by year the total population of Ireland. Methods of production outside of agriculture were at the same time improving, and real wages almost steadily rose in western Europe throughout the nineteenth century. The great fall in wheat prices as measured in the markets of Liverpool from 1878 to 1894 which bankrupted many farmers and reduced agricultural land values in the eastern United States and in western Europe, brought cheap food to the people. It was a period of increasing returns in agriculture, as an actual historical fact. It is a question whether that period did not come to an end about 1895, the growth of population in the international food markets of Europe and America having overtaken the increase of command over agricultural lands and brought us again into a period of decreasing returns.

§ 10. Rhythmic changes of population. Changes in population are constant. Until recently these changes have generally been of a rhythmic nature. Again and again, in the history of savage races, the failure of a single crop, war, or a plague would reduce a population in a few years much below a former level. This loss usually would be recovered within the next one or two generations. An enormous loss of population, however, such as that from the Black Plague in England in the fourteenth century, might rarely cause returns to the laborer to increase so greatly that the effects were not lost for a century. War, invasion, immigration, would reduce or add to the population of each country, yet on the whole the density of population would continue on about the same level from century to century. Good rulers and bad came and went and the education varied above and below a certain average. The amount of rainfall in some localities or in whole countries rises and falls in a pretty regular cycle of eight to ten years, more or less, causing food supplies to vary, as in the seven fat years and the seven lean years of biblical Egypt. The conditions for special crops, such as frost, snow, sun, cloudiness, hail, vary from year to year; and many insect pests run in cycles alternating with the insects’ food supply and parasitic enemies. In a larger view the rise of labor-incomes that resulted from the opening of America and with the agricultural improvement of the last century may prove to be only rhythmic, not cumulative. In so far as a rapid increase of population results, incomes are again lowered toward the former level.

§ 11. Cumulative dynamic economy. The growth of population in European and American countries in the past hundred years has gone steadily onward, not canceled by losses. The addition made to numbers (tho not necessarily a further continuation of the growth) is at least for a long period to come, a permanent fact. The movement is doubtless partly, but not wholly, rhythmic, and if a future decrease comes it is likely to result from different causes. This growth of population has gone along with other changes of an equally enduring character. Of this kind is the great increase of area open to settlement by the advanced industrial peoples, the permanent displacement on a whole continent of the savage, hunting economy and its inefficient methods of food production—the improvement of transportation opening up new sources of materials and foods to the older countries, and the rapid consumption of our supplies of timber, coal, and other mineral resources for which substitutes are difficult if not impossible to find.

§ 12. Individual and general adjustment to static conditions. In every economic situation there is involved an equilibrium of values and prices. It is the theoretically correct set of prices and incomes—not what we might wish to see but what logically results from the presence of men, desires, and goods as they are. In this equilibrium and in the movements bringing it about, there are two kinds or aspects of adjustment to be observed, the individual adjustment and the general adjustment. Each individual, it may be assumed, moves toward the occupation that (as conditions are, which he can not alter) offers him the best return (theory of wages), and uses his agents (theory of usance) so that they give the best return he knows how to obtain. If no new force is introduced and existing forces are permitted to work themselves out, a static equilibrium will result and will continue unchanged. The principle of proportionality would apply to all the combinations of factors in this equilibrium. At the prevailing prices and with the prevailing methods, so much labor of a certain kind should be used with so many agents of various kinds. If either more or less of any factor is used, the result is a product of less value for the costs and hence yielding a smaller profit (theory of profits). If a new method or a new proportion is found to be better, this is a new dynamic element. But if the theoretic, static equilibrium has been attained, there is no chance to increase the yield except when correcting a previous error by which the ideal adjustment was missed. The individual having found what seems the best adjustment has only to hold steadily to it.

Underlying each individual’s adjustment is the general adjustment of prices and yields. Under these conditions not only this workman but all like workmen can get such an amount of real wages; not only this bushel of wheat and bale of cotton bring the price, but all other like units do the same; not only this acre of land, but all other like acres of land will have equal values and uses. The individual in making his adjustment is simply trying to get into line with the general situation, to find his true place on the various levels of prices made possible by the totality of conditions.

§ 13. Adjustment to dynamic forces. In a dynamic situation the adjustment still has the two aspects. The individual workman, the passive capitalist, and the enterpriser are all endeavoring to attain to an ideal adjustment inherent in the new situation. We have already seen in many connections and in many examples how profits and losses multiply in dynamic conditions.9 Every dynamic force in industry unsettles an equilibrium, makes some factor more or less plentiful, technically efficient, and valuable. The new ideal adjustment must be made quickly and correctly. Sometimes using more of a factor than before yields a larger profit, sometimes using less may do so. The general adjustment that goes on in dynamic conditions is most important because it involves not merely the change of this or that personal fortune, but the raising or lowering of the real incomes for whole sections and classes of the population, and therefore alters the general economic welfare.

Note

Various meanings of diminishing returns. The chief other meanings given to the phrase law of diminishing returns, which must be deemed to be more or less confused and erroneous, will here be noted.

It is confused with the law of proportionality or with the law of enterpriser’s cost, especially as applied to the use of land in agriculture. The fact that a farmer can not profitably employ an unlimited amount of labor in any one year on a single acre is said to be due to the law of diminishing returns. A like application of the term is made in explaining the limitation in the use of land for other purposes, residence, etc. (see above, the principle of proportionality, ch. 12). This application is still further extended to the use of all other kinds of agents. Later and exacter criticism (notably Edwin Cannan, in “Production and Distribution,” 1894) has discerned that more than one problem is involved (which he called technical and historical diminishing returns). In our view there are at least three distinct problems: (1) technical proportion, the best mechanical or physical combination; (2) profitable proportion, the enterpriser’s best combination of factors at existing prices; (3) diminishing returns, the social-economic problem of the relation of population to resources.

The converse phrase, law of increasing returns, is applied to the economy of large production, especially in the common contrast between manufacturing, said to be subject to the law of increasing returns, and farming, said to be subject to decreasing returns. There is error here at every point. The manufacturing enterprise as it grows is assumed to enlarge the area of land, as it is needed (problem of investment in large production), whereas the farm is taken as a fixed area (problem of proportionality). This appears to have been first clearly pointed out by J. R. Commons in his “Distribution of Wealth,” 1895.

CHAPTER 35

BASIC MATERIAL RESOURCES: THEIR USE, CONSUMPTION, AND CONSERVATION

§ 1. Changes in the land supply. The greatest dynamic movements in industry of modern times have been caused by rapid changes in “the land supply,” that great complex of area, fertile soil, timber, mineral resources, etc. This seems paradoxical, for “land,” “nature,” seems to be the one thing (or great group of things) which is fixed in amount. But the economic supply is that which is available in a market. Land in Venus or Mars is of no economic importance to us, but lands on the earth as yet undiscovered or unavailable are a potential supply that, under certain conditions of price and of technic, may be realized.

The discovery of new trade-routes and of new continents in the fifteenth century had immediate economic effects upon Europe, but these began to be more largely felt as actual settlement on these sparsely settled lands progressed in the seventeenth and eighteenth centuries. Pioneers from the most advanced peoples in the world moved on to take up these areas occupied only by small hunting tribes, and to use them by modern agricultural methods. They overcame the first great difficulty of distance, dread, and mystery; they faced and overcame the danger from savages and wild beasts; they cleared the forest, opened paths and highways, and enlarged the supplies of new and fertile lands. They made these lands available to help supply many of the needs of the older countries, just as if the areas of Europe had been increased.

The greatest change came in the middle of the nineteenth century with the use of steamships and the rapid building of railroads in the western states of America. This had an effect upon England and western Europe identical in nature with that which would have been produced had an area touching Europe risen out of the ocean. Every country in Europe has repeatedly felt the shock of these great economic changes which have lowered the price of nearly all kinds of their landed wealth. Because of increasing population (about 1860-1890) the need of land-uses was increasing very rapidly, but the supply of land-uses increased so much more rapidly that it caused the lowering of the value of the older lands in the eastern states of America and throughout Europe, the entire abandonment of some lands for agricultural purposes, and the neglect to repair and maintain a large part of the remainder.

The rate of this movement was more rapid in the nineteenth century than it ever had been, and perhaps more rapid than it will be again; but in some measure such developments will continue for a long period. The land in America for centuries was not, but now has become, for some purposes, a part of the supply in the same market as the land of England. The land in Greenland is not, and probably never can be, an important part of the supply of land in the world; but the tropical lands will doubtless contribute increasingly to the supplies of food and materials used in the temperate zones.

§ 2. New land supplies by means of drainage and irrigation. The habitable globe has now been fully explored and there are no more agricultural lands to discover. There are, however, great areas almost unusable in their natural states that can be made to blossom if properly improved. The greatest possibilities of this kind are in drainage and in irrigation. The improvements consist in insuring just that amount of water needed for cultivated crops.

Large areas of damp lands, or those covered with swamps, lakes, or shallow arms of the sea, may be made usable if the surplus water can be removed. In England in the eighteenth century the drainage of the fens in the eastern counties marked a new era in agricultural progress. It is estimated that 16,000,000 acres have been reclaimed in the United States, principally in the states of the Mississippi Valley, and most of the soil thus made available to the plow is of unsurpassed fertility. The areas of fens, swamps, and marshlands still remaining to be drained comprise about 75,000,000 acres, being about 4 per cent of the area of the country. This would add nearly one fifth to the improved farm area (in 1908).1 Tile underdraining of wet lands is a very enduring sort of improvement which is being made on many thousands of acres yearly. The most extensive work of drainage in the world is that of Holland, where a large part of the surface has been won from the sea. A striking feature of this case is that there is the unceasing need of lifting to the level of the ocean by means of windmills and pumps the natural run-off of rain. Among the larger drainage undertakings in Holland was the draining of the Haarlem Lake in 1840-58, by which 40,000 acres of rich land were made available, and the more recent draining of Zuyder Zee, which added 1,300,000 acres.

Irrigation seeks to supply water to the thirsty land. It is probable that no modern irrigation work (unless it be that of the recent Assouan Dam in Egypt) equals that which once was done on the now desert lands between the Euphrates and the Tigris. The opportunities for irrigation, however, in America with its great central desert west of the one hundredth degree of longitude, are enormous. Already large works have been built by the government and by private enterprise, irrigating 13,000,000 acres, but the national and state governments and private enterprise are entering upon the task on a scale never before attempted. It is estimated that the total area that may some time economically be irrigated is about 45,000,000 acres, enough for nearly a million fifty-acre farms.2

§ 3. Abuse of agricultural land. The forces acting upon the land supply do not all work in the same direction. The land supply shrinks on some sides while it grows in others. The effects of bad husbandry are everywhere in the world apparent, and in many regions fertile fields have been physically and economically destroyed. In Asia, lands that once supported millions of people, perhaps tens of millions, are now deserts. Egypt, for a time reduced to a semi-desert condition, has only in the past century been restored to a certain extent by the use of new methods and a return to the old ones. Many of the areas that were the granaries of Rome can now hardly support a sparse, half-starving population. The land surface remains, but some of the elements indispensable to its value have been destroyed.

Even in young America may be seen the effect of a failure to keep land in repair. As the new rich lands of the West were opened up, the old lands in the East were allowed to wear out, and many of them were abandoned. Increasing returns marked the spread of the frontier westward. On the new lands in turn the same methods were followed, using up the first rich store of fertility with no attempt to keep up the quality of the soil. This may have been the best policy for the time; it would not have been economical to employ Old World methods of intensive husbandry when such rich extensive areas were being opened up. The resulting harvests were in many places phenomenal; in the valley of the James River in Dakota twenty crops of wheat were taken from the same lands with no apparent decrease, and in the black bottom lands of Indiana and Illinois, sometimes overflooded, enormous crops of corn have been raised still longer without fertilizer. But the process was one destructive in most places of the natural resources. As settlement moved westward, great forests fell in ashes, and the soil was robbed of the fertile elements which it had taken centuries for nature to store up. What was happening in America and in other new lands in the nineteenth century was the primitive method of exploitation of arable lands (Raubbau, robbery-tillage, as it is expressively called in German). In 1908 there were nearly 11,000,000 acres of abandoned farm lands in the United States and about 4,000,000 acres had suffered from soil erosion as the result of neglect.3

§ 4. Means of restoring lost fertility. In the older parts of the United States, as in the older countries, methods have long been employed to maintain the fertility of the soil by returning or increasing certain of the fertile elements. When by neglect of fields the underlying rocks have become denuded of their covering of organic materials, the process of restoration is most difficult, slow, and costly. The mountain sides have been stripped of forests, and the fertile soil has been washed into the river valleys in many of the older countries as in Greece and Italy, and in many parts of eastern and southern United States. Except in such cases, the soil is a self-replenishing agent, and if allowed to lie fallow, will slowly recover its fertility in whole or in part by disintegration of the subsoil, by slow wearing away of the infertile surface, and by plant action. But self-replenishing of soil is slow. It takes Nature about 500 years to create one inch of fertile top-soil. When the use of the land is needed, Nature’s way is costly, for it costs time.

Other ways are quicker. Stable manures and garbage can be hauled from near-by towns; seaweed and mineral fertilizers, such as phosphates and lime, can be bought and applied. Subsoil plowing is practised to make available new layers of soil that are just as important as new acres added to the surface. Leguminous crops like peas and clover, which have the power of extracting nitrogen from the air, are cultivated, and either plowed under or fed to animals in the fields. If the roots of such plants are inoculated with bacteria their nitrogen-making power is greatly increased. The progress of science and of skill in agriculture is going far to maintain present food areas on the average in undiminished efficiency. In many respects the productivity of land may be even further increased. If we did not have to reckon on a great increase of population in the world, the problem of a continuing supply of land to grow food would be a relatively minor one.

§ 5. Land for products other than food. The problem of the supply of agricultural land is first, and most often, thought of in connection with the supply of staples like corn and wheat used for food. But it relates also to the supply of all other organic materials that have to be constantly produced, such as teas, coffee, spices, fruits, sugar, etc.; meats, fats, hides, bones, feathers, bristles, etc., from cattle, swine, sheep, or poultry; materials for textiles, as flax, linen, cotton, including those that must be obtained by the use of animals, as is the case with silk and wool; vegetable oils, as cottonseed, linseed, olive, and turpentine; animal oils, as lard, tallow; and thousands of other materials. Each of these kinds of goods has its own peculiar need of area and fertility, and its peculiar influences on the maintenance or exhaustion of the soil. Each must be separately studied, and thus has developed in each natural science its economic department—economic geology, industrial chemistry, economic botany, economic zoölogy and its more special branches, called economic entomology, economic ornithology, etc. In the case of many organic products the amount available promises to continue adequate for the needs of the future; in the case of others, scarcity makes itself much more quickly felt.

§ 6. Destruction of the natural forests. The forests have been used with less regard for future uses than have agricultural lands. Moreover, a conservative policy with regard to forests has been less tardily adopted, because the necessity of it was more tardily brought home to men. To the barbarians of Roman times, sparsely peopling the lands, and with few uses for timber, the primeval forests of Europe must have seemed as certainly renewable as the waters of the rivers or as inexhaustible a stock as the sand of the seashore. Left a century untouched by man, any land once naturally covered with trees would revert to a state like that of the primeval forest. Under the economic conditions of barbaric times the forests were self-replenishing sources of supply. They ceased to be so, in full measure, as population increased. The consequent curtailment of the rights of peasants to the free use of wood began to cause social and political troubles early in the Middle Ages. Until the eighteenth century scarcely any systematic beginning was made in the cultivation of the forest growth. Until a few generations ago in European countries, and until the present moment in most parts of America, timber has been cut with no attempt to maintain an undiminished stock.

Germany and France began in the eighteenth century to turn attention to systematic forest culture, but England, with exceptional transportation, could more cheaply get timber from Norway and from North America. The magnificent forests of America were a source of ready income to the settlers, affording immediately saleable exportable goods in the form of ship timber, masts, shingles, staves, pitch, and turpentine. A bountiful supply of lumber has always been a large element in the prosperity of the American people. From the first settlement to the present, the use of the forests for lumber has speedily grown. To the settlers much of the forest was, however, a real hindrance to agriculture. While great quantities of wood were used, still greater quantities were wasted, trees being girdled, the ground burned over, the timber destroyed in any way that would clear the soil—timber which to-day would be of far more value than is the cleared land on which it stood. Such methods met the immediate need, but considering present conditions, the labor was worse than thrown away.

Our forests once covered 45 per cent of the land area of the United States and even now they cover 25 per cent. The yearly growth of 12 cubic feet per acre equals less than one third of the annual consumption (40 cubic feet). “We take 260 cubic feet per capita, while Germany uses 37 cubic feet, and France 25 cubic feet.”

The supplies of lumber must be sought on the very margins of our territory: Florida, Maine, northern Michigan and Wisconsin, Washington, and Oregon, some of which supplies are so distant from the densely populated states as to be almost unavailable on account of the cost of transportation. Professor Marsh, as long ago as 1864, characterized the policy that had been thus far pursued: “We are breaking up the foundation timbers and the wainscoting of the house in which we live in order to boil our mess of pottage.”

The indirect effects of these changes are fully as great as the direct ones. Forests greatly affect climate, temperature, and soil; they influence the humidity. They equalize the flow of streams, moderate the floods, and by preventing the washing down of the rich soil, keep the mountain sides from becoming bare and sterile rocks. So, near the end of the nineteenth century, the people in America began most tardily to think of forestry. Of our forests remaining, one fifth are still in public, and four fifths are in private ownership. The purpose of scientific forestry is to make forest lands permanent use-bearers, durative agents, to make them yield not a single crop of timber, but an unending series of crops.

§ 7. Rapid consumption of coal. With care, the use of agricultural and of forest lands may be durative; but the extraction of coal is a purely consumptive use of the mine. Every ton used to-day is subtracted from the supplies for future generations. The coal deposits in the earth have only recently been drawn upon. A modern town with a few thousand inhabitants probably uses to-day a greater quantity of coal than was used in all Europe two centuries ago. The large deposits of coal in England and their early development long gave to English industry a great advantage over other countries. In England, however, has first been felt the fear of the exhaustion of the coal supply. Professor Jevons, in 1865, sounded the note of alarm; he prophesied that because the coal deposits in America were many times as great as those of England, industrial supremacy must inevitably pass to America. Already the supremacy in coal and iron production has passed to America, and that in many other industries where fuel is an important element in cost soon will come. In England the accessible supply of coal is limited, deeper shafts must be sunk, and tunnels extended far under the ocean bed, and the coal got with greater difficulty and at greater expense. Coal has risen in price in England within the last few years, and will continue to rise in the future. The coal deposits of America have been estimated to be thirty-seven times as great as those of England, but many of the best American mines show signs of diminution. The best anthracite beds will be gone in less than three quarters of a century. And yet there is in America little thought of the future in this regard.

§ 8. Disappearance of mineral stores. There are many other natural materials which, now that the exploration of the earth’s surface is pretty well completed, appear to form a limited and unincreasable stock. Their gradual consumption is making and will make great changes in the economic world. Natural gas is a wonderful substitute for coal, and when first found in a locality it brings a brief prosperity, but it is soon exhausted. Petroleum, little used before 1865, will help light the world for but a few decades, for it is drawn from natural reservoirs slowly, if at all, replenishing. The recent increase in the use of gasoline for motor-vehicles has directed thought to the limits of possible supply. Iron ore, the most essential single mineral resource, has been taken from the earth in greater quantities within the last fifty years than altogether before in the history of the globe, and the limits of rich accessible supplies in the United States are already in sight. China may be the next great center of iron and steel production. Copper, tin, lead, gold, silver, and potter’s clay are a limited stock, inadequate to increasing needs. When any deposit has been worked out, the abandoned quarry, mine, or claybank is most often useless for any other purpose.

Some of these materials are made available more than once through the useful services of the junk man. New processes are devised for extracting metals from lower grade ores which before were worthless. Sometimes a good substitute is found, such as aluminum, which gives many of the same uses as iron and copper and which can be extracted from clay by the use of electricity generated by a waterfall. This would promise an almost inexhaustible quantity, but as yet obtainable only at high cost. Many other substitutes will doubtless be discovered, but the outlook in some directions has little promise.

§ 9. Civilization’s consumption of the earth’s stores. There is a striking contrast between the modes in which the earth’s surface is utilized by modern man and by his ancestors. The savage uses the fruits that he finds, and those fruits are, almost without exception, renewed the next year. The earlier civilizations did not go deep enough into natural resources to use up permanently the world in which they lived. The only mines that were worked out under the great ancient empires were gold and silver mines, while the mines of heavier, useful metals were touched but lightly. But from the eighteenth century the earth’s crust has been exploited at an ever-accelerating rate. Scientific knowledge and mechanical improvement have combined to unlock the storehouses of the Geologic Ages. If this movement continues, many important materials must be exhausted in the not far distant future.

§ 10. Land as a site for residence, commerce, and manufactures. Probably the most durative of all economic agents is solid land-surface used solely for standing room. Yet geology reveals that every part of the earth’s crust has been under the ocean, some of it many times. Every part of the world’s surface is more or less rising or falling, changes within historic times having been enough to depress and again elevate large stretches of sea coast. Slight earthquake shocks are felt in nearly every part of the habitable globe. Before the end of man’s tenancy on the globe great changes will take place in the land surface. Not only San Francisco, but New York, may some day sink into the sea, beneath which may now lie the building sites of the future metropolis. But these catastrophic changes are rare, and the slow secular changes hardly enter into the calculations of men. “The solid earth” is the synonym of the everlasting and unchangeable. Building sites for residence and business purposes—factories, offices, stores—are the purest type of durative agents known to us, despite the occurrence of volcanic eruption, and of earthquakes in limited districts, and of intruding waters and crumbling walls almost everywhere.

The covering of the ground with dwellings does something to protect it from the natural wear of rain and winds, as do also the erection of stone and cement walks, the planting of trees, the diversion of streams, and many other safeguards. The space needed for existence is small. With a density of population equal to that of the most crowded districts in the East Side in New York, all the people of the world could be housed in the State of Delaware. The problem of residence land is to get ample space for health and a happy life conveniently near to places of work, where man can earn a livelihood. The scarcity appears in very high rents for the miserable tenements of the poor, and in fabulous prices for residence sites in the fashionable neighborhoods.

Sites for manufacturing, commerce, banking, and trade that are conveniently located in relation to workers, to consumers, and to transportation facilities for raw materials and finished products, are few in any community. Their uses are highly valued. Rapid transit by producing a larger supply of accessible sites does something to relieve the pressure for limited residence land, but it makes possible still greater pressure for the central business locations.

§ 11. Production of usable land surface in cities. The work of man is doing much by form changes to increase the area suitable for residence and business. Large districts on the river fronts of New York are filled land. The larger part of the most valuable lands within the city of Boston were once tidewater swamps, which have been filled and made usable by great outlays. Great hills have been dumped into the Bay of San Francisco to convert mud flats into solid earth, for railroad terminals and warehouses. In almost every city much has been done to level hillsides, to fill valleys, or to drain swamps. Along many picturesque lakes the steep banks for miles are dug with pick and shovel or blasted with dynamite, and dumped over into the water to make level sites for cottages. Wooden, stone, or cement retaining walls are built so that the debris from the streams and the sands washed up by waves may be retained to widen the solid land. Suitable places for docks, warehouses, and factories, and other needs of commerce and industry, are created on the shores of navigable waters. The engineer in tunneling mountains and building roadbeds over marshes or along swampy riversides, or in digging canals between rivers or between oceans, is making the kind of land surface suitable to the uses of transportation and trade. It is characteristic of nearly all these artificially altered spaces that they are as solid and enduring as natural formations of level land, and are subject only to the slow action of rain, streams, waves, winds, or to rare upheavals of nature. Man’s works are in these cases as enduring as nature’s.

§ 12. Durative character of hydraulic power sites. The sources from which man has as yet successfully obtained power are domestic animals, winds, falling waters, the tides, and heat producing materials (wood, coal, oil, etc.). The winds, while inexhaustible sources, are too irregular to be of the greatest importance. Waterfalls are of increasing use with the progress in the art of transmitting power in the form of electricity. The maintenance of water-power plants in efficient condition calls for much labor on the banks of the millstream, or for the building and repairing of dams and reservoirs, of pipes and of water wheels. With this care, waterfalls are durative in a high degree. The supply of power from water is capable of enormous increase through the construction of reservoirs, the building of canals, and the economizing of great sources now going to waste. The waterfall as a whole is permanent, perennially renewed by rains; but the energy liberated by the falling water is consumed each moment. Because of this natural renewal of the power, a continuing usufructuary value adheres in the site of land whose possession gives control over the falling water. A similar view is to be taken of the rare sites where tidal power can be economically employed.

§ 13. Goods varying in increasableness. It has long been customary for economists to talk of economic goods that could be increased indefinitely (meaning infinitely or, in any event, without any limit ever appreciable to man) without any increase in the cost or scarcity. This class of goods was considered to be very large. There is no such class of economic goods; it is impossible that there should be; if they are “scarce,” increasing demand must make them scarcer, except as discoveries and improvements increase the supply. All kinds of wealth are, so far as it is economical to do so, thus increased, even land surface. Many kinds in the course of time are very greatly increased with little or no direct effort, but the supply of all alike can be secured in larger amount at any given moment with the known methods and tools only with increasing difficulty. The different forms of wealth may be ranged on a scale according to the ease with which they can be increased by effort. They may, therefore, be classed as relatively fixed and relatively increasable. Some natural resources belong at one end, and some at the other end of this scale, and, necessarily, the tools and appliances made from these materials must likewise range between the extremes. Except as form and place changes are thus limited by elemental materials and natural sources of power, the outlook is that form and place change will grow constantly more easy, and elementary materials constantly more difficult, to obtain. No hard and fast line divides the different kinds of goods, but the difference in degree of increasableness is a fact of great social importance, affecting the direction in which industry can and must progress.

The difference in increasableness of the various forms of wealth is of importance in considering various social questions, such as the effects of an increase of population, and the kinds of taxation most equitable and most favorable to the progress of society. Account must be taken of the fact, for instance, that the number of bricks can be increased more easily than the amount of land; but there must not be overlooked the possibility of increase in any of these forms of wealth, nor the limits to the increase of any one of them.

CHAPTER 36

MACHINERY AND WAGES

§ 1. Progressive control over natural conditions. Various stages of progress in human history have been recognized. First is the stage of appropriation—the stage of hunting, or of fishing, or of gathering the spontaneous fruits of the fields. Man in this stage is little beyond the animal in his economic methods; he uses some tools to gather what nature chances to bring forth, but he does not guide and direct the natural processes. The limitation to man’s powers in this stage are marked. There is excess of supply and waste at one season, scarcity and great suffering at another. With such crude utilization of the bounties of nature, a vast area will support but a small population. When sheep and cattle have been domesticated and where there is a large area for grazing, industry rises to the pastoral stage. While still dependent on nature’s bounties for the feeding of his cattle, man is hourly intervening to protect, increase, regulate, and improve the flocks and herds on which depends his supply of food and materials. Famines are more rare, economic welfare is greater, a larger population is nourished on the same area, The agricultural stage begins whenever man tills the soil, plants seeds, and increases by his care the supply of vegetable food. This is a still greater intervention in the course of nature. Man anticipates the future, directs forces, and groups materials to his purpose of getting a regular food-supply. He is thus forced into settled life, at the same time improves in hand-production of commodities, and makes further steps in commerce. Then gradually comes the industrial stage, in which control over nature grows, supplies increase, machinery and motive forces are utilized, and humanity is in the full tide of industrial development. Thus throughout history the economic progress of society has been marked by decreasing dependence on the bounties and chances of nature and by increasing shaping of materials and control of natural forces by man. There are no sharply marked changes, but there is a growth of security, of certainty, and of productivity. With man’s increasing power and foresight, the element of chance is reduced.

§ 2. Labor-saving inventions as a dynamic factor. For several centuries, accompanying the advance of the natural sciences, there has been a gradual improvement of mechanical appliances in the practical arts in western Europe and America. The question may be put as regards the simplest improvement of the simplest tools: how do they affect the wages of the workers? The question took a dramatic form when power-using machines were so rapidly introduced in the last half of the eighteenth century in England.

It is by the use of power that the greatest saving of labor can be effected. Machinery is applicable in very different degrees in different processes and industries. In many industries and parts of industries, machines are usable only in a slight measure, indirectly, or not at all. They are of the least assistance in the personal services, and in the immediate work of the thinker, the teacher, the speaker, and the artist. Agriculture presents conditions of difficulty for the use, in the fields, of power other than that of man and of draft animals. Even horse-drawn gang-plows, planters, seeders, mowers, reapers, harvesters, hay-loaders, etc., to be used profitably require a level surface and a pretty large area given to a single crop. Such farm machinery can not be used as well east of the Alleghany Mountains as in the Mississippi Valley, and it is still uneconomical in large portions of the civilized world. The use of traction engines for plowing is increasing slowly. Other machines that can be used at the barn, and can be moved from one farm to another, have a constantly widening use, as threshers, automatic unloading-forks, cornshellers, feed-cutters, hay-balers, steam and gasoline engines for pumping, wood-sawing, etc. With the aid of these machines the labor required to produce the staple food for one hundred people is a fraction of what it was a hundred years ago.

The use of machinery in land and water transportation (steamships, locomotives, electric power), has affected all other kinds of industries, by changing their locations, increasing the supplies of materials, and widening the markets. Yet the most typical applications of machinery have been in manufacturing, in making form-changes, in the mass-production of standardized products. (See Chapter 31 on large production.) The most striking changes took place in the textile industries. In 1840 a man’s work in spinning cotton was 320 times as effective as in 1769, in 1855 it was 700 times. Similar examples are found in the manufacture of shoes, and in all varieties of wood- and iron-work.

§ 3. The lump of labor notion. Of the countless inventions many do not “save labor,” but merely add to the comfort of the user, or to the ease of the worker; others enable men to do new things before quite beyond the power of any man or group of men; but many are “labor saving,” in the sense that they enable the same labor to get a larger result in the same time, or the same result in less time.

The popular judgment always has been that this reduces the “amount of work” to be done, meaning the opportunities for employment, the number of jobs to be had by workers. The “lump of labor” notion, as it is called, is widely held, especially among workingmen. The notion is that there is exactly so much labor predetermined to be done; therefore, if machines are introduced, there is that much less for men to do. The conclusion easily drawn is that labor-saving machines are the explanation of any existing unemployment; and that they make wages low. Yet few if any would be rash enough to say that the income of the masses would be higher to-day if all tools and machines were abandoned and men worked barehanded. It is recognized that such a course would reduce all alike to want; indeed, that without the aid of labor-saving appliances the present population would be utterly unable to support existence. The objection is rather vaguely felt to the use of too much machinery, and to that kind which has been recently introduced, and to that kind which is used in the objector’s own trade. The experience in the rapid introduction of machines in England in the period called “the industrial revolution” (about 1775 to 1825), as well as the experience of workers when a rapid change is made in their own trades, gives an appearance of truth to this view.

§ 4. Evils of “the industrial revolution.” It chanced that the extensive introduction of machinery in England, particularly in textile-manufacture, was coincident with the unhappy result of a lengthening of the hours of labor in factories and a lowering of wages. These were, in fact, quite abnormal consequences and have not been seen elsewhere, altho the owners of factories wish to keep their machines employed as many hours as possible. The laboring classes of England were at that time demoralized and depressed by industrial and social influences that had no logical connection with machinery: the very rapid growth of population, due in part to the evil workings of the system of poor relief, excessive taxation to carry on wars, the abnormally rapid growth of cities. In all other countries of Europe and in America, where the introduction of machinery has been more gradual, it has been followed by a shortening of working hours (as eventually it was in England also) and by a rise of wages. Indeed, the experience of England served as a warning to other nations, and by labor organization and factory-regulation much was done to reduce the shock of rapid introduction of machines.

§ 5. Some evils of the introduction of machinery. Not infrequently it has happened that employers have introduced labor-saving machines at the time of a strike, so that they could turn out the former amount of product with fewer men. The strike gave just the motive needed to overcome the inertia of changing to a more expensive process, one perhaps still of somewhat uncertain advantage. Small wonder that the striking workmen should view the machine as a strike breaker, for literally at the moment it was taking “their job” away from them.

In more normal conditions, when there is no strike, it often may happen that the immediate effect of improved machinery, if suddenly introduced, is to throw some men out of employment. Any sudden change in industry injures men that have become adapted to the work that is affected. This is as true of change brought about by the opening of new trade routes or by scientific discoveries (where machinery does not enter in) as in the case of labor-saving machines. If machines displace labor rapidly, men that can not adjust themselves to the new conditions suffer, and there are always some that can not adjust themselves, always some that suffer. A well-mastered trade, a wage-earning tho intangible possession, may be made suddenly valueless. Men can not quickly change their methods of working or their place of work. It is rarely possible for a man past middle life to shift over into a new trade where his efficiency will be as great and his pay as high as in the old.1 New methods of puddling iron sent many old men into the poorhouses of Pennsylvania between 1890 and 1900. Even where the total employment increases, the individual sometimes suffers. The increased demand resulting from the cheapening of a product may call for more workers than were employed before the new machinery came in, but men needing a different training, and some of the former workmen may be thrown out of employment. The introduction of the linotype and monotype is said to have displaced a large number of hand type-setters, but to have increased the amount of printing. As the machines are expensive and can not be worked properly by men not highly expert, men past thirty-five years of age have not been allowed to learn their use.2

§ 6. Loss to the less efficient workers. The least efficient men in any trade suffer most from the introduction of machinery. The new method crowds hardest the man at the margin of employment. The more skilled workman can, at his more rapid pace, still earn a living wage in competition with a machine, or can move into some other occupation. It often happens that they are advanced to be foremen or managers, and gain greatly by the change. The less skilled, unable to adapt themselves, can but drop out entirely, innocent victims of an economic change, sacrifices to the cause of industrial progress. Happily such pathetic incidents are relatively not numerous. Most machinery is introduced in commercial centers when demand for the products is increasing, and there is no need to discharge men; it gradually spreads to other factories in such a way that most men can adapt themselves to the change.

Since recorded history began there have been recurring periods of unemployment. Greece and Rome often had the problem. But it is helpful in getting some perspective in judging the effects of machinery, to note that in proportion to the number of the population the unemployed were probably more numerous in the reign of Queen Elizabeth than they are to-day, and the general level of income was much lower.

§ 7. Effect of machinery in different industries. Every new machine or process compels some readjustment of employment, the number in some industries increasing, in others diminishing. If extreme examples are taken, it may be made to appear either that an increase or that a decrease of employment results from machinery. Labor-saving machines may be roughly divided into three classes: those that create more employment in the particular industry than they take away; those that leave employment unchanged; those that reduce the amount of employment. To allow for changes in population these classes may be expressed as percentages of the whole population, (1) those labor-saving machines that call for a larger percentage of workers than before in the particular industry, (2) the same percentage, (3) a smaller percentage. The superficial appearance of “saving of labor” is greater than the reality in every industry where the new machines are more elaborate and costly than the former tools or machines. Labor is required to get out the material for the new machines, to make, repair and maintain them, and to supply them with power. But of course they would not be “labor-saving” if the labor thus required in new ways were equal to that released by the new process.

The chief changes of employment result from the shift of demand for products. The demand for different products is more or less elastic. Industries grade off from those that are capable of developing a great demand for labor to those at the other extreme that are capable of a very slight increase, as a result of a lowering of the price. There is hardly any assignable limit to the consumption of textiles, provided their price falls; the demand for dress alone is indefinitely expansible. Queen Elizabeth, who had a different dress for every day in the year, has many potential imitators. It is a striking fact, in view of the prominent part labor-saving machines had in the textile industries, that there were more handlooms in use in England in 1850 than fifty years before, tho in the meantime power-looms had displaced the handlooms in all the great factories. There was still room for variety of patterns and processes. There is a constant increase relatively, as well as absolutely, in the number employed in transportation, as each census shows; there are more railroad employees relative to the population than there were stage-drivers and teamsters before the day of railroads. The proportion of people now engaged in printing books and papers is larger by far than in the days when all the books of the world were written by the old monks in their cloisters. The proportion of workers in agriculture, on the other hand, is less than it formerly was. In part this is a change in appearance only, for the farmer once made a large part of his tools which are now made by workers employed in manufactures, yet who in a very real way are aiding in agriculture. In part the change is, however, the effect of the use of machinery and other improvements in agricultural processes. The amount of rawfood products required for each hundred persons is quite inelastic. As it becomes possible to expend more for food, the change is made in quality and in variety rather than in quantity. The greater part of the saving in the cost of food is, however, expended in other products, and the labor saved in agriculture finds employment in supplying new desires. In other cases, also, new industries are made possible as machines liberate energy from the production of the more necessary goods. At each census it is necessary to change the schedule of occupations, because men have adopted callings unknown before. The desires of men are variable and indefinitely expansible, and as the products of machines increase and the prices fall, income is expended in other directions. Between 1890 and 1910 the proportion of the population engaged in art, music, travel, social festivities, etc., in America has increased as is indicated in the following:

§ 8. Beneficial effect of machinery upon wages. Now let us look at the fundamental theory in the problem. The introduction of machinery has taken place along with changes in other dynamic forces, some of them doubtless in themselves “tending” to raise, others to lower, the level of real wages. Our question may take this form: What is the effect, given a stationary population, on a fixed area, with other resources unchanged? To an unchanging population come better, more efficient machines. It is as if the land became richer, the materials easier to get, the workers stronger and swifter. It is a richer economic environment. The owners of machines, competing for the sale of machine uses, have more to offer to each laborer. It is the converse of the decreasing returns when population grows and decreasing returns result; here the material equipment grows and increasing returns result. The application of labor stops at the higher uses or services of agents and is not forced to the lower. The more perfect the economic environment, the higher the incomes even of those who own no part of the machinery. A part of this benefit may appear in the form of higher money wages received, a part in the form of the lower prices of things bought. Real wages are the essential thing. As a consumer the laborer shares with every other member of society in the benefits of improved machinery. The benefits resulting from great abundance are diffused, and as goods are brought from the high, or scarcity, end of the scale of value down toward the level of free goods, everybody in the long run gains by the abundance and cheapness.

§ 9. Dependence on abstinence. The gain to the general welfare, however, can result only when the new inventions are actually embodied in machines. An invention is only an immaterial idea, and the machines in which inventions are incorporated are wealth which has a capital value. Further, a gain can result only when the usance of the machines is not so high as to absorb the larger part of the gain in efficiency. Not all labor-saving inventions call for more elaborate or more costly machines. Some are merely better methods, and require no more equipment—or even less. Some of them are simpler and less costly than the forms they displace. These (unless patented) are free goods, uplifting the efficiency of production “without money and without price.” But some inventions call for a larger and longer investment. Unless the rate of time-preference is low enough the new invention will not be embodied in machines that will displace the old, less-efficient forms. (See Chapter 21.) Labor-saving inventions thus simply enlarge the range of choice of means of production among which enterprisers and investors may choose, within the limits of their rates of time-preference. The gain in product by the new method as compared with the old may be so small that it only suffices to recompense the abstinence required for the larger investment. (The new method will not be used if it produces less than the old for a given outlay.) Thus as machines call for larger and longer investments, unless the gain in productive efficiency is large, a larger proportion of the total product must go to capital, while larger absolute amounts go both to labor and to capital. (But see below, on opposing tendencies.)

§ 10. Grades of labor, and gains from machinery. The general, or average, gain is not to be judged by comparing the conditions of the lowest grade of labor with those of fifty years ago, for while that grade may have been bettered only a little, it has been possible for large numbers to rise to higher grades because of the use of machinery. The physical tasks are to-day much lighter than ever before, and a larger proportion of society is engaged in industries that require skill and thought rather than physical labor. That portion of the work is being more and more shifted upon machines. A machine is “an iron man,” it has been said, and comes into competition with other men to lower their wages by outworking and underbidding them. But this iron man can do only automatic tasks; it is not capable of exercising judgment. Every intelligent laborer who can adjust, adapt, fit himself for more intelligent action, will rise above the machine and profit by its presence. But crude physical labor which can compete only on the plane of automatic machines must find its field of employment more and more hedged in. If, however, even a portion of the workers (or of their children) are able to change to new or to rise to more skilled occupations, they reduce by so much the presence of competition below, and make possible a rise of wages there also. (See the doctrine of non-competing classes.)

§ 11. Opposing tendencies. It appears from this survey, that the logical effect of labor-saving machinery is to lift the level of efficiency and productiveness on which labor operates. A richer world relative to population means a higher income to the average man. The benefits are unequally distributed, but nearly all share to some degree.

But it must not be overlooked that certain conditions are assumed and if they are curtailed or absent the general benefits which machinery in itself tends to create may be reduced and be more unequally distributed. These conditions are:

(a) Competition among the owners of machines. So far as machines favor large industry, and large industry widens the scope of monopoly power (Chapter 31), prices may be raised to the benefit of the monopolist so as to cancel a large part of the general gain.

(b) A population increasing but slowly, so as not to neutralize the gain from machinery. An increase in population driving the cultivation of the soil to lower levels, may increase food prices enough to offset the gain from lower prices in manufacturing and transportation.

(c) Natural resources not decreasing through consumptive use. The waste, destruction, and inevitable using up of basic material resources is a change which, like the preceding, operates to offset the gain from improving machinery.

CHAPTER 37

WASTE AND LUXURY

§ 1. Accidental destruction of wealth. Before approaching in the next chapter the subject of the dynamic influence of saving and the accumulation of wealth, let us look at the subject in its negative aspects, namely, waste and luxury. By waste is meant the accidental or intentional using and using up of more wealth (and services) than would suffice for the purpose of the use. In waste the potential uses in goods are applied so that they cause less desirable results to the user than they might, or even give no use at all. We are concerned here with the dynamic and social aspect of the case. The question is: What is the dynamic effect of waste as a policy? In which way will it carry the general level of incomes, upward or downward? There is a popular opinion, long held, that waste in itself is a good thing, that it gives employment and benefits the working man.

In a simple society, without exchange, the result of waste is evidently bad for the self-sufficing families. If they destroy their food, they suffer from hunger or gratify appetite less perfectly; if they destroy their clothing, they are cold; if they destroy their house, they have no shelter. Waste makes their economic environment less fitted for their use. In the conditions of our society, where goods are exchanged, the result appears to be different. The need to replace the lost goods makes a demand for special kinds of labor or goods, and this appears “to create” employment for labor. But if a part of the income of the loser must be diverted from other uses to replace the wealth destroyed, those from whom he would have bought suffer an unexpected falling off of their sales. The thought of an immediate benefit to one obscures the corresponding loss to another. The net result is a loss of wealth and gratification to the community as a whole.

There is a real exception where the accidental destruction removes some social difficulty. Such great fires as those in London in 1665 and in Chicago in 1872 result in wonderful improvement to the city as a whole and eventually even to most of the individual owners. When an old city is built almost entirely of wood, each owner may think it to his interest to keep the old buildings. A great fire sweeps them all away and compels the rebuilding of the city on a new and higher standard. But the usual resultant of accidental destruction is loss to the owner, rarely with benefit on the whole to others. It is a use of wealth without a fulfilling of the purpose of production, the gratifying of desires.

§ 2. Intentional destruction of wealth by the owner. Another type of case is the intentional destruction of wealth by the owner, to make trade good. The case in mind is not where the destruction is inevitable without man’s action, and he merely tries to minimize it—such a case as the throwing overboard of a part of the cargo when the ship is in danger of sinking, in the hope thereby of saving the rest, or as the blowing up of buildings to prevent the spread of a fire. The case in mind is the deliberate destruction of wealth that might be kept for use. One labor leader, for example, boasted that when he drank pop he always broke the bottle “to make trade good” by helping the glass industry. The refuting of this fallacy is one of the time-honored tasks in political economy. There is, it is true, an increase in the demand for glass and glassblowers’ labor; but at the same time there is a decrease in the demand for other goods and other kinds of labor. The proverb, old in Shakespeare’s time, runs, “Nothing can come of nothing.” What is spent for one purpose can not be for another; “you can not eat your cake and have it, too.” A given income can be spent in one of many ways, but not in all ways or even in two ways at once. It is a question of this or that, not this and that. At the same moment that the demand for pop-bottles is increased, the demand for other things is decreased. Such a form of benevolence is a futile attempt to provide labor for one man by taking it from another. Moreover, it is an uneconomic, harmful attempt, for the breaking of one bottle to have it replaced by another adds nothing to the sum of enjoyable goods in the world; but the same labor and other agents could and should be used to make some of the many other needed things.

If the advocate of wealth-destruction would be consistent, he should break, not merely the pop-bottle, but the waterpitcher and the table as well; he should make a bonfire at least once daily of his clothing, his house, and its furnishings; he should advise blowing up the steamboat and ripping up the railroad when they have carried a single load of passengers. Thus, when all men were naked and starving, and civilization had sunk to savagery, trade would have been made as “good” as, by the policy of destruction, he could ever hope to make it.

§ 3. Intentional destruction of others’ wealth. Another type of case is the intentional destruction of wealth owned by other persons to benefit trade in general. The acts referred to are not done with criminal motives, but with a view to the public interest. If one sets fire to the property of another, seeking revenge or plunder, he is guilty of the crime of arson. But what shall be said of volunteer firemen that let an old house burn down to provide labor for carpenters and “to make business good”? The duty of firemen is to put out fires, no matter what the building is; but they choose sometimes to be ministers to the social interest as they interpret it. The more spent for carpenters’ work out of any income, the less can be spent for other objects. It is true, however, that if in a small town the money to rebuild is borrowed from a distant loan or insurance company, there is an increase in employment in that town for one season; and that is as far as most men try to carry their economic analysis.

Servants sometimes excuse the breaking of dishes and furniture on the ground that it makes work, and that the employer can afford it. But income is thus diverted from other expenditure, either for productive use or for direct use. In the light of the theory of wages, it would appear that carelessness reduces the servant’s own efficiency, and in the long run the loss, in part at least, comes from the wages of that particular servant. Bastiat’s discussion of the broken window-pane is often and deservedly quoted. He contrasted what was seen with what was unseen. What is seen is a certain immediate benefit that the glass-maker and glazier get; what is not seen is that the power to expend an equal amount for other things is thereby lost by the owner of the house.

§ 4. Careless waste. The destruction of goods of unnecessarily large value to secure a given result is likewise justified as “making trade good.” The blunder that compels the rebuilding of a wall in a rich man’s garden is an occasion for congratulation to those who see in it a happy provision of work for the unemployed. It is easy to forget that the proper use of goods is the final step in production. According as goods are well or poorly used, the production—that is, the real income or gratification they afford—is large or small. Differences in skill in the use of wealth are great. A French cook, we are often told, can make a palatable soup from what goes from the average American kitchen into the swill-pail. Waste in the use of goods is more likely to be found in new countries where wealth comes more easily and necessity does not enforce frugality upon the masses of the people.

The praise of careless waste implies the error noted in the preceding propositions. Waste makes work for a certain class, but not more work (employment and wages) for labor as a whole. It appears to be good only when the interests of a small class of workers or of tradesmen are looked at for the moment; it is bad in the long run alike for workingmen and for all other classes of society. Far more of wisdom lies in the proverb, “A penny saved is worth two earned.” The economic use of wealth as surely adds to wealth (and, ultimately, to the income of society) as any other mode of production.

§ 5. Waste in public outlay. Some government expenditures, as for local post-office buildings, and river and harbor improvements, are sometimes favored, not because their immediate purposes are good, but because they “make work” and “distribute money” throughout the country. This apology for public extravagance in all its forms has an incredible hold on the public mind. It seems even easier to rejoice that the big impersonal thing, the government, fails to get its money’s worth than that one’s neighbor fails to do so. The money for public expenditure comes from taxation, and no matter what the system of taxation, the burden falls upon some one, reducing the incomes at the disposal of the people to expend for objects of their own choice. If the work is not worth doing for itself, the collection of money in small amounts from many tax-payers and its expenditure as a large sum in one locality results in a net loss to society as a whole. Where the result is worth something, but not enough by itself to justify the expenditure, the fallacy of the destruction of wealth is present in a smaller degree. Examples are seen in useless offices, overpaid officials, the extreme use of pensions, and in some public subsidies.

§ 6. The fallacy of waste. Let us restate the ideas that have been touched upon. The fallacy of waste is due to a narrow and incomplete view of the effects resulting from a particular use of wealth. In many cases it is possible that some one person may benefit by another’s mishap or folly in the use of wealth. The complex interrelations of men in society make this inevitable. But, to appreciate the dynamic effects of such action upon society in general, one needs but to go back to the essential thought of wealth and its purposes. As the average efficiency and bounty of the world fall, so fall the income and welfare of men. As it rises, the social and economic levels rise also. Economic wealth has potentially two kinds of uses, direct or indirect: to gratify desire—thus fulfilling its destiny—or to be converted into higher and more efficient agents. That the possibilities of the latter are boundless is overlooked in the fallacies here criticized. A bountiful and efficient world would be the result of abstinence and saving; a barren and used-up world, the result of the fallacy of waste.

§ 7. Definitions of luxury. Closely related to the problem of waste, but still more difficult, is the problem of luxury. It is not possible to define luxury absolutely; it is a relative term. The conception of luxury, however defined, involves always the thought of great consumption of wealth for unessential pleasures. Those opposed to it condemn it in their definition of it, as, for example: “an excessive consumption of wealth,” or “devoting a relatively large amount of wealth to the satisfaction of a relatively superfluous want.” Those who take a more moderate and favorable view say: “It is the enjoyment of forms of wealth not obtainable by the mass of men.” Luxury is not entirely a matter of riches. Many a person of moderate income has relatively superfluous and expensive tastes. One spends more for music than many a millionaire does; another more for books. The difficulty in the definition as well as in the problem of luxury is that it involves a mixture of economic and of ethical questions.

§ 8. Luxury to give employment. Luxury, like waste, is justified by some as giving employment to labor. Typical instances are extravagant dress and elaborate balls where fine and costly flowers, decorations, music, and coaches require the expenditure of a large amount of money. It is said of the Empress Eugénie, wife of Napoleon III, that, in order to help the glove industry of France, she wore a pair of gloves but once; in order to help other French industries, she purchased many silks and laces. It is a very comfortable doctrine to some people that the oftener they change their dress, the greater benefactors to society they are. From time to time a great society “ball” is given in the metropolis, possibly little more elaborate and expensive than many another ball; but if it chances to be a dull time for news the papers all over the land give columns to its discussion. The newspapers at such times usually print many interviews with citizens of varied occupations, and the thought appears over and over that such balls have at least the merit of giving employment to labor, evidently meaning employment additional to the total amount which otherwise would have been possible.

§ 9. The fallacy of luxury. The fallacy of this is essentially the same as that in the argument for waste and destruction. From the fact that these particular tailors, musicians, and florists would have less employment if this ball were not given, it is falsely concluded that, but for this ball, this particular income, or capital, would not be used at all. The average of employment in those special industries which minister to luxury is the result of and is determined by the average level of demand. There are more caterers and florists in a large city than in a crossroads village. It is true that a more than ordinarily gay season gives unusual profits to these enterprises, whereas an abrupt and extreme falling off in demand would cause them large losses and leave many workers lacking employment for that one season. But, if this limited demand became usual, capital and labor would shift to the other industries to which expenditure had shifted. Other modes of expenditure than twenty-five thousand dollar balls are possible, as, for example, twenty-five thousand dollar public libraries. Mr. Carnegie has preferred to take his dissipation in that form. That gives employment also; not less does investment in new houses, in new railroads, and in new factories. More employment of a particular kind of labor is caused in one case than in another, but not more employment of labor as a whole and on the average.

§ 10. Sudden changes in standards of luxury. Luxury may be in various degrees and correspondingly may have various effects upon the state of wealth and income, and upon their movements. It might accompany a general condition of conservative abstinence, where only the clear surplus of income is given to luxury, preserving a static equilibrium. The degree of luxury may, however, change dynamically toward either extreme. First, it might increase so that it exceeded each spender’s clear income, encroached upon capital, and became a policy of prodigality. The result of this must be to stimulate for a time all the trades serving to provide the superfluities, but eventually to leave them without a market for their wares. Thereupon the factors would have to be returned to the use for necessities. The community as a whole would be impoverished as well as the individuals.

Secondly, dynamic change may take the form of the decrease of luxury, expenditure being limited to necessities, and cumulative abstinence being carried to its maximum. The question of the effect of abandoning luxury should this dynamic change occur suddenly, is most difficult. What would happen if everybody at once began to live on the bare necessities of life? If this almost unthinkable change took place, all the factories and agents used for nonessentials would at once lose much of their value. A great industrial crisis would follow, as industry would have to adjust itself abruptly to a greatly altered standard of desires. What would happen, if that standard continued, would vary as human nature varied. There might follow an increase of population, as a result of earlier marriages and larger families; or a great improvement in machinery and other equipment, or an increase of charitable giving, or more probable than all else, a progressive lightening of labor, a use of the surplus resources and energy in study, rest, and recreation. It is well-nigh impossible to suppose that with limited desires for the objective goods of the world there would continue undiminished efforts to produce goods and to save them. That would be miserliness become universal. In actual life changes of standard occur gradually. Economizing in material things by simpler living makes possible not only the increased efficiency of productive agents but the increased enjoyment of immaterial goods, a union of plain living, easy living, and high thinking.

§ 11. Happiness and the simple life. We are concerned here with the economic not with the moral issues involved in luxury, but the line between the two is sometimes hard to draw. Particularly hard is it in answering the question, Does luxury enhance the man’s true psychic income? Does a greater expenditure on oneself give a larger life than a moderate expenditure would give? Surely, it is partly a matter of individual temperament and somewhat a matter of degree. Ostentation has its penalties. Undue striving after effect defeats its own purpose. Happiness results from a harmonious relation between man and the world. Life loaded with too much luggage staggers under the burden. The mere spending of a large income in selfish indulgence absorbs all the energies and interests of some men and women. Not only happiness in the narrow sense, but self-realization, is to such lives impossible. The tired faculties of the Sybarite cease at length to respond to natural pleasures. When the senses are robbed of their fineness, youth grows blasé, mature manhood is ennuied, life is empty. With the growth of incomes grows the strain to reach the self-imposed standards of frivolity. Insanity and suicide are on the increase. The stress of modern life often makes men yearn for the simpler joys. From the days of the Stoics to our own time, philosophers and preachers in times of great material prosperity have risen to praise the simple life, and to declare that happiness dwells not outside of men, that they must seek it within.

Wise consumption depends not alone on physical pleasures, but on the spiritual unity of the uses made of goods. Happiness and character are akin in the qualities of simplicity and unity. Happiness, so far as it depends on wealth, is a harmony of gratifications. Character is a harmony of actions. A successful life is a group of complementary deeds. There can be no harmony, without a central, simple, guiding principle. The wise and moral use of goods and the economic use of them have much in common. The results of the choice of goods are reflected in the health, intelligence, happiness, morality, and progress of society.

The spending of income for display has never been very successfully forbidden by law. The Middle Ages are full of futile sumptuary laws which sprang from the envy the nobles had for the wealthy merchants. The growth of good taste may do what formal law found impossible. In these days even when luxury in some respects in increasing, the use of great wealth takes more social directions. It turns from dress toward education, art, music, and travel; then ceases to be applied merely to self and family, and benefits the community. Nowhere else and never before has this movement gone so far as in America with the gifts of millions annually for education, libraries, art, scientific and medical research, and for social betterment.

§ 12. The question of justice. We leave untouched here the larger moral problem involved in luxury. It concerns the justice of large incomes rather than their spending. Most of the enemies of luxury condemn all expenditure of wealth above a very moderate sum, declaring that it is “unjust” for one man to have much while others are in poverty. This communistic doctrine pervades the teaching of many moral teachers, pagan and Christian. The question of luxury leads back to the question of distribution: Has the man honestly gained his wealth? If so, he may spend it with good judgment or poor, with good taste or bad, but, so long as he does not injure others in the spending of it, there is much vagueness and confusion in the talk of “justice” or “injustice.” Each must in large measure be his own judge of the wisdom of expenditure. If expenditures were regulated by the public, few persons would be within the law. But whatever the goods that are bought, if large incomes are acquired without social service, there may well be talk of injustice.

§ 13. Animal choice. The problems of human life and conduct are never quite simple and there is another side to the question of luxury. Its frankest defenders, while recognizing the fallacy of the make-work argument, and admitting its dangers to the individual, claim that in its general effects it is a great incentive to economic progress. There the argument for luxury has some validity, and to appraise it better, let us recall the function of developing desires in impelling men to greater effort.

Choice among animals depends on the environment; that is to say, all that the creatures below man can do is to take things as they find them. And so the environment shapes and affects the animal. The fish is fitted to live in the water, and suffers and dies if long out of it. The horse and the cow like best the food of the fields. And so each species of animal, in order to survive in the severe struggle for existence, has been forced to fit itself to the conditions in which it lives. After the animal has been thus fitted, its choice is for those things normally to be found in its surroundings. So different animals choose different things, but in most cases it is the environment that determines the choice, and not the choice that shapes the environment. However, migration with the changing seasons, or in search of food, is a most effective method by which the animals, led by their instincts, bring about a change in their environment; and many other methods are employed, such as nest-making and food-storing.

§ 14. Choice by primitive men. In simpler human societies, choices are mostly confined to physical necessities; that is, in the earlier stages of society, man’s choices are very much like those of the animals. Man, like the animals, feels the pangs of hunger and he strives to secure food. He yearns for companionship, for it is only through association and mutual help that men, so weak as compared with many kinds of animals, are able to resist the enemies which beset them. He needs clothing to protect him against the harsher climates of the lands to which he moves. To protect himself against the cold and rain, he needs a shelter—a cave, a wigwam, or a hut. Man is thus impelled to bend his energies to the choice of the things necessary to survival.

In the rudest societies of which there is any record, savages are found with desires developed in many directions beyond those of any animals. Men are not passive victims of circumstances; their desires are not determined solely by their environment, but are drawn to things beyond and outside of the provisions of nature.

§ 15. Desires and progress. As men become more the masters of circumstances, their desires anticipate mere physical needs; they seek a more varied food of finer flavor and more delicately prepared. Dress is not limited by physical comfort, but becomes a means of personal ornament. Men seek and choose the beautiful in sound, in form, in taste, in color, in motion. The rude hut or communal lodge to protect against rain and cold becomes a home. Out of the earlier rude companionship develop the sentiments of friendship and family life. And finally, as the imagination and intellect develop, there grow up the various forms of intellectual pleasures—the love of reading, of study, of travel, and of thought. Desires develop and transform the world.

In recent discussion of the control of the tropics, the too great contentedness of tropical peoples has been brought out prominently. It has been said that if a colony of New England school-teachers and Presbyterian deacons should settle in the tropics, their descendants would, in a single generation, be wearing breech-clouts and going to cock-fights on Sunday. Certain it is that the energy and ambition of the temperate zone are hard to maintain in warmer lands. The negro’s contentedness with hard conditions, so often counted as a virtue, is one of the difficulties in the way of solving the race problem in our South to-day. Booker T. Washington and others who are laboring for the elevation of the American negroes, would try first to make them discontented with the one-room cabins, in which hundreds of thousands of families live. If only the desire for a two- or three-room cabin can be aroused, experience shows that family life and industrial qualities may be improved in many other ways.

§ 16. Function of modern discontent. Not only in America, but in most civilized lands to-day, is seen a rapid growth of desires in the working-classes. The incomes and the standard of living have much of the time been increasing, but not so fast as have the desires of the working-classes. Regret has been expressed by some that the workers of Europe are becoming “declassed.” Increasing wages, it is said, bring not welfare, but unhappiness, to the complaining masses. If discontent with one’s lot goes beyond a moderate degree, if it is more than the desire to better one’s lot by personal efforts, if it becomes an unhappy longing for the impossible, then indeed it may be a misfortune. But a moderate ambition to better the conditions of one’s self, of one’s family, or of society, is the “divine discontent” absolutely indispensable if energy and enterprise are to be called into being.

It is a suggestive fact that civilized man, equipped with all of the inventions and the advantages of science, spends more hours of effort in gaining a livelihood than does the savage with his almost unaided hands. Activity is dependent not on bare physical necessity, but on developed desires. If society is to develop, if progress is to continue, human desire, not of the grosser sort, but ever more refined, must continue to emerge and urge men to action.

§ 17. Luxury as an incentive to progress. It is impossible to know just how important the service of luxury as a pacemaker has been in this progress in the past, tho doubtless it has been great. But what is needed now is a rising standard of taste in the lives of the many, not excessive display or indulgence by the few. But a dead level of conditions seems to be unfavorable to invention, arts, and industry. There must be some motive for emulation, and for ambition to attain finer material means of enjoyment after the bare necessities of life are provided, or no new forms of wealth will be demanded. Necessities, strictly understood, are things absolutely essential to life and health. No hard line can be drawn between necessities and comforts, between comforts and luxuries. The level rises; it is a trite and true saying that the luxuries of one age become the necessities of the next. The rise of the bathtub in the nineteenth century is an epitome of the progress of civilization in that period. The free baths in our cities surpass the hopes of the wealthy of a century ago. The automobile was first the toy of the rich, but is becoming the necessity of daily life. Even the meaner motives of envy may have their social and economic functions. The lower social grades, emulous of the higher standard held before them, labor with greater energy. The successful and capable enterprisers, not content with necessities, continue to give their efforts to production. Even abstinence may be stimulated by the hope of attaining for one’s self and one’s family the imaginary joys of conspicuous display. Doubtless these effects are more or less offset by the temptations to live beyond one’s income, and to seek wealth in devious ways to make luxury possible. Still, luxury in a moderate measure has had, and still has, a part among the forces of dynamic society.

CHAPTER 38

ABSTINENCE AND PRODUCTION

§ 1. Dynamic movement of saving. Let us, finally, examine the influence for dynamic change that is exerted by man’s choice and use of goods with relation to time. We have already considered time-preference from the individual standpoint (Chapter 24), and have seen how with varying degrees of abstinence the individual’s fortune may be maintained, or decline, or advance. In the community as a whole, individual time-choices more or less neutralize each other. Prodigality versus abstinence, spending versus saving, of all the members of the community taken together, have, as a resultant, the maintenance or the reduction or the accumulation of economic agents. Accompanying this movement more or less closely, now ahead and now lagging behind, go changes in the rate of time-price as shown in the rate of interest. Let us look first at some conditions favorable to saving, and then at some adverse movements, making for the lowering of the economic environment.

Abstinence varies from man to man and from one period to another, but there are certain general conditions that appear to be favorable to the development of abstinence as a widespread habit of mind in society, and that contribute up to a certain point, to a general state of accumulation.

§ 2. Orderly government favorable to saving. As saving results from a comparison of the future with the present, any lack of certainty regarding the future decreases the appeal it makes. The theory of probabilities applies roughly in this matter, and a use is only half as great when there is but one chance in two of ever getting it. Political security against foreign aggression is favorable to saving. War is not only destructive of wealth and of industry in the zone of conflict, but it weakens the motives of thrift in the citizen. The energies of the people are given to fighting and to preparation for fighting, and the national resources are used regardless of the future need. Domestic order is favorable to saving. Where there are frequent revolutions as in some countries and periods in South America, and where brigandage is common, as it has been in Italy, Macedonia, and Bulgaria, the motive for saving is greatly weakened. Oppressive government, especially when it takes the form of irregular taxation, decreases the certainty of income and in that proportion weakens the motive for the accumulation of property. While the miserable subjects of the state live from hand to mouth, the very sources of the public revenue disappear. Improvidence grows upon such a people into a prevailing national custom; ambition is wanting; industry is the sport of chance; economic order and economic prosperity are impossible.

§ 3. Private property favorable to saving. Social institutions that give a motive to the individual seem to be essential to effective and continuous saving. Among these institutions the most important are the family and, closely connected with it, the institution of private property. The effect of this in its best manifestations is to fix the responsibility for each person’s economic welfare upon himself or upon his family. Through the institution of private property the state says to men: “Save if you will; the wealth and its future fruits shall be yours. But if you spend in the present, you alone will suffer the consequences.” The institution of private property never is found in an ideal form. Corrupt public officials weaken its working, dishonesty in business and the oppressive monopolistic power of a few exaggerated private fortunes reduce its benefits. Every propertyless family marks a partial failure in its purpose. These limitations, pretty generally admitted, have made private property a favorite object of attack by radical reformers. Its abolition has been advocated from the days of ancient Greece to our own days, as the remedy for all the great social ills. We are not concerned here with the moral judgment of the question, but with the pure economic aspect. Private property gives men an incentive to subordinate their present desires to the future. Private property has served to fix responsibility for waste and improvidence and to multiply the rewards of abstinence. History shows as yet no communities where any other motive has been effective in inducing large numbers of men regularly to conserve economic agents and in maintaining a progressive economic state.

§ 4. Opportunities for investment. Opportunities for the investment of small savings favor the spread of a spirit of saving. The institution of small property, peasant proprietorship, has worked powerfully in this direction in many parts of Europe; and the same effects have resulted in America from the wide diffusion of property in agricultural land. If the decline in the number of small independent farmers has somewhat weakened this influence in America, other agencies are effectively performing the same functions in other ways. Savings-banks, penny banks, building and loan associations, penny-provident funds, and other convenient means of investing small sums, encourage men to reduce their tobacco bills, their candy bills, their saloon bills, and to lay aside for the winter’s coal, for the children’s education, for houses, for business investments, or for old age. The French government, by the sale directly to the people of national bonds in small denominations, both recognized and helped to strengthen a custom of thrift in the small investor that has probably become more widespread in France than in any other country. Probably no one thing has given a greater stimulus to saving than has the development of insurance and the endowment policies in connection with it. The modern systems of compulsory accident and sickness insurance, and of pensions for old age, are accumulating large funds (invested in securities) and are collective saving on a large scale (whether it be deemed the saving by employers or by employees). Great modern corporations have displaced many small business enterprises into which so much of the saving of the past was put, but have opened up other large fields of choice for investors in notes, bonds, and stocks. Of late some American corporations and governments have begun to issue bonds in denominations of less than $1000, known as “baby bonds,” especially of $100 and $500, and their sale is steadily increasing.

§ 5. Get-rich-quick schemes. Nothing discourages abstinence more than the example of the loss of hard-won savings through unfortunate investments, as happens with many million dollars of small capitals every year. A large part of these losses would be avoided if certain simple truths were generally recognized and certain maxims observed. Security against loss of principal is more important than promises of a large interest rate. It is well to remember that the prevailing rate of capitalization in the community sets the outside limit of safe investment to the investor without special knowledge and judgment of the conditions. Unusual percentages of income (over 4 or 5 per cent) are bought by the small investor at the cost of disproportionate chances of loss. Buying stocks on margin, real estate on options, or anything partly on credit, is not true investing; it is speculation, and the chance is large that it will end in disaster to the “outsider” and the “lamb.” The stranger offering remarkable returns on small investments has almost certainly a flaw either in his judgment or in his morality. There are now and then good inventions which need but capital to develop them, but to judge their practical merits requires expert knowledge and business experience or influence which few possess. Only with the advice of trusted friends with these advantages should the inexperienced venture to invest outside of accustomed lines in the hope of unusual returns. “Get-rich-quick schemes” mean get-poor-quick for every one but their promoters. Patents from washing machines to chromatic printing, new processes from burning ashes to extracting gold from sea water, lead mines and gold mines which prove only to be “salted” mines, rubber plantations with elastic possibilities, electric “air line” roads destined ever to remain in air—these projects yearly lure millions of small savings from the trusting.

§ 6. Slower and safer plans. The average man investing outside of his own business should travel the well-marked roads: government, state and municipal bonds; stocks, or preferably bonds, of the more conservative corporations bought outright at other than times of booming business and high capitalization; real-estate mortgages in the neighborhood or placed through reliable agencies; shares in building and loan associations; deposits in savings banks; life insurance for breadwinners, first and mainly on the “ordinary life” plan or with payments limited to the earning years; and finally, old age pensions and life annuities. Carefully selected investments along these lines will yield to the average man in the long run much more than more active investments with the alluring promises of large dividends. If the small savings of the masses were more safe and remunerative, a wonderful stimulus would be given to industry, and the general welfare would be enhanced. In part no doubt this most desirable end can be furthered by public regulations in protection of investors, in part it must be brought about by the progress of sound principles of investment among persons of small means.

§ 7. Relation of the interest rate and saving. A question much debated is: should a rate of interest be looked upon as the cause of saving. Some persons might be willing to save somewhat were the rate of interest much lower, just as (on the hypothetical sellers’ curve) some sellers might have been willing to sell for less than the market price if they had not found buyers willing to pay the actual price. In every loan market the price comes to equilibrium at a point lower than some borrowers would have consented to pay, and higher than some lenders would have consented to take. If the rate were much lower there would be many more borrowers and many fewer lenders. A higher rate reduces the number of borrowers and increases the number of lenders; borrowing is by so much discouraged and abstinence is given a larger premium, a reward for waiting.1

A high interest rate does not insure a high degree of cumulative abstinence in a community; it is indeed nothing but the visible index of a low degree of abstinence (a high rate of time-preference), and interest will remain high till abstinence grows. The rate of interest marks the point of equilibrium in the market between present and future value of incomes, like the pointer on the spring balances. A fall in the rate of interest is not so much the cause of lessened saving in the community as a whole as it is the effect of increased saving. The causal order is from the growth of the spirit of saving in large classes to a falling interest rate, which continues to fall as long and as far as the cause is operative or is not offset by the acts of others. The truth in the view that a fall in the interest rate decreases saving is this: that a fall in the rate of interest may cause some individuals to save less. The fall is the resultant of the acts of other individuals who are willing to go on saving at a lower rate of interest than some other individuals are.

True, custom, example, and training have so fixed the habit of saving in many individuals that they would continue to accumulate just as much after the rate of interest fell. It is even conceivable that a few, in middle life, with a pretty definite idea of the amount of money income needed for a competence in old age, or to leave to their children, might be spurred to yet greater efforts when the investment premium fell. But this must be confined to a peculiar group of persons at a particular stage in their lives and is not characteristic of the whole community. Abstinence may, like jealousy, grow by what it feeds on, but only in some few older natures, not in the ever-renewing generations. It is not true of men in general that the longer they have to wait for income the easier they find it to wait.

Lending at interest was formerly very generally prohibited and the rate of interest was always high in those times. Well-meaning reformers are always proposing the prohibition of interest as a remedy for social ills. If this were done those savers who could buy and manage the agents themselves would still have strong motives for abstinence, but those who could not be active managers themselves would be deprived of the stimulus of a premium for saving. In itself the mere prohibition of contract interest would tend toward a lowering of the quality of the environment, and this would result in a higher rate of time-preference.

§ 8. Bountiful income and abstinence. Another question that has proved puzzling is as to the relation between the amount of income a man enjoys and the degree of abstinence. For if, as income increases, abstinence becomes easier, then improved methods of industry should have cumulative effects—not only making possible a larger sum of goods to enjoy now, but multiplying the amount of saving to produce other goods, and constantly lowering the rate of interest.

True, it is easier for a man with habits of life somewhat fixed to save more when his income rises. (See above, Chapter 24.) But it is not safe to say as much of men altogether, where the younger generation has time to adjust its tastes to the larger income. A community does not grow old in the same way that an individual does. (See above, under statics and dynamics, Chapter 32, section 2, on renewal of the generations.) “The children are always new” and each generation starts where its fathers left off. For this reason there appears to be little relation discoverable in history between the bountifulness of incomes in successive generations (through the discovery of richer lands, the use of better tools, machinery and methods) and the rate of time-preference. Such differences in the interest rate as appear can be explained through the changing conditions more or less favoring saving, rather than by the productiveness of industry in a community. Amount of production is only one factor in determining the rate of time-preference from generation to generation, and not the primary factor. And so, while interest was less in the seventeenth century in some European countries than it had been for centuries before, it does not seem to have fallen much, if any, in the chief commercial centers during the last two centuries, while enormous strides have been made in the productiveness of industry. It has been a matter of wonderment to social students that the rate of interest continued so high in the United States (higher than in Europe) in the last half of the nineteenth century, when the general level of incomes was so much higher than in the countries of Europe, or in any other country in the world theretofore. In fact, a very large portion of the American people have not been contributing in any degree to cumulative saving; rather they have been heedlessly consuming fully their own comparatively large incomes made possible by and drawn from the consumption and destruction of the natural resources of the country. (See Chapter 35.) The premium on the present as compared with the future may thus be just as high or higher when many men are living in great bounty as when all are in a meager environment. When they have large incomes they may save a smaller proportion of what they have, and yet possibly continue to accumulate more rapidly than when their incomes were smaller. Moreover, a large part of recent progress has been through the invention of simpler and better methods rather than through mere multiplication of old appliances. Time-preference is a psychological factor, which can not be explained by physical productivity. The attitude of men toward their environment has tremendous economic consequences.

§ 9. The interest rate and waiting. Let us now review some familiar facts to see the interrelations of abstinence, capitalization, and the rate of interest, and the dynamic effect that the choice of technical methods of production eventually has in a community.

Individual rates of time-preference unite into a market rate of time-price expressed primarily, in the case of durative agents, by the capitalization of the series of incomes. The capitalization of a series of incomes treated as perpetual is exactly in the ratio of the years’ purchase. The rate of interest that arithmetically corresponds with this is the reciprocal of the years’ purchase (e.g., = .05). Practically by the law of substitution as applied to investments, interest rates and capitalization rates are brought into correspondence. With each reduction of the time-price goes an identical arithmetic change in the rate of interest and a reciprocal increase in the capital sum, and a proportional decrease in the fraction of capital investment coming to the owner as income. The greater the degree of abstinence, the smaller the fraction of investment value that owners must take as income, the longer they must wait for an income bearing a given proportion of the capital, or equal to it, to accrue. The number of years’ purchase, therefore, might well, in this connection, be called the waiting time, or waiting-period. (See Figure 60.)

Now let the time-price rate be twelve and corresponding with that would be a rate of interest on money loans of twelve, and a capitalization of $8.33 for each $1 of income. If the spirit of abstinence grows and extends in the community from whatever combination of favoring conditions, so that the time-price rate of 10 (or any lower figure) results, the change is registered in a corresponding rate of interest of 10 per cent and the capitalization of each dollar of income at $10. This shows itself first in the capitalization of all existing incomes (capable of capitalization), and would do so if there were no technical, productive process whatever, merely a limited number of incomes. All future durative uses attributable to agents are marked up in present price. There are “takers” for capital now that will yield incomes but of its face, or what is the same thing, that are willing to have the same income spread over ¼ longer time (1⅔ years more, instead of 8⅓). This must cause some transfers of capital, for not all individuals have reduced their time-preference rate, and they will yield to the temptation to get $10 of present capital, whereas they could have resisted the offer of $8.33. The lower the interest rate the greater the temptation for the less abstinent members of the community to relinquish to the more abstinent the guardianship of future incomes with its task of waiting.

§ 10. Duplicate agents and slower processes. Another effect must show itself in the technical methods of production. The time-price signals that there are investors ready to wait longer for the same income from a given investment. There are investors willing to divert more present goods into future uses, and to impart to future uses still more of futurity. This adjustment at once begins in the economies of all individuals where time-preference is in accord with the new rate. One mode of adjusting productive processes is to multiply the tools and agents already used. Duplicates are placed wherever it will be most convenient. Where formerly the use of a second agent did not justify its cost of making, now it can be made to earn the smaller income2 needed to balance its capital value.

Another mode is to let the old processes go on a little longer, with no appreciable change in the form of equipment, where this will bring an increase either in quantity or value of product and therefore enough more income to repay the larger period of waiting for its arrival. Unless other possible processes and kinds of tools and machines are already known (have been discovered and invented) duplicating and slowing-up are the only two ways of adjusting production to a lower time-price. And nowhere and in no time before the modern period of science and invention (say 1700 ad) does there seem to have been any crowd of unemployed processes, waiting, so to speak, just outside the gates of industry. So it might happen that a large fall in the interest rate would not be quickly followed by any noticeable change in the external forms of production, either the machines or the methods. Such a change had to await the slow process of discovery and invention, to occupy this new territory which abstinence had opened up for settlement. Great changes came about by slow adaptations and by accretions of new ideas. The simple truth must not be forgotten that until a better technical process becomes known it can not be adopted even if the rate of interest were to become zero.

§ 11. Lower interest rate stimulating invention. But on the other hand, a fall in the rate of interest (and the conditions of saving it reflects) must give a new stimulus to invention by opening up a new zone of waiting time, or in other words, by embodying a definite offer of investors to back any new method (whether more indirect or not) that can be found by experience to lie between the old standard and the new standard of waiting time. The lower the rate of interest, the greater the change in waiting time that corresponds with a further fall of 1 per cent. When interest falls from 10 per cent to 9, it means a lengthening of the waiting time by only 1 years; but when interest falls from 5 to 4, it means a lengthening of the waiting time by full 5 years. With each further fall of 1 per cent in the rate of interest the extension of waiting time goes on at an accelerating rate. At an interest rate of 1 per cent the waiting time would be a hundred years, and at an interest rate of zero (only abstractly conceivable) the waiting time must be infinity. If the interest rate were to fall to 3 and again to 2 per cent it would bring within the range of the economic an almost inconceivable number of technical processes which can not now be used. Viewed in this light, the remarkable outburst of practical invention and of new industrial processes in western Europe (particularly in England) in the eighteenth century, seems to have been partly due to a lower rate of interest (as compared with former centuries) following the more settled conditions, the growth of commerce, of banks, and of more regular investment markets in the financial centers.

This development of invention has been in turn greatly aided by the progress of the pure sciences since the seventeenth century, brought about by investigators in universities and outside, who have continued to heap up a great mass of knowledge of nature from which the practical arts can increasingly draw. To-day it is a matter of common knowledge that there are many better technical ways of doing things in every craft, ways which “do not pay” under present conditions. Many of these lie just outside the border of practical, profitable utilization. A fall in the rate of interest now makes possible the adoption of many technical processes that were formerly too slow in yielding the income on the investment. Partly this means the making of new and better instruments which call for a larger initial outlay to secure a certain income, partly it means the choice of chemical, botanical, mechanical, electrical, or other methods that yield larger results by tying up the equipment for a longer time.3

§ 12. Time-price determining the selection of processes. Take now a situation where there is a prevailing interest rate with its corresponding equilibrium of investment, and consider what is the effect of the discovery of a new method of production known to every one,4 and of the invention of a machine that calls for a smaller investment (even after paying royalty to the inventor). Among many new methods and new machines, all degrees of advantage will be found in all varieties and combinations, ranging from those that require actually less equipment, use less material, require less labor for their operation, shorten the time for the process, reduce the number of technical steps, increase the quantity, and improve the quality of the product, to the opposite in each of these respects. Regarding the change from the old to these new methods and machines, two questions occur: (1) What determines where the line is drawn in making these changes from old to new methods? (2) What is the effect of the new methods upon the existing degree of abstinence?

So far as this change is rationally and wisely made, any new method will be adopted that will yield an income falling within the waiting-zone corresponding with the interest rate. Of course all of the extremely advantageous kinds just mentioned would be adopted, and others up to the limit of paying investment. Beyond that lie many processes which are technically possible but not economically possible. All of the existing factors—labor and material resources—are taken up, put into use, before these are reached. The limit is set by the existing rate of time-price, reflected in the rate of interest. As the rate of time-preference in the individual’s choice, so the rate of interest in the community, draws a line among the various technical processes analogous to the isothermal line, marking off those that yield incomes at a lower from those that yield at a higher time-rate.5

§ 13. Newly discovered process; effect upon interest-rate. What effect would the adoption of a newly discovered process have upon the time-price rate?6 If it takes a smaller equipment than the old, its effect is that of releasing some productive agents for other processes before excluded; that is, it enables a community with the same abstinence to resort to longer processes and thus lower the time-price. Or if the new method gives increase in product with the same investment, the result is a fall in the price of the product, and a recapitalizing of the sources of the materials, etc., to bring income and capital value into accord with the prevailing rate. Then the question becomes: What effect will this have on the prevailing rate of time-preference? As the total income of the members of the community increases with the more bountiful production, and their present desires are better provided for they should find it easier to abstain. In itself this should result in more saving and a lower interest rate. But the final result so depends on changes in the standard of living, education, etc.,7 which are themselves usually elevated by more bountiful production, that the answer is not easy. The experience of the past two centuries shows that our progressive economic societies are constantly incorporating into their processes great improvements which raise the total production of objective goods per capita, while they maintain about the same rate of interest from generation to generation. Both present and future expected incomes are more bountiful than they were in the past, but the ratio of their time-valuation remains substantially unchanged.

§ 14. Railroad betterments and the rate of interest. The railroads in America have given a good illustration of the relation of the interest rate to improvements. In railroad financing, cost of operation is compared with fixed charges, i.e., the interest on the bonds needed to make an improvement that reduces costs. Our main lines in America were built when the interest rate was high (before 1873). Expensive improvements, the straightening of curves, the tunneling of mountains, the reducing of grades, the replacement of lighter by heavier rails, accompanied a fall in the rate of interest. A fall in the interest rate disturbs the equilibrium that has been arrived at, between the cost of operation (the amount paid for wages, coal, etc.) and the income on permanent investment. If the rate of interest has been 5 per cent and falls to 4 per cent, many permanent improvements before unwise become economical. A net gain may result from increasing the capital investment in order to reduce the cost of operation per unit of traffic. One thousand dollars paid annually in wages balances a 5 per cent interest charge on a capital investment of $20,000; it balances a 4 per cent interest charge on $25,000. It thus becomes profitable for the railroad to abandon or throw aside an enormous capital represented by the old, less perfect roadbed and equipment, and build new with capital borrowed at a lower rate. The changes of this kind one sees in traveling on the great and progressive railroads, reflect in part the growth of traffic, but in part also a change of the interest rate.

§ 15. Effect of war upon the interest rate. The commonly observed fact that a great war calling for much borrowing raises the interest rate is easily explained as the undoing of the process of saving and loaning. It presents a case of waste on an enormous scale. Waste and destruction are in their nature and in their main effect upon time-preference, interest, and productive processes, just the converse of saving and improving wealth. In the case of war the borrowing comes first, to get capital with which to buy the many supplies and munitions needed to maintain armies and navies. Goods are destroyed in enormous quantities: horses, wagons, gasoline, weapons, ammunition, ships, foods, clothing, etc.; great numbers of men, both combatants and non-combatants, are withdrawn from many of the usual productive pursuits and are giving every energy either to producing munitions of war or to destroying the soldiers and the wealth of the enemy—roads, fields, buildings, machinery, stores of all kinds. Within the region of hostilities the economy is reduced well nigh to the stage of savagery. Men become beasts of burden, and are obliged to carry on production with meager equipment. Even were a war in the territory of two modern nations limited to a few months, the destruction would be enough to consume the usual savings for years. The present need of nations at war is for enormous quantities of present goods; after the war the pressing need to rebuild their houses and their ruined industrial equipment will call for great quantities of present goods of another kind. This result is anticipated at the very outbreak of hostilities. The interest rate rises, and the capitalvalue of all existing securities with fixed incomes is reduced accordingly. During the continuance of the war the rising interest rate slackens investment in industries in countries at peace. The unparalleled economies of the people of warring nations, the lowering of their standard of living, the cessation of a large share of the costly entertainments and of social luxuries, and the sacrifices they make to support their governments, go far to offset the destruction, and thus to limit the rise of the interest rate. Notwithstanding this, the world’s industrial equipment halts its progress and goes backward as, through the medium of international credit, this destructive, anti-saving process of war spreads its effects over the nations.

CHAPTER 39

VALUE THEORY AND SOCIAL WELFARE

§ 1. Epoch of the dismal science. A preliminary word. The foregoing survey of the dynamic forces and changes in economic society (Part VI), incomplete as it is, may yet serve in some measure to broaden and to extend our understanding of the study that preceded (Parts I to V). This chapter concluding the outline of economic principles will give: first (sections 1-4), a suggestion of some of the far-reaching conclusions which economic students have in the past drawn from their theories of value in respect to the trend of popular welfare; secondly (sections 5-6), a general summary of the positive theory of value that has been developed in its details throughout this volume; and thirdly (sections 7-11), a brief outline of the relations between wealth and welfare, value and utility, individual advantage and the general good.

The value-theory one holds is sure to affect one’s view of economic progress and one’s attitude toward projects of social reform. The theories from the middle of the eighteenth to the middle of the nineteenth century, however varied they were in other respects, nearly all gave a gloomy view of the condition of the masses. Such were the theories of the physiocratic school in France, consisting of a small group of highly educated and aristocratic men of liberal sympathies in the generation preceding the French Revolution of 1789; of the so-called “orthodox” or “classical” economists in England composed of the writers from about 1800 to 1850 that were in sympathy either with the landholding or with the commercial classes; and of the socialistic or laboring-class theorists, from 1789 to the present. It was the prevalence of such a view which caused Carlyle to characterize political economy by the term still sometimes heard, “the dismal science.”

However greatly these various groups of thinkers differed in other respects, they united in the belief that the labor incomes of the masses must remain near the starvation point. Indeed, this was little more than a generalization of the observed conditions of the time. The population of Europe was increasing, the pressure for food was strong, and the cultivated area was not increasing proportionately. While all the forms of industry most common in cities were increasing, while the wealth of the cities and the rents of rural landlords were increasing, poverty was growing among the peasantry. Owing to exceptional conditions this was especially true in England during the Napoleonic wars, 1793-1815. (See Chapter 34, section 8.)

In this situation the thinkers of that period confused the truth of the limited powers of agricultural land with the false inference and prophecy of a necessarily decreasing relative food supply and decreasing wages. The economic theory of the “classical” economics centered around this fact and the false inference from it. The condition of the masses was believed to change rhythmically, rising from time to time, only to return, through the pressure of population, to its former level. Their pessimism was all due to their view of the food problem. They doubtless underrated the forces operating for volitional control. In another regard they were too optimistic, for they had no thought that timber, mineral, and other natural stores might be exhausted, with the result of decreasing prosperity. The things made from these materials were thought to be the “product of labor,” and capable of unlimited increase. It is just these materials whose increasing scarcity is one of the greatest economic problems that society has now to face. (See Chapter 35.)

§ 2. Communism and value theory. The “orthodox” economists gave currency to two erroneous doctrines: (a) that labor is the sole source of value; and (b) that the laboring classes must forever be reduced to a bare subsistence. They were quite heedless of the use that would be made of these doctrines in political discussion to attack the existing order of society. They did, it is true, modify and qualify both these doctrines, sacrificing thus the consistency of their reasoning, while gaining in common sense and in harmony with the facts. The communists, however, accepted these doctrines in their most unqualified form, and drew from false premises the false conclusion most natural for the human mind, that the existing order was fundamentally unjust and hopeless for the masses. For if wages were always to be forced to a bare minimum of subsistence, it followed that the other shares (incomes of landlords and of other owners) must absorb all the benefits of improved machinery, better methods, and general industrial progress.

The communistic theory of value is akin to the “classical” theory in holding that capitalists absorb all the benefits of progress. But the communists refused to recognize that any useful and necessary service in social production is performed by the owners of wealth, or by the savers and lenders of capital, or by the employers of labor. They did not even attempt to distinguish the part in the production of value due to manual labor from the part due to brains, to science, to art, to supervision, or that part in turn from the part due to the saving, conserving, and provision of the agents of production. The whole elaborate industrial environment and its skilful management that made possible modern industry they took for granted as at the laborer’s command and credited to him the whole value of the product. All profits made by employers were called robbery, and capital was looked upon merely as the weapon by which the act was committed. They accepted the conclusion of “orthodox” economic theory and magnified it, declaring that under a competitive condition of society the laboring man, tho he produces everything, must be forever ground down in hopeless misery. This they called “the iron law of wages.” They held, therefore, that the only hope of the laboring masses was to do away with competitive society and to substitute for it the governmental control of all industry.1

§ 3. The single-tax doctrine. The single-tax doctrine of Henry George was likewise built upon a value theory. Tho George eloquently denied the law of diminishing returns (including the principle of proportionality applied to land uses), he accepted the conclusions that the classical economists drew from it, that ground rent must be an ever-increasing share of the national income. He believed that the landholders get all the gains that come to society as a result of science, invention, and machinery. Hence his belief expressed in the title of his work, “Progress and Poverty,” that, with private property in land, the outlook for the laboring classes is hopeless. In George’s opinion neither wage-earners nor such capitalists as are not landholders have any share in the benefits of industrial progress. He saw no problem of monopoly anywhere except in connection with land ownership. The evil, as George saw it, called for a radical measure of reform, namely, the taking of all the rent of land (a single tax), for public purposes as a common instead of an individual income. This, he believed, would be enough to replace all other forms of taxation.

§ 4. Optimistic theories of wages. Some recent theories of value have assigned to labor a more hopeful position. Most optimistic was “the residual claimant theory,” of wages presented by the American economist, Francis A. Walker. His view was that the various shares of production, such as landrent, the income from machinery, etc., and the enterpriser’s profits, were fixed by forces independent of wages, and any increase in the output must therefore fall to the laborer as the residual claimant. This appears to explain somehow the rise in wages in the past century, but the fallacy of its method is evident. It involves the circular reasoning that land-rent (a surplus over cost of production) is fixed regardless of wages, whereas the cost of production itself is made up chiefly of wages.

Another American economist, John B. Clark, was led by his theory of profits to a most hopeful view as to the future of wages. Profits he considers to be essentially the reward for introducing new methods into the productive processes, which gradually accrue to the general benefit. As profits thus disappear, the average wage-earner is correspondingly uplifted. In reaching this conclusion Clark omits from consideration the growing scarcity of natural resources and narrows his conception of profits to the point where industry is self-organizing and self-directing. Some facts lend support to every one of these theories of social progress, radical and conservative, gloomy and hopeful, but other facts refuse to be harmonized.

§ 5. An organic theory of value. Let us turn from negative criticism to a summary of the positive ideas as to value that are contained in the foregoing chapters. We have not been content with an easy but superficial explanation of value. We have come to see that the value of the simplest commodities (a dozen eggs, a pound of butter, a bushel of wheat), is a part of a great complex problem. We have not explained it fully, we have only begun to understand it, when we take the desires of a group of traders in a market as a starting point, and have even drawn a diagram showing the meeting point of price. For these desires in turn have been conditioned by manifold influences, stretching on to other men, other goods, other lands, and other times. Nor can we rightly conceive of a theory of value as being a thing apart from a theory of usance, of labor-incomes, of time-preference, etc. These are all but special aspects of a general theory of value, and each must be thought of as a part, or aspect, of what might be called an organic whole, or perhaps better, a general economic situation. From the first and repeatedly this thought was brought to the reader’s attention, in treating the static theories;2 and the thought has pervaded our whole discussion of the dynamic aspects of economics. In respect to value, as in other ways, it may be said: “We are all members, one of another.” With this thought now clearly in mind we may take a final view of the subject.

The productive process is a unity and the values of the different agents and incomes in our actual economic organization bear a mutual relation to each other. Yet the unit itself (the total to be divided in an industry) rises or falls as a result of many forces coöperating or conflicting; any share, therefore (as that of the laborer), depends both on the size of the total product and on the proportion he gets out of it. The factors and agents of production mutually employ each other and thus prices are fixed by reciprocal demand. (See Chapter 34.) The value of any one in terms of the other rises as its relative quantity and efficiency fall and falls as its quantity and efficiency rise. But the absolute amount of goods obtained, the income obtained by any one, may and does rise with its quantity and efficiency and vice versa. Labor and natural materials are complementary agents, and the more abundant and accessible the natural stores of materials, the larger the whole product of industry and the larger also the share of the price that is attributed to the labor. Real wages must vary (other things equal) with available supplies of elementary materials, rising when they become relatively more abundant, and falling with their exhaustion or relative diminution. This is illustrated broadly by the high real incomes of the common laborer in new countries, despite some other adverse conditions, and by the lower incomes in countries poor in natural resources. As those natural resources that are exhaustible, as lumber, coal, and metal ores, grow less, their money price rises. That makes the purchasing power of a day’s labor less in exchange not only for those raw materials, but for everything which those materials are indirectly helping to create. It is possible to counteract this effect in part or wholly, temporarily or permanently, by substitutions and by other improvements, and by the discovery of new resources beneath the surface of the earth.

Even when population is stationary or decreasing, an absolute decrease of the supplies of many of the principal natural materials is certain to take place and, in so far, real wages may be reduced. A decreasing food supply, on the contrary, can hardly occur with a stationary or slowly increasing population such as results from effective volitional control.

Change in the artificial agents for shaping and moving things is the second great objective cause of changes in wages. It has been shown (Chapters 12 and 36) how the utilization of wealth is affected by scarcity and abundance of agents, and how saving increases the bounty of agents, improves the methods of production, and benefits the community as a whole, including those who have had no part in the saving (Chapters 24 and 38). Thus from several sides it has been seen how the necessary influence of a decaying equipment of tools must force laborers to lower, less effective, margins in the existing stocks of tools, and on the other hand how the relative increases of those agents, and the growth of science and invention, tend toward the raising of production and of the proportion going as wages. Other things being equal, real wages vary with the agencies for shaping and moving things, rising when they become relatively more abundant and effective, and falling if they decline. Except as affected by the increasing scarcity of some elemental materials, the reasonable prospect is that tools and machinery will steadily be multiplied in number and improved in efficiency. This is a basis for optimistic prophecy.3

§ 6. Labor and its environment. Decreasing and increasing returns are cases of changing proportionality, involving social, rather than individual adjustment; not the adjustment of enterpriser’s money cost to prices, but of the whole labor supply in relation to the employment afforded by its environment. The individual employer thinks of the supply of labor as consisting of men seeking employment in his special industry. In this view it is the demand of the employers that apportions the workers among the various occupations, and seems to determine wages. The social view of the opportunity for labor, however, looks at the whole field. The opportunity for labor is then seen to be represented ultimately not by human employers, but by resources and agents which labor can use. The rich acre, the tool, the machine, all material wealth needing the human touch to utilize it, represent opportunity for labor in this sense. The employers’ demand for labor, therefore, is but a reflection of the opportunities embodied in resources. A million men are a great or a small population according as they occupy a little island or a large continent, according as they are equipped with a small or a large supply of agents.

§ 7. Aspects of wealth. Wealth is the general term for those things which are felt or seen to be related to the gratification of desires. This definition is wider or narrower according to the senses in which the various words are taken. What is included in “things”? How deeply are they felt and how far-sightedly are they seen to be related? How immediate is the gratification? Individual wealth is usually taken to mean the valuable things the individual owns. Some would include “internal goods,” such abstract qualities as honesty and cheerfulness; others would include not abstract qualities but men themselves with all their capacities of body and mind; the free man owning himself and his powers to serve his own desires, the slave being owned. More frequently, and properly, the term individual wealth is limited to valuable agents objective to men, not including free men. There is much popular usage in favor of including evidences of claims of ownership such as notes, mortgages, stocks, and other credit instruments, by so doing making private wealth (tho not always consistently) synonymous with capital in our definition. There is good reason to keep the term wealth for the concrete things while using capital as the value expression of business power embodied in those things. Thus, the factory is wealth, the economic basis for the capital represented by stocks and bonds; the farm is wealth, the economic basis of the mortgage and of the owner’s residual claim to the unmortgaged capital value.

Social wealth is a broader term and includes all the wealbringing environment of the nation. It is more than the sum of concrete individual wealth (factories, farms, etc., of course all conflicting claims being canceled); it includes the valuable exchangeable things in governmental possession, parks, forests, public buildings, libraries, bridges, highways, and publicowned wealth, etc., and also all the natural advantages of climate, rivers, harbors, lakes, and oceans. The better and more beautiful these advantages, the less may be the need of individual wealth; one nation with natural waterways may be truly wealthier than another with canals costing millions of dollars and owned by corporations; and a nation with abundant cheap lands of low price is more happily situated than one with high-priced lands that yield great private incomes to the owners.

§ 8. Welfare. Welfare, in an immediate or narrow sense, is the same as gratification of the moment; in a broader and truer sense it is the abiding condition of well-being. We have here a distinction very much like that often made between pleasure and happiness. If only the present moment is thought of, welfare is the absence of pain, and the presence of pleasurable feeling; but if a longer period in a man’s life or his entire lifetime is considered, it is seen that many things that afford a momentary gratification do not minister to his ultimate, or abiding, welfare. The difference is illustrated by the thoughtlessness and impulsiveness of a child or savage as contrasted with the more rational life of those with foresight and patience.

Now it is evident that a large part of the value of individual wealth rests on the basis of foolish and shortsighted choice. But whether tobacco or alcohol or morphine minister to the abiding welfare of the consumers is not the question in explaining the value of these things.4 Here again it is seen how poor an index the value of individual wealth is to the permanent welfare of men and society.

In studying the question of social prosperity we must rise to the standpoint of the social philosopher and consider the more abiding effects of wealth. Desires may be developed and made rational, and the permanent prosperity of a community depends on this result. Any species of animals that continued regularly to enjoy that which weakens the health and strength would become extinct. Any society or individual that continues to seek its pleasures in ways that do not, on the average, minister to permanent welfare, sinks in the struggle of life and gives way to those men and nations that have a sounder and healthier adjustment of choice and welfare. We touch here, therefore, on the edge of the great problems of morals, and while we must recognize the contrast that often exists in the life of any particular man between his “pleasures” and his health and happiness, we see that there is a reason why, on the whole, and in the long run, these two can not remain far apart. The old proverbs, “Be virtuous and you will be happy,” “Honesty is the best policy,” and “Virtue is its own reward,” have a sound basis in the age-long experience of the world. Cynics or jesters may easily disprove these truths in a multitude of particular cases.

§ 9. The paradox of value in practice. A necessary condition of value is scarcity. The business incomes of individuals depend on the price of the agents and uses they control. It appears in the paradox of value (Chapter 4, section 11) that up to a certain point the total value increases with the number of units offered in a market, and beyond that point it decreases. In the period of increasing total price (tho declining unit price) any one who owned the whole supply would gain by abundance and his interest would be in harmony with the interests of the buyers of his goods; beyond that point he would gain by greater scarcity. Thus individual gain sometimes may lie in social want rather than in social wealth. Broadly speaking, so long as value is on the ascending curve and income grows with abundance of goods, the individual interest is bound up with the social interest. So soon as value is on the descending curve and private income grows with social need, the individual interest is at conflict with the social interest, and a problem of social control is presented. Fortunately, in most cases the individual is concerned only with the ascending scale of total value and can increase his private income only by striving for abundance, increasing the number of units he has to offer. A social problem is presented wherever individuals or corporations control such a large proportion of the whole supply at a particular time and place that they are tempted to increase their private incomes by artificially enhancing scarcity.

In other cases scarcity grows inevitably, as in the exhaustion of natural deposits or the relative decrease of favored building sites for commerce and of tillable land for food when population grows rapidly. Each individual controls such a small portion of the supply that he gains only by striving for abundance (planting new forests, discovering and developing new mines, clearing, draining, irrigating, and fertilizing more fields); but with growing scarcity of the whole supply, price per unit rises. Where supply is absolutely falling off (exhaustion of natural stores of timber, coal, and metals) this rising price per unit partly, wholly, or more than, compensates the owners for the decreasing quantity; where supply is only relatively declining (same supply at a higher price) each owner gains and the whole group of owners gain by the scarcity, without themselves helping to bring about the change. Thus again it is seen that value is not identical, indeed may be in contrast with utility. Individual incomes depend primarily upon value, and therefore individual gain may be associated in many cases with scarcity and not with abundance.

§ 10. Conflict of individual and general interests. The social welfare has no reality apart from the abiding happiness of individuals and progress toward a higher, nobler form of social life. The individual members of society are guided mainly in their business activity by value, as that determines their incomes, and the value of the services rendered is a very inaccurate index either of the welfare of the individual consumer or of the social group. Both labor-claims and capital-claims on income reflect values; they do not always reflect the true welfare of individuals or of society. Labor and wealth sometimes are applied to nerve-destroying and life-destroying pleasures, because the panderer to vices can get a larger income in that way than in any other. Gamblers provide means for the indulgence of a common weakness that gives a pleasurable excitement but that undermines the foundations of social prosperity. Able lawyers render highly paid services to enable individual criminals to escape the penalty of the law or wealthy corporations to destroy competitors, establish illegal monopoly, and secure anti-social gains. Employers have profited through defeating, with superior legal talent and powers of endurance, the claims of workmen. Manual laborers often shirk work when not under the master’s eye and draw their wages for dishonest service. The primary purpose of most men in industry is to acquire income, and they leave the purchaser to look after his own welfare. Fortunately, however, in many cases acquisition of income is conditioned on production of welfare, and some worthy standards of business honor are found in every class of society.

In this regard what is true of income from labor-services is true of capital. Capital is the saleable value-expression of expected incomes, no matter what the source of the incomes may be, whether rentals of vice, gains of monopoly, mendacious advertising, or the growing scarcity of natural agents. To identify growth of capital with national prosperity is fallacious. Capital is a private business concept, and tho in many cases it is the present worth of real productive agents, in others it reflects the claim of one individual against another rather than a claim upon objective goods, relative scarcity rather than abundance, a summation of value rather than of welfare.

§ 11. Business economy and social economy. Not without reason it has been made a reproach to economic writers that they often have confounded business incomes (and especially those of a limited, influential, class in society) with general social welfare, and have identified individual acquisition with social production. Business economy has been mistaken for true political economy, commercial profits for social welfare.

The right understanding of the nature of value and of capital makes possible a clearer distinction than before between business economy and social economy. Men can not to-day, in view of the truths set forth above, cherish the error that “whatever is, is right” in the distribution of incomes. We must recognize the fact that in all times and countries and still to-day there is in public and private business more or less favoritism, bribery, monopoly, and dishonesty, which give to some men more than the economic law of value would explain or warrant. We must recognize further that the law of value itself is not necessarily the law of justice, that the incomes resulting from values in the world as it is do not always meet an ethical test. The problem of the social control of industry is largely that of determining when incomes that accrue to individuals are in harmony with, and when they are adverse, to the general weal. A number of these questions will be considered and an attempt will be made to answer them in accord with fundamental economic principles, in a later volume on “Economic Problems in America.”

[1 ]See note on Definitions at end of chapter.

[* ]In a completely static state the level of prices and incomes would continue unchanged throughout the successive periods of time, as represented by the line AAA which remains parallel with the base line. Thedotted line B which oscillates above and below A represents the rhythmic change. Line C represents a transformational (truly dynamic) change through a period of time to a permanently higher static level of CC′; whereas D represents a transformational change and a lower static level DD′.

[2 ]An essay on the principle of population, as it affects the future improvement of society, by Robert Thomas Malthus, London, 1798. Second edition, 1803.

[3 ]This is sometimes for convenience called the problem of “population,” altho this is taking liberties with the derivation from populus, people.

[1 ]Size of the census family in the United States. (Census, 1910, vol. pop. p. 1286.)

The term family as used in the census does not mean the natural or biologic family, but a household or group of persons, whether related by blood or not, who share a common abode, usually also sharing the same table. If a person lives alone, he constitutes a family; while on the other hand many people dwelling together in a hotel or institution are also treated as forming a single family. Nevertheless, these figures doubtless reflect a very large proportionate decrease in the average number of children per family, a conclusion corroborated by much other evidence.

[2 ]But not in the other parts of the country, from well recognized causes. See Figure 58.

[1 ]The Italian economist Bodio’s estimate is 54 million.

[2 ]The first column was compiled from various authorities by Prof. W. F. Willcox, in his paper “The Expansion of Europe”; from which we have derived the yearly arithmetic increase and percentage of increase by decades.

[3 ]Mulhall’s “Dictionary of Statistics.”

[4 ]At accession of Henry VII, 1485 ad See Traill’s “Social England,” vol. III, p. 129.

[5 ]Estimate of Sussmilch, the famous statistician of the eighteenth century.

[6 ]Estimate of Levasseur, cited by Willcox.

[7 ]Population of the United States at each census 1790 to 1910.

[* ]The first rate shown is for the decade ending 1800, the last, 1910. The average rate for the whites until 1860 was around 35 per cent, but the trend since has been downward until in the last two decades it has been less than ⅔ as high as it was then; it would be much less but for the very large European immigration.

The rate of increase of the negroes has been less than that of the whites in every decade but one, and the trend of the rate has been downward since 1810. It now is about ⅓ of what it was in the beginning, and practically the whole of the increase is now due to the South Atlantic and South Central divisions. Elsewhere the negro population would be either stationary or decreasing in numbers but for the migration from the southern states (and some from the West Indies).

[8 ]See note at end of chapter on Various meanings of diminishing returns.

[9 ]See ch. 27, sec. 13, note.

[1 ]National Conservation Commission Report, 1908-09, Doc. Cons. No 5399, p. 373. Of the 75,000,000 acres about two thirds are in the southern states, Florida having about 18,000,000, Louisiana 10,000,000 and other states, Mississippi, Arkansas. Georgia, North Carolina, South Carolina and Texas, ranging from 6,000,000 down to 1,600,000 acres. Over two thirds of the rest is in the group of contiguous states, Indiana, Michigan, Wisconsin, Minnesota, Illinois, Missouri.

[2 ]Report of National Conservation Commission (1909). Pub. Doc. Consecutive No. 5398, p. 67. Figures for 1908.

[3 ]Report of the Conservation Commission, vol. 1, p. 78.

[1 ]See chs. 18 and 19.

[2 ]These sudden changes in machinery also cause losses in many cases to the owners of the existing equipment. Every considerable improvement brings unfortunate results to some while it means gains to others. At every moment in a progressive society, some agents are being thrown out of use by improvements in tools and machinery. The machinery in flour-mills has been almost completely changed, parts of it repeatedly, while steam rollers have been substituted for the old millstones and many old mills have been abandoned. A change in the process of making paper threw out of use much machinery that was only in part saved by its removal and adaptation to the making of coarser grades of paper. Many minor inventions in the iron industry, still more the invention of the Bessemer process, threw out of use great numbers of the old appliances. Such illustrations can be indefinitely multiplied.

Similarly changes in the sources of power are shifting the location of many industries and causing the rise of some and the fall of other valuable agents. Water-power, because of its uncertainty, has been replaced in many places by steam-power, and in many places steam-power in turn has been rivaled by water-power since the improvements in the generation and transmission of electricity.

[1 ]A man carries a dollar in his pocket on a journey without getting interest, but he (now) values the future purchase more than the present purchase. Likewise, by persons ignorant of banks, dollars are sometimes laid away for sickness, old age, and other needs without the inducement of interest. The owner might even be imagined to pay for the safekeeping of the money in the meantime. Some have made much of these cases, have called hoarding a case of zero interest, and the payment of storage charges a case of negative interest. These are not cases of interest at all by our definition, they are cases of time-preference for future money. The zero rate of time-preference does not extend to goods generally, for this would mean an absolutely indifferent choice between present and future uses, gratifications and goods, and an infinite capital value for the smallest permanent series of incomes. (See above, under time-value.) These acts of saving money occur at a time when the individual is showing time-preference for the present in numberless ways. In these cases the money is for the time being withdrawn from its use as a medium of exchange and is turned to its use as a storehouse of saving. Like fruit in a plentiful season and ice stored in winter it is kept because it is relatively plentiful now, and a part of it if kept will provide necessities for a time of relative scarcity.

[2 ]This is a net income, of course. The new tool yielding less urgent (marginal) uses than the first one, yet requires some shelter and repairs, and has as great or greater liability to rust, decay, go out of style, etc. With the multiplication of like tools, the added units are less often used, and for less urgent purposes, yet the cost of repairs and maintenance grows greater, leaving a smaller net income with each increasing agent (see above, under usance). The more duplicate agents one has, the greater the forethought, punctuality, and watchfulness required to keep them in good condition. If the farmer has but one hoe and one ax, they rarely rust; if a woman has but one dress it can not be eaten by moths. The point of best economic equilibrium, however, is shifted by the change of time-price here under consideration.

[3 ]This change is often said to be one “to more time-consuming processes.” This phrase is easily misleading. It can not properly refer to the length of the technical process itself, but merely to what we here call the waiting-time for a certain income to mature on a certain investment. One technical process may require only a few days from the making of the first machine to the finishing of the product, it may permit a turnover several times a year (the making of new machines to be rapidly worn out) and yet “not pay,” because it is a slow income-yielding process. Whereas a machine, that lasts and a process that goes on for years until the product is ready, may yield income at such a rate that it is economic when interest is very high. (See ch 21 on the relation of technic to time.) If the term time-consuming be used at all it must be taken in an income-ripening sense, not in a technically productive sense.

[4 ]Trade secrets, patents, and temporary monopoly privileges, where the better process is limited to one enterprise or to a few, affect individual profits at first rather than the general economic level.

[5 ]Among the processes always waiting on the borders of utilization, known but not adopted, must always be many which are technically more indirect than those before in use; but they have been rejected not at all because of their technical indirectness, but because they involved either too large or too long an investment. If the indirectness involves initial cost—as for materials to make the complex parts—then that influences time-choice by increasing the investment; if it involves cost of operation because of complexity of parts and difficulty of repairs, this influences time-choice by reducing the net income expected. Given a certain investment, and a certain income in the future, and time-difference is the only factor that influences choice; technical indirectness is a merely incidental element.

[6 ]Observe that we are considering the case not of a better technical method already known, and now first adopted because of a fall in the interest rate, but the case of a new method adopted while the old rate of interest still prevails.

[7 ]See on abstinence, sec. 8, above, and ch. 24.

[1 ]The communist theory of that period was originated or elaborated by such men as Karl Marx, Friederich Engels, and Ferdinand Lassalle, labor leaders and political agitators, who found a ready weapon in the bungling economic analysis of the time. The claim of a scientific basis for communism (now usually called social-democracy or socialism) has continued to be made by their followers, most of whom still boast that it is nothing but the (now admittedly defective) orthodox theory of value carried to its logical conclusion.

[2 ]Among many examples note: ch. 7, secs. 9, 10; ch. 13, sec. 4; ch. 15, sec. 11; ch. 18, sec. 10; ch. 27, sec. 13; ch. 28, sec. 10; ch. 30, sec. 3.

[3 ]The wage-fund doctrine of wages once held a central place in economic discussion. It was that wages were determined by the relation of the number of laborers to the capital. “Capital” was taken in the narrow sense of a special fund set aside (it was never quite clear how) by the employers for the payment of wages. The element of truth in the doctrine was the recognition, somewhat dim, that wages are favorably affected by the efficiency of the whole economic environment in which labor works.

[4 ]See also ch. 19, note on value versus utility of labor.