The Rural Science Series

                          Edited by L. H. Bailey

                         Rural Wealth and Welfare

         Economic Principles Illustrated and Applied in Farm Life

                                    By

                         Geo. T. Fairchild, LL.D.

                                 New York

                          The MacMillan Company

                      London: MacMillan & Co., Ltd.

                                   1900

CONTENTS

Dedication
Preface.
Introduction. General Welfare.
Part I. Productive Industries: Analysis of Aims, Forces, Means and
Methods.
   Chapter I. Aims Of Industry.
   Chapter II. Forces In Production Of Wealth.
   Chapter III. Labor Defined And Classified.
   Chapter IV. Capital Defined And Classified.
   Chapter V. Personal Attainments.
   Chapter VI. Combination Of Forces For Individual Efficiency.
   Chapter VII. Methods Of Association.
   Chapter VIII. Exchange: Advantages, Limitations And Tendencies.
   Chapter IX. Value The Basis Of Exchange.
   Chapter X. Exchange—Its Machinery.
   Chapter XI. Banks And Banking.
   Chapter XII. Deferred Settlement And Credit Expansion.
   Chapter XIII. Technical Division Of Labor.
   Chapter XIV. Aggregation Of Industry.
   Chapter XV. Special Incentives To Production.
   Chapter XVI. Business Security.
Part II. Distribution of Wealth for Welfare.
   Chapter XVII. General Principles Of Fair Distribution.
   Chapter XVIII. Wages And Profits.
   Chapter XIX. Conflict Between Wage-Earners And Profit-Makers.
   Chapter XX. Proceeds Of Capital: Interest And Rent.
   Chapter XXI. Principles Of Interest.
   Chapter XXII. Principles Of Land Rent.
Part III. Consumption of Wealth.
   Chapter XXIII. Wealth Used By Individuals.
   Chapter XXIV. Prudent Consumption.
   Chapter XXV. Imprudent Consumption.
   Chapter XXVI. Social Organization For Consumption.
   Chapter XXVII. Economic Functions Of Government.
   Chapter XXVIII. Economic Machinery Of Government.
Conclusion.
Index.
Advertisements.

DEDICATION

To The Thousands Of Students In Agricultural Colleges
With Whom I Have Studied Economic Questions
During The Past Thirty-Five Years

This little volume is thankfully dedicated

In Remembrance Of
Many Pleasant Hours

Geo. T. Fairchild

PREFACE.

In giving these pages to the public I offer no apology for a restatement
of fundamental principles always requiring adjustment to new life and
circumstances; but economic literature has usually dealt too exclusively
with the phenomena of manufactures and commerce to gain the sympathy of
rural people. An experience of more than thirty years in handling such
subjects at the Michigan and Kansas Agricultural Colleges, together with
the expressed confidence of former pupils whose judgment I trust, has led
me into the effort to bring the subject home to farmers and farmers’
families in this elementary way.

I have carefully refrained from quotations, or even references to works
consulted, for the obvious reason that such formalities would distract the
attention of most readers from the direct, common-sense thinking desired,
and render the style of the book more complex. I hereby acknowledge my
debt to the leading writers of past and present upon most of the topics
treated, not excluding any school or party.

The statements of facts I have taken from best authorities, with care to
verify, if possible, by comparisons. Many data have been diligently
compiled and rearranged for more exact presentation of facts, and the
phenomena of prices of farm crops have been analyzed with especial care.
The necessities of the printed volume have to some extent obscured the
charts by reduction, but I trust they may be intelligible and interesting
to all students of agricultural interests.

No attempt has been made to argue or to expound difficulties beyond a
simple statement of principles involved, and the spirit of controversy has
been absent from my thoughts throughout. Whatever bias of opinion may
appear is without a tinge of bitterness toward those who may differ. I
trust that men of all views may recognize in these pages the wish of their
author to have only truth prevail.

In offering this volume to farmers I do not assume that all questions of
wealth and welfare can be settled by rule. I hope to point out the actual
trend of facts, the universal principles sustained by the facts, and means
of most ready adjustment to circumstances in the evolutions of trade and
manufacture. The business sense of farmers is appealed to for the sake of
their own welfare. Several important questions of rural welfare have been
touched only suggestively because the limits of the volume could not admit
of fuller treatment.

My gratitude is offered especially to Professor Liberty H. Bailey, of
Cornell University, to whose suggestion and patient attention the
existence of this volume is due.

George T. Fairchild.

BEREA COLLEGE, KENTUCKY,
March 1, 1900.

INTRODUCTION. GENERAL WELFARE.

_Elements of welfare._—The welfare of communities, like that of
individuals, is made up of health, wealth, wisdom and virtue. If we can
say of any human being that lie is healthy, wealthy, wise and good, we are
sure of his satisfaction so far as it depends upon self. When a community
is made up of individuals kept in health and strength from birth to old
age, sustained with accumulated treasures, wise enough to use both
strength and wealth to advantage, and upright, just and kind in all human
relations, our ideals of welfare are met.

These are four different kinds of welfare, each of which is essential, and
only confusion of thought follows any attempt to treat them all as wealth,
however they may be intermingled and exchanged. Health is essential in
gaining a full measure of wealth and wisdom, and perhaps in maintaining
genuine character; but a healthy life gives no assurance of complete
welfare. The facts concerning health in a community make a distinct
subject of study for promotion of welfare, and we call it public hygiene.
The science of education deals with ways and means of securing public
wisdom. The science of government includes all facts relative to public
virtue. So the facts by which we know the nature and uses of accumulated
wealth in any community make a distinct study under the name economic
science; it deals with certain definite groups of facts. To call
everything good “wealth” and everything evil “ilth” adds nothing but
confusion to our thoughts.

_Mutual welfare._—Every human being in society is directly interested in
the study of wealth as related to his own and his neighbors’ welfare. No
one can understand his relations to those about him in the family, the
neighborhood, his country and the world without some understanding of the
sources and uses of wealth all about him. His very industry gains its
reward by certain means in society depending upon economic principles. His
motives for accumulating wealth have a distinct place. His uses of
accumulated wealth are a part of the general facts which make wealth
desirable. So the study of wealth in society must be everybody’s study, if
each wishes to do best for himself or for his neighbors. In such study of
welfare every one finds his interests completely blended with the
interests of others. His existence is part of a larger existence called
society, from which he receives himself in large measure and most of his
satisfaction; to which he contributes in like measure a portion of its
essential character and future existence.

The old idea that one gives up freedom of self for the advantages given by
society has no foundation in fact, because we are born into our place in
society without power to escape its advantages, disadvantages or
responsibilities. The maxim “Each for all and all for each” is thoroughly
grounded in the constitution of man; his needs and abilities enforce
society and insist upon community of interests. Even personal wealth
confers little welfare outside of its relations to other human beings. The
whole progress of the human race tends toward acceptance of the clear
vision of Tennyson, where

    “All men find their good in all men’s good,
    And all men join in noble brotherhood.”

Each stage in the progress of the conquest of nature to meet human wants,
from the gathering of wild fruits, through hunting and fishing,
domestication of animals, herding, and tillage of permanent fields, to the
manufacture of universal comforts and tools, and to general commerce, has
made more important the welfare of neighbors. Even the wars of our century
are waged in the name of and for the sake of humanity. The study of
individual welfare involves the public welfare. Welfare of a class is
dependent upon the welfare of all classes. Wealth of individuals is
genuine wealth in connection only with the wealth of the world. Welfare
without wealth would imply the annihilation of space, of time, and of all
forces acting in opposition to wishes.

_Wealth in farming._—The subject of the following pages is wealth, how it
is accumulated, how distributed to individual control and how finally
consumed for the welfare of all concerned. But special reference is made
to the sources of wealth as a means of welfare in rural life, and to the
bearing of definite economic principles upon farming, especially in these
United States of America. Farming is, and must always remain, a chief
factor in both wealth and welfare, and its relations to the industry of
the world grow more important to every farmer as the world comes nearer to
him. We cannot now live in such isolation as our fathers loved. The
markets of the world and the methods of other farmers all over the world
affect the daily life of every tiller of the soil today. Commerce in the
products of farm and household reaches every interest, when the ordinary
mail sack goes round the world in less time than it took our immediate
ancestors to go as pioneers from Massachusetts to Ohio. It seems possible
to show from the experiences of farm life the essential principles of
wealth-making and wealth-handling, including the tendencies under a
world-wide commerce. These every farmer and laborer needs for his
business, for his home, and for his country.

Nature Of Wealth

_Wealth defined._—If we look at the objects which men number in speaking
of their wealth, we shall soon find the list differing in important
particulars from the list of things which they enjoy. All enjoyable things
contribute to welfare, but not all are wealth. Some, like the air and the
sunshine, if never lacking, cannot be counted, _because no storing against
future need is practicable_; but the fan that cools the air and the coal
that gives heat are counted when they are stored as means of meeting
future wants. If we could not foresee wants of ourselves or of those
dependent upon us, we could not gather means of supply for those wants. If
we had all wants supplied at a wish or a prayer, we should have no
incentive to store. The pampered child whose every wish is met has no
clear conception of wealth or its uses. Let him be without a meal, and he
seeks provision for the future by an effort to save what is left over from
his last meal and by exertion to add to his store in anticipation of want.
Thus wants, to be met only by exertion, are the foundation of the
universal ideas of wealth, and whatever we have stored as a provision
against wants becomes our wealth. If hunger were our only desire, our
wealth would include only stores of food, conveniences for storing, means
of increasing the store, and means of utilizing the articles to be eaten.
Each desire adds to the range of articles which may enter our list of
objects of wealth until enumeration is impossible. None of these, however,
will be stored as wealth beyond the limits of anticipated use: if so
stored, they add nothing to the supposed wealth. An isolated family, able
to consume only thirty bushels of potatoes in a season, is not more
wealthy from having three hundred bushels stored: the wealth is measured
by actual relations to wants not otherwise supplied. Even in a populous
city, the three hundred bushels of potatoes become a store of wealth only
when other people need them and _are able in turn to meet other wants of
the owners_.

Indeed, we soon come to estimate any object of wealth according to its
power, directly or indirectly, to meet the first want that comes. A
cherished memento of friendship may be ever so gratifying, and yet find no
place in our account of wealth, because it can serve no purpose in meeting
other wants.

Any object of wealth may cease to be counted, not because it has changed,
but because wants have changed. The last year’s bonnet goes for a song,
because the fashion changes; the reaper rots behind the barn or at the
roadside, because the harvester is wanted in its place. So the wealth in
any object is limited by its relation to the present or prospective wants
of its owner, and his control to meet these wants. The wealth of any
community is its store of material objects suited to the current wants or
fitted to exchange with other communities for more suitable articles of
use. We estimate it only by thinking of uses in producing pleasure or
preventing pain, its limitations in quantity to a certain range of wants,
and its control for use or transfer by an owner.

_Wealth distinguished from power._—Wealth is not to be confused with power
of other kinds. Power may be for future exertion; wealth is the result of
exertion. Power may take any form of welfare,—health, wisdom, character,
as well as wealth. So no personal abilities can be counted as wealth,
however useful they may be as means of gaining it. Jenny Lind’s abilities
as a singer may have been better than wealth; but exertion of those
abilities in the United States enabled her to carry back to Europe wealth
of which she had none before coming. The ingenuity of Elias Howe exerted
upon the sewing machine has been an immense source of wealth and welfare
to the world, but it alone could not secure him daily food. Your words and
my music combined in a song fit to tickle the fancy of the multitude may
transfer wealth to our pockets, but it was in neither the words nor the
music, nor yet in the song, and still less in the power to contrive them.
If wealth in material things had not been in possession of the multitude,
the same sweet sounds might have given satisfaction to the crowds without
an idea of wealth in the transaction. Much of the welfare of the world is
from exertion of powers entirely independent of wealth. The chief joys of
home are not measured by the wealth in our tenement. The chief welfare of
society is only incidentally connected with wealth.

Chart No. I

_Fluctuation of Farms and Farm Interests since 1850_

At the top is shown the relative size of farms at the close of each census
period, with the number of acres tilled and untilled. The lower part of
the chart shows the changes in different farm interests, especially in the
amount and character of capital employed and the number of people engaged
in agriculture. Assuming the conditions of 1850 to be par, the increase or
decrease is shown for each kind of live stock, the number of farms, the
total farm population, and the number of farm managers, as well as the
valuation of real estate and of live stock. To illustrate, take No. 4, the
number of cattle, excluding the cows. In 1860 there were 1.5 times as many
as in 1850. In 1870, on account of the consumption and disturbance of the
war, the number was reduced to 1.4 times as many. In 1880 there were more
than 2.3 times as many, and in 1890 there were 3.48 times as many. In a
few instances the estimate for 1897, though not an accurate enumeration,
is added for comparison. A careful study of these various changes will
show that while the total population in 1890 was only 2.7 times the
population of 1850, the total number of people employed in farm
occupations of every kind was 2.88 times as great; although the number of
independent farmers was only 2.28 times as great. The total value of real
estate in farms was over four times as great, and the total value of live
stock exactly corresponded. The number of cows, sheep and hogs had not
kept up with the population; while the number of beef cattle and horses
and mules had increased much more rapidly. The fact that the value of live
stock had increased in much greater proportion than the numbers shows that
there has been great improvement in the individual character of the
animals. That the average wealth of farm proprietors is more than
three-fourths as large again is shown by comparison of the number of
farmers with the value of the farms. That the number of mules, cattle and
hogs actually decreased between 1860 and 1870 indicates the enormous
consumption of the armies in the Civil War.

                                 [Chart.]

  Chart I. Showing the rate of increase in farms and farm live stock as
             compared with population. See explanation, p. 8.

Chart No. II

_Progress of the United States in Farm Crops since 1850_

This chart indicates to the eyes facts shown by the census reports as to
the relative increase or decrease of certain staple crops in comparison
with the population. Assuming the conditions of 1850 to be par, the
several lines indicated by numbers show the ratio of the several crops to
the crop of 1850. Thus the wheat crop in 1860 was nearly .75 greater than
in 1850; in 1870 it was 2.87 times as great; in 1880 it was nearly 4.6
times as great; only a little greater in 1890, but in 1897 was nearly 6
times as great. It should be remarked that the census returns are founded
upon the crop of the previous year, and therefore, will not exactly
correspond with current estimates. At a glance it will appear that rye,
buckwheat, sweet potatoes, sugar and rice have nowhere nearly kept up with
the increase of population, while all the other crops have been
considerably in excess. The barley crop could not be shown upon the chart
for want of room, but is more than fifteen times as great. The cultivation
of fruits is estimated to be twenty times as great, although the census
returns give insufficient figures for accuracy. It is evident that the
people of the United States demand a better living, as well as raise more
profitable crops, than in 1850. Some striking illustrations of the effects
of the Civil War are seen in the falling off of many crops during that
period. Only oats, wheat and potatoes increased beyond the increase in
population. Most of the others actually diminished; and the staple
products of the southern states prior to the war have scarcely as yet
regained their previous standing. This is accounted for in part by the
immense destruction of capital, but in larger part by the entire change in
conditions of plantation cultivation.

                                 [Chart.]

   Chart II. Showing the rate of increase in total crops for the given
                     period. See explanation, p. 10.

_Wealth in material objects._—Our attention is called to wealth in
comparing two material objects of desire. One has more uses, more
important uses, more rare uses, than another; or one is less easily
obtained than another. In either case we prize that one in store, as the
more important. We compare two farms, as material aids to different
owners, and call both wealth in different degrees. We note the condition
of two countries as to all the machinery of industry, and know that one
has greater wealth than the other. We compare the accumulations of this
generation with those of our fathers, and rejoice in our advance in wealth
as one important form of power to gain a genuine welfare. Thus, in
comparing our country’s inventory by the census of 1890 with that of 1850,
we find that while its people are only 2.7 times as many, there are 3.15
times as many farms of exactly the same number of acres, though more of
each is cultivated, and that the value of property used in farming is more
than four times as great; so we know that the farmers have increased in
wealth and welfare as compared with our fathers. See Charts I and II.

_Rural wealth analyzed._—A brief analysis of rural wealth in any
established community will help to understand the meaning of the word and
its relation to welfare. First may be named the farm fields and
plantations brought by exertions continued through long years from raw
forest or prairie to present tilth and productiveness. An English farmer,
when asked how long it took to establish a certain permanent pasture,
replied, “Three hundred years.” Second, all fences, drives and farm
buildings, for convenience of handling and storing produce and stock.
Third, all the tools and implements of the trade. Fourth, all domestic
animals of every kind, and all attendants of their sustenance and growth,
including feed and manure. Fifth, all contrivances for marketing and
preparing for market. Sixth, all highways between neighbors and toward
market. Seventh, all local elevators, stock-yards and depot facilities.
Eighth, the homes, with all material comforts and utensils. Ninth, any
store of provisions in cellar, pantry, smokehouse or bin. Tenth, all
personal belongings for clothing, adornment and enjoyment. Eleventh, the
family libraries and associated treasures. Twelfth, any actual store of
gold, silver or other current wealth available for future wants. This does
not include notes, mortgages, bonds, or any other promises to pay, nor
certificates of stock in any business enterprise, because these are mere
titles to wealth supposed to exist elsewhere,—as distinct from the wealth
as the deed is from the farm. Thirteenth, any peculiar advantages of
location, scenery, pure air, pure water and agreeable temperature, that
are controlled by owners for personal advantage or enjoyment, and can be
objects of desire to others. Fourteenth, any “good will” attached to, and
part of, particular farms, due to long established methods and facilities
in preparing or marketing produce. If such “good will” is attached to a
person rather than to the place, it is not wealth, but power.

The last two are seldom distinctly enumerated by the assessor, yet they
are clearly estimated in any exchange of places or transfer of titles.
They are owned, used and transferred like other forms of wealth, and save
future exertions to obtain them. All these are wealth because they
contribute to welfare through being accumulated materials to meet future
wants, and are to be measured in any estimate by their relation to the
wants they will satisfy and the exertions they will save.

_Future wants certain._—Wants and exertions are readily seen to be at the
foundation of all ideas of wealth as indicated above. If we are uncertain
as to the continuance of any wants or uncertain as to the conditions for
meeting those wants, we stop accumulation of materials for satisfying
them. Exertion stops unless the satisfaction to be gained by our effort is
foreseen with a reasonable certainty. The farmer is never absolutely sure
of returns for his labor upon the cornfield; but he is reasonably certain,
and is absolutely certain that the crop will not come without labor. This
assumed continuance of individual wants and their relations gives the
grand motive for wealth gathering.

The means of protection and support for physical life will be needed by
ourselves and our children. Tools of better form and machinery of better
manufacture will be needed to reduce exertion in future. Reduced exertion
for a given satisfaction will mean a fuller supply of things we are going
to need still. If these wants are fully met, we are going to have leisure
to satisfy larger and higher wants. It is the certainty that each advance
of wealth will bring advancing wants to consume more wealth, that gives a
genuine motive to activity in gaining wealth, i.e., in accumulating the
things to be used. The degree of uncertainty in all future plans leads to
over-estimating the importance of gold, diamonds or any forms of wealth
that can most easily be transferred between places or individuals, or be
turned to account in each change of necessities.

_Ownership._—The importance of wants and exertion emphasizes the
importance of the individual self in all ideas of wealth. The _ownership_
of one’s _own_ abilities and their products is absolutely essential to his
care for accumulation, and that care is in proportion to his security in
such ownership. Directly or indirectly, every exertion and every sacrifice
must depend upon confidence that it will bring its object; but
wealth-getting has no object without control, in some measure, of results.
This fact makes individual ownership an essential to the highest exertion,
a natural sequence to the right of liberty.

Property rights are grounded in the general and individual welfare, as
shown in human nature and in the progress of the world along the line of
protection to property. Those communities are most happy which best
protect individual property. As J. E. Thorold Rogers remarks, “Sacredness
is accorded to private property, because society prospers by it.” Even
theorizers who denounce individual property-holding found their argument
upon the equity of individual rights in property. War is less harmful than
anarchy, because it ensures a measure of control. Slavery has sometimes
been less injurious than war in giving security to enjoy a portion of
self. But a conquest of freedom by bloodshed is worth its cost in
self-control. Civilization advances as individual responsibility for
property, as well as everything else, is recognized.

Christianity is ideally practical in upholding every man’s right to
self-control in the interest of all. It distinguishes equity from equality
in distribution of all good, wealth included. Public property is rightly
public when the wants and energies of all the community are best provided
for by such common ownership. Proof in each particular case is essential
against the presumption that individual needs are the best impulses to
provision for welfare. Even common property is limited necessarily to the
numbers who can use it. No property or wealth can exist for anybody
without the control of some human individuals for whom it is accumulated.

_Wants individual._—We are likely to lose sight of the essential
individuality of wants and exertions which make wealth possible, because
in any community exchange of services modifies the direct relation of each
man’s wants to his accumulations. Assuming that others, wanting food, will
exchange clothing for it, one man stores food alone, but in quantities far
beyond his own need, measuring its relation to all his material wants
through the wants and exertions of others. He feels even more sure of the
continued activity of wants and powers among a multitude than if he had
but one neighbor; but individuals, after all, must need his products and
exert themselves to meet the need, or all his calculations fail.

_Progress in welfare._—Economic progress must show a larger welfare to
individuals of the community. The familiar figure by which a commonwealth
is compared to an animal organism fails to include the important fact that
the individuals of the commonwealth furnish the only reason for the
existence of the commonwealth itself, as well as its only means of
existence. The cells of the animal, or even the most important organs,
have no reason for existence in themselves. Each individual man furnishes
the reasons for his activity, and the needs of individual men furnish the
only reason for having a commonwealth.

We can speak of progress, then, only when these individuals secure a
better use of wealth in some way. It may be by accumulation through saving
from the full years for the empty, as older communities can endure a
drought with little suffering, while pioneers are ruined. It may be by an
increased product for a given exertion, as illustrated by every
labor-saving implement upon the farm or in the factory. It may be by
lessening exertion for a given product, as in the devices of kitchen and
dairy to make tasks lighter. It may be in better distribution of the total
product through readier and fairer exchanges of services or products, as
happens with every improvement in transportation and every means for
fairer understanding in a bargain. Lastly, it may be in more economical
expenditure for common wants, as in maintaining government machinery.
Usually, progress has been marked along several of these lines at once, if
not all of them. There is reason in the statement of Charles Francis Adams
that the last century far exceeds the gain of a thousand years before.

_Production, distribution, consumption._—Full consideration of rural
wealth as related to welfare must first give the principles upon which
wealth is produced, including exchange with all its machinery; for the
marketing of produce is today one of the chief steps in securing wealth by
farming. The thrifty farmer of today is the man of most business tact and
energy, who uses most approved means of raising, handling and marketing
his goods.

It also requires a careful study of principles upon which any product of
exertions, where more than one person has contributed toward the whole,
can be fairly shared between the producers, however they have helped. A
farmer is as thoroughly interested in problems of rent, interest and
profits, if not in wages, as any other worker for wealth or welfare.

It further involves the study of economic uses for wealth, private and
public, since no wealth has found the true reason for its existence till
the uses to which it is put are known. This includes all questions upon
the economic functions of government, the ends to be served, and the
raising and handling of revenues. If any patriots need to know for what,
how and in what measure their country is dependent upon their own
resources, it is the farmers, whose homes make the bulk of the land we
love, whose children furnish the bone and sinew of industry, and whose
interests are most sensitive to misdirected energy in public
administration.

_Security in stable government._—Agriculture, of all industries, can
flourish in that country alone where personal and property rights are
fully understood and respected, where claims are equitably adjusted by a
stable government, and where taxes are properly apportioned and revenues
economically expended.

PART I. PRODUCTIVE INDUSTRIES: ANALYSIS OF AIMS, FORCES, MEANS AND
METHODS.

Chapter I. Aims Of Industry.

_Production defined._—A very little thought shows that men produce nothing
in the sense of creating. All production is simply overcoming obstacles to
satisfaction of wants as we find these obstacles in space, time and form
or substance of natural objects. In doing this we are confined to mere
ability to move things. The very highest effort of man’s energy today but
proves the saying of Lord Bacon, “All that man can do is to move natural
objects to and from each other: nature working within accomplishes the
rest.” This is fully illustrated in farm operations. The bringing together
of soil, seed, sunshine and shower, according to their natures, secures
the product of nature—a crop. Moving food and water to the steers, or the
steers to food and water, under proper conditions of warmth, air and
exercise, produces beef. To know how and when and where to move things so
that nature may meet our wishes by what always happens under the same
circumstances, would be to have all the arts of life; in short, production
is the art of moving things. But we distinguish different kinds of
production according to the direct results expected from our motion, as
reducing space and time, modifying the form, or changing the substantial
qualities of things handled.

_Transportation in production._—The change of place necessary to bring
together wants and those things which satisfy them is a method of
producing wealth most apparent everywhere. The bringing of wild fruits
from the forest or the swamp to the home gives them worth. The mere
transportation, change of place, gives them an importance they did not
have on the trees or bushes. In this transportation we put the energy
necessary to take grain from the fields all the way to the bake-ovens, and
finally to our mouths, or to carry the milk from the stable or yard in
pail, can, wagon, train, delivery cart and bottle, to the lips of the
child whose life it maintains. Every kind of material or force expended in
this process of overcoming space is used in the idea that the object is
worth the expenditure in the place finally reached. If the motion stops
anywhere along the way, the wealth is not obtained, or at least is held
only in expectation until the motion can be completed. While each of fifty
individuals may give a hand, and pass his claim to the next for a
consideration, the wealth is all the way increasing in anticipation, as
the object comes nearer its use.

In this progress time as well as space is an important obstacle to be
overcome, and we employ all means of increasing speed, or preserving
against what we call “the ravages of time,” i. e., the operation of
injurious forces acting in time upon most material substances. The methods
employed for storing, curing and forcing to maturity the various forms of
food needed in a community are aimed at meeting this obstacle, and add to
its final worth; indeed these may be the means of giving value to all the
other efforts in transportation, as in moving beef from Kansas City to New
York, or fresh fruit from San Francisco to Boston.

In the same process of putting things where they are needed, all merchants
are engaged. Without the store, the order upon the shelves, the ready
attendant and his despatch in meeting your demand, the pounds of sugar or
salt essential to your comfort could not be had for love or money. These
efforts are an essential part in the motion between wants and objects to
satisfy them. Much of this kind of motion we include under the name
commerce, though that word more directly implies the exchanges involved.
The machinery of commerce is chiefly the means of bringing things wanted
to the people who want them.

Much, however, of the exertion required in all industries, especially in
farming, is simply “to fetch and carry.” It will emphasize this fact to
study, while you eat a piece of cherry pie, the processes involved in
bringing it from the treetop, grainfield, dairy and cane-field, through
mill and store and pantry and oven, to your plate. Transportation cuts a
tremendous figure in production of wealth. In the first stages of social
life it is almost the whole. The hunter talks of “bringing in” his game.
Australians, Hottentots and Digger Indians lived by carrying themselves
from one supply of food to another.

_Transformation in production._—Much of the material gathered by us needs
some change of form to suit our wants. An ax-helve has in it the original
wood of the young hickory brought from the forest, but its form is
fashioned by effort with ax, drawshave, scraper and sandpaper, until it
satisfies the judgment of an expert chopper. This transformation is
employed in any industries where wood, ivory, the metals and other
minerals are shaped by tools, or by molding, or pressing or bending, to
our wishes. Most fabrics are materials put into form. The word manufacture
covers most of such work where materials are manipulated by shaping; but
it also includes many operations with a different aim, to change the
substance itself.

_Transmutation in production._—Men have found that two metals, tin and
copper, melted together produce brass, different in qualities from either.
Farmers have for many centuries contrived, by keeping nature’s forces
under control in the wheat field, to combine certain elements of the soil,
including its moisture, into grain. The single seed has multiplied a
hundredfold through being placed in favorable conditions, with the raw
materials at hand in the fertile soil.

The process of maintaining animals with suitable food for the production
of milk or flesh is similar. The combination of flour, water, salt and
yeast, by heat, first mild and then intense, into a loaf of bread is a
good illustration of a change of qualities by rearrangement of the
elements of a substance. It is sometimes called transmutation, and comes
the nearest possible to creation of material things. The chemist’s
laboratory exists for making such new combinations, and many of the arts
produce materials, like steel, which would not exist without such
combination. But many have seen in the art of agriculture a most prominent
illustration of transmuting coarser elements into products adapted to
human wants for food, shelter and adornment. All such work, however, is
done by bringing objects and forces into such contact that chemical or
vital changes will take place while we wait.

_Production extended._—In all these three directions, or in any
combination of them, transporting, transforming and transmuting materials,
men seek the production of a supply for meeting anticipated wants, and so
contribute directly or indirectly to welfare. No one way of producing what
men need, where they need it, and when they need it, has any superior
claim to the name production. All are making the material yield up welfare
to the one who needs it, and produce wealth just so far as their services
are necessary in bringing the welfare. If ever any step in the process
becomes useless, it ceases to be productive of wealth and becomes waste.
The inventive powers of mankind are always at work to shorten the
processes and hasten the advantages of production. Men study the minutest
workings of nature to find the conditions under which she does her part of
the work. The application of such minute knowledge is a chief part of
every art. This is also the object of science; for, as Guizot says, “It
only began to have a well defined existence when it confined itself to
seeking the ‘how’ rather than the ‘why’ of nature’s workings.” This
purpose sustains in the United States more than fifty agricultural
experiment stations, united in a great organization, to find how the
natural forces used by farmers do their work.

This prophecy of a noted economist is warranted: “Probably the greatest
economic revolution which the youth of today may in his old age behold,
will be found in this all-important branch of our industries.” When we
know how nature works, we can adjust our little motions in time and place
to promote that work; we shall have the art of moving things to suit our
needs. Nothing can be truer than Tennyson’s line, “We rule by obeying
nature’s powers.”

Chapter II. Forces In Production Of Wealth.

_Nature._—When men learn to meet their wants by exertion in accord with
nature’s ways, they are said to use the forces of nature in production of
wealth. Every accumulation of materials for satisfying future needs
implies some control over natural objects. If advantage is taken of
natural motions or other activities to bring about larger accumulation,
the man whose plans secure this has gained control over, and so
property-rights in, the natural force which he has harnessed. The wind
caught by a sail and the water controlled by a dam contribute to the
power, and indirectly to the wealth, of the man who contrives to make them
move things for him. The directive actions of men necessarily appropriate
the natural objects which they use, together with all the qualities of
those objects.

_Energy._—Human exertion produces wealth, as we have seen, whenever it
anticipates and provides for future wants by securing at hand the things
to be used. So far as this anticipation includes control of forces or
qualities in nature, these natural agencies contribute to wealth of
individuals or communities. So voluntary human exertion is combined with
involuntary forces of outside nature to give wealth. No amount of gold in
Alaska is wealth until some human ability has appropriated it to human
uses; but the mere fact of locating a claim for mining purposes gives the
prospector advantage over any other man because of his foresight. So every
activity of nature may become a factor in wealth by human ingenuity in
making it useful.

_Natural forces._—Such natural agencies for producing wealth are seen in
the simple properties of material bodies, such as the metals or woods or
grains or fruits or flowers possess. We secure these properties for our
uses. Gravity, sound, heat, light, electricity, chemical affinity,
crystallization, even life itself, are names for certain forms of energy
in nature which men are using more or less to meet their wants. Whenever
exertion is needed to provide for using these, the thought of wealth is
connected with the forces themselves. The fish in the sea and rivers
become wealth to one who has caught them, and even more distinctly the
property of the community which has protected them in breeding. Sunlight
may reach all alike in welfare, but the man who has contrived to make it
print pictures for him has made sunlight into wealth in the picture.
Equally so the farmer’s energy and contrivance use the properties of soil
and climate and the vital energies of seeds to make wealth in a crop.

_Control for welfare._—As each individual worker gains control over any of
these properties or forces he advances in wealth and welfare. It becomes
his own means of meeting wants. If all individuals in a community share in
such control, they think of the good things as part of the general
welfare, and do not enumerate them in anybody’s wealth except when
comparing their own condition with that of another community. Advantages
of this kind constantly tend to become more universal, and so to count
very little in individual wealth. Many advantages of civilization today
belong to all the world alike, so that nature seems to meet our wants
gratuitously; but the story of progress shows that these are gifts
inherited from the wealth of past ages. The human exertion which they once
cost is overlooked in the ease of the present. Mere fire was once a
treasure to be cherished and kept at much expenditure of strength and
foresight. Now we kindle a fire so easily that nobody thinks of it as a
part of the world’s wealth.

_Land as a force._—Land represents a combination of natural energies and
properties so important as to be named sometimes as a distinct force in
production. It implies, first, needed space for various kinds of exertion
in both country and town. Second, it includes all mineral, vegetable and
animal bodies that are found above, on or under the surface. Third, it is
soil, an essential part of a farmer’s equipment in using nature’s
processes of growth.

As most of these properties of land can be put to use only by repeated and
continued exertion in the same place, a large portion of the earth is
necessarily apportioned to individual control, i. e., to the ownership of
those who can direct its uses, and so it becomes wealth. The sea in most
of its uses to men requires no such local control, and so is not owned by
a nation even; but the harbors, ships and wharves, the oyster-beds and
fishing banks, soon become the property of some body of men that will make
and keep them useful. Even a pathway over the high seas may yet be
controlled for the safety of the huge steamers that dash across.

Land, except when used for absolutely universal welfare, must be under
individual control, and even then other individuals may have the right of
way because of its necessity in the common use. Peculiarities of property
in land arising from limitations in quantity or quality will be spoken of
under _Scarcity Prices_ and _Rent_. They differ from similar questions as
to any other form of property only because this form of property seems
more permanent. Any force of nature brought under control by individual
effort contributes to wealth of individuals till all gain equal control.
Peculiarities of climate affect the quality of wool, cotton, grains and
fruit, and even the beef and mutton raised under it. But these effects we
connect with the land. Such peculiarities also affect manufactures of
various kinds, and so location has value.

_Effort for gain._—Voluntary human effort is always made with the
expectation of gain from its exertion; otherwise it would not be made. As
Guizot says, “Our ideal is to procure the maximum of utility with the
minimum of effort.” The exertion is always counted in the cost of any
product, whatever the natural forces employed. If the crop fails, or the
product is unsalable, the effort has lost its expected reward, and
prospective losses are estimated with more or less care in judging whether
a product is worth the exertion. The half crop of a droughty year costs as
much as the full crop of a plenteous year, and compensation for the loss
is expected from the surplus of the full crop.

In estimating the exertion given, all human energies are counted, whether
they belong to the present, like muscular power, good eyesight, quick
intelligence; or to the past, like dexterity from training, superior
knowledge, accumulated tools, established character. If the immediate
exertion is most prominent, the word labor includes the whole exertion. If
tools and machinery are used, capital is a contributor to the product and
takes its share. If skill or knowledge or character become important,
personal attainments are a chief cause of the product, and so a chief
claimant in the reward.

Chapter III. Labor Defined And Classified.

_Labor defined._—Exertion of any kind for meeting individual wants we call
labor, whether it simply gathers food from the forest, or contrives the
most intricate machinery for satisfying wants that may take years to grow.
Exertion that has no end beyond itself, no matter how severe it may be, we
call play, and consider it important in public welfare only as it aids in
health and morals. Labor is separated, too, from all exertions to destroy
or injure the welfare of others, if we can see their object. Any person
claiming to labor professes to have given his exertions for the
satisfaction of somebody’s wants without doing violence to the welfare of
others in the community. Whenever we do not assume this we concede a state
of war, violence and destruction taking the place of production and
accumulation. These may require exertions usually classed with labor; but
are punished instead of being rewarded, unless we can establish their
final advantage in a larger welfare for humanity, or in defense of
society.

_Productive labor._—The various classifications of labor serve merely to
call attention to peculiar relations implied in the results. If exertion
results in giving additional wealth, or power to produce wealth, it is
called productive labor; but if it contributes only to immediate comfort
or pleasure or safety it is called unproductive. The distinction is useful
so far as it enables us to be prudent in adjusting energies to meet real
wants. All labor is maintained by the product of exertions. Any labor
expended without a product must be provided for by an increased product
from some other form of labor. A farmer may sustain life upon the food he
raises; but the wife who makes his house a home cannot live on the product
of her labors. She may add to the value of some products directly, as in
turning milk into butter, and raw materials into palatable food; but her
chief energy may be in getting satisfaction for the household out of
materials gained by her husband. Both are essential to the welfare of
either, and prudence requires a proper adjustment between them. A force of
physicians may be needed to keep a community in working condition; but if
a whole community tried to live as doctors some other community must
furnish the material wealth to sustain them.

Any increase of labor upon material products, either directly or
indirectly, may increase ability to meet future wants, while increase of
labor upon present uses of wealth may diminish ability for the future. The
wealth of a community is the product of all the labors that contribute to
make material nature useful. This classification is important in studying
the question of productive consumption of wealth, but does not decide
which gives best results. It is a serious error to assume that the worker,
whose labor is directly applied to materials, gives to our wealth all its
value. If several men are building a house, one may contribute as much to
the building by cooking for the rest as if he worked in turn in the
construction. In the same way all the household, if well ordered, aid
toward the result of their united labors. The physician who shortens the
illness of a farmer contributes his share toward raising the farmer’s
crop. The lawyer who makes property safer, and the minister who gives
stronger motives for exertion, are sharers in the force that brings the
product.

_Physical, mental, moral labor._—The classification of labor according to
the powers employed serves to call attention to the wide range of
exertions rightly classed as labor. If the exertion is chiefly muscular,
labor of hands, shoulders, legs or any part of the body, it is properly
called physical. If the main effort is that of the intellect in planning,
inventing, contriving ways and means, or in remembering, counting or
thinking of any kind, it is just as truly labor, but mental. If the chief
exertion is in the good will that resists temptations, guards interests,
controls violence and folly, secures order and devises liberal things for
society, the labor is moral. Moral labor is often recognized in wages,
faithfulness being more important in some services than in others, and
paid for. Mechanical devices for promoting honesty or watchfulness may
save, in part, moral labor.

This view of labor helps us to see the wide range of efforts that unite in
production of wealth, since all the energies of a man may be employed in
his work. The successful farmer is one who makes the most of all his
abilities—his muscles, his mind and his heart—and his hard work is far
from being confined to his hands. The three kinds of labor are combined in
some proportion in every life, but the best and most productive life his
most room for hard thinking and self-control.

_Operative, executive, speculative labor._—In the advancing complexity of
society a still more important classification of labor is apparent. If a
man’s effort of any kind is simply to follow directions in an established
routine, it is called operative labor, and the laborer becomes an
operative. He works usually by the day, hour or piece, under a foreman or
overseer. Beyond the task set for him, he has no thought nor will. Over
him is a director—the foreman, overseer, contractor or boss—whose chief
effort is to carry forward to completion some plan committed to him as a
trust. The foreman’s labor is largely mental and moral in adjusting tasks
and keeping the operatives, “the hands,” well employed. This is well named
executive labor, and requires peculiar abilities and character.

Still farther away from the mere task is the effort that devises the plan;
adjusts part to part, decides upon materials suitable for each part,
establishes the ideal of excellence for every part and for the whole, and
foresees its actual uses. Invention of every kind illustrates the exertion
of foresight in planning, but such exertion is not confined to technical
invention. The farmer who lies awake nights to plan his year’s work so
that he may have the largest returns for his undertakings in marketable
products, gives the same kind of effort as the inventor. A good name for
this is speculative labor,—an exertion to foresee and provide for future
needs of society.

In much of farm life all these are mingled: the same man devises the plan,
executes his own ideas, and performs the tasks himself. But every one
realizes the difference of success growing out of the planning. Many a
good man needs to follow another’s plans, and not a few “work better for
others than they can for themselves.” In some great undertakings the
projector and planner, the contractor and overseer and the worker of
details are necessarily separated. This may be well illustrated in the
construction of a great building, for which an architect gives all
attention to a plan, and may require a considerable force of assistants
and draftsmen to embody his ideas on paper; then contractors, one or
several, secure material, employ men and direct them in placing materials
in form and combination to suit the plans; but a host of workmen move as
directed at the will of a foreman to pile brick, mortar, stone, iron or
timber according to the plan. The labor of the architect makes possible
the entire structure—makes the work for all that enter into his labors.

This classification into speculative, executive and operative labor helps
to a fair estimate in sharing the proceeds of combined labors, and gives a
proper importance to the inventive and foreseeing energy which causes the
growth of civilization. _That form of exertion which has done most to meet
the world’s wants is speculative labor._

_Invention in farming._—A capital illustration of speculative labor,
productive in the highest degree, is the invention of reaping machinery.
The inventor has gained riches by his contrivance, but the world has
gained far more by his foresight and ingenuity. Similar energy has been
put into all labor-saving machinery, and still plays an important part in
devising the best uses for it.

Every farmer has a similar need of planning for every field he plows.
There is a certain draft for each horse, a certain speed for the plow, a
certain adjustment of harness to the team, which gives a full return for
the force employed. A failure to find this causes waste. All the effort of
scientific research into causes and conditions of growth or disease of
plants and animals is speculative labor, out of which the next advance of
agriculture must come. The mere operative power of a laborer can be
supplanted by brute force or by machinery, but nothing can ever supplant
the intelligent foresight that invents, plans and devises the end to be
reached, and the ways and the means for reaching it.

The very foundation of any success in farming is clear foresight and
distinct planning for a succession of crops, each to be tended, harvested,
stored and marketed in the very nick of time. The best energy of every
farmer is properly given to finding what crop to raise, how and when to
have it ready for the world that is going to need it. He best meets his
own daily wants when “Mr. Contrivance” stands by him in all his efforts.
This contrivance is the chief exertion of a successful farmer’s life.

Chapter IV. Capital Defined And Classified.

_Capital distinguished from wealth._—Whenever material wealth is used not
directly in meeting present wants, but to produce more wealth suited to
future wants, it is called capital. Any store of good things devoted only
to meeting wants as they come is thought of as wealth, as well as possible
capital, since at any time it may be made the means of creating other
wealth to more than take its place. The distinction grows wholly out of
the uses of wealth, not its forms. A horse used, or to be used, as a force
in production by drawing loads is counted as capital; but if used for mere
pleasure-riding is only wealth, which leaves no material return when
consumed. Thus the same horse may, in the hands of a breeder, a trainer,
or a liveryman be capital, but in the hands of a fancier or a pleasure
seeker be only wealth, to be used as wanted.

Wealth in dwellings or public buildings constructed for enjoyment rather
than protection of a working community is not capital, and may be
destroyed by fire or storm without serious disturbance of industry. The
loss is bravely met, the hardship endured and extra energy put into
restoration. A farmer may lose a fine house and by living in less comfort
for a time restore it, while the loss of his teams or his barns may
cripple his industry. In the great Chicago fire of 1871 the wealth
destroyed is estimated at $50,000,000, while the loss of actual capital
may have been only $5,000,000. An energetic use of the capital remaining
wrought apparent wonders in the restoration of wealth. Indeed, the total
capital of our country is supposed to be only three times the annual
product of industry, though a century of labor could not restore it if
destroyed entirely, because effective tools would be wanting.

The capital of an individual is such a portion of his wealth as he is
using to maintain and increase his wealth. The capital of a country
includes all the farms, so far as they are made such by improvements
directly or indirectly, including all ways and means of communication and
transportation, for roads contribute to all goods drawn over them; all
buildings devoted to systems of production, including necessary protection
of laborers themselves; all tools, machines and contrivances for power;
all animals employed in connection with industry; all materials of
construction or growth; all materials consumed in securing and maintaining
power, as fuel, lubricating oil, etc., or in performing operations of
manufacture, as dye stuffs; subsistence for the workers, the brutes they
use, and the families which keep up the life and comfort of the people;
the necessary stock in trade, that all wants may be readily supplied; all
the machinery of trade for ready transfers, including any actual wealth in
form of money; all the governmental machinery for protection and
maintenance of order, as a first essential to wealth-producing.

All these are more simply grouped in their different relations to labor
under three classes: first, as sustaining labor by food, clothing,
protection and material on which to work; second, as aiding efficiency by
tools, machines and stored up forces; third, as stimulating exertion by
reducing present anxieties and arousing more far-reaching plans for future
undertakings, illustrated by possession of satisfactory stocks of goods or
comfortable homes for families.

_Capital a time-saver._—All these forms of wealth serve in production by
extending the possible waiting between an effort of any kind and the
greater satisfaction secured by it. No community could begin farming as a
business until it had secured housing and seeds and tools and provisions
in some form for most of a year’s sustenance. All the capital that
constructs a great thoroughfare is used in getting ready to satisfy wants
in many future years. Capital furnishes subsistence for laborers of every
kind during those years of waiting for a product. This is true capital,
because the object of its use is a greater product of wealth; but the
product may be long delayed. So all accumulated wealth in every form
represents sustained labor during the past. Professor Taussig estimates
the accumulation of subsistence in all existing goods at five years of
labor for the community. The total value of farms in our country is just
about five times the average annual product of the farms, though a large
portion of the land is unused.

_Capital circulating or fixed._—A further distinction is desirable between
capital in food, fuel or stock in trade, which may be turned at a single
use into new wealth, and capital in buildings, bridges, roads and farms,
which may be used many times in adding new wealth before they entirely
disappear or give place to new forms of capital. The first is called
circulating capital, and the last fixed capital.

The degree of permanence in fixed capital is indefinite of course—even
drains vary in permanence—and the line between the two is not always
easily drawn, yet the distinction is real. Most men distinguish “the
plant” in any enterprise from “the current supplies,” and realize that
some fit proportion exists between them. A farm well equipped can not be
handled to advantage without a proportional investment in current
supplies. Many a renter cannot pay his rent for want of means to work his
farm profitably. If the farm were given him, he would still be hampered by
the same lack of consumable goods to turn at once into larger products.
Many a “land poor” farmer would gain at once by exchange of acres for more
“current supplies” for his farming, such as food for help, feed for teams
and stock, seed or fertilizers for his crops, or young stock to consume
the raw product of his fields. In the fourteenth century the stock of
European farms was worth three times the value of the farms. Similar
conditions are found now in some newer portions of the United States. It
is impossible to estimate exactly the existing ratio between fixed and
circulating capital from statistics at hand. Farmers in older, more
developed regions can use, without suffering, a larger per cent of fixed
capital than pioneers can, because the circulation is more rapid. For the
same reason the raising of staple annual crops gives place to double
cropping, dairying and full feeding as land grows more valuable, frequent
returns serving instead of large circulating capital.

In general, the wealth of a community is better judged by its fixed
capital, while its thrift is known from its circulating capital. Fixed
capital is always secured by consumption of circulating capital. The
extension of railroads always implies great reduction of ready supplies.
Money _between_ individuals and communities ranks as circulating capital,
but _within_ any community the stock of money needed for domestic trade
may be thought of as a permanent machine. Even machinery may be
circulating capital in the hands of one who manufactures or sells it,
though fixed when located in its work, and for the whole community is
“fixed” as soon as its destined use is determined by its form. Thus the
distinction, though real, is flexible. Its importance in discussing the
industries of a country, or in understanding the relations of various
industries to each other and to the world, will appear later in the book.

_Capital unproductive._—Capital is sometimes said to be unproductive in
contrast with _productive_, although the very nature of capital requires
productiveness. The occasion for this distinction is in the fact that
means devoted to future production of wealth in a particular way may be
years in returning the product; the destination is evident and the return
confidently expected, yet the owner is without income or near prospect of
income. Such ventures are seen in the reclaiming of waste lands by
drainage, the equipment of extensive mines, and the construction of dykes
and levees. Land held for sale or use in the indefinite future is a most
common illustration of unproductive capital.

If wealth in some readily exchangeable form is intended for productive
use, but is held for a satisfactory opportunity, it is sometimes called
free or _floating capital_. It may be available for any temporary use, and
so afloat among a variety of investments. Some great enterprises, like the
building of the Suez canal, are begun in view of attracting floating
capital. Borrowers generally look to such accumulations for their supply
of funds.

_Capital in farming._—A clear view of the uses of capital may be gained
from estimating the needs of a young farmer just starting out for himself.
For all his equipments he must depend upon the time and effort of somebody
embodied in form of tools, material and sustenance, for capital in any
form is simply this. A farm of 160 acres improved, or already out of the
crude pioneer stage, represents about ten years of one man’s time, say
$3,000. A house suitably furnished for himself and his young wife means
three years of time, $1,000. His barns and corrals and intersecting fences
cost two years of time, $600. His team and stock and the necessary tools
make nearly three years of time again, $900. Seed, feed, provisions,
clothing, insurance and wages for help, all to be used before his first
year’s crop is sold, require at least $500 worth of time, or nearly two
years more. The needed capital for such a farm thus represents full
eighteen years of the time of an able-bodied man, or $6,000. If we add to
this the cost of bringing to mature age and intelligence the three able
and efficient workers needed to manage and work that farm, we shall credit
the past, without counting the time and energy of the young people
themselves in growing and learning and gaining their skill, with thirty
years of labor; $10,000, put into the farm and its occupants as they stand
ready for a year’s work. This accumulation is likely to show all the forms
of capital described.

_Capital conservative._—Capital, especially in fixed forms, being in its
nature the conserving of energy, is necessarily an incentive to
conservatism in society, since any great and sudden changes in the habits
of a community involve rapid consumption or destruction of capital.
Capital is said to be “timid.” This statement means simply that all owners
and users of capital who realize the time required for accumulating it
hesitate to risk its destruction in doubtful enterprises, uncertain
confidence or venturesome experiments in government or financiering. War,
riots, or even revenue laws, may destroy fixed capital that has been the
growth of a century. A small change in tariff laws has rendered useless
immense factories. For the same reason farmers, having so large a fixed
capital in farms and farm machinery, do not take kindly to political
changes involving doubtful consequences. States where the capital is still
circulating may readily venture upon experiments financial or political,
since little time is lost even in destructive results. People in new
countries take risks readily because they have less to risk.

Chapter V. Personal Attainments.

_Accumulated energies._—The force accumulated through personal effort in
training, education and discipline is similar to capital in the fact that
it represents a period of time between the effort and its full
accomplishment, and that it is devoted to production of wealth. It differs
from capital in being immaterial human energy, exceedingly useful in
combination with capital, but a part of the laborer, not his tools. It is
gained by devoting time, attention, thought and practice to acquiring
methods of greatest efficiency in any act of labor. It requires surplus
energy in labor at any task to gain, not only the material result, but
power to do the same task better and more easily next time. All the time
expended in acquiring such powers is put into the value of what is finally
produced. Any peculiar tact or ability developed becomes an essential part
of individual powers, and its product, like that of any form of exertion,
becomes the property of the individual.

In this way, not only is the cost of gaining skill or education, or of
establishing habits, returned in the product, but often a considerable
increment, or gain, from the larger demand for such abilities. A skilled
artisan’s labor meets more urgent demands for its use.

_Skill._—If this extra exertion takes the form of training muscles, nerves
and brain to act with speed and accuracy as judgment directs, we call the
attainment _skill_. Even if the action required is simple, dexterity comes
only by practice, and in special cases may multiply the product many
times. Two men may shear sheep with equal accuracy, but one has three
times the speed of the other. His skill secures employment at three times
the wages of the other, with profit to the employer, because the extra
speed saves room, attendance and risk over employing three men at
one-third the rate. The shearer profits by the rarity of his skill in
getting the wages of three men, with the support of but one, and in more
constant employment. When the operation is more complex, and success
involves larger interests, skill counts indefinitely more, and as society
grows complex the room for exercise of skill becomes larger and more
varied. The wide difference between pioneer farming and market-gardening
illustrates this. The history of agriculture shows the slow development of
skill in the furrow, the ditch and hedge, and in the handling and breeding
of stock. Farmers once barely scratched an acre a day with their rude plow
and were long in learning the use of a harrow. No attempt, according to
Professor Rogers, to improve the breeds of cattle and sheep appeared
before the eighteenth century in England. Most early improvements in
farming skill came from the industrious monks, whose intelligence fostered
skill.

The advantage given by skill perpetuates skill from generation to
generation through aptitude and superior training, and so the people of a
neighborhood or a country may inherit such power in contrast with other
regions. “Yankee ingenuity” has become proverbial through such natural
extension.

_Discipline._—Education serves the same purpose by acquisition of
knowledge in such ways as to give wisdom in its application. It involves
an exercise of intelligence to the establishing of sound judgment. Broader
than skill in its range, it increases the possibilities of skill as
storage of power. The skill of the surgeon would never have existed but
for the brightening of his intelligence by education. The electrician’s
training depends upon a broad foundation of education in knowledge of the
matters he handles so dextrously. In farming, this source of stored up
power has until very recently been ignored. While men in many professions
were multiplying their individual power by spending youth in school, the
farm boy would be simply trained at the plow, without the enlargement of
practice in thinking required elsewhere. Such education has become at
length, like skill, a requisite of each generation in order that our
civilization may be maintained. For this the states build and the nation
sustains agricultural colleges.

_Character._—Just as important, though often overlooked in enumerating
economic forces, is the acquired personal habit of self-control. Without
it both skill and education avail but little, and it may do its work
independently of both. “Tried and trusted” expresses our estimate of the
importance of long practice of virtue in meeting obstacles. The formation
of habits—personal, business and moral,—is a matter of time and
discipline. It costs exertion through a series of years; but the power
accumulated may be needed only once, in some great emergency.

The character of the workman, the tradesman and the farmer enters more or
less into the product of his toil and gives it value. Though I may not
care from whence come the shoes I wear, or the butter I eat, I do care for
the genuineness of both, for which I must depend upon the genuine
character of the makers and sellers of both. This, too, is maintained from
generation to generation by its successful use in acquiring both power and
wealth. It cannot be had without the expenditure of time, energy and means
of the fathers and mothers of one age upon their successors.

_Importance of attainments._—All these personal attainments, whether
confined to individuals or extended over whole communities, must be
reckoned among producing powers and reckoned with in estimate of earnings.
A community deficient in either is low in ability to supply its own wants
or the world’s wants, and no amount of material capital can take their
place. They are superior to capital in being less destructible by fire or
flood, and more easily turned to account in new enterprises as needed. No
capital is perpetual, even in most fixed forms, nor is any personal
attainment sure to remain of direct use; but the latter has a larger
expectation of usefulness and greater permanence in the economy of
nations.

Chapter VI. Combination Of Forces For Individual Efficiency.

_Ideal manliness._—Every community has highest efficiency and best
civilization when each individual member has the largest range of
abilities to meet wants, and the largest range of wants to be met. An
ideal civilization involves the distinct aim of gaining for each mature
person in any association the fullest development of all abilities and all
materials and tools for their use. This is amply illustrated in a family
of well grown, well trained, well educated, trustworthy men and women with
sufficient capital under control to maintain the highest activity of every
personal power and attainment. Childhood and old age must always be
provided for by exertions of those whose abilities are in their prime, and
accidental weakness of every kind is met from the same strength.

Any mature person is best equipped for productive industry when, sound in
both body and mind, he has the accumulated energy of the past for his use
in the shape of capital and hereditary traits, together with skill,
education and established character. Such a man is recognized at once to
have his place among “the heirs of all the ages in the foremost files of
time.” Any people claiming leadership among nations must depend upon its
representatives of such a fully equipped body of men for that leadership.

_From savage to enlightened._—The increasing importance of such full
manliness, as society becomes more complex in both wants and efforts, is
easily seen. In ruder life muscular energy and endurance, with some slight
ingenuity, are sufficient to meet the ruder needs, with some chance of
saving for future wants of a growing family, which will continue the same
round of muscular contest with savage conditions.

The American Indians have given the fairest exhibition of the kind of
welfare which such exertion and accumulation afford. The weak disappear
quickly, because the strong have too little surplus of energy to care for
them. Among those left, both burdens and means of satisfaction are quite
equally distributed, because of essentially equal powers of exertion. But
in older and more civilized communities large portions of the people are
dependent upon the rest for knowledge, ingenuity and skill to keep the
very much larger supply of material needed for maintaining the
civilization. At this stage of progress a man with only muscular
development finds himself entirely dependent upon some one else for the
plans by which all must live. A savage cannot share equally with the wise
man either in the burden of caring for the community or in the welfare
which the community enjoys.

It is easy to see that the relative importance of accumulated wealth in
the shape of capital or of skill or of the character which results from
generations of training, becomes more and more distinct as the community
becomes more developed. Any man, then, who is lacking capital, skill and
morals, or all three, is in some respects like the savage, and will find
his equals among the savages. For this reason a pioneer country affords
opportunity for a youth without skill or personal attainments of any kind
“to grow up with the country;” and the famous advice, “Go west, young man,
go west,” applies strictly to such a youth, and with less and less
directness in proportion as the young man has control of himself and of
accumulated wealth.

A simple diagram (Chart III) may illustrate the progress of civilization
from the general poverty and inefficiency of rude pioneer life to the
power of a thoroughly organized and developed community. The poor man, in
the sense of one whose abilities are undeveloped and who has no visible
means of support, is relatively less able to care for himself in the
enlightened community than in the ruder pioneer life. In this sense, and
this alone, the poor man grows poorer with advancing civilization. This
may easily be seen by comparing a thrifty farming community of today and
all the accumulated stock, machinery and tools of the farms, with the same
community sixty years earlier, when all was practically wilderness. A
strong man with an ax and a hoe could enter the wilderness anywhere and
live nearly as well as any of his neighbors. Such a man in the higher
country life of our times must work for some one else at wages, or must be
supported at public expense. In either case he feels his poverty. At the
same time, the extreme of suffering is less likely to be reached in the
richer community. The poorest man has comforts of which the pioneers never
dreamed. Even a tramp can live on the fat of the land, but not by his own
exertions. The failure of a crop in the pioneer country means starvation
for a large portion of the few inhabitants. A failure in the older
community means suffering for a few in diminished food and clothing, but
all live on the accumulations of the past.

                                 [Chart.]

 Chart III. Illustrating the relative importance of labor and saving, in
    the progress of civilization from its beginnings in pioneer life.

_Developing civilization._—This essential advantage of accumulating power
in individuals, as civilization advances, is necessarily connected with
the very nature of civilization and growth. As no conceivable device can
make a babe as efficient as a man, so no contrivance, political or social,
can make an undeveloped man equal to a fully developed one.

The intense community of interests in high civilization makes even more
important the individual abilities of each sharer in those interests. For
this reason every device for universal education, development of skill and
strengthening of character, and every check upon deterioration of personal
strength or wisdom or virtue is to be considered. Any neglect of the
individual in his development of personal attainments retards the
development of the community. Any device for the equal distribution of
wealth which does not increase individual thrift in the use of wealth at
least retards the growth of the community, and may very quickly reduce the
power of the community as a whole until it reaches the inefficiency of
savage life.

All true charity, even equity, requires that the object of distribution of
wealth shall be the greater efficiency of each individual. If there shall
ever be a community of individuals gaining equal enjoyment, it will be
made up of those possessing essential equality in personal powers and
attainments, and in accumulated capital as well.

Chapter VII. Methods Of Association.

_Simple association._—While the absolute equality of individuals referred
to in the preceding chapter is practically impossible, the community of
interests as civilization advances becomes much closer through various
plans of association of individuals in common work. Indeed, the community
is a community because a multitude of individuals work together. The
simplest form of association is seen where men work in gangs, all acting
alike, as in lifting a log or a rock, hoeing the field, or in building an
embankment by shoveling. Among farmers the habit of exchanging work, so
common in pioneer settlements, illustrates the advantage of combination.
This may be called simple association, by which many hands make light
work.

_Complex association._—A more complex association is found in even the
rudest settlement when one man undertakes a particular kind of labor for
all his neighbors, they in turn doing a different kind of work for him. A
farmer in a new settlement found the children of himself and neighbors
without a school, and agreed for several winters to teach a school as many
days as his neighbors would chop in his clearing. This association cleared
the land and supplied the school. Such exchanges of labor develop rapidly
in every growing community and form the basis of a most extensive
commerce. When “Adam delved and Eve span” the family was far better
provided for than if both had undertaken to delve and spin. The fair
exchange of products makes each man’s product more useful to both himself
and his neighborhood. Such association is less noticeable in a community
of farmers, where all are seeking essentially the same products, than in
almost any other community. Yet the presence of the blacksmith, the
shoemaker, the wagonmaker and the tailor contribute very largely to the
comfort of all concerned.

One chief disadvantage of farms remote from villages is the want of ready
exchange, or association by different employments. The part which such
exchange plays in the accumulation and distribution of the wealth of the
world is so great that several chapters will be needed to present its
importance. The study of exchanges is sometimes thought to cover the whole
question of wealth. It is often treated as separate from production. But
its advantages and disadvantages are most easily seen by considering all
its bearings upon the increased product of a multitude of workers.

_Compound association._—A still closer association, sometimes called
compound association, is found where several workers combine efforts of
different kinds in a single finished product. It is easily illustrated in
an ordinary dairy, where one of the family drives up the cows, another
does the milking, another sets the milk and cares for the purity of all
utensils, another perhaps skims the milk and churns the butter, and still
another works and packs it. All this labor of many hands has its
importance represented in the butter packed for use. The particular
advantages of this division of labor will be treated in a future chapter.

_Aggregation of forces._—A still further advance in association appears
when many laborers in many ways, with multitudes of tools and machinery,
are combined in a huge establishment in such a way as to employ all
efficiently. This is illustrated in the so-called bonanza farms of the
west, but more distinctly appears in the great manufactories, or in any
extensive coöperation or great enterprise. A study of these will also
require a future chapter.

While all these methods of association blend with and into each other in
every kind of community, a careful analysis of each is necessary to a full
understanding of their relation to welfare. For this reason it is best to
analyze and illustrate each by itself. The succeeding chapters will take
up all the intricacies of exchange before presenting the special
advantages and disadvantages of technical division of labor and of great
corporations.

Chapter VIII. Exchange: Advantages, Limitations And Tendencies.

_Exchange in production._—The immense importance of exchange in promoting
the welfare of communities is easily granted, and is illustrated in every
village store or even in every simple farming community. Today the market
for farm products is easily felt to be the most important consideration,
and weighs in every farmer’s mind when buying or selling his farm. When a
state like Kansas raises from six to ten times as much wheat as its people
can use, exchange is evidently an essential factor in every farmer’s
welfare.

The multitude of everyday wants in most households supplied only through
commerce shows the extent and importance of this exchange of labor
throughout the world. The great advantages, however; may be seen by a
little more careful analysis of the growth of individual powers under a
ready system of exchange. Every laborer becomes effective by experience in
some particular industry. A thousand years will not perfect a single
worker in any of the thousands of employments needed to supply his wants.
Every farmer knows the weakness of a beginner in farming, coming from any
other business; and without exchange, every workman must always be a
beginner in everything. Exchange is one of the chief motives to
accumulation, since others’ wants as well as our own are kept in view. The
“hand to mouth” liver is almost always a man of all work, thinking little
of exchange. It is especially a stimulant to saving, since it makes
capital itself more useful and brings it directly into competition with
all other forces. Products stored in the granary have their significance
because of exchange.

Still more important is the cultivation of special abilities, impossible
without exchange. The indefinitely varied powers of human nature are made
most useful where each can devote his talent to a definite business; and
usually the talent best fitted to a business is attracted toward it.
Habits, too, which are the chief labor-saving characteristics in human
nature; become all-important, and enable an individual to do a large part
of his work with the least possible care. The routine of everyday life is
followed with little effort or pain. The more regular the routine the
easier it is to follow.

A still greater advantage to communities is found in the enlargement of
the range of wants in all individuals. The superiority of enlightened men
over savages is largely due to their greatly increased needs, since
necessity, the mother of invention, compels exertion and finds the way to
satisfaction. It seems, however, that exchange contributes most
extensively to welfare by combining individuals into a community, and
smaller communities into a larger, until the whole world is brought into
sympathy. Thus every human being gains the advantage of growth in mind and
character through some contact with every other human being within the
commercial world. If ever a reign of peace and plenty shall extend over
the world, no one doubts the importance of commerce and intimate exchange
in bringing that time. The full advantage of free exchange in promoting
human welfare cannot be over-estimated.

_Exchange limited by powers._—With all its advantages, there are certain
obstacles in the way of its extension, always more or less effective in
limiting its range. A community can have few exchanges among individuals
if all are busied in the same or similar trades. A farming community has
little need of buying and selling among the farmers. A horse trade or an
exchange of one brute for another may supply all necessities. In larger
communities similar limitations are found where abilities are similar, or
where habits in education, government or religion are very uniform. In
such cases opportunities for exchange are limited, and commerce itself
grows slowly.

The story of pioneer settlements is uniformly one of slow and uncertain
commerce for want of the variety in wants and abilities which makes the
very foundation of exchange. Sometimes “day’s work for day’s work” is the
limit of exchange throughout a whole region or country. In the world at
large limitations often arise from hostile feelings between nations, and
as yet the highest freedom of exchange between people under different
governments has seldom been reached. The United States affords the
brightest example of people with varied characteristics developed through
the stimulating effect of ready exchange.

_Commerce over-estimated._—So rapid has been the advancement of systems of
exchange within the last half century that men are prone to over-estimate
the importance of commerce and its interests. The amount of wealth in
motion exaggerates the importance of wealth itself, so that multitudes
overlook the foundation in productive industry, and become mere bettors
upon the market, attempting to catch a part of the moving wealth as it
passes. Any speculation in mere commercial transactions may become a very
serious obstacle to legitimate industry by its effect upon both the
industry itself and the incentives to industry among the people. This
danger is increased by the greatly extended interest in exchange among the
rural population.

Scarcely a farmer in our country is beyond the effect of any extensive
commerce throughout the world. The crops of South America and of the
Russian plains are now as important to a farmer of Dakota as his own,
since all must find a common market in the manufacturing countries of
Europe. Speculation on the Chicago Board of Trade is likely to be as
interesting to a farmer in Nebraska as to members of the Board. He is even
tempted to try his hand at speculation, either directly through a
commission house or indirectly through the marketing of his grain. In
either case he is caught by the dangerous motion of modern commerce. The
chief remedy for these tendencies must be found in a wider acquaintance
with the facts of commercial life and a clearer perception of what is
genuine commerce.

Every farmer needs to distinguish, and distinguish carefully, the actual,
necessary machinery of trade and the principles underlying it, that he may
appreciate the genuine and oppose the false. On this account several
chapters are given to questions of exchange, with an effort to bring into
more prominent light the ways in which all commerce affects the farmer’s
life.

Chapter IX. Value The Basis Of Exchange.

_The nature of value._—Perhaps no question in the discussion of wealth is
of greater importance than the nature of value. Certainly the measurement
of value in all our property is the basis of all exchanges, of all book
accounts, and of all inventories. The worth of any piece of property in
such estimates always involves some comparison, either of things possessed
or of exertion required or of satisfaction yielded. In comparing an apple
and a peach, both equally attainable, we may value the peach most highly
because it gratifies desires in higher degree. Thinking of future uses, we
may value the apple more highly because it will keep longer, and so be
available for future wants. In considering all the kinds of satisfaction
to be provided for, we may think of the peach as desired by more people
who are likely to render us service, and therefore more readily
exchangeable, and so of higher value. Again, the peach may be at the top
of the tree and the apple within reach, in which case we may think whether
the peach will give enough greater satisfaction to make it worth the
greater exertion to get it. In this way a single individual, who has wants
to be gratified only by exertion, forms an idea of value as founded upon
some relation between his wants and his powers, between the desires to be
gratified and the qualities of the object expected to give satisfaction.

Since wealth always implies an accumulated store of good things, every one
comes to think of the worth of his accumulation as estimated by what it
will do at any time, in any place, in satisfying any need. So, most
naturally, we associate our ideas of value with trade. An exchange of
horses brings in not only the present qualities of each horse for present
service, but all the qualities and circumstances affecting the
possibilities of disposing of the horse whenever something else is needed
more. An expert judge of horses not only knows when the horse is sound in
wind and limb, and what are the signs of docility, speed, etc., but also
what the rest of the world considers the qualities of a satisfactory
horse. In all experience peculiar circumstances, varying the relation
between wants and satisfaction, affect immensely our estimate of value.
When an ancient king shouted, “My kingdom for a horse!” he was doubtless
moved by the uselessness of a kingdom to one about to lose his life in
battle for want of a horse and also by the difficulty at that particular
moment of gaining a horse.

In ordinary experience everybody estimates value by some comparison with
what he can obtain in exchange. A picture of a friend may be priceless in
two senses: first, of so great importance to its owner that nothing can
buy it; second, of so little importance to anybody else that nobody will
give anything for it. In any inventory of wealth the picture could not be
counted; it is valueless. But in any judgment of personal welfare it may
be beyond price. So, in the universal experience, the term value has come
to be used as essentially connected with exchanges and with property as
stored to meet all kinds of wants.

_Value in services._—In a similar way experience has developed the idea of
value with reference to services. A service may be invaluable, as when a
physician saves the life of his patient, but the value of that service is
estimated by the return expected in the community where the physician and
his patient live. Many services of highest usefulness and most important
in welfare cannot be valued in terms of wealth, because no wealth can
secure them. Love and patriotism and philanthropy cannot be had for
wealth. But in comparison of two services rendered for hire, both are
measured by their general utility, either directly or indirectly, and even
this estimate is modified by the readiness with which either service can
be secured. One who seeks the service of an artist who stands alone among
ten thousand people, may be willing to give the services of a thousand
other men, which can be had for a trifle, because they are everywhere
abounding.

_Essentials of value._—Experience seems, therefore, to settle upon three
conditions for value in any article of wealth or any service rendered.
First, the article or service must have utility—that is, it must be useful
in satisfying somebody’s wants, either present or future. Second, those
wants must be of such a nature that effort on the part of some human being
will be necessary to gratify them. Nothing which can be had at all times
by mere desire of it can have value. Third, the object must be of such a
nature as to command other services or exchange of other wealth. For this
reason it must be transferable from one owner to another.

_Utility as related to value._—While utility is a basis of all values, it
is not the chief element in measuring the value of wealth. The things of
highest utility, like air and water, have no value as long as trifling
exertion will bring them. Even land is without appreciable value so long
as any person can obtain it by settling upon it.

In general, we measure utility by the relation between the nature of any
object and human nature as expressed in wants. A bushel of wheat has
utility equal to the number of loaves of bread it will furnish to hungry
humanity. In this respect every bushel may have the same utility as every
other. This would be true if every bushel of wheat was wanted by hungry
people able to exert themselves in securing it; but if five bushels of
wheat are sufficient for each human being in a year’s supply of bread, a
distribution to all the world of more than five bushels to each would make
some of the wheat useless. So if the world’s product of wheat more than
supplies the world’s want, the extra amount will be without utility unless
some means of storing against future want is devised. In that case the
utility of the stored portion will be lessened by the extra exertion
required to store it until the need comes. One may be glad to pay
twenty-five cents for a good dinner, but an equally good dinner offered
immediately afterwards will have no utility, unless he can save it for
supper. If the dinners offered are so many as to imply that several will
be useless, the value of each is likely to be affected by this estimate of
lost utility in some. Dinners in that case are liable to be furnished for
what they are worth for cold suppers.

If any article of commerce, like wheat, has its highest utility in one way
of meeting wants, as in bread, that utility will have a strong influence
upon value as long as the supply of wheat is not too great for this want.
If the supply of wheat should be so great that only a small portion could
be used for bread, other utilities would be sought. It would be used for
feeding hens, and perhaps for cattle feed. If still the amount is too
great to be consumed, it might be used for starch. In this case the least
useful portion is likely to furnish the estimate of value for the whole.
Both the raiser of wheat and the user will consider the lowest use as the
probable basis for sale.

Before the opening of the Erie canal a farmer in northern Ohio drew a load
of wheat twelve miles in hope of a market. The dealer said: “It isn’t
worth anything, since nobody has any use for it. If you had a load of
sand, I could pay you for that, to fill the mud-hole in front of my
store.” Since the utility of some wheat was nothing, the value of all
wheat tended to nothing. On the other hand, if wheat is scarce in the
community, it will be used only to meet the wants of the delicate or the
fastidious, whose comfort and life may depend upon it. In that case its
general value will be estimated by its higher utility, whatever other use
it is put to. That is called a final utility, which, in any particular
case, is the lowest use implied in consuming the supply. And this final
utility is the only one influencing the estimate of value.

It is possible, therefore, that the total utility of anything, like a
paper of tacks, for instance, may be greatly increased, since it has
indefinitely more uses than when tacks were first made. Yet the supply of
tacks is so enormous that to consume them we must use them for trifling
purposes; and therefore their value is a trifle. When we have water to
throw away, its value is nothing. When water is limited to culinary uses,
its value is considerable. When water is sufficient only to slake extreme
thirst, its value is beyond price. Even the prospect of a future supply
diminishes the utility of any commodity, since time is an important
element in satisfaction. Thus a store of potatoes in early spring, however
well preserved, has its final utility lowered, and therefore its value
lessened, by the prospect of new potatoes.

On the other hand, the present value of a field of grain or the young
orchard is dependent upon its utility in meeting a future want. Everything
which enhances prospective utility of any article enhances its value; and
everything which diminishes the chance of such utility, like bad weather,
insects or plant diseases, diminishes the present value. In this way risk
diminishes the value of wealth subject to it and increases the value of
wealth which has passed by it.

In general, the usefulness of anything is no criterion for measuring
value, because other elements of value are more important. Henry C. Carey
says, “Utility is the measure of man’s power over nature; value is the
measure of nature’s power over man.” This may be a striking way of saying
that great utility implies a discovery of uses, while great value often
indicates only difficulty in securing what has great usefulness.

_Exertion as related to value._—Since utility, however essential to value,
is not its measure, we are led to consider whether the exertion required
to obtain any article desired may not measure its worth. This is certainly
a matter of prime consideration, and many have been led to suppose the
cost of production, by which is meant all the exertion necessary to bring
any commodity to its final consumer, to be the sole and absolute measure
of value.

This supposition, if ever correct, is subject to great modifications. None
know better than farmers that a bushel of wheat from one field may have
cost twice as much as a bushel from another field, without any possible
distinction in value. Every mechanic knows that what he has accomplished
with great exertion may have been duplicated by some labor-saving device
with half the exertion, the two values being essentially equal. Nothing is
more common than to find articles in the market sold without regard to
cost because they are superseded by more desirable articles. Indeed, the
most ardent defender of cost as the sole basis of value is obliged to
notice multitudes of exceptions to the rule. Yet it must be granted that
only those articles involving effort in securing them have value at all,
and in general the amount of effort actually put forth has some relation
to our estimate of value.

In general, men do not exert themselves more than necessary to meet wants,
and in any exchange with others estimate the value of what they have
produced by the exertion expended. Yet, as products of the same kind
exchange in the same market without regard to their individual cost, it is
evident that some other principle must be discovered. Nevertheless, no
farmer will continue indefinitely the raising of a crop which brings in
the market less than a fair average return for his labor in raising it. In
a series of years he expects his wheat to return a fair compensation for
labor expended. In the same way every manufacturer expects a full return
for all cost of all his efforts, and would not continue his work from year
to year without such expectation. Moreover, when for any reason the market
value of anything is much above its cost, somebody is ready to increase
the supply of that particular article, and more will add their efforts in
the same direction until its value approaches nearly the general cost of
production as compared with the cost of other products selling in the same
market.

_Normal value._—In this way the cost of production is said to fix the
normal value of any article of commerce capable of production in
indefinite quantity and within limited time. For this reason farmers are
interested in finding the average cost of production of wheat, corn, etc.,
within a region supplying their market. They are even interested in
knowing the conditions for wheat raising in India, South Africa and
Australia, since the cost of production there may influence the value of
wheat throughout the world. The normal value of products capable of
indefinite multiplication tends always toward the value of the least
costly. This is shown in the effect of labor-saving machinery upon the
value of cloths and other goods. It is equally true in agriculture that
wheat raising upon cheap land with extensive use of machinery and
economical methods of culture and harvesting brings down the normal value.
So long as more land can be applied to wheat raising with these
advantages, the less productive methods may be too costly for the market.

On the other hand, if any production cannot be largely extended so that
the supply in market barely meets the requirements of purchasers, the
tendency of normal values is toward the cost of the most costly part of
the product required to meet wants. This is because the supply is kept up
only by the exertion of the greater amount of labor as well as the less.
If farmers in western prairie country can raise corn at an expense of 15
cents per bushel, as they can upon an average, so long as that region can
raise all the corn required no less productive region can force the normal
price above what will keep western farmers raising corn. When the western
crop fails, the price is far above normal value, and may even go above the
cost of the most costly corn in market, under a principle called the law
of supply and demand.

Since improvements in method so constantly lessen the normal value of
products, Mr. Carey made the effort to measure value by “cost of
reproduction,” meaning, I suppose, that any article produced at any time
and place is likely to bring in any market a price equal to the cost of
similar articles produced under the most improved methods anywhere used in
the present. This, of course, does not apply to articles not desired in
the present, because deteriorated or out of fashion or less useful than
some new device for a similar use, but only to those articles of full
utility in having all the qualities needed to meet the desire of
purchasers. Even a diamond like the famous “Kohinoor” would have its
almost priceless value reduced to the cost of securing similar jewels
equally desirable if a process of crystallizing carbon were suddenly
discovered. It is easy to see, then, that cost measures value only so far
as it is directly connected with the available supply in any market. Under
ordinary circumstances the supply cannot be increased unless the cost is
met, but the rule is modified by any peculiarity of season, or conditions
of trade, or production by cheaper methods or cheaper labor, or by the
changing wants of a community. The application of all these influences may
be studied under the so-called law of supply and demand.

_Supply and demand; markets._—The law of supply and demand is only a
statement of the general fact that market value tends to increase with
increase of demand and to decrease as the supply to meet the demand
increases. It must be understood that a market means a particular spot
where buyers and sellers of any article of commerce meet at a particular
time. The supply is the amount offered for sale at a given price. The
demand is the amount buyers will purchase at the same price.

Thus, if on a certain day sellers offer in Chicago 10,000 hogs, with a
willingness to take $5 per cwt., they represent the supply. If on the same
day in the same place buyers are willing to take 10,000 hogs at $5 per
cwt., $5 will be the market price, and the supply and demand will be
equal. If, however, only 5,000 hogs would be bought at $5 per cwt., 5,000
hogs will be without buyers, and their owners will seek, by lowering the
price, to find buyers at $4.50 per cwt., if necessary. Since all the
sellers will feel the same pressure, the tendency of market value will
immediately be downward. Buyers willing to pay $5 per cwt., finding many
sellers, will expect a reduction in price, and the price will certainly go
down until the hogs purchased equal the entire supply. And that will not
be until the buyers are stimulated by reduction of price, so that as many
hogs are wanted as there are for sale. If that point is reached at a price
of $4.50 per cwt., the market value is found there. The limit of time
within which this reduction takes place will depend upon the ability and
willingness of sellers to wait. If the product offered is perishable, or
costly in keeping on the market, the reduction will be speedy. Otherwise
it may be held indefinitely with the hope of compelling buyers to come to
the higher prices, in which case it is practically taken out of the
market. Only those commodities are practically in the market which are
held for sale at the market price. Only those buyers practically enter the
market who are able and willing to give the market price.

_The higgling of the market._—The process of reaching an agreement between
buyers and sellers is called the higgling of the market, and represents
the conflict between the wishes of sellers to get the most possible for
their products, and the wishes of buyers to get the most possible for
their money. In fact, both buyers and sellers have the same motive: to
make their own exertions go as far as possible in supplying their own
wants. The fact that money enters into the transaction makes no difference
with the bargain. Two farmers trading horses have exactly the same desire:
to get the full worth of the horse to be given. A genuine bargain usually
benefits both parties. Even in a horse trade each owner expects to be
benefited by the exchange; and only a jockey seeks that benefit in taking
advantage of his neighbor’s ignorance or inexperience.

So, in the general market, every seller gains what he desires more than
what he possesses, and every buyer has exactly the same experience. Two
friends may exchange books if either would be benefited by the exchange.
In that case the one gaining the less valuable book gains the satisfaction
of giving to his friend. Both are still profited, one by the larger value
received, and the other by the pleasure of giving. In such an exchange no
basis of value is reached, but in any ordinary bargain the final
adjustment will be as nearly as possibly upon the test of value in the
market. Between one buyer and one seller, the bargain is likely to turn to
the advantage of the one who is quickest to discover the weakness of the
other. If two persons are discussing the price of a house for which the
seller wishes $1,000, but will sell for even $600, and for which the buyer
hopes to give only $600, but will pay even $1,000, the seller will
gradually lower his price, and the buyer gradually raise his offer until
one or the other discovers the working of his neighbor’s mind. These are
the natural conditions for sharp bargaining.

In the larger market the interests of a multitude of buyers and a
multitude of sellers have weight, and no shrewdness can prevent a
settlement upon such a price as comes nearest to satisfying all parties.
The so-called law of supply and demand is a brief statement of the fact
that sales cannot be made in open market above the mark where buyers and
sellers agree, and that mark is essentially the price at which all who are
willing to buy at the price current are met by those who are willing to
sell at the same current price. With reference, then, to all articles sold
in open market, it is safe to say that the only test of value is the price
which the public is willing to pay. So universal is the acceptance of this
principle in practical affairs that everybody estimates the value of his
property by the price at which it will sell. Any appraiser or assessor who
should adopt a different principle would be considered wholly
untrustworthy.

_Freedom in markets._—In this higgling of the market it is absolutely
necessary that buyers and sellers have essential freedom of choice and
fairly equal information. There may be conditions of law preventing free
competition, as under the regulation of prices attempted in various
countries prior to the present century. In England, during nearly four
centuries, limits of prices for nearly every article of food and clothing
were named by law. Yet in every instance the conditions of the market were
stronger than the laws, and the restriction upon free competition and free
discussion of prices actually destroyed the open market. The conditions of
a bankrupt sale at auction reduce the competition to a struggle between
buyers. In this case a very slight collusion between the buyers may
destroy the market. This is frequently illustrated in the sale of real
estate after foreclosure of mortgages. The unnatural conditions of auction
at any price are so evident as to make common the secret employment of
sham bidders, shrewd enough to push actual buyers as far as they will go
without preventing the sale. Somewhat similar conditions may exist in a
great cattle market, in which immense quantities of cattle are delivered
by owners, while the number of buyers is few. The great packing houses
have the advantage of being almost the sole bidders for what must be sold
at their price. These conditions, however, are not made by the packing
houses, but by the large supply subject to immediate sale. Such conditions
are much more noticeable in the market for ripe berries, when a slight
excess of supply makes these perishable products of trifling value.

Conditions on the other extreme, from scarcity of supply and anxiety of
buyers, may also interfere with a free market. Any scarcity in food
products leads to an anxiety on the part of consumers to buy and an equal
disposition on the part of owners to hold for higher prices. In this case,
while the law of supply and demand is still active, the effects are quite
out of the ordinary course. Thus, for a long time it has been estimated
that a scarcity of one-tenth in the natural supply of wheat raises the
price three-tenths, scarcity of two-tenths raises the price eight-tenths,
scarcity of three-tenths raises the price one and six-tenths, scarcity of
four-tenths raises the price two and eight-tenths, and scarcity of
one-half makes the price of the half-crop four and a half times greater. A
decrease in the supply of less essential foods evidently cannot have equal
effect. Thus, a scarcity of sugar, causing increased price, will directly
reduce consumption of sugar, so that the limit may be easily reached. The
same conditions may exist with reference to meats, since a high price
diminishes the demand from the disposition of people to eat less meat.
Indeed it has passed into almost a proverb that dear bread makes cheap
meat, for the reason that few will diminish the supply of daily bread, but
the mass are willing to lessen the meat diet to save expense.

Similar conditions, affecting every market for any commodity, may easily
be discovered. Yet in spite of all these extreme fluctuations, no better
test of value has been suggested than the market price in open,
unrestrained competition of buyers and sellers.

_The market price._—In the discussion of value so far, the term market
price has been used because perfectly familiar to everyone. It is
necessary, however, to call attention to the fact that price always
indicates an estimate of value in units of current money. If that money
itself has a fluctuating value, the same article may have at different
times different prices with the same value, or the same price with
different values. Thus market prices in our country during and after the
civil war, in which a paper currency gave the unit of prices, cannot
safely be compared with each other, and can far less be compared with
prices upon a specie basis.

Even the reduction to a so-called gold basis may give misleading ideas in
regard to the market, since a new element of speculation in gold enters
into the calculation. In all the accompanying illustrations of fluctuating
prices, this particular abnormal condition has been carefully excluded.
Any fluctuations in the value of money metals, necessarily affecting the
relation of market price to market value, will be treated under standards
of price in Chapter X.

_Prices of farm products; the crop year._—The actual fluctuations of
market prices under the law of supply and demand can be most clearly seen
by a careful study in the same definite market during a period of years.
For illustration here the staple products of the farm have been chosen,
and the markets of Chicago and New York, as most truly representative,
have furnished the facts for study. These facts are presented to the eye
directly by a series of charts, each of which has been most carefully
prepared from official records, and gives within narrow limits a large
range of investigation. In every case involving annual crops, it seemed
necessary to rearrange statistics so as to cover the actual year affected
by the crop in question. September 1 was chosen as the beginning of each
year, because that date is nearest the time when the new crop of the
season appears in market and directly affects the price of such products
in store. All calculations upon live stock have been brought to the same
basis, for the reason that the supply of marketable stock is largely
dependent upon the supply of feed for stock. It seems very desirable that
all statistics in regard to markets and productive industry should be
brought to a uniform year. The year given in these charts seemed best to
suit the subjects treated. It is possible, however, that for all data
convenience would settle upon July 1, the beginning of the fiscal year in
the United States, as the best for beginning the universal statistical
year. Each chart in the series, of course, requires its particular
explanation.

The fluctuations of supply and prices for series of years are exhibited in
the Charts 4, 5, 6, 8, 9 and 12, and these are explained in detail at the
close of the chapter.

_Fluctuations with season._—Every product of the farm is known to have
conditions favorable or unfavorable from the mere changes of season
affecting the prospective supply. Conditions equally dependent upon the
seasons have something to do with demand. The result of both combined is
worthy of study by farmers and dealers in farm produce, that all may get
the full benefit of such knowledge as the study affords. For this purpose,
charts showing the annual fluctuations of staple products in the leading
markets have been carefully prepared. These may have a greater usefulness
than simply to illustrate the law of supply and demand, since it is within
the possibility of actual practice to in some degree modify by provident
foresight the extremes of fluctuation. It is hoped that the suggestiveness
of these charts may help the most enterprising farmers to adjust their
practice to conditions of market.

Charts Nos. 7, 10, 11 and 13 illustrate the fluctuations as related to
seasons.

_Law of diminishing returns._—In considering the value of farm products,
it is necessary to notice a natural tendency in all products of the earth
toward greater cost of effort in production. This is called the law of
diminishing returns, and is illustrated in every industry where the
accumulations of nature are depended upon for making labor effective.
Hunting, fishing and mining afford familiar illustrations of more work of
the same kind for equal product.

Agriculture, however, gives the most extensive available illustration of
the facts grouped under this law. In the first place, the farmer is
subject to it by mere location. The product of a field near his house and
barn costs less exertion than the product of a more distant field. In the
second place, he is likely to have chosen for his first efforts in crop
raising the land most readily yielding its fertility in crops. If he
extends his operations to less productive soil, he must work more for the
same product. In the third place, if a certain amount of work upon a
certain field will give him twenty bushels of wheat, he must give a good
deal more than twice as much work in the way of tillage and manufactured
fertilizer to make a crop of forty bushels. The proof of this is clear in
the disposition of farmers to buy more land instead of to increase labor
upon a limited space possessed.

A specific statement of the law of diminishing returns is that _in the
cultivation of land an increased amount of effort under usual conditions
fails to give a correspondingly increased amount of produce_.

_Exceptions to law of diminishing returns._—Exceptions to this law are
easy to find, as where the first selection of land in a new country has
had reference rather to safety from wild beasts and savages or malarial
diseases than actual store of fertility. Another exception is found in any
new country, where imperfect adjustment of labor to conditions of soil and
climate are liable at the outset to prevent the full use of natural powers
of the soil. So evident are these two exceptions in imperfectly developed
agriculture that some have disputed the general fact, yet all must admit
the certainty of diminished returns from multiplication of the same kind
of efforts upon the same space, and general proof is abundant in all long
settled communities.

_Effect of improved farming._—Counteracting this tendency to diminishing
returns, and in many instances more than overcoming the difficulty, is a
tendency toward improved methods in farming by more perfect application of
labor to the soil, better developed crops, better adaptation of live stock
to culture, improved machinery of every sort, and more extended range of
operations in farming, reducing the restraints of space by improved
transportation and more economical use of natural fertilizers; in short,
by any improvement through which labor is made more directly effective in
either quantity or quality of agricultural products. The whole story of
the development of agriculture in all these ways furnishes abundant
illustration of this counteracting tendency. In some regions it has more
than counter-balanced the tendency to diminishing returns. Various staple
products, like wheat, show in their diminishing value the advance in
methods of culture and adjustment of labor to production.

_Diminishing values._—The above is only a particular illustration of the
general tendency of all values to diminish with every improvement in
tools, machinery, economy of materials and saving of time, as the world
gains wisdom in applying labor to the meeting of material wants. With
every discovery of more perfect power or better use of natural forces,
like electricity, or easier ways of handling raw materials, as in
developing aluminum from crude clay, the value of the product quickly
diminishes.

A familiar illustration is found in the manufacture of steel. The
so-called Bessemer process, introduced some thirty years ago, reduced the
actual labor of making steel from iron by more than one-half. Improved
furnaces and greatly enlarged operations have reduced still further the
labor involved, until now steel often takes the place of iron, and the
value of all such products is greatly diminished. This is easily
illustrated by comparison of prices during a series of years, as shown in
chart No. 14. That this reduction in price is not the result of poorly
paid labor, but of better returns for labor expended, is evident to any
one investigating the tendency of wages or of living among wage-earners,
or of the general improvement in welfare of communities where these
labor-saving methods are applied. Any hardship connected with these
diminished values falls chiefly upon the laborers who fail to adjust their
work to the improved method. But even they gain for the diminished value
of their product a larger return on the whole through exchanges than the
higher values had brought them before.

                                 [Chart.]

   Chart IV. Comparison of the numbers of live stock with increases in
              population and mileage of railroad, 1860-1898.

CHART NO. 4

_Numbers of live stock compared with increase of population and mileage of
railroad, 1860 to 1898, in the United States_

_Explanation._—This chart exhibits to the eyes a comparative increase of
(1) population, (2) sheep, (3) hogs, (4) railroad mileage, (5) beef
cattle, (6) cows, (7) horses, (8) mules. The figures followed in making
this chart are taken from the best estimates available, chiefly from the
reports of the United States Department of Agriculture. It shows that
railroad mileage has increased faster than the population, with some
slight exceptions, and its fluctuations mark quite distinctly the periods
of financial speculation and distress. The great fluctuations in the line
of sheep raising may be seen to have some correspondence with special
tariff legislation. The striking opposition of hog raising to sheep
raising is in accord with the universal experience that farmers easily
turn from one to the other. The rapid development immediately following
the civil war represents the restocking of farms and the great expansion
in farm industry so noticeable during that period. The falling off in
numbers of live stock during the last five years is evidently a reaction
from a very apparent over-production in many directions during the
previous ten years. The miles of railroad are shown in thousands, the
population and live stock in millions.

                                 [Chart.]

Chart V. Showing the acreage and yield of Indian corn, wheat, and oats in
                the United States, 1862-1897. Pages 84-87.

CHART NO 5.

_Acreage and yield of corn, wheat and oats, 1862 to 1897, in the United
States_

_Description._—This chart is intended to show the fluctuations from year
to year in acres devoted to the three staple crops, together with
fluctuations in the corresponding years in yield of each. Figures on the
right show the number of millions of acres. Figures on the left give
millions of bushels. Continuous lines show the acreage. Dotted lines show
the yield. For convenience of comparison, the line of increasing
population is added. The broken lines indicate what might have been the
consumption of each of these staples within our own country, if the people
had used throughout all the years as much of each as during the five years
of plenty from 1888 to 1892. Lines marked 1 tell the story for corn; those
marked 2 for wheat; and those marked 3 for oats. In comparing the number
of acres as given on the right with the number of bushels as given on the
left, it will be seen that an average yield of corn is assumed to be 25
bushels per acre; an average yield of wheat, 12 bushels; and an average
yield of oats, 28 bushels. The variations of the dotted lines above or
below the continuous line show whether the yield was greater or less than
these averages. The average assumed is evidently too high for the oats.

_Explanation._—Several important facts are shown. First, there has
evidently been a very great increase in the amount of these staple crops
in proportion to the population, with a recent tendency toward reduction.
Second, all three have exceeded the needs for domestic consumption, and at
the same time; while it is evident that the rate of consumption in the
early years could not have been equal to that of recent years. This
appears very striking with reference to corn. An explanation of the
increased consumption of corn may be found in its larger use for fattening
pork and beef for export as well as for domestic consumption. It has also
entered quite largely, through improved manufacture of meals, starches and
syrups, into table use. The consumption of oats is known to have greatly
increased in its use for breakfast food. The per capita consumption of
wheat, while slightly increased in some quarters through the cheapening of
flour, has been diminished by the larger use of corn and oats, and a far
greater variety of table food. Quite probably, however, the data as to
corn raising in the first few years of this period are not complete. The
years of the war made such statistics difficult to obtain. The difficulty
with reference to wheat raising was by no means as great, since the wheat
raising regions were more directly accessible. Third, the seasons of
abundance and those of poor crops can easily be seen. It is evident that
while the three crops are not always poor together, they are too
frequently so to balance each other in meeting the risks of farmers.
Fourth, it appears that the fluctuations in yield are much greater in late
years. This is accounted for by the greatly increased proportion of lands
cultivated upon the plains of the western states and subject to greater
fluctuations of climate. It will be noticed that the acreage frequently
falls off in the years showing inferior yield. This shows that sowing and
planting have frequently been affected by unpropitious weather. In fact,
wheat fields have frequently been plowed up in the spring and not counted
in return of acreage. Reductions in the acreage of wheat, however, appear
frequently succeeding an immense crop. This indicates the effect of low
prices. Fifth, the bearing of the total product upon the prices of these
staples, while suggested by the greatly increased amount, will be more
clearly seen by reference to Chart No. 6.

                                 [Chart.]

  Chart VI. Fluctuations in prices of wheat, Indian corn and oats in New
                      York, 1878-1898. Pages 87-91.

CHART NO. 6

_Fluctuation of prices of wheat, corn and oats in New York, 1878 to 1896._

_Explanation._—This chart exhibits the average price of each of these
three staples in September, December and May of each year. These months
are chosen as giving without too great complication the widest range with
reference to a particular season. September gives usually the price of the
first of the new crop; December shows usually the fullest marketing of
crops; May marks the month of largest speculation with reference to the
incoming crop. Corn is less distinctly affected by these peculiarities,
being subject to different conditions of the weather as well as of
marketing. But the correspondence in price to a certain extent is easily
perceived at a glance. The reason for this correspondence is partly in the
uniform effect of seasons, as shown in Chart No. 5, and partly in the fact
that either of the crops may supplement, in certain respects, a deficiency
in either of the others.

_Wheat prices._—With reference to wheat, No. 1 in the chart, further
particulars as to prices are shown. The horizontal line in each year gives
the average price of the year; the diagonal line gives the extremes of
prices, highest and lowest, within the twelve months from September to
September again. The dot within the circle gives the estimated average of
farm prices on the first of December, as given by the Department of
Agriculture. The relation of this, somewhat constant, to the New York
price for December, as given in the line directly above it, may be of
interest as showing the average actual expense of bringing wheat from all
over the United States to the New York market. Where the difference of the
two prices is more than an average, a speculative turn in the market
during December is indicated, the farm price being fixed on the first day
of December. The same fact of speculation is also shown in years where the
diagonal line is longer than usual.

_Special variations._—At the top of the chart is shown the world’s visible
supply of wheat for each year, each horizontal line indicating 500,000,000
bushels. The shaded portion gives the amount exported by the United States
and the part above the shaded portion indicates the amount consumed or
stored within the country. Thus, in the year 1894-5 the total wheat crop
of the world was 2,672,000,000 bushels, of which the United States
furnished 460,000,000, 144,000,000 of this amount being exported. This
year marked the lowest price of wheat in the record, together with the
largest crop in the world, though not in the United States. A
proportionally small amount exported explains the falling out of the
bottom of the wheat market. By reference to Chart No. 5, it will be seen
that while the wheat crop of that year was considerably above the average,
the corn crop and oat crop were far below the average. This explains the
fact appearing in Chart No. 6, that the price of wheat was lower than the
price of corn at the beginning of that year. It is probable that the use
of wheat as a substitute for corn in feeding stock actually saved the
wheat from a still lower price. The crop of 1891, the largest on record in
the United States, was accompanied by a moderate crop in the rest of the
world following two other moderate crops, indeed two short crops, for the
entire world. The large amount of wheat exported explains the reason why
the fall of prices was not greater in this country. That the price did not
fall faster was due to the fact, remembered by many, that farmers, as well
as speculators, held to the crop with the expectation of larger demand
from abroad. When the crop of 1892 was felt to be still larger throughout
the world, the price fell rapidly, in spite of a smaller crop in the
United States. But when the prospect of an inferior crop in this country
for 1893 was felt in the spring, the price rose a trifle. Yet as soon as
the harvests of the world showed an enormous crop outside the United
States, the price dropped again. The crop of 1889 was a short one in the
world, and apparently should have affected the price of wheat in this
country more than appears; but when the total amount exported is seen to
leave more than an average crop in store, it is easy to see why the price
in this country did not rise. The explanation of this small exportation is
in the fact that the greater part of the shortage in yield was in
countries like Russia, from which no demand was felt, because the people
simply went without. The starvation of people in such countries affected
the demand for wheat in this country only so far as our benevolence
enlarged the market. The peculiar shape of the line of wheat prices in
1889 without any correspondence in prices of corn and oats is due to a
speculative movement for December wheat in Chicago. The attempted corner
in wheat failed suddenly, or it might have produced a line similar to that
of 1897-8, due to the famous long-continued Leiter corner.

_Sources of information._—The object of this chart, taken altogether, is
to show the general law of market prices as governed by supply and demand
from the actual facts in the market for wheat. The facts are taken from
the best records available. The prices are from the daily record of the
Produce Exchange of New York. The average price for the year and the
fluctuations within the year are given for the period from September 1,
when the new crop appears, to the August following, this being the period
actually corresponding in market with a year represented by the crop
figures. The estimate of the world’s crop since 1885 is taken from
carefully prepared statistics in the United States Department of
Agriculture. The estimates prior to that date do not include the entire
world, because no statistics can be reached, but they do include the most
careful estimates of all countries whose product entered into the world’s
market. No effort has been made, for fear of complicating the chart, to
show a similar correspondence between supply and price in reference to
corn and oats. The tables following, however, give data for such
comparison with reference to this country alone. The export of corn and
oats has been too limited to play any great part in modifying prices.

                                 [Table.]

    Table of production—wheat, corn, oats, 1878 to 1897. (Figures give
                           millions of bushels)

CHART NO. 7

                                 [Chart.]

    Chart VII. Annual fluctuations in the price of wheat in New York,
                           1878-1897. Page 91.

_Annual fluctuations in the price of wheat. Highest year, lowest year, and
average of twenty years in New York, 1878 to 1897_

_Explanation._—This chart is intended to show the tendencies of the market
for wheat from month to month throughout the market year. In the center is
given the averages of highest prices and of lowest prices for each month
in the New York Produce Exchange during the period from September, 1878,
to August, 1897, inclusive. The horizontal lines between the averages of
extremes give the average price for the twenty years in the several
months. The diagonal lines give for each month the extreme fluctuation
during the twenty years. Above the lines of averages are given the
fluctuations by months in the year 1881-2, the year of highest prices. The
upper of the two continuous lines gives the top prices of the month and
the lower the bottom prices. The short horizontal lines give the average
price for each month; and the double horizontal line across the chart
represents the average price for the year. Below, the fluctuations in
wheat prices for 1894-5, the year of lowest prices, are shown in the same
way. At the top of the chart are given, in millions of bushels, the
receipts of wheat in New York. The shaded double column in the center
under each month gives the average receipts for twenty years. To the left,
a single column shows the receipts for 1894-5. To the right, a single
column gives the receipts for 1881-2. Since the receipts at New York are
chiefly for export, the general correspondence between receipts and prices
is rather a result of a larger application of supply and demand than an
exposition of it. The chief use of the chart is to show the fluctuation of
prices under varying local conditions. The figures on the left give the
price per bushel, and the figures on both left and right at the top
indicate millions of bushels.

CHART NO. 8

                                 [Chart.]

       Chart VIII. Prices of wheat in England, 1300-1890. Page 93.

_Prices of wheat in England for 600 years, 1300 to 1900_

_Description._—This chart is to show at a glance the history of the wheat
market in England for the past six hundred years. The record of the first
four hundred years is taken from Rogers’ “Agriculture and Prices.” That
for the eighteenth century, less complete, is taken from Schoenhof’s
“History of Money and Prices.” The nineteenth century record is from the
report of the statistician of the United States Department of Agriculture.
All are reduced with care to the basis of bushels and dollars and cents.
The figures on the right and left show the price per bushel in United
States money.

_Explanation._—The heavy horizontal lines show the average price during a
period of ten years, though in a few instances the period is longer. The
diagonal lines show the extremes of fluctuation during the period which
they cover. During the first two hundred and fifty years the coinage of
England made the shilling in which prices were reckoned a much larger
unit, practically three times as great as at present. The dots within
circles indicate where the horizontal lines might have been had the unit
been always the same. The same dots crossed cover a period of forty years
in which prices are somewhat uncertain, from transition between the old
standard and the new. The beginning of the nineteenth century shows a
remarkable condition of the wheat market, due chiefly to the wars in which
England was engaged, together with issues of paper money affecting the
standard of value. The record is especially interesting from showing,
first, the great fluctuations natural from unequal seasons; second, the
gradual increase in cost of production under the law of diminishing
returns; third, the effects of changes in money legislation; fourth, the
effect of extra consumption in times of war; and fifth, the effects of the
present world-wide commerce in overcoming the law of diminishing returns.
A more complete record for the eighteenth century would add to the
interest, if not to the effectiveness of the chart.

_Relation to wages._—For convenience of comparison, the average price of
wheat in France during periods of twenty-five years, as given by
Schoenhof, is added by dotted horizontal lines. The double line across the
chart indicates the range of average day’s wages of house mechanics in
England, without indicating the extreme of fluctuations. It seems evident
that wages and subsistence have something in common.

CHART NO. 9

                                 [Chart.]

    Chart IX. Prices of hogs and hams in Chicago, 1884-1907. Page 95.

_Prices of live hogs and green hams in Chicago, 1884 to 1897_

_General description._—This chart exhibits the fluctuations in prices of
live hogs and green hams as shown by reports of the Chicago Board of Trade
from September, 1884, to August, 1897, together with the visible supply of
live hogs in the market from month to month and for the entire year. The
figures to right and left give dollars per cwt. of live hogs, and per
barrel of green hams. The figures upon the upper third of the chart, right
and left, indicate the number of thousands of live hogs received in
Chicago during the successive months, as indicated by the dark lines. The
figures at the top of the chart under the date line give the number of
thousands of hogs received during the entire year. The year is taken from
September to August following, because the hog crop is in large measure
dependent upon the corn crop coming into use in September.

_Prices of live hogs._—No. 3, irregular line, gives the fluctuation of top
prices in every month from September, 1884, to August, 1897, for fat hogs.
The total range is between $3.30 per cwt. in September, 1896, and $8.80 in
February, 1893. A somewhat striking general correspondence is readily seen
between this line of prices and a line connecting the ends of the lines
indicating the monthly supply of live hogs at the top of the chart. The
average price of the year is easily seen to be low when the supply for the
year is high, and high when the supply is low, though in some instances
the effect of an increased supply is evidently anticipated in the prices.
Thus, an increase of 2,000,000 of hogs in 1889-90 over the supply in
1888-9 is anticipated by falling prices during the early part of 1889. In
a similar way, the effect of a diminished supply in the summer of 1895 is
not so marked upon the prices as might have been the case had not the
prospect been strong for a large supply in the fall of 1895. Whatever
influence the local manipulation of the market may have had, it is
perfectly evident that conditions of supply and demand have overwhelming
influence.

_Prices of green hams and mess pork._—No. 2, giving the range of prices
per barrel of green hams, shows fluctuations in some respects
corresponding to the prices of live hogs, but with variations due in a
measure, undoubtedly, to speculative interests in these products. The
range is from $6.60 in December, 1897, to $13.80 in May, 1893,
corresponding with the range in the prices of live hogs. Were there room
upon the chart, it would be easy to show an almost exactly corresponding
fluctuation in the prices of mess pork, which article is one affected
largely by speculation, though even that speculation is dependent upon
prospective supply and demand. The prices of mess pork at the New York
Produce Exchange during the same period ranged from $9 a barrel in 1885-6
to $15.80 and $15.60 in 1887-8, $14.20 in 1889-90, $11.75 in 1891, $14.20
in 1892, $22.60 in 1893, and gradually down to $7.25 in 1896-7.

CHART NO. 10

                                 [Chart.]

 Chart X. Prices of hogs and pork at Chicago, 1892-3 and 1896-7, highest
                        and lowest year. Page 98.

_Prices of hogs and pork products at Chicago Board of Trade for 1892-3 and
1896-7, the highest year and the lowest year_

_Annual fluctuation, 1892-3._—This chart presents a comparison between the
prices of live hogs, fresh hams and mess pork in the year of highest
range, with the prices of the same in the year of lowest range. The
figures on the left indicate the prices per cwt. of live hogs and per bbl.
of green hams and mess pork. No. 1 gives, in the dotted line above the
date figures, the highest price of mess pork in each month of the year,
while the dotted line below the date figures gives the lowest price for
the corresponding months. The range in any month is found in the distance
between the heavy dots on the line following the name of the month. Thus
the highest price in April, 1893, is $19.35, and the lowest price in the
same month, $15.50. The range throughout the year is from $21.80 in May to
$12 in August. No. 2 gives the same facts with reference to the prices per
barrel of green hams; and No. 3 gives the corresponding facts as to prices
of live hogs.

_Annual fluctuation, 1896-7._—Nos. 4, 5 and 6, marked by more distinct
lines, show the range of prices for these three related articles of
commerce for the year 1896-7. No. 4 gives the prices of green hams, which
in this year averaged higher than the prices of mess pork, although the
fluctuations of mess pork are the greater. At the top of the chart are
given in thousands the number of live hogs received in Chicago during the
two years.

On the right of each month are the numbers for 1892-3; on the left the
numbers for 1896-7. The lines connecting the shaded portion show the
fluctuations from month to month in the supply. A general, though not a
perfect, correspondence is perceptible.

CHART NO. 11

                                 [Chart.]

Chart XI. Annual fluctuations of prices of pork in Chicago, 15 years. Page
                                   100.

_Annual fluctuations in pork prices in Chicago—average of fifteen years_

_Average annual fluctuations._—This chart is intended to show the annual
range of prices as shown by reports of the Board of Trade of Chicago, from
September, 1883, to August, 1897. The figures, right and left, give prices
per cwt. of live hogs, and per barrel of green hams and mess pork. The
figures opposite the shaded lines at the top indicate receipts of live
hogs in thousands, by the average in each month, for the fifteen years.
The year is taken from September to August following, for correspondence
with the crop year, as in previous charts.

_Explanation._—No. 1 gives in the upper continuous line the average of top
prices for mess pork in successive months; and in the lower line the
average of bottom prices for the same months. The long, diagonal lines
show the extreme of fluctuations in each month during the entire fifteen
years. Thus the lowest price reached during the month of April in any year
was $8.05, while the highest was $25.50. The lowest price in November of
any year was $6.40, while the highest price in the same month was $15.50.
No. 2 gives in the same way the average of top prices and bottom prices
during the fifteen years for green hams; and by its diagonal lines, the
extremes of fluctuation. No. 3 presents a corresponding showing of average
top and bottom prices of live hogs, with extreme fluctuations. No. 4, at
the top of the chart, gives the average receipts of live hogs in Chicago
during the several months of the year, counted in thousands.

The supply of hogs.—The correspondence between the receipts of live hogs
and the average market price in each month is worthy of study. Every
farmer can see in what months of the year the market is fullest. It is
also evident that the fluctuations in mess pork are much more extensive
than in live hogs or fresh products. This is doubtless due to the
possibility of speculation in a product which can be held for future
market. Nevertheless, it is quite evident that the prices of mess pork
have some direct connection with the supply available.

CHART NO. 12

                                 [Chart.]

  Chart XII. Prices of cattle and beef in Chicago, 1884-1897. Page 103.

_Prices of cattle and mess beef in Chicago, 1884 to 1897_

_Description._—This chart is planned to show the prices of cattle and the
prices of mess beef from month to month from September, 1884, to August,
1897, together with the supply of cattle received in Chicago in each month
and for each year. The figures right and left on the lower part, give in
dollars the prices per hundred pounds live weight, and per barrel of extra
mess beef. Above, to right and left, the figures indicate thousands of
live cattle received in Chicago.

_Explanation._—No. 1 gives the lowest price in successive months of lowest
quality of beef steers. No. 2 gives the highest price in successive months
for stock cattle. No. 3 gives the highest price in successive months for
best quality of beef steers. No. 4 shows the fluctuations in the highest
price per barrel of extra mess beef from month to month. No. 5 shows, by
length of lines in each month, the receipts of cattle in Chicago by
thousands. No. 6 gives the number of thousands of cattle received in each
year. As in previous charts, the year runs from September 1 to August of
the year following, though the relation of the beef market to the crops of
the year is not so marked as that of the pork market. Although the
correspondence in prices between these various parts of the cattle trade
is not absolute, it is too striking to be consistent with independence of
causes. The price of stock cattle has some elements not found in the price
of beef cattle; and the price of lowest quality of beeves for canning
purposes is naturally more uniform than any other prices.

CHART NO. 13

                                 [Chart.]

 Chart XIII. Annual fluctuations in prices of cattle and beef in Chicago,
                           1883-1897. Page 104.

_Annual fluctuation in prices of cattle and beef, Chicago, 1883 to 1897_

_Explanation._—This chart is intended to illustrate the changes of prices
in successive months upon the average of fifteen years, as to stock
cattle, beef steers, mess beef and beef hams. The data are taken from the
daily records of the Chicago Board of Trade, from September, 1883, to
August, 1897. The figures to right and left indicate prices in dollars per
hundred pounds live weight, and per barrel of beef products. No. 1
indicates the range of prices for beef hams. The upper line gives the
average of highest prices in each month for fifteen years. The lower line
gives the average of lowest prices for the same period. The diagonal lines
give the extremes of prices within the fifteen years.

_Mess beef and beef steers._—No. 3 gives the average of highest and lowest
prices for mess beef. Nos. 4 and 6 give respectively the average of
highest and lowest prices for beef steers. The diagonals give the extremes
for beef steers during the entire period. No. 5 gives the average of
highest prices for stock cattle.

_Supply of cattle._—In the center, No. 2, is given the average receipts of
cattle in the Chicago market for each month. The unshaded portion at the
end of the lines, represents the average reshipment of cattle. Thus
September, on the average, brings 265,000 cattle to Chicago and reships
90,000; while October brings nearly 283,000 and reships 82,000.

_Peculiarities of mess beef market._—It will be noticed that the prices of
beef hams give an annual curve, entirely distinct from either of the
others. This indicates the fluctuation in demand entirely out of keeping
with the supply. It is quite possible that the opening and closing of
navigation upon the Great Lakes may be an important influence. Certainly
the change of the season between cold and heat is an important element,
since the lowest month, and that of least fluctuation, is December. The
month of highest prices is August, and those of greatest fluctuation are
May, June and September. The curve of prices for mess beef has a fair
correspondence with the numbers of cattle slaughtered in Chicago. The line
indicating top prices of beef cattle has peculiarities of its own, because
it stands for quality as well as quantity, representing the fancy lots,
which are necessarily somewhat more irregular than the average. The line
of prices for stock cattle is evidently affected by the variations in
demand by feeders. The line of lowest prices for beef cattle, No. 6, is
quite probably affected by quality as well as supply.

CHART NO. 14

                                 [Chart.]

Chart XIV. Wholesale prices of iron, kerosene, etc., New York, 1867-1896.
                                Page 106.

_Prices of iron, kerosene, etc., 1867 to 1896_

_Description and Explanation._—This chart gives the prices from year to
year for steel rails, bar iron, pig iron and nails in the New York market,
each dot indicating the average for the year. The average prices for the
corresponding years for refined kerosene are also shown. No. 1 gives
prices per ton of steel rails, into which enters all the influence of the
improved methods of manufacture. No. 2 represents the prices of bar iron
per ton, less affected by improvements but influenced by the substitution
of steel. No. 3 gives the prices of nails per thousand pounds. For
comparison with the other prices of iron, the prices of nails must be
doubled. All will realize the immense improvements made in the manufacture
of nails. No. 4 gives the prices per ton of pig iron. It is evident that
all these forms of iron and steel have stood in the market under the same
general influences, with slight modifications from special characteristics
of production or use. No. 5 gives the average price in each year for one
hundred gallons of refined kerosene oil. The price per gallon can be found
by reading the figures as cents instead of dollars. In the same way the
price of ten pounds of nails can be found. It should be said, however,
that all these prices are the wholesale prices, retail prices being
subject to local influences, sometimes even to custom, which prevents
their adhering closely to the prices in larger markets.

_Even monopoly affected._—These articles have been chosen as illustrating
the essential law of prices even under the advance of combination of
capital upon an enormous scale. The iron industries and the Standard Oil
Company come nearest, perhaps, to fulfilling the conditions of monopoly
found anywhere. Yet the actual effect of improved methods in great
combinations is seen to have reached the mass of the people in spite of
any tendency to sustain prices by combination. A line, No. 6, indicating
the general trend of wages for farm hands in the North, is added to more
clearly indicate the distribution of welfare through such improvements in
method. For still other purposes, the fluctuating price of silver bullion
is shown in line No. 7.

Chapter X. Exchange—Its Machinery.

_Free communication._—From what has been said in the preceding chapter as
to the nature of value and price, it will appear that the most fundamental
condition for ready exchange is perfectly free communication between
individuals as to wants and abilities to meet wants. There is implied,
also, an absolute protection of property rights and of equity in dealing
through the laws and customs of the community. No one acquires property
for the purpose of exchange unless he can foresee the possibility of
carrying out the exchange at any future time. He must also feel that he is
protected by surrounding circumstances from misinformation as to values.
In short, any community is ready for free exchange among its members only
when it maintains the conditions for fair competition. To this fairness of
competition many things contribute, aside from the governmental machinery.
There can be little trade without a common language, and the full
advantages of common speech are reached through every facility for ready
communication between all the individuals of the community. An universal
press, postal facilities, telegraph and telephone systems have all grown
up in meeting this need.

The same is true of established market places, boards of trade and produce
exchanges. Not only does the multitude of exchanges in one place lessen
the cost of such exchanges, but these make it possible for multitudes to
reach a fair understanding of what is wanted and what is offered in any
line of production. This need accounts for the tendency so frequently
noticed to establish great centers of trade in particular commodities. The
world wants a fair understanding of what the world contains, and these
methods of bringing together buyers and sellers are the natural outgrowth
of this need.

_Full statistics._—The same end is served still more fully by frequent
publication of price-lists, and a daily record of the transactions in any
market gives information which every dealer can use to advantage. Public
statistics, carefully and honestly prepared, serve both buyers and sellers
of any article of commerce. The farmer needs as much as anybody the
fullest information as to what his fellow farmers have to sell, whether
they are immediate neighbors or in distant parts of the world. The price
of wheat on any farm ought, if perfect understanding is reached, to
conform to the general law of supply and demand throughout the world, and
the yield of wheat in Russia, India and South America affects the value of
every bushel raised in our country.

Every advance in the perfection of statistics and the rapidity of
collection makes more certain the bargain of every producer and consumer.
People have sometimes opposed the gathering of statistics for fear that
large dealers and speculators may take unfair advantage from such
information. But a careful consideration will show that managing of the
market depends chiefly upon want of information on one side of the
bargain. If farmers were as thoroughly informed as to the crops of the
world as carefully collected statistics might make them, no false rumors
could mislead them in selling their produce. The evident tendency toward
more stable markets, as shown by the records of the last twenty years, is
accounted for partially, at least, by the more perfect information
available. If farmers themselves would take interest in furnishing
accurate estimates of the extent and condition of every product held for
sale, they would in the long run reap the highest advantages of clearly
understanding the supply and demand in the markets of the world. This
would do more to destroy the demoralizing force of mere speculation than
any possible legal enactment.

_Ready transportation._—An equally important part of the machinery of
exchange is easy transportation. Every improvement in the transportation
of persons or products not only lessens the cost of the article when
delivered, but increases the actual stability of price and range of the
market.

The pioneer farmers of northern Ohio found absolutely no market for their
wheat until the opening of the Erie canal. Farmers upon western prairies
found corn their cheapest fuel until railway transportation brought coal
mines and corn fields into closer relations. The rural community which
takes pains to have good roads not only lessens the cost of hauling grain
to market by saving friction and toil, but actually enlarges its market at
home. Hard roads enable them to do four times the work they can do on soft
roads. In the same way any improvement of railroads, construction of pipe
lines for gas and oil, or introduction of pneumatic tubes, for mails and
light packages in cities, directly spreads the range of market for the
products of every individual laborer and makes more sure the returns for
any effort he may give in production. Perhaps this is even more easily
seen by considering how the world’s markets are opened by improvement in
water transportation. Water freight on a bushel of wheat from Chicago to
New York from 1865 to 1874 averaged over twenty-two cents; from 1885 to
1894 it was less than seven cents.

The universality of markets for all kinds of products is clearly shown by
realizing what we have within reach of every country community today. Such
easy transportation adds to the productive abilities of every person. Over
ordinary roads the cost of transporting wheat two hundred miles is equal
to its value at the end of the journey. Corn will usually pay its way not
more than half that distance. So in countries where railroads do not exist
the people consume only what they themselves produce, or devote themselves
to very few products, and so occupy only a portion of their time. In the
best developed regions of our country, every family can reach a steady
supply of all kinds of goods, and can know that every article produced has
its proper place in the market without waste. The cost of delivering bread
in Boston is greater than the cost of carrying the flour in it two
thousand miles. This ready transportation leads to more complete and more
definite occupation and so to larger returns in the way of satisfaction
from all efforts. The extended market gives added value to all permanent
or fixed capital. It makes both farms and homes more useful, if full
advantage of such improvements is taken. At the same time, values of land
tend toward an equality throughout the world.

_Diminishing cost of transportation._—That the cost of transportation
keeps diminishing in spite of combinations of capital to prevent it, and
in spite of local legislation restricting it, proves that the increasing
perfection of machinery and the accession of capital in railroads and
waterways are stronger than the purposes of men. That freights are
regulated by “what the traffic will bear” is merely another way of saying
that transportation comes under the universal law of values—what the
service is worth in the market, or what people are willing to give for it.
According to good authority, the net profit of carrying one ton of freight
one mile has fallen in twenty-five years from one cent to less than
one-ninth of a cent. The same principle fixes a classification of freight
according to service. We can afford to pay more for carrying valuable
produce than for carrying cheaper products. It also leads to special rates
for developing traffic, as illustrated in rates on baled alfalfa hay from
western plains to Chicago.

Wise managers, if not misled by speculation in stocks, care more for
enlarging traffic than for immediate returns upon a smaller bulk, because
the bulk of profit is greater. A good illustration of development of a
special traffic is found in the milk trains running two hundred or three
hundred miles to supply the city of New York. The railroads are compelled
by the needs of the traffic to carry the milk cheaply enough to prevent
its being made into butter and cheese. Laws regulating this charge are
effective, because such a necessity exists in the nature of the case.

_Weights and measures._—Another important growth in the machinery of trade
is found in standards of quantity,—weights and measures of every kind. It
is scarcely possible to realize the uncertainty of exchange without exact
weights and measures. The story of the Indian trader who bought furs by
weight, putting his hand upon the scales for one weight and his foot for
its double, illustrates how uncertain such judgments of quantity may be
without system. The present names of weights and measures indicate their
origin in similar ways.

Measures have usually been connected with some part of the body: as
“finger,” used one way in measuring the load of a gun and another on a
stocking; “hand,” still used in measuring the height of horses; “span,”
once considered sufficiently definite for any measurement; “foot,” now
made to conform to an accurate system; and “pace,” still used in many
communities. Connected with the arm, are “cubit” and “yard.” Many ladies
still measure their dress goods by arm’s lengths. For small measures,
“grain” and “barley-corn,” still used as names, indicate dependence upon
average quantity in articles of general growth.

Today all civilized governments settle upon a definite system of measures
and weights, all accurately connected with each other and with some
precise dimension in nature supposed to be invariable. Our common yard is
distinctly associated with a pendulum vibrating seconds; and in the great
decimal system, adopted by most countries in Europe, and likely to be
reached in all countries, the whole is connected with a measured meridian
upon the earth’s surface. Care is then taken to have standard measures and
weights prepared in such a way as to be free from all effects of any
change of temperature, and legal enactments distinctly define each measure
and weight, actually punishing one for the crime of using false weights or
measures. Units of quantity thus enter into all our calculations and form
an essential basis of all exchange. Cheating in measure and weight grows
less and less possible with this clear understanding of exact units. The
New York Legislature has defined the size of fruit packages, and the
Massachusetts poultry raisers ask a law requiring eggs to be sold by
weight.

_Metrical system._—If the whole world should unite on a single decimal
system of measures and weights, like that now used in most of Europe, all
would be gainers from the reduction of misunderstandings and
miscalculations increasing the cost of exchange. The difficulty of
adopting a new system arises chiefly from the absolute importance of any
system and the unconscious use of that to which people are already
accustomed, together with its application in a thousand unthought of ways
to every tool and every rule. That the advantage of a uniform decimal
system would more than balance the difficulty of change, no student of the
subject now doubts. Some have estimated the saving at nearly one-half of
the present clerk hire. Our government has already taken steps for such a
change, though years may be required to accomplish it.

_Standards of quality._—The machinery of exchange also involves standard
units of quality, but these must vary with every different kind of
commodity. Custom has given rise to all sorts of devices for expressing
degrees of fineness, strength and hardness, as well as more delicate
qualities of flavor and odor. Boards of Trade often establish offices of
inspection with brands upon grains, flour, butter, pork, etc., and these
become definite parts of a contract which the government rightly enforces.
Private trade-marks and brands, if honestly used, become a prominent
element in exchange. These are protected rightly by being filed with the
government, which secures to the originator his sole use of such a proof
of quality.

In some articles of trade, when a whole community is interested, the
government goes further and undertakes inspection and branding by an
official. This in most states applies to kerosene oil, first for public
safety, but afterwards for protection of exchange. Laws regulating the
quality of fertilizers are based upon the necessity of knowledge, that
bargains may be fair; and in many parts of our country now the branding of
ground feeds, with an analysis of their qualities, is deemed an essential
of safe bargaining. The extent to which this effort to establish the
certainty of qualities may need to be carried can be estimated by the
recent agitation over adulterations of food products. All believe that, as
buyers, they have a right to know the quality of what they buy. It is
conceivable that markets may some time establish a system of terms,
descriptive of qualities, almost as definite as weights and measures. All
this contributes to fair competition in exchange.

_Standards of value._—More important still in the machinery of exchange is
a standard unit of value. We have seen that value in any article of
commerce can be fixed in terms of any other article, but prices remain
indefinite so long as there is want of universal appreciation or appraisal
in essentially the same terms and ideas. The tendency toward definite
prices in well understood units of value is as clearly perceptible in the
progress of commerce as is the tendency toward definiteness in weights and
measures.

In early ages almost any article of common use, so that its qualities
might be generally understood, has served as a standard of value, in terms
of which all wealth has been estimated. Communities engaged in grazing
counted all their wealth by cattle. Homer’s heroes wore armor valued in
cattle, and early Roman coins bore the images of cattle, while the very
name of Roman coins, _pecunia_, is supposed to have been derived from the
name of the flock. Communities of fishermen for a long period have
estimated wealth in dried fish. More mechanical peoples have used some
article of manufacture, like nails in some Scottish villages and the
country cloth of western Africa. Sometimes a single prime article of
export has served the purpose, like tobacco in the colony of Virginia and
dried hides on the plains of South America. In most of pioneer America the
hunters’ pelts have served the same purpose, the average “coonskin” having
a value which all could understand. As communities became more wealthy the
display of wealth in ornaments made of precious metals and in precious
stones has led to the use of these as standards of value. American Indians
used their wampum, and African tribes employed peculiar shells. But as
commerce increased, embracing wider regions, gold and silver became the
staple article of value everywhere, since these, so easily tested for
purity, could have their value estimated definitely by weight. Thus the
standard unit of value has been definitely connected with standard
weights.

_Coinage._—Gradually these weights, for greater ease of transfer and for
clearer understanding of values, became the basis of coinage. The stamp of
the coiner became a certificate of quality and quantity, and finally, as
in the case of weights and measures, governments assumed the whole
responsibility for fixing the weight and fineness of coins, and reduced
all coinage to system, that every citizen might know the value of the unit
in which he estimates any article of commerce.

The early coins were definite weights of gold, silver or copper, and in
many countries coins still bear the names that indicate their original
weight. Yet arbitrary rulers have often sought to cheat their subjects by
issuing coins of lighter weight and baser metal. The French livre, now the
franc, is one seventy-second of its original value. English coins were
debased ten times between the years 1299 and 1601 to exactly one-third of
their original value. The loss from such debasement falls almost wholly
upon the poor, whose wages fail to buy the usual food and clothing. Henry
VIII reduced the coins of his realm again and again, until it would have
taken five years’ revenue of Elizabeth’s reign to restore the currency.
Elizabeth chose to take the standards as she found them, but to establish
an absolute degree of purity and fix by law the weight of each coin in the
system. The standard of purity since maintained in England is 22 carats,
or eleven-twelfths fine, and weights have been maintained in spite of
several efforts to reduce them. Other nations have taken similar steps
with varying standards of purity: .835 in the Latin union, .9 in the
United States, and over .96 in most coinage of western Asia. In this way
the standard of value for every citizen of a country is as clearly defined
as the standard of weight, and every transaction in trade, with every
account of such transaction, involves that unit.

_United States coinage._—A brief statement of the system of coinage now
established in the United States may illustrate the definiteness of the
standards of value. The United States mint at Philadelphia and its
branches at New Orleans, Denver, San Francisco and Carson have the sole
authority for making coins. Any effort at coinage by outside parties is
criminal. The mint receives the gold and silver by weight and assay of
purity, melts and refines and mixes with alloy, to bring the mass to
required fineness, nine-tenths pure, and casts the metal into bars called
bullion. These bars are then most carefully assayed, and, if found of
exact standard purity, are rolled and drawn into plates the thickness of
the coins desired. From these plates disks are punched by machinery, each
disk being weighed, and if found too light thrown aside, if too heavy
reduced by filing, until every disk represents exactly the required weight
of the coin desired. The disks then pass through a milling machine which
raises the edges, and when cleaned by dilute acid and carefully dried, are
stamped by a steel die with some device covering both surfaces completely.
This effectually gives the seal of the nation to the purity and weight of
the coin, and, since it covers the whole surface, prevents the possibility
of reducing that weight without marring the coin.

_United States standards._—The system of coinage in the United States
since 1873 embraces standard coins of gold, silver, nickel and copper, but
gold alone actually furnishes the standards of value, all other coins
being at present subsidiary. Gold is coined for individuals free; that is,
a certain weight of metal presented at the mint is assayed, to determine
the exact weight of pure gold, and an equal weight of pure gold is
returned to the owner in coin. Sometimes a slight charge for the expense
of coinage is made and called seigniorage. At present no such charge is
made, for the reason that when a nation bears the cost of coinage, foreign
coins are kept from circulation, and its own coins are current everywhere.

The standard unit of value for the United States is 25.8 grains of gold
nine-tenths fine, and this is called a dollar, although no coin of this
weight is at present struck. In actual practice, the standard is shown in
the ten-dollar piece, or eagle, weighing 258 grains. The half eagle (five
dollars) and the quarter eagle (two dollars and fifty cents) indicate upon
their face their relation to the principal coin. The double eagle, or
twenty-dollar piece, is coined for greater convenience. These coins
connect all the currency of the country directly with the market value of
commodities in the world, through gaining their value directly from the
market value of gold, where gold is bought and sold. Thus gold furnishes
the standard of value with which all other values are compared.

Silver coins of the United States are made from silver purchased by the
government. The dollar, adopted from the Spanish rix-dollar, itself
derived from the German thaler, is by law a coin of 412-½ grains of silver
nine-tenths fine. This silver dollar has a story of its own, which will be
given later, and does not form a part of the system of 1873. The half
dollar, the quarter dollar, and the dime, for fractional currency, are
proportional parts of 385.8 grains of silver nine-tenths fine. These are
about five per cent less in weight than the proportional parts of the
silver dollar. The original purpose of this reduced weight was to prevent
the consumption of these coins in ordinary uses by making them worth on
the face a little more than their bullion value. These fractional coins
are legal tender in the courts to the amount of five dollars. In nickel
and copper coins no effort has been made for many years to maintain a
standard of value, the amount of metal in any of them being far less in
value than their face. They are legal tender only to the amount of
twenty-five cents.

_Fluctuation of standards._—In the study of the precious metals as the
standard of prices, it is necessary to remember that the value of these
metals, like that of all products of labor, is subject to considerable
fluctuations. The very fact that gold and silver are durable metals, not
easily consumed or readily worn away, tends to make the increased product
in a series of years less and less valuable. While the ordinary increase
in product may be provided for by increased demand through extended
exchange, the very improvements in the machinery of exchange, especially
the extension of general credit, operate in the opposite direction.

It is certain that the value of gold and silver within one hundred years
after the discovery of America, when European nations took possession of
accumulations among the inhabitants of Central and South America,
diminished to a little more than one-fourth of the value previous to that
discovery. It is estimated that the value of gold since the discovery of
1849, in California, followed by the opening of mines in Australia and
South Africa, has been reduced to little more than three-fifths of its
value in 1850. This estimate is based upon careful comparisons between
what an ounce of gold in 1850 would buy of some hundred staple products,
and what the same ounce of gold will buy today of the same hundred
products. The test is a somewhat uncertain one, from the fact that many
products are much more affected by improved methods of production than
others, and changes of habits and customs among the people greatly affect
the prices by changing demands. The combination of a large number of
products being less likely to be affected than any one, the comparison is
worthy of some confidence. Nevertheless, it is possible for two different
persons, making different selections for comparison, to arrive at very
diverse results. If the selected articles are those of ready manufacture
where improved methods have most largely entered, the value of gold will
seem to have increased; if, on the other hand, the selected articles are
raw materials, in which the law of diminishing returns gives greater cost
of production, the value of gold will seem to have diminished.

A test easily applied, though not absolutely correct, is in the amount of
labor of the most common sort which an ounce of gold would pay for at the
different periods compared. Careful comparisons show that an ounce of gold
today buys more of all sorts of manufactured articles and more of most
articles of food, though less of the better class of meats and less of
labor, than ever before. This fluctuation in the value of gold has its
chief importance in connection with long extended credits, though its
influence is felt in other directions through a common system of accounts,
in which the standard unit of some system of coinage is the sole basis of
comparisons. If the standard unit is growing less valuable, in a series of
years the book-keeper will show a constantly increasing total of wealth;
if, on the other hand, it is growing more valuable, the books will show an
apparent loss. Were a perfectly uniform standard possible, all interests
would be best provided for.

_Ratio of silver to gold._—More directly important in its effect upon
exchanges is the unequal fluctuation of gold and silver when both are made
the standard of value. That silver and gold are from independent sources,
subject to variations of their own in product and processes of extraction,
makes it impossible that they should sustain always the same ratio to each
other in value.

A careful study of the subject by Professor Rogers shows that early in the
thirteenth century one pound of gold was worth ten pounds of silver, at
the close of that century would buy twelve and one-half pounds of silver,
and in the middle of the fourteenth century bought thirteen and
three-fourths pounds; but in the fifteenth and sixteenth centuries, after
the new world was pillaged, one pound of gold bought from ten and one-half
to twelve pounds of silver. In the seventeenth century fifteen pounds of
silver went for one pound of gold, and in the eighteenth, fifteen and
one-half pounds. Early in the nineteenth century the ratio was fixed in
this country at sixteen of silver to one of gold, and that estimate was
assumed to be essentially correct as late as 1877, when a pound of gold
would exchange in the market for three and one-half pounds of platinum,
seven pounds of aluminum, sixteen pounds of silver, seventy-one pounds of
nickel, 942 pounds of tin, 1,696 pounds of copper. Twenty years have
produced great changes in both the total annual products and the relative
cost of mining. The estimate of 1877 would now be incorrect for any of the
metals named. A pound of gold now buys 1,540 pounds of aluminum, the
change being due to an invention for reducing aluminum ore. It now takes
about thirty-seven pounds of silver to pay for one pound of gold, a change
in part due to new systems of coinage in which silver plays a subordinate
part, but chiefly due to the greatly increased product of rich mines and
greatly improved methods of reducing ores.

_The cheaper money drives out the good money._—In any system of coinage,
employing both silver and gold as standards, it is found by actual
experience, repeated hundreds of times, that a change in the ratio between
the two metals in open market always leads to hoarding for speculative
purposes of the most costly metal of the two.

Thus, in our country previous to 1873, when silver was worth more than
one-sixteenth of its weight in gold, uncoined silver was necessarily worth
more than coined silver for some purposes, and the coins already struck
were worth more in the manufacture of spoons and plate than to circulate
as coins. Prior to 1853, when the half dollars, quarter dollars and dimes
were coined at the ratio of sixteen to one, such coins could not be kept
in circulation, for the reason that they were worth more than their face
value. The law of 1853 reduced the weight of these coins so that their
market value as silver was sure to remain a trifle less than their face
value. The result was no further melting up of these small coins for use
in the arts or for bullion. This fact is only one illustration of what is
called Gresham’s law, formulated in the time of England’s base coinage
during the sixteenth century, but noticed centuries earlier, that _cheap
money always drives out a more costly money_. The principle is as constant
as human nature, that nobody will give a greater value when a less value
will serve the same purpose. For this reason, no country in recent times
has been able to keep both gold and silver as the actual standards of
value at the same time. Either the ratio must be changed with every
fluctuation of either metal, or one of the metals must be undervalued in
the system of coinage, as has been done in England for the greater part of
this century; or else the total coins of the cheaper metal must be limited
in amount, as has been done by the Latin Union in Europe during the last
twenty-five years. In either case the tendency is toward a single
standard. The commercial world prefers a stable, well understood unit to a
changeable one. And while the fluctuations of gold alone affect somewhat
the stability of prices, these are thought of less importance than the
necessary legal adjustments for new systems of coinage.

_Monometalism and bimetalism._—The discussion has led to two opposing
views, distinguished as monometalism and bimetalism. The monometalist
holds that since one metal only can, under ordinary circumstances, set the
standard of price, it is wise to choose the one subject to the least
fluctuation for the universal standard. The bimetalist holds that a
nation, or at any rate a group of nations, can fix by agreement the price
of gold and silver in terms of each other, when used as money. Since the
use of these metals as money makes the chief demand for them, it is
thought possible to make this legal ratio hold upon the total product of
both gold and silver. If, then, in any country the supply of gold should
be out of due proportion with silver, its overvaluation will at once
attract gold from other countries until it becomes no more profitable
there than elsewhere. The result is assumed to be a somewhat ready
equalization of values for the territory establishing the standard, so
that the actual fluctuations of the standard unit will follow the line of
lowest prices for either of the metals. The monometalist feels certain
that the actual withdrawal from circulation, and so from use as money, of
the higher priced metal causes greater hardship and probably greater
fluctuations in values of other commodities than any fluctuation of a
single standard can produce.

It is very certain that the commercial world recognizes the tendency
toward a single standard, and that the coinage systems of all civilized
countries are practically, if not in definite form, based upon a single
standard. The countries of wide commerce and extensive credit are using
the gold standard. The less developed countries adhere to the silver
standard. Many which nominally sustain both have, by some legal
restriction in the coinage of silver, become practical supporters of the
gold standard. Few, if any, thorough students of the subject believe it
possible by statute in the present conditions of mining and commerce to
bring the commercial world anywhere back to the ratio of sixteen to one,
established in the United States in 1834. Statute law might declare a
sheep to be equal to a horse, but no power on earth could make it pull as
much. So even agreement among nations, by legal enactments, cannot enforce
an unnatural relation between two products.

NATIONAL STANDARDS OF VALUE, 1899

_Gold_            _Gold, with       _Gold or          _Silver_
                  silver limited_   silver_
Great Britain,    United States,    Haiti, Uruguay,   Mexico, Central
Germany,          France,           Argentine         America,
Sweden, Norway,   Belgium, Italy,   Republic,         Columbia,
Denmark,          Switzerland,      Venezuela,        Bolivia, Peru,
Austro-Hungary,   Greece, India.    Spain, Servia,    Equador, China,
Roumania,                           Bulgaria,         Hong Kong and
Turkey,                             Netherlands,      Straits, Cochin
Portugal,                           Algeria, Tunis,   China.
Brazil, Canada,                     Japan, Java,
Newfoundland,                       etc.,
Egypt, Russia,                      Philippine
Chile.                              Islands,
                                    Hawaii.

_Actual bimetalism._—It is necessary to caution against supposing that the
use of both gold and silver as currency in any country implies true
bimetalism, nor is it at all certain that the making of either gold or
silver legal tender at option touches the question of bimetalism. Only the
issue by free coinage at the will of the owner of both metals shows a
distinct attempt to maintain bimetalism. The actual maintenance of both
standards has always been, and always will be, by alternation, when the
ratio of the two metals as to value is established at very nearly the
market value of the two metals in bullion.

Popular demand for a return to the old ratio in the United States is
founded in part upon misconception of commercial principles and largely
upon a misunderstanding of current events during a financial crisis. The
supposed dangers from a single standard of value are largely exaggerated
from confusion of standards with currency in exchange. It is quite
conceivable that gold may still serve as a standard unit of value, while
90 per cent of exchanges have no other use for gold beyond its furnishing
terms of comparison. We must measure value by value, and the unit of value
must be true to its name, just as we measure length by something long. But
the number of yardsticks in actual use in a store may have no constant
ratio to the number of yards of cloth sold by that measure. The folding of
calico in yard folds relieves the yardstick, but does not change the
nature of the yard. So gold, or silver, is relieved of many functions in
exchange through banking systems without materially affecting its use as a
standard unit.

_The multiple standard._—It is proper to mention in connection with units
of value a theoretical device for overcoming the necessary fluctuation in
all articles of value. This is sometimes called the multiple standard. The
plan, in brief, is to appoint a committee of experts, whose record of
current prices, in some general market, for a hundred or more staple
articles of commerce, shall be compared from week to week, or day to day,
in such a way as to indicate how far above or below the average the price
of any article may be. If, then, gold is made a legal tender, a comparison
of its price with the average of all prices will show how much weight of
gold must be given on any day to actually return a value exactly
equivalent to what was borrowed sixty days or a year previous, when the
ratio of gold to average prices was different. In this way it is supposed
that natural fluctuations in gold, silver or any other commodity made
legal tender for debt can be fully provided for without loss to either
debtor or creditor.

The objections to this ideal standard are the practical difficulty of
settling, first, the wide range of commodities to serve as the basis;
second, the importance to be given each in adjusting the standard; and
third, the nature of the commission under which the work should be done.
In the history of the world, custom has preceded law in devising for
welfare; in this, law without experience will have to precede custom. The
difficulty which most men would experience in understanding and trusting
such a system puts off indefinitely the possibility of a general adoption.

_The currency._—The last essential in perfect freedom of exchange is a
satisfactory means of transferring completely and quickly all property
right in any article of trade. Exchange of commodity for commodity or
service for service is possible to a very limited extent, since the man
who wants my horse may have nothing which I want in return, or if he has,
the values may be unequal, and one or the other must remain in debt, which
means that one of the articles belongs in part to both. In some new
countries exchanges are confined to this slow and uncertain method of
barter, where nobody can buy until he finds a neighbor wanting just what
he himself has to sell. Traders in such countries contrive to accumulate a
variety of things needed by all sorts of people, that they may be ready
with some kind of exchange to meet particular wants. No community,
however, begins to reap the clear advantages of exchange until some
universally acceptable medium of exchange is discovered and accepted. The
process of developing this medium is essentially the same as that
described in establishing a standard of value; and so the word money
naturally represents both the standard of value and the common currency of
trade. It is easy, however, to see by further examination that the two
functions of money are quite easily separable, and that, while it is
difficult to substitute for the standard of value, a variety of
substitutes can serve as currency.

In speaking of coinage hitherto, the standard of value has been assumed to
be the most important, but in fact a large proportion of our coin serves
simply as currency without materially affecting the standard of value.
This is true of all the fractional coins, which are purposely over-valued,
and equally true of the silver dollar under existing circumstances. In
fact, the primary use of coin was simply for the purpose of transferring
property. In the words of Aristotle, 350 B. C., “Men invented among
themselves, by way of exchange, something which they should mutually give
and take, and which, being really valuable in itself, might easily be
passed from hand to hand for purposes of daily life.” This coined money
supplies the needed means of exchange most readily because it carries its
value with it. In all civilized communities, and in many only partially
civilized, it is readily exchangeable for any article of commerce. It is
also valued in proportion to its weight, so that any bulk in gold or in
silver may be easily divided by exchange for smaller coins. With a little
painstaking the coins are made identical in value, so that every trader
knows what he gives and receives. They are exceedingly durable, resisting
almost all the forces of nature with little loss. For this reason they are
likely to have an almost universal value, that is to be wanted by
everybody, in any place, at any time, and under any circumstances. These
facts are proved by the tendency to hoard such coins whenever individuals
have a surplus of wealth beyond present wants, or whenever there is risk
in using wealth as capital because of distrust of government, of
individuals or of future enterprise. A buried treasure is almost sure to
be in the form of coins.

Under a system of coinage, inequalities in exchange are easily adjusted,
like “the boot” in a horse trade, or the balance between produce carried
to the store and the articles carried away. Most of all, coin is used
where for any reason there is distrust of the future. Coin, or its
equivalent in bullion, is needed in all transactions where credit is
wanting. This appears prominent in all lawless communities with a
fluctuating population, and may be found in ignorant communities where
methods of credit are not established. It is often essential in the
settlement of claims between hostile countries, and is the final means of
adjusting balances in all foreign trade. Occasionally this need appears in
a universal panic, where each man takes his fellow by the throat, saying,
“Pay me that thou owest.”

_Coin a part of a country’s capital._—The coined money of a country thus
becomes wealth in store for constant use as a machine of exchange. Its
operation is effective when it keeps in constant motion, being itself
consumed very slowly in the wear and tear of motion. It is sometimes
compared to an endless screw, transmitting motion to everything else with
which it comes in contact. Like other machines, it may be either too
abundant or too scarce for the best advantage of the country. In either
case there is waste. When the coin is idle it is unproductive, but suffers
less waste from deterioration than almost any other kind of machine. In
case of scarcity the cost of its use is increased under the general law of
supply and demand, exactly as the cost of other machinery in use is
advanced when many desire to use it. This machine is a prominent part of
the capital of a country, greater in some countries than in others. In
France the value of coin is estimated to be 3 per cent of the value of all
real estate, including buildings. The use of such a machine makes a
material part of the annual cost of exchanges. The coin of England, where
interest is comparatively low, costs for its use in interest, wear and
tear, and re-coinage more than $20,000,000 annually.

An additional cost to individuals is in the extra risk of carrying such
wealth, as shown in express charges and special insurance, and still
greater expense for safe keeping, and a considerable use of time in
counting. These facts have led to many devices for lessening the need of
keeping wealth in this form.

_Credit by accounts._—The most obvious method of avoiding the use of coin
in exchanges is a current account between individuals having many
transactions in trade. A farmer carries his butter, eggs, fruits, grains
and live stock, perhaps, to a single dealer in all these articles, and
takes in return articles of household use or for any necessity as he
requires them, from a spool of thread to a harvester. If both keep
accurate accounts, a settlement once in six months satisfies most
conveniently all the requirements of perfect trade. Indeed the settlement
is needed only that the accounts may be verified. Except for the dangers
of waste in unlimited credit and carelessness in expenditure where future
wealth is drawn upon, this method of exchange is simple and inexpensive.
In the nature of the case, however, it must be limited, for safety, to
trade between people having confidence in each other’s honesty of purpose
and ability to keep correct accounts. It also requires a mutual
expectation of ability on the part of either to meet indebtedness at any
future time of settlement.

_Credit by due-bills._—An extension of this credit in well established
countries, so as to take in other persons than the two involved in book
account, is found in due-bills, notes of hand payable on demand, or more
formal securities, any of which may require a final decision in court.
These pass from hand to hand, often in connection with coin, and under
ordinary circumstances serve their purpose cheaply. In some countries a
note of hand, with endorsement of each user, may make exchanges until it
is covered with endorsements. The danger of waste is considerable from the
impossibility of knowing the financial standing and honesty of the various
endorsers, and the system is limited, of course, to the range of
confidence in such trustworthiness. So easy is it to extend this credit of
individuals beyond the range of safety that most governments have found it
necessary to protect their citizens against its dangers by limiting or
prohibiting its use as currency.

_Credit currency._—So convenient, however, and so economical is the use of
credit, that all well established nations have developed systems for the
issue of a credit currency founded upon the stability of strong
corporations or upon the national credit. Nations themselves have often
issued bills of credit in the form of notes, or promises to pay at the
national treasury. If these are payable on demand in the coin of the
realm, they are said to be redeemable. If the time of payment is
uncertain, or indefinitely postponed, they are said to be irredeemable.
Thus we have the many forms of paper money so familiar to everybody and
the various practices and speculative theories regarding it, which make a
large part of the discussion of financial questions throughout the world.

No one doubts the worthlessness of currency in any form of note, from
individual or firm, which cannot be paid when presented. The notes of the
government, so long as that government is considered stable, may circulate
readily, and even after doubts exist as to the final ability of the
government to redeem, they still circulate, perhaps with greater
readiness, in the feeling that hoarding is utter loss and the stopping of
trade in the ordinary perishable products of industry will be an enormous
disaster. This feeling often leads to the use of a currency without value,
like the token money used for change in the absence of legal coins. Though
nobody is bound to redeem these tokens, everybody takes the risk of loss
as less disastrous than no exchange. Paper money issued by corporations is
universally considered dangerous to the interests of communities, unless
very carefully restricted within distinct and clearly understood limits.
The discussion of such issues will be given in another chapter devoted to
banking. The issue of paper money by governments has been a frequent
device for enforcing contributions of citizens to extraordinary expenses
in war or other disaster. A history of such issues cannot be given within
the limits of this book, but is well worth the study of those who seek an
understanding of the powers and limitations of government under natural
laws, in making a satisfactory currency. A government’s stamp upon the
piece of paper is so far good, and only so far, as it secures to the
receiver of the paper an equivalent value to what he gave for it. If the
government itself is unable to give that value, it can never insure the
ability or the willingness on the part of any individual to give such
value. While millions of dollars in such form may serve as currency
without any deterioration, as at the present time, when government
promises in all the various forms amount to nearly $1,000,000,000, should
any of these, on any day, be refused payment for want of means in
government possession, every individual in the land would feel that the
value of his possessions in the shape of such notes was made just so far
doubtful as the chances of redemption are postponed. All issues of such
notes at once become certificates of debt rather than credit, and lose, to
greater or less extent, their exchangeable value.

In the extraordinary issue of “greenbacks” during the civil war, the
purchasing power of a paper dollar was reduced to less than half, and
gradually appreciated in value as the expectation of early redemption
increased. The effect of such issues upon government revenues will be
treated in its proper connection. As currency, it certainly robs each
creditor and holder while depreciating, and as surely robs each debtor
while appreciating. As wage earners are universally creditors, according
to prevailing customs, they suffer most in a depreciation of money values:
i. e., they work for dollars at one value and a week or a month later
receive them to expend at a less value. Speculative debtors, on the other
hand, always thrive on depreciating currency, paying their debts in what
costs less exertion. Under appreciating currency, the creditors gain, be
they bankers or workmen.

_Banking._—The peculiar convenience for saving found by experience in the
use of each of these methods of settlement in exchange leads to a natural
commingling of all. Coins serve some purposes best, and accounts have a
limited range; notes of hand are often desirable, and paper money, if
safe, is universally convenient. This natural combination has led to a
more systematic arrangement for handling various kinds of currency, called
banking. The most obvious addition to the machinery of exchange in the
system of banking is the possibility of immediate transfer of property
right in a bank deposit by check and account, or by a draft in account
between banks, or by bills of exchange in more distant transactions. The
bank deposit is made up of individual wealth, or titles to wealth,
supposed to be immediately available for use in exchange. It may consist
of all the kinds of currency described or conceivable. Checks are orders
upon these individual accounts or deposits, and by their means exchanges
are made with great ease and little risk between individuals in the same
neighborhood or even in distant cities or distant countries. The cost of
storing, handling or transferring any form of currency is reduced to a
minimum. So far-reaching is this comparatively modern machine of exchange
that it is properly assumed to be the means of settling 90 per cent of all
exchanges, domestic and foreign, with almost no use of money in any of its
numerous forms. Its importance as a machine of commerce entitles banking
to a more distinct consideration, and chapter XI will be devoted to the
subject.

_Deferred settlement._—In certain stages of civilization exchanges
involve, not simply present wealth, but prospective accumulation. A farmer
may purchase his farm upon the assurance of crops and stock to be raised
in a series of years. In this exchange final settlement is deferred by
notes payable at definite future dates, the promise to pay being secured
by a deed in trust, a mortgage deed or individual endorsement. If many
individuals are united, a purchase may be made by means of issuing more
formal notes called bonds, the property of the company being pledged for
the payment of the bonds when due. Sometimes such purchases are made by
the issue of stock, establishing the right of the seller to a certain
undivided share in the wealth controlled by the company. In this case the
time of final settlement is indefinitely postponed, to be fixed by limits
of the charter or by a vote of the stock-holders. All these certificates
of indebtedness serve to a limited extent in exchange of property. So far
as they enter into commerce, after the first transaction, they are simply
articles of purchase and sale, having a more or less established market
value. Since they usually represent an accumulating interest or a
provisional dividend, the market value is constantly fluctuating, and they
can therefore serve almost no purpose of currency.

The ease with which such notes, bonds and stock can be made the basis of a
single purchase in establishing some enterprise gives to them an
indefinite influence in trade, sometimes immensely extending the apparent
purchasing power of a community. The advantages and disadvantages of such
deferred settlement are so varied and important as to make it worth while
to treat the subject more extensively than is proper in this analysis, and
such treatment will be found in Chapter XII.

Chapter XI. Banks And Banking.

_Origin of banks._—Attention has been called to the banks of the country
as a most important part of the machinery of exchange. It is proper to
describe more fully the nature of the machine and its operations. A clear
understanding of the character and process of banking on the part of all
the people both extends its influence and diminishes its dangers. Banking,
like everything else in civilization, has had a natural growth. The
different steps in its growth have been devised for the sake of meeting
the needs of a growing commerce, and banking can exist only where
commercial transactions are frequent and constant.

The word bank, distinctly related to the English word bench, is supposed
to have been adopted from the fact that early Jewish dealers in money sat
by a bench in the streets of Italian cities. The commercial city of Venice
is supposed to have been the seat of the first organization distinctly
named a bank. This was a corporation of money lenders who handled their
capital in the form of coin by exchanging it for notes of individuals.
This was as early as the twelfth century. Since that time in every
civilized community there has been experiment upon methods for quickening
exchanges through such organizations, some of which have been of great
advantage and some have brought disaster. The modern system of banking is
the result of all these centuries of experience, a history of which cannot
be given here.

_Bank described._—A brief description of the most modern form of banks
under state or national restrictions will help to understand how these
institutions serve the world of commerce.

In simplest terms, a bank is a company founded for the sole purpose of
dealing in coin and current certificates of credit of every form, the
prime object being the convenience of people in making exchanges of any
kind. Sometimes a bank is called upon simply to make change, or, as we
say, to break a valuable coin or a bill of large denomination into smaller
pieces. On the border land between two countries the banker serves a
traveler by exchanging the coins of the country he leaves for coins of the
country he enters.

Often the bank, equipped with safe protection against fire or robbers,
receives the wealth of others in any form of money for safe keeping, with
provision for its being paid when it is needed, whenever and wherever the
owner directs. The same bank may be asked to exchange the money in its
possession for notes of individuals payable on demand or at definite
future time. It may even issue notes of the firm in place of the
individual notes received, acquaintance of a community with the standing
of the bank as a dealer in money making its notes circulate where
individual notes would not. In this case the wider credit of the bank is
exchanged for the limited credit of individuals. In the end a well
established bank in close association with a system of banks is expected
to do any service that has to do with either money or credit, so long as
the credit approximates cash transactions, and has not drifted into
overdue debts requiring courts and officials for collection.

So important are all these functions of a bank to the interests of society
that distinct provision is needed in the law of the land for establishing
the bank and maintaining its efficiency. The double system of government
in our country known as state and national leads to two classes of banks,
called state or national according as they are organized under authority
of state government or under national laws.

_State banks._—The independent laws of any state are supposed to provide
such restrictions as the people desire for the management of banks. Any
bank chartered by the state government is subject simply to the laws of
the state pertaining to banks and is called a state bank, whatever the
name under which it does business.

The laws of the different states vary indefinitely, but the essentials of
a banking law quite recently established in one of the states may serve to
illustrate the modern ideals as to safe, legitimate banking. Under this
law a bank must be a corporation of not less than five persons who have
subscribed for the entire stock and have paid at least 50 per cent of the
value of this stock before beginning business, with provision for payment
of 10 per cent each month until the whole of the capital stock is paid for
in cash. Each stock-holder is individually liable to an amount equal to
the value of his stock for any debts of the bank in excess of its original
stock. Having settled upon a name distinct from all others, its
application is made to a bank commissioner for a charter to do business in
banking according to the laws of the state. Under the charter issued by
the commissioner, the bank is required to be managed by a board of
directors, from five to thirteen in number, which board elects the needed
officers and appoints the necessary clerks. It cannot increase its capital
except by fully paid stock, and can do no other kind of business, like
buying and selling of goods and lands, or managing factories and
railroads. It is authorized to receive deposits and make loans at interest
not above legal rate, provided it keeps on hand available funds, including
bank balances, amounting to 20 per cent of its total deposits, and never
loans to one individual or firm more than 15 per cent of the paid up
capital of the bank. A penalty of fine and imprisonment follows conviction
of any officer for receiving deposits after general insolvency is known.

Each bank is required to report to the commissioner at least quarterly,
and whenever called upon to publish its report; while failure to comply
with requirements of the commissioner in report or otherwise brings
immediate forfeiture of the charter. The commissioner or his deputy must
visit each bank at least once a year and whenever occasion may require.
If, upon examination, a bank is found insolvent the commissioner himself
takes charge of the business for final settlement of its affairs. These
important restrictions and careful inspection are thought necessary to
secure the public interests in banking. The state through its bank
commissioner gives guaranty to the public of legitimate and safe banking.
The value of that guaranty, of course, depends upon the honesty,
experience and executive ability of the bank commissioner, whose term of
office and compensation should make him as independent as possible of any
weakening influence. Under present arrangements no state banks issue their
notes as currency because of a national tax of 10 per cent, which prevents
a possible profit from its issue. Present state laws, therefore, make no
provision for that function, unless by statutes existing before the
organization of national banks. The states still have the constitutional
right, apparently, to charter banks of issue, but the advantages of
uniformity throughout the nation are so evident as to make such action
very improbable.

_National banks._—The so-called national banks organized under authority
of United States government have been in existence since 1863, and have
proved, so far as currency is concerned, such an improvement upon anything
preceding in the way of bank issues, that few have advocated any return to
former methods. The system as now existing places the authority of the
United States in an officer called the comptroller of the currency. The
law requires an association of five or more persons with a definite name
and location, having not less than $100,000 capital ($50,000 in small
towns) all paid within six months of beginning business. Share-holders are
individually responsible for debts of the bank, aside from their stock, to
an amount equal to their stock.

In banks having over $5,000,000 capital a surplus of 20 per cent may take
the place of this individual responsibility. Not less than one-fourth of
the capital stock, usually one-third, is deposited in the United States
Treasury in the form of registered bonds of the United States, to be held
exclusively for security of circulating notes. These notes are issued to
the bank by the comptroller to the amount of not more than 90 per cent of
the market value of the bonds deposited. These notes, printed by the
government, signed, registered and sealed in the United States Treasury,
in denominations from five dollars to one thousand dollars, become money
when signed by the officers of the bank whose name they bear. The cost of
these notes, together with the cost of restoring when worn out, as well as
the expenses of the comptroller’s office, are met by a tax of 1 per cent
per annum, paid semi-annually, upon the average amount of notes in
circulation during the previous six months. Such notes are not a legal
tender, but are received at par for all dues to the United States except
duties on imports, and for all demands against the United States except
interest on the public debt and in redemption of currency. Any other issue
of notes is prohibited, and worn out notes are cancelled and burned in the
Treasury of the United States, being replaced by new.

The banks in sixteen principal cities are required to hold a reserve equal
to 25 per cent of their circulating notes in lawful money of the United
States, namely coin or treasury notes, and all other banks must have a
reserve equal to 15 per cent of their circulating notes in the same form.
This reserve is held for the redemption of the notes, provision being made
for such redemption at the Sub-treasury of the United States in New York
city, bank balances and clearing house certificates in the larger cities
being counted as part of the reserve. The object of this is to secure
ready redemption of any note in all parts of the nation.

The comptroller’s office includes expert examiners, and to it each bank
must report at least five times a year, with other special reports as
called for. Each bank is subject to examination at the pleasure of the
comptroller, and in case of failure to redeem bills or comply with the
law, the comptroller has power to take possession of the bank and close
its business. The usual banking business of any national bank proceeds
according to the laws of the state in which it exists, the legal rate of
interest of the state being compulsory.

_Advantages and disadvantages of national bank currency._—The advantage of
such a uniform system of bank notes is evident. The bills are secure
beyond the possibility of doubt as to their final redemption, and
therefore circulate freely without reference to the failure of the bank
issuing them. In case of failure, all the banks form a ready machinery for
collecting the bills for final redemption at the United States treasury.
The frequent reports and expert inspection give as satisfactory means of
maintaining safe management as can be secured by law. The possibility of
connivance between examiners and bank officers is reduced to a minimum.

At the same time, there are disadvantages from several sources. First,
United States bonds do not form a permanent basis. Second, the market
value of these bonds and the low rate of interest make the use of capital
in the shape of circulating notes less profitable than other capital in
the bank. This is especially true in the newer communities where interest
is high, and banks so located are likely to surrender their circulating
notes at times when money loaning is most profitable, and thus cause a
fluctuating volume of currency in the country. Third, the national banks
are easily made objects of suspicion as to matters of legislation with
reference to money.

_Government banks._—Similar institutions under direct management of
government officers have often been thought of as bringing the banking
machinery within the direct judgment of the people, and so best meeting
the wants of the community as a whole. The advantages of unity and
publicity in such a system seem evident, and yet in actual practice the
safeguards against misuse of power have proved on trial less satisfactory
in such methods than in several others. The history of debased coinage
already referred to shows that men in power may easily disregard the
interests of the people, and under popular government both officers and
legal restraints are subject to changes in the interest of localities and
parties. It is possible that a stable body of experts might manage such an
institution under laws as stable as the Constitution with success. But the
restraints of law are most effective upon institutions outside official
circles.

A government bank is subject to extreme pressure from popular demand under
any financial distress to issue currency for general improvements in
public buildings, parks, etc., which can bring no return and afford no
means of redemption. Even the demand of unfortunate debtors for extended
loans may push the bank into excessive issues, and finally lead to the
scaling of debts and currency together in an effort to escape the results
of over-issue.

_Bank business._—Whatever the organization of a bank, its business must be
essentially the same. It receives deposits from its customers for safe
keeping and for convenience in use by means of checks. A check is simply
an order to pay, and, if the receiver is a customer of the bank, amounts
to merely a transfer of deposits from one owner to another on the books of
the bank. A thousand dollars safely kept in the bank vault may thus change
owners a hundred times by means of checks properly recorded. In large
transactions the check, because of its economy, takes place of any other
form of currency. The bank must also deal in drafts, by which exchanges
can be made in different cities, and in bills of exchange, distinguished
from ordinary drafts by special reference to foreign trade. It may also
hold, as a part of its available machinery, clearing house certificates,
which are statements of balances due in the daily settlement between the
banks belonging to a clearing house association.

All these form a part of the machinery of every-day exchange, and together
with a complete system of book-keeping make the utmost facility in the use
of money.

They also greatly economize in the use of money by saving cost of counting
and of transfer, and by securing against losses. If the system offered no
more advantages than this safe and ready use of good money, the banks
would be practically indispensable. But they have a still greater use in a
safe extension of credit. The perfection of system in banking makes it
possible for one who habitually fulfils his promises to purchase anywhere
in the world on the shortest notice with the simple guaranty of credit in
the bank where he does business. A traveler wishing to have funds in
safe-keeping, and yet available on a journey around the world, may obtain
through a bank familiar with his business standing a letter of credit,
upon which he can draw, wherever he may be, against the deposit in his
favor, and his draft will be paid, through a series of banks, at the bank
near his business connections. Thus the credit of the world is bound
together by the banking system grown up to meet the necessities of trade.

_The clearing house._—All forms of credit referred to above, where dealers
are customers of a single bank, are easily brought together upon the books
of that bank, and will practically cancel each other. The customers of
many banks in large cities may have their checks and drafts brought into a
single system of book-keeping through a clearing house, which is simply a
bank of banks. At a certain hour each day, in the larger cities twice a
day, each bank of the city brings to the clearing house all checks and
drafts against any other banks. These are quickly sorted, charged to the
several banks against which they are drawn, and credited to the banks from
which they are brought. The balance of debit and credit is settled then
and there, either by transfer of cash, or by issue of a clearing house
certificate that a bank has a balance in its favor, and so only a small
amount of cash is used in settling all transactions of an immense
business. The clearings of a single day reach hundreds of millions of
dollars, and form an index of the business prosperity of the country.

The system saves the risk and cost of transferring back and forth immense
amounts of coin and currency, and brings the business men of the country
into ready contact with each other. It is an essential part of the means
of settlement between different cities and different countries. A debt in
any part of the world can be paid through a draft on London, which by
means of the clearing house and its associated banks can be purchased
anywhere and paid without delay. Since the purchasing power of any part of
the world is chiefly in what it has to sell, the constant motion of checks
and drafts in opposite directions will balance each other. If there were
no long time credits, the purchases of any city would essentially equal
its sales; and so with perfect clearance all trade would be quickly
adjusted with but little use of money except for retail business.

_Other clearing systems._—So evident are the advantages of clearing houses
in banking that the system extends to many other interests. Railroad
corporations balance accounts against each other by exchange of tickets
issued by the different roads. Large combinations of dealers in implements
or other goods find a similar service available where they can work
together with confidence. Express companies sharing in a common service
divide the final proceeds upon the same principle. So evident is the
advantage that the growth has been rapid during recent years, and seems
likely to extend still further.

Some effort has been made to establish farmers’ exchanges upon a similar
plan, but as yet with little success. The obstacles are chiefly in the
want of business confidence in business habits among the farmers
themselves. Since the system is strictly a credit system, exact promptness
in meeting engagements and constant dealing in the same channels are
absolutely necessary. Most farmers, having comparatively few transactions
from day to day, are loath to attach themselves as constant customers in
any association. With larger experience and more neighborly contact they
are finding it possible to work in association for various purposes, and
will doubtless enlarge their means of business credit as their progress in
mutual understanding increases.

_Government inspection._—The principal support of universal credit through
banking is the assurance that uniform methods, honest in principle and
accurate in execution, are followed. To secure these results a system of
government inspection and guaranty seems absolutely necessary. If the
public faith is to be maintained, the ground of that faith must be
publicly established. The more complete the examination by trusted
officials and the more frequent the publication of official reports, the
better the public credit. It seems possible that even individual
trustworthiness may become a matter of government record as it is now of
private consideration in all business circles. One chief guaranty of
credit through the banks is the strict inquiry made by the banks
themselves into the business standing of their customers. If the record
were perfect, the chief weakness of the credit system would be largely
removed.

_The balance of trade._—The bulk of trade between countries, that is of
dealers in different countries, is settled in the usual routine of banking
as has been indicated; but since under present systems the standards of
value are given in different terms in different countries, somewhat more
of friction remains in such trade. A greater attention is given to the
fact of final settlement in coin or bullion. The price of exchange from a
country whose dealers owe more than is due them, under the law of supply
and demand, soon arises to an amount sufficient to cover the cost of
transporting gold or silver. When these metals are used in payment by
transportation from one country to another they are said to indicate the
balance of trade; that is, they show that more of other property comes
into the country than goes out. This balance of trade is supposed to show
the relative prosperity of a nation, and is said to be against it when the
nation buys more than it sells.

It is usually sought in the difference between the value of coin or
bullion exported and of that imported. In two sets of circumstances a
large correction is necessary to show the actual condition of trade. One
is where a nation is buying on long credit, as in case of great
enterprises like railroads or factories, constructed by sale of bonds in
foreign countries or by sale of any other securities, government or
individual, in a foreign land. The other is where a country like our own
is a large producer of gold and silver by mining. In this case the
products of the mines are as proper an article of export as the products
of the farms or of the factories, and should be estimated as a part of the
natural exports. For these reasons the balance of trade must be carefully
scrutinized before being accepted as proof of a nation’s progress in
poverty or wealth.

_Bank loans._—So far, in dealing with the subject of banking, no mention
has been made of the function of extending individual credit by time
loans. One of the original purposes of banking was to make a convenient
office for the meeting of borrowers and lenders. The banks are still the
go-betweens of those who have money to lend and those who have to borrow.
In fact, every banking association is assumed to be a corporation of money
lenders. Under ordinary circumstances this corporation is able to loan to
individuals whose credit is good all of its capital not otherwise employed
in the machinery of the bank, a considerable portion of deposits from its
customers, and to a certain extent its own credit in the commercial world.
In the case of a national bank a portion of capital is loaned to the
government in the purchase of bonds, which are the basis of its
circulating notes. The circulating notes, from 60 per cent to 90 per cent
of the value of the bonds, are an extension of credit; that is, the
capital already loaned on time to the government is partially loaned again
to individuals. Again, the deposits of the customers, to be drawn as
needed, in ordinary circumstances are not needed the same day. The bank
soon learns by experience what portion it is safe to lend from day to day
to individuals who are sure to make payments when promised. Double
signatures, or endorsements, double the surety of prompt payment.

Thus the banks are enabled to provide safe keeping for money without
charge, and even to pay a low rate of interest upon considerable deposits
when times are good. In this way legitimate borrowers and legitimate
lenders find a close connection in the bank. A legitimate lender is one
who has property not needed at present for his own use. A legitimate
borrower is one who can use capital to advantage in production. Any
producer may at one part of a year be a lender and afterward a borrower to
advantage of everybody. If the banks are thoroughly satisfactory the
proceeds of the fall crops may serve the busy manufacturers as circulating
capital during the winter. Again, the proceeds of the spring sales of
goods and machinery may tide the farmers over the season of growth.

In this way labor of every kind is sustained by labor of every other kind.
In all these ways the banking power of a country is extended to several
times the coin money in circulation, and that with perfect safety. But it
is possible for banks to be tempted through the very perfection of their
own credit. The note of an individual has no established market value. A
deposit in the bank is valued as cash. It is possible to secure the credit
of having a bank deposit by discounting an individual note. If that note
is a time note the bank has increased its immediate liabilities by the
amount of a nominal deposit, with only a promise to pay in the future to
rest upon. To lend to an individual is practically to enter into
partnership with his fortune. The fortunes of the group of individuals
representing the bank is less doubtful than that of any one person. The
borrower in this instance pays in the discount of his note the difference
in risk between his fortune and that of the combination. Such deposits
purchased upon credit must be distinguished from deposits of cash, lest
the bank should nominally increase its power to lend while in fact it has
already lent up to its ability. Sometimes such nominal deposits are
maintained by persons deeply in debt for the sake of paying a larger rate
of interest than is allowed by law.

_Safety of banking._—In times of business prosperity a bank with usual
business caution as to customers, is safe for all concerned. And yet, in
the very nature of extended credit, it has promised to pay on any
particular day, if demanded, far more than it has cash in hand. Its
liabilities embrace the whole of its deposits except a small portion made
for a definite time, and all its issues of currency subject to redemption.
To meet these engagements its immediate resources are whatever currency in
any form of coin or bills it may have at hand. This amount, since its
profits are made from lending, not from holding, must be small in
proportion to its liabilities. The bulk of its means of payment is in
notes not yet due, and to be collected when due. Of other property it is
likely to have bonds of municipalities or of great corporations, and these
are supposed to be a more available form of resources than individual
notes, because they usually have a definite market value and can be sold
or used as security for loans in any money market. If real estate forms a
part of the capital, it can never be made available for immediate use.
Hence any bank dealing in mortgages on real estate invests its funds where
they cannot be had when wanted. All banking schemes based upon security in
land have necessarily failed, because land has no current use in trade.

Under the pressure of panic, from whatever source, each depositor is sure
to demand every cent due him from the bank, and just as certainly the
bank’s own resources are insufficient to meet those dues without the sale
of bonds and notes in other markets. For these reasons in any great period
of distrust the banks are obliged to suspend payments. Since all the banks
of the community are in similar circumstances they cannot help each other,
and time must be given for the collection of loans, according to
agreement, that the gradual accumulation of ready cash may return to the
vault, and so to the depositors, all that has been loaned. Because of this
necessary instability bankers watch most carefully the tendencies of the
money market, and necessarily reduce their loans for safety when any
anxious pressure begins. For the same reason legitimate banking is limited
to short time loans—on demand, thirty, sixty, ninety days—the shorter
being the safer. Laws sometimes prohibit a bank from dealing in any other
business, where a stock of goods must tie up funds, or from speculation in
real estate, which confines capital more certainly.

In most banks the amount to be loaned to a single individual or firm is
limited to a small portion, one-tenth to one-fifth, of the total capital.
The principal causes of failure in banking are defalcation of officers,
misuse of funds in speculative enterprises, dealing in speculative
securities or on boards of trade, careless loaning to poor paymasters,
investment in long time securities not readily marketable, or sacrifice in
hurried sale of stocks and bonds under the pressure of panic.

The better the customers of a bank understand its condition and
management, the less is its danger, for the basis of banking, as of the
credit of the world, is the public confidence. Farmers who acquaint
themselves with the workings of neighboring banks by making use of their
aid in business benefit both themselves and their neighbors. The progress
of the world demands of every farmer a closer contact with business and,
therefore, a greater familiarity with business methods. Even the burden of
debts will be lessened when farmers understand and appreciate the
advantage of systematic credit. The dangers from over expansion of credit
are lessened when all the people clearly understand the essential
conditions for maintaining credit. The final perfection of a banking
system depends upon the interest of the whole people, with a fair
knowledge of the growth already made.

Chapter XII. Deferred Settlement And Credit Expansion.

The general bearing of settlement in trade, deferred by promises to pay in
the distant future, has been several times referred to in preceding
chapters; but its bearing upon the general welfare is so marked in many
ways as to deserve more particular treatment. The special form by which
one man becomes a purchaser on the strength of future abilities may have
little importance in the total result, but some peculiarities of the
different forms are worthy of mention.

A _standing account_ without definite period of settlement easily becomes
a temptation to waste, as well as a source of worry, when the account is
extended. A friend remarks, “You never seem so well off as when you don’t
expect to pay for what you buy, although the reason may be that you can’t
pay for it.” The fact that the day of settlement may be indefinitely
postponed makes the temptation to overestimate the chances of future
ability. An account almost certainly insures the purchase of ordinary
supplies without asking the price, and only frequent and complete
settlement makes safe for ordinary people the expenditure of income
through store accounts.

_Promissory notes_ due at a definite time have less effect upon the
imagination; yet payment a year hence seems always easier than payment
now. Only repeated bitter experiences teach one to say, as I once heard an
old gentleman, when offered a horse to replace his dead one without limit
as to the time of payment, “That sounds very well, my friend, but it is a
mighty hard way at the latter end.” Every farmer familiar with country
auctions, with a year’s credit upon purchases, sees the effect of such
postponements in magnifying the value of articles purchased.

A note secured by _chattel mortgage_ in the nature of the security is less
extended and has the distinct hardship of future payment presented in the
possible loss of the chattel offered as security. The chattel mortgage,
therefore, becomes a favorite method for short time delays in payment, not
only because the security is good, but because the full attention of the
maker is given to the necessity of payment.

A most familiar form of deferred payment for farm property is the
_mortgage note_, secured by a deed entitling the holder to take possession
of the farm, or real estate of any kind, upon failure of the maker of the
note to meet its conditions. This is esteemed the best possible security
for payments long deferred, because the ordinary values of real estate in
a growing country like ours increase rather than diminish. Except in cases
of overvaluation from speculative investment, or in the settlement of a
new country under misconception of its conditions, the security remains
ample. And even then the lender has no greater risk than the borrower.
Since final settlement by foreclosure of mortgage involves the law’s
delay, increased by the natural sentiment growing up about a home which
has been occupied for years, such mortgage notes are only to a limited
extent available in general commerce. In large measure they are likely to
stand between the original purchaser and seller. The exception to this is
found in investment of large trust funds, as with insurance companies and
endowments of colleges and other benevolent institutions. In these cases a
permanent investment, with stated income, is desirable, and mortgage notes
with five to ten years’ credit give better rates of income than long time
bonds of great corporations or governments. The ease with which purchase
is made by a mortgage tempts many a young man to promise more than he can
fulfil. The weight of the farm mortgage is felt throughout the country,
doubling the disaster of every deficient crop. Variations from the
mortgage in deeds of trust and instalment contracts have essentially the
same relation to credit, involve essentially the same burdens, and differ
only in the legal forms for taking possession of the real estate in
default of payment.

Where a company or a community defers payment for its purchases, it is
said to issue _bonds_, which are simply formal notes, usually with
attached notes, or coupons, for interest at stated times, issued by
qualified officers under specific legislation. These are so easily
understood and tested for their quality as to become a part of the general
credit of the country. They gain a well understood market value, and pass
from hand to hand with greatest readiness. This fact adds to the ease with
which they may be issued, while the extended time, from ten to thirty
years, increases both the convenience of possession and the readiness to
issue. The people of a city do not hesitate to supply themselves with
magnificent waterworks at the expense of the people a generation later.
Thus municipal indebtedness is easy to contract, and the hard lesson of
paying for dead horses is seldom effectually learned. More insidious still
is the temptation to issue the bonds of a county for the building of a
railroad, whose prospective benefit in adding to the value of lands is
indefinitely magnified. A community of farmers already burdened by
mortgages can be tempted into additional burdens in county bonds from
expectation that a new railroad will double the value of their farms. The
facility with which states and nations negotiate bonds is so well
understood that it scarcely needs mention. Yet the burdens of taxation so
grievously felt are often self-inflicted by the people who favor unbounded
indebtedness. It is rarely the case that a well-to-do school district is
not better off when it meets the cost of its schoolhouse by immediate
taxes rather than to postpone payment by bonds.

The organization of a _stock company_ involves a peculiar system of
deferred payments, in that every holder of stock becomes in a sense both
debtor and creditor. He is debtor to all his associate shareholders, and
is also their creditor to the extent of his share. _Stock certificates_,
like bonds, may pass from hand to hand with ease, and foster the innate
spirit of speculation among a commercial people. The organization of a
stock company, especially of a great trust, is made relatively easy from
this fact, and in this way the general credit of a people is indefinitely
extended. A prosperous corporation is likely to distribute the results of
its prosperity by increased issues of stock, and the readiness with which
the public accepts such issues makes natural, though vicious, the
so-called _watering of stock_, familiar to all. The immediate object of
watered stock in fairly managed companies is the immediate distribution
among shareholders of any increased value without increased cost. As the
farms along a line of railway may have doubled their value with no
expenditure in improvements, so the railroad itself may have doubled its
value in the possibility of earnings through the rapid development of
settlements along the line. In ordinary ways this increased value will be
shown in the market price of the stock, but an issue of more stock to the
present holders of stock certificates will keep down the price of
individual shares and yet give the benefit of the increased value to
shareholders.

_The stock exchange._—The last mentioned forms of indebtedness so easily
become matters of everyday purchase and sale as to lead to the business of
stock brokerage, found everywhere in greater or less extent. In large
cities the brokers naturally unite for convenience of business in the
so-called stock exchange, in which the market price of all current forms
of indebtedness or deferred payments is fixed from day to day, or from
hour to hour, by the higgling of the market, just as the price of produce
is fixed in the produce exchange. Naturally, as in the case of produce, a
fictitious business, purely speculative, grows up around the legitimate
dealing in stocks and bonds. Other forms of deferred payments enter less
into the business of the brokers, because the market value of any
particular mortgage or individual note cannot be easily determined outside
the immediate neighborhood where it is made. The chief way in which these
enter the general brokers’ market is through the stock or bonds of large
brokers’ companies, sometimes called guaranty loan companies. In this way
the universal extension of credit through deferred payments finally has
its effect upon the general confidence. The broker’s business grows
legitimately out of the need of ready transfer of claims, for the sake of
larger use of the floating capital of the country, and readiness of
investment in more fixed forms. It adds, however, to the dangers of
extended credit by making more easy the gratification of present wants
through expectation of future ability. The broker makes his gain, without
reference to the final settlement, by taking a commission upon the loan.
His interest leads to an overestimate of the borrower’s ability, and cases
are not infrequent where appraisers of real estate have been hired by
brokers to misrepresent the value of property, for the sake of securing
improper loans.

Every period of expanding credit in speculative movements has furnished
proofs of this tendency. A standing example is furnished in mining stocks,
in which the temptation to misrepresent prospects by “salting” and false
assays is proverbial. Almost as notorious are the misrepresentations
associated with bonds of newly established cities or other municipalities.
Not all such misrepresentation is intended fraud, but the immediate
interest of the broker clouds his judgment as to conditions of final
settlement. With little to lose and everything to gain in the immediate
transaction, his judgment is necessarily biased. The merely speculative
buying and selling of stocks by margins has little to do with the general
character of indebtedness, except to increase somewhat the risks of
legitimate brokerage. The “bulls and bears” on exchange make their gains
by fluctuations in market values, and, like all gamblers, delight in
producing false impressions upon their opponents in the game. This fact
adds to the uncertainty of all standing credit, and so increases the
natural rate of interest. This effect upon interest will be noticed in
considering the nature of interest and conditions affecting it.

“_Borrowed money._”—In all the forms of deferred payment, except standing
accounts, it is customary to represent the amount of the debt as “borrowed
money,” no matter how the transaction occurs. When a farmer buys his farm
with a promise to pay five years hence, his note is said to represent so
much “borrowed money,” while in fact he has simply borrowed the farm. The
reason is, that the farm is represented by its value in dollars, and the
promise is to return that value in dollars at the end of five years.

The same is true, in fact, of all purchases on credit. Even when the
purchase is made by means of a note at the bank, the actual transfer of
property is from the owner of the farm to its prospective owner, the bank
simply acting as agent, and interposing its credit or capital only to
promote the exchange. In many instances no money in any form is used, and
where it is employed at some stage of the transaction, it is used, as in
any other exchange, simply as a machine of transfer. Even the final
settlement is likely to be made through the ordinary channels of trade,
without the intervention of money in any of its forms. The deferred
payment takes its place when the time of payment comes in the ordinary
everyday transactions of the universal credit system, illustrated in
banking. Even if the farm is paid for by instalments, those instalments
are simply ordinary transactions in trade, the farmer transferring the
check which he receives from the sale of his steers or his wheat to the
former owner of the farm. The money involved is simply money of account,
referring to a well understood standard of value. The importance of this
standard in reference to deferred payments has already been referred to.
It cannot be overestimated. But any estimate of the currency needed, or to
be needed for the transaction of business, founded upon the amount of
deferred payments, is wholly fallacious.

It is equally wrong to suppose that the bankers are the principal
money-lenders. The real lenders are those who have sold their produce, the
use of their tools or their time, at a price to be paid next week, next
month or next year. Every man who has wages due him is as truly a
money-lender, to the extent of the wages due, as any banker who accepts a
promise to pay in the future for service or value given in the present.
Even where the borrowed articles have been consumed or wasted, the promise
to pay is simply a promise to return so much of value as the articles
received were estimated to be worth. This may be easily seen in thinking
of a running account at the store for the ordinary supplies of the family.
It may amount to five hundred dollars, if one’s credit is sufficient, and
seem only the actual articles used, and yet to be paid for; but if settled
by a note fixing a future definite time of payment, the debt at once
becomes in thought borrowed money, though no change whatever has been made
in the actual facts. If the same purchases had been made by means of
credit at the bank, gained by discounting a personal note, the same
articles exactly would have been borrowed, the bank instead of the
merchant being the lender. In all probability the bank has been the means
in the first case of enabling the merchant to meet these current wants on
credit, for he himself has gained the credit of the bank by discounting
his own note. In either case the bank has been the means of serving both
the borrower and the lender. It is simply a machine for accommodating
both.

_Legal tender._—All forms of deferred payments imply the possible
intervention in final settlement of the force of government. While the
great mass of promises to pay are met without an appeal to laws or courts,
the whole is put in such form by customs of society as to involve the
possibility of such arbitration. Government takes no note of debts which
cannot be proved in court, and the forms of legal proof are well settled.
All the formalities of credit in systems of book-keeping, forms of notes
and bonds, and wording of stock certificates imply the possibility of
final adjustment in a court of equity. For this reason, governments
establish some form of currency as the representative of value, which must
be accepted by the creditor in complete satisfaction of a debt. This is
naturally what custom has established as the standard of value, but
anything else may be substituted if the government so decides. Thus,
Massachusetts once made bullets legal tender at a certain price, up to a
certain number. Our government now makes copper cents and nickels legal
tender to the value of twenty-five cents.

The current notes of the government are usually legal tender, unless
otherwise stipulated, whatever their current value. This means simply that
the government through its courts secures the collection of _bona fide_
debts, in terms of value defined by law or by contract. The assurance of
final settlement, given in this way by the government, is one principal
element in extending credit on time. Without such machinery credit would
be confined to intimate acquaintances and very limited time.

_Expanding credit._—All the machinery of credit tends to bring the
floating capital of a country within the reach of great enterprises. If a
body of men have faith in some great undertaking, like a continental
railroad or a Panama canal, their faith in the enterprise is easily made a
basis for the faith of others. Even the small accumulations, the savings
of day laborers, may be turned to account in such great enterprises if the
popular expectation of success is thoroughly aroused. The greater the
undertaking, the greater is the general faith under skilful leadership.

The same principle applies to undertakings of less national character,
like immense factories or combinations in a trust. The stock of such
enterprises is often widely distributed, and when profits are fairly
begun, even upon a small scale, the chances of gain on the value of the
stock are made more prominent than the actual profits of the enterprise.
It is not uncommon to find enterprises starting with the expectation that
a large portion of this stock will be paid for out of the profits of the
business and the profits on a portion of the stock to be sold. This is
especially true when business is reviving after a period of depression. It
is one of the first symptoms of the return of a speculative spirit. With
the rise of such enterprises there is almost sure to be an advance in
prices of real estate, though it follows later.

The starting of a railroad line involves the purchase of station sites,
and almost surely the laying out of villages at intervals along the line.
The promoters of the railroad are likely to be promoters of town sites as
well. And this increased demand for farms and lots brings a larger faith
in the future of these locations. Everyone who can save a little from his
income hopes to increase that little indefinitely by investment in the
chances of increased value of a lot or a home. Under such circumstances
the machinery of credit moves easily, and one does not hesitate to extend
his credit to the utmost for the purchase of what is increasing in value
each day. The result is a temptation to larger expenditures.

People who are counting their future gains are sure to have larger wants,
and their seeming prosperity in accumulation of value gives them a larger
credit among dealers. The next step is an enlargement of sales of current
supplies of all sorts and an increasing manufacture of such supplies to
meet the increasing wants and naturally enhancing price. Soon the staple
products of farms and factories and mines become themselves objects of
speculative purchase. Men buy simply to hold for the increase in price.
This speculation itself is a temporary cause of success, and goes on until
some accident somewhere reveals the exaggerated proportions of
expectation. Sometimes this speculative spirit continues for a series of
years, in which case it pervades every circle of producers and consumers.
Sometimes it is temporary and local, being produced by some special
undertaking and destroyed by a special failure. Sometimes the death of an
enterprising man destroys the "boom" he has created. When speculation is
rife over a large territory, everybody is employed to his utmost ability,
and the times are said to be good. All property of every kind is counted
at its highest price in the mind of the owner, and all credits are easily
extended from month to month, or from year to year, because of the
universal faith. There seems to the casual observer no reason for doubt,
and the most conservative judges overestimate the ability of the people.

_Financial crisis._—At such a time as that described, when credits of
every kind are interlocked and expectations are high, the so-called
floating capital of the country, under indefinite promises to pay, is
gradually being actually locked up in huge plants of machinery in great
railroad routes, in vacant city lots, and uncultivated farms held for
future sale, or in warehouses and elevators full of the products of
industry,—especially such products as do not immediately deteriorate in
quality, such as grains, cloths, raw materials of every kind and machinery
of general use. This is apparently the property of the holders, but
against it are the claims of all those who have contributed by loans on
time, by credit for sales, by labor unpaid for and by provisions on
account. One can easily see that with all these people bound together by
credit a single failure may be far-reaching in its effects. The inability
of a single man to meet his promises, if those promises are widely enough
distributed, may bring a panic among his creditors, their creditors, and
so on down to even the solid men, supposed to hold the accumulation of
years untouched by speculation. For every channel of trade is full of
credit, which now everybody loses.

In 1873 the promoter of the Northern Pacific railroad had borrowed
everywhere, even the small savings of widows and workmen, through his
intimate connection with banking. All this accumulation of savings had
been expended for labor upon what was only a huge embankment, making no
possible returns to any owner. The only possible means of continuing the
work was continued borrowing, or the sale of additional stock. The revenue
promised upon the means already used could be given only by larger
borrowing. On a certain day the amount to be borrowed was less than the
amount to be paid, and the failure of Jay Cooke to meet his expectations
and promises was known. Within six hours every village in the land felt
the disaster. The financial crisis was seen and realized. Bargains
partially completed were stopped in the midst. Materials about to be
shipped were held at the station. Deposits at the bank were needed
immediately, notes due at the bank could not be extended, collectors of
accounts appeared at every corner, thousands of workmen directly and
indirectly employed on the great railroad building were out of employment
and out of wages due, the banks were unable to furnish even paper currency
to their depositors, and the whole world felt absolute loss of confidence
in any undertaking or any expectation.

I select this particular panic because its beginning was so comparatively
simple, its progress so evident and its results so well defined. Any other
failure of speculative purpose might have been equally disastrous. It
could hardly have been so rapid, because it could not have been so
directly distributed among the masses of the people. Yet the machinery of
credit is such that any considerable failure in enterprise or speculation
is felt everywhere. The banks are at once called upon for larger loans and
for deposits together, an impossibility in the nature of the case. All
exchangeable forms of credit are immediately offered in market at
constantly decreasing prices. Current credit of every kind is checked, and
exchange is limited to the barest necessities. All productive energies are
practically stopped, except such as are out of the line of daily
exchanges. Very soon all domestic expenses are reduced to the lowest
notch, domestic help is discharged, the well-to-do undertake to help
themselves, and the poor are left without resources. It seems as if all
the wheels of progress had stopped.

_Hard times._—Succeeding such a crisis must follow hard times. Wage
earners generally are without employment; manufactories have put out their
fires; the warehouses full of goods are under attachment; farm produce is
moved very slowly to market; fancy stock of horses, cattle and sheep are
unsalable; farm mortgages are foreclosed as rapidly as the laws allow;
skilled workmen meet absolute necessities by half time, and common
laborers move from place to place in useless search for employment, their
families being barely kept alive by charity. The fact that warehouses and
granaries are full leads to the assumption that over-production has
destroyed the market and the demand for labor. This is quite probably true
of all articles of such a nature as to be held for speculative purposes.
The staple grains and fancy live stock are illustrations of these. An
universal over-production, so long as the articles produced are adapted to
current wants, is impossible, since every man’s product, if needed, is his
means of securing another man’s product to meet his own wants.

On the other hand, the suffering of multitudes and the abstinence of
everybody lead to the supposition that under-consumption, or failure to
use what we might, is a principal cause. It is undoubtedly true that fear
of absolute want checks consumption of articles within our reach. This is
shown by the immediate increase of consumption as soon as the fear
subsides. This, however, is a symptom of the times, rather than a cause.

Some theorists account for the suffering by the ratio of the currency to
the population, claiming that a larger circulation of money will fill the
empty pockets of the needy, forgetting that money circulates only through
the very channels of trade which something else has stopped. It is quite
true that any financial legislation involving uncertain results
contributes materially to the doubt which stops the machinery. All efforts
to make money worth less by legislation have invariably extended the
period of hard times. Almost every conceivable cause has been assigned, or
given as a partial explanation, for the stagnation of trade. A careful
analysis of these recurring periods in the history of our country in 1837,
1848, 1857, 1873, 1887 and 1893, shows many partial causes of disaster in
exchange, affecting the peculiar nature of each panic, yet one especial
cause is evident in them all. That cause is large investment in fixed
capital from which no immediate returns can be expected.

_The chief causes of hard times._—Prior to 1837 there was a rapid
development of new country, as shown from the greatly increased receipts
for public lands. Every new home involves a permanent investment of
somebody’s savings to the extent of at least $1,000. With the settlement
of every new region a considerable waste in real estate speculation is
found. A similar expansion of territory occupied by settlement immediately
followed the Mexican war, and was a chief cause of reduced capital and
consequent lack of employment.

The crisis of 1857 was preceded by enormous waste in the Crimean war. To
that was added the loss of a season’s labor in a bad harvest and increase
of cost of living, reducing profits. The latter cause was incidental to
this particular season, but added materially to the suffering. In this
country there had also been an extensive enlargement in iron works and
woolen factories without corresponding products.

The panic of 1867, felt widely outside of America, was preceded by immense
waste of property in the civil war of the United States, a considerable
portion of which expense, on both sides, had been borne in Europe, either
during the war or immediately following, through the sale of bonds.

The panic of 1873 followed immense investments of wealth in fixed capital,
as illustrated in the Northern Pacific railroad, previously mentioned.
Between 1865 and 1873 30,000 miles of railroad were built in the United
States alone. This permanent investment involved immense debts at home and
abroad, _with all the profits yet in the future_. The fact that imports
increased at the rate of nearly $100,000,000 a year in 1871 and 1872
indicates the extent of expenditures. The Franco-Prussian war had also
wasted great energies.

The hard times in America, shown especially in the price of farms, about
1888 were immediately preceded by enormous investments in unsatisfactory
farming lands and unneeded town sites, as well as in railroad building.
Forty-nine million acres of land were sold by the government, and more
than 12,000 miles of railway were built. Enormous expenditures were also
made for school-houses, court-houses, and other public buildings by sale
of bonds. The actual crisis was perhaps delayed and a new speculation
fostered by large payments on the public debt. Again, there was expansion
of credit and large investment in railroad and city building in
anticipation of future growth, during which the small savings of
multitudes had been gathered up through the guaranty loan companies of the
West. Upon the top of this came the expenditures of 1892 and 1893 on the
great World’s Exposition. The expenditure of savings in attendance upon
the exposition curtailed the abilities of hundreds of thousands of
families. So the panic of 1893 was in no respect an exception to the rule.
No sufficient data are at hand for showing exactly how great has been the
expenditure in unproductive enterprises, but a reference to Chart No. IV,
p. 83, giving the development of railroad building in this country, will
show how this form of enterprise in every case outran the increase in
population immediately preceding the hard times.

It is evident to any student of the question that extra large consumption
of floating capital has immediately preceded every period of supposed
over-production. The chief over-production has always been in the
machinery of production and trade, including the costly settlement of new
land. The immediate dismissal of labor employed in such enterprises brings
greatest suffering, because such laborers are always least forehanded and
are in large numbers homeless. Such laborers also most readily become
competitors for any kind of a job, and so affect current wages of those
still retaining their places. This emphasizes the unequal distribution of
wealth, and leads multitudes to call for a redistribution, by fair means
or foul. This increases the distrust of community and the disposition to
hoard wealth in the form of money, while checking every desire to build
for the future.

_Remedies for hard times._—The means of recovery from such a disaster are
less easy to see than the causes. We know, in fact, that the world does
recover confidence among enterprising men and confidence in the future,
sometimes surprisingly soon. We can see some of the steps by which the
burden of debt is diminished and hopes are revived. In the first place,
some method of settlement out of the usual course is adopted. Most obvious
is an agreement among banks to carry on the usual machinery of exchanges
through checks, drafts and a clearing house without the use of currency.
This is called suspension of payment. It holds the deposits steady while
the transfer of ownership is easy. It saves the sacrifice of large credit
to meet the panicky condition of small trade, and it checks the
disposition to hoard money in out-of-the-way places. The actual failures
are thus confined to those actually engaged in the wasted production or
directly involved as creditors of such persons. The failures in 1873 were
said to have been nine in each thousand business houses; those of 1893
were thirteen in a thousand. The actual failures among farmers are
confined almost entirely to those who have been caught in the speculative
spirit of investment in more land for the sake of increasing prices or
have borrowed capital to be used in other speculation. A few only have
wasted their substance in expensive homes and luxuries.

If all forms of indebtedness could circulate freely, the final result in
balancing debts with debts would be quite readily reached, and the actual
losses would be found less than is generally supposed. An equal loss
without distrust, if that were possible, would be met with new enterprise
and extra energy instead of despondency.

The various remedies offered in proposed legislation frequently add to the
delays in the recovery of confidence. The issue of paper currency, while
universally welcomed by the most wasteful of investors, makes those who
still have property more doubtful as to the future. The proposition to
increase demand for labor by great public improvements comes at a time
when revenues are diminished and almost surely is coupled with a proposal
of government scrip. To increase the burden of taxation at once, when the
mass of the people are already burdened and distressed, is impossible. The
issue of scrip, though actually a costly method of taxation, seems to the
unthinking a way of making something out of nothing. The certain effect is
to extend the period of doubt. Laws affecting the coinage and character of
legal tender, since they disturb the relation of borrower and lender
indefinitely, postpone readjustment of confidence. Changes in the tariff
laws are liable to have the same effect because of uncertainty as to where
the influence will be most felt. Special legislation with reference to
contracts for labor, however well intended, are sure to hinder adjustment,
and all agitation in favor of new experiments in government enterprises or
in legislation as to property makes less available the capital and
ingenuity of the people.

_Cure for hard times._—The only genuine cure involves a restoration of
faith in enterprise. It is almost as hard to establish after a commercial
panic as after a panic in an army. The remedies best worth study are
really preventives, in the form of checks upon undue expansion of credits
and distinct limits as to extension of time. Some have gone so far as to
wish there were no laws for collection of debts, since this would actually
prevent the great bulk of indebtedness; but it would also destroy the
essential foundation of daily credit, one of the most productive machines
of exchange. The best that can be done is to make more explicit the laws
against frauds, and to limit easily transferred forms of credit to those
whose foundation can be carefully inspected. It is very desirable that all
corporations dealing in credit should be subject to the strictest
examination by a public officer.

_Short credits vs. hard times._—More important than legal enactments are
the business habits of a community, and these can be cultivated by
business men. Farmers, of all classes of people, can foster such customs
of careful inspection of business standing and frequent settlement of
accounts and careful loaning as will make a panic less possible. They
need, however, a wider acquaintance with the machinery of business and a
firmer faith in the advantage to all concerned of cash payments and
absolute promptness in all settlements. The moral power of such a body,
amounting to one-half the population, most of whom are solid owners of
property, would, if well informed and united in principle, check most of
the extravagances in expenditure and investment which waste the capital of
the country.

_Bankruptcy._—In closing the discussion of hard times, it is proper to
mention a device for removing in part the discouragement of debts where
ability to pay is entirely wanting. Of course, a settlement between debtor
and creditors, in which the property of the debtor is divided among his
creditors, is always available, leaving both at liberty to begin business
anew with a knowledge of the worst that can happen. It seems possible to
contrive bankruptcy laws in such shape as to secure a fair settlement of
insolvent business whenever the business is evidently failing. If
discovery of fraud or misrepresentation could cause immediate intervention
in a bankruptcy court, the surest possible check would be brought to bear
upon improper credits. It is certainly to the interest of all honest
creditors and debtors that a fair settlement should be reached as early
after insolvency as possible. Such bankrupt laws should be as wide
reaching in their uniformity as government permits. If a national bankrupt
law is not sufficient, the states should combine to establish in each the
same general system.

Chapter XIII. Technical Division Of Labor.

_Economy of minute division._—The advantages, limits and disadvantages of
minute division of labor are worthy of a more careful discussion, since
they bear upon every kind of enterprise and all classes of labor. A large
part of the century’s progress in manufacture, and especially the
development of machinery in production, has grown out of the extension of
this principle of division. An analysis of the particulars by which great
saving is made in the cost of production will help us not only to
understand the facts better, but to extend the principle in various
directions. In the outset it implies the united effort of several workmen
in succession and in close combination upon a single product. It is said
that a pocket knife, which we buy for fifty cents, has involved in its
manufacture the services of seventy-two different persons, doing different
things. The perfection of its finish depends upon the perfection of each
of these persons in his single act. The cheapness depends upon the
readiness with which each act is performed, and the utility of every kind
of power employed.

A good illustration of division of labor may be found in the process of
butchering hogs in a large packing house. The live hogs enter the building
in the upper story, while able to carry themselves on their own feet.
Their weight then moves them easily on through all the stages of the
process. Two men catch the hogs by hooking a short chain about the hind
leg and slipping it into the notch of an endless chain power, which hoists
them to the carrier, a continuous track upon which a roller attached to
the chain may easily move. A single man wields the knife which sticks the
hogs. Two men are sufficient to manage the scalding trough. One directs
the machine through which the body of each hog is jerked to remove by
brushes the mass of hair. Four, perhaps, may handle scrapers as the hogs
are dropped upon a platform, and six more may use the shaving knives by
which every particle of hair is removed. Two are needed with different
tools for beheading; and one makes place for the gambrel. Two remove the
feet at opposite ends, three with different implements are needed in
removing entrails, two are required to halve the body, while another gives
it the final washing. The result is that each hog has passed from the pen
to the cooling room in less than ten minutes, and the hogs pass under the
hands of these several men at the rate of eight a minute. Each man uses
but one tool in one particular spot, and repeats that single act
constantly. By a similar division of labor eighteen men are employed in
skinning a single beef, a different knife being used for each particular
part of the body, and all pass in regular routine over the ten or twelve
beeves undergoing the operation. The rapidity of this motion can scarcely
be conceived by one who has witnessed simply the butchering upon a farm.
All this is due to a minute division of labor into as many tasks as there
are different operations, each man having, if possible, but one distinct
kind of motion. The saving is not only shown in the increased quantity of
work, but in the uniform quality as well. All the workmanship is
essentially perfect. These advantages appear more strikingly in the
manufacturing arts, where the so-called factory system has brought
division of labor to perfection.

A brief analysis of the advantages, limitations and disadvantages is worth
our study, because of their possible application to farm industry. So far
they have been felt chiefly in contributory manufactures of farm
machinery, facilities for transportation, with all attending manufacture,
and the factories consuming raw materials furnished from the farms. They
apply equally well where division of labor is profitable in farm
operations.

_Extra efficiency of labor._—Most obvious advantage is seen in the saving
of the time of a laborer, both in learning the essential parts of his
work, so that apprenticeship is shortened to one-tenth or one-twentieth of
the time required for a full trade, and in the far greater dexterity with
which he works without change of tools or change of location or
distraction of attention. Thus a raw hand in the course of a few months
performs his single task more rapidly and more perfectly than an expert
workman who must know and practice all the parts of the business. While
such a hand can scarcely be called skilled in a technical sense, in the
narrow application of skill to one action he may be more perfect than any
skilled workman. The fact that each man’s work passes immediately under
the inspection of another, whose motion must exactly correspond in time
and adjustment, makes any costly oversight in the shape of executive labor
very much less, since every step in the process tests every other step. It
is also found that minute attention to a single detail tends toward the
highest improvement by invention of every tool and machine employed.

While this system is not likely to foster the inventive spirit which
brings out entirely new principles in machinery, because the work grows
easy by familiarity, it does make the workmen quick to invent the little
devices that perfect such machines. A broader culture and more general
training discovers the difficulties and devises the entirely new method:
the worker hits upon improvements. Watt invented the steam engine, but a
lazy boy employed to move the valve hit upon the automatic movement.

_Increased efficiency of capital._—The efficiency of capital in production
is greatly increased by minute division of labor. The shop room required
for each man is reduced to the minimum space for himself and his material.
His tools, while the most perfect possible, are the fewest possible.

The machinery and motive power are used to their utmost capacity
constantly, and the economy of larger engines and machines is well known.
Possibly one-fifth of the power required to move all the machines used by
ten men working as independent tradesmen would provide better motion, more
constant and cheaper, for the ten working together under division of
labor. The waste in starting and stopping of machinery is almost entirely
avoided, and the condition of the machine for doing its work well is kept
up to the best. A most important saving is in diminution of waste. The
shortened apprenticeship and the superior dexterity make waste from
blunders almost nothing. Still more noticeable is the saving from any
waste of superior abilities, either strength or judgment, upon actions
requiring little ability.

Under minute division of labor a strong man is kept where he is needed and
the child may serve where his powers are sufficient. The efficiency of
women is recognized wherever applicable, and all the workers have their
full abilities made constantly useful. Moreover, the circulating capital
represented in the raw materials is kept in use much less time than under
the less effective system. Since any article of manufacture passes through
all the operations upon it in very much less time, the interest upon
capital employed in holding the material and in supporting the labor
during its changes is indefinitely less. The quicker returns from this
more rapid manufacture are everywhere recognized.

_Limits of division._—With all its advantages, division of labor is
limited by circumstances. It can never be applied where, because of poor
roads or peculiarities of temper or habit of life, the workers are
naturally separated. The necessary isolation of the farmers for the sake
of space makes any combination for the sake of economy in dividing their
tasks almost impracticable. Even where farms are small, few advantages
from division of labor by different kinds of work can be adopted. The
farmers are too far apart to work directly into each other’s hands. It is
limited, too, by the natural demand for the products of labor. If the
labor of one man can supply all need of iron work in his community, there
is no possibility of employing ten, even with a hundred times the
effectiveness. This is well illustrated in the country store, which sells
everything over the same counter. Not even the grocery department can be
separated until the demand is sufficient to support two store-keepers in
two stores.

But even in places where division of labor is stimulated by demand, it can
go no further than the number of distinct motions required in carrying
through the manufacture of the article made. Indeed, economy requires that
each motion should make a complete round, so that the work begins and ends
for each worker with everything in the same position. The exception is
when a motion with great exertion requires an interval of rest before a
second. Two men with a cross-cut saw, although their motions are alike, do
more than twice as much as one man, because of the relief in pushing back
the saw.

A most important limit, however, is made by the inconstancy of natural
forces employed in any industry. This is notable in all the processes of
agriculture. No matter how many workers combine in raising field crops,
they can gain but few advantages from dividing their tasks minutely. Each
laborer must be employed through the year, and the change of seasons
requires that he be ready for all the operations of the different seasons
in planting and tilling and gathering through all the succession. Ordinary
changes of weather, cold or hot, wet or dry, windy or calm, make necessary
changes in his labor. The uncertainties of each year as to moisture and
heat require a variety of ventures, so that no farmer dares confine
himself to raising but a single crop. Even under the most favorable
conditions the different stages of growth are so intimately related that
the watchfulness of the same interested manager is required at every
stage. A delicate plant must be carried delicately, even in transplanting.
More important still are the conditions of fertility, which make a
rotation of crops and even mixed farming essential to highest
productiveness. If each field must have its definite series of cropping
and tillage, together with the application of animal manures, the
advantage of these combined operations under the oversight and labor of a
single farmer outweighs the advantage of more perfect division of labor.

The result of all these limitations, so obvious in agriculture, is that
farm work is but slightly more effective or more continuous than it was
hundreds of years since. While improved machinery has immensely reduced
the cost of certain processes, a year’s labor involves innumerable changes
of employment, so that no farmer inquires, in hiring his help, for an
expert in any direction, but wants a man of all work whose skill is
largely ingenuity in adjusting himself to the constantly changing duties.

_Suggestions of fuller division of farm labor._—It seems possible, with
the improved condition of agriculture and the nearness of ready markets,
to attempt a larger use of division of labor in several directions. A
group of farmers, well acquainted with the possible advantages, may
classify their farms as grain farms, dairy farms, breeding farms, feeding
farms and market-gardens. Such a community of interests would find not
only the advantages of exchange between each other, as well as the rest of
the world, but would soon build up bodies of expert young men in the
several specialties, whose work would be at a premium everywhere.

With these interests recognized, still greater division of labor is
possible. An expert in the care of trees and prevention of diseases to
fruits and vegetables can quickly find employment, and may perfect himself
in all the requirements of successive seasons. A dairy expert may find use
for his superior knowledge and skill on successive tours among the dairy
farms. Every farm large enough to employ several men gains some of the
advantages of division by making each man responsible for a definite part
of the farm work. The less the workmen are handled in gangs, the better
each one’s abilities can be trained to meet his responsibilities. These
possibilities are greatly increased by every device for diminishing the
effect of weather changes. Under-drainage gives large advantages in this
direction from lengthening the time during which the same operation can go
forward. Means of protecting crops in the field serve a similar end.

Perhaps the easiest application to be made in any neighborhood is a system
of marketing, through keeping an expert collector and distributor of
produce busy in a limited region. All the waste of articles too few to be
carried to market is practically saved, and constant association with the
markets of the world is made possible. Especially is this applicable to
small fruits, milk, butter and eggs. If this market wagon can also serve
to carry the daily mail for all the neighborhood, the problem of rural
delivery would be almost solved with a trifling expense. Even where such a
measure is not possible, neighboring farmers may approach such results by
combining for market and mail days in a circle, each taking a different
day of the week when he will do his neighbor’s errands.

With increased confidence in mutual interests, it seems possible that
specialists in various directions might grow up among a united circle of
farmers. The use of machinery and blooded stock can certainly be greatly
increased by careful adjustment of interests. Great improvements in seed
and in methods of culture may be discovered by agreement among a body of
farmers that certain individuals shall make a specialty of those
improvements. It is even conceivable that a rotation of crops might be
carried on upon a dozen farms, while each farmer gives his attention to
his specialty. It would require, of course, a much closer combination in
credit with each other than has yet been found among farmers. At the very
best, however, farming must still remain the most prominent illustration
of limitation in the application of the great labor saving and capital
saving by minute division of labor.

_Disadvantages of extreme division._—The great addition to wealth so
distinctly traced to division of labor is not gained without some
disadvantages to the community. Almost certainly the inactivity of body
compelled by confinement to a simple portion of a trade induces physical
weakness. The health of workers in factories is often uncertain, and the
average of life is known to be reduced. While steadiness of employment
contributes to steady habits, the reduced activity contributes to
weakness. Perhaps even more perceptible is the tendency toward narrowness
of mind. Ingenuity is developed in the “Jack of all trades,” although his
information in regard to each one may be limited. The man who knows all
about a very small part of one trade has little to stimulate his mind to
exertion. Indeed, habit is liable to make his very action and judgment
purely automatic. The fact that the raw hand can be quickly made effective
makes the stimulation to self-education even less than in ordinary
circumstances. The constant dependence of each laborer upon the routine of
his work and his absolute dependence upon authority for his employment
lead naturally to lack of self-control. A man may grow almost like the
machine he handles, responding only to the demand of his overseer. These
tendencies foster also a growth of class distinctions. Such workmen are
thought of as operatives, held in a class by themselves. They may be
expected to know little of the interests of community outside their own
circle, and are often distrusted in matters of common welfare. They
themselves distrust the leadership of those upon whose management they
depend for employment.

All these disadvantages may be overcome by more community of interest
among workers of all classes for their comfort and improvement outside
their tasks. It is a fact that associations for the advancement of workers
in social and political freedom and mutual self-support have grown most
rapidly in the neighborhood of factories, where division of labor is
extreme. A truly philanthropic spirit may be in entire agreement with the
massing of labor for greatest accomplishment. The places of least
development are always found where crowds of laborers work in mere gangs
or wholly unorganized. The wholesome influences surrounding rural life are
everywhere granted so far as physical development goes. They may also be
granted in communities of general enterprise with reference to ready
ingenuity and judgment. The farmer’s boys moving to the cities carry not
only physical strength and endurance but a mental capacity for ready
adaptation to emergencies which develops into wisdom. The majority of
leaders in great enterprises are still expected to grow up on the farm.
This is undoubtedly in part due to the impossibility of cramping by
extreme division of labor. At the same time a partial application of its
principles is needed to bring leisure for some general culture and larger
acquaintance with the progress of the world. As the evils of factory life
can be cured by attention, so the weaknesses of rural life can be removed
by a careful study of its needs. True education in both quarters is
essential as a means of mutual understanding and adjustment of interests.

Chapter XIV. Aggregation Of Industry.

_Great combinations._—The tendency toward improvement by combination of
laborers through the possibilities of division of labor leads to still
larger combinations in so-called factory systems, and even to a
combination of factories in large corporations. This tendency has been
especially marked since the multiplication of labor-saving machines and
more perfect systems of transportation. Indeed, the possibility of
extensive machine using, as well as extended division of labor, rests upon
a combination of many forces under one general management. Beyond these
advantages, saving is found in the necessary care for waste products,
which often may be turned into profit, greater freedom of action from
closer community of interests, greatly enlarged facilities for marketing,
and the best possible devices for handling and transporting products.

All these advantages in great establishments are readily perceived, yet
some have doubted whether the gains are so distributed as actually to
increase the general welfare. Farmers, perhaps, as readily as any persons,
distrust the power of great corporations. Wage earners, generally, in the
expression, “corporations have no souls,” express their distrust of
results. Yet so far as they actually introduce improvement in production
so that variety of products is increased and the cost of production
reduced, the whole community gains in large measure the total saving. Any
one can realize the advantage by study of a single article of every-day
use. In the middle ages the cloth in a garment was worth eight times the
wool from which it was made. Now the value is chiefly in the raw product.
The price of iron affects every farmer through the cost of his tools and
implements or the quality of either. Compare the modern steel hoe, first
in quality and then in cost, with the hoe of fifty years since. Then
measure that cost in its relation to a day’s work, as compared with the
same measure in 1850. All are in this way benefited by reducing the
exertion needed to procure any one article of use, since more exertion may
be left for meeting other wants. If machinery and improved methods have
entered less into the farmer’s home life, he can find his own advantage
from the range of such improvements in other directions by thinking what a
pound of butter will buy for him today as compared with what it would buy
before the period of machinery. (Chart No. XIV, p. 106.)

The introduction of labor-saving machines is a direct addition to human
power and economy of time, and a means of converting useless material to
meet human wants. That a new machine throws out of employment workers in
that particular field brings a hardship which ought to be shared by the
multitude who are benefited; but the probabilities are great that the
improved method of manufacture will so increase the uses for the product
as to bring into employment a far larger number of laborers. The spinning
jenny threw out of employment several thousand spinners in the old way,
but in twenty-five years the cloth-makers in England had increased from
less than eight thousand to three hundred and twenty thousand. The
machines which in 1760 were thought to have ruined some eight thousand
cloth-makers, in 1833 employed two million persons. This is only a
striking illustration of what has happened in every direction. It is
perfectly evident that communities using the most machinery pay larger
wages and far larger welfare to every laborer. It is not too much to say
that the actual comforts within the reach of every laborer have been more
than doubled within the last hundred years.

A few illustrations of the actual saving in cost of production and
distribution may be interesting. Complicated machinery can never be used
in producing upon a small scale, just as a small farmer can never afford
the use of a harvester. All the benefits of invention applied to machinery
have come through its use on a large scale. A factory making a thousand
pairs of shoes each year cannot use such machinery as the one making a
million pairs will need. Each one of the million pairs, therefore, costs
the world less than each one of the thousand pairs. Again the large
establishment, like an immense saw mill, being obliged to care for its
sawdust, may devise a way of making this waste product of use in pressed
blocks for kindling, or possibly in buttons or wood ornaments. The waste
of the shoe shop is only a nuisance, but the waste of a great shoe factory
is ground and pressed into all sorts of useful forms. All such saving of
waste is so much added to the world’s store of wealth.

That the large establishment saves unnecessary friction is shown in the
order of any great mercantile establishment. It is still more noticeable
in immense iron works separated from every other form of industry for the
sake of freedom of motion. In these ways, principally, there is a saving
of labor in the huge department stores, although the facilities for
advertising, advantages for transportation in large bulk and the
employment of expert salesmen in every department contribute to the same
result. The general expenses of an ordinary store are estimated at nearly
40 per cent of the difference between wholesale and retail prices. The
same expenses in the great coöperative store at Paris, the Bon Marché, are
only 14 per cent. While the controllers of capital in the large
enterprises have the first advantage of such saving, the very necessities
of their business compel a sharing with their employés and with the
public.

Even the so-called trusts, supposed to be contrivances for controlling the
market, have really served in many instances the welfare of the whole
community. A biscuit trust, in handling the most of the crackers in the
market, saves great expense of advertising, a still greater expense in
sales by traveling salesmen, or drummers, and immense waste of stock on
hand through condensation into fewer warehouses, reduces its insurance to
actual cost, and has brought to the public by means of all these savings a
greater variety of crackers of almost uniform quality suited to the
fluctuations of demand at a reduced price. No one doubts that even the
Standard Oil Company, by means of its savings through consolidation, has
at the same time preserved the general supply of oil from waste and
brought it to every man’s door, with a great improvement in quality,
comparative safety in use, and an almost constantly diminishing price.

The record of facts shows that with all the tendency to great
aggregations, and so to concentration of power, masses of wage-earners
have had their hours of labor shortened, have gained facilities for
culture in libraries, lectures and voluntary associations, have gained
habits more systematic, and regular methods of life with greater constancy
of employment, have better protection of civil rights, better provision
for education of children, a larger insurance against accident, and a
better provision for hospital care when disabled. The same system has
provided methods for economical use of savings in joint stock companies,
and cultivated a general unity of purpose and appreciation of others’
welfare. Withal it has given to the mothers of families an immense
increase of leisure for home-making, and at the same time has opened
ranges of employment for women without homes. Even the rate of wages has
not been diminished, but rather increased, as is shown also by actual
records. That the great establishments cannot pay less than average rates
is evident from the multitudes seeking to enter their employment.
Moreover, they must pay their workmen regularly or appear bankrupt.
Employers on a small scale can easily postpone upon all sorts of
pretences, and failures are frequent. Suppose the distribution of milk in
New York city were under a single management. A systematic division of
territory would at once reduce the number of milk wagons by at least
one-half. The certainty of responsibility would insure uniform purity, and
means of transportation could be brought to perfection, so that the amount
now delivered would actually cost perhaps not more than two-thirds the
present price. While at present prices the profit would be large, the
necessity for investing those profits would at once call for extension of
the trade by reducing the price, and at the same time increasing the
proceeds to farmers somewhere who furnish the larger supply. The better
quality and larger quantity for the same money would certainly increase
the demand, and probably with direct benefit to the milk-raisers. The
essential element of distrust of individual management in large
enterprises as to fair distribution of the profits stands in the way of
such a combination.

_Limits to aggregation._—It is easy to see that the advantages of great
establishments cannot always be gained. The limits of demand restrict the
possibility of profit in supply. The element of space in connection with
the market and in relation to the buyers makes an important limit. Special
advantages of location on a small scale may outweigh the advantages of
aggregation. Utilization of forces in nature, like pure water or water
power, or special qualities of raw materials, may outweigh all other
considerations. In general the requirement of interested oversight in a
single superintendent has checked such growth. The more perfect, however,
the system of management, the less effective is such a limitation. It is
possible with extreme division of labor to make distinct rules take the
place of personal direction, and oversight is reduced to a minimum. All
these limitations serve to check the too rapid growth of this factory
system and to hold in check the tendency to misuse of power in possible
monopolies. Any raising of prices which diminishes the demand destroys the
advantage of a great combination. It makes its profits by the quantity of
its products sold. A reduction of the quantity much more certainly than a
reduction in price destroys the advantage. Hence a monopoly gained in the
ordinary progress of trade can seldom operate for any long time to advance
prices, though it may destroy the competition of smaller establishments
completely.

_Disadvantages of aggregation._—It is impossible to overlook a
considerable number of disadvantages to the welfare of a community in a
too rapid aggregation of its industrial enterprises. It changes large
numbers of laborers from independent workers to wage earners, and thus
makes them a part of the great machine, with an immense momentum in
production which does not so readily yield to the fluctuations of demand.
An independent worker is not worried if he has a leisure day. The great
establishment cannot adjust its machinery to a lessened demand without a
uniformity of reduction in wages or time of employment, or else the
discharge of numbers of employés. This is one of the causes of
over-production so evident in certain directions upon the coming of
financial crises. Another great disadvantage is seen in the breakdown of
any such enterprise. Then its employés, trained for its particular uses,
find themselves not only without employment, but unfitted to drop into
other niches of usefulness. The absolute routine of the great
establishment so fixes habits as to make very difficult a change of work
except in line of promotion in a similar organization. The dissatisfaction
and distress from such absence of employment is more apparent than in
ordinary poverty.

The strongest objections, however, to the great aggregations are found in
the possibility of oppression through a monopoly of business, and
therefore almost absolute control by a few persons of the interests not
only of a large body of employés, but of every competitor upon a smaller
scale. A large combination practically compels all to yield to its
methods. The certain economy of methods has led to the statement, “Where
combination is possible, competition ceases.” The common saying,
“Competition is the life of trade,” becomes untrue whenever that
competition implies a costly service. Competition is supposed to reduce
cost by stimulating energy and ingenuity. But when that ingenuity can be
better applied in combination, the result is the destruction of
competition. Competition may drive the milk wagon faster, but combination
will deliver more quarts of milk in the same time. The natural opposition
to combination rests upon the same ground as the opposition to improved
machinery. It certainly throws out of their ordinary employment a
considerable number of independent workers.

This power of the combination is a constant temptation to unscrupulous and
grasping managers to increase their advantage by vicious discrimination
and false competition, expecting the destruction of others’ business to
increase their own. The largeness of the operation makes more plain the
injustice of the maxim, “All is fair in trade.” The final dangers of
combination are thus likely to be overestimated. It is not true that any
larger proportion of false methods of business enters into the large
establishment than into the small, and the possibility of profit in a
great combination is quite as truly dependent upon the universal welfare
as anywhere. The same extremes of prices mark the range for these
establishments as for any others. The price cannot continue higher than
buyers will pay with an increasing disposition to buy more. It cannot
remain lower, of course, than will enable sellers to continue living as
well as in any other business. Checks upon increased price come as
certainly from substitutes as from rival production, and the ability of
the people will always gauge the amount of sales. The expression “What the
trade will bear,” means a price such as not to diminish consumption.
Indeed, the business principles of a great trust are essentially the same
as those in any single manufactory. A trust which stops the work of
certain factories in a combination for the sake of diminishing the output,
because of danger to prices from too rapid production, follows the same
principle as a farmer who stops raising wheat from the probability of too
much wheat in the market. The farmer would better lose the use of his land
for a time than lose the advantage of both land and labor by
over-production of wheat. In the same way a trust may wisely hold its
fixed capital unproductive till the consumption of the community reaches
the full extent of its power to produce. The power of one combination to
interfere with the workings of another by indirect methods, like
investment in the other’s stock, is an evil to be treated like any fraud.
Laws and courts are in the power of the people, and should preserve the
rights of all.

One great danger of large combinations is the tendency to govern by iron
rule instead of by fair judgment of individual cases. This is a difficulty
always connected with great enterprises, to be cured as growth advances
through establishing well trained experts whose judgment makes the rules
not only good in themselves, but well executed. The government itself is
subject to the same difficulty, as seen in the handling of an army, and is
obliged to meet it in the same way. Even the abuses often referred to from
enormous difference of wages between the executive officers and the
inferior operatives are quite possibly only a natural method for solving
these difficulties. A first-class officer has no difficulty with his men.
In general those institutions whose management is costly do better for
their workmen than the weaker institutions with weaker men at the head.

The supposed dangers from too rapid improvement in the machinery of
production are scarcely to be credited in the light of improvements during
the last hundred years. Every improvement has certainly given a larger
enjoyment and better employment to the masses of people. The enterprise
which invents better ways of accomplishing anything is the best possible
means for enlarging and stimulating the wants and abilities of the whole
people. The very profits themselves are sure to awaken larger enterprise,
and even if the accumulated surplus is distributed in so-called watered
stock, it does not cease to promote production. The wider the distribution
of stock, the more permanent and more generally satisfactory is the
working of the great combination. If employés themselves become sharers in
the business, the true interests of all are likely to be promoted. When
the savings of the multitude can be perfectly united in a joint stock
company, to furnish the capital with which the same people work, the
general conditions of wealth production for all the community are fairly
met.

_Bonanza farms._—An illustration of some effects of aggregation may be
seen in the enormous farms of the wheat regions of America. There
machinery is introduced as far as possible, all work is methodically
planned and executed, and wholesale rates in purchases and in
transportation are secured. The result is that certain staple products,
especially wheat, are raised at a cost far below the average cost to
moderate farmers. The result is large profits upon the capital invested,
in spite of the fact that such farms do not make best use of soil
fertility and certainly do not maintain the best condition of soil for
future use. This, however, is due rather to the nature of pioneer farming,
which makes immediate use of the powers of the soil, than to the nature of
the management. It is conceivable that the same ingenuity may continue the
development of large farms under greatly improved agriculture. In that
case the general effect will be much more widely felt than now. So far it
seems that bonanza farming is confined to a very few lines of production,
where everything is bent in the direction of lessening labor instead of
benefiting the soil or making homes.

There is no question as to the general advantage of small farms in making
farm homes. It is a question whether the general improvements in
agriculture, except in machinery and its use, have not come from the
diligent ingenuity of the small farmer in making most of his own acres.
Ben Franklin said, “The best manure for the farm is the foot of its
owner.” The interested constancy among small farmers certainly develops
both character and ability in any country. This fact has probably been one
reason for the small farms of large parts of Europe. One-third of France
is cultivated by owners of farms averaging 7-½ acres. Four-fifths of
Bavaria, Belgium and Switzerland are in farms of less than twelve acres.
Even Prussia has 900,000 farms of less than four acres. These farms vary
in quality from poorest to richest, and peasant farmers are not able to
boast of their wealth. Yet some of the most fertile regions are made so
and kept so by the labor employed upon the small farm. Some of them also
involve large capital. The Isle of Jersey, where land is worth $1,000 an
acre, is so divided that an average farm is eight acres. Of course, but
little labor-saving machinery reaches these places. Tillage with the spade
costs five times as much as tillage by plough; yet the small farmer finds
such advantage from its use as to call it gold mining. It is probable that
the strong competition of immense farms in grain raising, possibly also in
sugar raising from either cane or beets, and in seed raising, will awaken
among the smaller farmers attention to finer grades of farming and more
care for the fertility of their fewer acres.

On the whole, the tendency with increasing population is toward smaller
farms with more intensive farming. Whether our country, with its stronger
commercial energy, will follow this tendency as exhibited in northern
Europe seems doubtful. It is not likely that we shall ever admit the legal
restrictions under which division and subdivision have made their way in
that region. The question will doubtless be settled by economic conditions
independent of legislation. At present we are far from either extreme, as
can be seen by reference to Chart No. I, p. 9.

_Department stores._—Increasing application of the principles of
aggregation is seen in the so-called department stores, which not only
deal in everything but with everybody, extending their trade by mail over
large territory. The very evident economy of such aggregation of capital
for purposes of exchange appeals so directly to the customers as to make
the sufferers in competition cry out in vain for restrictions. Such stores
seem sure to maintain their advantage in exchange, except with reference
to mere local distribution of every-day necessities and expert handling of
specialties. The community does well to give attention not so much to
restrictions upon this trade as to reduction of opportunity for abuse of
power over the mass of employés under control. The great establishment
will certainly bring more satisfactory conditions in time than the
multitude of small ones beyond the reach of public inspection.

_Trusts._—Of late years the advance of combination in so-called trusts has
been enormous. The underlying principles of economy already illustrated
furnish the occasion for such combinations, but the immediate advantage to
promoters of such enterprises, because of the supposed power in control of
the market, is found in the speculative interest in stocks. In this
respect the multiplication of trusts will furnish the principal weapon
against them. Yet the dangers to the industry of the country, as well as
to the safety of exchanges, from such rapid consolidation of management
are easily perceived. It is certainly necessary that responsibility for
such enterprises be definitely fixed upon the share-holders. And it is
more than probable that government inspection of such business may become
as necessary as it now is of the banking systems of our country. Some
students of the subject foresee a final assumption of absolute control by
the government of all industrial enterprises as a result of this tendency
to aggregation. The question cannot be discussed in this connection, since
it involves a wider range of welfare than can be considered under
production.

_Possible combinations for farming._—It is proper to close this chapter
with suggestions as to the possibility of gaining the advantages of
combination for farming communities without disturbing the present
condition of ownership of land. When our farmers generally shall have
outgrown the disposition to make money by emigration, so that each farming
community is made up of farm homes with a stable population, more intimate
associations for farm operations than now are possible ought to become the
rule. Suggestions have already been made as to the possibilities of
greater division of labor, but other advantages of combination in the way
of labor saving can certainly be secured. More definite business methods
and mutual confidence in a neighborhood of farmers make possible enormous
economies in the way of mutual protection and advantage. The removal of
fences, with possible combination in seeding and tillage, a universal
method of dealing with insects, blights, rusts and similar plant diseases,
the handling of products in company, and above all a perfect sympathy in
all methods of improvement, education and development of enterprise, will
accomplish wonders.

Chapter XV. Special Incentives To Production.

_Good government chief._—The productive energy of any country is
encouraged chiefly by what we call good government. This means especially
security of property rights by prevention of frauds and robbery of every
kind, and free interchange of ideas, as well as of products of industry,
and general public intelligence. It is not enough that individuals
throughout a community be fairly intelligent, but they must have
sufficiently mutual ground of intelligence in common purposes and common
interests in everyday work to bring without effort a perfectly mutual
confidence. Where these essentials are absent no devices can operate
extensively for the encouragement of energy in production. Where they are
present it is always possible to add extra incentives, to give direction
at least to the energies of the people, and perhaps to increase those
energies. Some of these incentives are too important to be overlooked.

_Premiums._—The most simple means of encouraging enterprise is found in
premiums of various kinds offered by individuals, local societies or
municipal authority. These operate by adding to the natural advantage of
energetic labor some special reward in recognition of its accomplishment.
Illustrations are familiar in connection with so-called fairs of all kinds
where prizes are distributed for the largest product of a kind, the most
profitable crop, the best article for any purpose, the greatest variety of
crops or stock, or for any conceivable device which seems to add to the
producing power of the community. Governments often offer premiums for
plans of public buildings, and sometimes for offensive weapons. All of
these operate upon the one principle of arousing special energy by
superior advantage given to the successful competitor. Its advantages are
evident. Its disadvantages sometimes outweigh advantages. It encourages
somewhat the spirit of gambling, resulting in devices for winning the
prize through false representation. It exaggerates the importance of showy
qualities for the sake of notoriety, and it fosters those jealousies which
too constantly interfere with the welfare of communities.

Both advantages and disadvantages are well illustrated in agricultural
fairs. These have proved a most admirable stimulant to better agriculture,
where clear-headed, intelligent judges have judiciously distributed prizes
of such a nature as to have their chief use in establishing the quality of
the product shown without catering too distinctly for the enthusiasm of
the crowd or for individual profit. The chief end of all such incentives
is rightly found in the educational influence from comparison of products
and the establishment of standards which the whole mass of the people may
be led to accept.

_Bounties._—A less common but extensively used incentive is in bounties.
These are advantages of various kinds, frequently in money, given by local
or general authority for peculiar services or special enterprises. A
familiar illustration is seen in the bounty of late years offered by
different states for the production of sugar, especially sugar from beets
or from sorghum. The object is evidently to arouse the energies of a
community in a special direction, with the expectation that the
establishment of a new industry will, in the nature of exchange, promote
the welfare of all. Some countries have stimulated foreign exchange by a
bounty upon exports, such as Germany now pays upon the beet sugar exported
to other countries. Of the same nature are the gifts made by local
communities for the establishment of mills, factories, railroads,
irrigating ditches, all of which are supposed to bring profit to the
community in general in much larger proportion than the special
enterprises have received. The principle is the same when bounties are
offered for the destruction of wolves, foxes and other vermin, or when
standing rewards are given for the arrest of criminals.

There can be no question of the right of a community to offer this extra
stimulant to particular exertions, but the wisdom is doubtful. In the
first place, bounties are liable to withdraw capital and labor from more
certain methods of production to more uncertain methods. Indeed, the chief
object of the bounty is to entice into experiments those who would
otherwise hesitate. The advantage of the bounty is very liable to be
overestimated. People hasten in steps to secure bounty without careful
study of the business they undertake. This is especially true of bounties
for establishment of factories in new locations. They attract the least
experienced and most speculative men, without consideration of the far
more important elements of immediate market and convenient employment of
labor. Railroads are built for the bonds voted without care for future
profit. Enterprises of this kind, promoted by bounties, are especially
liable to failure. The history of development in the west gives
overwhelming evidence of their weakness. Even when the bounty is offered
for reduction of vermin, it is often misapplied. Numerous cases are on
record where the bounty became a stimulant to enterprise in raising the
very animals to be destroyed. Even rewards for the arrest of criminals
seem sometimes to create a body of men who thrive by fostering a criminal
class, with a hope of sometime getting a profit from arrests. As a means
of stimulating general industry they are too unstable to be satisfactory.
Most probably political parties are in constant contention over the
maintenance of the bounty. No more insidious enemy to the purity of
politics can be found than the selfish interest aroused by special
bounties.

_Monopoly privileges._—Government monopolies have been a favorite method
in past ages of fostering particular enterprises. These are in the nature
of an exclusive privilege, granted to individuals or corporations for the
manufacture or sale of particular commodities, and occasionally for
special public services. These were once a method of showing royal favor,
and the word monopoly has in its very nature the idea of inequality. Hence
they are unpopular under all circumstances, except when permanent and
universal advantage is secured.

_License._—The monopoly of service is secured by the issue of a license.
If granted through official favoritism, the wrong is easily appreciated;
if granted to all who conform to necessary requirements for the general
welfare, as in showing qualifications for teaching, compounding of drugs,
or practice of medicine, the license is recognized as useful. In fact, it
seems to furnish security for satisfactory governmental service, and is
the basis of all promised reform in civil administration.

_Patent and copyright._—The chief illustrations of a genuine monopoly
maintained by government authority are found in the patent upon inventions
and the copyright upon publications. A patent is conferred upon the
inventor of “any new and useful art, machine, manufacture or composition
of matter, or any improvement thereof,” upon proof that the invention is
original, not previously in use anywhere, and likely to be beneficial
rather than detrimental. This patent secures to the inventor the sole
right to make, use or exchange articles manufactured after the pattern
described, or upon the principle involved in construction. This monopoly
is limited usually to a term of years supposed to be sufficient to secure
to the inventor a reward for his exertion. The patent laws of the United
States protect the rights of an inventor for seventeen years, entitling
him to damages upon proof in the proper court of infringement upon his
patent. Such protection extends, of course, only throughout the territory
under the same government. It may be secured, however, in foreign nations
under special regulation, so as to cover the most of the civilized world.
The copyright serves the same purpose, and is limited in much the same
way, for securing to the products of thought or of taste a proper reward
for the powers exerted. It gives to an author control over publication of
his thoughts during a period of twenty-eight years, in order that the
users of his thoughts may actually pay what they are worth. This, too, is
confined to the limits of the government issuing it, unless by agreement
an international copyright is provided by the laws of the several
countries.

_Franchises._—A still more noticeable monopoly is granted by
municipalities under what is called a franchise for the establishment and
maintenance of water supply, public means of artificial lighting and
heating, or means of public transportation. These are under government
control usually in cities, because they employ the public streets for
carrying on the enterprise. The franchise is really an extension of the
license in particular directions. This is usually issued with the
expectation of great public benefit from a large investment of capital
which would not be made without relief from competition, because not
immediately profitable. The franchise usually carries with it certain
restrictions as to use of public highways and limitation to a term of
years. It necessarily involves the right of government inspection and
control for the general welfare.

_Difficulties from monopoly privileges._—All of these monopolies are
granted for the purpose of conferring upon the whole community benefits
that could not otherwise be secured. They are wise only so far as they
secure this result. If the patent right system wastes the energies of
inventors in contrivance of useless devices, there is loss; if it builds
up a class of mere speculators, there is waste; if it fosters monopoly
beyond the giving of a fair reward for invention, it is robbery. The exact
limit of time during which a patent is good stimulates to the utmost
exertion for wide introduction of its benefits, and at the same time
prevents the burden of lasting monopoly. The dangers are chiefly in the
administration of patent laws, from the careless issue of undeserved
patents, or in a combination under a series of patents to maintain a
constant monopoly. It is a safe rule to issue patents only for particular
applications of scientific principles and not for the discovery of the
principle, which can be protected in publication by copyright. Departures
from this rule cut off the possibility of more perfect contrivances and
fair competition in devices and methods. There can be no question of the
general advantage of protecting a genuine inventor from the trespass of
others to secure him a fair compensation. No other plan for a fair
exchange of such services has even been suggested. The unsettled question
is the proper limit of time for a patent to run.

The advantages and disadvantages of copyright are essentially the same in
character, though the dangers are less. Since the large part of the reward
of an author or an artist is in the repute he may secure, there is little
danger of fostering an unfair spirit of monopoly. The franchise is subject
to the same principles, but its dangers in practice are very great. So
long as the advantages to the corporation securing the franchise may be
enormous, if it is sufficiently extended, there is great temptation to
bribery, both in the original issue and in the maintenance of inspection
and municipal control. Nothing has so interfered with good government of
cities as the manipulation of franchises. These abuses underlie the
popular call for municipal ownership of water works, lighting plants and
street railways.

_Protective duties._—A still more widely extended method of stimulating
industry by special incentives is seen in what is called a protective
tariff. This is a system of duties upon articles produced in foreign
countries so levied as to check the natural competition by increasing
their cost to consumers. The increased cost of such articles, if not too
great to destroy the demand, increases the incentive to manufacture
similar articles within the country.

The schedule of tariffs becomes then a very important element in all
productive industry, and requires the nicest adjustment to the needs and
abilities of the nation. If associated, as is usually the case, with the
raising of government revenues, the adjustment becomes more difficult, and
requires the judgment of experts in commerce as well as in statistical
knowledge of industries and government necessities. While in any country
the existing tariff is presumed to have been established to meet public
need, the fact that there is necessarily a restriction upon freedom of
exchange makes it always open to question. The tariff laws, like all laws
restricting freedom of action, must always have evident reason for
existing. The burden of proof rests with the one who defends such laws.
This is especially true with reference to tariffs, because the trend of
civilization is certainly toward greater freedom of intercourse in all
directions. The barriers between nations are generally giving way before
the introduction of ready transportation and quick communication. The
statesman who maintains the necessity of restrictive tariff must always
stand ready to explain this obstacle to more complete association. For
this reason we have the constant agitation of tariff questions and the
impossibility of permanent settlement in any particular.

For the same reason there are always two phases of a tariff discussion.
The student of social science inquires chiefly as to the tendencies of
advancing society with reference to such restriction, and, seeing the
barriers becoming less and less, is likely to seek the final removal of
every such restriction. The statesman, busied with the immediate
conditions of the limited community whose interests he guards, is liable
to be for or against any particular restriction as it fosters or hinders
those interests. For this reason statesmen, of whatever party, are subject
to the bias of local interests, and have even been known to change their
views with a change of such interests. In our own country, when party
lines are drawn upon the tariff, it is quite possible that sectional lines
may also mark the party supremacy. In fact, it is possible for any man to
believe in freedom of trade as the ultimate condition to be sought, while
he favors in immediate practice restriction or even prohibition by a
definite tariff. The purpose in this chapter is to give a brief outline of
arguments for and against such tariff in general, leaving entirely to
practical statesmanship the decision of special questions.

_Reasons for protective tariff._—A system of restrictive tariffs is
thought to contribute to the welfare of an entire community by
artificially increasing the natural diversity of employments. If new
enterprises can be fostered, exchanges are greatly increased, all the
advantages of exchange are secured within the country, and the general
intelligence of the people is increased. With this comes the enormous
advantage of what is called a home market for the cruder products of
industry. This is especially to the interest of farmers raising bulky
products or those not likely to bear transportation. It is further thought
to foster a better agriculture by a more natural return to the soil of
elements removed in cropping, the nearer body of population making such
return possible. It is also thought to make at once available the natural
resources of a country in mines, quarries, water powers, etc., which might
otherwise long remain useless. It is contended for as a means of checking
unfair competition between a long established community with special
advantages for factory methods, either in large accumulations of capital
or low wages of laborers, and a newer country where capital is scarce and
wages are high. It is sometimes held to be a means of maintaining a high
standard of wages through the advantage actually conferred upon certain
lines of industry, upon a supposition that competition at home without
these favored industries would reduce the wages maintained in other
industries. If a tariff on wool calls into profitable use a large amount
of farm capital in sheep raising, every wheat raiser is at the same time
benefited by reduction of competition in the wheat market. If the capital
and labor employed are enticed from other countries, the effect is the
same by increasing the demand at home for the wheat. That this does not
operate so long as wheat raisers come to a market where a surplus must be
consumed in other countries does not destroy the argument, since the
tendency is to reduce the surplus. The system is also thought to
encourage, in lines of industry likely to prove productive, a rapid
development of labor-saving machinery and new methods of manufacture,
which may some time give to a nation superiority in the markets of the
world. To many there seems a much more important reason for restrictions,
in order to establish every needed form of production for the sake of
national independence. That nation which contains within its own borders
the means of supplying all the wants of its people is supposed to be more
capable of independent growth, and to be freed from hampering competitions
of trade, that may lead to wars and, perhaps, to extreme suffering in case
of foreign war.

For abundant examples in support of these various propositions, appeal is
made to the history of the world by comparing countries developed under a
restrictive tariff with less developed ones free from such restrictions.
The history of our own country, under the ups and downs of tariff
legislation, is also appealed to. Even the extra cost of certain articles
to the whole people, which is the sole basis of advantage to the fostered
interest, is thought to be more than compensated by the direct advantage
of increasing competition at home, where it will have the most wholesome
effect upon the market price. Proof of this, too, is sought in the rapid
development of iron and steel manufacture, where protective tariffs have
been most persistent.

_Reasons against protective tariff._—Against a system of protective
tariffs many strong arguments are not wanting. It is contended that a
tariff on iron goods, for instance, is just so much an added burden upon
all consumers of iron, and, since the bulk of consumption enters into the
cost of articles of universal use, the greater part of the burden is borne
by the poorer classes of people, who consume as much as the more wealthy.
If the restrictive tariff actually limits the introduction of foreign
goods, as must be the case if it acts as a stimulant in production, the
revenues received are far from being in due proportion with the cost to
the people, since essentially the same tariff is paid by the consumer
whether the article is imported or manufactured at home. Although it is
not true that in every instance the tariff is a tax, in so far as it
benefits the home manufacturer by advanced prices it must be. In so far as
it operates for protection of favored industries, it certainly fails to
serve the purposes of revenue. The diversity of employment evidently
fostered by tariff is said to be unnatural and likely to continue
expensive, and any advantages of market at home are sure to be
overestimated, especially with reference to staple products of the farm,
since the surplus necessarily forming a basis for prices must be sold in
foreign countries without the advantage of direct exchange for articles of
their own production. That is, if our tariff restrictions limit the market
of a foreign people, they also limit the ability of that people to
purchase the products which we are obliged to sell them. It is contended
further that a rapid development of varied industries, instead of
maintaining soil fertility, tends to more rapid exhaustion by making more
probable the consumption of cruder products of the farm in villages and
cities too remote for return of fertility, although within the same
country. The development of natural resources under stimulant of a tariff
is admitted by its opponents, but represented as a waste of effort, since
the tendency is to withdraw capital and labor from more productive
industries into less productive, and that, too, at the expense of the more
productive. If factories cannot give an equal profit with farming, it is
absurd to tempt capital away from the farms into factories. So, although
wealth may be accumulated in showy enterprises, the people, as a whole,
are less thrifty and bear unequal burdens. It is further contended that
the total labor of the community, when a part is used in unprofitable
development of resources, is made on the whole less productive, and
therefore the people are less able to buy their neighbors’ products, and
must live with diminished comforts. In that case all the haste in
developing natural resources is actual waste.

If, on the other hand, the restrictive tariff invites capital from abroad
for the sake of gaining the trade of a country, the diminished profit of
labor in some foreign country compels emigration, and such emigrants are
likely to follow the capital. Only the poorest of foreign laborers will be
compelled to help themselves by emigration, and only those will gain by
the change of location. Thus it is said a restrictive tariff encourages
the least desirable form of immigration. This is illustrated in the
development of the mining industry through the fostering effects of the
tariff.

There can be no question that any restriction upon trade may foster the
contrivance of combination to secure monopoly. Hence it is often claimed
that the existence of trusts is due in great measure to tariff
restrictions, preventing the competition natural in the commercial world.
It is certainly true that the restriction of a patent right may make
possible the abuses of a trust. If trusts were confined to protected
industries or to countries maintaining protective systems, the weight of
the argument would be stronger. It is certainly true, however, that the
wider the range of competition without restriction, the greater the
protection against combination for sake of monopoly. The monopoly in
kerosene oil would be a greater menace but for the possible check of
competition from abroad.

Such artificial restrictions, again, prevent the naturally rapid growth of
international commerce, which gives the surest foundation for more
permanent conditions of peace and greater extension of welfare over the
world. The tremendous interests of the commercial world are the strongest
safeguard against unnecessary warfare, and the best protection to any
nation is the fact that it makes itself needed by all the rest of the
world.

Thus inter-dependence of nations rather than independence is the essential
aim of those who seek the world’s welfare. An alliance of two peoples for
commercial purposes is the best guaranty of mutual support of national
institutions.

In proof of all these statements, the experience of the world in widely
varying regions is appealed to. The natural breaking down of prohibitory
tariffs has given opportunity for observation. Especially has the commerce
between states of the Union, where it is absolutely free, shown the
general advantage of such freedom in rapid development of wealth and
welfare. While these states have a common interest in government, they are
nevertheless widely distinguished in peculiarities of local government and
in characteristics of people. While, therefore, there is possible doubt as
to the wisdom of rapid removal of restrictions, there is every probability
that such restrictions will gradually be outgrown. Even the temptation to
make retaliatory duties, where other governments restrict against our
products, is growing less with increasing experience of the true advantage
in exchanges. The world is gradually coming to see that the better market
any region of country affords for the rest of the world, the better market
the rest of the world affords for it.

_Incidental tendencies from tariff._—The incidental effects of restrictive
tariffs, and especially of the necessary instability of restrictive
legislation, are too interesting to pass by, though very limited space can
be afforded them. In the first place they contribute to a speculative
enterprise which leads to waste of wealth in unpromising undertakings
because of a necessary over-estimate of the advantage given. On the other
hand, a reduction of the same tariff after a series of years is almost
sure to bring panic in that line of industry previously fostered. So the
fluctuations of tariff laws are one element in periodic expansion and
contraction of business. The tariff laws are certain, also, to involve the
worst element of influence through the lobby upon legislative bodies. Even
though the charge of bribery be utterly false, the general respect for
legislative bodies is lowered by charges and countercharges for political
effect. As an occasion for such charges scarce any other form of
legislation serves as well. Even the people themselves are easily assumed
by their neighbors to weigh their opinions upon a tariff measure by their
personal interests.

The indirect influence of a new tariff law upon the industries of a
country can scarcely be foreseen. So interlocked are all the varieties of
manufacture and trade that a change in price of any one article of
commerce may affect hundreds of others, sometimes much more than the
article restricted. It is easily seen that a duty upon iron of a
particular shape or quality may actually prohibit the use of that iron in
some product which already touches the margin of profit. These incidental
effects can scarcely be foreseen by even the wisest statesman. The
practical adjustment of conflicting interests in the framing of tariff
laws should be the work of experts. If all parties could unite in
establishing a bureau of commerce, domestic and foreign, as dignified as
the Supreme Court of the United States, and as independent of party
interference, such a body might frame a consistent tariff law, gradually
perfecting it in adjustment to all interests and explaining its bearings
to all parties. Such a body could take account of the great interests of
agriculture in the commerce of the world, and weigh properly the indirect
influence of restrictions. The marked influence of fluctuating tariff upon
sheep raising, so familiar to all farmers, might then be fairly
appreciated. Under present methods it is very certain that any tariff law
is largely a compromise, with limited judgment, between agitating
conflicts of interested promoters. The farmers, of all people, can afford
to be conservative of all interests, and should favor such methods as will
work toward enlargement of commerce without destruction of industries. If
possible, they will wisely seek the removal of tariff questions from
practical politics.

In concluding this subject, it is wise to suggest that the true principle
of regulations for national industry are the same as those for true family
economy. The family should so plan its work and ways as to make the best
possible use of the powers of every member. It is no economy to buy cheap
things unless the members of the family can be better occupied than in
making them. It is poor economy to make those things which cost more time
and effort than would be used in making something else for exchange. Home
production is best when this makes the home labor more effectual, but
worst when it interferes with the profit of labor. The farmer who stops
harvesting to mend his harness when he might employ the harness-maker is
wasteful; but if he mends it on a rainy day he saves time which would
otherwise be less profitably used. So the nation whose capital and labor
are not well employed may do wisely in developing new industries, even at
a considerable expense for introducing the new industries. But if all the
nation’s energies are profitably employed, the costly development of
resources may wisely wait for future capital and labor. So all special
incentives require a constant inquiry as to beneficial results supposed to
follow, and the policy of the government must conform to the needs of
general welfare. Even vested rights are subject to the law of welfare
involved in the original act establishing special privileges. Public use,
not private interest, is the true reason for the existence of any such
privileges or protection.

Chapter XVI. Business Security.

_Conservative influences._—We have already seen the influence of
governmental organization upon various phases of production; but the chief
fostering influence is the general stability of a community, not only in
its laws, but in its customs and habits of life. Security in property
rights is a chief condition for accumulation of wealth, and a still more
necessary condition for industry. Not even want will drive people to
industry when there is no certainty of possession when the work is
accomplished. The fruits of industry must be safe. While the laws of the
country are naturally considered the guardians of rights, the customs and
habits of the people, the actual origin of laws, are even more important.
Bad habits actually nullify good laws, while bad laws may be made quite
endurable by good customs. Thus, the welfare of every community depends
upon a conservative social influence, preventing abuse of opportunity for
injury and stimulating individual energy.

The rights of life, liberty and property must first be dear to the mass of
the people before laws can be framed for their protection. This is
especially true in a self-governing people, but is essentially the same in
the most absolute tyranny. So the chief safeguard for every kind of
business is the honest character of all business men, and such influences
as establish good character and sound judgment will be fostered on the
simplest business principles. The farmer who sells his grain or his fruit
by false samples cannot complain of false weights and measures at the
elevator. The one who gloats over victory in a horse trade has no right to
grumble at a trickster in wool buying. The man who is caught by the offer
of a gold brick is not only foolish, but false, and diminishes the
security of himself and everybody else in fair bargains and genuine
business. The man who takes advantage of his ignorant neighbor deserves to
be at the mercy of a more crafty dealer. Every one who makes a false use
of power over a workman beneath him may expect a false use of power from
an authority above him. So all business interests, as well as all rights,
are secured by the right spirit in all men.

_Nature of insurance._—The fundamental activity in accumulation of wealth
is foresight; but no foresight can prevent all disasters. Fire, flood,
wind and wave are beyond control, because in some sense they are beyond
knowledge. Against such forces no foresight can secure. The name insurance
is given to every method by which the burden of such unforeseen losses is
provided for beforehand and fairly distributed. The average of such losses
can easily be estimated by experience. Statistics show a wonderful
uniformity in the misfortunes of life as well as, the fortunes. Even
though chance be an element in every transaction, the average of chances
can be distinctly calculated; and that average is essentially constant
among a sufficiently large number of instances.

All are familiar with the application of such calculations in fire
insurance. Among ten thousand houses a certain number will be destroyed by
fire every year, provided those houses are widely distributed under
essentially similar conditions. The ten thousand house owners can insure
each owner against entire loss of his house by mutual agreement to meet
their share of the total loss. If ten houses are burned, each of the ten
thousand house owners will pay one-thousandth part of the total loss,
making a burden easily provided for. If at the beginning of the year each
has laid aside this sum, the loss will be met when it occurs without
disturbing the welfare of any. The machinery for such provision is called
an insurance company, and the separate payment of each house owner is the
premium or award expressing his share of the provision. This principle of
estimating losses and providing a definite way of meeting them is the same
in all forms of insurance. It has been recognized for hundreds of years,
but only recently has entered into the business life of the world in all
directions. For a long time false notions of reverence for the power that
wields destiny stood in the way of such distribution of misfortune; but
now the mass of people everywhere regard such foresight in united sympathy
as natural as the planting of crops.

_Various methods of insurance._—Satisfactory insurance rests upon certain
definite business principles which every insurer may wisely study. There
are various devices for accomplishing the same end. A body of men
sufficiently large to make the average of losses uniform may bind
themselves by a simple agreement to meet each loss as it occurs. To make
this plan satisfactory they will need efficient business men as officers
to devise means and methods for making the agreement effectual, for
estimating the actual loss in each case, and for distribution of the claim
by assessment sufficient to cover the loss and the expense of collections
and estimates, as well as the maintenance of the officers. These officers
must maintain the business standing of the organization in the community,
so that it shall continue for a long series of years to keep its numbers
large enough to maintain only the average loss.

This is a simple mutual insurance company, upon the assessment plan. Its
weakness lies in the comparatively slight interest taken by each member in
the selection of its officers, in the absence of security for the payment
of assessments when needed, in the long delay liable to attend
collections, and the uncertain interest of the officers in exact
adjustment of losses. Such companies are liable to be too small to give a
fair average of losses, and in any serious emergency to fail for want of
expert business ability and trustworthy character in officers.

If, instead of the assessment after losses, a definite percentage of
probable loss is paid in advance, the responsibility for use and
maintenance of such funds calls for a business character and ability in
the officers which usually secures better results. It especially avoids
the danger of slackness and failure on the part of the insurer. It leads
to closer scrutiny of actual losses, and helps the insurer to more
carefully measure his interest, since he already has an investment in the
business. Any overestimate of expected losses may be returned in dividends
to the insured, or may be retained as a surplus for security against
losses above the average of experience. The only weakness of this method
is in the power entrusted to individual officers, elected on the ground of
popularity by comparative strangers. Even when a board of directors chosen
from well-known business men is added to the machinery, the dangers from
incompetent and dishonest management are not avoided. Such directors are
too prone to consider their names their only contribution to the welfare
of the association.

A joint stock company, insuring with definite premium, is likely to bring
the best business management, the quickest though not always the fairest
adjustment of losses, and the confidence of the business community. Its
prosperity, however, is hindered somewhat by the common judgment that the
interests of the stockholders must be against the interests of the
insured. The actual cheapness of insurance depends not so much upon the
amounts paid from time to time as upon the actual quality of the insurance
purchased. Assessment companies of all kinds, without a legal lien upon
definite property, are decidedly lacking in quality, since their guaranty
of payment involves the financial credit of every person insured. No one
should be deceived by the promise of insurance at cost, until he knows
exactly how genuine that insurance will remain during the period of years
for which he desires it.

_Governmental control of insurance._—The essential importance of insurance
and the difficulties of providing against fraud and mismanagement have led
naturally to government inspection, and in some countries to government
control of insurance agencies. The laws of various states provide
differently for inspection and reports, and restrict the action of
companies in various directions. It is probable that time will develop the
necessity of greater uniformity of insurance laws and more definite
requirements in the way of published reports and expert inspection. At
present, insurance commissioners often have the confidence of neither
companies nor people, and no expert knowledge is demanded in the candidate
for that office.

The desirability of insurance by government direct is questioned so long
as governments themselves are unstable and popular will favors laxity in
the business machinery. That insurance could in this way be made cheaper
is a matter of doubt while great masses of people magnify their claims
against government and minify their obligations to it. Frauds against
government in both taxes and claims are proverbial. At any rate,
governments will not wisely undertake the indefinite applications of
insurance until larger experience and wider acquaintance with the methods
in vogue are reached.

_Applications of insurance._—The applications of insurance are indefinite
in variety. There is no limit to the possibilities except in the lack of
experience to settle the average of hardships. Insurance of property
against fire and storm is well understood and almost everywhere practiced.
Insurance of life is almost equally extended, in which the head of a
family may in a measure provide against the suffering of his family in his
unexpected removal by death. This is easily extended into insurance
against accident. In this, as in life insurance, there is some lack of
experience, as yet, as to the actual cost. It is possible even to insure
against dishonesty of employés through so-called bond and security
companies, which issue bonds for definite amounts payable in case of
failure of the person whose character is insured to meet the expectations
of his employer. Such companies, in their own interest, exercise an
influence over the character of those for whom they have given bonds by
attention to their habits of life and business methods. They make more
prominent the maxim, “Honesty is the best policy,” whether they actually
cultivate honesty in fact or not.

There is no conceivable limit to the possible applications of the
principles of insurance. It seems possible that a body of business
farmers, subject as they are to so many disasters from weather, insects
and contagious diseases of stock and vegetation, might devise methods of
equalizing and diminishing the disaster from such losses in a common
system of insurance. As a basis for such systematic action, careful
statistics for large regions of country are absolutely necessary. With
such losses clearly presented and averages fairly estimated, insurance
would be just as feasible as it is now against fire. It will be wisely
undertaken first upon such matters as can be most definitely measured in
dollars and cents. Losses from accidents to teams and other live stock
have already been studied and insurance to a limited extent attempted. The
difficulties of such insurance are greatly increased by the ease with
which owners may contrive to market unsalable stock through a false
representation of misfortune. The possibilities, however, of extending the
advantages of insurance in a business of this nature are worthy of more
careful study.

PART II. DISTRIBUTION OF WEALTH FOR WELFARE.

Chapter XVII. General Principles Of Fair Distribution.

_Wealth distributed, not welfare._—In considering the principles of fair
distribution among all the parties contributing to production of wealth,
it is necessary to remember that wealth and not welfare is the subject of
thought. A child may have equal right to welfare with his father, but
cannot in any sense have equal ownership of wealth. The welfare of a
complete imbecile may be the care of the state, but he can in no sense
control wealth. Distribution of wealth cannot, therefore, include the
subjects of charity, but must be confined to a study of the natural
relations between individual owners of wealth or individual contributors
to production, which make control of a portion of accumulated wealth
essential to individual welfare.

A pound of tea may include in its value the efforts of a hundred different
persons. What are the principles upon which those hundred people may be
fairly compensated by the actual consumer of the pound of tea? This
illustrates the complexity of the whole subject of distribution. No
drinker of tea would dare to settle the question of fair distribution
arbitrarily. No one would even offer a theory by which a perfect
settlement could be reached. Yet when the pound of tea is put upon the
pantry shelf, the fifty cents paid for it has already been divided into a
hundred unequal portions adjusted by some method of custom to meet the
ideas of every helper in the long list. Each has had some portion of the
wealth produced, though the distribution may have taken place in different
countries, under different laws and customs, through a period of months or
years. This distribution involves the whole question of industrial
freedom, and rests finally upon the principle of equity as applied to
ownership of one’s powers and the product of those powers. It also
involves, to a certain extent, the decision of what is properly wealth and
what is properly a part of universal welfare.

The important questions connected with the subject will not be
satisfactorily settled until a reasonable adjustment of all claims is
reached by the masses engaged in production. The modern discussions of the
interests of laborers are proof that the world is thinking more and more
of individual rights in property, and no sweeping assertions as to
inequity of property rights help to solve the questions. It is because
each individual has a distinct equity in what is produced in part by his
efforts that there is need of better adjustment. All reforms, therefore,
must be along the line of fair distribution, or fail of their end.

_Distribution by exchange._—Ordinary observation shows that distribution
is made chiefly in the customary method of exchange. A pound of butter may
find its way from the farmer’s dairy to the actual consumer in a distant
country. In its final value, the consumer compensates the retail dealer
for his services in handling it and for advance payments, including every
other handler and every other service, down to the boy who drove the cows
to pasture. If the system of universal exchanges is free and fair, each
has received his fair compensation. In general, then, distribution of
wealth is made automatically in the ordinary processes of production,
exchange itself being one of the steps by which value to the consumer
becomes value also to the producer.

_Fair exchange above laws._—Under perfect freedom of exchange, the general
law of supply and demand already illustrated is more effective than any
laws can be in adjusting wages or profit to efforts in production, and in
adjusting interest or rent or both to the capital employed or to other
means of production controlled. Any customs or laws which interfere with
natural conditions of supply and demand hinder rather than help toward a
fair adjustment. In any progressive community such laws will surely fail,
for the reason that in making such laws human nature is in conflict with
itself. The history of increasing individual welfare in any part of the
world gives a story of more ready and free competition in open market for
all commodities and all services. In perceiving this we must not overlook
the fact that fraud and ignorance, as well as arbitrary power, stand
opposed to fair exchanges. Nor must we be satisfied with any condition
which involves meeting restrictions with restrictions or force with force.
Such conditions must be but temporary.

_Actual and nominal compensation._—In considering compensation for any
services, it is necessary to distinguish carefully between the actual
compensation in welfare and the nominal compensation in money. A farmer in
Nebraska may get a larger return for his labor with corn at 15 cents a
bushel than he could in Massachusetts with corn at 40 cents a bushel. Just
so a wage-earner, receiving $1.50 a day in Ohio, might lose in welfare by
exchanging work with his neighbor in New Mexico, who gets $2.50 a day.
This means that $1.50 in Ohio may buy more comfort than $2.50 can buy in
New Mexico. This is very important in comparing the wages of different
classes of workmen in the same country, as well as the wages of similar
workmen in different countries. It has an important bearing, too, upon
relative profits and interest. The actual compensation in welfare is the
natural basis for adjustment in all distribution, and the law of supply
and demand rests directly upon this.

_Wages, profits, interest and rent take the product._—It is common to
consider distribution as made in the forms of wages for labor given
without risk as to the product, profits to the one whose labor is
associated with risk of loss as well as gain, interest to the one who
furnishes capital in any form and waits for his compensation, and rent to
the landlord, or owner of estate, whose property is used for a definite
time and returned. It is evident that any advantage received in any of
these ways, at any time, must come from the actual available goods in
store suitable for division and consumption. The farmer cannot pay his
hired hand with his farm, though he may be able to do so with his
products. The farmer himself cannot realize his profits until he has the
proceeds of his work in the shape of consumable goods. So, at any
particular time, the total of products fit for consumption makes the
source from which all distribution must come. Debts and credits can have
no consideration in the total, for the reason that they exactly offset
each other. A general conflict of interested persons as to wages, profits,
interest or rent comes from the difficulty of sharing in the actual goods
at hand. The relation of each to the whole depends upon circumstances to
be discussed in future chapters. It is certain that the larger proportion
of daily production goes to the mass of the people who consume their share
from day to day. It is estimated that fully 80 per cent of such wealth is
used up by those who contribute no use of capital to the productive force.
It seems probable also that this ratio is increasing rather than
diminishing, but no statistics are sufficient to show the exact facts.

_Cheap standards of living._—In the natural competition of laborers with
each other, the general standard of living—physical, intellectual and
moral—have an important bearing. The Chinaman in this country competes
with the American upon a wholly different plane of living. His habitual
needs being less, he is willing to work for wages that will not tempt the
native American. If he can do the same work, living as he does, he
necessarily becomes a cheaper force in production, and the American must
find a better field for his energies or go without employment. Under
ordinary circumstances, the introduction of laborers able to live more
cheaply acts upon the better class of laborers exactly like the
introduction of labor-saving machinery. It first brings hardship from
direct competition, but the cheapening of products brings enlarged demands
and so gives new impetus to production, requiring the very skill which the
better class of laborers alone can furnish.

Thus the employment of Chinamen upon railroad embankments made places for
native laborers as section bosses and engineers. The Huns and Italians
that underbid the Irish miners in Pennsylvania have destroyed the “Molly
McGuires” by making the same men responsible for larger enterprises. Yet
the standards of living, which show a constant improvement, indicate a
truer freedom of competition and a clearer recognition of individual wants
and abilities. No one can watch the development of any country without
realizing that its thrift, enterprise and progressive welfare depend
largely upon increasing wants. Men who live best produce most and enjoy
most.

Chapter XVIII. Wages And Profits.

_Wages distinguished from profits._—In discussing the subject of wages and
profits, it is necessary to remember that both are compensation in
different ways for actual exertion. If in estimating profits we sometimes
include a return for the use of capital, it is from incomplete analysis of
the forces in use, since the interest upon capital can easily be separated
in all actual practice, and in most enterprises is counted as a distinct
expense to be provided for in entering upon the undertaking. The profits
really belong to the management of any undertaking, as return for the
exertion in that management. In every-day use the term wages is applied
only to the stipulated amount paid from time to time for services rendered
to another. There is practically no difference between such payments made
for service by the hour, day, week, month or year. If, however, the
engagement for service is by the year, the name salary is more likely to
be given than wages.

Further, the term wages is most distinctly applied when the service is
rendered as a task, and wage-earners when found in considerable bodies are
usually called operatives, under the natural classification of labor
explained and illustrated in Chapter III (page 35).

The services of an overseer are much more likely to be permanently
required, and his wages are therefore called a salary, estimated by the
year even though payments be made monthly or even weekly. In this case,
the labor is chiefly executive, taking a higher rank because of the
greater powers required. In this case the overseer is supposed to have
definite plans provided for his work, and to carry out those plans to the
best of his ability.

If, in contrast with this, one’s efforts are given to managing a business,
devising the ends to be accomplished as well as planning for their
accomplishment, he is said to have entire responsibility for results and
to receive what he can make out of the business. His exertion is chiefly
speculative labor, and the returns for his _speculation_ or
foresight—often effort of the severest kind—are termed profits. Such
efforts have already been illustrated in Chapter III, page 35. No
generally accepted name has been given to the one who thus carries the
entire responsibility of the business, but the word manager conveys to
most people the general idea involved. While it is true that a manager may
sometimes work for a salary, in general the very inventive ability
required for success makes the stimulant of profits the most natural means
of securing higher effectiveness. Most managers, even of stock companies,
must from the nature of the case be at least sharers in the profits.
Farmers easily distinguish between those who work for stipulated wages,
often called farm hands, and the farmer himself, who gets the pay for all
his endless variety of labor, including his constant planning, in the
shape of profits.

_Wages defined._—Hence it is fair to define wages as a stipulated sum,
paid at stipulated times, for stipulated services, measured either by the
number of distinct services or by the time of service. A wage-earner must
therefore be one who sells his powers, whatever they may be, for the use
of another, bringing his own services rather than the products of those
services to the best market he can find. In general, he prefers the
definite promise of another to the indefinite chances that he may produce
what is to be wanted in the future market. Very often he considers the
bird in the hand worth any number in the bush, and is satisfied to take a
certain living from day to day rather than risk his ability by his own
contrivance to meet larger wants. Among the wage-earners we necessarily
find all individuals of undeveloped powers of body or mind, dependent upon
the rest of the community for both tools and task; also all who render
personal services, and most of the laborers of all sorts in every kind of
factory.

_Profits defined._—Profits may be defined as the indefinite returns for
exertion, including all risks, which any manager of his own or others’
industry secures by bringing his products into open market. In general the
term includes the recompense for any kind of labor, however rendered, if
the uncertainty of demand and supply belongs to the one who renders the
service. Thus even the fees of a lawyer or a doctor come under the general
principles of profits, whenever the conditions of payment in any respect
depend upon success. If, on the other hand, such fees are stipulated sums
for a stated service, they fall into the rank of wages. That the dividing
line between wages and profits is not always clear is shown in comparing
payment by the piece in manufacturing clothing, for instance, and payment
by the hour for the same kind of work. In the payment by the piece, the
stimulant of enterprise borders upon the nature of profits. In payment by
the hour, that stimulant is wanting. Yet we are likely to consider the
difference as simply a difference in method of estimating wages. Two men
ditching side by side may work, one by the day and the other by the rod.

It is possible even to combine the two systems of payment so as to involve
both wages and profits. Farm hands in England have been paid a certain
price per month, with a share in the profits, measured by the number of
cart-loads of grain marketed. Clerks and agents frequently work for
stipulated wages, with an added percentage upon the value of sales. Most
farmers in estimating the results of a year’s labor count their own
services, at the price of a hand, as a part of the cost of their products,
and distinguish as profits the surplus of product above all expenditures.
Thus a farmer may estimate as outgo the interest on capital invested, the
wear and tear of machinery, the produce consumed upon the farm, the taxes
paid to the government, and the wages to all who labor, including himself
and his family. Any return from his products beyond enough to meet these
outgoes he will consider profits. These will reward him for extra
foresight and contrivance in management and marketing, as well as risk
arising from possibility of failure in his plans, destruction of his crop
or stock, fluctuations in price, and uncertainty of collection for his
sales. Such risks and exertions every independent worker assumes. Usually
the exertions are impossible to the inexperienced, and the risks cannot be
taken without accumulated capital or a credit established upon well-known
character and ability. This fact naturally limits the number of
competitors for profits. The effect is clearly illustrated in the
difference between an ordinary farm hand and the renter of a farm. Few
farmers would encourage the best of their farm hands to take the burden of
risks and care implied in renting. The successful farm renter requires
abilities and means, gained only by experience and accumulation.

_Wages vary with abilities employed._—The variation of wages among
different classes of workmen in the same calling is universally recognized
as dependent upon the powers employed. The strictly operative labor is
usually paid by the hour, day or week, the terms varying with the supposed
strength or skill exerted. Executive duties commanding monthly or yearly
salaries vary with the total amount of responsibility implied, the large
establishment requiring greater abilities than the small one. The strain
of responsibility increases in some degree with the number of operative
laborers employed, and successful oversight of many hands may be essential
to their profitable employment. In that case the salary of the overseer
gains something of the nature of profits, since the manager gauges the pay
by profits expected. If, as in great stock companies, a manager is hired
at a stipulated salary, his personal abilities, as tested by
accomplishment, are likely to be the sole gauge of wages. A successful
manager of a great enterprise can scarcely be said to have a market price
for his services, but will estimate himself in large measure by the
profits he might secure as an independent business man. Within limits,
such salaries will vary with the experience and inventive ability
required.

_Supply and demand in wages._—Wages in general are subject as truly to the
law of supply and demand as are the products of labor. If few places are
vacant and many applicants seek those places, it is impossible to prevent
the reduction of wages through the anxiety of some applicants to secure
places. On the other hand, if few applicants seek the places open to many,
each will find the employer most willing to give an increase of wages for
his work. Laws cannot prevent such natural competition, though they may
hinder it. Even organization under secret bonds can only temporarily
restrain. Human nature is stronger than any arbitrary restriction.

In general, then, wages in any particular occupation may be affected
directly by limited competition. Any necessity for peculiar abilities of
body or mind, or for preparation by education or training, makes certain,
as far as it goes, a limited competition, and therefore the opportunity
for higher than ordinary wages. In the same way, if unavoidable hardships
or dangers are involved, comparatively few workers will seek such
employment and can have larger pay. If, however, the dangers carry with
them a stimulating excitement and exhibition of daring, arousing
admiration for the worker, this may offset entirely the effect of the
danger.

Soldiers and railroad employés for such reasons do not command pay in
proportion to the dangers met. Any employment where there are obstacles to
natural advancement or where continuance is uncertain does not attract
applicants except by higher wages. Illustrations of all these occasions
for limited competition are found everywhere.

_Stimulants to competition._—If any occupation shows circumstances making
entrance easy for new applicants, or if advantages for promotion are
readily seen, or if it seems to have a special respectability with the
advantage of social privileges, especially if it in some respects seems a
work of philanthropy, there will be multitudes ready to engage, and
willing to undertake the work at less than average compensation. It is
commonly said that these peculiar advantages are a part of the
compensation. They operate simply as a stimulant to competition, making
more people willing to enter such employment at small wages than would be
willing without these special advantages.

A good illustration of such employments is found in common school
teaching. While a teacher does need an expensive preparation, and success
is dependent upon special adaptability to the work, it is nevertheless
true that the work can be taken up readily and as readily laid down; it
confers upon the applicant the privilege of social recognition and
somewhat of personal dignity; it gives opportunities for some note in the
community, and, with all, it is considered a work of philanthropic
character, entitling to the gratitude of the public. The result is that
teachers everywhere command less of salary or wages in proportion to their
abilities than other classes of wage-earners. Fortunately, this stimulant
to competition appeals largely to those characteristics of the individual
teacher which make him more serviceable in his calling. The opportunity
for a life of study, added to other considerations, makes still more
effective the competition of earnest, philanthropic students, such as the
world needs for teachers.

In the lower ranks of teachers, competition is still more increased by the
fact that common school teaching can be temporarily carried on in the
intervals of study, without interfering with mental growth. Teaching is
also specially adapted for the temporary employment of young men and women
not quite ready to enter the actual life work. Acquaintance with human
nature, which it fosters, is thought to be good preparation for home and
business life. The employments in which women largely engage as
wage-earners are chiefly of this temporary character. The fact that the
life work of most women must be the making of the home hinders competition
in employments where long apprenticeship or special skill of any kind may
be demanded. Any temporary employment not only appeals to her sense of
capacity for earning wages, but seems better adapted to her future. If
that employment at the same time affords opportunity for social life and
calls for the natural adornments of youth, the young woman considers wages
only a small part of the general consideration, and is satisfied with a
bare living. Hence clerkships in stores, subordinate positions as teachers
and places as typewriters are crowded with applicants at wages
insufficient for a life-time support. Employment in domestic service,
which might be supposed more consistent with the larger work of life, is
rendered less attractive by the almost entire absence of social privileges
and natural opportunities for advancement in knowledge of the world. Girls
who would prefer house work, with equal social freedom and the natural
stimulant of contact with other young people, compete for lower wages in
less satisfactory employment during the years of their girlhood. This is
less noticeable in country life, where girls in domestic service become a
part of the household and share in the privileges of the young people at
home.

Another illustration of the depressing effect upon wages of excessive
competition is found in the work of women upon cheap clothing. This work
is usually done by the piece in the home, and can be taken up at intervals
between household duties. Many women consider earnings of this kind a mere
addition of spending money to a somewhat meager support in their home
life. It can be carried on without display, and so preserves the dignity
of persons who would otherwise shrink from wage earning. The result is a
very serious competition, reducing wages below even enough to sustain life
and character.

These are only illustrations of what happens in every calling when
circumstances stimulate excessive competition. Relief can come only from
larger range of satisfactory employment and a clearer distinction in favor
of genuine wage-earners and genuine employers among the mass of the
people. The customs of society have a much stronger influence upon the
life of women in steady employments than upon that of men. A thoroughly
enlightened community can do much to enlarge the sphere of such women as
are naturally wage-earners, by proper encouragement of their enterprise.

_Fluctuation of wages._—Wages in every employment are just as naturally
subject to fluctuation under the law of supply and demand as are prices of
commodities. Whatever operates to increase the number seeking employment,
or to diminish the amount of employment open to competition, reduces the
wages. Whatever increases the opportunity for employment, or diminishes
the number of persons seeking employment, increases the wages. This is
well illustrated in the cost of harvest hands in a year of large crops as
compared with a year of small crops. Any financial disturbance, checking
the building of railroads and other great enterprises, brings multitudes
of would-be farm hands to compete with those who naturally follow farming.
On the other hand, the introduction of factories or mining industries has
sometimes affected directly the wages of farm hands through a large region
by lessening competition.

_Upward tendency of wages._—It is certain that the general tendency of
wages in all employments is upward rather than downward, in spite of
serious disturbances from financial depression often repeated. The gradual
increase of welfare among wage-earners is greater even than the increase
in money wages. Those who are inclined to join in the cry that the former
times were better than these can be answered as they were in Solomon’s
time, “Thou dost not inquire wisely concerning this.” No doubt the
transition from small workshops to large ones and from small factories to
great combinations has caused friction in adjustment to the new
conditions. Many are now wage-earners who were once profit-gainers. But
with the improvements in association and a clearer understanding of
abilities and needs, each worker becomes a stronger factor than ever
before in bringing about a fair competition and a satisfactory
compensation.

There are still new difficulties in every change of method. The influence
of custom often retards freedom of movement, makes more slow the natural
rise of wages, and hinders a gradual adjustment to new conditions. In many
cases it prevents individual enterprise among wage-earners, and crowds
from the higher ranks into competition with the lower because of no
natural outlet for ambition. Even laws intended to protect laborers
sometimes operate against them. Thus a law restricting the terms of
contract between workmen and their employer has sometimes prevented the
employer from investing capital in a business which otherwise would have
increased the opportunity for labor, and so would have actually increased
wages.

The effect of free schools upon ability to earn is generally recognized.
The best estimates place the increase resulting from common school
education at fully 25 per cent. Some of the best establishments are
limiting their offers of employment to young people who have had the
advantage of even high school training. This more general education tends
in two ways to increase the compensation of wage-earners: first, by giving
a clear knowledge of abilities that makes competition fairer; and second,
by increasing the general effectiveness of all production, which enlarges
the sum to be divided.

Every movement toward greater social freedom and uniformity of opportunity
contributes to the same end. Next to slavery, social caste is the chief
obstacle to free and fair competition of laborers. Any barriers of race,
social organizations, or even churches, which cultivate exclusiveness in
any direction, in the end work hardship. If they bring temporary advantage
to a few, they are sure to hamper the freedom of many. The welfare of the
community is surest when social conditions favor the freest communication
in all ranges of employment, whether in wage-earning or in profit-making.

The cheapening of transportation in recent years, bringing all the world
nearer, has had various effects upon wages. It has destroyed, to a
considerable extent, the inequality of wages between different regions of
country. If laborers of any kind are scarce, a telegram will within a few
hours bring numbers from some place where they are too plenty. The result
is a tendency to greater uniformity throughout the world. As yet the full
effects of this progress are not realized. Some hardships will undoubtedly
be endured from the ready introduction of unskilled laborers from crowded
countries into our less densely peopled country. But with a larger range
of production opened by cheap labor, our better workmen will find more
constant and more remunerative employment. If restrictions upon
immigration are necessary, it must be to prevent too sudden a transition,
hindering adjustment to new conditions. The danger of overcrowded
population comes more certainly to the nation excluding itself from the
great world by excluding the rest of the world from itself.

The general effect of improved machinery has been several times referred
to already. Its advantages come to the wage-earner directly in multiplying
employments and in multiplying the demand by cheapening products.
Indirectly, the benefits are still greater, because these cheaper products
form the bulk of living for the workers. It is probable that even the
better living thus provided has raised the efficiency of labor so as to
command better wages. It is certain that every movement of civilization
which gives a clearer knowledge of human nature and the world about us
adds to the power of every man, whatever his work. We may welcome every
element of progress in this enlightenment as a direct help to the portion
of humanity recognized as wage-earners. The better the masses of people
understand each other the better each understands himself; and that
understanding is the best protection against oppression of circumstances
or of men.

_Variation in profits._—Profits in various pursuits, like wages, are
affected by limited competition. The need of special abilities and
experience in any particular undertaking keeps back the timid from that
enterprise, and the accumulation of experience of a peculiar kind hinders
one from turning to other occupations. Even if a young man is willing to
take the risk of inexperience as a manager, he can seldom gain the
confidence of those who control capital. Hence competition in new and
untried enterprises is slight, and profits are often great. Other
undertakings are of such a nature as to involve great uncertainty. The
risk of failure retards the cautious, and so the most enterprising win
great returns. In estimating such returns, we overlook the failures and
count only the great successes. Sometimes accidental opportunities open to
the few a limited range of enormous profits. Legislation fostering
monopoly sometimes favors such opportunities. These are usually temporary,
and such advantage cannot long be maintained under the most fortunate
conditions. Secret methods have sometimes controlled the market for
individuals with enormous gain, and in a few instances a nation has
maintained such secrecy with apparent success. But these, too, quickly
yield before competing enterprise, since wage-earners under such employers
must share to some extent the secret, and will have the stimulant of
enormous profits to use the secret for themselves.

_Profits in competition._—Profits are themselves a stimulant to
competition, and competition in every pursuit tends to reduce the profits.
If any circumstance apparently insures more than average profits in any
undertaking, competition becomes excessive and profits vanish. The promise
of a tariff on wool leads farmers to expect an advance in the profits of
sheep raising. Competition begins in the purchase of flocks, by which the
profits of those already in the business are greatly increased.
Competition continues by multiplication in the flocks until sellers of
sheep are more plenty than buyers. Thus, the stimulant to competition has
operated to lessen profits in the end. A famous sheep raiser in New York,
when asked to give a maxim for success in the business, answered, “Buy
when your neighbors sell, and sell when your neighbors buy.”

Similar experience has been noted in various pursuits. The tendency,
however, with wider knowledge of others’ wants and efforts is toward a
greater uniformity of profits. Modern methods of production and clearer
perception of ways and means make it easier for competition to have its
full effect between different kinds of business, as well as in the same
business. The more we know of our neighbor’s work through the daily press
and extensive travel, the fairer is the opportunity for competition to
act. This tendency brings hardship to the weaker portion of managers
engaged in any particular business. This makes the power of so-called
trusts and great combinations apparently harmful. In the end, however, the
result is more constant profits, though smaller, and the advantage of the
whole community in a more stable business. It is even conceivable that the
stimulant of fair profits may finally reach a larger proportion of the
community through interest in the great establishments than in the past
from the unequal and uncertain returns of independent managers.

Even among professional men, whose fees for services have somewhat the
nature of profits, the same law of competition, dependent upon supply and
demand, holds sway. The compensation of an author for his publications,
though protected by copyright, is dependent upon conditions limiting
competition or stimulating it. It is customary for surgeons, physicians
and dentists to make a fee proportional to the demand for their services.
Thus the skilled dentist, who is wanted by ten times as many people as he
can serve, raises his price till the demand is limited to meet his
strength. This enables younger men at smaller prices to gain the
opportunity to establish like reputations by doing equally good work.

_Profits in agriculture._—The profits in agriculture are subject to the
same laws. Many influences operate in both directions. The limitation of
land fit for agricultural purposes has a tendency in itself to increase
the profits of land-holders, under the principle of monopoly, though its
chief effect is on land values. The increasing wealth of the world, and
the greatly increased wants of the civilized community, multiplying
manufactures, limit competitors more and more. The relative number of
farmers in our country is gradually diminishing, while the demand for food
is actually increasing beyond the increase in population. Men are
predicting every year a scarcity price for wheat,—unwisely,
probably,—through the limited range of possibilities in wheat raising. The
introduction of labor-saving machinery enables enterprising farmers to
greatly increase their product for the same number of acres, and still
further to increase the range of management so as to make larger farms a
possibility. The rapid advance of means of transportation has so widened
the range of competition as to make the farmer in one part of the world
compete with the farmers of every other part. The staple products,
especially wheat, being so easily adapted to new countries, are constantly
liable to over-production. At the same time the effects of a bad season in
any particular region, while reducing the crop, are not likely to advance
the price to the same extent as formerly. The opening of vast regions once
considered deserts to a rapid settlement by farmers for the sake of the
profits in land speculation has again and again wrought changes in the
entire business of agriculture. Similar effects may be expected still with
the development of South America, South Africa and Siberia.

All these facts tend now to make the profits in agriculture decline, and
the fact that farm life has certain attractions in establishing permanent
homes for families and life-time associations, contributes to this
tendency by holding people to their place as farmers for at least a
generation. The possibility of independent enterprise, even with small
profit, and the freedom of family life from interference of neighbors make
large numbers of farmers willing to continue their business in spite of
the reduced earnings.

_Fluctuation in profits._—It is proper to call attention to the rapid
effects of any change in market upon the profits of any enterprise. Wages
are in large measure an anticipation of profits, and so far as they are
affected by changes in market prices, it is largely through estimates upon
averages. Custom has much to do with wages demanded and paid, but profits
are fluctuating constantly with the fluctuation of prices, with every
change of methods affecting competition, with every introduction of
improved machinery and with every accident of fortune.

No better illustration of this fact can be given than is familiar to every
farmer in comparison of results from the work of different seasons. With
the same outgo for labor he may find the profits of two successive years
wide apart. One year has granted the fortune of good crops with fair
prices, while the other has yielded him a half crop when the prices of his
product in the world are low. Possibly the improved machinery in wheat
raising, applicable to the great farms of Minnesota, Dakota and
California, has caused him to bring a costly product into close
competition with a cheap one. Possibly, too, he has been tempted to
excessive use of labor-saving machinery himself at too great cost for the
transition, and it is more than probable that, stimulated by the high
price of oats last year, he, with thousands of his neighbors, has made an
extra crop of oats this year, to the actual destruction of the market. In
all these cases the farmer himself suffers directly, while his hired hand
is affected only indirectly by the unwillingness of farmers in some
seasons to employ as much labor.

_Profits offset by losses._—The actual profits in any enterprise are often
overestimated by our failing to notice that all the waste of unthrifty
undertakings comes practically out of the profits of the more thrifty.
Wage-earners as a class are protected against losses by frequent
settlements and by public sentiment. The losses of the unthrifty managers
come out of the accumulations of previous thrift, or else are borne by the
thrifty men who have trusted them. The bulk of bad debts in failure of any
enterprise is for materials, machinery, etc., furnished by other
producers. In great financial depression, the profit-makers bear the evil
directly, while the wage-earners feel the effects in the lessened
competition for their service.

Chapter XIX. Conflict Between Wage-Earners And Profit-Makers.

_The nature of the conflict._—The mutual interest of all whose energies
are used in production, that the total product of wealth should be as
great as possible, is often disturbed by doubt as to the fair division of
what is produced. Under the modern factory system, the multitude sustain
the relation of employés to a comparatively few employers. Antipathies are
liable at any time to arise between these two classes of workers. Those
who officially control wealth in great enterprises are subject to
suspicion of unfair treatment of their less independent employés.
Ignorance among the mass of laborers of the intricacies of business life
contributes to such suspicion. In fact, the so-called conflict of capital
and labor is a struggle for and against profits. Interest and rent are
only indirectly involved in the question. The manager’s profits may be
assumed by both manager and wage-earners to arise from reduction of wages.
The necessary reticence of business managers and the frequent arbitrary
decisions as to wages help the wage-earner to feel that his interests
conflict with those of his employer.

It is well for all to realize that this conflict, when there is one, is
not so much between the rich and the poor as between the struggler for
profits and the struggler for wages. In many instances the true solution
lies in the same direction, if both could see the facts alike. It is an
acknowledged fact that generous wages make enlightened, energetic
laborers, and that greater profits come in the long series of undertakings
from the most intelligent service. A farm-hand at $20 a month is sometimes
worth more than two at $15. On the other hand, if markets are low and
profits decline, permanence of employment will depend upon a readiness of
wage-earners to accept a new adjustment of wages to conditions. Everything
which fosters a better understanding between profit-makers and
wage-earners contributes to the welfare of both. Everything which hinders
such understanding injures the welfare of both. The cost of such friction
is borne by both parties. But in the long run, the wage-earners are liable
to carry the larger part. Even the destruction of property by rust, decay,
or even violence, comes back upon the wage-earners who might have been
employed in its use, quite as truly as upon the manager whose profits and
accumulations are wasted.

_Obstacles to fair understanding._—The necessary ills connected with
advancing civilization, in the laying aside of old methods for new, in the
adoption of extensive machinery, and in the more perfect competition with
the world, fall upon both profit-maker and wage-earner. The wage-earner
feels the immediate loss of his usual opportunities. The profit-maker
feels the weight of providing new machinery, devising new methods and
taking the longer range of chances. All these ills are met in time by
intelligent and hopeful struggles for the best. In the worst conditions
ever brought by improved machinery, a very few years have brought relief
and improvement to the very class of laborers injured.

The danger is that wholesome competition upon a clear basis of fair
understanding and free range of enterprise may be checked by legislation
or organization for class purposes. Against the interests of the mass of
the people are all extended franchises, giving arbitrary control for long
periods of years over any industry; monopolies sustained by patent rights
or protective duties; trusts, so far as they imply a combination of men to
resist the law of supply and demand; and laws which in any way favor one
class of people engaged in one kind of industry as opposed to any or every
other.

Quite as prominent are those hindrances which come from every kind of
fraud, including adulteration and misrepresentation of products, deception
as to market conditions, false credit, and violence of every kind. The
more perfect the light thrown upon all the conditions of production, the
better the understanding which all men may have of a neighbor’s welfare,
and the easier it is to put ourselves in our neighbor’s place.

_Strikes._—The methods of warfare between wage-earners and profit-makers
are quite generally understood under the names of strikes, boycotts and
lockouts. The occasion for a strike, which means a sudden stopping of work
by the employés of an establishment, is usually some question of immediate
advantage to the workmen. A desire for increased wages, fewer or different
hours of labor, or the removal of some restriction upon habits or
associations, gradually becomes general, and through some permanent or
temporary organization united action is taken. Quite frequently a strike
is occasioned by a sudden and apparently arbitrary reduction of wages,
affecting a large body of men. Many strikes are inaugurated in the
interests of discharged workmen, when the organization to which they
belong is supposed to be interested.

Thus a strike is always a form of warfare, and should be entered upon only
after the same careful consideration that makes war sometimes a necessity.
Under ordinary circumstances and upon general principles, no body of
workmen has any more right to suddenly stop work without notice than
railway managers have to stop a daily milk train. The end to be secured
must be important enough to humanity to overbalance the injury of the
strike itself.

Since a strike is an effort to produce a corner in the labor market, it
will succeed in the end sought only when conditions for cornering the
market are favorable. Even then the loss to the entire community is
considerable. The injury to property, while directly borne by the
profit-makers, is widely distributed. First, all wages stop and
wage-earners suffer. Second, ability to pay debts ceases and capital
owners suffer. Third, insurance companies have their risks increased and
all insurers suffer. Fourth, the market for the products is demoralized
and all consumers suffer. Fifth, almost always social disorder results,
police expenses are greatly increased, and all taxpayers suffer. Sixth, in
the end the relation between employers and employed is more strained and
less free than before, so that all humanity suffers.

The chances of success, as indicated by the record of many years, are
small, and apparent successes are often temporary. And yet the world
recognizes the right of a body of laborers to strike, just as it
recognizes the right of revolution to secure the general welfare. Formerly
a combination of workmen in a strike was treated as a conspiracy and
punished as such. Now the general rule is absolute freedom of combination
with rigorous repression of fraud and violence. This enables any body of
men to make a serious test of the conditions of a labor market, at the
risk, primarily, of their own welfare, but with serious strain upon the
general good. It leaves room for the possible breaking down of old
customs, which are stronger than law, and it sometimes proves, like a war
for liberty, a means of great enlightenment to those who take part in it.
It is properly held as the last resort in the struggle for fair
recognition of the rights and necessities of wage-earners.

It is noticeable that the tendency to strikes among the more skilled
workmen is diminishing, and that the mass of communities are weighing
their own interests more carefully as they see the general destructiveness
of the method. At present strikes are expected among laborers of least
skill, where they are, from usual conditions, least effective. Strikes are
frequent among coal miners, where wages are liable to reach the lowest
possible mark because of the ease of competition from all parts of the
world, though the effect of such strikes in bettering the condition of
miners has scarcely been felt. The fact that destruction of property and
the natural waste from strikes is so widely distributed among workmen and
consumers retards popular sympathy, and the fact that strikes increase the
risk of capital employed, and actually reduce the amount of capital in
use, diminishes the chance of increasing wages or comfort in those
employments where they are likely to occur. It seems evident that some
better remedy for oppressive conditions of wage-earners must take the
place of strikes.

_The boycott._—The boycott is a comparatively recent device for enlarging
the field of combat to include not only the employés of an establishment
but the consumers of its products. This is especially applicable to those
industries the products of which are largely consumed by wage-earners,
whose sympathies can be depended upon to carry it out. It asks all
sympathizers to refuse to purchase products from the employer or firm
attacked. A great bakery, for instance, can easily be ruined by a boycott,
if its customers are chiefly wage-earners. It is easily applied in cases
where custom has allowed the use of a label from some organization of
workers. It has been attempted with some success against a railroad so
related to other roads as to require the services of sympathizers with its
striking employés to carry its freight to final destination. An instance
of its widest application is in an effort to persuade the people of a city
to refuse to patronize the street-car system.

The warlike nature of this method is apparent in the effort to use terror
as one means of persuasion. In this case it uniformly overreaches itself
in destroying public sympathy with the strikers. That it has a possible
place in the struggle of wage-earners for their rights cannot be disputed,
since it corresponds with the nature of a blockade or a siege in other
warfare. But its nature as a method of warfare is equally clear, and its
use in the interests of humanity belongs, with all war, as a last resort.

_The lockout._—Lockout is a name given to a method employed by managers to
prevent the continuance of a strike by aid of the sympathy of employés not
directly interested. It often happens that a comparatively small body of
workmen in a great factory strike for higher wages, and are sustained in
their strike by the sympathy and support of other workmen in the same
factory. Under these conditions the employer is tempted to stop all work
by a sudden closing of all shops, that the pressure of suffering among a
large body of wage-earners may force the smaller body to accept the old
conditions. The lockout seldom gains a popular sympathy, for the reason
that employers appear to be using this method of warfare from a superior
position of power. And yet no one can dispute the general right of
employers to control of their business. Such a sudden stopping of business
without an attack by a strike or some similar provocation would be
considered inhuman, and popular sympathy would be wholly with the laborers
and consumers interested.

_General evils of such conflicts._—The incidental effects of such violent
opposition between profit-makers and wage-earners are certainly
detrimental to all interests. The great multitude of farmers throughout
the country depend for welfare upon the body of people using farm
products, and all the waste of power from enforced idleness of
wage-earners, managers and machinery is shared by farmers through
diminished power of the rest of the world as consumers. In only a few
instances have strikes affected agriculture directly, partly because the
relations of employer and employed are so largely personal; partly because
the supply of agricultural laborers for the season is usually large; but
chiefly because wage-earners upon farms in this country expect eventually
to become themselves proprietors, and so no separate organization is
probable. In some countries, however, where wage-earners in farming
communities are a class by themselves, a strike has been the only method
by which the barrier of custom and law, built up through many generations,
could be broken. The great agricultural strike in England will always be
remembered as having elevated the standard of labor and living in that
country. It is to the interest of all farmers to cultivate a better
understanding between employers and employed than can be maintained with
any general expectation of strikes, boycotts, lockouts or similar warlike
methods of settling fair wages.

_Trades’ unions._—The organizations known as trades’ unions, in which the
wage-earners in any particular kind of business unite for self-protection,
have had a gradually widening influence upon the relation of managers to
employés. Once they were characterized as “machinery by which 10 per cent
of the working classes combine to rob 90 per cent,” because the advantage
secured usually comes out of the consumers of products. But today
reasonable doubts of the general advantage of a well-managed trades’ union
have disappeared. If once they seemed a conspiracy against society in
general, they are now recognized as a part of the general progress in
mutual recognition of rights and privileges. It seems right to expect from
them still larger usefulness, with a clearer perception of their
importance. It is evident that they contribute somewhat to general
intelligence of their members, and so far as this is true they help toward
greater efficiency. At the same time they help to maintain stability of
employment and stability of other conditions surrounding labor.

A brief enumeration of ends they may serve directly will help to
appreciate their importance. First, they can as truly estimate the market
value of wages by gathering statistics from all parts of the country and
from other countries as can any organization in commerce estimate the
market value of produce. Second, they can serve as an employment bureau in
furnishing information of places where work is wanted, thus equalizing the
advantages as well as the burdens of their associates. Third, they can
make more uniform and more satisfactory the customs in regard to the
length of a day’s work or privileges of any kind associated with the work
as perquisites. Fourth, they can, if they will, find the true gradation of
skill and of wages among workmen, so as to establish a natural line of
advancement. Fifth, they rightly do, and can still further, serve for
mutual support in cases of illness, and for protection of a community
against fraud in pleas of poverty. Sixth, they may easily and properly, if
they will, provide for insurance of character, both as men and as workmen,
by issuing certificates, and under proper provision giving bonds, such as
are required in many positions of trust. Seventh, they may extend their
operations even to the taking of jobs that require a variety of work
continuing through a period of time. Eighth, they can, under most
favorable circumstances, undertake various stock enterprises, especially
coöperative stores, thus securing an incentive to saving, and diminishing
the spirit of antagonism against the profit-makers. Finally, though they
have the best possible organization for a successful strike, if necessary,
they can subordinate this disposition toward warfare to a broader
machinery for fair consideration of all interests and for individual
arbitration of rights.

Such organizations, under good management, win the respect of all, and
find a recognition of their methods satisfactory. Farmers’ clubs and
granges, though far from reaching ideal efficiency, furnish suggestions of
the general utility. Unfortunately, these organizations, having little if
any basis of capital, have seldom been incorporated under the laws of the
state. Could the powers and purposes of such organizations be established
upon a basis of statute law, the range of their usefulness might be
greatly increased. They might even sustain a method for enforcing in the
courts the collection of wages, where the single wage-earner often accepts
the half loaf in a compromise rather than meet the expense and loss of
time involved in a law suit. Certainly the establishment of legal
relations between the trades’ union and the state would give to it a
character and stability most likely to promote all interests.

_Federations of labor._—The so-called federations of labor, in which
practically the only bond of union between individuals is the fact that
all are wage-earners, have so far worked out but a small part of the
problem involved in their existence. They have the advantage of uniting
large numbers and a variety of interests; but they have the disadvantage
of subordinating all other interests to the supposed conflict between
employers and employed. Their tendency is almost certain toward lowering
standards of efficiency, and attempting by class legislation to get the
advantage of mere numbers.

It is almost impossible that the organization shall be kept out of the
field of bargains in politics and contrivance for special legislation,
demoralizing to the whole country. Too often the votes of members are made
a bribe for securing certain favors. In the nature of the case, they
sustain a body of officers whose chief business is in danger of becoming
that of either political agitators or political bosses. The machinery of
organization is liable to reduce the independence of individuals. The
organization itself is liable to demand a personal subordination almost
equivalent to military rule, and the badge of the society may mark a man
as under direction of authority. Even in questions where the majority
rule, the force of the federation requires the caucus principle of
absolute adherence, even though the majority represents the weakest and
least intelligent part of the organization. The demoralizing effect of
such methods, including wholesale trading of opinions, is liable to debase
citizenship, and so to diminish the individual self-respect, which is the
highest possible protection for laborers.

_Courts of arbitration._—Arbitration between employers and employed, in
cases of serious misunderstanding, has long been advocated as a wise means
of settling differences. The obstacles to its general, voluntary adoption
are considerable. Employers object because it involves the admission of an
outsider as a judge of their business methods. The employés object because
they fear the sympathy of arbitrators with the superior intelligence,
wealth and power of employers. Yet there seems no good reason why a
representative body of men, chosen for character and ability, should not
be appealed to by both parties in a contest which has already broken up
the natural relations of business. As has been shown, the whole community
suffers in every interruption of production and trade, and so far the
community has the right, and should have the legal privilege, of insisting
upon the fairest and quickest means of settling the controversy. In far
less important difficulties between individuals, society insists that
either individual shall have the right to bring the other into court.

Society is waiting only to settle the best form of a court of arbitration
for labor difficulties. The trend of popular judgment is in favor of a
well-organized commission, having the dignity if not the authority of a
supreme court. That such commissions have not generally come up to the
ideal is due largely to political influence among leaders of
organizations, so that the commissioners become the choice of a faction
rather than of the people. It is conceivable that the functions of judges
in a series of state courts may be so enlarged under carefully framed laws
as to include the duty of arbitration in labor contests.

If the people are not yet ready for compulsory settlement of such
questions, the time is surely coming, under the enormous aggregation of
industries and the immense combination of employés, when the judgment of
the people expressed in due form of law will control both employer and
employé. The whole world is recognizing methods of arbitration as better
than warfare. It will soon insist that these minor wars within the
commonwealth shall cease.

_Profit-sharing._—Some general system of preventing antipathy between
profit-makers and wage-earners seems desirable. Certain interests are
known to be mutual, and both employers and employed welcome any system by
which those mutual interests can further the success of the business.
Among the methods proposed, and sometimes successfully employed, the most
prominent is profit-sharing. This implies on the part of employers after
payment of current wages a distribution, at stated times, far enough apart
to secure a fair average in the profit and loss account, of some portion
of net profits among all the wage-earners. The per cent of net profits to
be thus distributed is matter of agreement, and the basis of distribution
is naturally the scale of wages accepted by the employés in their contract
for employment. The particular methods of applying these principles vary
with circumstances, but in all cases depend upon the actual confidence of
employés in their employers. The effects seem to be good, bad or
indifferent, in proportion to the general intelligence and stability of
the employés. With really skilled workmen, established in homes and
feeling responsibility as citizens, profit-sharing stimulates to the
highest energy. With weak and irresponsible wage-earners it is likely to
bring waste and sometimes false notions in regard to wealth production.

The weakness of the whole system is the lack of provision for fairly
sharing burdens in the constantly recurring periods of loss. If the
employé’s share of the profits is consumed upon comfort or luxury, he is
even less prepared than without such profits to meet the loss of not only
profits, but his wages, in times of depression. If these additional
earnings shared as profits become an insurance to the wage-earner, a sort
of reserve for sustenance and safety in the necessary times of weakness in
any industry, they stimulate the best characteristics of saving and
character-building, and cultivate a disposition to meet all emergencies in
patience. It is quite customary, therefore, in any system of
profit-sharing to provide also an investment for the employés in a reserve
fund, from which the necessities of the business and the needs of the
whole community of workers may be met. Such a method, if wisely managed,
makes the interests of the employés coincide with those of the employer.
If added to this there is ample opportunity for suggestions as to
enlargement and improvement of the business in all minutiæ, the best
abilities of the workmen are called out and the heartiest sympathy is
possible. There still remains against such a system the objections, that
losses are not shared as truly as profits, and that employés are liable to
require too intimate an acquaintance with the condition of their
employer’s business to foster the success of the enterprise. Its
successful application is so far confined to lines of business easily
comprehended and direct in their methods.

_Sliding scales of wages._—Another device for connecting directly with the
fluctuations of business any compensation of wage-earners is called the
sliding scale of wages. This is an attempt to make each sharer in
production depend directly upon the price of products in the market for
rate of wages. The wages of different workers are adjusted to each other
by contract upon some ratio established by experience, and then the wages
of each are made to vary from month to month with the average price of the
finished product in the general market. This subjects all parties directly
to the fluctuations of the business in both profit and loss. Its success
is dependent upon the confidence placed by employés in the fairness of the
adjustment. It stimulates to highest productiveness when prices are high,
and checks production slightly when prices are low. But it provides no
direct method for readjusting business under the pressure of great changes
in methods of management, nor does it save from strong antipathy against
the improvement of a business by labor-saving machinery. Its successful
employment depends in general upon the character and efficiency of
employers and the general intelligence and enterprise of employés.

_Coöperative industry._—Coöperative industries are sometimes advocated as
a complete solution of labor difficulties. The system implies a union of
independent workmen, all of whom shall be sharers in the capital employed
as well as in the labor involved, including management. The management of
the enterprise is entrusted to chosen members of the coöperative force,
and wages or salaries are fixed according to abilities employed,
essentially upon the scale of current wages outside the coöperative
enterprise. All profits are then shared among all members of the
association in proportion to their wages. But an investment of such
profits in the growth of the business is an essential part of the plan.

This method satisfies the ideal of equity in division of wealth produced,
provided the basis of adjustment between classes of wage-earners is
accepted as fair. The principal difficulty in this respect arises in
reference to the salary of managers and overseers. Such salaries are less
clearly defined in the labor market, being usually complicated with
profit-making, and are liable to be considered out of all proportion with
the wages of other workers. If underestimated, the marked abilities
required in management are likely to be withdrawn from the enterprise for
independent management in profit-making.

The chief difficulties, however, with coöperative production grow from the
want of confidence of the multitude of shareholders in their managers. Few
kinds of business can be carried on successfully under a body of absolute
rules, and fewer still will bear the delays and hesitation required for a
general consultation of many authorities. The comparatively few instances
of genuine success in coöperative production are due, in the first place,
to the comparative simplicity of the undertaking; and, in the second
place, to the genius of some organizer, who has been willing to contribute
his superior abilities for the sake of the enterprise itself rather than
the compensation.

A few principles may be fairly drawn from the general experience. First,
all shareholders must be actual workers, in some way responsible for a
part of the production. Second, the influence of each shareholder must in
some way be held in direct ratio to his share in the production. Third,
the system of accounts must be such as all can fairly understand. Fourth,
the management must be entrusted to a chosen few, whose interests are
chiefly in the business itself, whose character secures the confidence of
all, and whose administrative ability is not too much hampered by rules.

The opportunity for coöperative industry is nowhere greater than in a
community of farmers. Butter and cheese factories, cold storage plants and
milk stations invite the coöperation of interested farmers upon the
simplest possible basis of agreement. The multiplication of such
enterprises is desirable, and the farmers of every community may
profitably study the conditions of success. The greatest obstacle
heretofore, has been the want of competent management, and the distrust
aroused and maintained by the inefficiency and fraud of managers. It is
possible, too, that farmers generally do not recognize the actual
importance of executive abilities, and are unwilling to pay the salary
actually earned by a thoroughly competent man.

_Legal restrictions as to labor._—It is natural for those who suffer in
the struggle for better wages to seek the support of law in restrictions
upon contracts as to wages, hours of employment and conditions of comfort.
The principle that governments must protect the weak against the strong in
any community is a thoroughly established one. Yet its applications are
subject to continual readjustment. Multitudes of experiments have been
tried, affecting the whole range of inequalities in wages and perquisites.
In many instances, wages have been fixed by law, and that for long periods
of time, but without relieving in any respect the actual force of
competition among wage-earners themselves. Indeed, the tendency of very
explicit enactments is to weaken the individual ability of wage-earners by
destroying ambition. Wages fixed by law are necessarily as low as the
average would be in a free competition; otherwise production is hindered
and capital is diminished. With this low average any worker of more than
average ability gains nothing by exerting his ability, but does gain ease
by neglect. Thus enforced uniformity reduces the energy of the producing
forces and practically closes the doors of advancement from wage-earning
to profit-making.

A similar effect is found in efforts to regulate the hours of labor by
law, except where the law simply defines the meaning of a day’s work or
emphasizes the importance of public health and vitality rather than
equality in distribution. Humanity has done much in reducing hours of
toil, and may yet do more; but it will be for humanity’s welfare in larger
considerations than are measured by money. The eight-hour question, so
constantly agitated in certain callings, concerns the entire people just
so far,—and no farther,—as the general health and energy of the community
depend upon it. Farming communities stand aloof from its application; and
yet there is no question that the farmer’s home might be even better than
it is for developing physical and mental vigor, if hours of toil were more
carefully restricted to meet the conditions of healthful growth and
activity.

Other conditions, affecting the employment of children and women, are
proper subjects of restriction by law; for these also involve the
consideration of general welfare in the elevation of the physical, mental
and moral characteristics of the race. Upon the same plane must be put all
legal restrictions upon methods and machinery, reducing the dangers from
accident and promoting the comfort of employés. All restrictions serve
their purpose only so long as they are appreciated as having their reason
for existence in general welfare. The rights of an employer, under
contract with his employé, like the rights of a parent in control of his
child, are subject to the law of good will; and the world will yet find a
way to make its restrictions felt wherever recklessness or carelessness or
greed destroys good will.

_Nationalization of industry._—A somewhat popular suggestion in solution
of labor difficulties is the so-called nationalization of industry. This,
in general terms, is a proposition to equalize compensation and avoid
fluctuation in both wages and employment by public control of all
industries under official management. While this involves some principles
of socialism, more properly discussed in connection with consumption of
wealth, its relations to productive industry may be briefly presented
here. The plans proposed are as yet expressed only in most general terms.
Even the method of bringing about such a revolution of thought, feeling
and action has not been devised. Still less ready is anyone to point out
the details of a plan for the actual production. The nearest associated
ideas are found in governmental services through a post office department
or the management of a system of transportation. Most advocates of the
method overlook the fact that in such government administration of partial
industries the law of competition is still operative between these
enterprises and the universal industry of the people.

The difficulties in governmental management under present conditions are
anything but small, especially under popular rule, where the dominion of
party and the influence of position are all-powerful. Under monarchial
rule the organization of such industries becomes like that of an army, in
which arbitrary power predominates. It seems easy to see that any effort
to solve the problems of labor employment by national control involves
finally the arbitrary decision of power, in adjustment of both duties and
compensation. The management by officials, however those officials are
appointed, is not necessarily wiser, more efficient or more benevolent
than the management by interested men, whose life is in natural contact,
through business relations, with employés. Those who have had experience
with official control under popular government are not likely to expect a
readjustment of all interests from the standpoint of politicians to be
marked by either universal good will or universal common sense. It is
reasonable to suppose that wherever general welfare in actual use of
wealth can be best promoted by public control, such control will come
through the free exercise of individual judgment with reference to the
work in hand. While there ought to be no objection on the part of any to a
government enterprise which can be shown to serve in that way the greatest
good of all, nobody ought to assume that the nationalization of industries
is for the greatest good. Each great undertaking will require its own
proof, not only of the welfare to be expected, but of the practical means
by which that end can be secured.

_The spirit of equity chief._—The trend of experience goes to show that
true economic interests, not only of the community but of individuals, are
in accord with general principles of welfare. It seems certain that
communities paying the highest wages are those which gain the highest
return for labor in product, and maintain the highest general rates of
profit. In general, also, those enterprises which are controlled with most
care for equity in wages and for the general welfare of employés are most
stable under fluctuations of business and most genuinely successful. While
wealth may be accumulated unjustly in the hands of those who oppress their
neighbors, there can be no doubt that in long periods of time the best
adjustment of all interests gives not only the truest welfare but the
largest wealth and the best use of it. The spirit of equity must
eventually control both managers and wage-earners, and no other
disposition can furnish a final solution of the problems of distribution
between employers and employed. If employers are greedy, the wrong will
not be righted by an equal display of greed on the part of wage-earners.
The spirit of true philanthropy is the only proper spirit for discussion
of these questions.

Chapter XX. Proceeds Of Capital: Interest And Rent.

_Practical distinctions._—The terms interest and rent are distinguished in
actual practice by the fact that interest is paid for the use of capital
in some circulating form, while rent is paid for the use of fixed capital.
One who borrows anything, expecting to return not the thing itself but its
equivalent in value, is said to borrow upon interest. One who borrows the
same thing, expecting to return the identical thing, is said to pay rent
for its use. Thus interest is paid for control of circulating capital
until an equivalent is returned, and rent is paid for control of fixed
capital until the same articles are returned in prime condition. A farmer
who borrows a mowing machine from the warehouse, giving his note for its
value, pays, when he returns that value at the end of the year, interest
upon his note. If he borrows the same machine from his neighbor under
contract to return the machine in good condition at the end of the season,
he pays rent for its use. The young man who borrows his neighbor’s farm,
expecting at the end of five years to make that farm his own, gives a
mortgage note, promising at the end of five years to return an equivalent
value for the farm, with annual interest. If, on the contrary, he expects
to return the farm itself at the end of five years, without reduction in
value, he makes a lease, embodying this agreement, with annual rent for
use of the farm.

Both interest and rent are liable to involve the element of risk as to the
proper return of the valuable thing promised, and to that extent they
partake of the nature of profits. The true interest and rent are
independent of the possible risk, and have to do simply with the advantage
naturally accruing to the possessor of wealth from its use as capital, and
forming one of the chief reasons for accumulating wealth at all.

In technical discussion the term rent is usually confined to the
compensation secured from appropriation of space, peculiar location,
natural fertility, mineral deposits, water privileges, or any natural
advantage to be used in production. In this limited meaning rent is
confined to the advantage gained by the owner of wealth in any form so
affected by the law of supply and demand as to gain a scarcity value. The
term unearned increment,—meaning an increase of value without cost of
exertion,—has been largely applied to such cases, and illustrations are
taken chiefly from the ownership of land and similar natural forces. The
same unearned increment, however, accrues to the possessor of any article
of value or any personal attainment, which through increasing wants of the
community becomes, on that account alone, more valuable in market. Thus a
bin full of wheat, saved from a year of plenty to a year of scarcity, has
gained a value abnormal,—that is, from the fact of its scarcity. Yet no
one would think of applying the term rent in such a ease, because the
foresight which stored the grain gains its compensation in profits. If the
same kind of foresight has plotted a city upon wild lands, and held a
portion of those plotted lots until a crowded population competes for
their use, such wealth is said to be gained upon the principle of rent.
The difference seems to be chiefly in the greater permanence and the
gradual advancement of the profits secured.

The every-day operations of a farming community illustrate both interest
and rent in all their complications and definitions. Every farmer, in
estimating the cost of his wheat crop, may properly calculate both the
interest on his capital invested in tools, teams, machinery and wages, and
the rent of his land, keeping distinct accounts of interest and rent; or
he may combine in one account as interest the use of capital in machinery
and land. If he owns the whole establishment, he is likely to combine both
interest and rent with the return for his foresight and energy in managing
the farm under the name profits. All these returns, however, come for
different reasons, though under the same general principle of values
expressed in the law of supply and demand. The farmer working a rented
farm and the one working a mortgaged farm are alike paying both rent and
interest, since every farm involves both the wealth accumulated by
exertion and the wealth advanced by increasing population. While the owner
of the mortgaged farm apparently pays interest, if at the end of the term
of the mortgage the farm is returned to its former owner by foreclosure,
the result is that the mortgagee, while nominally owner of the land, has
simply been a renter. In a fair settlement of equities he will have paid
for the use of the land he has cultivated. Interest and rent are thus seen
to be terms separated rather by peculiarities of application than by
difference of principle. It is proper, however, to treat them separately
for the sake of more perfect understanding of the conditions applicable to
each.

Chapter XXI. Principles Of Interest.

_Reasons for interest._—The propriety of interest under any circumstances
has often been questioned, and its rightfulness is still bitterly
disputed. Both church and state have at times denounced the receiving of
interest as criminal. Yet in actual practice of commercial life throughout
the world interest has been sustained in all ages. The Jewish law
prohibited interest between neighbors, where the reason for borrowing was
assumed to be poverty, but authorized it in dealings with foreigners,
where the transaction was assumed to be in trade. The principle upon which
interest in all productive industry is actually founded is that capital,
gained by exertion and saved by self-control, secures to its present
possessor such advantages of time and choice of use for his abilities as
can be given by nothing else. In the study of production we have seen that
time-saving is an important result of capital in its various forms. A
carpenter’s kit of tools represents a value in use equal at least to the
time he might consume in making them. He can afford to keep them for
another’s use only while they bring to him the advantage of that
time-saving. His neighbor is willing to secure him in that advantage by
paying him for the use of the tools all, or nearly all, that he gains by
using tools over what he would have without them. The borrower will still
be the gainer by opportunity to do work not possible without the tools.
The bargain between borrower and lender, like any bargain, is a fair one
only when both are benefited. The limits of fairness in the deal are
naturally reached when a clear understanding of all conditions is had in
open market. Neither borrower nor lender can take advantage of the other
without fraud. Neither is under obligation to give to the other without an
equivalent. The whole question rests upon service rendered, as truly as in
any other bargain.

A large proportion of the opposition to interest arises from a
misconception of the phrase, “borrowed money.” The fact is that borrowing
and lending have to do chiefly with other forms of wealth. Most notes are
given for the transfer of all sorts of property under a promise to return
equal value in the future. Money may not enter into the transaction at
all, except as the standard of value is in terms of money. Even when money
is exchanged for a note, the borrower hastens to part with the money for
the tools or provisions which make him a profitable producer. In payment
of his note he offers money again, simply because it commands every
desirable form of value for the owner of the wealth. If a farmer wants a
wagon without the present means to buy, he offers the dealer his promise
to pay after six months, when the corn crop just planted shall have
matured. If the dealer cannot afford to hold the note because he needs the
capital in his business, that others may be supplied with wagons, either
the farmer or the dealer carries the note to some one who _can_ afford to
wait for returns, which may be either a banker, whose business provides
just such accommodation, or a neighboring farmer who has just sold his
wool. In either case, the first farmer borrows what he wants in carrying
on his business, and at the end of six months, through a similar
transaction of finding some one ready to take his product, pays his note
with corn. (See p. 164.)

Interest is never confined to money transactions, nor even to those in
which terms of money are used. All owners of productive wealth gain
interest in its use as truly as in lending it. The farmer is not a
money-lender in general, because his wealth will bring him larger profit
by its use as stock or machinery. Even when he borrows from his neighbors,
it is possible that he secures a larger interest, though he calls it
profit, than he pays the lender. Interest is often paid in kind. The
laughable story of borrowing a hen from one neighbor and a sitting of eggs
from another, to be returned after a time with advantage, is actually
paralleled by some transactions. A friend of mine having a magnificent
pasture agreed with his neighbor, who owned a fine flock of ewes, to
pasture that flock for three years, returning at the end of that time just
twice the number of sheep received. He explained to me that he had made a
great bargain, since the wool would pay for the use of the pasture, and he
should have at the end of the three years a flock about equal to the flock
he returned. This bargain involved interest at the rate of 33-⅓ per cent,
without any terms of money, and an indefinite profit to the owner of the
pasture in addition to an average price for such use. This profit is his
return for the risk undertaken; since he promised to double the flock
under any circumstances, and if foot-rot or scab had ruined the flock
under his management, he would still have the same obligation toward the
owner.

Such bargains will always be made so long as both parties are benefited,
for no possible construction of laws and no diatribes of fanatics can
prevent them. Any calculation as to the enormous growth of wealth by
interest is more than balanced by a similar calculation of the
multiplication of wealth by production. If Abraham’s shekels at compound
interest make an impossible sum of money, Abraham’s flock of sheep with
the ordinary rate of increase makes an equally impossible worldful.

_Varying rates of interest._—Interest rates are subject to fluctuation and
variations under the natural relations of borrowers and lenders very much
as are prices of commodities. Variations, in comparison of different
regions, are due to several causes. In any community where enterprise is
great and industrial forces are unusually productive, the interest rates
are high as compared with another community with few competitors in
industrial enterprise and less productive forces. Thus in countries having
new land producing large crops with moderate exertion and an increasing
population ready to put in such crops, the return for the use of capital
in provisions, stock and machinery is great, and the lender gets high
rates of interest. If, added to this apparent productiveness, there are
risks of failure from droughts, storms and injurious insects, the bargain
is more favorable to the lender in expressed terms, though it may be less
favorable in actual results. Thus risk enters practically into
calculations of interest, whatever the circumstances.

Interest varies in the same region with a variation of energy and
productive enterprise or of the speculative spirit undertaking great
improvements, and on the other hand with any change of circumstances
affecting universal credit. Distrust on the part of anybody reduces the
readiness with which borrowers find lenders. In times of widespread lack
of confidence, when all credit becomes debt, the borrower is likely to
offer unusual rates of interest. And the few who are willing to lend at
all expect enormous profits in such interest.

Similar variations in rates of interest are found between different
classes of borrowers, due to the variation of risk. Thus promises to pay
on demand, with personal security of two good paymasters, will usually be
accepted at very low rates of interest, since the owner of wealth so
loaned feels sure of having the wealth when he wants it. Government loans
in times of peace and prosperity being essentially without risk, approach
very near the same low rate of interest, since the owner of these
securities believes himself at any time able to command the use of his
wealth for any purpose by a transfer of these securities. If for any
reason, official or legislative, public confidence is disturbed, rates of
interest on such securities rise proportionally through the sale at a
discount. Even a law prohibiting such sale would have exactly the contrary
effect to that intended, because of creating additional distrust. Loans
upon time, if secured by productive landed estate not subject to unusual
risks, can usually be made at moderate rates, and form a fair basis for
judging the normal interest in any region. Loans secured by chattel
mortgage bring higher rates, because the chattels involved are a less
certain means of payment than landed estate. Loans secured upon
unproductive lands, whether in prospective farms or city lots, are made at
high rates, not only because these lands fail to furnish in themselves the
means of interest payment, but because they represent the speculative
energy of their owners with unmeasured risk. All these variations and
fluctuations are found in every community, and grow out of the natural
wants of borrowers and the natural feelings of lenders. Custom may have
something to do with rates in special cases, as it has to do with wages
and retail prices, but in the range of frequent dealing between borrowers
and lenders rates follow the higgling of the market as truly as prices of
commodities.

_Usury laws._—It has been the custom for ages to distinguish between
interest and usury, interest being supposed to be a fair payment for use
of borrowed wealth and usury a larger payment in the distress of a
borrower. Usury once meant only use, the equivalent of interest, but since
it was once prohibited by law in England, the name is now attached to what
is still prohibited by law, an interest above a definite rate prescribed
by statute. The object of such legal restrictions is evidently protection
of the borrower against extortion. Yet it is practically proved by
experience of the world that such restrictions operate against the
borrower by limiting lenders in open market and sometimes closing the
market entirely. The would-be borrower, under adverse conditions in the
market, is obliged to find in some byway a lender whose scruples against
infringement upon the law may be overcome by extra payment. Under such
circumstances there is no market rate, and borrowers bind themselves in
numerous ways to special payments not in direct conflict with the letter
of the law. Evasions of restrictions under such circumstances are
inevitable. A farmer buys a hundred-dollar horse, giving a note, payable
in one year without interest, for $120; or he sells his note to a neighbor
at what he will give; or he goes to a broker and pays him a commission for
securing a loan at the legal rate of interest. Even at a bank, prohibited
by law from taking more than the legal discount on the pain of losing its
charter, a borrower may give his note for $500, tacitly agreeing to leave
on deposit a fifth of the sum, thus paying interest on $500 for the use of
$400.

All these forms of evasion are easily adopted with very little possibility
of conviction, even when usury is charged. Even in the most flagrant
violation of laws the chances of conviction are greatly restricted by the
fact that a prosecuting witness, who, after making a contract in violation
of law, takes advantage of that law to violate his contract, destroys all
credit for himself, and so comes under the ban of society. The best
methods of public restriction against extortion of any kind in interest,
in rent or in prices of commodities are those that provide for publicity
of contracts. Where no legal restrictions upon rates of interest are
fixed, current rates are much more likely to be public and widely
advertised, and extortion is less possible than where the law encourages
secret contracts by the need of evasion. It is quite possible that society
will find a way of securing against the extortion of pawn-shops and secret
brokerage by a public organization competing honestly for the same
patronage. Such companies have been organized in a few cities with success
in meeting the wants of the distressed, under such restrictions of charter
and management as insure fair dealing. It seems as possible to regulate
such matters by license and inspection as it is to control the hack-men of
a whole city.

_Loan associations._—It is proper in this connection to refer to loan
associations, the growth of recent years. The purpose of such associations
is direct coöperation in borrowing and lending among neighbors similarly
situated as to property. They are especially adapted to assist
wage-earners in securing comfortable homes, for which they can pay
gradually from their earnings. The system, however, has been widely
extended, to the advantage of different classes of property owners, even
to the establishment of coöperative banks among farmers. The essentials to
success and safety in such associations are, first, that they shall be
strictly local, confined to territory within which mutual acquaintance can
give a fair basis for genuine credit; second, the objects sought by
individual borrowers must be fairly equal in risk as well as in ends to be
served; third, the management must be thoroughly trustworthy, with a
genuine interest of all shareholders in the selection of officers; fourth,
all shareholders should have similar relations to the association as both
borrowers and lenders, and each shareholder’s responsibility should cease
at the final settlement of his obligation; fifth, provision should be made
for frequent auditing of accounts, official reports and inspection.

_Uses of interest._—In closing the subject of interest, it is well to
recall the fact that interest exists in the very nature of productive
energies, and that ability to transfer the use of property in any form of
capital without transferring the interest is most useful to society. It
sustains the aged, who must otherwise be wholly dependent, and the
childhood of the race in all development of body, mind and soul. Interest
sustains the mass of educational and charitable institutions, as well as
the individual life of multitudes whose present earnings could not keep
body and soul together. Moreover, the possibility of paying interest
secures to the enterprising young men of the world the opportunity to make
their highest energies productive. Thus the matter of interest pervades
the thrift of society as well as the sustenance, and cultivates everywhere
that present economy which provides for the rainy day. The fact that
nearly one-fifteenth of the population of the United States are depositors
in savings banks alone proves the extent and importance of interest to the
general welfare. With added facilities for depositing small savings in
postal savings banks, the advantage would be still more widely felt, and
the general economy in the use of both earnings and capital would be
promoted. All this extension of interest-bearing increases the tendency
everywhere noticed to a diminution of current rates. With a multiplication
of capital in any community, the rates of wages increase, while the rates
of interest diminish. Both tendencies are natural effects of the same
cause.

Chapter XXII. Principles Of Land Rent.

_Rent values of land._—The general character of rent, as connected with
the use of fixed capital and so associated with interest, has already been
touched upon. In that sense it depends upon the fact that possession of
wealth is universally an advantage in production of future wealth and is
subject to all the peculiarities affecting interest. But land rent, as
represented in the value of farms, city lots, mineral claims, fisheries,
water privileges, wharves, etc., has peculiarities of its own. Its
connection directly with rural wealth in the value of farm lands makes it
of special importance in this discussion. While rent, as such, is
comparatively unimportant to farming interests in the United States, where
most of the land is worked by its owners, the principle is involved as
fully in the transfer value of farms as it is in countries where land is
almost universally rented for farm purposes, like England and Ireland. It
is simply necessary to remember that the rent question in such a country
as England, where land is seldom transferred from owner to owner (but all
values are expressed in the terms of annual rental), is quite different in
form from the question in our country, where transfer of landed property
is free and common, and the rental is regulated largely by current rates
of interest upon land values. In England, too, the rent question involves
long standing relations between the people and landed proprietors who, for
generation after generation, have been rulers of the people as well as
landlords, and are still the natural magistrates over the renters upon
their estates. Yet the principal occasion for rents in such countries is
exactly the same as that for varying values of land in the United States.
Peculiar intricacies of methods of rent-paying and of terms in leases,
varying with the customs of different countries, have little importance in
the United States, except for comparisons.

The United States afford superior advantages for the study of land values
fairly independent of restrictive laws or customs. The rapid settlement of
wild lands by farmers and the rapid building of cities under free
competition give the fairest illustration of tendencies in land values to
be found in the world. The fact that the government for the past fifty
years has encouraged the settlement of new land at the bare cost of
establishing ownership makes the problem almost as simple as if the
government had no voice in the distribution.

It may be proper to recall the conditions under which any individual has
been able to secure the absolute control of land as a proprietor: First,
by preëmption, involving temporary residence until the land is purchased
and patented, at the nominal price of $1.25 an acre, or $2.50 within ten
miles of such railroads as may have been subsidized by a gift of one-half
the land within the same limits. Second, by homestead preëmption, by which
any head of a family, present or prospective, can secure 160 acres of land
by payment of certain registration fees, amounting in all to less than $20
upon the average, and making his residence upon the land for a period of
five years. The issue of a patent at the end of the five years establishes
ownership. The soldier’s homestead, offered to those who had served as
volunteers in the army of the nation, varied from this only in a reduced
term of residence. Third, homesteaders, as well as others, could secure
additional lands under a provision for tree culture on the treeless
prairies, the requirement being the planting of a few acres of trees and
the maintenance of culture on those acres for a period of eight years.
Even the establishment of trees in permanent growth was not a requisite.
Fourth, by certain outlay for irrigation purposes in arid lands a tract of
640 acres could be secured. In addition to these, certain land grants to
the several states led to the issue of scrip, entitling the possessor to
locate on government lands upon payment of only fees of registration.
Certain states, within whose borders public lands did not exist, being
unable to hold lands in other states or territories, sold scrip at less
than half the price asked by the government for lands.

All these methods operated not only as a stimulant to the settlement of
new territory, but as a check upon rising values of land in the older
communities. Nevertheless, this rapid development has given the best of
opportunities for watching the tendencies of land values.

_Propriety of land rent._—The right of property in land, like every other
property right, rests upon its advantage in the welfare of communities.
Among savage tribes individual control of plots of ground would interfere
with welfare, as hindering the only use to which the land is put in
hunting. Among people living by herding no nice dividing lines are needed,
though strife between herdsmen, since the days of Abraham and Lot, results
from the mingling of herds upon the same feeding grounds. With the actual
tillage of soil, control of the space tilled becomes absolutely necessary,
and more necessary with every improvement in agriculture which takes the
nature of permanent improvement upon the soil. No agriculture beyond the
merest skinning of the surface has ever existed without permanent
occupation. Even where the land is distinctly owned, but used under
temporary leases, few permanent improvements in agriculture are possible.

The necessary permanence of control over the products of toil makes an
essentially permanent control of land necessary to the common welfare. For
this reason the progress of civilization everywhere demands more distinct
boundaries of landed property, and this in the interest of the whole
community, which shares in the progress. The more intensive and far-seeing
the methods of farming become, the greater the necessity for fixed
boundaries. This necessity is recognized in all provisions for exact
surveys, complete records of transfers in ownership; and finally for
government guaranty of title. Such ownership underlies all prudential
consumption of wealth for future returns. The loss to communities from
want of it is seen in the waste of game in unappropriated countries and
the destruction of the seals in the seal fisheries. Yet this ownership is
still subject under all circumstances to the law of welfare for the entire
community. The community’s right of eminent domain has always been
recognized in the need of public highways and other public improvements,
and is likely to be still further recognized with any new necessity, like
the control of injurious insects or quarantine against disease. Yet none
of these restrictions diminish the necessity of ownership, in the sense of
individual control for all purposes of agriculture, manufactures, commerce
and social relations. This individual control is intimately connected with
our ideas of rent, and would be still, though all the lands were managed
under one proprietorship, and that a public one. Rent would accrue and be
paid, though the whole people held title to the land.

_The sources of land values._—The value of land, like every other value,
is the result of comparisons. Whatever advantage is given to a producer by
his possession of land is likely to form his estimate of its value. In the
comparison of two farms of equal dimensions every difference in fertility,
location as to drainage, exposure, or convenience to market or social
advantages, adaptability to improved methods in agriculture and
convenience of arrangement, will enter into the estimate of worth. If one
of the farms can be had for the asking, the other will be worth just what
its advantages will add to the power of the owner in the production of
wealth, provided both are considered alike as simply machines for
producing food. Usually, however, economy in the consumption of wealth is
considered also. In a new country lands most easily accessible and readily
tillable are chosen first. With added demand for food, less accessible or
less easily tillable lands are occupied. At once the more accessible have
a value equal to the greater ease with which the same product can be
offered in market. If the difference were only a mile of hauling all
produce and all commodities for which produce is exchanged, that cost of
transportation would make the value of the nearest land. If the difference
is simply in yield for a given amount of labor, the land which yields
thirty bushels of wheat to the acre, when land which yields twenty bushels
can be had for the taking, will be worth ten bushels of wheat a year, and
its value will be estimated in dollars at a sum which securely at interest
will bring a similar return. If, by and by, the demand for food or
improvement in transportation or an easier method makes it worth while to
cultivate land yielding only ten bushels of wheat to the acre, the annual
value of land yielding twenty bushels will be ten bushels, and that of the
land yielding thirty bushels will have become twenty bushels.

Thus the rent, and correspondingly the value of farms, increases with the
increasing demand for farm products, whether that demand results from the
increased number of eaters at hand, from the increased ability of these
eaters to supply their wants, or from ready transportation to eaters
elsewhere. Many influences in various directions affect the tendency to an
increase of land values with the increase of population. Some have been
led to the assumption that only the multiplication of food-eaters,
increasing the need for land, makes rent possible. Connecting it with the
theory of Malthus that population tends to increase in geometrical ratio,
while food can increase only in arithmetical ratio, they have denounced
rent as a price paid to monopolists under stress of danger from
starvation. These forget that rent is payable as truly out of increasing
abilities of individuals to meet increasing wants as under the spur of
more distressing wants. Indeed, starvation, or the approach to it, never
pays rent, however strong an incentive it may be to promise rent.

_Rent in price of products._—Does the value of the land upon which my
wheat is raised enter into the price of my wheat? If all land values were
destroyed, would the wheat of the world be cheaper, because its cost would
be diminished? The price at any time is just enough to bring the supply to
market and keep it there. A portion of the supply has cost even more than
it brings to its owner. If any brings more than cost, the difference goes
either to the energetic raiser using improved methods, or to the fortunate
receiver of timely showers, or to the possessor of the fruitful field.
Neither the profit of the raiser, through his method and the shower, nor
the rent of the fertile field has made a bushel of wheat less or more
valuable in market. The value of the wheat in the market makes both the
profit and the rent. If the value of wheat falls, the value of best wheat
lands sometimes follows; but land values do not directly affect prices of
products, though they may be directly dependent upon those prices.

Indirectly, however, the value of land may affect prices of products.
Land, in certain speculative movements of society, gains a value for
future use. If the fertile fields are held for speculative purposes, less
fertile fields must furnish a limited supply at increased price. If the
fields are wanted for homes, the supply must come from a distance at
greater cost, or be raised on fewer acres by more costly tillage, and will
not come till the price is increased. Thus high rents, or land values, if
maintained by outward forces may diminish the total product, and so affect
prices. But no conspiracy of land holders can affect the price of their
products so long as their lands are employed in supplying the market.

_Variation in land values._—Rents vary in different countries under
various customs of those countries, and so land values can be compared
only by knowing the customs and laws which influence the transfer of
landed property, either by deed or by lease. Differences in value are
often due to considerations entirely distinct from production. Farms are
homes as well as machines; and the privileges of home life, with all the
relations of family, friendship and patriotic associations, may rouse
competition that greatly influences the market value of farms. In any
community, whatever custom or law hinders competition in farming affects
the relative value of farms in productive industry. Peculiarities in the
method of holding lands have much to do with their value. The hopes and
expectations of the people have large influence. Whatever stimulates
enterprise and increases speculative energy enlarges the estimate of land
value. Whatever depreciates abilities or discourages enterprise diminishes
land value. Whatever encourages permanent improvements and far-sighted
plans in farming increases land prices. Whatever discourages the spirit of
improvement reduces such prices.

In some of these ways it is possible to account for great differences of
value in regions apparently equal in natural advantages. Thus nobody wants
lands in Turkey, however fertile, in comparison with lands in a free
country like ours. Countries under a poor system of agriculture with
inefficient labor cannot maintain high value of land. Ignorance and
thriftlessness in a community of laborers operates in the same way. Thus
the habits of the people, as well as their laws, enter into the question
of rent. In countries where large estates are parceled out to renters,
generation after generation, the customary terms of leases as to time,
method of payment, adjustment of improvements, restrictions as to methods
of tillage, and requirement of capital, enter largely into the question of
rents. In some the fear of eviction under arrearages cuts a prominent
figure; in others the confiscation of improvements destroys all
enterprise. Upon the continent of Europe, in some places, the payment of
rent in produce,—what we call working of land upon shares,—greatly limits
individual enterprise, though it gives to the land owner a direct control
in the methods employed on the land. Restrictions of law or of custom upon
transfer of ownership always have the effect of diminishing the general
productiveness by hindering the natural competition of productive
enterprise. The result of all laws of entail, by which enormous estates
are held from generation to generation under control of the same family,
is universally deprecated because of its interference with the natural law
of supply and demand as to farms and homes. All such restrictions favor
the spirit of monopoly and cultivate arbitrary power, which in every way
hinders progress.

_Recent decrease of land values._—In the United States during recent years
there has been a decided shrinkage of land values in most of the country.
Several evident causes appear worthy of mention. The most evident is a
rapid increase of farms on the western plains, recently bringing their
products into the competition. These prairie regions give the largest
range for farming in the world. In the same connection is the
introduction, upon these immense fields of cheap land, of extensive
machinery by which the productive power of labor is multiplied. The labor
of one man for 300 days is said to have produced in California 5,000
bushels of wheat, so that one man’s labor on many acres gives to each of
1,000 people a barrel of flour a year. Next to this is the opening of new
agricultural enterprises in South America, Australia, India and South
Africa, with still greater prospects in Siberia—all the result of great
improvements in transportation, opening to these regions the world’s great
markets. This has pushed the supply of staple products toward the
condition of over-production. The same cause has diminished the demand for
our staples by greatly stimulating the consumption of foreign fruits and
nuts. Most recently has come the depression from loss of confidence in
enterprise, through excessive speculation and waste of capital,
undermining the market for land as well as for all the machinery of
production. In these conditions the whole world has shared.

_Population drifting to cities._—The drift of farm population toward the
cities is a symptom of the changed conditions, not a cause. If, as decided
by an expert investigator, three men on a farm do the work that fourteen
did forty years ago, the farms can well spare to the cities an increasing
number of its boys and girls. The drift is real and permanent, diminishing
rural population in 100 years from 96 per cent of the whole to 70 per
cent, though exaggerated in figures through arbitrary division between
towns and cities. This movement has been noticed the world over since
1848, when machinery began to affect agricultural production.

That this drift is wholesome is evident, if we look at the diversity of
employment resulting and the improved welfare of all. A simple comparison
of figures from the United States census will show the readjustment of
employment. No one can doubt the advantage gained in the entire nation.

_Abandoned farms._—The most disturbing feature of this readjustment is the
desertion of some farms in the rougher parts of New England and the drier
parts of the West. These lands will find a profitable use in the woodlots
through the East, and in grazing ranges through the West, with slight
permanent loss. They are not signs of poverty, but of a developing thrift,
just as the abandoned country woolen mills tell the story of immense
growth in the factory methods. While individuals seeking profit in sale or
rent of their farms may suffer in any such shrinkage of local values, it
must not be forgotten that the total of rural welfare is not necessarily
diminished. Land values, aside from improvements, are everywhere evidence
of limitations to welfare in some special direction. If human enterprise
and invention and thrift lessen such limitations, the world is better off.

The great mass of farmers, who think more of their homes than of property,
will suffer little from lower prices of land unless such low prices result
from a general lack of thrift and of adaptation to new circumstances.
While the changes in price which affect reduction of rent values do
require readjustment of plans and methods, the farmer who keeps in touch
with the world’s work will not suffer, but gain, in the general
advancement. In many instances, the low condition of farm property is due
to unthrifty neglect of farmers in whole neighborhoods. Bad roads, short
schools, weak fences and poor stock are as often a cause as an effect of
low prices of land. Whole regions in our country suffer in this way from
unthrift, whatever the price of farm products or of lands.

_Farms in the United States._—These are under conditions best suited to
attend the general thrift of the world in every way. Ownership is not
complicated in any way with magisterial duties or prestige or entailment,
as in England. It is not so distinctly hereditary as to embarrass
agriculture by extreme subdivision of farms, as in France and other
portions of Europe. It is in no danger of combination into great estates
under absentee landlords, as in Ireland. Its laws of transfer and guaranty
are growing more and more simple and direct, while protection to homestead
rights is strong. Farmers themselves have such responsibility in state and
nation as to make their genuine interests felt everywhere, and no system
of caste can make them a peasantry, as in most of the Old World. Indeed,
the farmer in every region makes his farm; and the enterprising, educated
farmer of the next generation in our country will find in himself the
forces at work to give value to his land. The speculative movement in land
holding will be outgrown when genuine farm homes are more prized for their
welfare than for their wealth; but this very welfare will maintain a
stable value in lands.

PART III. CONSUMPTION OF WEALTH.

Chapter XXIII. Wealth Used By Individuals.

_Wealth to be consumed for welfare._—The only economic motive for the
accumulation of wealth is its use in promotion of welfare. While the old
maxim says, “A penny saved is worth two gained,” every one recognizes the
penny as absolutely worthless except in view of some utility to be gained
in spending it. So with every form of wealth. All economic value
disappears when the thought of use is wanting. Such use, whether
practically instantaneous, like the destruction of the gunpowder
projecting the bullet, or extended through hundreds of years, as in the
wearing out of a castle, or a bridge, is properly called consumption of
wealth.

A majority of the great problems concerning social welfare are connected
with the use of wealth, and therefore fall under the discussion of
consumption. Indeed, so long as there is little accumulated wealth, as in
the savage state, social problems have little significance. The statement
of the Apostle Paul, “The love of money is the root of all evil,” while
not confined in application to wealth already accumulated, has its most
important bearing in the fact that wealth accumulated is itself a power to
be used or abused by whoever controls it. The saying of Emerson, “The best
political economy is care and culture of men,” applies most strictly to
the uses of wealth and the methods of its consumption. The great question
of today in every civilized land is, How can the accumulations of power in
the shape of wealth made by this generation be used to establish a
continuous welfare, not only for this generation, but for its successors?
The wants of society today include not only a reasonable provision for
life and health and wisdom and virtue during the life of those who are now
active, but an equal provision for the same wants increased with each
succeeding generation. In all thought of consuming wealth, we must
remember that power in this form is rightly used only when power in some
other form results. Thus wealth is consumed, according to natural laws,
either for reproducing itself in more advantageous form or for sustaining
human power in form of health or wisdom or virtue.

We have social welfare as the result of wealth consumed, or used up.
Society is interested in all the wealth accumulated, and the methods of
its accumulation and its fair distribution are a part of social machinery;
yet these have their chief significance in the final consumption. It is
not what we have, but what we do with it, that makes society interested in
our possessions. It is not what society has, but how it uses it, that
settles the chief questions of welfare or illfare. Not only gunpowder, but
every conceivable power in material wealth, has blessing or bane in the
use to which it is put. So the welfare of a community cannot be judged by
the amount and kind of wealth produced or by the methods in production or
by the distribution of ownership. These may be significant in showing the
trend of social customs as to individual control, but the last inquiry
will still have to be, What welfare comes to the entire community when all
this wealth is used? Moreover, no analysis of qualities in any substance
called wealth can measure the welfare involved in its use. Its relation to
the individual using it and his relation to the whole community, with a
careful analysis of wants met and character developed, must be considered.
The final question is, How many and what kind of wants are satisfied?

_Use of wealth individual._—It is necessary to realize that the social
organization is maintained solely for the sake of individuals. All study
of welfare and illfare is a study of individual human beings. The mutual
relations of these human beings in society are means to individual life,
growth and enjoyment. Even the total power of a generation in society is
dependent upon how the individual wants of individual members of that
society are met. Some of the greatest mistakes in estimating social
welfare arise from overlooking the essential individuality of wants, upon
which all wealth depends for its use.

This individuality makes the proper consumption of wealth largely a
question of right and wrong. The possessor of any form of wealth is
obliged to recognize his place in society as a promoter of welfare, and
society compels, as far as it is able, a recognition of individual needs.
Yet the very nature of consumption, as concerned with individual wants,
makes individual judgment supreme in the use of wealth. It is my ideal of
good health, high culture and sound morals that must be met for my
enjoyment. My welfare, so long as I have rational powers, is the meeting
of my ideal. Society rightly hesitates to interfere with my ideals by
force as long as my actions do not disturb the welfare of my neighbors.
The necessity of human liberty for actual welfare limits the control of
society to very evident infringements upon others’ welfare in every
activity, including the use of wealth as well as other powers. This very
restriction is in the interest of highest total enjoyment of welfare in
the whole community.

_Individual responsibility for use of wealth._—In estimating the proper
uses of wealth, it is necessary to remember that mere animal existence is
a very small part of human welfare. It would not be enough for any human
society that every individual in it be fed, clothed, warmed and maintained
in reasonably long life. The highest uniformity of mere animal enjoyment
would not make a society worthy to be called human. Even uniformity of
wants far higher, with uniform supply for those wants, would give but
little organization and but little total welfare if that uniformity was
brought by curtailment of natural powers or by constraint that hinders
growth. The most natural fact among human beings, as in all the rest of
nature, is variety; and every conception of proper consumption of wealth
must involve this thought of variety of individuals in wants and powers
left free to grow. It is a purely false assumption that the ideal
community toward which all ought to strive is a community of equals in
either ability or capacity. That is the ideal community which gives to
every member of it opportunity to make most of himself; that is, to make
himself most useful, and able to enjoy the truest use of his powers.

Hence we find the tendency in every community, with reference to wealth as
to other individual forces, to recognize early and complete personal
responsibility. This personal responsibility makes the question of
consumption of wealth a question of morals as well as of wisdom. The whole
discussion here turns upon the wisdom or unwisdom of certain personal uses
or social uses of what the world has accumulated. We can ask what use of
wealth is prudent, what imprudent; then what social organization best
develops the wisdom which secures a prudent use of wealth; and finally,
how far and in what ways society can act as a unit in the place of
individuals. The machinery of government then becomes a part of every
person’s welfare, and his relation to its maintenance by contribution of
his wealth is a part of prudent consumption. The economic question in
consumption, then, involves not so much what one can get from society as
what he can give to society, since his welfare comes largely through
organization in the use of accumulated wealth.

Chapter XXIV. Prudent Consumption.

_Prudent uses of wealth._—It has already been suggested that a proper use
of wealth looks always beyond the present. We accumulate, not only to
spend, but to spend in such a way as will give larger abilities in the
future. The name prudential consumption has been given to all that use of
wealth which has for its end the maintenance of individual powers at
highest efficiency for the longest life and provision for a more efficient
posterity with more efficient instruments of production.

It is prudential use of wealth to gather into the farm, not only such
machinery in the shape of buildings, fences and roadways as will make the
future labor more effective, but all possible fertility that will make the
future owners of the farm a larger welfare in possession. All wealth put
into the form of productive capital is prudentially consumed. All
so-called permanent improvements which look to the better satisfaction of
future wants fulfil the condition of prudent foresight. All public
improvements are really such, when this far-seeing provision for future
wants and abilities of society is made. Such methods are the genuine
economic saving in which the community should be encouraged. A saving
which merely stores against a future personal want contributes less to
general welfare, and does not stimulate the natural growth of wants in the
individual, which is the chief source of increasing power. The one who
saves that he may have better tools with which to do more for his future
satisfaction, not only adds to his physical abilities to meet his daily
wants, but adds the strongest stimulant to energy in his work. The supply
of ordinary wants being provided for, new wants arise.

In the spirit of prudential consumption such wants are encouraged as give
greater and greater abilities. Thus the ideal of life is constantly
raised, and the struggle is not for existence but for higher enjoyment and
more genuine welfare. The wealth which comes in this accumulation of
capital for larger accomplishment aids true philanthropy. The whole world
gets more of welfare with every addition made by farmers to their working
capital. In the same way all increase of capital in machinery, tools,
warehouses, ships and other means of transport contribute to a
philanthropy that makes society richer.

Such saving is entirely opposed to the miserly spirit which hides wealth
because of mere love of possession or fear of future want. It is the true
way of both spending and having, since it expends earnings for that which
continues to aid in bringing larger returns to meet increasing want. That
social system is most prudent for the world which accumulates productive
capital without reducing any part of society to poverty. Prudence,
however, requires that this capital saving be adjusted to the abilities of
the community in which it is to be used. The building of an enormous
factory, where skill has yet to be developed and where a market is
wanting, would be the height of imprudence. Such waste is sometimes seen
under the false stimulant of a bounty or a restrictive tariff. Just so,
great public improvements upon rivers, harbors and highways are a part of
economy and prudent investment of wealth only when a community is able to
use them to advantage. The test of prudence in capital saving is in its
nice adjustment to the abilities of the users.

_Prudent adjustment of capital._—A still further adjustment is required by
prudence between the capital put into fixed forms and the circulating
capital needed for best use of the more lasting machinery. A farmer is
said to be stock poor when he overloads his farm or crowds his farm
buildings with growing stock. Having all his capital in stock, he is
unable to handle it to advantage, and must readjust his capital in live
stock to his capital in the farm and machinery by selling some of his
stock and adding to the value of his farm. On the other hand, many a
farmer is land poor, where the bulk of his capital is invested in land,
while he cannot command circulating capital in stock and wages sufficient
to make the land useful. He needs, in the spirit of prudence, to sell some
of his land for the sake of current funds to invest in live stock and in
labor. The same principle applies to all investments of capital. A
railroad may so exhaust the funds of the community in building it that it
cannot be fairly manned for work. Sometimes a whole nation invests so
largely in permanent forms of capital as to bring distress and poverty
from want of means to use the great machine.

Prudence also requires a further adjustment between the amount of labor
directly producing wealth and that employed in what may be called the arts
of consumption, contributing directly to personal comfort and enjoyment.
The neatness of a farmer’s yard, outbuildings, fences and machinery is a
part of his welfare. It also indicates a certain thrift, which enhances
the value of the farm. But it is a proper sign of such thrift when it
grows naturally out of the productive energy employed upon the crops and
the stock. The wealth used in maintaining this neatness is not wasted, but
it will not reproduce itself. It must be supplied from other sources in
direct production. All services in the household, in contributing to
bodily comfort of the family, make an essential part of human welfare, but
prudence requires such an adjustment of these services to the total
wealth-producing energy that they may be maintained without reducing the
total power. All public expenditures in the care of streets and parks are
an essential to welfare so long as the sources of wealth production are
kept the more active from such advantages. The test of prudence in all
such adjustment is the increase of power in wealth-production, along with
increasing welfare.

_Provision for future wants._—True prudence is largely foresight, and so
is the enterprise of speculative energy which provides any product for a
future market. No more careful adjustment is necessary than that which
secures such a product of farm or factory as the world will need when it
reaches its actual market. The greatest wisdom is needed in studying the
conditions of a community with reference to its future wants, and the
supply actually accumulating for meeting those wants.

Farmers need, as truly as any producers, to know the wants of the world
for which they are producing food. The crops they plant in the spring will
actually be consumed in large measure during the following year. Prudence
suggests that they plant such crops as will be most in demand. If they
judge by the market today, they are in danger of two errors: first, of
overestimating the future demand, which may be satisfied before the new
crop comes; second, of diverting from ordinary staple crops too large a
portion of the crop-raising force. Common experience has taught that a
high price of hops or onions or broom corn has almost certainly wrought a
reduction of the price for succeeding crops below the normal cost. Still
larger foresight is needed with reference to the raising of live stock,
which requires more than a single season’s investment of capital. To stock
a farm with hogs, sheep, cattle or horses, requires from one to five years
of accumulated capital. The record of farm stock shows successive waves of
such production in direct opposition to prudence. (Chart No. 4, p. 83.)

The manufacturing world has similar experiences of imprudent consumption
in the effort to forestall a market. But the record of failures in this
respect is scarcely as marked, because of more business-like collection of
information for the guidance of judgment. Farmers too generally follow the
lead of their neighbors in adjustment of crops or stock. Manufacturers
more generally try to do what their rivals are not doing. Success in
producing what is not finally wanted we call overproduction. While the
whole world is warned against this, each individual producer fails to
study as well as he might the means of avoiding it.

Prudential consumption does not properly provide for those speculative
dealings which end simply in a readjustment of wealth by gains on the one
side through losses on the other. All these imply an actual waste of
wealth and energy, whether they are exhibited in a gambling machine or a
board of trade. But there are certain great enterprises, like wonderful
inventions, which involve a prudential consumption of wealth. The wealth
consumed in developing the electric telegraph system, or in laying the
Atlantic cable, everyone would judge to be well invested. Every thought of
prudence sustains such expenditure. Yet the spirit of invention, as a mere
venture in desire to hit upon something which may chance to be wanted,
shows lack of prudence, and the world suffers by great waste of energy in
this direction. The only test of prudential consumption in provision for
the future market is in the careful study of all conditions, favorable and
unfavorable.

_Consumption for growth._—True prudence in public improvements has just
been mentioned, but such prudence has a larger range in promoting the
permanent growth of human powers and capacities. Every wise father wishes
his children to know more, be more efficient in the arts of life, and
enjoy more of true welfare than he does. Communities which show no
advancement in these respects are called dead, and decay is sure to
follow. Prudence looks after all educational interests by expending wealth
upon the means of education; not only sustaining schools, but making more
permanent provision and increasing facilities for instruction. This is not
only a means of preserving and wisely using the wealth accumulated, but a
means of increased production. Such prudence suggests large endowments for
public education, including the support of government machinery for
uniformity of education. A similar prudence sustains the philanthropic
spirit which maintains all the means of philanthropy. The endowment of
asylums for the weak and afflicted and the support of religious
institutions are prudent ways not only of caring for present welfare, but
of increasing the welfare of the future. The next generation will be
stronger and happier for the prudent foresight of this generation in
overcoming obstacles to health and wisdom and virtue. To leave wealth thus
invested is far better for successors than to leave it in form for ready
consumption upon temporary wants. Thus all prudent consumption of wealth
has for its basis the genuine welfare of a continuous society of human
beings subject to improvement. Any forming community looks surely to
future welfare when it invests wealth in good homes, good schools and good
churches.

Chapter XXV. Imprudent Consumption.

_Society interested in imprudence._—This fact, that the wealth of each
generation is so largely dependent upon the prudence of the preceding,
emphasizes the importance of public sentiment in favor of prudential
consumption. Public criticism naturally attacks the most noticeable
failures of prudence, and it therefore seems worth while to consider some
of those imprudent forms of consumption which society may seek to prevent.
It is also proper to consider the ways in which society may act for
prevention of imprudence.

_Luxurious consumption._—The question of luxury in the same society with
extreme poverty is always prominent. Luxury is supposed to be extravagant
expenditure in meeting individual wants. Though such wants may be real and
legitimate, lavish expenditure by any portion of a community seems at
first sight a trespass upon common welfare. Some have considered that
person wanting in good will to his fellows who expends upon his own
comfort more than his neighbors can afford. Others define luxury to be
expenditure for living above the average expenditure in the whole
community. Still others regard any expenditure a luxury which is not
needed to maintain physical powers.

It is easy to see that all these efforts at definition are imperfect,
because the idea of luxury implies such a mode of life as does not
contribute to the total welfare, and each one’s idea of total welfare
enters into his definition of luxury. It is an evident fact that the
so-called luxuries of one generation become the actual necessities of the
next. This is because the life of the race means more and includes more
with each succeeding generation. To live in the twentieth century will
mean, as it has always meant in the past, to have such exercise of every
ability as circumstances permit. Luxury is therefore always relative to
the duties one has to perform, as well as to the society in which one
moves. Moreover, luxury is relative to individual abilities and individual
plans. It would be luxury for a farmer to go without a needed plow for the
sake of buying a lawn mower. It would be luxury for a student to own two
coats, if he must go without a dictionary to buy the second.

It is easy to settle the luxuries of others, but less easy to so define
luxury that the public can agree in the definition. In general, it is
described to be a meeting of fanciful rather than real wants. Any
individual in society is spending his wealth in luxury if he allows his
imagination to conjure up adornments of person or household which
contribute chiefly to display rather than to comfort or enlightenment. All
such adornments of person, or home, or the public streets, as cultivate
genuine taste and inspire to more of energy contribute to the general
welfare far more than mere expenditure for food can do. Yet in times of
starvation the food must come first. The world sometimes sneers at the
desire among very poor people to cultivate flowers and maintain a canary
or other pets; yet every philanthropist knows that these desires are among
the strongest incentives to greater thrift and keener exertion.

_Legal restrictions upon luxury._—With all this difficulty in definition
and the certainty of change from age to age, there is nevertheless a
disposition on the part of society to restrict actual luxury. Again and
again this has led to enactment of laws prohibiting expenditure in certain
definite forms. The dress of ladies of rank has been restricted as to
style and quantity of material and ways of making. The variety upon a
dinner table has been limited to a certain number of dishes and certain
kinds of food.

All of these have been egregious failures, from the impossibility of
measuring results upon the general progress of civilization. The indirect
effects of ingenuity in dress and cooking have been on the whole so
beneficial that the world cannot afford to hinder it. The intricacies of
French cooking seem to an ordinary household extreme luxury, yet that very
ingenuity has cheapened the cost of living, to a large portion of the
world, by rendering palatable the coarser vegetables and cheaper meats
which lie within the reach of the poor.

No real student of human nature would now attempt, unless it be in the
emergency of a great famine, to restrict expenditures by law upon the plea
of luxury. Still, society as a whole has some voice in directing the
judgment of individuals. Public opinion is an effective check upon
desires. The good will of the multitude is more important to the mass of
men than any particular gratification. It is proper, therefore, to discuss
at any time and at all times the limits of luxury, both for ourselves and
for our neighbors. The sole cure for imprudent expenditure in luxuries is
individual culture of mind and heart and conscience, so that each may do
his best to secure, not only the good will of his neighbors, but their
welfare.

_Wasteful consumption._—Wasteful expenditure through ignorance or
recklessness is more common and more weakening than luxury. Its limits
cannot be described, since it covers expenditures of every kind, from the
simplest provision for food and clothing to the most elaborate structures
and wildest schemes of development. Though noticeable wastes are seen in
the households of the rich, they are relatively larger among the poor.

Yet any attempt to regulate such waste by law is futile, chiefly from the
fact that it ignores the personal responsibility and wants which make
individual character. It is properly applied to the imbecile and the
insane, as well as to children and youth, through the appointment of a
prudent guardian. Society can protect itself only by fostering more
complete systems of education in the arts of life. The tendency of our
times toward a more technical education, especially in reference to the
home and the common industries of life, marks the growth of public opinion
toward a clearer ideal of prudence against waste. The study of economic
principles in every department of life, and especially the clear
understanding of everyday facts as to the things men handle and use,
cannot but give wisdom for preventing waste.

_Vicious consumption._—It is customary to distinguish from all other forms
of imprudent consumption of wealth such vicious indulgence of appetites as
not only consumes accumulated wealth but diminishes power in production.
Such vicious indulgence is the result of cultivating unnatural and
destructive appetites. Familiar illustrations are those connected with the
drink habit, the opium habit, or any other vice whose chief effect is seen
upon the individual life of the one indulging himself. These involve the
very highest wastefulness, because they destroy not only wealth, but
ability. Nobody can begin to compute in terms of money the actual waste of
our country through indulgence in strong drink. The value of liquors
consumed is no measure of the entire wastefulness. Yet this is more than
enough to furnish all with bread.

The wrongfulness of such indulgence, from its harm to society through
reducing the power of the race, is seldom disputed. Yet the right of
society to restrict the individual indulgence is quite generally disputed.
The larger need of freedom in the exercise of judgment among mature
members of a community outweighs the need of preventing even vice. Society
does well to bring the restraints of law upon the immature, whose judgment
is not yet formed, thus supplementing by law the directive energy of
parental control. It may yet go further, and prohibit such indulgence to
all who have lost the power of self-control. But in general it has been
found impossible to enforce restriction upon vicious indulgence except
where such acts occasion direct suffering upon others, or help to maintain
an immoral business. The right of restraint and constraint, even to
prohibition, of that which fosters vice and extends its range must be
admitted by all thoughtful persons. Still, the right to prohibit and the
power to prohibit are not identical. The only sure preventive is early
education of public conscience through the training of youth to a clear
understanding of the vicious practices and their relation to the poverty
and weakness and crime of humanity.

_Destructive consumption._—A more obvious trespass upon prudential
consumption is criminal destructiveness of every kind. Until society
outgrows a condition in which fraud, theft, robbery and murder must be
warded off by locks and bars, by immense bodies of policemen and armed
militia, its wealth cannot be wholly invested for welfare. The possibility
of such crimes as arson or train obstruction and destruction shows the
condition of the best of modern communities to be far from ideal. Nobody
pretends to measure the actual waste in society resulting from such
criminal purposes. It extends to almost every detail of production and
trade, and occupies a large portion of the inventive and executive energy
of the people. Organized society attempts to restrain such waste by its
police force, or by restraining laws and in actions enforced by severe
penalties. Every honest man is financially interested in the conviction of
every knave. Sympathy with fraud, even in trifles, is contributing toward
such destructive waste.

In this connection the enormous expenditure in maintenance of standing
armies and navies for the protection of national boundaries is of special
importance. Reduction of this waste of wealth and power should be desired
by every class of society. Though war has been the means by which human
liberty has grown, it has also been the means of crushing it. It would
seem that every incentive is offered each citizen to make an appeal to
arms and the maintenance of armies a most remote necessity. Yet it seems
that the mass of men of every rank are tenacious of national honor. While
most communities have abandoned the duel as both wasteful and immoral in
personal difficulties, the spirit of the duel is still rife in the
differences between nations. A clearer perception of mutual interests in
national welfare will bring nations, like individuals, to accept some
method of enforcing neutral judgment for settling disputes, in place of
war. The farmers of a country, being nearly 50 per cent of its people, and
bearing a large proportion of the expense of armies and wars, have a
tremendous interest in maintaining peace. This can be done not so much by
reducing the provision for armies as by cultivating the spirit of fair
settlement, against the false patriotism which claims everything for one’s
own nation.

_False notions of waste._—Wasteful expenditure and luxury and possibly
even vicious indulgence are often excused with the plea that expenditures
of this kind make employment for labor, and so aid the poor. While it is
true that multitudes are employed in catering to the vices of others, all
must grant that the same wealth might be much better employed in other
occupations. More than that, the larger wealth resulting from accumulation
in place of waste would provide capital needed for fuller employment of
all who can work. All imprudent expenditure reduces the power of society
to accumulate wealth for giving occupation to all who will work. Moreover,
such wastefulness creates a tendency toward thriftless character among the
people. The welfare of the whole community depends upon the thrift of the
whole community. The thriftlessness of rich men’s sons is more damaging
than the thriftlessness of tramps, because it is more tempting to others.
Any man who lives simply to spend, however busy he keeps himself, is one
of the wasteful ones in the community, unless he has some higher object
than gratifying his desires. The energetic idler may be doing his worst
for the community without being ranked as a spendthrift, because he makes
such idleness respectable. It should be the desire of all good citizens to
increase the ability of every other citizen, not only to live, but to live
well. This thriftlessness can be overcome only by a strong public
sentiment that corrects the early tendencies of youth to waste of means
and energy.

_Waste in rivalry._—There is another kind of wastefulness resulting from
excessive competition for a particular business or a particular trade.
Immense amounts are expended upon rival advertisements, all of which enter
into the general cost to consumers. A multitude of retail dealers maintain
stocks of goods entirely out of proportion to the needs of the community,
because they are rivals in trade. Very likely the business rents are
higher than they need be because of such rivalry. Not only is there a
strong competition for a place, but also for showy equipment and elegance
of display. All this could be saved by better organization. A still more
evident waste is from the multiplication of agents and middle men of all
kinds, employed simply in catching trade. Some of them act simply as
interlopers, hoping to gain a small commission without the use of capital
or painstaking in their business. These are the useless middle men
maintained at the expense of the community. Full market reports and
general information of buyers and sellers greatly reduce such waste.

Chapter XXVI. Social Organization For Consumption.

_Individualism._—While the social organization is necessarily thought of
as a group of individuals, whose individual wants and plans and growth and
character must be the chief incentive for action, it is necessary to avoid
the extreme of individualism. In escaping from the false analogy implied
in considering society an organism, there is a tendency to make the
individual not only of final importance but independent of association.
Excess of competition is represented in the maxim, “Every man for
himself.” In the effort to carry out this maxim and in opposition to
restraints of society, whether by law or by custom, many are led to
advocate an abolition of organization, leaving all welfare to be secured
by appeal to the individual judgment and conscience of men. It is true
that back of all law is the law of righteousness in individual souls.

Under the name of “autonomy” theorists propose to appeal to this
conscience of individuals, making every soul a law to itself. Such
theorists assume that every human being will be wise and virtuous, or take
the consequences of his failure. They forget that all organizations for
constraint are a part of the natural consequences of failure in
self-control.

Under the name of “anarchy” groups of people all over the world have
united to destroy what they consider arbitrary rules in government.
Anarchists differ from autonomists in putting foremost the destruction of
existing governments. Their ideals of right and wrong and their methods of
individual action for individual welfare are left for the future to
develop, after the rule of the present has become no-rule. Their present
organization, as far as it is public, appears to be, in almost direct
contradiction of their principles, an absolute despotism. The same idea
has gained followers in some countries, particularly in Russia, under the
name of “nihilism.”

While in some instances such movements may be but a natural reaction
against tyranny, the view of human wants and human welfare which all these
advocates present is far from being correct. The grand economic fact that
groups are superior to individuals in actual efficiency is beyond dispute;
and it is equally true, though not so often stated, that groups gain
greatest satisfaction for a given consumption of wealth. It is only when
great numbers share in satisfaction that the highest range of wants can be
gratified. Moreover, even individual wants are largely social. Each finds
his highest pleasure in the society which nature has provided. The chief
reasons for accumulating wealth are in what men can do for each other. Any
individualism which overlooks these principles is opposed to welfare, and
so self-contradictory.

The famous French phrases, “laissez faire” and “laissez passer,” which
represent the individualistic side of economic theory, are often extended
beyond the intent of the phrase makers. They mean essentially, let do, let
go, and have their proper application in an appeal to conservative society
to so modify laws and customs that individual enterprise, ingenuity and
thrift shall be stimulated to its best by freedom. Freedom from
restrictions in right-doing, under the evident motive furnished by general
welfare, is an ideal for society. In economic directions it has great
importance. No thinker can fail to see the trend of civilization toward
such freedom. So far in the history of the world the enlargement of
individual responsibility, by freedom from constraint among the mature
members of society, has been the chief mark of progress. Yet the
constraint of welfare, and of the general judgment as to what is welfare,
as well as the necessity for agreement as to ways and means of reaching
it, are better recognized today than ever before. The extreme of
individualism destroys the natural constraint of a common judgment.

_Socialism._—The opposite extreme is the assumption that common wants are
of supreme importance and common judgment absolutely efficient. Under the
name of “communism” it stands in direct contrast with anarchy. Anarchists
and communists may unite upon a platform of a single plank, opposition to
existing institutions; but in all ideals and purposes and plans for future
welfare they are absolutely opposed to each other. The natural community
of interests so evident in society gives a fair basis for the general
principles of communism. No doubt the welfare of all is the interest of
each, and the world is growing to recognize it. Among a group of beings
perfectly wise and virtuous there could be no clashing of either interests
or judgment. The ideal of Louis Blanc, “From every man according to his
powers, to every man according to his wants,” would represent the natural
activity of such a group. But in application to humanity, as it is and is
bound to be by its weakness and waywardness, it seems abstractly ideal. In
fact it is only roughly applicable in ends to be served, and suggests
almost nothing as to ways and means. Like the golden rule, it applies to
the disposition and purpose of the actor, but leaves the acts to be
decided by individual judgment.

The numerous phases of opinion in application of this principle cannot be
presented even by name in this short chapter. They are worthy of study as
indicating a growth of opinion and sentiment in recognition of the mutual
dependence of all human beings. They are also worthy of study as
indicating how arbitrary a zealot may become in enforcing his opinions
upon others. All of them are grouped somewhat loosely under the name of
“socialism,” but there are many gradations in the supremacy of the social
ideal over the individual welfare. There are also many shades of opinion
as to how the final result of social supremacy shall be reached. Many are
expecting a revolution by force of arms to establish the ideals of the
leaders. More are opportunists, snatching every opportunity in
legislation, in decision of courts, and in executive power, to apply their
methods.

Under the name of “collectivism” appeals are made to the multitude to
combine their energies under leadership: first, to overcome present
restraints; and then to secure combined action in all modes of production
and consumption. “Nationalism” is more familiar to our thought in the
United States, as embracing the aim of a somewhat noisy party to bring
about the compulsory organization of all industries under the control of
the nation, even to placing all property and all methods of consumption
under an official despotism.

Few recognize the actual logic of their views as compelling complete
subjection of every individual to others’ judgment, and fewer still have
any idea of the official machinery needed for such control. The great
majority are satisfied in seeing evils which might be cured by greater
social accord, expecting at once to vote into existence the necessary
machinery. Most of these are misled into considering wealth and its uses
to be the chief elements of welfare. They forget that wealth is only a
means of accomplishing one’s purposes toward his fellows and himself. The
greed of power and position and praise are far stronger as evil motives
than greed of wealth. If wealth were distributed by omniscient wisdom and
power according to the maxim of Louis Blanc, the higher welfare would
still be as far away as ever, unless the same omniscience should control
all actions. Such control by outward force would banish the very idea of
virtue, the highest of all welfare.

It is easy to see that every form of socialism, in practical methods,
involves a leveling process inconsistent with human nature and its
surroundings. Equality of environments is possible only by reducing all to
the lowest condition. Equality of aspirations reduces all toward the most
brutal of the race. Even equality of efficiency reduces all to the power
of the least efficient. So the whole range of method, assuming equality of
wealth as important to welfare, lowers the welfare of the whole by
destroying the best abilities and the best capacities for enjoyment in
order to prevent inequality.

And yet it has not been proved that equality in any of these particulars
is desirable. It is equally beyond proof that actual equality is possible.
The most absolute communism implies the greatest inequality in official
power. Even the pleasing phrase, “Equality of opportunity,” will not bear
analysis as applied to human nature and human welfare, under the very
highest ideals of social unity. Indeed, the lesson of facts in all
activity is that inter-dependence of _unlike_ and _unequal_ forces makes
the true unity of organization, and the surest welfare of multitudes. That
each individual should have the best opportunity possible for his own
development is best for each and for all in a community; but that such
opportunities shall be equal in any other sense no wisdom can contrive.
Most socialistic theories presuppose almost immediate change of human
nature under the new form of administration. But for this supposition
there is little ground in the history of the race or of all nature. Growth
there will be, and evolution of ideals; but the administration grows out
of these, instead of being their cause.

_Socialistic tendencies._—Socialistic theories gain adherence under the
provocation of certain tendencies in society. First, they appear whenever
by oppression or fraud of any kind a community is made up of one class
possessing wealth directly opposed to another class without wealth, with
no extended middle class, and therefore with no ready means of transition
from one class to another. As long as the doors are open for real progress
in power of accomplishment, all the way from poverty to wealth, society
has a unity in its variety that is better than any c

Rural Wealth and Welfare: Economic Principles Illustrated and Applied in Farm Life

Rural Wealth and Welfare: Economic Principles Illustrated and Applied in Farm…