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Materials  for  the  study  of 
elementary  economics 

Leon  Carroll  Marshall,  Chester  Whitney 
Wright,  James  Alfred  Field 


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MATERIALS  FOR  THE  STUDY  OF 
ELEMENTARY  ECONOMICS 


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THB  UNIYEBSITY  OP  CHICAGO  PRESS 
CHICAGO,  ILLINOIS 


KttwtM 
THB  CAMBRIDGE  UNIVERSITY  PRESS 

LONDON  AND  KDINBUBOH 

THE  MARUZEN-KABUSHIKI-KAISHA 

TOKYO,  OSAKA,  KYOTO 

KARL  W.  HIERSEMANN 

LBIPZia 

THE  BAKER  A  TAYLOR  COMPANY 

NEW  YORK 


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MATERIALS  FOR  THE 
STUDY  OF 

ELEMENTARY  ECONOMICS 


EDITED  BY  * 

LEON  CARROLL  MARSHALL 

CHESTER  WHITNEY  WRIGHT 

JAMES  ALFRED  FIELD 

OP  THE  DEPARTMENT  OP  POLITICAL  ECONOMY 
THE  UNIVERSITY  OP  CHICAGO 


THE  UNIVERSITY  OF  CHICAGO  PRESS 
CHICAGO,  ILLINOIS 


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COFYUGBT  1915  By 
Thb  Univxrsity  01  Chicago 


All  Rights  Reserved 


Published  September  10x3 
Second  impression  October  19x3 


Composed  and  Printed  By 

The  Univertity  of  Chicago  Press 

Chicago.  lUinols,  U.S.A. 


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PREFACE 

The  materials  collected  in  this  volume  are  intended  to  acquaint 
the  student  with  economic  principles  as  they  are  manifested  in  the 
tangible  facts  of  economic  life.  A  few  extracts  of  primarily  theo- 
retical character  have  been  included  to  represent  important  aspects  of 
contemporary  or  historic  thought;  but  for  the  most  part  the  selections 
are  not  so  much  authoritative  formulations  of  economic  laws  as  con- 
crete case-material  embodying  such  laws,  or  aflFording  a  background  of 
information  which  the  systematic  treatises  on  economics  can  hardly 
give  and  which  the  teacher  certainly  cannot  often  assume  that  his 
students  will  possess.  Various  sources  have  been  drawn  upon,  in- 
cluding not  only  the  writings  of  recognized  economists  but  also  official 
literature  of  governmental  and  private  organizations,  conmiercial  and 
financial  periodicals,  and  the  daily  press.  Some  of  the  material  has 
been  prepared  especially  for  this  book.  As  regards  form,  the  selections 
comprise  expository  and  descriptive  readings,  statutes,  judicial 
decisions,  the  findings  of  commissions,  news  reports,  statistical  tables, 
schematic  analyses,  and  a  number  of  maps,  charts,  and  diagrams. 

In  the  choice  of  the  materials  the  editors  have  been  guided  by 
actual  classroom  experiment.  The  nucleus  of  the  book  was  originally 
printed  as  a  series  of  bulletins  which  have  for  three  years  formed  a 
part  of  the  reading  required  of  beginning  students  in  economics  at  the 
University  of  Chicago.  During  this  time  imsatisfactory  selections 
have  been  eliminated  and  much  new  matter  has  been  added.  Copies 
of  the  bulletins  have  been  submitted  for  criticism  to  teachers  in  several 
other  institutions.  The  volume  which  now  appears  may  thus  be  said 
already  in  a  measure  to  have  demonstrated  its  usefulness  as  an  aid 
in  college  instruction. 

The  book  is  not  designed  to  take  the  place  of  a  systematic  text- 
book. Rather,  it  should  be  used  in  conjunction  with  such  a  text. 
No  attempt  has  been  made  to  weld  the  readings  into  a  hard-and-fast 
system.  They  have  purposely  been  left  to  be  utilized  as  the  preference 
of  the  individual  teacher  may  dictate.  There  has  been  no  desire  to 
dogmatize,  or  to  force  upon  the  student  any  particular  interpretation 
of  the  evidence.  In  some  cases  conflicting  views  are  set  forth  in 
different  selections  in  order  to  stimulate  critical  thinking;  and  several 


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VI  PREFACE 

extracts  have  been  included  precisely  because  they  seem  to  involve 
unsound  thinking,  or  a  point  of  view  so  remote  from  the  academic  as 
to  deserve  consideration  for  that  very  reason. 

The  editors  wish  to  acknowledge  their  obligation  to  the  many 
authors  and  publishers  who  have  kindly  permitted  the  use  of  extracts 
from  copyrighted  publications.  Every  effort  has  been  made  to  give 
due  mention  of  author  and  publisher  in  each  instance.  Where  a 
selection  is  stated  to  be  "adapted  from"  the  writings  of  a  certain 
author  the  reader  will  understand,  not  that  the  changes  from  the 
original  have  necessarily  been  considerable,  but  simply  that  some 
change  has  been  made  for  which  the  author  is  not  accountable. 
Where  no  source  is  indicated  for  a  selection,  either  by  footnote  or 
by  the  obvious  nature  of  the  topic,  it  may  be  understood  that  the 
editors  assume  responsibility. 

L.  C.  M. 
C.  W.  W. 
J.  A.  F. 

September,  19 13 


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TABLE  OF  CONTENTS 

PAGE 

I.   Introductory 

1.  The   Maladjustment   of  Man  and  Nature.    T.  N, 

Carver i 

2.  Man's  Adaptation  of  His  Environment.    Max  Nordau  8 

3.  Wajrs  of  Getting  a  Living.    T,  N.  Carver    ....  10 

4.  Competition  and  the  Industrial  Revolution.    Arnold 

Toynbee 11 

5.  Exchange  Co-operation.    Adam  Smith 17 

n.   Wants  and  tee  Means  of  Their  Satisfaction 

6.  A  Study  of  Himian  Wants 20 

7.  The  Apportionment  of  Expenditures.    F.  H.  Streighioff  27 

8.  The  Standard  of  Living.    F.  H.  Streightoff  ....  33 

9.  A  Normal  Standard  of  Living.    Massachusetts  Com- 

missum  on  the  Cost  of  Living 37 

10.  A  Classification  of  the  Means  of  Satisfying  Wants. 

T.N.Carver 41 

11.  Typical  Cases  Illustrating  the  Existence  of  Wealth 

Behind  Property  Rights.    Irving  Fisher  ....  42 

12.  Forms  of  Wealth.    Irving  Fisher 44 

13.  Forms  of  Property  Rights.    Irving  Fisher    ....  44 

14.  Estimate  of  Uie  Wealth  of  the  United  States.    Special 

Census  Report 45 

15.  The  Production  of  Economic  Goods.    /.  A.  Hohson    .      45 

16.  A  Classification  of  Industries.    /.  A,  Hohson    ...       55 

m.   Natural  Resoxtrces  as  Economic  Factors 

17.  The  Fimction  of  Natural  Agents.    O.  T.  Mason    .     .  58 

18.  The  Influence  of  Geographic  Factors.    E,  C,  Semple  .  61 

19.  The  Frontier  in  American  History.    F,  J,  Turner  .     .  66 

20.  An  Illustration  of  the  Law  of  Diminishing  Returns  73 

21.  Factors  Coimteracting  Diminishing  Returns.    /.  5. 

Mm 74 

22.  Natural  Resources  of  the  United  States  and  Their 

Conservation.    Natumal  Conservation  Commission    .      77 

23.  The  Economic  Possibilities  of  Conservation.    L,  C, 

Gray 102 

vii 


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Vlil  TABLE  OF  CONTENTS 

PAGE 

IV.  Human  Beings  as  Economic  Factors 

24.  Some  Definitions  of  Labor 105 

25.  The  Relation  of  Labor  to  Natural  Agents  in  Produc- 

tion.   J.  S.  Mill 106 

26.  The  Increase  of  Population  in  the  United  States. 

Henry  Gannett 108 

27.  The  Malthusian  Theory  of  Population 109 

28.  Economic  Influences  on  the  Marriage-Rate.    G.   U, 

Yule Ill 

29.  The  Quality  of  Population 

a)  Non-Survival  of  the  Fittest.    W.R.Greg    .     .     .     112 

b)  Eugenics 118 

30.  The  Cost  to  Society  of  a  Family  of  Degenerates. 

R,  L.  Dugdale 121 

31.  The  Conservation  of  Human  Energy.    Irving  Fisher  123 

32.  Causes  of  the  Growth  of  Cities.    A,  F,  Weber  .     .     .  134 

33.  Inunigration  to  the  United  States,  1820-1912  (Chart). 

Commissioner-General  of  Immigration 137 

34.  Sources  of  Immigration  and  Character  of  Immigrants. 

Immigration  Commission 138 

35.  Causes  of  Emigration.    Immigration  Commission  .     .     140 

36.  The  Problems  of  Inmiigration.    /.  W.  Jenks  avd  W.  J. 

Lauck 144 

37.  Immigration  and  the  Birth-Rate.    F.  A.  Walker    .     .     146 

38.  Fecundity  of  Native  and  Immigrant  Women  in  Rhode 

Island,  1900.    Immigration  Commission   ....     149 

39.  Inmiigration  and  the  Use  of  Machinery.    /.  R,  Com- 

mons     150 

40.  The  Recommendations  of  the  Immigration  Commission 

Immigration  Commission 152 

V.  Capital  Goods  as  Economic  Factors 

41.  The  Roundabout  Process.    E.  von  Bdhm-Bawerk    .     .     157 

42.  Machinery  Used  in  the  Making  of  Pins.    Commissionct 

of  Labor 158 

43.  Hand  vs.  Machine  Methods.    Commissioner  of  Labor    160 

44.  Machinery  vs.  Hand  Labor  in  the  Raising  of  Small 

Grains.    Commissioner  of  Labor 161 

45.  Machine  Methods  in  Agriculture.    H.  V,  Quain'ance  .     164 

46.  Relative  Increase  of  Capital  and  Employees  in  Manu- 

facturing   170 

47.  Some  Sources  of  the  Supply  of  Capital.    Wall  Street 

Journal 170 


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TABLE  OF  CONTENTS  ix 

PAGX 

48.  Capital — ^Demand  and  Supply.    Journal  of  Commerce  172 

49.  What  Is  Meant  by  Depreciation.    P,  A.  Delano    .     .  175 

50.  Inroads  of  War  on  the  Savable  Fund.    Special  Com- 

missioner of  the  Revenue       179 

VI.  The  Organization  op  Industry 

A.  Specializalion: 

51.  Limitations  of  the  Division  of  Labor.     /.  S,  Mill  .     .  181 

52.  The  Tin-Peddler  and  the  Development  of  Connecti- 

cut Industries.    R.  M,  Keir 182 

53.  Classification  of  Occupations.    Census 183 

54.  Stages  in  the  Production  of  Iron  and  Steel  Products. 

Commissioner  of  Corporations 189 

55.  The  Localization  of  Manufacturing  Industries.    Census  189 

56.  The  Division  of  Labor  in  Pin-Making.    Adam  Smith  198 

57.  Division  of  Labor  in  Meat  Packing.    /.  R,  Commons  199 

58.  Division   of   Labor   in    the   Shoe-Making   Industry. 

Census 200 

B.  Management: 

59.  The  Problem  of  the  Business  Man 204 

60.  Problems  of  Farm  Management.    T.  N.  Carver      .     .  206 

61.  The  Principles  of  Business  Organization.    The  System 

Company 207 

62.  Scientific  Management.    F.  W,  Taylor 219 

63.  Criticisms  of  Scientific  Management.    H,  5.  Person    .  228 

64.  Partnership  Articles 233 

65.  Form  of  Corporation  Charter 234 

66.  A  Charter  "Object  Clause"  (United  States  Steel  Cor- 

poration)      236 

67.  Corporation  Charters  Granted   Before  1800.    S.  E, 

Baldwin 238 

68.  The  Holding  Company.     Interstate  Commerce  Com- 

mission        239 

69.  A  Classification  of  Bonds.    P,  A,  Cleveland    .     .     .  241 

70.  Examples  of  Typical  Investment  Securities       .     .     .  244 

71.  The  Basis  of  Capitalization.    Industrial  Commission  252 

72.  Methods  of  Stock  Watering.    Industrial  Commission  257 

VII.   Examples  op  Modern  Capitalistic  Organization 
A.    Railroads: 

73.  Transportation  Costs  in   the  Pioneer  Middle  West. 

Isaac  Lippincott 259 


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X  TABLE  OF  CONTENTS 

PAGE 

74.  Widening  of  the  Market  through  Improved  Transpor- 

tation         360 

75.  The  Relation  of  the  Transportation  Charge  to  Prices. 

L.  G,  McPherson 261 

76.  Costs  in  Railroad  Operation.    /.  F.  Strombeck       .     .  266 

77.  A^ded  Traffic  Pays.    A,  M.Wellington       ....  269 

78.  A  Result  ot  Railroad  Competition.    A,  J.Cassatt  269 

79.  Some  Forms  of  Railroad  Discrimination.     Commis- 

sioner of  Corporaiions      270 

80.  Extracts  from  the  Interstate  Conmierce  Act.     U.  S, 

statutes 274 

81.  Railway  Rate  Theories  of  the  Interstate  Commerce 

Commission.    M,  B,  Hammond 286 

82.  Valuation  of  Public  Utilities.    Judicial  decisions  .     .     289 

83.  Suggestions  for  Effective  Public  Utility  Regulation. 

E,  H.  Downey  291 

B.    Industrial  Combinations: 

84.  Forms  of  Combination.    Industrial  Commission     .     .     299 

85.  The  Steel  Rail  Pool  of  1887.    Commissioner  of  Cor- 

porations    304 

86.  The   Continental    Wall   Paper   Company.     Judicia' 

decision 307 

87.  The  American  Tobacco  Company.    Commissioner  of 

Corporations 308 

88.  The  United  States  Steel  Corporation.     Comm.ssioner 

of  Corporations 313 

89.  The    Steel    Corporation    Underwriting    Agreement. 

Commissioner  of  Corporations 318 

90.  Companies  Acquired  by  the  United  States  Stee:  Cor- 

poration.   Commissioner  of  Corporations  ....     323 

91.  An  Example  of  Trust  Efficiency.    Commissioner  oj 

Corporations 327 

92.  Trust    Advantages,    Disadvantages,    and    Remedies. 

Industrial  Commission 329 

93.  The  Sherman  Anti-Trust  Act.     US,  statutes     ...     338 

VIII.    Markets  and  Trading 

94.  Methods  of  Marketing.    A.  W,  Shaw 340 

95.  Marketing  Farm  Products.    Department  of  Agriculture    352 

96.  Retail  Distribution  of  Farm  Machinery.    Commissioner 

of  Corporations 356 

97.  The  Distributmg  System  of  the  International  Harvester 

Company.    Commissioner  of  Corporations      ,     ,     .     359 


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TABLE  OF  CONTENTS  xi 

PAGE 

98.  Co-operative  Fruit  Marketing.    Department  of  Agri- 

culture        361 

99.  Organized  Exchanges:  The  Grading  of  Cotton.    Com- 

missioner of  Corporations 364 

100.  Organized  Exchanges:  Futures,  Puts  and  Calb.    Com- 
missioner of  Corporations 367 

DC.   Value 

loi.  Demand  and  General  Overproduction.    /.  S.  Mill  .     371 

102.  Advertising  and  Demand.    A.W.Shaw      .     .     .     .373 

103.  The  Ability  of  the  Consumer  to  Defend  Himself.    P.  T. 

Ckerington 374 

104.  Some  Cases  of  Demand  and  Supply.    Daily  Newspapers    376 

105.  Demand  and  Supply  in  the  Market  for  Agricultural 

Products.    H.  C.  Taylor 380 

106.  Organized   Speculation  and   Its  Regulation.    H.  H. 

Brace 391 

107.  A  Cost  Diagram 396 

108.  Items  Entering  into.  Cost.    W.  C.  Redfield  ....  397 

109.  Analysis  of  the  Retail  Price  of  Eggs.    C.  W.  Thompson  407 
no.  Middlemen's  Charges  in  Marketing  Agrioiltural  Prod- 
ucts,   r.  N,  Carver 408 

111.  Costs  in  the  Retailing  of  Shoes.    Harvard  Bureau  of 

Business  Research 410 

112.  Prices  to  the  Small  Purchaser.    P.  H.  Streightoff  .     .     414 

113.  Package   Goods.    Massachusetts   Commission   on  the 

Cost  of  Living 415 

114.  Different  Costs  of  Production  in  Paper  MiUs.    Tariff 

Board 417 

115.  Joint-Product   Prices:    Beef.    Commissioner  of  Cor- 

porations     418 

116.  Direct  and  Indirect  Costs.    /.  P.  Strombeck  .     .     .  419 

117.  Diminishing  Cost  of  Production.    Wall  Street  Journal  421 

118.  Joint  and  Composite  Demand  and  Supply  (Diagram)  .  422 

119.  The  Complexity  of  Competitive  Price  Making.    /,  M. 

Clark 422 

120.  Selling  Below  Cost:   Tobacco.    Commissioner  of  Cor- 

porations    426 

121.  Price  Policies  of  the  Distributer.    A.W.Shaw  .     .     .  426 

122.  Monopoly  Price:   Coffee  Valorization.    Robert  Sloss  .  429 

123.  Discriminating    Prices:     Oil.    Commissioner   of  Cor- 

porations    436 

124.  The  Burden  of  Advertising  Costs.    P.  T.  Cherington  .     438 


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xii  TABLE  OF  CONTENTS 

PAGB 

X.   Money  and  Prices 

125.  Exchange  by  Barter.    W,  S,  Jevons 443 

126.  The  Early  History  of  Money.    W.  S.  Jevons    .     .     .445 

127.  A  Monetary  Chronology.     U,S,  Treasury  circular  451 

128.  History  of  Coins  and  Currency  of  the  United  States. 

US.  Treasury  circular 452 

129.  Redemption  of  United  States  Money.     U,S.   Treasury 

circular 455 

130.  Legal-Tender  Qualities  of  United  States  Money.    U.S. 

Treasury  circular 456 

131.  Statement  of  United  States  Money  in  Circulation. 

U,S.  Treasury  bulletin 457 

132.  Principles  of  Token  Money.    Indianapolis  Monetary 

Commission 458 

133.  Production   of   Gold   and   Silver   since    1492.     U.S. 

Treasury  circular       . 461 

134.  Commercial  Ratio  of  Silver  to  Gold  Annually  since 

1687.     U.S.  Treasury  circular 462 

135.  Gresham's]Law:  French  Coinage  1817-69  (Diagram)    463 

136.  Increase  in  the  World's  Production  of  Gold,  1800-1906. 

National  Conservation  Commission 464 

137.  The  Increased  Cost  of  Living.    Massachusetts  Com- 

mission on  the  Cost  of  Living 466 

138.  The  Correction  of  Price-Changes.    David  Kinley   .     .  474 

139.  A  Compensated  Dollar.    Irving  Fisher 474 

140.  The  Compensated  Dollar:  A  Criticism.  F.  W.  Taussig  479 

141.  Methods  of  Regulating  a  Paper  Currency.    W.  S. 

Jevons 483 

142.  Paper    Money:   the    Continental    Currency.    David 

Ramsay 485 

143.  Table  of  the  Depreciation  of  the  Continental  Currency. 

Thomas  Jefferson 492 

144.  Greenback  Prices  During  the  Civil  War  (Diagram). 

W.C.Mitchell 493 

145.  Depredated  Paper  Money  in  the  Confederacy.    G.  C. 

Eggleston 493 

146.  Depreciated  Money  and  Wage-Earners:  The  Strike  at 

Iquique.    /.  L»  Laughlin 496 

XI.    Credit  and  Banking 

147.  Credit  Instruments 499 

148.  The  Use  of  Credit  Instruments.    David  Kinley  .     .  500 

149.  The  Clearing  House.    /.  G.  Cannon 503 


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TABLE  OF  CONTENTS  XlU 

PAGB 

150.  The  Journey  of  a  Check.    /.  G,  Cannon  .     .     .     .     512 

151 .  Weekly  Statement  of  New  York  Clearing-House  Banks    514 

152.  Anal)rsis  of  a  New  York  Weekly  Bank  Statement. 

Journal  of  Commerce 517 

153.  Statements  of  Typical  American  Banks 518 

154.  Number  of  Private,  State,  and  National  Banks,  1877- 

1909.     (Diagram.)    G,  E.  Bamett 522 

155.  Statements  of  the  Bank  of  England,  The  Bank  of 

France,  and  the  Reichsbank 523 

156.  The  Elasticity  of  Currency.    Indianapolis  Monetary 

Commission 525 

157.  The  Aldrich-Vreeland  Act  of  1908.     U,S.  statutes  .     .     531 

158.  A  Summary  View  of  the  Work  of  the  Independent 

Treasury.    David  Kinley 533 

159.  Bankers*  Views  of  Our  Banking  and  Currency  Needs. 

American  Bankers*  Association 537 

160.  The  Case  against  State  Guaranty  of  Bank  Deposits. 

A.  P.  Andrew 545 

XII.   International  Trade  and  Foreign  Exchange 

161.  The  Foreign  Trade  of  the  United  States,  191 2-13. 

Journal  of  Commerce 547 

162.  The  Trade  Balance  of  the  United  States.    George  Paish    549 

163.  The  Balance  of  Trade  and  Gold  Shipments.    WaU 

Street  Journal 559 

164.  Conmiercial  Credits  in  the  Financing  of  Imports  and 

Exports.    Franklin  Escher 559 

165.  A  Documentary  Commercial  Long  Bill      ....  566 

166.  The  Par  of  Exchange  and  Approximate  Gold  Points  .  566 

167.  Foreign  Exchange  Transactions.    Howard  K.  Brooks  .  567 

168.  Foreign  Exchange  Quotations.    Howard  K,  Brooks  568 

169.  The  Foreign  Exchange  Market.    Franklin  Escher  .     .  570 

170.  Factors  Affecting  the  Rates  of  Foreign  Exchange. 

Journal  of  Commerce 574 

Xni.   Tariff  Policy 

171.  A  Simmiary  of  the  Tariff  History  of  the  United  States    578 

172.  PrincipalSourcesof  Customs  Revenue,  1 91 2.  Statistical 

Abstract  of  the  United  States 585 

173.  The  Balance  of  Trade  and  Protection 

a)  A  Mercantilist  Point  of  View.    Charles  King    .     .     585 

b)  An  American  Argument    Association  of  Wool  Manu- 

facturers     590 

174.  A  Home-Market  Argument.    William  Lawrence    .     .     590 


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nv  TABLE  OF  CONTENTS 

PAGE 

175.  Improved  Transportation  and  Protection 

a)  An  American  Campaign   Argument.     Republican 

Campaign  Text-Book 591 

b)  A  Spanish  Analogy.    FridSric  Bastiat     ....     592 

176.  Two  proposals  for  Increasing  the  Demand  for  Labor. 

Fridiric  Bastiat 593 

177.  The  Law  of  Comparative  Costs  and  the  Working  of  the 

Tariflf.    F.  W.  Taussig 597 

XIV.    Rent 

178.  The  Origin  of  Agricultural  Rent.    F.  M,  Taylor  .     .  609 

179.  Rent  Diagrams 617 

180.  Some  Factors  Affecting  Land  Values.    R.  M,  Hurd  .  620 

181.  Railroads  and  Land  Values.    /.  D,  Andrews     .  627 

182.  Land  Valuation.    R,  M,  Hurd 628 

183.  Car-Fares  and  Suburban  Site- Values.    Grosvenor  Alter 

bury 634 

184.  The  Value  of  a  Chicago  Quarter-Acre,  1830-94.   lUinois 

Bureau  of  Labor  Statistics 635 

185.  Examples    of    Real    Estate    Transactions.    Chicago 

Daily  Tribune 639 

XV.    Wages 

186.  Labor  as  a  Source  of  Income.    F.  11,  Streightojf  .  640 

187.  Two  Early  Theories  of  Wages 

a)  A  Cost  of  Subsistence  Theory  of  Wages.    David 

Ricardo 643 

b)  The  Wages  Fund.    James  Mill 645 

J.S,MUl 646 

188.  Wages  and  Hours  of  Labor.    Statistical  Abstract  of  the 

United  States 647 

189.  Women's  Work  and  Wages.    J.  A.  Hobson       .     .     .  647 

190.  Time  Wages  and  Piece  Wages.    Industrial  Commission  659 

191.  Wage  Systems  and  Labor  Management.     C.  B.  Going  661 

XVI.    Labor  Problems 

192.  Purposes    of    the    American    Federation    of    Labor. 

Official  statement 668 

193.  Structure  of  the  American  Federation  of  Labor  (Dia- 

gram).   Official  report 670 

194.  Membership  of  the  American  Federation  of  Labor. 

Official  report 671 

195.  Union  Charters  Issued  by  the  American  Federation  of 

Labor.    Official  report 67 1 


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TABLE  OF  CONTENTS  xv 

PAGE 

196.  Extracts  from  the  Constitution  of  the  International 

Union  United  Mine  Workers 672 

197.  Joint  Interstate   Agreement  of  Coal  Operators  and 

Miners.    Text  of  the  Official  A  greemetU     ....     683 

198.  A  Plece-Work  Wage-Scale  Agreement.    Potters'  Asso- 

ciation        691 

199.  The  Attitude  of  the  Typographical.  Union  Toward 

Machinery.    Industrial  Commission     .  .     .  693 

200.  The  Dayton  Employers*  Association.    A,  C.  Marshall  694 

201.  The  National  Founders' Association.    Official  pamphlet  695 

202.  The  United  Tjqwthetae  of  America.    Official  pamphlet  698 

203.  Industrial  Unionism  and  the  Industrial   Workers  of 

the  World.     Vincent  St,  John 700 

204.  Statistics  of  the  Extent  of  Strikes.     US.  Commissioner 

of  Labor 705 

205.  Causes  of  Strikes.     US.  Commissioner  of  Labor  .     .     706 

206.  Estimates  of  Losses  Due  to  Strikes  and  Lockouts 

a)  Twenty  Years  of  Losses  from  Strikes  and  Lockouts. 

U.S.  Commissioner  of  Labor 708 

b)  Losses  from  the  Anthracite  Coal  Strike  of  1902. 

Anthracite  Coal  Strike  Commission 708 

207.  Unemployment  and  a  Proposed  Solution  of  the  Prob-     ^ 

lem.    Royal  Commission  on  the  Poor  Lous     .           .  709 

208.  Seasonal   Unemployment    (Chart) 715 

209.  Long  Hours  versus  Efficiency.    Josephine  Goldmark  .  716 

210.  The  Sweating  System.    Industrial  Commission      .     .  721 

211.  The  Economic  Theory  of  a  Legal  Minimum  Wage. 

Sidney  Webb 723 

212.  The  Minnesota  Minimum  Wage  Law  of  19 13.    Minne- 

sota statutes     733 

213.  Machinery  and  the  Quality  of  Labor.    /.  A.  Hobson  .  737 

214.  Employers*  Liability.    G.  L.  Campbell 747 

215.  A  Survey  of  Workingmen's  Insurance  in  the  United 

States.    C.  -R.  Henderson 756 

216.  Summary  of  Workingmen's  Insurance  Laws  in  Ger- 

many.   L.  K.  Frankel  and  M.  M.  Dawson     ...     761 


XVn.    Intesest 


217.  Theories  of  Interest.    Irving  Fisher 762 

William  Smart 764 

218.  Interest  Rates.    W.  A.  ScoU 773 

2x9.  Conditions  in  the  Money  Market.    Journal  of  Com- 
merce     783 


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xvi  TABLE  OF  CONTENTS 

PAOS 

2  20.  Differences  in  Rates  of  Interest  on   Public  Loans. 

a)  Special  Census  Report 785 

b)  StaUsticd  Ahstraci  of  the  United  Stales     ....     785 

221.  Table  of  Bond  Values 786 

222.  The  Relation  of  Interest  Rates  to  Rising  or  Falling 

Prices.    H.  G.  Brown 787 

223.  The  Theory  of  Bond  Values  During  a  Rising-Price  Era. 

W.E.Clark 788 

XVIII.    Profits 

224.  Walker's  Theory  of  Profits.    F.  A.  Walker  ....  790 

225.  The  Risk  Theory  of  Profits.    F.  B.  Eawley      .     .     .  795 

226.  Classes  of  Risks  to  Capital.    A.  H,  WiUett  ....  796 

227.  The  Classes  of  Risk-Takers.    F,  B,  Hawley      .     .     .  799 

228.  Hedging  as  an  Insurance  Against  Risk.    Commissioner 

of  Corporations 801 

229.  Fire  Insurance  and  Credit.    5.  5.  Huebner  ....     807 

230.  Embarrassment  of  Industry  through  Lack  of  Insurance. 

Journal  of  Commerce 810 

231.  Some    Functions    and    Effects    of    Insurance.    John 

Haynes 811 

232.  Financial  Statements  of  Two  Corporations.    Annual 

reports 814 

233.  Monopoly  Profits:  The  Tobacco  Trust.    Commissioner 

of  Corporations 818 

234.  An  Example  of  Fortuitous  Profits.    Special  Commis- 

sioner of  the  Revenue       818 

235.  The  Profits  of  an  Underwritmg  Syndicate.    Commis 

sioner  of  Corporations 819 

236.  A  Classification  of  Business  Failures  by  Causes.    Brad- 

street's       822 

237.  Two  Instaaices  of  Failure.    Financial  journals  .     .     .     823 

XIX.    Public  Finance  and  Taxation 

238.  The  Growth  of  State  and  Local  Expenditures.    W,  F. 

Gephart 824 

239.  Federal  Expenditures  (Chart) 828 

240.  The  Cost  of  Government,  National,  State,  and  Local. 

E,  V.  D.  Robinson 829 

241.  Total  Debt  of  the  United  States,  National,  State,  and 

Local  (Diagram).    Special  Census  Report  841 

242.  Public  Debt  of  the  United  States,  1791-1911  (Chart)  .     842 

243.  Statement  of  the  Public  Debt  of  the  United  States, 

1913.     U,S.  Treasury  Bulletin 843 


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TABLE  OF  CONTENTS  XVli 

PACK 

244.  Total  and  Per  Capita  Debt  of  Different  Countries. 

Statistical  Abstract  of  the  United  States  ....     847 

245.  Principal  Sources  of  Federal  Revenues  by  Decades, 

1800-1910  (Chart) 847 

246.  The  Adequacy  of  th^  Customs  Revenue  System.    R.F. 

Hoxie 847 

247.  Some  General  DiO&culties  in  Our  State  S)rstems  of 

Taxation.    E.  R.  A.  Seligman 853 

248.  A  System  of  State  and  Local  Taxes  and  their  Appor- 

tionment.   Minnesota  Tax  Commission    ....     855 

249.  The  General  Property  Tax.    Special  Committee^  Inter- 

national  Tax  Association 860 

250.  The  Taxation  of  Intangible  Personalty.    Minnesota 

Tax  Commission 862 

Commissioner  of  Corporations 864 

251.  Taxation  of  Corporations.    Commissioner  of  Corpora- 

tions      865 

252.  The  Inheritance  Tax.    C.  /.  Bullock 870 

253.  The  Income  Tax  in  Wisconsin.    Minnesota  Tax  Com- 

mission       874 

254.  Separation  of  State  and  Local  Revenues.    Minnesota 

Tax  Commission 880 

255.  The  Taxes  on  Land  in  Western  Canada.    Minnesota 

Tax  Commission 883 

256.  The  Single-Tax  Argument.    C.  B,  FiUebrown    ...     889 

257.  The  Land- Value  Tax  as  a  Social  Reform.    Pels  Fund 

Publication 894 

XX.    Some  Programs  of  Social  Reform 

258.  Profit-Sharing  in  the  N.  O.  Nelson  Manufacturing 

Company.    N.  0,  Nelson 898 

259.  Profit-Sharing  and  Labor-Copartnership.    T.  C.  Tay- 

lor   899 

260.  A  Promising  Venture  in  Industrial  Partnership.    R.  F, 

Foerster 901 

261.  The  Rochdale  Plan  of  Co-operation.    James  Ford     .  904 

262.  Co-operative  Creameries.    James  Ford 905 

263.  Co-operative  Stores.    James  Ford 907 

264.  Causes  of  the  Failure  of  Co-operative  Stores  in  America. 

/.  B.  Cross 908 

265.  Wastes  in  the  Competitive  Distribution  of  Milk  .     .911 

266.  Socialism.    0.  D.  Skelton 911 

267.  The  National  Platform  of  the  Socialist  Party    .     .     .     921 


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I.  INTRODUCTORY 

I.  THE  MALADJUSTMENT  OF  MAN  AND  NATURE* 

The  question,  Why  do  things  have  the  power  to  satisfy  wants? 
would  lead  us  back  through  physiology  and  psychology  quite  to 
the  borders  of  the  unknowable.  The  question,  Why  are  they 
scarce? "would  lead  us  also  toward  the  tmknowable,  but  by  a  some- 
what different  route.  Into  this  philosophical  hinterland  of  his 
science  the  economist  has  generally  refrained  from  biusting  lest 
he  should  be  fotmd  poaching  upon  the  preserves  of  the  philosopher; 
but  there  are  some  things  in  this  region  which,  when  seen  through 
the  eyes  of  the  economist,  may  come  to  have  a  new  significance. 

Of  course  the  first  and  most  obvious  reason  for  the  scarcity  of 
goods  is  that  nature  has  not  provided  them  in  sufficient  abundance 
to  satisfy  all  the  people  who  want  them.  Of  some  things,  it  is 
true,  she  is  bounteous  in  her  supply;  but  of  others  she  is  niggardly. 
Things  which  are  so  bountifully  supplied  as  to  satisfy  all  who 
want  them  do  not  figure  as  wealth,  or  economic  goods,  because 
we  do  not  need  to  economize  in  their  use.  But  things  which  are 
scantily  supplied  must  be  meted  out  and  made  to  go  as  far  as  pos- 
sible. That  is  what  it  means  to  economize.  Because  we  must 
practice  economy  with  respect  to  them  they  are  called  economic 
goods  or  wealth.  In  fact  the  whole  economic  system  of  society,  the 
whole  system  of  production,  of  valuation,  of  exchange,  of  distribu- 
tion, and  of  consimiption,  is  concerned  with  this  class  of  goods — 
toward  increasing  their  supply  and  making  the  existing  supply  go 
as  far  as  possible  in  the  satisfaction  of  wants. 

The  fact  that  there  are  himian  wants  for  whose  satisfaction 
nature  does  not  provide  in  sufficient  abundance — ^in  other  words, 
the  fact  of  scarcity — signifies  that  man  is,  to  that  extent  at  least, 
out  of  harmony  with  nature.  The  desire  for  fuel,  clothing,  and 
shelter  grows  out  of  the  fact  that  the  climate  is  more  severe  than 
our  bodies  are  fitted  to  endure,  and  this  alone  argues  a  very  con- 
siderable lack  of  harmony.  The  lack  is  only  emphasized  by  the 
fact  that  it  is  necessary  for  us  to  labor  and  endiu-e  fatigue  in  order 
to  provide  ourselves  with  these  means  of  protecting  our  bodies  against 

•Adapted  from  T.  N.  Carver,  "The  Economic  Basis  of  the  Problem  of  Evil," 
in  The  Harvard  Theological  Renew,  I,  98  ff.  (January,  1908.) 


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2  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

the  rigors  of  nature.  That  labor  also  which  is  expended  in  the  pro- 
duction of  food  means  nothing  if  not  that  there  are  more  mouths  to 
be  fed,  in  certain  regions  at  least,  than  nature  has  herself  provided 
for.  She  must  therefore  be  subjugated,  and  compelled  to  yield  larger 
returns  than  she  is  willing  to  do  of  her  own  accord.  And  that  expand- 
ing multitude  of  desires,  appetites,  and  passions  which  drive  us  as 
with  whips;  which  send  us  to  the  ends  of  the  earth  after  gewgaws 
with  which  to  bedeck  our  bodies,  and  after  new  means  of  tickling 
the  five  senses;  which  make  us  strive  to  outshine  our  neighbors,  or 
at  least  not  to  be  outshone  by  them — these  even  more  than  our 
normal  wants  show  how  widely  we  have  fallen  out  of  any  natural 
harmony  which  may  supposedly  have  existed  in  the  past. 

That  there  is  a  deeper  harmony  lying  hidden  somewhere  be- 
neath these  glaring  disharmonies  is  quite  possible.  Certainly  no 
one  can  positively  assert  that  it  is  not  so.  It  may  be  true,  as  some 
profoundly  believe,  that  these  natural  discomforts,  with  the  necessity 
for  work  which  accompanies  them,  furnish  a  discipline  which  is 
necessary  for  our  highest  good.  Being  thus  driven  hy  sl  vis  a  tergo 
toward  our  own  highest  good,  we  may  be  in  harmony  with  our  sur- 
roimdings  in  way^  which  do  not  appear  to  our  inmiediate  sense  of  self- 
interest.  But  this  whole  question  lies  within  the  field  of  philosophical 
conjecture,  and  nothing  positive  can  be  afltaned  on  either  side. 

Whatever  our  belief  upon  that  point  may  be,  there  is  not  the 
slightest  doubt  that  men  are  sometimes  cold  and  hungry  and  sick; 
and  that  these  discomforts  would  be  much  more  frequent  than  they  now 
are,  if  men  did  not  work  to  prevent  them.  But  work  causes  fatigue. 
Obviously  the  individual  cannot  be  expected  to  see  in  this  situation 
any  sign  of  a  complete  harmony  between  himself  and  his  material 
environment.  So  far  as  the  individual  can  see  and  understand,  the 
lack  of  harmony  between  himself  and  nature  is  a  very  real  one. 

Viewed  from  this  standpoint,  the  whole  economic  struggle  becomes 
an  effort  to  attain  to  a  harmony  which  does  not  naturally  exist.  As 
is  well  known,  the  characteristic  difference  between  the  non-econo- 
mizing animals,  on  the  one  hand,  and  man,  the  economizer,  on  the 
other,  is  that  in  the  process  of  adaptation  the  animals  are  passively 
adapted  to  their  environment,  whereas  man  assumes  the  active  r61e 
in  attempting  to  adapt  his  environment  to  himself.  If  the  climate 
is  cold,  animals  must  develop  fur  or  blubber;  but  man  builds  fires, 
constructs  shelters,  and  manufactures  clothing.  If  there  are  enemies 
to  fight  against,  the  animals  must  develop  claws  or  fangs,  horns  or 


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INTRODUCTORY  3 

hoofs,  whereas  man  makes  bows  and  arrows,  or  gims  and  ammunition. 
The  whole  evolutionary  process,  both  passive  and  active,  both  bio- 
logical and  economic,  is  a  development  away  from  less  toward  greater 
adaptation,  from  less  toward  greater  harmony  between  the  species 
and  its  environment. 

That  phase  of  the  disharmony  between  man  and  nature  which 
takes  the  form  of  scarcity  gives  rise  also  to  a  disharmony  between 
man  and  man.  Where  there  is  scarcity  there  will  be  two  men  wanting 
the  same  thing;  and  where  two  men  want  the  same  thing  there  is 
an  antagonism  of  interests.  Where  there  is  an  antagonism  of  interests 
between  man  and  man  there  will  be  questions  to  be  settled,  questions 
of  right  and  wrong,  of  justice  and  injustice;  and  these*  questions 
could  not  arise  under  any  other  condition.  The  antagonism  of 
interests  is,  in  other  words,  what  gives  rise  to  a  moral  problem,  and 
it  is,  therefore,  about  the  most  fimdamental  fact  in  sociology  and 
moral  philosophy. 

This  does  not  overlook  the  fact  that  there  are  many  harmonies 
between  man  and  man,  as  there  are  between  man  and  natiure.  There 
may  be  innumerable  cases  where  all  human  interests  harmonize, 
but  these  give  rise  to  no  problem  and  therefore  we  do  not  need  to 
concern  ourselves  with  them.  As  already  pointed  out,  there  are 
many  cases  where  man  and  nature  are  in  complete  harmony.  There 
are  things,  for  example,  which  nature  furnishes  in  sufficient  abundance 
to  satisfy  all  our  wants;  but  these  also  give  rise  to  no  problem. 
Toward  these  non-economic  goods  our  habitual  attitude  is  one  of 
indiflference  or  unconcern.  Where  the  relations  between  man  and 
nature  are  perfect,  why  should  we  concern  ourselves  about  them? 
But  the  whole  industrial  world  is  bent  on  improving  those  relations 
where  they  are  imperfect.  Similarly  with  the  relations  between  man 
and  man;  where  they  are  perfect,  that  is,  where  interests  are  all 
harmonious,  why  should  we  concern  ourselves  about  them?  As  a 
matter  of  fact  we  do  not.  But  where  they  are  imperfect,  where 
interests  are  antagonistic  and  trouble  is  constantly  arising,  we  are 
compelled  to  concern  ourselves  whether  we  want  to  or  not.  As  a 
matter  of  fact,  we  do  concern  ourselves  in  various  ways;  we  work  out 
systems  of  moral  philosophy  and  theories  of  justice,  after  much 
disputation;  we  establish  tribimals  where,  in  the  midst  of  much 
wrangUng,  some  of  these  theories  are  applied  to  the  settlement  of 
actual  confficts;  we  talk  and  argue  interminably  about  the  proper 
adjustment  of  antagonistic  interests  of  various  kinds,  all  of  which, 


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4  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

it  must  be  remembered,  grow  out  of  the  initial  fact  of  scarcity — that 
there  are  not  as  many  things  as  people  want. 

Fimdamentally,  therefore,  there  are  only  two  practical  problems 
imposed  upon  us.  The  one  is  industrial  and  the  other  moral;  the 
one  has  to  do  with  the  improvement  of  the  relations  between  man 
and  natiure,  and  the  other  with  the  improvement  of  the  relations 
between  man  and  man.  But  these  two  primary  problems  are  so 
inextricably  intermingled,  and  they  deal  with  such  infinitely  var)dng 
factors,  that  the  secondary  and  tertiary  problems  are  more  than  we 
can  count. 

But  whence  arises  that  phase  of  the  conflict  with  natiure  out  of 
which  grows  the  conflict  between  man  and  man?  Is  man  in  any 
way  responsible  for  it,  or  is  it  due  wholly  to  the  harshness  or  the 
niggardliness  of  natiure  ?  The  fniitf ulness  of  nature  varies,  of  course, 
in  different  environments.  But  in  any  environment  there  are  two 
conditions,  for  both  of  which  man  is  in  a  measiu-e  responsible,  and 
either  of  which  will  result  in  economic  scarcity.  One  is  the  indefinite 
expansion  of  human  wants,  and  the  other  is  the  multiplication  of 
numbers.  The  well-known  expansive  power  of  human  wants,  con- 
tinually running  beyond  the  power  of  nature  to  satisfy,  has  attracted 

the  attention  of  moralists  in  all  times  and  places Even 

if  the  wants  of  the  individual  never  expanded  at  all,  it  is  quite  obvious 
that  an  indefinite  increase  in  the  number  of  individuals  in  any  locality 
would,  sooner  or  later,  result  in  scarcity  and  bring  them  into  conflict 
with  nature,  and  therefore  into  conflict  with  one  another. 

These  considerations  reveal  a  third  form  of  conflict — ^perhaps  it 
ought  to  be  called  the  second — a  conflict  of  interests  within  the 
individual  himself.  If  the  procreative  and  domestic  instincts  are 
freely  gratified,  there  will  inevitably  result  a  scarcity  of  means  of 
satisf)dng  other  desires,  however  modest  those  desires  may  be,  through 
the  multiplication  of  numbers.  Either  horn  of  the  dilemma  leaves 
us  with  unsatisfied  desires  of  one  kind  or  another.  We  are  therefore 
pulled  in  two  directions,  and  this  also  is  a  condition  from  which  there 
is  no  possible  escape.  But  this  is  only  one  illustration  of  the  internal 
strife  which  tears  the  individual.  The  very  fact  of  scarcity  means 
necessarily  that  if  one  desire  is  satisfied  it  is  at  the  expense  of  some 
other.  What  I  spend  for  luxuries  I  cannot  spend  for  necessaries; 
what  I  spend  for  clothing  I  cannot  spend  for  food;  and  what  I  spend 
for  one  kind  of  food  I  cannot  spend  for  some  other.  This  is  the 
situation  which  calls  for  economy,  since  to  economize  is  merely  to 


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INTRODUCTORY  S 

choose  what  desires  shall  be  gratified,  knowing  that  certain  others 
must,  on  that  account,  remain  tmgratified.  Economy  always  and 
everywhere  means  a  threefold  conflict:  a  conflict  between  man  and 
nature,  between  man  and  man,  and  between  the  different  interests 
of  the  same  man. 

In  this  antagonism  of  interests,  growing  out  of  scarcity,  the 
institutions  of  property,  of  the  family,  and  of  the  state,  all  have 
their  common  origin.  No  one,  for  example,  thinks  of  claiming 
property  in  an3rthing  which  exists  in  sufficient  abundance  for  all. 
But  when  there  is  not  enough  to  go  around,  each  unit  of  the  supply 
becomes  a  prize  for  somebody,  and  there  would  be  a  general  scramble, 
did  not  society  itself  tmdertake  to  determine  to  whom  each  imit 
should  belong.  Possession,  of  course,  is  not  property;  but  when 
society  recognizes  one's  right  to  a  thing,  and  undertakes  to  protect 
him  in  that  right,  that  is  property.  Wherever  society  is  sufficiently 
organized  to  recognize  these  rights  and  to  afford  them  some  measiure 
of  protection,  there  is  a  state;  and  there  is  a  family  wherever  there 
is  a  small  group  within  which  the  ties  of  blood  and  kinship  are  strong 
enough  to  overcome  any  natural  rivalry  and  to  create  a  imity  of 
interests.  This  imity  of  economic  interests  within  the  group  is 
sufficient  to  separate  it  from  the  rest  of  the  world,  or  from  other 
similar  groups  among  which  the  natiural  rivalry  of  interests  persists. 
Saying  nothing  of  the  barbaric  notion  that  wives  and  children  are 
themselves  property,  even  in  the  higher  types  of  society  it  is  the 
desire  to  safeguard  those  to  whom  one  is  boimd  by  ties  of  natural 
affection,  by  sharing  the  advantages  of  property  with  them,  which 
furnishes  the  basis  for  the  legal  definition  of  the  family  group. 

Closely  associated  with  the  right  of  property — ^as  parts  of  it  in 
fact— is  a  group  of  rights  such  as  that  of  contract,  of  transfer,  of 
bequest,  and  a  number  of  other  things  with  which  lawyers  occupy 
themselves.  It  would  be  difficult  to  find  any  question  in  the  whole 
science  of  jurisprudence,  or  of  ethics,  or  politics,  or  any  of  the  social 
sciences  for  that  matter,  which  does  not  grow  out  of  the  initial  fact 
of  economic  scarcity  and  the  consequent  antagonism  of  interests 
among  men.  This  reveals,  as  nothing  else  can,  the  underlying  unity 
of  all  the  social  sciences,  that  is,  of  all  the  sciences  which  have  to  do 
with  the  relations  between  man  and  man;  and  it  shows  very  clearly 
that  the  imifjong  principle  is  an  economic  one.  Even  the  so-called 
gregarious  instinct  may  very  probably  be  the  product  of  the  struggle 
for  existence,  which,  in  turn,  is  the  product  of  scarcity — the  advan- 


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6  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

tage  of  acting  in  groups  being  the  selective  agency  in  the  develop- 
ment of  this  instinct.  But  that  question,  like  a  great  many  others, 
lies  beyond  the  field  of  positive  knowledge.  This  does  not  necessarily 
constitute  economics  as  the  "master  science,"  with  the  other  social 
sciences  subordinate  to  it;  but  it  does  signify  that,  if  there  is  such  a 
thing  as  a  master  science,  economics  has  the  first  claim  to  that  position 
among  the  social  sciences.  The  economic  problem  is  the  fundamental 
one,  out  of  which  all  other  social  and  moral  problems  have  grown. 

It  would  be  interesting  to  follow  up  oiu:  conclusion  with  an  exami- 
nation of  the  possibilities  of  escape  from  the  situation  which  is  imposed 
upon  us  by  economic  scarcity.  Out  of  the  view  that  the  conflict  of 
man  with  nature  is  a  source  of  evil  grow  two  widely  different  practical 
conclusions  as  to  social  conduct.  If  we  assume  that  nature  is  benefi- 
cent and  man  at  fault,  the  conclusion  follows  as  a  matter  of  course 
that  desires  must  be  curbed  and  brought  into  harmony  with  natiure, 
which  is  closely  akin  to  Stoicism,  if  it  be  not  its  very  essence.  But 
if,  on  the  contrary,  we  assume  that  human  nature  is  sound,  then  the 
only  practical  conclusion  is  that  external  nature  must  be  coerced  into 
harmony  with  man's  desires  and  made  to  yield  more  and  more  for 
their  satisfaction.  This  is  the  theory  of  the  modern  industrial  spirit 
in  its  wild  pursuit  of  wealth  and  luxury.  Complete  escape,  by 
either  of  these  methods,  seems  to  be  cut  off,  in  the  first  place  by  the 
refusal  of  desires,  especially  the  elementary  ones,  to  be  repressed, 
and,  in  the  second  place,  by  the  utter  impossibility  of  increasing  goods 
to  a  point  which  will  provide  for  every  possible  increase  in  population 
when  population  is  imchecked  by  economic  motives.  If  economic 
motives  continue  to  operate  as  a  check  upon  population,  that  is  in 
itself  an  evidence  of  continued  scarcity.  But  if  they  do  not  operate, 
and  the  procreative  instincts  are  given  free  play,  there  is  absolutely 
no  limit  to  the  increase  of  population. 

But  even  under  the  conditions  of  economic  scarcity  there  would 
be  no  antagonism  of  interests  between  man  and  man  if  human  nature 
were  to  undergo  a  change  by  which  altruism  were  to  replace  egoism. 
If  I  could  develop  the  capacity  to  enjoy  food  upon  my  neighbor's 
palate  as  well  as  upon  my  own,  as  I  have  already  developed  the 
capacity  to  enjoy  it  upon  the  palates  of  my  children,  and  if  my 
neighbor  could  develop  a  like  regard  for  me,  obviously  there  could 
be  no  antagonism  of  interests  between  us  on  the  subject  of  food. 
Let  this  capacity  become  imiversal,  and  the  moral  problem  would  be 
solved.    That  would  be  the  Christian's  MiDennium.    Whether  this 


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INTRODUCTORY  7 

way  of  escape  lies  open  or  not,  in  other  words,  whether  such  a  change 
in  human  nature  is  possible  or  not,  is  a  problem  for  the  psychologist 
or  the  religionist.  That  we  may  approach  it  indefinitely  seems 
reasonable,  but  that  it  is  ever  attainable,  either  by  the  method  of 
biological  evolution  or  of  evangelization,  or  by  both  combined,  is 
by  no  means  a  foregone  conclusion.  It  is  certainly  a  long  way  off. 
Meanwhile  what  are  we  to  do  ? 

We  may  escape  from  some  of  the  worst  features  of  the  situation 
by  working  along  several  lines  at  the  same  time.  Every  improve- 
ment in  the  arts  of  production,  whereby  a  given  quantity  of  labor 
is  enabled  to  produce  a  larger  quantity  of  the  means  of  satisfying 
wants,  tends,  of  course,  in  some  degree  to  alleviate  scarcity.  If 
this  can  be  supplemented  by  the  doctrine  of  the  simple  life,  made 
effective  especially  in  the  lives  of  the  wealthier  classes,  so  much 
the  better;  for  then  there  will  be  fewer  wants  to  satisfy.  If  this 
result  can  be  still  further  strengthened  by  a  rising  sense  of  the  respon- 
sibilities of  parenthood,  whereby  the  reckless  spawning  of  population 
can  be  checked,  especially  among  those  classes  who  can  least  afford 
to  spawn,  the  discrepancy  between  niunbers  and  provisions  will  be 
kept  at  a  minimiun.  Again,  a  more  widespread  spirit  of  altruism, 
or  even  a  milder  and  more  enlightened  egoism  such  as  that  which 
moves  the  farmer  to  take  delight  in  the  sleek  appearance  of  his  horses, 
or  the  English  landlord  to  take  pride  in  the  comfortable  appearance 
of  his  tenants  and  cotters,  would  go  a  long  way  toward  softening  the 
antagonism  of  interests  among  men. 

In  spite  of  all  these  methods,  however,  there  will  still  be  antago- 
nistic interests  to  be  adjudicated.  The  state  must  therefore  continue 
to  administer  justice.  But  every  improvement  in  our  conceptions 
of  justice,  as  well  as  in  the  machinery  for  the  administration  of 
justice,  whereby  a  closer  approximation  to  exact  justice  may  be 
secured,  will  make  for  social  peace;  though  the  mere  adjudication 
of  conflicting  interests  will  not  remove  the  conflicts  themselves  nor 
their  cause.    That  lies  deeper  than  legislatures  or  courts  can  probe. 

These  conclusions  sound  commonplace  enough,  and  are  doubtless 
disappointing  to  those  who  hope  for  a  new  earth  through  some  engine 
of  social  regeneration.  The  old  world  is  already  pegging  away,  and 
has  been'tor  a  very  long  time,  upon  all  the  plans  which  have  been 
mentioned  in  this  paper.  But  after  all,  the  old  world  is  wise — 
much  wiser  than  any  man,  though  there  are  some  men  who  think 
otherwise. 


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MATERIALS  FOR  ELEMENTARY  ECONOMICS 


Note. — Professor  Carver  has  sometimes  indicated  the  field  of  economics  by 
means  of  the  following  diagram: 

/Passive  ad^tation  in  which  man  is  passively  adapted  to 

'     his  environment,  e.  g.,  by  taking  on  fat  in  Arctic  regions. 

The  economist  is  not  concerned  with  passive  adaptation 


The  attempt  to  secure 
a  better  adjustment , 
of  man  and  nature  is 
a  process  of  adapta- 
tion 


[  Active  adaptation  in 
which  man  adapts 
his  environment  to 
himself 


Physical  processes 
I.  Production  of 
II.  Exchange  of 
m.  Consumption  of)      ^^^^ 


Wealth  and 


[  Psychical  processes  (valuation) 
I.  Valuation  of  material  goods 

1.  Consumers' goods 

2.  Producers*  goods 

a)  Land  and  natural  agents 

b)  Capital 

c)  Laborers  (where  slavery 
exists) 

n.  Valuation  of  services 

1.  Of  land  and  natural  agents 
(rent) 

2.  Of  capital  (interest) 

3.  Of  laborers  (wages) 

4.  Of  enterprisers  (iprofits) 


2.  MAN'S  ADAPTATION  OF  fflS  ENVIRONMENT* 

Man,  and  man  alone  of  living  creatures,  neither  submitted  to  the 
sentence  of  death  pronoimced  by  nature  against  all  the  creatures  to 
whom  she  denied  the  means  for  continued  existence,  nor  directed  his 
eflForts  to  alter  his  corporeal  organization  to  suit  murderous  natural  con- 
ditions. He  made  some  alteration  in  his  diet,  took  to  eating  meat 
instead  of  the  fruits,  roots,  eggs,  jelly-  and  shell-fish  that  were  natural 
to  him;  but  in  essentials  he  remained  imchanged.  He  did  not  grow 
a  fiu-  coat.  On  the  contrary,  he  lost  the  covering  of  hair  that  had 
not  been  a  protection  against  the  cold  so  much  as  a  means  of  strength- 
ening his  skin  and  preserving  it  against  insects,  sunbiun,  and  rain, 
and  perhaps  of  adorning  it.  He  did  not  harden  himself  to  bid  defi- 
ance to  the  open  weather,  after  the  fashion  of  the  leasts  of  the  fields 
and  of  the  woods.  He  did  not  strain  after  the  mane  and  claws  of  the 
lion,  the  iron  muscle  and  complicated  digestion  of  the  cud-chewing 
ox.  On  the  contrary,  he  invented  a  mode  of  adjustment  surpassing 
the  ingenuity  of  any  previous  creatiu-e  on  the  earth.  Instead  of 
altering  himself,  he  directed  his  efforts  to  the  alteration  of  external 
conditions.    Instead  of  trying  to  fit  his  organism  into  an  environment 

"  From  Nordau,  The  Inter pr elation  of  History ^  pp.  137-40.  Moffat,  Yard  & 
Co.,  1911. 


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INTRODUCTORY  9 

that  had  become  incompatible  with  his  needs,  he  tried  to  adapt  that 
environment  to  his  organism  and  its  needs. 

This  new  and  peculiarly  human  method  of  adjustment  is  still 
going  on,  and  will  probably  never  cease.  It  is  incessantly  becoming 
more  delicate,  skilful,  and  complete;'  all  man's  gifts  are  devoted  to  it; 
it  is,  as  a  matter  of  fact,  the  sole  distinct  meaning  which  the  impartial 
observer  can  discern  in  the  course  of  history;  it  determines  all  himian 
events  that  are  determined  by  the  will  of  man  rather  than  the  order 
of  nature.  According  to  all  biological  laws,  man  should  have  disap- 
peared from  the  surface  of  the  earth  with  the  first  Ice  Age,  jiist  as 
every  other  living  thing  before  him  vanished  so  soon  as  the  free  gifts 
of  nature  no  longer  satisfied  its  organic  needs.  But  he  maintained 
himself  in  defiance  of  nature.  Instead  of  submitting,  he  advanced 
resolutely  to  the  combat.  His  survival  is  a  rebellion  against  the  sen- 
tence of  death  pronounced  against  him,  and  still  valid Every- 
where, and  at  every  hour,  he  has  to  wrest  from  nature  the  necessities 
of  existence  with  his  own  hands.  From  birth  to  death  he  surrounds 
himself  with  artificial  conditions;  if  he  neglects  them  for  a  moment, 
his  life  is  in  imminent  danger.  His  body  has  to  be  protected.  In 
very  warm  climates,  clothing,  like  tattooes  and  scars,  the  various 
ornaments  in  nose  and  lips,  the  hanging  of  trinkets  round  the  neck, 
on  breast  and  limbs,  may  have  originated  as  a  form  of  adornment  and 
distinction;  but  in  colder  latitudes  the  covering  of  the  body  was  mainly 
due  to  the  necessity  of  keeping  warm.  Man  makes  his  supreme 
discovery,  never  surpassed  or  equalled — ^the  kindling  and  keeping  up 
of  fire.  With  its  aid  he  secures  the  degree  of  warmth  helpful  and 
agreeable  to  him,  which  the  chemical  action  of  his  own  cells  cannot 
provide;  by  using  fire  in  the  preparation  of  his  foods  he  simplifies 
digestion,  and  is  enabled  to  extract  nutriment  of  various  natural 
kinds  that  he  could  not  otherwise  have  enjoyed.  Moreover,  he 
acquires  an  instrument  that  spares  much  expenditure  on  muscular 
strength,  and  makes  possible  exertions  that  muscle  alone  could  not 
have  accomplished.  Many  animals  whose  absolute  needs  are  satis- 
fied by  nature  need  over  and  above  a  nest  or  shelter,  and  man  most 
of  all.  He  soon  ceased  to  depend  on  the  holes  which  he  found  ready 
made,  and  began  to  dig  out  or  build  up  roofs  and  walls.  In  this  way 
he  secured,  within  his  own  small  cirde,  that  protection  from  the 
wind,  that  dryness  and  warmth,  that  the  open  air  no  longer  afforded. 
He  artificially  created  the  climate  that  he  thought  suited  him.  ^th 
ever  active  inventiveness  and  ardent  zeal,  he  wrested  from  his  environ- 


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MATERIALS  FOR  ELEMENTARY  ECONOMICS 


ment  everything  that  it  denied  him,  which  he  could  not  as  yet  do 
without.  His  whole  existence  is  as  paradoxical  as  that  of  the  diver  in 
the  depths  of  the  sea.  Destruction  threatens  it  whenever  one  of  the 
manifold  precautions  erected  by  man  for  his  own  preservation  is 
disturbed.  Goethe's  Homunculiis,  who  can  only  live  in  the  retort 
in  which  he  was  created,  and  must  instantly  perish  with  the  breaking 
of  his  glass,  appears  one  of  the  most  far-fetched  and  imreal  creations 
of  the  poetic  imagination.  As  a  matter  of  fact,  it  is  reality  itself,  a 
perfect  symbol  of  the  relations  of  man  to  nature.  The  artificial 
protections  that  inclose  him  are  like  the  glass  retort;  if  he  emerge 
from  them  and  stand,  naked  as  he  was  bom,  face  to  face  with  nature, 
he  must  perish  without  hope,  and  descend  to  the  fossils  which  once 
lived  and  flourished  so  long  as  nature  permitted,  and  disappeared 
without  a  struggle  when  warmth  and  nourishment  were  withdrawn 
from  them. 

3.    WAYS  OF  GETTING  A  LIVING^ 

War 
Piracy 
Plunder 
I.  Destructive   <  Swindling 

Counterfeiting 
Adulteration  of  goods 
Monopolizing 


Ways     of 

Getting  a 

Living 


I.  Uneconomical 


'  Marrying  wealth 
2.  Neutral  ^^^2^!^^^^^ 


Benefiting  through  a  rise 
in  land  values 


II.  Economical 


I.  Primary  industries 


Farming 

Mining 

Hunting 

Fishing 

Liunbering 


2.  Secondary  industries 


[  Manufacturing 
I  Transporting 
Storing 
[  Merchandising 


Healing 
Teaching 
Inspiring 
Governing 
Amusing 
etc. 

'  From  T.  N.  Carver,  Principles  of  Rural  Ecotwmics,  p.  xx.    Ginn  &  Co.,  1911. 


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INTRODUCTORY  II 

4.    COMPETITION  AND  THE  INDUSTRIAL  REVOLUTION' 

The  contrast  between  the  industrial  England  of  1760  and  the 
industrial  England  of  today  is  not  only  one  of  external  conditions. 
Side  by  side  with  the  revolution  which  the  intervening  century  has 
effected  in  the  methods  and  organization  of  production,  there  has 
taken  place  a  change  no  less  radical  in  men's  economic  principles 
and  in  the  attitude  of  the  state  to  individual  enterprise.  England 
in  1760  was  still  to  a  great  extent  under  the  mediaeval  system  of 
minute  and  manifold  industrial  regulations.  That  system  was 
indeed  decaying,  but  it  had  not  yet  been  superseded  by  the  modern 
principle  of  industrial  freedom.  To  understand  the  origin  of  the 
mediaeval  system  we  must  go  back  to  a  time  when  the  state  was  still 
conceived  of  as  a  religious  institution  with  ends  that  embraced  the 
whole  of  human  life.  In  an  age  when  it  was  deemed  the  duty  of  the 
state  to  watch  over  the  individual  citizen  in  all  his  relations,  and  pro- 
vide not  only  for  his  protection  from  force  and  fraud,  but  for  his  eternal 
welfare,  it  was  but  natural  that  it  should  attempt  to  insure  a  legal 
rate  of  interest,  fair  wages,  honest  wares.  Things  of  vital  importance 
to  man's  life  were  not  to  be  left  to  chance  or  self-interest  to  settle. 
For  no  philosophy  had  as  yet  identified  God  and  Nature;  no  optimistic 
theory  of  the  world  had  reconciled  public  and  private  interest.  And 
at  the  same  time,  the  smallness  of  the  world  and  the  community,  and 
the  comparative  simplicity  of  the  social  system  made  the  attempt  to 
regulate  the  industrial  relations  of  men  less  absurd  than  it  would 
appear  to  us  in  the  present  day. 

This  theory  of  the  state,  and  the  policy  of  regulation  and  restriction 
which  sprang  from  it,  still  largely  affected  English  industry  at  the 
time  when  Adam  Smith  wrote.  There  was,  indeed,  great  freedom 
of  internal  trade;  there  were  no  provincial  customs-barriers  as  in 
contemporary  France  and  Prussia.  Adam  Smith  singled  out  this 
fact  as  one  of  the  main  causes  of  English  prosperity,  and  to  Colbert 
and  Stein,  and  other  admirers  of  the  English  system,  such  freedom 
appeared  as  an  ideal  to  be  constantly  striven  after.  But  though 
internal  trade  was  free  for  the  passage  of  commodities,  yet  there  still 
existed  a  network  of  restrictions  on  the  mobility  of  labor  and  capital. 
By  the  law  of  apprenticeship  no  person  could  follow  any  trade  till  he 
had  served  his  seven  years.  The  operation  of  the  law  was  limited, 
it  is  true,  to  trades  already  established  in  the  fifth  year  of  Elizabeth, 

'  Adapted  from  Arnold  Toynbee,  The  Industrial  Revolution^  chaps,  vii  and  viii. 


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12  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

and  obtained  only  in  market  towns  and  cities.  But  wherever  there 
was  a  municipal  corporation,  the  restrictions  which  they  imposed 
made  it  generally  impossible  for  a  man  to  work  unless  he  was  a  free- 
man of  the  town,  and  this  he  could  as  a  rule  become  only  by  serving 
his  apprenticeship.  Moreover,  the  corporations  supervised  the  prices 
and  qualities  of  wares.  In  the  halls,  where  the  smaller  manufacturers 
sold  their  goods,  all  articles  exposed  for  sale  were  inspected.  The 
mediaeval  idea  still  obtained  that  the  state  should  guarantee  the 
genuineness  of  wares;  it  was  not  left  to  the  consumer  to  discover 
their  quality.  And  in  the  Middle  Ages,  no  doubt,  when  men  used 
the  same  things  from  year  to  year,  a  proper  supervision  did  secure 
good  work.  But  with  the  expansion  of  trade  it  ceased  to  be  effective. 
Sir  Josiah  Child  already  recognized  that  changes  of  fashion  must 
prove  fatal  to  it,  and  that  a  nation  which  intended  to  have  the  trade 
of  the  world  must  make  articles  of  every  quality.  Yet  the  belief  in  the 
necessity  of  regulation  was  slow  in  dying  out,  and  fresh  acts  to  secure 
it  were  passed  as  late  as  George  II's  reign 

The  essence  of  the  Industrial  Revolution  is  the  substitution  of 
competition  for  the  mediaeval  regulations  which  had  previously 
controlled  the  production  and  distribution  of  wealth.  Competition, 
we  have  now  learnt,  is  neither  good  nor  evil  in  itself;  it  is  a  force 
which  has  to  be  studied  and  controlled;  it  may  be  compared  to  a 
stream  whose  strength  and  direction  have  to  be  observed,  that 
embankments  may  be  thrown  up  within  which  it  may  do  its  work 
harmlessly  and  beneficially.  But  at  the  period  we  are  considering 
it  came  to  be  believed  in  as  a  gospel,  and,  the  idea  of  necessity  being 
superadded,  economic  laws  deduced  from  the  assumption  of  universal 
imrestricted  competition  were  converted  into  practical  precepts,  from 
which  it  was  regarded  as  little  short  of  immoral  to  depart. 

Coming  to  the  facts  of  the  Industrial  Revolution,  the  first  thing 
that  strikes  us  is  the  far  greater  rapidity  which  marks  the  growth  of 
population.  Before  1751  the  largest  decennial  increase,  so  far  as 
we  can  calculate  from  our  imperfect  materials,  was  3  per  cent.  For 
each  of  the  next  three  decennial  periods  the  increase  was  6  per  cent; 
then  between  1781  and  1791  it  was  9  per  cent;  between  1791  and  1801, 
n  per  cent;  between  1801  and  181 1,  14  per  cent;  between  181 1  and 
1821, 18  per  cent.  This  is  the  highest  figure  ever  reached  in  England, 
for  since  1815  a  vast  emigration  has  been  always  tending  to  moderate 
it;  between  1815  and  1880  over  eight  millions  (including  Irish)  have 


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INTRODUCTORY  13 

left  our  shores.  But  for  this  our  normal  rate  of  increase  would  be 
16  or  18  instead  of  12  per  cent  in  every  decade. 

Next  we  notice  the  relative  and  positive  decline  in  the  agricultural 
population.  In  181 1  it  constituted  35  per  cent  of  the  whole  popula- 
tion of  Great  Britain;  in  1821,  33  per  cent;  in  1831,  28  per  cent. 
And  at  the  same  time  its  actual  niunbers  have  decreased.  In  1831 
there  were  1,243,057  adult  males  employed  in  agriculture  in  Great 
Britain;  in  1841  there  were  1,207,989.  In  1851  the  whole  number 
of  persons  engaged  in  agriculture  in  England  was  2,084,153;  in 
1861  it  was  2,010,454,  and  in  1871  it  was  1,657,138.  Contempo- 
raneously with  this  change,  the  center  of  density  of  population  has 
shifted  from  the  Midlands  to  the  North;  there  are  at  the  present 
day  458  persons  to  the  square  mile  in  the  counties  north  of  the  Trent, 
as  against  312  south  of  the  Trent.  And  we  have  lastly  to  remark 
the  change  in  the  relative  population  of  England  and  Ireland.  Of  the 
total  population  of  the  three  kingdoms,  Ireland  had  in  182 1 32  per  cent, 
in  1881  only  14.6  per  cent. 

An  agrarian  revolution  plays  as  large  part  in  the  great  industrial 
change  of  the  end  of  the  eighteenth  century  as  does  the  revolution  in 
maniifacturing  industries,  to  which  attention  is  more  usually  directed. 
Our  next  inquiry  must  therefore  be:  What  were  the  agricultural 
changes  which  led  to  this  noticeable  decrease  in  the  rural  population  ? 
The  three  most  effective  causes  were:  the  destruction  of  the  conmion- 
field  sjTstem  of  cultivation;  the  enclosure,  on  a  large  scale,  of  common 
and  waste  lands;  and  the  consolidation  of  small  farms  into  large. 
We  have  already  seen  that  while  between  17 10  and  1760  some  300,000 
acres  were  enclosed,  between  1760  and  1843  nearly  7,000,000  imder- 
went  the  same  process.  Closely  connected  with  the  enclosure  sys- 
tem was  the  substitution  of  large  for  small  farms.  The  process  went 
on  iminterruptedly  into  the  present  century.  Cobbett,  writing  in 
1826,  says:  "In  the  parish  of  Burghclere  one  single  farmer  holds 
under  Lord  Carnarvon,  as  one  farm,  the  lands  that  those  now  living 
remember  to  have  formed  fourteen  farms,  bringing  up  in  a  respectable 
way  fourteen  families."  The  consolidation  of  farms  reduced  the 
number  of  farmers,  while  the  enclosures  drove  the  laborers  off  the 
land,  as  it  became  impossible  for  them  to  exist  without  their  rights  of 
pasturage  for  sheep  and  geese  on  common  lands. 

Severely,  however,  as  these  changes  bore  upon  the  rural  popula- 
tion, they  wrought,  without  doubt,  distinct  improvement  from  an 


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14  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

agricultural  point  of  view.  They  meant  the  substitution  of  scientific 
for  unscientific  culture.  "It  has  been  found,"  says  Laurence,  "by 
long  experience,  that  common  or  open  fields  are  great  hindrances  to 
the  public  good,  and  to  the  honest  improvement  which  every  one  might 
make  of  his  own."  Enclosures  brought  an  extension  of  arable  culti- 
vation and  the  tillage  of  inferior  soils;  and  in  small  farms  of  40  to  100 
acres,  where  the  land  was  exhausted  by  repeated  corn  crops,  the  farm 
buildings  of  clay  and  mud  walls  and  three-fourths  of  the  estate  often 
saturated  with  water,  consolidation  into  farms  of  100  to  500  acres 
meant  rotation  of  crops,  leases  of  nineteen  years,  and  good  farm  build- 
ings. The  period  was  one  of  great  agricultural  advance;  the  breed 
of  cattle  was  improved,  rotation  of  crops  was  generally  introduced, 
the  steam-plough  was  invented,  agricultural  societies  were  instituted. 
In  one  respect  alone  the  change  was  injurious.  In  consequence  of  the 
high  prices  of  com  which  prevailed  during  the  French  war,  some  of 
the  finest  permanent  pastures  were  broken  up.  Still,  in  spite  of  this, 
it  was  said  in  1813  that  during  the  previous  ten  years  agricultural 
produce  had  increased  by  one-fourth,  and  this  was  an  increase  upon  a 
great  increase  in  the  preceding  generation. 

Passing  to  manufactures,  we  find  here  the  all-prominent  fact  to 
be  the  substitution  of  the  factory  for  the  domestic  system,  the  conse- 
quence of  the  mechanical  discoveries  of  the  time.  Four  great  inven- 
tions altered  the  character  of  the  cotton  manufacture;  the  spinning- 
jenny,  patented  by  Hargreaves  in  1770;  the  water-frame,  invented 
by  Arkwright  the  year  before;  Crompton's  mule  introduced  in  1779, 
and  the  self-acting  mule,  first  invented  by  Kelly  in  1792,  but  not 
brought  into  use  till  Roberts  improved  it  in  1825.  None  of  these 
by  themselves  would  have  revolutionized  the  industry.  But  in  1769 
— the  year  in  which  Napoleon  and  Wellington  were  bom — ^James  Watt 
took  out  his  patent  for  the  steam-engine.  Sixteen  years  later  it  was 
applied  to  the  cotton  manufacture.  In  1785  Boulton  and  Watt  made 
an  engine  for  a  cotton-mill  at  Papplewick  in  Notts,  and  in  the  same 
year  Arkwright's  patent  expired.  These  two  facts  taken  together 
mark  the  introduction  of  the  factory  system.  But  the  most  famous 
invention  of  all,  and  the  most  fatal  to  domestic  industry,  the  power- 
loom,  though  also  patented  by  Cartwright  in  1785,  did  not  come  into 
use  for  several  years,  and  till  the  power-loom  was  introduced  the 
workman  was  hardly  injured.  At  first,  in  fact,  machinery  raised  the 
wages  of  spinners  and  weavers  owing  to  the  great  prosperity  it  brought 
to  the  trade.    In  fifteen  years  the  cotton  trade  trebled  itself;  from 


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INTRODUCTORY  15 

1788  to  1803  has  been  called  "its  golden  age";  for,  before  the  power- 
loom  but  after  the  introduction  of  the  mule  and  other  mechanical 
improvements  by  which  for  the  first  time  yam  sufficiently  fine  for 
muslin  and  a  variety  of  other  fabrics  was  spun,  the  demand  became 
such  that  "old  bams,  carthouses,  out-buildings  of  all  descriptions 
were  repaired,  windows  broke  through  the  old  blank  walls,  and  all 
fitted  up  for  loom-shops;  new  weavers'  cottages  with  loom-shops 
arose  in  every  direction,  every  family  bringing  home  weekly  from  40 
to  120  shillings  per  week."  At  a  later  date,  the  condition  of  the 
workman  was  very  different.  Meanwhile,  the  iron  industry  had  been 
equally  revolutionized  by  the  invention  of  smelting  by  pit-coal  brought 
into  use  between  1770  and  1750,  and  by  the  application  in  1788  of  the 
steam-engine  to  blast  furnaces.  In  the  eight  years  which  followed 
this  latter  date,  the  amoimt  of  iron  manufactured  nearly  doubled 
itself. 

A  further  growth  of  the  factory  system  took  place  independent 
of  machinery,  and  owed  its  origin  to  the  expansion  of  trade,  an 
expansion  which  was  itself  due  to  the  great  advance  made  at  this 
time  in  the  means  of  conmiimication.  The  canal  system  was  being 
rapidly  developed  throughout  the  country.  In  1777  the  Grand 
Trunk  canal,  96  miles  in  length,  connecting  the  Trent  and  Mersey, 
was  finished;  Hull  and  Liverpool  were  connected  by  one  canal 
while  another  connected  them  both  with  Bristol;  and  in  1792,  the 
Grand  Jimction  canal,  90  miles  in  length,  made  a  waterway  from 
London  through  Oxford  to  the  chief  midland  towns.  Some  years 
afterward,  the  roads  were  greatly  improved  under  Telford  and 
Macadam;  between  1818  and  1829  more  than  a  thousand  additional 
miles  of  turnpike  road  were  constructed;  and  the  next  year,  1830, 
saw  the  opening  of  the  first  railroad.  These  improved  means  of 
commimication  caused  an  extraordinary  increase  in  commerce,  and 
to  secure  a  sufficient  supply  of  goods  it  became  the  interest  of  the 
merchants  to  collect  weavers  aroimd  them  in  great  nimibers,  to  get 
looms  together  in  a  workshop,  and  to  give  out  the  warp  themselves 
to  the  workpeople.  To  these  latter  this  S3rstem  meant  a  change  from 
independence  to  dependence;  at  the  beginning  of  the  century  the 
report  of  a  conmiittee  asserts  that  the  essential  difference  between 
the  domestic  and  the  factory  system  is,  that  in  the  latter  the  work  is 
done  "by  persons  who  have  no  property  in  the  goods  they  manu- 
facture." Another  direct  consequence  of  this  expansion  of  trade  was 
the  regular  recurrence  of  periods  of  over-production  and  of  depression, 


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a  phenomenon  quite  unknown  under  the  old  system,  and  due  to  this 
new  form  of  production  on  a  large  scale  for  a  distant  market. 

These  altered  conditions  in  the  production  of  wealth  necessarily 
involved  an  equal  revolution  in  its  distribution.  In  agriculture  the 
prominent  fact  is  an  enormous  rise  in  rents.  Up  to  179S,  though 
they  had  risen  in  some  places,  in  others  they  had  been  stationary  since 
the  Revolution.  But  between  1790  and  1833,  according  to  Porter, 
they  at  least  doubled.  In  Scotland,  the  rental  of  land,  which  in  1795 
had  amounted  to  £2,000,000,  had  risen  in  1815  to  £5,278,685.  A 
farm  in  Essex,  which  before  1793  had  been  rented  at  105  an  acre,  was 
let  in  181 2  at  505,  though  six  years  after,  this  had  fallen  again  to 
35^.  In  Berks  and  Wilts,  farms  which  in  1790  were  let  at  145,  were 
let  in  1810  at  705,  and  in  1820  at  50^.  Much  of  this  rise,  doubtless, 
was  due  to  money  invested  in  improvements — ^the  first  Lord  Leicester 
is  said  to  have  expended  £400,000  on  his  property — ^but  it  was  far 
more  largely  the  effect  of  the  enclosure  system,  of  the  consolidation 
of  farms,  and  of  the  high  price  of  com  during  the  French  war.  What- 
ever may  have  been  its  causes,  however,  it  represented  a  great  social 
revolution,  a  change  in  the  balance  of  political  power  and  in  the 
relative  position  of  classes.  The  farmers  shared  in  the  prosperity 
of  the  landlords;  for  many  of  them  held  their  farms  under  beneficial 
leases,  and  made  large  profits  by  them.  In  consequence,  their 
character  completely  changed;  they  ceased  to  work  and  live  with 
their  laborers,  and  became  a  distinct  class.  The  high  prices  of  the 
war  time  thoroughly  demoralized  them,  for  their  wealth  then  increased 
so  fast  that  they  were  at  a  loss  what  to  do  with  it.  Cobbett  has 
described  the  change  in  their  habits,  the  new  food  and  furniture,  the 
luxury  and  drinking,  which  were  the  consequences  of  more  money 
coming  into  their  hands  than  they  knew  how  to  spend.  Meanwhile, 
the  effect  of  all  these  agrarian  changes  upon  the  condition  of  the  laborer 
was  an  exactly  opposite  and  most  disastrous  one.  He  felt  all  the 
burden  of  high  prices,  while  his  wages  were  steadily  falling,  and  he 
had  lost  his  common-rights.  It  is  from  this  period,  viz.,  the  beginning 
of  the  present  century,  that  the  alienation  between  farmer  and 
laborer  may  be  dated. 

Exactly  analogous  phenomena  appeared  in  the  manufacturing 
world.  The  new  class  of  great  capitalist  employers  made  enormous 
fortunes,  they  took  little  or  no  part  personally  in  the  work  of  their 
factories,  their  hundreds  of  workmen  were  individually  unknown 
to  them;   and  as  a  consequence,  the  old  relations  between  masters 


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INTRODUCTORY  17 

and  men  disappeared,  and  a  ^'cash  nexus"  was  substituted  for  the 
human  tie.  The  workmen  on  their  side  resorted  to  combination,  and 
trades  imions  began  a  fight  which  looked  as  if  it  were  between 
mortal  enemies  rather  than  joint  producers.  The  misery  which 
came  upon  large  sections  of  the  working  people  at  this  epoch  was 
often,  though  not  always,  due  to  a  fall  in  wages,  for,  as  I  said  above, 
in  some  industries  they  rose.  But  they  suffered  likewise  from  the 
conditions  of  labor  imder  the  factory  s)rstem,  from  the  rise  of  prices, 
especially  from  the  high  price  of  bread  before  the  repeal  of  the  corn- 
laws,  and  from  those  sudden  fluctuations  of  trade,  which,  ever  since 
production  has  been  on  a  large  scale,  have  exposed  them  to  recurrent 
periods  of  bitter  distress.  The  effects  of  the  Industrial  Revolution 
prove  that  free  competition  may  produce  wealth  without  producing 
well-being.  We  all  know  the  horrors  that  ensued  in  Enghmd  before 
it  was  restrained  by  legislation  and  combination. 

5.    EXCHANGE  CO-OPERATION* 

It  is  the  great  multiplication  of  the  productions  of  all  the  different 
arts,  in  consequence  of  the  division  of  labor,  which  occasions,  in  a 
well-governed  society,  that  universal  opulence  which  extends  itself  to 
the  lowest  ranks  of  the  people.  Every  workman  has  a  great  quantity 
of  his  own  work  to  dispose  of  beyond  what  he  himself  has  occasion 
for;  and  every  other  workman  being  exactly  in  the  same  situation, 
he  is  enabled  to  exchange  a  great  quantity  of  his  own  goods  for  a 
great  quantity,  or,  what  comes  to  the  same  thing,  for  the  price  of  a 
great  quantity  of  theirs.  He  supplies  them  abundantly  with  what 
they  have  occasion  for,  and  they  accommodate  him  as  amply  with 
what  he  has  occasion  for,  and  a  general  plenty  diffuses  itself  through 
all  the  different  ranks  of  the  society. 

Observe  the  acconunodation  of  the  most  common  artificer  or  day- 
laborer  in  a  civilized  and  thriving  country,  arid  you  will  perceive 
that  the  nimiber  of  people  of  whose  industry  a  part,  though  but  a 
small  part,  has  been  employed  in  procuring  him  this  acconunodation, 
exceeds  all  computation.  The  woolen  coat,  for  example,  which  covers 
the  day-laborer,  as  coarse  and  rough  as  it  may  appear,  is  the  produce 
of  the  joint  labor  of  a  great  multitude  of  workmen.  The  shepherd, 
the  sorter  of  the  wool,  the  wool-comber  or  carder,  the  dyer,  the 
scribbler,  the  spinner,  the  weaver,  the  fuller,  the  dresser,  with  many 

» From  Adam  Smith,  The  Wealth  of  Nations,  Book  I,  chap.  i. 


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l8  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

Others,  must  all  join  their  different  arts  in  order  to  complete  even  this 
homely  production.  How  many  merchants  and  carriers,  besides, 
must  have  been  employed  in  transporting  the  materials  from  some  of 
those  workmen  to  others  who  often  live  in  a  very  distant  part  of  the 
country!  How  much  commerce  and  navigation  in  particular,  how 
many  ship-builders,  sailors,  sail-makers,  rope-makers,  must  have 
been  employed  in  order  to  bring  together  the  different  drugs  made 
use  of  by  the  dyer,  which  often  come  from  the  remotest  corners  of  the 
world!  What  a  variety  of  labor  too  is  necessary  in  order  to  produce 
the  tools  of  the  meanest  of  those  workmen!  To  say  nothing  of  such 
complicated  machines  as  the  ship  of  the  sailor,  the  mill  of  the  fuller, 
or  even  the  loom  of  the  weaver,  let  us  consider  only  what  a  variety 
of  labor  is  requisite  in  order  to  form  that  very  simple  machine,  the 
^ears  with  which  the  shepherd  clips  the  wool.  The  miner,  the  builder 
of  the  furnace  for  smelting  the  ore,  the  feller  of  the  timber,  the  burner 
of  the  charcoal  to  be  made  use  of  in  the  smehing-house,  the  brick- 
maker,  the  bricklayer,  the  workmen  who  attend  the  furnace,  the 
millwright,  the  forger,  the  smith,  must  all  of  them  join  their  different 
arts  in  order  to  produce  them.  Were  we  to  examine,  in  the  same 
manner,  all  the  different  parts  of  his  dress  and  household  furniture,  the 
coarse  linen  shirt  which  he  wears  next  his  skin,  the  shoes  which  cover 
his  feet,  the  bed  which  he  lies  on,  and  all  the  different  parts  which 
compose  it,  the  kitchen-grate  at  which  he  prepares  his  victuals,  the 
coals  which  he  makes  use  of  for  that  pmpose,  dug  from  the  bowels 
of  the  earth,  and  brought  to  him  perhaps  by  a  long  sea  and  a  long  land 
carriage,  all  the  other  utensils  of  his  kitchen,  all  the  furniture  of  his 
table,  the  knives  and  forks,  the  earthen  or  pewter  plates  upon  which 
he  serves  up  and  divides  his  victuals,  the  different  hands  employed 
in  preparing  his  bread  and  his  beer,  the  glass  window  which  lets  in  the 
heat  and  the  light,  and  keeps  out  the  wind  and  the  rain,  with  all  the 
knowledge  and  art  requisite  for  preparing  that  beautiful  and  happy 
invention,  without  which  these  northern  parts  of  the  world  could  scarce 
have  afforded  a  very  comfortable  habitation,  together  with  the  tools 
of  all  the  different  workmen  employed  in  producing  those  different  con- 
veniendes;  if  we  examine,  I  say,  all  these  things,  and  consider  what  a 
variety  of  labor  is  employed  about  each  of  them,  we  shall  be  sensible 
that  without  the  assistance  and  co-operation  of  many  thousands,  the 
very  meanest  person  in  a  civilized  country  could  not  be  provided,  even 
according  to,  what  we  very  falsely  imagine,  the  easy  and  simple 


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INTRODUCTORY  19 

manner  in  which  he  is  commonly  accommodated.  Compared,  indeed, 
with  the  more  extravagant  luxury  of  the  great,  his  accommodation 
must  no  doubt  appear  extremely  simple  and  easy;  and  yet  it  may  be 
true,  perhaps,  that  the  accommodation  of  an  European  prince  does  not 
alwa3rs  so  much  exceed  that  of  an  industrious  and  frugal  peasant,  as 
the  accommodation  of  the  latter  exceeds  that  of  many  an  African  king, 
the  absolute  master  of  the  lives  and  liberties  of  ten  thousand  naked 
savages. 


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II.    WANTS  AND  THE  MEANS  OF  THEIR 
SATISFACTION 

6.  A  STUDY  OF  HUMAN  WANTS 

A  complete  understanding  of  modern  industrial  society  would 
obviously  involve  an  understanding  of  its  motive  forces.  Very  likely. 
we  shall  never  know  all  the  details  of  all  the  motive  forces  actuating 
society.  Nevertheless,  some  few  propositions  seem  reasonably  clear 
and  it  is  worth  while  to  set  these  forth. 

We  know  that  one  of  the  basic  social  facts  is  the  very  common- 
place one  that  Nature  does  not  spontaneously  furnish  means  of  satis- 
faction for  all  our  wants,  or  even  for  most  of  them.  We  know  that 
this  fact  serves  largely  to  explain  the  struggles  of  man  with  nature 
and  the  struggles  of  man  with  man.  It  follows,  accordingly,  that 
a  study  of  the  characteristics  of  human  wants  should  reveal  many 
of  the  motive  forces  behind  modem  society.  This  field  of  study, 
enormous  in  extent  and  baffling  in  its  elusiveness,  clearly  belongs  to 
the  psychologist.  The  economist  can  make  no  pretense  of  originality 
or  comprehensiveness  in  dealing  with  such  a  subject.  He  must  rest 
content  with  selecting  a  few  propositions  having  significance  for  his 
purposes. 

I.  There  seems  to  be  little  or  no  cause  to  hope  that  the  sum  total  of 
human  wants  will  ever  be  sated.  Heam,  in  his  Pluklogy,  has  discussed 
this  matter  at  considerable  length. 

"Food,  drink,  air,  and  warmth   are  the  most  urgent  .... 

necessities These    necessities    man    shares   with    all    other 

animals He   has   also,   beyond   all  other   creatures,   other 

faculties,  which,  besides  their  own  requirements,  seriously  affect  the 
gratification  of  the  primary  appetites;  for  man  is  able  not  merely  to 
satisfy  his  primary  wants,  but  to  devise  means  for  their  better  and 

more  complete  gratification He  alone  has  cooked  his  food. 

He  alone  has  infused  his  drink.  He  alone  has  discovered  new  kinds 
of  food  or  drink.  He  alone  has  improved  the  construction  of  his 
dwelling,  and  has  provided  for  its  ventilation.  He  alone  clothes  his 
body,  and  varies  that  clothing  according  to  the  changes  of  tempera- 
ture or  his  own  ideas  of  decoration.  He  alone  is  not  content  with  the 
mere  satisfaction,  in  whatever  manner,  of  his  physical  wants,  but 


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WANTS  AND  MEANS  OF  SATISFACTION  21 

exercises  a  selection  as  to  the  mode  of  their  satisfaction.  So  strong 
in  him  is  this  tendency  to  the  adaptation  of  his  means  that,  in  favor- 
able circumstances,  he  regards  the  preparation  of  the  objects  which 
are  intended  for  his  gratification  as  of  hardly  less  importance  than  the 
gratification  itself.  Thus  the  comparative  range  of  human  wants  is 
rapidly  increased.  When  the  question  of  degree  is  admitted  in  the 
satisfaction  of  the  primary  appetites,  and  when  the  greater  or  less 
adaptability  of  various  objects  to  satisfy  these  appetites  is  recognized, 
the  extent  of  human  desires  is  bounded  only  by  the  extent  of  himian 
skill. 

"As  the  attempt  to  satisfy  the  primary  appetites  thus  gives  rise 
to  new  desires,  so  the  actual  increase  of  these  desires  tends  of  itself 
to  a  still  further  development.  The  enjoyment  that  a  man  has  once 
received  he  generally  desires  to  renew.  The  mere  repetition  soon 
becomes  a  reason  for  its  further  repetition.  By  the  powerful  influence 
of  habit  the  desire  becomes  a  taste,  and  the  taste  quickly  passes  into 
an  absolute  want.  Nor  is  this  all.  The  mere  exercise  of  the  faculties 
strengthens  them,  and  gives  rise  to  a  comparison  of  results  and  a 
desire  for  further  improvement.  The  man  whose  senses  are  educated 
to  a  certain  point,  who  has  had  to  a  certain  extent  experience  of 
different  modes  of  satisf3dng  his  desires,  and  has  formed  a  judgment 
upon  the  comparative  eflSdency  of  these  modes,  will  seldom,  in 
favorable  circumstances,  stop  at  that  point.  Not  merely  would  a 
return  to  what  pleased  his  untaught  faculties  be  intolerable  to  him, 
but  the  actual  enjoyment  which  he  derives  from  his  discovery  stimu- 
lates him  to  further  advances,  and  suggests  the  modes  of  obtaining 
them.  Thus  while  man  is  not  guided  and  limited  by  a  blind  instinct, 
but  each  individual  is  left  free  to  rise  or  fall  according  to  the  exercise 
of  his  powers,  provision  is  made,  even  in  the  primary  wants  6i  our 
nature,  both  to  prevent  the  retrogression  of  the  sp>ecies  and  to  secure 
its  advancement.  The  number  of  wants  that  belongs  to  this  dass  is 
therefore  limited,  as  I  have  said,  by  our  knowledge  of  the  properties 
of  matter  or  of  material  objects  fitted  to  satisfy  our  wants,  and  by 
our  skill  in  their  adaptation.  This  knowledge  and  this  skill  continu- 
ally increase;  and  as  the  limit  they  present  recedes,  the  range  of  our 
tastes  and  of  our  artificial  wants  increases  with  them: 

"There  are  other  important  respects  in  which  human  wants 
differ  from  those  of  the  inferior  animals.  In  addition  to  those 
primary  appetites  which  he  shares  with  the  humblest  living  creature, 
and  which  relate  exdusively  to  things,  man  has  also,  in  a  peculiar 


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22  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

degree,  affections  which  relate  to  persons;  and  various  desires  which 
are  only  conceivable  with  reference  to  abstractions,  and  result  not 
from  any  physical  antecedent  but  from  operations  of  the  mind.  By 
the  aid  of  memory,  which  recalls  the  past;  and  of  imagination,  which 
represents  the  distant,  the  absent,  and  the  future;  and  of  reason, 
which  exercises  a  judgment  upon  the  utility  present  or  prospective 
of  an  object,  and  upon  the  means  of  obtaining  it,  man  forms  desires 
concerning  his  personal  safety,  his  family,  and  his  property.  These 
desires,  like  those  already  described,  become,  by  the  force  of  habit, 
daily  more  persistent  and  intense.  To  this  dass  of  desires  no  limit 
can  be  assigned  other  than  the  mental  powers  of  each  individual. 
These  wants,  except  those  relating  to  the  family,  might  arise  in  a 
man  isolated  from  all  other  beings  of  the  same  kind.  But  man  is  by 
the  constitution  of  his  nature  a  social  being.  Beginning  with  the 
family,  he  soon  forms  relations  with  other  men,  and  lives,  and  moves, 
and  has  his  being  in  society.  Hence  arise  new  desires,  each  of  which, 
like  every  other  desire,  is  intensified  and  confirmed  by  habit.  Man 
b  imitative,  and  so  seeks  to  have  what  his  neighbor  enjo3rs;  he  is  vain, 
and  so  desires  to  display  himself  and  his  possessions  with  advantage 
before  his  fellows;  he  loves  superiority,  and  so  seeks  to  show  some- 
thing that  others  have  not;  he  dreads  inferiority,  and  so  seeks  to 
possess  what  others  also  possess.  Hence  it  is  that,  as  daily  experience 
teaches  us,  no  man  ever  attains  the  state  in  which  he  has  no  wish 
ungratified.  The  greater  the  development  of  the  mental  and  moral 
faculties,  the  greater  will  be  the  niunber  of  desires;  the  more  con- 
tinuous the  gratification  of  these  desires,  the  more  confirmed  will  be 
the  habit. 

''Not  merely  b  the  amount  of  hiunan  desire  indefinite,  but  the 
modes  in  which  desire  in  many  different  individuab  b  manifested 
are  equally  without  any  practical  limit.  Even  in  the  primary  appe- 
tites there  b  room  for  great  diversity,  according  to  differences  of 
climate,  age,  sex,  and  other  considerations,  in  the  choice  of  food,  and 
the  construction  of  houses,  and  the  fashion  of  clothes.  In  the  desires 
which  are  peculiar  to  man  we  seldom  find  agreement.  The  diversity 
of  individual  tastes  b  proverbial.  Two  persons  will  often  r^ard  with 
very  different  feeling  the  same  object.  The  same  man  will  at  different 
times  and  in  different  circumstances  experience  great  changes  in  hb 
desires  and  hb  aversions. 

''According,  then,  to  the  degree  with  which  we  are  acquainted 
with  external  objects,  and  to  the  power  that  we  possess  of  judging  of 


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23 


their  relations  to  ourselves  and  to  other  things,  our  capacity  of  desire 
will  be  extended.  It  therefore  depends  upon  the  education,  in  the 
widest  sense  of  that  term,  of  each  individual,  and  upon  his  character 
as  mainly  resulting  from  that  education,  how  many  and  what  kinds 
of  objects,  and  with  what  d^ree  of  persbtency,  he  desires.  The 
more  complete  the  intellectual  development,  the  wider  will  be  the 
fidd  of  desire;  and,  by  the  usual  reaction  in  our  mental  nature,  the 
wider  the  field  of  desire,  the  stronger  will  be  the  inducements  to 
mtellectual  efifort  for  the  continuance  of  means  to  gratify  these 
desires. 

''Nothing,  therefore,  can  be  further  firom  the  truth  than  the 
ascetic  doctrine  of  the  paucity  and  the  brevity  of  human  wants.  So 
far  from  man  wanting  little  here  below,  his  wants  are  indefinite,  and 
never  cease  to  be  so  during  his  whole  existence." 

Certain  very  obvious  and  very  important  consequences  flow  from 
the  above-described  characteristic  of  human  wants.  Here^  in  large 
part,  lie  the  motives  to  acquisition  and  to  progress.  Here  in 
large  part,  b  the  why  of  the  endless  variety  and  increasing  struggle 
of  our  modem  industrial  society. 

3.  ^Provided  no  change  occurs  in  the  consumer  and  provided  time  for 
physical  recuperation  from  stimuli  is  not  permitted,  any  single  want  is 
capable  of  being  sakd.  As  added  units  of  the  desired  good  are  con- 
sumed, a  continual  diminution  of  satisfaction  per  unit  occurs.  Sooner 
or  later  the  point  of  satiety  is  reached.  Under  the  conditions  here 
assumed  the  second  unit  of  a  good  (say,  an  orange)  gives  less  satis- 
faction than  did  the  first;  the  third  gives  less  satisfaction  than  did 
the  second,  and  so  on  to,  and  even  beyond,  the  point  of  zero-satis- 
faction. In  many  texts  this  fact  is  illiistrated  by  some  such  diagram 
as  that  in  figure  A  where  the  diminishing  heights  of  the  successive 


1 

& 
J 

A 

X        2 

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MATERIALS  FOR  ELEMENTARY  ECONOMICS 


rectangles,  from  left  to  right,  are  supposed  to  represent  the  diminish- 
ing amounts  of  satisfaction  derived  from  successive  units  of  some  good. 
In  figure  B,  the  same  proposition  is  illxistrated  by  a  "curve  of  descend- 
ing utility,"^  instead  of  separate  rectangles. 

Naturally,  so  far  as  we  consciously  distinguish  the  different 
intensities  of  different  wants,  we  tend  to  satisfy  our  most  pressing 
wants  first  and,  equally  naturally,  we  tend  to  apply  our  expenditures 
to  all  our  wants  in  such  a  way  as  to  secure  equal  marginal  utility, 
so-called,  from  each.  That  is,  we  try  to  continue  our  consumption 
of  no  commodity  so  far  that  the  last  unit  consumed  affords  less  satis- 
faction than  might  have  been  secured  by  an  equal  expenditure  for 
some  other  commodity.  Here  again  an  illustration  serves  us  to  good 
advantage.  In  the  following  table  the  Roman  nimtierals  I-VI  denote 
six  different  commodities,  in  the  order  of  their  importance  to  a  given 
consimier.  The  Arabic  nimtierals  indicate  the  intensity  of  satisfaction 
to  be  derived  from  the  consumption  of  the  first,  second,  third,  or  sub- 
sequent unit  of  each  specified  commodity. 


Commodity 

I 

n 

m 

IV 

V 

VI 

Satisfaction  derived  from  ist  unit  consumed 

ID 

9 

8 

7 

6 

5 

«     ad     « 

9 

8 

7 

6 

5 

4 

«     3d     « 

8 

7 

6 

5 

4 

3 

«                <*          **     4th    «            ** 

7 

6 

5 

4 

3 

2 

u                    a             a       -jjj     a               a 

6 

5 

4 

3 

2 

I 

u          «      6th    « 

5 

4 

3 

2 

I 

O 

a                 «           «      7th    "            " 

4 

3 

2 

I 

o 

a                 «           «      8th    **            " 

3 

2 

I 

O 

«                «          «     oth    **            " 

2 

I 

•  o 

... 

'^     lOth     « 

I 

o 

... 

«               «          **    nth    «           « 

o 

... 

... 

Assume,  now,  that  the  same  expenditure  is  necessary  to  secure 
any  one  unit  of  any  commodity.  If,  then,  a  person  is  in  a  position 
to  secure  only  a  single  unit,  he  will,  under  the  stated  conditions,  pre- 
sumably take  a  unit  of  commodity  I  and  derive  a  satisfaction  of  lo. 
However,  if  two  units  may  be  had,  two  units  of  I  or  one  unit  each  of 
I  and  II  offer  equal  satisfaction.  A  person  choosing  three  units 
would  select  two  units  of  I  and  one  of  II.    The  fourth  unit  to  be 

'The  term  utility  has  here  its  conventional  economic  sense  of  capacity  to 
satisfy  want. 


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WANTS  AND  MEANS  OF  SATISFACTION  25 

chosen  might  be,  indifferently,  a  third  unit  of  I,  a  second  unit  of  II, 
or  a  unit  of  III — and  so  on. 

We  must  not  permit  the  table  to  mislead  us,  however.  It  is  a 
dangerous  illustration  in  two  or  three  particulars.  If  carried  out  to 
want  X  or  XI  it  would  seem  to  imply  that  the  sum  total  of  human 
wants  could  be  sated,  and  this  we  know  to  be  impossible.  Again, 
if  these  figures  were  charted,  the  curve  of  descending  utility  would 
come  down  at  the  same  angle  for  all  wants.  This  is  of  course  not  the 
case  in  actual  life.  The  curve  of  utility  obviously  descends  more 
rapidly  in  the  case  of  cook-stoves  than  in  the  case  of  slices  of  bread. 
Another  way  of  stating  this  is  to  say  that  desire  is  more  elastic  in  the 
case  of  slices  of  bread  than  in  the  case  of  cook-stoves^  Finally,  we 
must  not  suppose  that  anyone  can  really  measure  satisfactions  in  any 
such  definite  way  as  is  here  assumed  in  using  the  Arabic  numerals. 
It  must  be  kept  in  mind  that  an  illustration  is  not  a  demonstration, 
and  that  a  table  or  chart  used  to  illustrate  one  featuit  of  a  subject 
may  be  a  faulty  illustration  of  another  feature. 

What  consequences  flow  from  the  above  statements  ?  A  few  of 
the  consequences  are  here  listed  and  the  student  is  asked  to  show 
haw  and  why  these  consequences  do  flow. 

a)  With  an  increased  output  of  a  given  good  its  price  tends  to 
fall,  other  things  remaining  the  same. 

b)  If  the  output  of  several  goods  should  be  increased  at  the  same 
rate  the  prices  might  fall  at  different  rates. 

c)  Diversity  or  variety  of  expenditure  occurs. 

d)  In  part,  here  is  an  explanation  of  how  it  happens  that  a  cer- 
tain amount  of  social  energy  is  devoted  to  the  production  of  good  x 
and  a  certain  other  amount  to  the  production  of  good  y.  In  other 
words,  here  is  part  of  the  explanation  of  the  distribution  of  land, 
labor,  and  capital  among  the  various  activities  of  society. 

3.  The  present  estimation  of  the  utility  of  a  future  good  is  less  than 
the  present  estimation  of  the  utility  of  a  present  good,  assuming  no  change 
in  either  quantity  or  quality  of  the  good.  If  you  were  asked  whether 
you  preferred  to  have  a  unit  of  x  today  or  three  years  hence,  under 
the  conditions  above  assimtied,  your  decision  would  be  to  receive  it 
today.  There  are  uncertainties  in  life;  you  might  not  live  the  three 
years;  your  wants  might  change;  three  years  hence  is  a  "long  time 
off."  Of  course,  if  x  is  a  bottle  of  grape  juice,  it  might  be  preferred 
three  years  hence  as  wine,  but  in  that  case  a  change  in  quality  has 
occurred.    Equally,  of  course,  if  x  is  now  plentiful  and  you  have 


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MATERIALS  FOR  ELEMENTARY  ECONOMICS 


reason  to  know  that  x  will  be  scarce  three  years  hence,  you  might 
vote  to  defer  present  consumption,  but  in  that  case  a  change  in 
quantity  has  occurred. 

The  proposition  here  before  us  has  been  illustrated  by  the  follow- 
ing diagram: 


Present  Estimatioii  of 
Present  Good 


Present  Eitiauttion  of 
FtatnieGood 


J. 


Namber  of  units 


Number  of  units 


If  this  proposition  be  true,  should  we  have  reason  to  expect  that 
society  might  have  occasion  to  induce  some  of  its  members  to  save 
by  paying  them  interest  on  their  savings  ? 

4.  Our  wants  are  often  imposed  upon  us  by  the  force  of  imitation 
and  by  social  standards.  The  gregarious  instinct  is  powerful.  We  move 
in  herds.  We  buy  hats  and  clothing  at  Easter.  We  buy  extensively 
at  Christmas.  Teddy  bears  become  the  rage  and  as  suddenly  are 
supplanted  by  some  new  fad.  The  tulip  craze  affects  the  industry  of 
a  whole  country.    And  so  examples  without  limit  may  be  heaped  up. 

The  economist,  however,  is  mainly  interested  in  the  economic 
consequences  of  these  characteristics  of  our  wants.  Some  of  the 
consequences  of  this  particular  characteristic  may  be  stated  as  follows: 

a)  An  explanation  of  the  magnitude  of  some  of  our  industrial 
phenomena. 

b)  Great  social  saving  through  the  economies  of  large  scale  pro- 
duction. 

c)  Great  social  waste  of  machinery,  goods,  and  established 
industrial  and  conunercial  connections  when  a  shifting  of  taste  occurs. 

i)  A  partial  explanation  of  such  phenomena  as  rush  work, 
sweated  industries,  and  overcrowding. 

e)  A  partial  explanation  of  the  growth  of  cities. 


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WANTS  AND  MEANS  OF  SATISFACTION  27 

5.  Our  subjective  estimate  of  satisfactions  is  continually  shifting. 
I  may  have  in  mind  such  a  table  of  satisfactions  as  was  used  under  2, 
above,  and  a  word  from  you,  an  advertisement  read,  a  look  at  a 
show  window,  or  any  one  of  a  thousand  other  things,  trivial  or  impor- 
tant, may  change  the  table.  With  the  lapse  of  time  the  case  is  even 
more  striking.  We  change  as  a  residt  of  every  factor  of  our  environ- 
ment, by  education,  by  travel,  by  association,  even  by  the  very  process 
of  consmning  goods. 

Since  industry  caters  to  wants,  it  follows  that  there  will  be  a 
continual  shifting  in  industry  and  that  a  person  engaged  in  supplying 
the  means  of  satisfaction  of  these  wants  will  assume  risks  and 
chances  quite  ind^>endent  of  the  risks  of  climate,  fire,  or  accident. 
It  need  not  surprise  us  to  find  that  men  must  be  rewarded  to  induce 
them  to  incur  these  risks. 

In  all  the  above,  littie  was  said  concerning  the  why  of  wants. 
This  is  a  problem  for  the  psychologist  rather  than  the  economist.  It 
is  referred  to  at  this  point  merely  to  emphasize  the  fact  that  the 
economist  is  making  no  arbitrary  assumptions  in  this  matter.  Wants 
may  be  and  are  the  results  of  instincts,  reason,  suggestion,  habits,  and 
a  thousand  other  things.  Be  all  that  as  it  may,  the  significant  thing 
for  the  economist  is  that  the  motivation  of  economic  actions  is  to  be 
found  in  wants.  The  purpose  of  this  survey  is  solely  to  cause  the 
student  of  economics  to  feel  that  the  ciulain  has  been  pulled  aside 
and  that  a  view  has  been  given  of  some  of  the  real  forces  actuating 
industrial  society. 

7.  THE  APPORTIONMENT  OF  EXPENDITURES* 

Dr.  Ernst  Engel,  in  1857,  compared  the  budgets  in  Le  Play's 
famous  "Family  Monographs,"  added  data  of  his  own,  and  formu- 
lated his  schedide  of  the  normal  distribution  of  expenditures  in  their 
relation  to  income. 

From  Table  i  (p.  28)  Engel  deduced  four  famous  laws: 

1.  The  larger  the  income  of  a  family,  the  smaller  is  the  percentage 
of  it  expended  for  food. 

2.  The  percentage  of  expenditure  for  clothing  remains  approxi- 
mately the  same  for  the  larger  incomes  as  for  the  smaller. 

3.  With  all  the  incomes  investigated,  the  percentage  of  expendi- 
ture for  rent,  fuel,  and  light  remains  invariably  the  same. 

'  Adapted  from  F.  H.  Streightofif,  The  Standard  of  Living  among  the  Industrial 
People  of  America,  pp.  12-23.    Houghton  Mifflin  Co.,  191 1. 


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MATERIALS  FOR  ELEMENTARY  ECONOMICS 


Table  I 

Engel's  Table  of  Pkopoktionate  Expendituses 

The  figures  show  for  families  with  the  stated  incomes  what  percentage 

of  total  expenditure  goes  for  each  of  the  spedfied  purposes. 


Object 


Subsistence 

Clothing 

Lodging 

Firing  and  lighting  . . . 

Education,  religion,  etc 

Legal  protection 

Care  of  health 

Comfort,  recreation. . . 


$225-1300 


62  \ 

16 

12 

5 

2 
I 
I 
I 


95 


Family  Inoomx 


$4So-$6oo 


55  I 
18 

12  1 

5/ 

3'5\ 
2  I 
2  I 
2.5/ 


90 


$7So-$i,ooo 


50  \ 
18 
12  I 
5) 

5.5 

3 
3 
3-5 


8S 


15 


4.  The  larger  the  income,  the  larger  is  the  percentage  expended 
for  education,  health,  recreation,  amusement,  etc. 

The  brilliant  work  of  this  German  statistician  was  confirmed  in 
the  main  by  the  early  work  in  America.  The  Massachusetts  Labor 
Report  for  1885,  for  instance,  contained  the  schedule  embodied  in 
Table  II. 

Table  II 

Expenditures  in  Workingmen's  Families  in  Massachusetts,  1885* 

The  figures  show  for  families  with  the  stated  incomes  what  percentage  of  total 

expenditure  goes  for  each  of  the  specified  purposes. 


Objxct 


Famzlt  Income 


$300 

to 

I450 


Uso 

to 

$600 


$600 

to 
$7SO 


$7SO 
to 

$X,200 


Above 
$i,»oo 


Subsistence 
Clothing. ., 

Rent 

Fuel 

Sundries. « . 


64) 

7 
20  ( 

6/ 

3 


97 


95 


6o\ 

14 

14 

6f 

6 


94 


S6\ 

17 
6/ 
6 


94 


90 


•Sixteenth  Report  of  the  Bureau  of  Statistics  of  Labor,  Massachusetts  (i88s).  p.  153. 

It  will  be  noticed  that  in  1885,  in  America,  a  larger  share  of 
income  was  absorbed  by  the  subsistence  wants,  less  being  left  for 
sundries — education,  health,  recreation,  and  amusements.  Two  other 
facts,  however,  are  particularly  significant:  whereas  the  Belgian 
or  German  outlay  for  lodging  remained  constant  at  12  per  cent  as 


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WANTS  AND  MEANS  OF  SATISFACTION 


29 


the  income  increased,  American  rents  fell  from  20  per  cent  to  15  per 
cent  of  the  expenditure;  second,  as  they  became  more  prosperous, 
Americans  enlarged  their  relative  expenditure  for  clothing.    This 

Table  HI 

EXPENDITUSES  IN  WoKKIMGHEN'S  FAMILIES  IN  MASSACHUSETTS,   I9OI* 

The  figures  show  for  families  with  the  stated  incomes  what  percentage  of  total 
expenditure  goes  for  each  of  the  specified  piuposes 


Family  Income 

Object 

Leas 
than 
$4SO 

%4SO 

to 

I600 

$600 

to 
$7SO 

$7SO 

to 

1,200 

Above 
$x,aoo 

Subsistence 

S6. 
21.96 

915 
7.91 

54.89 

17. 54 

11.69 

6.91 

53  30 

17.27 

11.68 

6.75 

53.18 

11.03 

14.66 

5.39 

54.87 
6.80 

Rent 

Clothing 

Iii.62 

Fuftl  and  liVhtinir 

4..  40 

Education,  church,  etc  . . . 

Health,  insurance 

Sundries 

95.02 

1. 61 

2.98 

.39 

91.03 

2.92 
4.69 
1.36 

89.00 

303 

84.26 

5.06 
6.56 

80.78 

4.58 
6.39 
8.25 

Total  aver,  expenditure. . 

4.98 
I382.49 

8.97 
S555.53 

11.00 
$688.87 

15.74 
$886.50 

19.22 
$1,252.59 

*  Tkirty-seeond  Report  of  the  Bureau  of  Statistics  of  Labor,  Maasachusetts  (1901).  pp.  396-97  . 

might  have  indicated  extraordinarily  high  rents  in  Massachusetts, 
or  very  great  lack  of  good  clothing  in  the  lower  income  groups,  or 
both.  The  condition  in  1901,  however,  was  much  more  favorable  to 
the  Massachusetts  working  people,  as  the  proportion  of  expenditure 
devoted  to  existence  wants  had  fallen  in  every  income  group  from 
2  to  6  points,  the  gain  being  largely  in  reduced  food  costs.  Still  the 
expenses  for  clothing  increased  with  the  income,  but  not  so  exces- 
sively as  in  1885;  rents  were  still  inordinately  high,  and  the  relative 
cost  of  lighting  had  begim  to  fall  as  income  grew.  (See  Table  III.) 
The  Americans  were  by  that  time  more  liberal  in  their  expenditures 
for  health  and  insurance  than  were  the  Germans. 

Charts  I,*  II,'  and  III^  form  an  epitome  of  the  subject  of  budgets 

*  Plotted  from  data  on  p.  55  of  Mrs.  L.  B.  More's  Wage-Earner's  Budgets, 

*  Plotted  from  data  on  p.  70  of  R.  C.  Chapin's  The  Standard  of  Living  in  New 
York  CUy. 

>  Plotted  from  data  on  p.  loi  or  585  of  the  Eighteenth  Annual  Report  of  the 
United  States  Commissioner  of  Labor, 


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30 


MATERIALS  FOR  ELEMENTARY  ECONOMICS 


as  presented  in  the  three  studies  mentioned  in  the  note.  It  is  inter- 
esting to  observe  that  in  no  case  does  the  expenditure  for  food  reach 
51  per  cent:  in  other  words,  American  workingmen  now  £ind  food  a 
much  less  pressing  claimant  of  their  resources  than  did  Engd's  sub- 
jects, or  even  the  people  of  Massachusetts,  in  1885.  Another  inter- 
esting fact  is  that  after  the  income  of  $600  is  reached,  the  relative 
expensiveness  of  food  wants  diminishes  rapidly  in  the  United  States  as 
a  whole,  though  in  New  York  City  there  is  little  gain  in  that  respect. 


Chakt  I 


Family  Income: 

$200       $400 
to  to 

400         500 


$500 
to 
600 


$600 
to 
700 


$700 
to 
800 


$800 
to 
900 


$900 

to 

1. 000 


$1,000 

to 

1,200 


$1,200 
to 

1,500 


Per  cent  of  total  expenditures  made  for  various  purposes  by, 200 
New  York  Gty  families  in  relation  to  size  of  income 

rood 

y 

— - 

>^ 

^«sa. 

^^ 

_.... 

,-»•*** 

'"""^C't^ 

,'-' 

*» 

•  •  •  "^^^^ 

^ 

■ 

" 

^-^-^ 

f 

el 

50% 

45% 
40% 
35% 
30% 
25% 
20% 

15% 
10% 

5% 
0% 


food  there  absorbing  proportionately  less  of  the  loy^  incomes  and  more 
of  the  high  ones.  Again,  there  is  something  sinister  in  the  enormous 
excess  of  rent  paid  in  New  York  City,  especially  by  families  of  small 
resources.  Whereas  the  average  outlay  for  rent  in  the  income  group 
$4oo-$5oo  in  the  dty  is  $120  or  $125,  that  in  the  country  as  a  whole  is 
$86.54.  Dr.  Chapin  explains  this  phenomenon  on  the  ground  that 
exorbitantly  high  rents  in  the  metropolis  force  people  who  live  there 
to  consider  shelter  almost  their  prime  want.    It  is  a  peculiarity  of 


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WANTS  AND  MEANS  OF  SATISFACTION 


31 


New  York  City  that,  as  their  incomes  grow  larger,  most  families 
instead  of  seeking  better  quarters  have  to  be  content  with  a  minimum 
of  improvement  in  their  houses,  and  are  constrained  to  devote  their 
additional  resources  largely  to  the  purchase  of  food.  It  may  be 
interesting  to  note  that  at  the  recent  Berlin  City  Plan  Exhibit  it 
appeared  that  many  families  in  the  1 200-1 500  marks  income  group  in 
Schdneberg  paid  about  one  half  their  money  for  rent,  and  that  the  per- 
centage expenditure  for  housing  falls  off  in  the  higher  and  lower  groups. 

Chast  n 
Family  Income: 


I400 

$500 

$600 

$700 

$800 

$  900 

$1,000 

$1,100 

$1,200 

to 

to 

to 

to 

to 

to 

to 

to 

to 

500 

600 

700 

800 

900 

1,000 

1,100 

1,200 

1,300 

Per  cent  of  total  expenditures  made  tor  various  purposes  by  391 
New  Yodc  Gty  families  in  relation  to  size  of  income 


In  general,  as  prosperity  grows,  clothing  is  awarded  a  constantly 
increasing  proportion  of  income,  thotigh  among  the  more  well-to-do 
families,  especially  among  those  whose  accounts  were  recorded  in  Dr. 
Chapin's  tables,  there  is  a  slight  decrease  in  the  per  cent  of  outlay 
for  raiment.  When  a  man  is  very  poor,  his  first  necessities  are  food 
and  a  safe  place  in  which  to  sleep.  After  both  of  these  wants  have 
been  supplied,  he  can  devote  his  efforts  to  satisfying  other  desires. 
Bis  hunger  he  can  conceal;  he  can  escape  temporarily  from  squalid 


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32 


MATERIALS  FOR  ELEMENTARY  ECONOMICS 


home  surroundings;  but  he  cannot  so  easily  rid  himself  of  his  rags — 
the  badges  of  his  poverty.  So  pride  prompts  him  to  secure  better 
dothes  as  soon  as  his  resources  will  permit  him  to  do  so.  Fuel  and 
lighting  expenses  slowly  decline,  and  outlay  for  sundries  rapidly  rises 
in  importance  as  incomes  become  more  ample. 

Engel's  laws,  then,  need  considerable  modification  before  they  can 
be  applied  to  American  workingmen  of  the  present  time.    On  the  basis 


Family  Income: 

Under    $200 
to 
$200       300 


Chaet  in 

$300    $400     $500     $600    $700  $800  $900  $1,000  $1,100  Over 

to       to          to         to        to       to         to  to  to 

400      500       600       700      800      900  lyooo  1,100  1,200  $1,200 


Perjcent  of  total  expenditures  made  for  various  purposes  by  1 1,156  normal 
families  throughout  the  United  States  in  relation  to  size  of  income 


50% 
45% 
40% 
35% 
30% 
25% 
20% 

15% 

10% 

5% 

0% 


of  the  special  investigations  here  cited  they  may  be  tentatively  restated 
thus: 

As  the  income  increases: 

1.  The  proportionate  expenditure  for  food 

a)  decreases  for  the  coimtry  at  large  from  50  per  cent  to  37 
per  cent,  but 

b)  in  New  York  City,  it  amoimts  to  almost  45  per  cent  of  the 
total  outlay  until  an  income  of  $1,000  is  attained. . 

2.  There  is  a  strong  tendency  for  the  percentage  of  expenditure  for 

clothing  to  increase. 


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WANTS  AND  MEANS  OF  SATISFACTION  33 

3.  Rdative  expenditures  for  housing 

a)  remain  about  constant  for  the  country  at  large,  falling  very 
slightly  after  $400  incomes  have  been  reached,  but 

h)  decrease  rapidly  from  30  per  cent,  or  more,  to  16  per  cent 
in  New  York  City. 

4.  Proportionate  expenditures  for  fuel  and  light  decrease. 

5.  Expenditvure  for  culture  wants  increases  absolutely  and  rela- 

tively. 

8.  THE  STANDARD  OF  LIVING* 

Satisfactorily  to  define  the  standard  of  living  is  extremely  difiicult. 
Professor  Charles  J.  Bullock,  for  instance,  writes:  "Eadi  class  of 
people  in  any  society  is  accustomed  to  enjoy  a  greater  or  less  amount 
of  the  comforts  or  luxuries  of  life.  The  amount  of  comforts  or 
luxuries  customarily  enjoyed  by  any  class  of  men  forms  the  'standard 
of  living'  of  that  class."  That  is  to  say,  the  standard  of  living,  as  the 
expression  is  usually  understood,  consists  simply  of  what  men  actually 
do  enjoy.  On  the  other  hand,  there  always  are  felt  but  unsated  wants 
that  prompt  men  .to  struggle  for  higher  wages;  these  reasonable 
unfilled  desires  are  the  motive  power  of  progress.  Few  indeed  are 
the  women  who  do  not  confidentially  whisper  to  their  friends:  "We 
cannot  do  that  now,  for  we  are  rather  poor  this  year."  An  inborn 
^irit  of  emulation  prompts  each  to  envy  the  pleasures  of  his  more 
fortimate  neighbor;  thus  there  is  an  "ideal"  standard  of  living  which 
is  always  in  advance  of  achieved  satisfaction. 

Professor  Bullock's  definition  is  particularly  valuable  in  suggest- 
ing two  important  truths.  First,  it  properly  emphasizes  comforts  and 
luxuries.  "If  we  are  to  judge  by  his  expenditure,  the  workingman 
may  graduate  his  wants  thus:  bread  and  meal,  house,  liquor,  tea, 
tobacco,  clothes,  meat."  The  fact  is  that  in  everyday  affairs  effort 
is  often  directed  more  to  securing  superfluities  than  to  providing 
necessities:  for  example,  it  is  said  on  good  authority  that  a  large 
percentage  of  recent  real  estate  mortgages  in  New  York  have  been 
given  that  the  owners  of  the  property  might  purchase  automobiles. 
In  the  second  place,  the  extent  and  content  of  the  unsated  wants  in  a 
man's  ideal  standard  is  largely  determined  by  actual  satisfactions. 
This  truth  is  emphasized  by  Mr.  Frank  Tucker  when  he  says:  "A 
standard  of  living  is  a  measurement  of  life  expressed  in  a  daily  routine 

'  From  F.  H.  StreightoflF,  The  Standard  of  Living  among  the  Industrial  People 
of  America,  pp.  2-8.    Hought<m  Mifflin  Co.,  191 1. 


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34  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

which  is  determined  by  income  and  conditions  under  which  it  is 
earned,  economic  and  social  environment,  and  the  capacity  for 
distributing  the  income." 

Having  noted  these  fimdamental  principles,  it  is  possible  to  take 
another  step.  Each  individual  has  his  own  more  or  less  rational 
concept  of  what  is  essential  to  the  maintenance  of  his  own  social 
position;  and  he  knows  exactly  what  this  position  is,  whether  he  be 
the  bank  clerk  who  delights  in  horse-races,  or  the  man  who  shares  the 
same  desk  and  plays  on  his  Sunday-school  ball  team.  The  one  de- 
mands "smart"  raiment  and  amusement  at  high  nervous  tension,  the 
other  wants  respectable,  serviceable  clothes  and  healthy  sport.  They 
live  in  different  worlds,  they  have  individual  criteria:  so  each  man 
has  his  own  standard  of  living.  But  it  will  be  noted  that  the  bank 
clerks  as  a  class  have  some  wants  in  common  in  contrast  to  the 
mechanics,  for  instance.  The  clerks  must  enter  their  offices  dean- 
shaven,  the  mechanics  like  a  good  scrub  after  work;  the  former  wear 
kid  gloves  and  fresh  linen,  the  latter  are  more  comfortable  in  woolen 
gloves  and  flannel  shirts.  These  contrasts  and  comparisons  can  be 
extended  until  the  standards  of  each  group  have  been  determined  with 
.  considerable  precision.  Thus  the  class  standard  of  living  may  be 
compared  to  a  composite  photograph;  certain  features  are  empha- 
sized, while  others  are  faint  or  blurred  according  to  the  proportion  of 
individuals  possessing  the  character — or  feeling  the  want.  On  the 
other  hand,  development  of  the  individual  is  so  largely  influenced  by 
his  environment  that  his  notions  are,  in  the  main,  those  of  his  class. 
So  the  class  standard  of  living  is  the  product  of  the  ideals  and  resources 
of  its  members,  and,  in  turn,  modifies  their  criteria. 

But  class  is  not  the  only  factor  within  the  commimity  in  the 
development  of  the  individual's  ideal  standard  of  living.  Aside  from 
its  large  determining  influence  in  the  matter  of  class  membership, 
income  has  an  important  part  to  play;  purchasing  power  limits  the 
quality  and  quantity  of  obtainable  satisfactions.  As  little  Tommy 
wants  to  be  lUce  Big  Brother,  and  Big  Brother  envies  the  prowess  of 
the  butcher-boy,  so  the  smelting  hand  feels  the  desires— not  of  the 
president  of  the  Steel  Trust — but,  say,  of  his  foreman,  the  nearest 
person  whom  he  sees  enjoying  just  a  little  more  distinction,  just  a 
little  more  material  wealth  than  he.  So  the  individual's  ideal  is 
Umited  by  his  income;  the  higher  he  climbs  on  the  ladder  of  success, 
the  wider  is  his  view;  the  more  he  sees,  the  more  he  seeks. 

Another  determinant  of  the  standard  of  living  is  the  progress  of 


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WANTS  AND  MEANS  OF  SATISFACTION  35 

civilization.  Professor  John  G.  Brooks  quotes  a  Cape  Cod  captain 
as  follows:  ''My  father  wanted  fifteen  things.  He  didn't  get  'em  all. 
He  got  ten  and  worried  considerable  because  he  didn't  get  the  other 
five.  Now  I  want  forty  things,  and  I  get  thirty,  but  I  worry  more 
about  the  ten  that  I  cannot  get  than  the  ole  man  used  to  about  the 
five  he  coiddn't  get."  The  modem  carpenter  has  far  more  comfort 
than  Richard  11  dreamed  of,  simply  because  progress  has  put  new 
things  within  his  reach — created  new  utilities  and  new  wants— but 
the  carpenter  knows  that  there  are  many,  many  things  that  he  cannot 
have.  Thus  there  is  a  constant,  though  irregiilar,  rise  of  the  standard 
of  living  as  civilization  becomes  more  complex.  The  standard,  then, 
is  a  result  of  two  forces,  environment,  comprising  time,  income,  and 
class,  and  individuality. 

It  will  not  do,  however,  to  leave  the  problem  at  this  point.  As 
the  standard  determines  the  manner  of  living,  it  is  important  to 
distinguish  between  worthy  and  unworthy,  or  high  and  low  standards. 
It  may  reasonably  be  doubted  whether  the  standards  of  the  very  rich 
are  ideally  any  higher  than  those  of  industrial  workers.  A  dinner 
given  by  one  of  the  exclusive  four  hundred  with  a  monkey  as  the 
guest  of  honor  is  no  more  justifiable  than  the  practice  of  the  ''wash- « 
lady"  who  displays  the  gold  fillings  in  her  false  teeth.  Both  are 
usdess,  if  not  positively  harmful ;  they  are  evidence  of  low  or  unworthy 
ideals.  A  normal  standard  oi  living,  on  the  other  hand,  is  one  which 
conduces  to  healthy  symmetrical  development,  physical,  mental,  and 
moral.  The  standard  is  properly  counted  ideally  high  in  proportion 
as  it  achieves  this  end,  and  especially  as  its  emphasis  falls  upon  the 
intellectual  and  moral  elements. 

What,  then,  is  the  content  of  the  lowest  tolerable  standard  of 
living?  In  the  first  place,  there  must  be  food,  clothing,  and  shelter 
sufficient  to  maintain  economic  efficiency.  Even  those  persons  who 
believe  that  the  sole  end  of  existence  is  production  must  grant  this 
pnq)osition,  at  least  in  its  general  application.  Under  shelter  is 
included  light,  fuel,  and  necessary  furniture.  If  economic  efficiency 
is  to  be  preserved,  there  must  be  provision  against  sickness  and  un- 
emirfo3rment;  for,  unless  his  strength  is  maintained  during  idleness, 
when  he  returns  to  work  the  individual  is  unfit  for  his  stint.  More- 
over, the  man's  standard  must  include  a  family,  else,  in  a  generation, 
production  will  cease. 

But  this  view  of  the  purpose  of  man  is  far  too  narrow.  Few 
people  would  today  have  the  hardihood  to  deny  that  man's  life  should 


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36  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

contain  the  largest  possible  amounts  of  wholesome  pleasure.  "One 
of  the  strongest  human  wants  is  the  desire  for  the  society  of  one's 
fellows."  This  means  that  with  a  normal  standard  of  living  the  house 
should  contain  a  room  fit  for  entertainment  of  company,  that  the 
family  should  have  clothes  which  will  enable  them  to  appear  in  public 
without  shame,  and  that  the  routine  should  include  some  leisure  for 
polite  intercourse.  Still  if  man  is  to  be  an  end  in  himself  he  must 
have  more  than  this;  he  needs  some  education,  books,  pictiu*es,  and 
wholesome  recreation;  he  must  have  time  for  the  home  life  that 
Colonel  Roosevelt  calls  "the  highest  and  finest  product  of  our  civili- 
zation." A  little  boy  once  defined  home  as  "the  place  where  mother 
is."  From  the  viewpoint  of  the  child's  welfare,  this  youngster 
undoubtedly  hit  upon  the  significant  fact.  Modern  scientific  charity 
as  well  as  the  Christian  religion  recognizes  a  very  real  social  value  in 
the  home.  It  is  probably  this  which  is  in  the  mind  of  Professor  John 
A.  Ryan  when  he  writes  that  the  wife  should  not  be  a  wage-earner, 
thus  implying  that  the  father  should  support  the  family.  Beside 
all  these  things,  a  normal  standard  of  living  contains  provision  for  all 
emergencies,  sickness,  accident,  unemployment,  and  death,  and  for 
.material  advance — savings:  religion,  too,  should  be  in  the  routine. 
So  the  ideal  standard  of  living  demands  the  satisfaction  of  reasonable 
wants  of  both  body  and  intellect,  and  includes  an  ambition  to  improve. 
A  clear  understanding  of  what  the  standard  of  living  is  permits 
some  appreciation  of  its  significance.  In  the  first  place,  unless  the 
standard  includes  adequate  food,  clothing,  and  shelter,  health  will 
inevitably  suffer  and  the  race  will  degenerate  physically.  If,  on  the 
contrary,  men  obtain  a  proper  satisfaction  of  these  fundamental  wants, 
not  only  will  health  be  preserved  and  improved,  but  a  foundation 
will  be  laid  for  intellectual  progress.  A  step  farther  may  be  taken 
along  this  line:  unless  they  believe  that  their  descendants  will  be  able 
to  maintain  the  parental  standard,  men  will,  if  thoughtful,  refuse  to 
become  fathers.  Again,  if  women  would  rather  dress  showily  than 
enjoy  homes  of  their  own,  married  or  unmarried,  they  will  refuse  to 
assume  the  burden  of  motherhood.  Thus,  in  two  distinct  ways,  the 
standard  of  living  tends  to  determine  population.  By  this  limiting  of 
propagation,  the  standard  of  living  limits  the  number  of  wage-workers, 
and  so,  if  high  enough,  it  can  change  the  ratio  of  supply  to  demand 
for  labor  and  thus  raise  compensation.  In  a  much  more  simple  and 
direct  way,  however,  the  desire  for  a  higher  standard  of  living  decides 
the  minimum  pay  demanded  by  trades  unions  and  operates  to  increase 


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WANTS  AND  MEANS  OF  SATISFACTION  37 

earnings.  More  satisfactions  will  breed  new  wants,  yet  higher  wages 
will  be  sought,  and  so  the  process  will  continue.  In  this  way  the 
"ideal"  standard  of  living  is  the  key  to  the  material  progress  of  the 
industrial  classes. 

Moreover,  "in  most  cases  increased  wages  have  meant  the  grati- 
fication of  the  intellectual  and  artistic  sense  of  the  workers;  have 
meant  books  and  pictvures;  have  meant  a  few  extra  rooms  in  the 
house  and  more  decent  surroimdings  generally;  have  meant  a  few 
years  extra  schooling  for  the  children;  have  meant,  finally,  a 
general  uplifting  of  the  whole  working-class."  "The  encouraging 
part  of  the  whole  matter  is  this,  that  among  the  poor  there  is 
everywhere  the  intensity  of  purpose  that  causes  them  to  give  up 
material  things,  food  and  raiment,  and  go  hungry  and  shabby,  in 
order  to  secure  the  spiritual  things,  amusement,  education,  and  social 
relationship."  The  pursuit  of  a  higher  standard  of  living  is,  then,  the 
inspiration  of  intellectual  advance;  upon  it  depends  the  physical  and 
mental  and  moral  welfare  of  the  people,  the  development  of  the 
conmionwealth.  Two  things,  therefore,  are  essential  to  the  progress 
of  a  nation:  first,  that  the  individuals  receive  so  much  material 
wealth  as  will  enable  them  to  satisfy  their  reasonable  wants,  and, 
second,  that  they  continually  discover  new  and  wholesome  desires. 

9.  A  NORMAL  STANDARD  OF  LIVING^ 

Writers  on  social  questions  have  occasionally  assumed  certain 
round  simis  as  the  cost  of  maintaining  a  normal  standard  of  living. 
For  instance,  Edward  T.  Devine,  in  Principles  of  Relief,  1904,  p.  35, 
says: 

Recognizing  the  tentative  character  of  such  an  estimate,  it  may  be 
worth  while  to  record  the  opinion  that  in  New  York  City,  where  rentals  and 
provisions  are  perhaps  more  expensive  than  in  any  other  large  city,  for  an 
average  family  of  five  persons  the  minimum  income  on  which  it  is  practi- 
cable to  remain  self-supporting  and  maintain  any  approach  to  a  decent 
standard  of  living  is  $600  a  year. 

Professor  Albion  W.  Small,  head  of  the  department  of  sociology 
in  the  University  of  Chicago,  is  quoted  as  having  said  in  a  lecture: 

No  man  can  live,  bring  up  a  family,  and  enjoy  the  ordinary  human 
happiness  on  a  wage  of  less  than  $1,000  a  year. 

'  Adapted  from  the  Report  of  the  [Massachusetts  Commission  on  the  Cost  of 
Living  (1910),  pp.  594-97. 


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MATERIALS  FOR  ELEMENTARY  ECONOMICS 


John  Mitchell,  formerly  vice-president  of  the  American  Federation 
of  Labor,  has  said  that  the  minimum  wage  that  will  maintain  a  working- 
man  and  his  family  according  to  the ''American  standard  "  is  $600  a  year. 

None  of  these  estimates  gives  ns  any  of  the  details  from  which  the 
generalization  has  been  arrived  at,  and  none,  except  that  of  Dr. 
Devine,  gives  miit  and  locality.  It  is  evident  that  the  minimum 
income  necessary  to  maintain  a  normal  standard  of  living  will  vary 
considerably  in  different  places,  because  of  the  differences  in  living 
conditions,  prices,  wages,  rents,  social  life,  opportunities  for  recreation, 
etc.  As  conditions  in  the  same  locality  are  changing  from  year  to  year, 
it  would  also  be  necessary  to  revise  such  an  estimate  from  time  to  time. 

The  New  York  State  Conference  of  Charities  and  Correction 
undertook  an  investigation  of  the  cost  of  a  normal  standard  of  living 
in  New  York  City  in  1907.  This  investigation  was  in  great  detail, 
and  was  based  upon  318  budgets. 

For  the  report  224  family  budgets  were  selected  from  the  318  that 
were  available.  The  income  of  these  families  ranged  between  $600 
and  $900.  The  average  incomes  and  disbursements  of  the  three 
groups  are  shown  in  the  table. 

Average  Income  and  ExPENDiruitE* 


Items  of  Expenditure 


Group  I, 
Income, 

AvmgeTloso 


Group  n, 

Income, 

$700^99; 

Average,  $743 


Group  in. 
Income, 


Average, 


Rent 

Carfare 

Fuel  and  light 

Furniture 

Insurance 

Food 

Meals  eaten  away  from  home . 

Clothing 

Health 

Taxes,  dues  and  contributions . 
Recreation  and  amusement . . . 

Education 

Miscellaneous 


liS4 
II 

38 
6 

13 
279 
II 
83 
14 
8 

3 

S 

25 


$161 
10 

37 

8 

18 

314 
22 

99 

14 

9 

6 

5 
32 


$168 

16 

41 

7 

18 

341 

18 

114 

22 

II 

7 

7 

41 


Totals. 


$650 


S73S 


$811 


*  Report  of  Spedal  Committee  on  Standard  of  Living  in  New  York  aty. 

Group  L  Income  $6oo-$700, — ^Do  the  families  with  incomes 
from  $6co  to  $700  maintain  a  standard  of  living  sufficient  to  preserve 
physical  and  mental  efficiency?  The  average  family  of  five  persons 
in  this  group  pays  $13  a  month  for  rent,  for  which  they  are  able  to 
obtain  in  the  Borough  of  Manhattan  from  2  to  3  rooms.    The  rooms 


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WANTS  AND  MEANS  OF  SATISFACTION  39 

are  apt  to  be  low  and  comparatively  small,  and  one  room  is  usually 
dark.  The  food  disbursement  for  such  a  family  b  approximately 
$270  a  year  for  five  individuals,  or  a  3 . 5  unit.  This  is  $82  a  year  per 
unit,  or  22I  cents  per  man  a  day.  In  reckoning  the  consumption  of 
food,  the  proportionate  amounts  assigned  to  each  person,  as  compared 
with  the  requirements,  for  an  adult  man  are  expressed  by  i;  adult 
woman,  .8;  children,  .3  to  .7,  depending  upon  the  age.  The  family 
clothes  itself  at  a  cost  of  $84  a  year.  It  is  difficult  to  determine 
whether  a  family  of  five  can  buy  enough  clothing  for  their  needs  on 
$84  a  year.  Families  in  this  group  often  receive  gifts  of  clothing  from 
relatives,  employers  and  friends. 

A  family  having  an  income  of  $650  a  year  spends  24  per  cent  of 
its  income  for  rent,  45  per  cent  for  food,  or  85  per  cent  for  four  items, 
rent,  food,  clothing,  fuel  and  light.  Only  2 . 5  per  cent  is  spent  for 
education,  recreation  and  dues  to  societies;  the  other  12.5  per  cent 
is  for  health,  insurance,  furniture,  carfares,  meals  away  from  home 
and  miscellaneous.  The  family  is  unable  to  make  any  provision 
against  accident,  or  to  lay  by  anything  for  a  rainy  day.  Twenty  of 
the  72  families  in  this  group  admitted  being  in  debt,  thus  showing 
how  difficult  it  is  to  live  within  this  income.  The  committee  con- 
cluded that  an  income  between  |6oo  and  $700  per  annum  was  insuffi- 
cient for  a  family  of  five  to  maintain  a  proper  standard  of  livmg  in  the 
Borough  of  Manhattan.  Leavmg  aside  the  exceptions,  it  is  apparent 
that  many  families  in  this  group  have  a  fierce  struggle  for  existence. 
The  maximum  of  food  bought  approximates  the  minimum  set  up  by 
authorities  on  this  subject.  No  provision  can  be  made  for  accidents 
or  emergencies.  If  either  of  these  occur,  the  family  runs  into  debt. 
Were  it  not  for  the  charity  of  friends,  relatives,  employers  or  philan- 
thropic organizations,  the  expenditures  of  the  family  would  be  larger 
than  the  income.  Such  a  family  literally  lives  a  hand-to-mouth 
existence,  with  neither  opportunity  nor  means  for  enjoyment  or 
recreation.  The  health  of  its  members  cannot  be  saf^uarded  from 
its  own  resources.  The  housing  accommodations  barely  prevent 
overcrowding.    The  committee  states: 

It  requires  no  citation  of  elaborate  statistics  to  bring  convincing  proof 
that  $600  to  $700  is  wholly  inadequate  to  maintain  a  pr(^r  standard  of 
living,  and  no  self-respecting  family  should  be  asked  or  expected  to  live  on 
such  an  income. 

Group  II.  Income  $^oo-'$8oo. — ^The  average  expenditure  for  this 
group  was  $735 — ^$85  more  than  in  Group  I — ^to  be  accoimted  for  as 
follows:  $45  more  for  food,  $16  more  for  clothing,  the  balance  of  $24 


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40  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

fairly  evenly  distributed  among  the  other  items  of  the  budgets.  All 
of  the  79  families  in  this  group  lived  within  their  incomes.  The 
housing  conditions  remain  practically  the  same.  In  the  food  budget 
the  $45  additional  permits  of  more  animal  food  and  a  better  quality. 
The  per  capita  per  day  is  increased  to  25  cents.  All  in  all  there  is  a 
tendency  toward  improvement  in  condition,  and  were  it  not  that 
housing  conditions  have  not  improved,  it  might  be  assumed  that  the 
family  is  beginning  to  reach  a  point  where  a  fairly  decent  standard 
of  living  is  to  be  maintained.    The  committee  finds: 

The  committee  believes  that  with  an  income  of  between  $700  and  $800 
a  family  can  barely  support  itself,  provided  that  it  is  subject  to  no  extraor- 
dinary expenditures  by  reason  of  sickness,  death  or  other  untoward  circum- 
stances. Such  a  family  can  live  without  charitable  assistance  through 
exceptional  management  and  in  the  absence  of  emergencies. 

Group  III.  Income  $8oo-$poo, — ^The  average  expenditure  for  the 
families  of  this  group  is  $811.  The  average  income  is  $846.  There 
is  thus  an  average  annual  saving  of  $35  per  family — ^in  marked  con- 
trast with  the  experience  of  the  groups  with  lower  incomes.  There 
is  an  increase  of  $76  in  expenditures  over  Group  II,  of  which  50  per 
cent  goes  for  food  and  clothing,  10  per  cent  for  rent,  15  per  cent  for 
miscellaneous,  and  25  per  cent  for  other  items.  The  housing  is  better. 
There  are  more  baths  and  particularly  more  toilets  in  the  apartments. 
The  rooms  are  larger,  with  more  light.  The  amount  that  is  now  dis- 
bursed for  food  (27  cents  a  day)  and  for  clothing  appears  to  be 
adequate.  The  people  have  opportunities  for  recreation  and  for 
amusement  that  are  fairly  normal.    The  committee  sums  up: 

In  view  of  all  these  facts,  the  committee  is  of  opinion  that  it  is  fairly 
conservative  in  its  estimate  that  $825  is  sufficient  for  the  average  family 
of  five  individuals,  comprising  the  father,  mother  and  three  children  under 
foiulecn  years  of  age,  to  maintain  a  fairly  proper  standard  of  living  in  the 
Borough  of  Manhattan. 

It  is  interesting  to  observe  that  Mrs.  More's  study,  based  upon 
200  families  in  New  York  City,  reaches  conclusions  as  to  the  minimmn 
income  necessary  to  maintain  a  normal  standard  of  living  which  are 
very  similar  to  the  conclusions  of  the  State  Conference  of  Charities. 
She  says  (p.  269): 

This  investigation  has  shown  that  a  well-nourished  family  of  five  in  a 
city  neighborhood  needed  at  least  $6  a  week  for  food.  The  average  for  39 
families  having  five  in  a  family  was  $327 .  24  a  year  for  food.  If  we  consider 
$6  a  week  (or  $312  a  year)  as  43 . 4  per  cent  of  the  total  expenditures  (which 


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WANTS  AND  MEANS  OF  SATISFACTION 


41 


was  the  average  expended  for  food  in  these  200  families,  and  very  near  the 
average  for  the  workingmen's  families  in  the  extensive  investigation  of  the 
Department  of  Labor),  the  total  expenditures  would  be  about  $720  a  year. 
It  therefore  seems  a  conservative  conclusion  to  draw  from  this  study  that 
a  fair  living  wage  for  a  workingman's  family  of  average  size  in  New  York 
City  should  be  at  least  $728  a  year,  or  a  steady  income  of  $14  a  week. 
Making  allowance  for  a  larger  proportion  of  surplus  than  was  fotmd  in  these 
families,  which  is  necessary  in  order  to  provide  adequately  for  the  future, 
the  income  should  be  somewhat  larger  than  this — that  is,  from  $800  to 
$900  a  year. 

10.    A  CLASSIFICATION  OF  THE  MEANS  OF  SATISFYING 

WANTS' 
Free  goods, 
not  the  objects 
of  economic 
endeavor, 
hence  non- 
economic  goods 


Useful 
things 
or 
goods 


Scarce 
goods,  the 
objects  of 
economic 
endeavor, 
hence  eco- 
nomic good 
or  wealth* 


Land  and 

natural 

resoiurces 


Produced 
goods 


Consumers' 
goods 


Consumed  by 
their  owners 

Loaned,  rented, 
or  hired  by  Private  or 

their  owners    =  acquisitive 
for  an  income       capital 


Producers*  ^Social  or 

goods  ""prodiictive  capital 


Capita  1 


» From  T.  N.  Carver,  Principles  of  Rural  Economics,  p.  203.  Ginn  &  Co., 
191 1. 

'  Though,  in  an  absolute  sense,  well-being  depends  upon  free  goods  quite  as 
much  as  upon  scarce  goods,  yet  in  a  relative  and  practical  sense  it  does  not. 
Where  air,  water,  sunlight,  etc.,  are  abundant  and  free,  our  well-being  is  not 
improved  by  getting  more  of  these  things,  and  we  cannot  coimt  ourselves  as 
possessing  more  wealth  when  we  increase  our  possession  of  them.  But  when  they 
are  scarce,  our  economic  efforts  are  directed  toward  getting  more  of  them,  or  sub- 
stitutes for  them.  By  such  efiforts  our  well-being  is  improved.  Such  things  are 
therefore  properly  called  wealth,  because  our  well-being  depends  upon  them  in  this 
relative,  immediate,  and  practical  sense.  Here,  as  frequently  happens  elsewhere, 
the  general  common  sense  of  mankind,  which  sanctions  this  use  of  the  word 
*' wealth,"  shows  more  wisdom  than  the  hasty  judgment  of  the  partially  trained 
thinker  who  rejects  this  \isage  and  insists  that  wealth  should  include  free  goods 
as  well. 


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42 


MATERIALS  FOR  ELEMENTARY  ECONOMICS 


6 


I 


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WANTS  AND  MEANS  OF  SATISFACTION 


43 


g 
& 


I  If  -9  « 


I 


II 


I  11    E  f     I     11  I  -s  "s 


^  i""  $  s    5 


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'■^  iM         ••*  **S.'          *«-«i          •*^J         •«  •            JC 

»  -g-s   "^  ^5   °ss   og   ®  iB^ 

w^Q.   •§  M     ^  .^    ^3    ^3    ^  II 8 

.35'    S  I*' -35  -5    eS    ^5    io5  '^^gS., 


PI  I  iiii$itiiijitPiilil 


i"ii 


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44 


MATERIALS  FOR  ELEMENTARY  ECONOMICS 


J 
I 


li 


/Land 


12.  FORMS  OF  WEALTH' 

/  Productive  land  \  ^^P  !^1'  «?^  ^j  timber  land, 
?     mining  land,  hunting  land,  fisheries 


Way,  of  transit  I  ^2^;^-^. 


i  Building  land 
^  Land  improvements 

/  Raw  materials 


I  Finished  products 


i  Human 


Beings  j 


Slaves 
Free 


(  Buildings 

s  Improvements  on  highways 

(Minor 


Overhead 
Under^und 
Surfacing 
Bridging 


(  Mineral 
j  Agricultural 
(  Manufactured 


'  Consumable 


k  Durable 


(Bybei] 
jBybeL 
(Bybei 


being  burned 

being  eaten  or  drunk 

being  otherwise  used 


^  Mechanical  devices 
Animals 

i  "Hard  money" 
,  Clothing  and  jewelry 
I  Furniture  and  works  of  art 
'  Reading  matter 
\  Minor 


13.  FORMS  OF  PROPERTY  RIGHTS* 

f  Complete  (Fee  Simple) 

(Rights  in  common 


i 


.  Partial 


To  services  cut  transversely 


^  Rights  to  definite  parts  of 
services 


\  Joint  stock  shares 

TLease 

j  Reversion 

(  Patent  and  copyright 


^Promises 


^Orders 


Bonds 

Private  notes 
Bank  notes 
Bank  deposits 


[Checks,  drafts,  and 

bills  of  exchange 
Irredeemable   paper 
I     money 


Minor  and  indefinite 


{  Good  will  and  custom 
}  Taxing  power 


'  From  Irving  Fisher,  The  Natwre  of  Capital  and  Income,  p.  7.    The  Macmillan 
Company,  1906. 

•  Fisher,  op,  cU.,  p.  37. 


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WANTS  AND  MEANS  OF  SATISFACTION  45 

14.  ESTIMATE  OF  WEALTH  OF  THE  UNITED  STATES,  1904" 
Total $107,104,192,410 

Real  property  and  improvements $62,341,472,627 

Live  stock 4>073»79i>736 

Fann  implements  and  machinery 844,989,863 

Manufacturing  machinery,  tools  and  implements 3,297,754,180 

Gold  and  silver  coin  and  bullion «     i>998>6o3,303 

Railroads  and  their  equipment 11,244,752,000 

Street  railways 2,219,966,000 

Telegraph  systems 227,400,000 

Telephone  systems 585,840,000 

Pullman  and  private  cars 123,000,000 

Shipping  and  canals 846,489,804 

Privately  owned  water  works 275,000,000 

Privately  owned  electric  light  and  power  stations 562,851,105 

All  other 

Agricultural  products 1,899,379,652 

Manufactured  products 7,409,291,668 

Imported  merchandise 495>543>685 

Mining  products 408,066,787 

Clothing  and  personal  adornment 2,500,000,000 

Furniture,  carriages  and  kindred  property 5,750,000,000 

15.  THE  PRODUCTION  OF  ECONOMIC  GOODS' 

§  I.  Most  men  are  related  to  the  business  world  in  two  ways: 
as  workers  they  are  attached  to  some  particular  business  engaged  in 
producing  some  special  sort  of  goods  or  services;  as  consumers  they 
are  attached  to  general  industry  by  a  great  number  of  suckers.  In 
seeking  to  understand  the  industrial  system  a  man  is  thus  furnished 
with  two  approaches:  his  narrow  concentrated  interest  as  producer, 
his  broad  diffused  interest  as  consumer.  He  learns  at  both  ends 
but  his  curiosity  is  more  strongly  and  more  constantly  directed  by 
what  goes  on  in  the  little  comer  of  the  industrial  world  in  which  he 
eieims  his  living,  the  business  in  which  he  is  employed. 

Turning  his  mind  from  the  particular  process  on  which  he  b 
mainly  occupied,  as  a  machine  tender,  a  derk,  a  laborer,  a  shop 

« From  the  Special  Report  of  the  United  States  Census  Office,  WeaUh,  Debt 
and  Taxation  (1907),  p.  27. 

•  From  J.  A.  Hobson,  The  Industrial  Systenty  pp.  i-io.  Longmans,  Green  & 
Co.,  1909. 


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46  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

assistant,  to  what  is  taking  place  around  him,  he  soon  comes  to  get  a 
grip  of  the  main  features  of  the  structure  of  the  business  to  whidi  he 
"belongs." 

Here  is  an  employee  m  a  shoe  factory:  he  sees  around  him  a 
number  of  other  wage-earners,  most  tending  some  machine,  others 
clerks  in  the  office;  there  is  the  factory  itself  and  the  premises  it 
occupies,  the  machinery  and  fittings,  the  stock  of  leather  and  shoes 
in  various  st^es  of  production;  lastly  comes  the  management, 
summarized  in  the  employer  or  "boss." 

Such  are  the  main  ingredients  of  the  business  as  he  sees  it  encased 
in  the  four  walls  of  the  factory  yard :  in  outline  he  comes  to  know  how 
these  ingredients  are  related,  and  he  grasps  the  business  as  an  organi- 
zation under  the  direction  of  the  manager. 

If  he  tried  to  visualize  the  business  in  this  broad  outline  it  would 
take  some  such  shape  as  this: 


As  soon  as  he  came  to  realize  the  business  as  a  whole,  he  would 
recognize  that  in  the  counting-house  or  the  bank  there  was  some 
money  that  belonged  to  the  business. 

A  shop  assistant  or  a  mercantile  derk,  who  was  not  engaged  in 
making  goods  but  in  collecting  them,  arranging  and  selling  them, 
would  find  the  general  structure  of  his  business  similar,  though  the 
sort  of  work  done  and  the  instnmients  were  different:  plant  would 
play  a  smaller  part,  there  being  very  little  machinery  or  tools;  ma- 
terials and  stock  would  only  be  a  different  arrangement  of  the  same 
goods,  and  would  occupy  a  much  more  prominent  place;  as  bu3ang 
and  selling  seemed  the  soul  of  such  businesses,  money  would  bulk 
larger  in  his  conception  of  the  business. 


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A  farm  laborer  would  see  his  business  as  a  different  sort  of  compo- 
sition: land,  which  formed  a  small  element  in  the  factory  premises, 
and  did  not  bulk  very  large  even  in  the  city  warehouse  or  shop, 
would  occupy  a  very  prominent  place  in  the  farm;  machinery  might 
be  a  small  factor,  and  the  number  of  employees  very  few. 

The  bricklayer  working  for  a  firm  of  builders  would,  again,  form 
a  different  idea  of  his  business,  which,  except  as  regards  a  small 
yard  and  office,  was  not  really  contained  in  fixed  premises,  but 
consisted  rather  in  a  number  of  fluctuating  contracts  which  affected 
him  as  ''jobs."  But  though  the  material  outlines  of  his  business 
would  be  less  fixed  and  less  clearly  defined,  he  would  come  to  recog- 
nize that  his  employer  was  in  control  of  a  number  of  workers,  business 
premises,  a  stock  of  building  materials,  and  some  machinery,  as  well 
as  money  to  buy  materials  and  pay  wages. 

To  a  keen  observant  worker  the  structure  of  the  business  in  which 
he  works  would  thus  take  shape,  some  of  the  necessary  parts  being 
clearer  and  better  realized  than  others.  The  young  business  man, 
who  enters  the  factory  or  the  shop  as  a  clerk,  will  see  things  from  a 
somewhat  different  viewpoint  from  that  of  the  manual  worker;  the 
employer's  son,  adopting  from  the  first  a  managerial  attitude,  will 
more  quickly  get  a  more  accurate  outline  of  the  working  of  the 
business  as  a  whole.  The  worker,  to  whom  the  conmiercial  or 
financial  part  of  the  factory  or  mine  or  warehouse  is  imexplored, 
often  wrongly  identifies  his  work-place  as  a  complete  business,  whereas 
it  is  often  only  one  branch  or  department  of  a  larger  business  unit 
broken  into  a  number  of  locally  severed  parts,  each  of  which  may  seem 
to  him  an  independent  economic  thing. 

The  intelligent  observer,  studying  his  own  business  from  inside 
and  others  from  outside,  will  soon  see  that  the  true  size  and  limits 


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48  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

of  a  single  separate  business  can  best  be  determined  by  watching  the 
element  of  management.  Is  there  practically  independent  manage- 
ment, and  if  so,  what  is  the  area  of  its  control  ?  is  the  important  ques- 
tion to  him.  If  the  manager  of  a  factory  or  shop  receives  his  orders 
from  outside,  or  in  other  important  ways  is  instructed  in  the  uses  to 
which  he  puts  his  employees,  his  machinery,  etc.,  and  in  the  bu3ring 
and  selling  essential  to  his  business  life,  it  becomes  evident  that  such 
a  factory  or  shop  is  not  a  complete  business,  but  only  part  of  some 
larger  business. 

When  we  examine  the  grouping  of  businesses  in  trades  and 
markets,  we  shall  see  many  ways  in  which  the  liberty  of  manage- 
ment in  businesses  that  seem  to  the  ordinary  employee  free  is  cur- 
tailed; not  only  in  retail  trade,  but  in  manufacturing,  mining,  and 
other  industrial  processes,  many  businesses  which  look  to  the  imin- 
formed  outsider  free  are  tied  by  investments,  contracts,  mortgages, 
or  other  bonds  of  business  life. 

Here,  as  elsewhere,  liberty  is  a  matter  of  d^ee.  But  at  present 
it  must  suffice  to  say  that  substantial  independence  of  management 
constitutes  a  separate  business;  where  the  employer  or  manager 
has  substantial  liberty  in  bu3dng  and  selling  and  arranging  his  factory 
or  shop  or  warehouse  as  he  thinks  best,  we  call  his  a  separate  business. 

We  must,  however,  if  we  are  to  carry  out  our  intention  of  including 
in  our  inquiry  all  processes  of  earning  incomes  or  livelihoods,  extend 
the  use  of  the  term  "business"  from  the  processes  engaged  in  making 
and  distributing  material  goods  to  those  which  make  or  distribute 
non-material  goods  that  are  bought  and  sold.  So  a  lawyer's  firm,  a 
doctor's  practice,  an  artist's  studio,  a  "cure  of  souls,"  a  writer's 
literary  connection,  or  any  other  production  and  sale  of  skill  or 
services  which  are  imder  the  control  of  a  person  or  set  of  persons  and 
form  the  basis  of  a  livelihood,  must  be  counted  as  a  business. 

The  whole  of  the  business  world  must  be  conceived  as  producing 
quantities  of  material  or  inunaterial  articles,  the  sale  of  which  fur- 
nishes the  livelihood  of  the  commimity,  and  the  active  imits  in  these 
processes — extractive,  manufacturing,  transport,  trading,  financial, 
professional,  artistic,  recreative,  domestic,  etc. — are  businesses. 

§  2.  Such  businesses  evidently  differ  from  one  another  very 
widely,  (a)  in  size,  (b)  in  the  relative  importance  of  their  constituent 
parts,  and  (c)  in  the  ownership  and  control  of  the  business. 

a)  As  regards  size,  an  investigation  of  the  industrial  worid 
shows  immense  variety  even  within  the  same  sorts  of  trade.    In 


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WANTS  AND  MEANS  OF  SATISFACTION  49 

more  primitive  or  backward  countries  very  few  large  businesses 
exist  in  which  a  number  of  workers  are  brought  together  to  work 
under  a  single  management  with  large  quantities  of  tools  and  materials. 
In  such  a  country  as  China,  or  even  Russia,  the  vast  majority  of 
businesses  are  confined  to  small  workshops  or  home  industry,  where 
the  manager  works  alone  or  with  a  few  others,  with  simple  tools  and 
small  stock  of  materials.  Even  in  the  most  advanced  industrial 
countries  a  large  proportion  of  the  businesses  remain  in  this  small 
size;  the  most  highly  developed  industries  in  England  or  the  United 
States  still  retain  large  quantities  of  home  workers  or  other  little 
business  imits. 

In  most  departments  of  industry,  even  when  great  capitalist 
enterprise  is  prominent,  great  quantities  of  little  simple  businesses 
siu^ve.  The  small  peasant,  working  his  plot  of  land  with  the 
labor  of  his  own  family,  and  living  on  the  produce,  still  continues 
to  exist  in  large  niunbers  in  most  highly  advanced  nations:  most  of 
the  world's  food  supply  is  still  produced  by  these  little  independent 
farmers.  Though  large  and  expensively  equipped  factories  have 
absorbed  certain  important  branches  of  manufacture,  and  are  con- 
stantly extending  the  reign  of  machinery  over  new  fields  of  production, 
a  very  large  proportion  of  the  manufacturing  arts  still  remains  in 
small  businesses,  even  in  those  textile  and  metal  trades  where  large 
capitalism  has  established  itself  most  strongly.  Railroads,  steam- 
ships, and  carrying  companies  have  not  taken  over  all  the  transport 
Jmdustry;  the  small  boatman,  car-driver,  and  carrier  still  keep  a  hold 
on  important  branches  of  retail  local  trafiSc.  In  the  building  trades 
the  big  contractor  leaves  a  lot  of  smaller  or  subsidiary  work  for  little 
builders.  Departmental  stores  and  branch  companies  hold  a  large 
share  of  retail  distribution,  but  they  do  not  prevent  inmiense  quanti- 
ties of  small  shopkeepers  from  earning  a  precarious  but  independent 
livelihood.  Even  in  mining  and  finance,  two  departments  of  activity 
where  capitalism  b  supreme,  there  still  remains  an  area  for  the 
^'idaca:"  and  the  small  jobber  or  money  dealer.  R^arding  the 
professions  from  the  standpoint  of  business  structures,  we  perceive  the 
individual  or  the  small  firm  still  in  possession  of  the  field,  except  in  a 
few  branches  of  the  recreative,  educational,  and  publishing  arts. 

Whenever  we  look  in  any  part  of  the  industrial  system  we  see 
businesses  set  out  in  different  sizes,  ranging  from  the  single  worker, 
who  molds  some  material  into  a  useful  shape  by  the  strength  of  his 
own  body  and  the  use  of  some  simple  tool,  to  the  huge  impersonal 


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50  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

joint-Stock  company  employing  millions  of  capital  and  thousands 
of  employees  in  various  parts  of  the  habitable  globe,  and  between 
these  two  extremes  a  vast  variety  of  intermediate  sizes. 

b)  Certain  characters  in  the  structure  of  a  business  correspond 
to  difiFerences  of  size.  A  small  business  is  usually  much  simpler  in 
structure;  if  it  is  engaged  in  handling  materials  to  shape  them  into 
commodities,  the  element  of  labor  usually  bulks  more  largely  than  the 
others.  Done  usually  in  the  home  or  workshops  attached  to  the 
home,  it  has  no  need  of  specialized  buildings;  tools  or  machinery, 
though  essential,  do  not  represent  a  large  expenditure;  the  power 
used  in  shaping  or  moving  the  materials  is  mostly  got  from  the  bodies 
of  the  workers,  and  not  from  coal  or  other  non-hmnan  source.  As  a 
rule,  such  little  businesses  can  be  conducted  with  a  very  little  store  of 
cash. 

As  we  ascend  toward  businesses  of  larger  size,  the  relative  impor- 
tance of  these  factors  shifts.  Separate  expensive  buildings  are 
usually  required;  the  quantity  of  machinery  and  other  plant  grows 
so  large  that  in  many  a  modem  mill,  mine,  railroad,  or  steamship 
several  thousand  pounds*  worth  of  plant  co-operates  with  each  worker; 
fuel  and  the  supply  of  power  become  enormously  important  items; 
the  financial  side  of  the  business  involves  cash  or  credit,  the  use  of 
money,  as  a  large  factor;  while  management,  which  in  the  small 
simple  business  was  a  merely  incidental  fimction  of  the  independent 
worker,  becomes  a  specialized  separate  department  of  supreme 
significance. 

c)  The  most  vital  of  all  differences  between  the  small  primitive 
business  unit  and  the  large  capitalist  unit  has  reference  to  the  owner- 
ship and  control  of  the  various  factors  composing  the  business. 

The  factors  in  a  business,  as  we  have  seen,  are  land,  buildings, 
machinery  and  tools,  power,  raw  materials  and  stock,  money,  labor, 
and  management.  Every  business  which  handles  material  goods 
requires  some  of  each  of  these  factors,  though  in  widely  different 
proportions.  In  the  smallest  simplest  business  form,  where  a  work- 
man works  alone  on  his  own  accoimt  in  his  own  house  or  work-place 
he  commonly  is  himself  the  owner  of  all  these  factors.  Such  is  the 
smallest  peasant  freeholder  in  many  countries,  working  his  own 
land  with  his  own  tools  and  cattle,  sowing  his  own  seed,  and  owning 
his  house  and  sheds  and  the  farm  produce.  The  village  smith  or  other 
small  artisan,  certain  cabinet  makers,  and  other  little  manufacturers 
in  London,  still  represent  this  early  type.    Large  numbers  of  little 


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WANTS  AND  KEANS  W  SMJSFACIWS  51 

makffTS,  e^.y  tailoiSy  cobbkrs,  owning  all  the  factors  except  the  raw 
material,  whkh  they  receive  from  their  customers  or  from  some 
merchant  to  idKxn  they  sdl  their  product,  everywhere  survive.  Here 
we  may  say  that  the  worker  is  the  owner  of  all,  or  nearly  all,  the  factors 
including  management.  As  we  grade  the  various  torms  of  business 
1^  from  this  to  the  most  devdoped  form  of  modam  '^capitalist" 
enterimse,  we  see  <Hie  aft^  another  of  the  factors  ronoved  from  the 
ownershq>  and  contnd  of  the  worker  and  transferred  to  '^management  *' 
In  the  a»nplete  capitalist  business,  land,  machinery,  and  tools, 
power,  raw  matoials  and  stock,  money,  labor-powor  are  owned  and 
contrdled  by  the  managonent,  the  single  check  upon  absolute  owner- 
ship being  that  the  management  does  not  own  the  laborers  them- 
sdves  (as  it  owns  the  coal  that  furnishes  machine  powor)  but  only 
the  pOTtions  <rf  labor-power  as  they  are  rdeased  from  the  parsons  of 
the  workers.  In  colain  great  businesses  some  other  factor,  as,  for 
instance,  electric  power  or  the  land  <m  which  business  [Mremises  stand, 
may  be  similariy  hired,  not  owned.  But,  ^>eaking  generally,  the 
manag^nent  in  the  highly  devdoped  capitalist  business  owns  and 
controls  all  the  other  factors. 

Between  these  two  types  a  great  number  of  intermediate  types 
ci  businesses  will  be  found.  An  immense  variety  of  small  farms, 
workshops,  shops,  and  otha:  commercial  or  professional  businesses 
exist  where  the  manage:  begins  to  sq>arate  from  the  workos,  still 
working  himsdif,  but  hiring  other  woricers  who  have  no  part  in 
management,  though  they  may  still  own  the  tools  with  which  they 
work,  and  even,  as  in  many  farms,  fishing  or  mining  businesses,  some 
share  of  the  stock  and  product. 

In  some  sorts  of  business  the  manager  or  employe:  owns  materials, 
which  he  gives  out  to  workers  to  do  in  thdr  own  homes,  or  in  work- 
shops which  they  provide,  either  letting  out  to  them  machines  or 
tools,  or  leaving  the  provision  of  machinery,  sometimes  also  of  power, 
to  the  workers.  In  agriculture  and  in  the  textile  and  metal  manu- 
factures of  England  today  one  finds  every  stage  of  the  business  form 
r^resented,  from  the  simplest  type  of  the  self-sufiGicient  single  worker 
to  that  of  the  joint-stock  company  owning  and  controlling  every 
factor  in  production. 

In  agriculture  the  small  freeholder  or  yeoman,  the  tenant  farmer, 
the  market  gardener,  the  allotment  worker  represent  widdy  diver- 
gent t3rpes  of  ownership  of  land,  fencing,  tools,  crops,  etc.;  fishing 
and  mining  are  full  of  anomalies  in  ownership  of  tools,  product,  and 


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52  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

management;  the  textile  and  clothing  trades  show  every  variety  of 
business  form,  from  the  home  workshop  where  the  worker  finds 
machinery,  and,  in  part,  raw  materials,  to  the  completely  centralized 
factory;  the  metal  trades  exhibit  in  the  higher  form  great  engineering 
or  steel-making  firms  owning  everything  they  use,  even  coal  and  iron 
mines,  trucks,  and  ships,  but  furnish  a  basis  of  survival  not  only  for 
small  Birmingham  workshops  working  with  hand-power  on  materials 
sometimes  owned,  sometimes  provided  for  outside,  but  for  Sheffield 
grinders  receiving  rough  blades  to  be  finished  in  their  own  workshops 
with  hand-power,  and  small  watchmakers  in  London  or  Coventry 
keeping  up  the  earliest  type  of  self-sufficing  home  workshop. 

Or  turning  to  retail  trade,  we  find  every  variety  still  surviving 
in  a  large  city;  though  perhaps  few  shopkeepers  are  owners  of  the 
land  and  shop  premises,  as  regards  stock,  fittings,  management,  and 
labor,  we  see  a  gradation  from  the  small  independent  shopkeeper, 
owning  his  own  stock  and  employing  only  his  own  family,  to  the  great 
store  which  resembles  the  most  highly  evolved  capitalist  manufac- 
tures in  every  other  feature  except  the  part  played  by  machinery  and 
non-human  power. 

When  from  the  numerous  types  of  business  imit  represented  in 
these  agricultxiral,  manufacturing,  and  commercial  occupations  one 
turns  to  finance,  including  great  banking  and  insurance  firms  and 
small  money-lending  businesses,  or  to  the  professions,  the  fine  arts, 
the  recreative  arts,  and  the  countless  businesses  engaged  in  suppl3dng 
"personal"  services,  from  the  Turkish  bath  and  barber's  saloon 
down  to  the  individual  domestic  service  of  a  household — ^when  one 
takes  stock  of  all  these  sizes  and  sorts  of  industry,  the  shapes  of 
the  business  seem  to  defy  classification.  But  omitting  the  delicate 
question  whether  certain  occupations  are  entitled  to  be  called  separate 
businesses,  and  confining  our  attention  to  those  which  are  commonly 
admitted  so  to  rank,  we  find  that  while  differing  inmiensely  in  size, 
relative  proportion  of  importance  for  several  factors,  and  nature  of 
ownership  and  control,  they  preserve  certain  common  features. 

In  all  businesses  concerned  with  extracting,  shaping,  or  moving 
matter  we  find  the  matter  itself  to  which  the  work  is  applied,  the 
machines  or  tools  by  which  the  matter  is  manipulated,  the  money 
required  for  buying  what  is  needed,  the  buildings  or  premises  where 
the  material  is  stored,  or  the  tools  kept,  or  the  work  carried  on, 
with  the  necessary  fittings  or  fixtures,  the  land  from  which  the  matter 
is  extracted  or  upon  the  siuf  ace  of  which  work  is  done,  the  workers 


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WANTS  AND  MEANS  OF  SATISFACTION  53 

who  do  the  work,  and  the  employers  or  management.  Even  in 
businesses  concerned  with  producing  not  material  goods,  but  non- 
material  services,  such  as  professional  advice,  music,  and  other 
recreative  services,  etc.,  all  these  requisites,  except  in  some  cases 
raw  materials,  are  needed,  for  the  non-material  services  are  produced 
under  material  conditions  of  space  and  shelter  by  workers  who  actually 
require  tools  or  instruments  and  skilled  direction  or  organization. 

In  developing  our  picture  of  industry,  we  may,  however.  Inti- 
mately confine  our  attention  chiefly  to  those  industries  engaged  in 
producing  material  commodities,  with  merely  occasional  references 
to  the  arts  concerned  with  non-material  services. 

§  3.  For  certain  useful  purposes  of  understanding  how  the  mechan- 
ism of  industry  works,  it  will  be  convenient  sometimes  to  gather 
together  under  a  single  class  several  of  the  factors  or  requisites  of 
.  business  which  have  here  been  separately  described.  So  all  the  non- 
human  factors  in  a  business,  except  the  land,  may  be  grouped  under 
the  head  of  '' capital,"  comprising  buildings,  machines  and  tools, 
fittings,  fuel  or  power,  materials,  stock,  money.  Some  would  include 
land  imder  capital,  but,  for  reasons  which  will  be  given  later,  we  shall 
find  it  best  to  distinguish  the  services  directly  rendered  to  production 
by  earth,  natural  forces,  and  space,  from  those  rendered  by  the  other 
factors.  Thus  distingtiishing  land  from  capital,  we  may  also  dis- 
tinguish the  materiab  which  it  is  the  object  of  the  business  to  extract, 
shape,  or  move,  from  those  material  factors  which  are  instruments 
for  these  productive  processes,  and  which  are  used  up  with  more  or 
less  rapidity  as  they  do  this  work.  The  first,  which  is  a  continual 
stream  of  matter  flowing  through  the  business  and  passing  out  of  it 
to  customers,  may  be  called  ''circulating"  capital;  the  factories  and 
other  buildings  where  the  work  b  done,  machines,  tools,  railways, 
ships,  carts,  etc.,  may  be  called  ''fixed"  capital,  standing  as  it  does 
at  some  fixed  point  in  the  industrial  stream  to  forward  the  passage 
of  the  raw  material  or  unfimshed  goods  toward  their  final  destiny  as 
commodities.  Of  course  every  other  sort  of  capital  is  used  up  in  its 
work  of  helping  to  shape  or  move  raw  materials  into  their  final  form 
or  place,  and  this  "wear  and  tear"  may  be  considered  as  passing  into 
the  goods  that  are  produced,  and  so  as  "circulating"  in  the  industrial 
world.  But  it  is  altogether  more  convenient  to  mark  out  the 
material  whose  manipulation  is  the  direct  and  express  object  of  a 
bu^ess,  from  the  materials  which  are  only  means  toward  this 
process. 


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54  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

Certain  sorts  of  capital  it  has  been  found  difficult  to  classify. 
Fuel,  if  regarded  as  merely  instrumental  to  the  operation  of  a  machine, 
may  be  treated  as  "fixed";  but  it  is  more  conveniently  regarded  as  a 
form  of  raw  material  worked  into  the  main  current  in  the  form  of 
power,  and  so  classed  as  "circulating." 

Having  thus  designated  the  non-human  factors  of  the  business 
under  land  (or  Nature)  and  capital  (fixed  or  circulating),  we  come 
to  the  human  factors  spoken  of  as  labor-power  and  management. 
As  in  the  other  cases,  no  absolutely  rigid  distinction  can  be  made. 
We  cannot  confine  labor-power  to  the  manual  or  physical  work  in 
a  business,  reserving  management  for  the  mental  guidance  and 
organization.  For  all  manual  labor,  r^arded  as  production,  con- 
tains mental  and  moral  energy,  nor  is  management  devoid  of  all 
output  of  physical  exertion.  From  the  standpoint  of  physical  and . 
mental  it  would  be  possible  to  find  a  nice  gradation  in  a  complex 
modem  business  from  the  purely  routine  hand  worker  up  to  the  general 
manager  in  his  office,  but  nowhere  could  one  find  the  point  where 
mental  exertion  b^an  or  physical  left  oflF.  Nor  can  we  definitely 
divide  them  as  employer  and  employees,  though  for  some  purposes 
this  division  will  work  well.  For  in  most  great  modem  businesses  the 
manager  is  nominally,  often  really,  an  employee  of  the  directors  or 
the  shareholders,  and,  so  far  as  the  practical  arts  of  management  are 
concemed,  they  are  not  confined  to  the  manager,  but  largely  dele- 
gated to  sub-managers,  overseers,  inspectors,  and  other  "officials." 

Many,  bearing  these  difficulties  in  mind,  wish  to  lump  all  the 
human  exertion,  physical  and  mental,  under  the  general  name  "labor." 
But  there  are  practical  reasons  for  rejecting  this  solution.  The  part 
played  by  the  man  or  men  who  direct  the  course  of  a  business,  the 
interest  they  have  in  the  business  and  the  gain  they  receive  from  the 
business,  are  in  most  instances  so  different  from  the  part  played  by 
the  men  who  merely  receive  and  follow  orders,  and  their  interest  and 
gain,  that  it  is  desirable  to  treat  the  two  as  different  factors  of  a  busi- 
ness. 

In  most  businesses  "direction"'  and  "management"  are  not 
sufficiently  distinct  to  warrant  any  further  distinction.  In  our 
preliminary  analyses  of  the  business  unit  we  shall  therefore  treat 

'  In  many  "companies*'  the  personnel  and  the  interests,  as  well  as  the  work  of 
director  and  manager,  are  of  course  separated. 


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WANTS  AND  MEANS  OF  SATISFACTION  55 

them  as  one,  and  regard  both  direction  and  management  of  the 
bxisiness  as  comprised  for  the  most  part  in  the  manager  or  employer. 


Adopting,  then,  the  commonly  accepted  distinctions,  we  may  bring 
our  more  numerous  factors  of  a  business  under  the  four  conventional 
heads,  land,  capital,  labor,  and  management,  thus  simplifying  our 
portrait  of  the  business  as  the  unit  of  industry. 

16.  A  CLASSIFICATION  OF  INDUSTRIES' 

The  object  of  the  analysis  of  industry  given  in  this  chapter  has 
been  to  impress  upon  the  reader  the  general  outlines  of  the  structure, 
taking  for  this  purpose  a  rude  classification  of  industrial  processes. 
It  may  be  well,  following  in  the  main  the  classification  of  Jevons,* 
to  append  the  fuller  analysis  of  industry  which  a  scientific  census  of 
occupations  would  yield: 

Proprietors  of  land  and  natural  sources  of  supply:  Landowners,  Quarry 
Owners,  Mine  Proprietors,  Owners  of  Fishing  Rights  (fimctions  generally 
of  a  passive  kind). 

Producers  of  raw  materials:  Agriculturists,  Gardeners,  Woodmen, 
Shepherds,  Herdsmen,  Hunters,  etc.     Miners,  Colliers,  Fishermen. 

Dealers  in  raw  materials  {middlemen  between  producers  and  manufac- 
turers) :  e.g.,  Com  Merchants,  Corn  Agents,  Corn  Factors,  Corn  Chandlers, 
Cotton  Importers,  Cotton  Merchants,  Cotton  Brokers,  Cotton  Agents, 
Cotton  Salesmen. 

Manufacturers  (first  order) :  e.g..  Corn  Miller,  Cotton  Spinner,  Timber 
Sawyer,  Iron  Smelter. 

'  From  J.  A.  Hobson,  The  Industrial  System ^  pp.  34-37.  Longmans,  Green  & 
Co.,  1909. 

[For  a  discussion  of  the  classification  of  industries  with  special  reference  to 
occupations,  see  "The  Classification  of  Occupations/'  Selection  53. — Editors. 

» Principles  of  Economics ^  pp.  108  ff . 


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S6  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

Dealers  (between  two  or  more  manufacturing  processes):  e.g.,  Flour 
Merchant  (between  Miller  and  Baker),  Yarn  Merchant  (between  Cotton, 
Spinner  and  Manufacturer),  Timber  Merchant  (between  Sawyer  and 
Carpenter,  etc.). 

Manufacturers  (second  order):  Baker,  Confectioner,  Cotton  Weaver, 
Dyer,  Printer,  Shirtmaker,  etc.  Cabinet  Maker,  Carpenter,  etc.  Rolling 
Mills,  Engine  Works,  Cutlery,  etc.  (between  any  two  processes  a  dass  or 
more  of  dealers  may  intervene). 

Wholesale  dealers  in  comtnodUies:  Warehousemen,  Produce  Merchants, 
Exporters,  etc.  (wholesale  dealers  in  manufactured  goods  are  often  "general 
stores."  In  Foreign  Trade,  however,  they  specialize  often  (a)  according 
to  sea  routes;  (b)  according  to  classes  of  manufacture,  e.g.,  cotton  goods, 
iron  trade,  etc.). 

Retail  dealers:  Shopkeepers,  Hawkers,  Costermongers,  Licensed 
Victuallers,  etc.  (often  comprising  a  final  act  of  manufacture,  e.g.,  butcher, 
confectioner,  dressmaker,  etc.). 

Transport  (distributive  industry  according  to  Jevons):  Carriers  on 
Railways,  Canals,  Ships,  Docks,  Roads,  Carriages,  Horses  (carrying  raw 
materials  from  farm,  mine,  etc.,  to  manufacture;  carrying  half -made  goods 
between  dLQFerent  orders  of  manufacture;  carrying  commodities  between 
factories,  wholesale  dealers,  retailers,  and  consumers). 

Subsidiary  trades  ("Any  which  merely  assist  other  trades  by  suppl}dng 
the  minor  requisites"):  e.g.,  Subsidiaries  to  Landowner:  Estate  Agent, 
Steward,  Solicitors,  Surveyors,  etc.  Subsidiaries  to  Farmers:  Agricultural 
Implement  Makers,  Seed  Merchants,  Manure  Merchants,  etc.  Subsidiaries 
to  Com  Merchant:  Granary  Maker,  Sack  Maker,  Corn-measure  Maker, 
etc.  Subsidiaries  to  Miller:  Millwright,  Machinist,  Millstone  Cutter,  etc. 
Subsidiaries  to  Baker:  Oven  Builder,  Peel  Maker,  Fuel  Merchant,  etc. 

Finance:  Banking,  Insurance,  etc. 

This  classification  b  based  upon  consideration  of  industrial 
processes,  and  marks  the  standpoint  of  the  producer. 

The  consumer's  standpoint  would  yield  a  transverse  classification 
on  the  basis  of  the  sorts  of  utility  or  satisfaction  afforded  by  the 
commodities. 

Taking  the  chief  orders  of  utility,  we  should  classify  along  the 
following  lines: 

Food:  Bread  Stuffs,  Dairy  Produce,  Meat,  Groceries,  Beer,  Wine,  etc. 
(or  according  to  materials,  wheat,  sugar,  milk,  etc.). 

Clothing:  Over  Wear  (Suits,  Dresses,  etc.).  Under  Wear,  Hats,  Boots, 
Gloves,  etc.  (or  according  to  material.  Cotton,  Wool,  Flax,  Silk,  Leather, 
India-rubber,  etc.). 


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WANTS  AND  MEANS  OF  SATISFACTION  57 

Lodging:  Dwelling-houses,  Furniture,  Crockery,  etc.  (according  to 
materials — ^Wood,  Stone,  Steel,  Brick,  etc.). 

Refinements:  Ornaments,  Amusements,  Literature,  etc. 

Jevons,  in  suggesting  the  classification  of  occupations  according 
to  "commodity,"  based  upon  the  four  great  classes,  food,  clothing, 
lodging,  refinements,  does  not,  however,  as  might  have  been  expected, 
cleave  to  the  consumer's  standpoint  (which  I  have  here  preferred), 
but  divides  his  classes  according  to  kinds  of  material  used,  not  accord- 
ing to  the  "wants"  satisfied. 

A  really  scientific  classification  from  the  consumer's  stan(^int 
would  be  based  upon  a  psycho-physical  analysis  of  wants,  beginning 
with  food,  shelter,  clothing  in  their  elementary  uses  as  life-preservers, 
and  proceeding  to  the  higher  and  more  specialized  wants  (conveni- 
ences, luxuries,  etc.),  as  they  arise  in  natural  order  from  the  satis- 
faction of  the  primary  physical  wants. 

Industries  and  occupations  would  then  be  classified  in  relation 
to  these  needs  or  wants.  The  term  refinements  cannot  even  be 
r^arded  as  containing  the  germ-idea  of  such  a  classification. 


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in.  NATURAL  RESOURCES  AS  ECONOMIC 
FACTORS 

17.  THE  FUNCTION  OF  NATURAL  AGENTS^ 

In  this  inquiry  the  earth  as  modifying  human  life  includes  the 
land  surface  down  to  the  bottom  of  the  deepest  possible  mine  or 
artesian  well  or  geological  stratiun;  all  the  aqueous  mass — that 
is,  every  drop  of  water  in  the  seas  and  out  of  them,  for  there  is  no 
telling  when  any  drop  may  enter  the  circle  of  human  agencies  and 
ownerships;  the  circumambient  air,  every  gallon  of  that  aerial 
ocean  which  swathes  the  world  and  vitalizes  all  living  things,  the 
conmion  carrier  of  clouds  and  birds,  of  health  and  disease,  of  music 
and  perfumes,  of  industry  and  commerce.  As  modifying  hxmian 
conduct,  as  subject  of  pre-emption  and  monopoly,  not  only  the  masses 
just  mentioned  are  included,  but  motions  and  powers,  even  gravity, 
mechanical  properties,  physical  forces,  chemical  activities,  vital 
phenomena  of  plants  and  animals,  that  may  be  covered  by  patents 
and  their  uses  become  a  matter  of  legislation  and  diplomacy. 

The  earth  is  the  mother  of  all  mankind.  Out  of  her  came 
they.  Her  traits,  attributes,  characteristics  they  have  so  thor- 
oughly inherited  and  imbibed  that,  from  any  doctrinal  point  of 
view  regarding  the  origin  of  the  species,  the  earth  may  be  said  to 
have  been  created  for  men  and  men  to  have  been  created  out  of  the 
earth.  By  her  nurture  and  tuition  they  grow  up  and  flourish,  and 
folded  in  her  bosom  they  sleep  the  sleep  of  death. 

The  human  race  is  put  into  relation  with  all  bodies  through 
gravitation,  with  all  mineral,  vegetable,  and  animal  substances 
through  the  laws  of  physics  and  chemistry;  with  the  vegetal  and 
the  animal  kingdom  through  the  additional  phenomena  called  life, 
and  with  all  animals  through  mentation. 

The  earth  is  also  a  great  warehouse  of  materials  of  infinite 
qualifications  for  gratifying  human  desires. 

This  is  apparent  enough  to  anyone  who  reflects  about  it,  but 
few  persons  think  of  the  long  ages  during  which  these  substances 

'Adapted  from  Otis  T.  Mason,  "Technogeography,  or  the  Relation  of  the 
Earth  to  the  Industries  of  Mankind,"  in  the  American  Anthropologist,  VII  (1894), 

138-58- 

S8 


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NATURAL  RESOURCES  AS  ECONOMIC  FACTORS  59 

were  being  compounded  and  compacted.  These  materials  are 
the  foundation  of  all  technique  and  all  styles  of  technique — textile, 
plastic,  graphic,  glyphic,  tonic,  and  landscape.  For  them  the  earth 
not  only  furnishes  the  raw  stufiFs,  but  the  apparatus  and  different 
motives  to  different  races. 

Before  quitting  the  subject  of  the  study  of  the  earth  as  a  ware- 
house the  student  ought  not  to  overlook  the  varied  characteristics 
of  these  resources.  The  qualities  of  things  are  the  earth's,  the 
grains  and  colors  of  the  same  stone,  the  elasticity  and  fibers  of  timber, 
the  plasticity  and  temper  of  clays,  the  malleability  and  ductility 
of  the  same  metals,  and  so  on.  So  marked  are  these  that  in  our 
higher  civilization  we  must  have  iron  from  half  a  dozen  coimtries 
to  conduct  one  of  our  complex  establishments.  The  very  diversity 
of  the  same  material  from  place  to  place  has  resulted  in  the  production 
of  the  greatest  possible  variety  of  skill. 

The  earth  is  also  the  reservoir  of  all  locomotion  and  power  useful 
to  man.  Even  the  strength  of  his  own  limbs  and  back  is  derived 
from  the  food  which  she  bestows.  I  do  not  speak  of  that,  however, 
but  of  the  substitutes  therefor.  She  gives  to  the  North  American 
Indians  the  dog,  to  the  South  American  the  llama,  to  the  people  of 
the  eastern  continent  the  horse,  ass,  camel,  elephant,  and  ox  to  convey 
them  about  and  to  carry  or  draw  their  loads. 

The  winds  blow  upon  the  sails  and  tiun  the  mills,  the  waters 
set  in  motion  the  wheels  and  transport  the  freight.  The  steam 
is  a  still  more  versatile  genius  of  power,  and  electricity  just  enters 
upon  its  mission.  Coal,  as  a  cheap  source  of  energy,  enables  men 
to  substitute  for  areas  of  raw  material  areas  of  manufacture  and, 
indeed,  to  create  areas  of  consumption. 

The  several  kingdoms  and  forces  of  nature  give  rise  to  their 
several  bodies  of  arts,  each  of  which  springs  from  the  earth. 

It  would  occupy  too  much  space  were  I  to  elaborate  in  the  most 
elementary  manner  the  methods  in  which  domestic  animals,  wind, 
fire,  water,  elasticity  of  solids,  elasticity  of  gases,  explosives,  chemical 
action,  magnetism,  and  electricity  had  enrolled  themselves  in  the 
service  of  mankind  merely  to  furnish  power  to  do  the  work  that  in 
the  simplest  form  is  done  by  hand.  Every  one  of  them  must  have 
struck  terror  into  the  hearts  of  the  first  men.  By  being  subdued 
they  obeyed  the  principle  of  increasing  their  own  usefulness  and 
indispensableness  by  creating  and  complicating  new  wants. 


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6o  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

The  fonn  of  the  globe,  its  coast  lines,  elevations  and  reliefs, 
the  amount  of  sunshine,  the  properties  and  contents  of  the  atmos- 
phere, the  varying  temperatures,  winds,  rainfalls,  and  springs  beneath 
the  surface,  the  waterfalls  in  the  surface  also  act  as  motives,  if  not 
as  motive  power  to  all  apparatus  and  all  the  movements  of  men. 
We  cannot  eliminate  the  heavenly  bodies  from  this  enimieration, 
since  they  furnished  clocks  and  almanacs  and  compasses  to  primitive 
peoples,  and  longer  voyages  were  imdertaken  by  their  guidance  in 
the  Pacific  than  were  made  two  centuries  later  in  the  Atlantic  by 
Columbus  with  the  aid  of  the  mariner's  compass. 

Exploitation  and  cultivation,  manufacture,  transportation, 
exchange,  consumption,  as  I  have  previously  said,  together  con- 
stitute the  roimd  through  which  commodities  are  conducted  in  the 
progress  of  industries.  The  proposition  is  that  the  earth  was  in 
the  beginning  and  is  now  the  teacher  of  these  activities.  There 
were  quarriers,  miners,  lumberers,  gleaners,  and,  some  say,  planters; 
there  were  fishermen,  fowlers,  trappers,  and  hunters  before  there 
was  a  genus  homo.  There  were  also  manuf actiirers  in  day,  in  textiles, 
and  in  animal  substances  before  there  were  potters,  weavers,  and 
furriers;  there  were  all  sorts  of  moving  material  and  carrying  passen- 
gers and  engineering  of  the  simplest  sort.  It  might  be  presimiption 
to  hint  that  there  existed  a  sort  of  barter,  but  the  exchange  of  care 
and  food  for  the  honeyed  secretions  of  the  body  going  on  between 
the  ants  and  the  aphidae  look  very  much  like  it. 

In  all  this,  the  race  has  grown,  not  independent  of  the  earth, 
but  more  dependent  upon  it.  Artificial  and  domesticated  supplies 
of  material  are  as  much  from  the  earth  as  the  wildest.  Men  in 
devising  tools  and  machinery  and  engines  to  do  the  work  of  their 
hands  have  had  to  go  to  their  mother  for  them.  They  use  other 
forces  than  their  own,  but  they  are  still  forces  furnished  by  the 
earth.  They  have  multiplied  invention  upon  invention,  but  every 
one  of  them  is  a  device  for  using  a  great  loan  already  in  hand  for 
the  purpose  of  raising  a  larger  one. 

In  this  partnership  between  man  and  the  earth  the  progress 
of  culture  has  been  from  naturalism  to  artificialism;  from  exploita- 
tion to  cultivation  and  domestication;  from  mere  muscular  power 
to  more  subtle  physical  force  of  man,  of  beast,  of  water,  of  air,  of 
fire,  of  electricity;  from  tools  to  machinery;  from  simplest  imitative 
processes  to  highly  complex  processes,  involving  many  materials 


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NATURAL  RESOURCES  AS  ECONOMIC  FACTORS  6i 

and  motive  powers  and  inventions;  from  short  journeys  to  long 
journeys;  from  mere  barter  to  world-embracing  commerce;  from 
monotonous  and  monorganic  food  and  clothing,  shelter  and  furniture, 
mental  and  sodal  appliances  to  forms  as  complex  and  varied  as  the 
imagination  can  conceive.  And  when  the  supply  gives  out,  it  is 
not  the  earth  that  fails,  but  it  is  the  comprehension  and  the  skill  of 
men. 

i8.  THE  INFLUENCE  OF  GEOGRAPfflC  FACTORS' 

In  every  problem  of  history  there  are  two  main  factors,  variously 
stated  as  heredity  and  environment,  man  and  his  geographic  con- 
ditions, the  internal  forces  of  race  and  the  external  forces  of  habitat. 
Now  the  geographic  element  in  the  long  history  of  himian  develop- 
ment has  been  operating  strongly  and  operating  persistendy.  Herein 
lies  its  importance.  It  is  a  stable  force.  It  never  sleeps.  This 
natural  environment,  this  physical  basis  of  history,  is  for  all  intents 
and  purposes  immutable  in  comparison  with  the  other  factor  in  the 
problem — shifting,  plastic,  progressive,  retrogressive  man. 

History  tends  to  repeat  itself  largely  owing  to  this  steady, 
unchanging  geographic  element.  If  the  ancient  Roman  consul  in 
far-away  Britain  often  assumed  an  independence  of  action  and 
initiative  unknown  to  the  provincial  governors  of  Gaul,  and  if  cen- 
turies later  Roman  Catholicism  in  England  maintained  a  similar 
independence  toward  the  Holy  See,  both  facts  have  their  cause 
in  the  remoteness  of  Britain  from  the  center  of  political  or  eccle- 
siastical power  in  Rome.  If  the  independence  of  the  Roman  consul 
in  Britain  was  duplicated  later  by  the  attitude  of  the  Thirteen 
Colonies  toward  England,  and  again  within  the  young  republic 
by  the  headstrong  self-reliance,  impatient  of  government  authority, 
which  characterized  the  early  trans-AUegheny  commonwealths  in 
their  aggressive  Indian  policy,  and  led  them  to  make  war  and  con- 
clude treaties  for  the  cession  of  land  like  sovereign  states;  and  if 
this  attitude  of  independence  in  the  over-moimtain  men  reappeared 
in  a  spirit  of  political  defection  looking  toward  secession  from  the 
Union  and  a  new  combination  with  their  British  neighbor  on  the 
Great  Lakes  or  the  Spanish  beyond  the  Mississippi,  these  are  all  the 
identical  effects  of  geographical  remoteness  made  yet  more  remote 
by  barriers  of  mountain  and  sea. 

>  Adapted  from  Ellen  Churchill  Semple,  Influences  of  Geographic  Environ- 
meni,  pp.  a-20.    Hemy  Holt  &  Co.,  191 1. 


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62  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

As  the  surface  of  the  earth  presents  obstacles,  so  it  offers 
channds  for  the  easy  movement  of  humanity,  grooves  whose  direc- 
tion determines  the  destination  of  unknowing,  implanned  migrations, 
and  whose  termini  become,  therefore,  regions  of  historical  importance. 
Along  these  nature-made  highways  history  repeats  itself.  The  mari- 
time plain  of  Palestine  has  been  an  established  route  of  commerce 
and  war  from  the  time  of  Sennacherib  to  Napoleon.  The  Danube 
valley  has  admitted  to  central  Europe  a  long  list  of  barbarian  invaders, 
covering  the  period  from  Attila  the  Him  to  the  Turkish  beseigers  of 
Vienna  in  1683.  The  history  of  the  Danube  valley  has  been  one  of 
warring  throngs,  of  shifting  political  frontiers,  and  unassimilated 
races;  but  as  the  river  is  a  great  natural  highway,  every  neighboring 
state  wants  to  front  upon  it  and  strives  to  seciure  it  as  a  boundary. 

The  movements  of  peoples  constantly  recmr  to  these  old  grooves. 
The  unmarked  path  of  the  voyageur's  canoe,  bringing  out  pelts 
from  Lake  Superior  to  the  fur  market  at  Montreal,  is  followed  to-day 
by  whaleback  steamers  with  their  cargoes  of  Manitoba  wheat.  Today 
the  Mohawk  depression  through  the  northern  Appalachians  diverts 
some  of  Canada's  trade  from  the  Great  Lakes  to  the  Hudson,  just 
as  in  the  seventeenth  century  it  enabled  the  Dutch  at  New  Amster- 
dam and  later  the  English  at  Albany  to  tap  the  fur  trade  of  Canada's 
frozen  forests.  Formerly  a  line  of  stream  and  portage,  it  carries  now 
the  Erie  Canal  and  New  York  Central  Railroad.  Similarly  the  nar- 
row level  belt  of  land  extending  from  the  mouth  of  the  Hudson  to  the 
eastern  elbow  of  the  lower  Delaware,  defining  the  outer  margin  of  the 
rough  hill  country  of  northern  New  Jersey  and  the  inner  margin  of 
the  smooth  coastal  plain,  has  beoi  from  savage  days  such  a  natural 
thoroughfare.  Here  ran  the  trail  of  the  Lenni-Lenapi  Indians;  a 
little  later  the  old  Dutch  road,  between  New  Amsterdam  and  the 
Delaware  trading-posts;  yet  later  the  King's  Highway  from  New 
York  to  Philadelphia.  In  1838  it  became  the  route  of  the  Delaware 
and  Raritan  Canal,  and  more  recently  of  the  Pennsylvania  Railroad 
between  New  York  and  Philadelphia. 

The  great  belt  of  deserts  and  steppes  extending  across  the  Old 
World  gives  us  a  vast  territory  of  rare  historical  imiformity.  From 
time  immemorial  they  have  borne  and  bred  tribes  of  wandering 
herdsmen;  they  have  sent  out  the  invading  hordes  who,  in  successive 
waves  of  conquest,  have  overwhelmed  the  neighboring  river  lowlands 
of  Eurasia  and  Africa.  They  have  given  birth  in  turn  to  Scythians, 
Indo-Aryans,  Avars,  Huns,  Saracens,  Tartars,  and  Turks,  as  to  the 


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NATURAL  RESOURCES  AS  ECONOMIC  FACTORS  63 

Tuar^  tribes  of  the  Sahara,  the  Sudanese,  and  Bantu  folk  of  the 
African  grasslands.  But  whether  these  various  peoples  have  been 
N^oes,  Hamites,  Semites,  Indo-Europeans,  or  Mongolians,  they 
have  always  been  pastoral  nomads.  The  description  given  by 
Herodotus  of  the  ancient  Scythians  is  applicable  in  its  main  features 
to  the  Kirghis  and  Kalmuk  who  inhabit  the  Caspian  plains  today. 
The  environment  of  this  dry  grassland  operates  now  to  produce  the 
same  mode  of  life  and  social  organization  as  it  did  2,400  years  ago; 
stamps  the  cavalry  tribes  of  Cossacks  as  it  did  the  mounted  Huns; 
energizes  its  sons  by  its  dry  bracing  air,  toughens  them  by  its  harsh 
conditions  of  life,  organizes  them  into  a  mobilized  army,  always  mov- 
ing with  its  pastoral  commissariat.  Then  when  population  presses 
too  hard  upon  the  meager  sources  of  subsistence,  when  a  siunmer 
drought  bums  the  pastures  and  dries  up  the  water-holes,  it  sends 
them  forth  on  a  mission  of  conquest,  to  seek  abundance  in  the  better 
watered  lands  of  their  agricultural  neighbors. 

Owing  to  the  evolution  of  geographic  relations,  the  physical 
environment  favorable  to  one  stage  of  development  may  be  adverse 
to  another,  and  vice  versa.  For  instance,  a  small,  isolated,  and 
protected  habitat,  like  that  of  Egypt,  Phoenicia,  Crete,  and  Greece, 
encourages  the  birth  and  precocious  growth  of  civilization;  but 
later  it  may  cramp  progress,  and  lend  the  stamp  of  arrested  develop- 
ment to  a  people  who  were  once  the  model  for  all  their  little  world. 
Open  and  wind-swept  Russia,  lacking  these  small  warm  nurseries 
where  Nature  could  cuddle  her  children,  has  bred  upon  its  bound- 
less plains  a  massive,  untutored,  homogeneous  folk,  fed  upon  the 
crumbs  of  culture  that  have  fallen  from  the  richer  tables  of 
Europe.  But  that  item  of  area  is  a  variable  quantity  in  the 
equation.  It  changes  its  character  at  a  higher  state  of  cultural 
development.  Consequently,  when  the  Muscovite  people,  instructed 
by  the  example  of  western  Europe,  shall  have  grown  up  intellectu- 
ally, economically,  and  politically  to  their  big  territory,  its  area 
will  become  a  great  national  asset.  Russia  will  come  into  its 
own,  heir  to  a  long-withheld  inheritance.  Many  of  its  previous 
geogrs^hic  disadvantages  will  vanish,  Uke  the  diseases  of  child- 
hood, while  its  massive  size  will  dwarf  many  previous  advantages 
of  its  European  neighbors. 

Let  us  consider  the  interplay  of  the  forces  of  land  and  sea  apparent 
in  every  coimtry  witlj  a  maritime  location.  In  some  cases  a  small, 
infertile,  niggardly  coimtry  conspires  with  a  beckoning  sea  to  drive 


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64  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

its  sons  out  upon  the  deep;  in  others  a  wide  territory  with  a  generous 
soil  keeps  its  well-fed  children  at  home  and  silences  the  call  of  the 
sea.  In  ancient  Phoenicia  and  Greece,  in  Norway,  Finland,  New 
England,  in  savage  Chile  and  Tierra  del  Fuego,  and  the  Indian  coast 
district  of  British  Columbia,  and  southern  Alaska,  a  long,  brok^ 
shoreline,  numerous  harbors,  outlying  islands,  abundant  timber  for 
the  construction  of  ships,  difficult  commimication  by  land,  all  tempted 
the  inhabitants  to  a  sea-faring  life.  While  the  sea  drew,  the  land 
drove  in  the  same  direction.  There  a  hilly  or  moimtainous  interior 
putting  obstacles  in  the  way  of  landward  expansion,  sterile  slopes, 
a  paucity  of  level,  arable  land,  an  excessive  or  deficient  rainfall 
withholding  from  agriculture  the  rewards  of  tillage — some  or  all  of 
these  factors  combined  to  compel  the  inhabitants  to  seek  on  the  sea 
the  livelihood  denied  by  the  land.  Here  both  forces  worked  in  the 
same  direction. 

In  England  conditions  were  much  the  same,  and  from  the  six- 
teenth century  produced  there  a  predominant  maritime  development 
which  was  due  not  solely  to  a  long  indented  coastline  and  an  excep- 
tional location  for  participating  in  European  and  American  trade. 
Its  limited  island  area,  its  large  extent  of  rugged  hills  and  chalky 
soil  fit  only  for  pastiurage,  and  the  lack  of  a  really  generous  natural 
endowment  made  it  slow  to  answer  the  demands  of  a  growing  popu- 
lation, till  the  industrial  development  of  the  nineteenth  century 
exploited  its  mineral  wealth.  So  the  English  tinned  to  the  sea — ^to 
fish,  to  trade,  to  colonize.  Holland's  conditions  made  for  the  same 
development.  She  imited  advantages  of  coastline  and  position  with 
a  small  infertile  territory,  consisting  chiefly  of  water-soaked  graang 
lands.  When  at  the  zenith  of  her  maritime  development,  a  native 
authority  estimated  that  the  soil  of  Holland  could  not  support  more 
than  one-eighth  of  her  inhabitants.  The  meager  products  of  the 
land  had  to  be  eked  out  by  the  harvest  of  the  sea.  Fish  assumed 
an  important  place  in  the  diet  of  the  Dutch,  and  when  a  process  of 
curing  it  was  discovered,  laid  the  foimdation  of  Holland's  export 
trade.  A  geographical  location  central  to  the  Baltic  and  North 
Sea  coimtries,  and  accessible  to  France  and  Portugal,  combined  with 
a  position  at  the  mouth  of  the  great  German  rivers,  made  it  absorb 
the  carrying  trade  of  northern  Eiurope.  Land  and  sea  co-operated  in 
its  maritime  development. 

Often  the  forces  of  land  and  sea  are  directly  opposed.  If  a 
coimtry's  geographic  conditions  are  favorable  to  agriculture  and 


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NATURAL  RESOURCES  AS  ECONOMIC  FACTORS  65 

offer  room  for  growth  of  peculation,  the  land  forces  prevail,  because 
man  is  primarily  a  terrestrial  animal.  Such  a  country  illustrates 
what  Chisholm,  with  Attic  nicety  of  speech,  calls  "the  influence  of 
bread-power  on  history,''  as  opposed  to  Mahan's  sea-power.  France, 
like  England,  had  a  long  coastline,  abimdant  harbors,  and  an  excellent 
location  for  maritime  supremacy  and  colonial  expansion;  but  her 
larger  area  and  greater  amount  of  fertile  soil  put  off  the  hour  of  a 
redundant  population  such  as  England  suffered  from,  even  in  Henry 
Vni's  time.  Moreover,  in  consequence  of  steady  continental  expan- 
sion from  the  twelfth  to  the  eighteenth  century  and  a  political  uni- 
fication which  made  its  area  more  effective  for  the  suf^rt  of  the 
people,  the  French  of  Richelieu's  time,  except  those  from  certain 
districts,  took  to  the  sea,  not  by  natural  impulse  as  did  the  English 
and  Dutch,  but  rather  imder  the  spur  of  government  initiative. 
They  therefore  achieved  far  less  in  maritime  trade  and  colonization. 
In  ancient  Palestine,  a  long  stretch  of  coast,  pooiiy  equipped  with 
harbors,  but  accessible  to  the  rich  Mediterranean  trade,  failed  to 
offset  the  attractions  of  the  gardens  and  orchards  of  the  Jordan 
vaUey  and  the  pastiures  of  the  Judean  hills,  or  to  overcome  the  land- 
bom  predilections  and  aptitudes  of  the  desert-bred  Jews.  Similarly 
the  river-fringed  peninsulas  of  Virginia  and  Maryland,  opening  wide 
their  doors  to  the  incoming  sea,  were  powerless,  nevertheless,  to 
draw  the  settiers  away  from  the  riotous  productiveness  of  the  wide 
tidewater  plains.  Here  again  the  geographic  force  of  the  land  out- 
wdghed  that  of  the  sea  and  became  the  dominant  factor  in  directing 
the  activities  of  the  inhabitants. 

Heinrich  von  Treitschke,  in  his  recent  PoMik,  imitates  the  direct 
inference  of  Buckle  when  he  ascribes  the  absence  of  artistic  and 
poetic  development  in  Switzerland  and  the  Alpine  lands  to  the 
overwhelming  a^)ect  of  nature  there,  its  majestic  sublimity  which 
paralyzes  the  mind.  He  reinforces  his  position  by  the  fact  that, 
by  contrast,  the  lower  mountains  and  hill  country  of  Swabia,  Fran- 
conia,  and  Thuringia,  where  nature  is  gentier,  stimulating,  appealing, 
and  not  overpowering,  have  produced  many  poets  and  artists.  The 
facts  are  incontestable.  They  appear  in  France  in  the  geographical 
distribution  of  the  awards  made  by  the  Paris  Salon  of  1896.  Judg- 
ing by  these  awards  the  rough  highlands  of  Savoy,  Alpine  Provence, 
the  massive  eastern  Pyrenees,  and  the  Auvergne  plateau,  together 
with  the  barren  peninsula,  Brittany,  are  singularly  lacking  in  artistic 
instinct,  while  art  flourishes  in  all  the  river  lowlands  of  France. 


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66  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

Moreover,  French  men  of  letters,  by  the  distribution  of  their  birth- 
places, are  essentially  products  of  fluvial  valleys,  and  plains,  rarely 
of  upland  and  mountain. 

This  contrast  has  been  ascribed  to  a  fimdamental  ethnic  dis- 
tinction between  the  Teutonic  population  of  the  lowlands  and  the 
Alpine  or  Celtic  stock  which  survives  in  the  protected  isolation  of 
highland  and  peninsula,  thus  making  talent  an  attribute  of  race. 
But  the  Po  valley  of  northern  Italy,  whose  population  contains  a 
strong  infusion  of  this  supposedly  stultifying  Alpine  blood,  and  the 
neighboring  lowlands  and  hill  country  of  Tuscany  show  an  enormous 
preponderance  of  intellectual  and  artistic  power  over  the  highlands 
of  the  peninsula.  Hence  the  same  contrast  appears  among  different 
races  under  Uke  geographic  conditions.  Moreover,  in  France,  other 
social  phenomena,  such  as  suicide,  divorce,  decreasing  birth-rate, 
and  radicalism  in  politics  show  this  same  startling  parallelism  of 
geographic  distribution;  and  these  cannot  be  attributed  to  the  stimu- 
lating or  depressing  effect  of  natiural  scenery  on  the  human  mind. 

Mountain  regions  discourage  the  budding  of  genius  because  they 
are  areas  of  isolation,  confinement,  remote  from  the  great  currents 
of  men  and  ideas  that  move  along  the  river  valleys.  They  are 
regions  of  much  labor  and  little  leisiure,  of  poverty  today  and  anxiety 
for  the  morrow,  of  toil-cramped  hands  and  toil-duUed  brains.  In 
the  fertile  alluvial  plains  are  wealth,  leisure,  contact  with  many  minds, 
large  urban  centers  where  commodities  and  ideas  are  exchanged. 
The  two  contrasted  environments  produce  directly  certain  economic 
and  social  results,  which  in  turn  become  the  causes  of  secondary 
intellectual  and  artistic  effects.  The  low  mountains  of  central 
Germany  which  von  Treitschke  cites  as  homes  of  poets  and  artists, 
owing  to  abundant  and  varied  mineral  wealth,  are  the  seats  of  active 
industries  and  dense  populations,  while  their  low  reliefs  present  no 
serious  obstacle  to  the  nimierous  highways  across  them.  They, 
therefore,  afford  all  conditions  for  culture. 

19.  THE  FRONTIER  IN  AMERICAN  HISTORY* 

Behind  institutions,  behind  constitutional  forms  and  modifica- 

ions  lie  the  vital  forces  that  call  these  organs  into  life  and  shape 

them  to  meet  changing  conditions.    The  peculiarity  of  American 

'  Adapted  from  F.  J.  Turner,  The  Significance  of  the  Frontier  in  American 
History,  in  the  Fifth  Year  Book  of  the  National  Herbart  Society,  and  an  earlier . 
edition  in  American  Historical  Association,  Report,  1893,  pp.  199-227. 


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NATURAL  RESOURCES  AS  ECONOMIC  FACTORS  67 

institutions  is  the  fact  that  they  have  been  compeQed  to  adapt  them- 
selves to  the  changes  of  an  expanding  people — to  the  change  involved 
in  crossing  a  continent,  in  winning  a  wilderness,  and  in  developing 
at  each  area  of  this  progress  out  of  the  primitive  economic  and  politi- 
cal conditions  of  the  frontier  into  the  complexity  of  city  life.  Ameri- 
can development  has  exhibited  not  merely  advance  along  a  single 
line,  but  a  return  to  primitive  conditions  on  a  continually  advancing 
frontier  line,  and  a  new  development  for  that  area.  American 
social  development  has  been  continually  beginning  over  again 
on  the  frontier.  This  perennial  rebirth,  this  fluidity  of  American 
life,  this  expansion  westward  with  its  new  opportimities,  its 
continuous  touch  with  the  simplicity  of  primitive  society,  furnish 
the  forces  dominating  American  character.  The  true  point  of 
view  in  the  history  of  this  nation  is  not  the  Atlantic  coast:  it 
is  the  great  West.  Even  the  slavery  struggle,  which  is  made 
so  exclusive  an  object  of  attention  by  some  historians,  occupies 
its  important  place  in  American  history  because  of  its  relation  to 
westward  expansion. 

At  first  the  frontier  was  the  Atlantic  coast.  It  was  the  frontier  of 
Europe  in  a  very  real  sense.  Moving  westward,  the  frontier  became 
more  and  more  American.  As  successive  terminal  moraines  result 
from  successive  glaciations,  so  each  frontier  leaves  its  traces  behind  it, 
and  when  it  becomes  a  settled  area  the  region  still  partakes  of  its 
frontier  characteristics.  Thus  the  advance  of  the  frontier  has  meant 
a  steady  movement  away  from  the  influence  of  Europe,  a  steady 
growth  of  independence  on  American  lines.  And  to  study  this  ad- 
vance, the  men  who  grew  up  imder  these  conditions,  and  the  political, 
economic,  and  social  results  of  it,  is  to  study  the  really  American 
part  of  our  history. 

Composite  naiionaliiy. — First,  we  note  that  the  frontier  promoted 
the  formation  of  a  composite  nationality  for  the  American  people. 
The  coast  was  prep<Miderantly  English,  but  the  later  tides  of  con- 
tinental immigration  flowed  across  to  the  free  lands. 

In  the  crucible  of  the  frontier  the  immigrants  were  American- 
ized, liberated,  and  fused  into  a  mixed  race,  English  in  neither 
nationality  nor  characteristics.  The  process  has  gone  on  from  the 
early  days  to  our  own.  Burke  and  other  writers  in  the  middle  of 
the  eighteenth  century  believed  that  Pennsylvania  was  "threatened 


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68  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

with  the  danger  of  being  wholly  foreign  in  language,  manners,  and 
perhaps  even  inclinations."  The  German  and  Scotch-Irish  elements 
in  the  frontier  of  the  South  were  only  less  great.  In  the  middle  of  the 
present  century  the  German  element  in  Wisconsin  was  already  so 
considerable  that  leading  publicists  looked  to  the  creation  of  a  German 
state  out  of  the  commonwealth  by  concentrating  their  colonization. 
By  the  census  of  1890  South  Dakota  had  a  percentage  of  persons  of 
foreign  parentage  to  total  population  of  sixty;  Wisconsin,  seventy- 
three;  Minnesota,  seventy-five;  and  North  Dakota,  seventy-nine. 
Such  examples  teach  us  to  beware  of  misinterpreting  the  fact  that 
there  is  a  common  English  speech  in  America  into  a  belief  that  the 
stock  is  also  English. 

Indtisirial  independence. — ^In  another  way  the  advance  of  the 
frontier  decreased  our  dependence  on  England.  The  coast,  particu- 
larly of  the  South,  lacked  diversified  industries,  and  was  dependent 
on  England  for  the  bulk  of  its  supplies.  Before  long  the  frontier 
created  a  demand  for  merchants.  As  it  retreated  from  the  coast 
it  became  less  and  less  possible  for  England  to  bring  her  supplies 
directly  to  the  consumers'  wharfs,  and  carry  away  staple  crops,  and 
staple  crops  began  to  give  way  to  diversified  agriculture  for  a  time* 

Effects  an  national  legislation. — ^The  l^slation  which  most  de- 
veloped the  power  of  the  national  government,  and  played  the  largest 
part  in  its  activity,  was  conditioned  on  the  frontier.  Writers  have 
discussed  the  subjects  of  tariff,  land,  and  internal  improvement  as 
subsidiary  to  the  slavery  question.  But  when  American  history  comes 
to  be  rightly  viewed  it  will  be  seen  that  the  slavery  question  is  an 
incident.  The  growth  of  nationalism  and  the  evolution  of  American 
political  institutions  were  dependent  on  the  advance  of  the  frontier. 
The  pioneer  needed  the  goods  of  the  coast,  and  so  the  grand  series  of 
internal  improvement  and  railroad  l^slation  began,  with  potent 
nationalizing  effects.  Over  internal  improvements  ocoured  great 
debates,  in  which  grave  constitutional  questions  were  discussed. 
Sectional  groupings  appear  in  the  votes,  profoundly  significant  for 
the  historian.  Loose  construction  increased  as  the  nation  marched 
westward.  But  the  West  was  not  content  with  bringing  the  farm  to 
the  factory.  Under  the  lead  of  Clay — "Harry  of  the  West" — ^pro- 
tective tariffs  were  passed,  with  the  cry  of  bringing  the  factory  to 
the  farm. 

Effects  on  institutions. — ^It  is  hardly  necessary  to  do  more  than 
mention  the  fact  that  the  West  was  a  field  in  which  new  political 


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NATURAL  RESOURCES  AS  ECONOMIC  FACTORS  69 

institutions  were  to  be  created.  It  offered  a  wide  opportunity  for 
speculative  creation  and  for  adjustment  of  old  institutions  to  new 
conditions.  The  study  of  the  evolution  of  western  institutions  shows 
how  slight  was  the  proportion  of  actual  theoretic  invention  of  institu- 
tions; but  there  is  abundance  of  opportunity  for  study  of  the  sources 
of  the  institutions  actually  chosen,  the  causes  of  the  selection,  the 
degree  of  transformation  by  the  new  conditions,  and  the  new  institu- 
tions actually  produced  by  the  new  environment. 

The  public  domain. — ^The  public  domain  has  been  a  force  of  pro- 
foimd  importance  in  the  nationalization  and  development  of  the 
government  The  effects  of  the  struggle  of  the  landed  and  the  land- 
less states,  and  of  the  ordinance  of  1787,  need.no  discussion.  Ad- 
ministrativdy  the  frontier  called  out  some  of  the  highest  and  most 
vitalizing  activities  of  the  general  government.  The  purchase  of 
Louisiana  was  perhaps  the  constitutional  turning  point  in  the  history 
of  the  republic,  inasmuch  as  it  afforded  both  a  new  area  for  national 
legislation  and  the  occa^on  of  the  downfall  of  the  policy  of  strict 
construction.  But  the  purchase  of  Louisiana  was  called  out  by 
frontier  needs  and  demands.  As  frontier  states  accrued  to  the  Union 
the  national  power  grew. 

When  we  consider  the  public  domain  from  the  point  of  view  of 
the  sale  and  disposal  of  the  public  lands,  we  are  again  brought  face 
to  face  with  the  frontier.  The  policy  of  the  United  States  in  dealing 
with  its  lands  is  in  sharp  contrast  with  the  European  system  of 
scientific  administration.  Efforts  to  make  this  domain  a  source  of 
revenue,  and  to  withhold  it  from  emigrants  in  order  that  settlement 
might  be  compact,  were  in  vain.  The  jealousy  and  the  fears  of  the 
East  were  powerless  in  the  face  of  the  demands  of  the  frontiersmen. 
John  Quincy  Adams  was  obliged  to  confess:  "My  own  system  of 
administration,  which  was  to  make  the  national  domain  the  inexhaust- 
ible fund  for  progressive  and  imceasing  internal  improvement,  has 
failed."  The  reason  is  obvious;  a  system  of  administration  was  not 
what  the  West  demanded;  it  wanted  land. 

National  Tendencies  of  the  frontier, — ^It  is  safe  to  say  that  the 
legislation  with  r^ard  to  land,  tariff,  and  internal  improvements — 
the  American  system  of  the  nationalizing  Whig  party — was  con- 
ditioned on  frontier  ideas  and  needs.  But  it  was  not  merely  in  legis- 
lative action  that  the  frontier  worked  against  the  sectionalism  of  the 
coast.  The  economic  and  social  characteristics  of  the  frontier 
worked  against  sectionalism.    The  men  of  the  frontier  had  closer 


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70  MATERIALS  FOR  ELEMENTARY  ECX)NOMICS 

resemblances  to  the  middle  r^on  than  to  either  of  the  other  secticms. 
Pennsylvania  had  been  the  seed  plot  of  southern  frontier  emigration, 
and  although  she  passed  on  her  settlers  along  the  Great  Valley  into 
the  west  of  Virginia  and  the  Carolinas,  yet  the  industrial  society  of 
these  southern  frontiersmen  was  always  more  like  that  of  the  middle 
region  than  like  that  of  the  tidewater  portion  of  the  South,  which 
later  came  to  spread  its  industrial  type  throughout  the  South. 

The  middle  region,  entered  by  New  York  harbor,  was  an  open 
door  to  all  Europe.  The  tidewater  part  of  the  South  represented 
typical  Englishmen,  modified  by  a  warm  climate  and  servile  labor, 
and  living  in  baronial  fashion  on  great  plantations;  New  England 
stood  for  a  special  English  movement — ^Puritanism.  The  middle 
region  was  less  English  than  the  other  sections.  It  had  a  wide 
mixture  of  nationalities,  a  varied  society,  the  mixed  town  and  coimty 
system  of  local  government,  a  varied  economic  life,  many  religious 
sects.  In  short,  it  was  a  region  mediating  between  New  England 
and  the  South,  and  the  East  and  the  West.  It  represented  the  com- 
posite nationality  which  the  contemporary  United  States  exhibits, 
that  juxtaposition  of  non-English  groups,  occupying  a  valley  or  a 
little  settlement,  and  presenting  reflections  of  the  map  of  Europe  in 
their  variety.  It  was  democratic  and  non-sectional,  if  not  national; 
"easy,  tolerant,  and  contented";  rooted  strongly  in  material  pros- 
perity. It  was  typical  of  the  modem  United  States.  It  was  least 
sectional,  not  only  because  it  lay  between  North  and  South,  but  also 
because  with  no  barriers  to  shut  out  its  frontiers  from  its  settled 
region,  and  with  a  system  of  connecting  waterways,  the  middle 
region  mediated  between  East  and  West  as  well  as  between  North 
and  South.  Thus  it  became  the  typically  American  region.  Even 
the  New  Englander,  who  was  shut  out  from  the  frontier  by  the 
middle  region,  tarrying  in  New  York  or  Pennsylvania  on  his  westward 
march,  lost  the  acuteness  of  his  sectionalism  on  the  way. 

Growth  of  democracy. — ^But  the  most  important  effect  of  the  frontier 
has  been  in  the  promotion  of  democracy  here  and  in  Europe.  As  has 
been  indicated,  the  frontier  is  productive  of  individualism.  Complex 
society  is  precipitated  by  the  wilderness  into  a  kind  of  primitive 
organization  based  on  the  family.  The  tendency  is  anti-sodal.  It 
produces  antipathy  to  control,  and  particularly  to  any  direct  control. 

The  frontier  states  that  came  into  the  Union  in  the  first  quarter 
of  a  century  of  its  existence  came  in  with  democratic  suffrage  provi- 
sions, and  had  reactive  effects  of  the  highest  importance  upon  the 


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NATURAL  RESOURCES  AS  ECONOMIC  FACTORS  71 

dder  states  whose  peeves  were  being  attracted  there.  An  extension 
of  the  franchise  became  essential.  It  was  western  New  York  that 
forced  an  extension  of  suffrage  in  the  constitutional  convention  of 
that  state  in  1821;  and  it  was  western  Virginia  that  compelled  the 
tidewater  region  to  put  a  more  liberal  suffrage  provision  in  the  con- 
stitution framed  in  1830,  and  to  give  to  the  frontier  r^on  a  more 
nearly  proportionate  representation  with  the  tidewater  aristocracy. 
The  rise  of  democracy  as  an  effective  force  in  the  nation  came  in  with 
western  prepcmderance  imder  Jackson  and  William  Henry  Harrison, 
and  it  meant  the  triumph  of  the  frontier — ^with  all  of  its  good 
and  with  all  of  its  evil  element. 

So  long  as  free  land  exists,  the  opportunity  for  a  competency 
exists,  and  economic  power  secures  pc^tical  power.  But  the  democ- 
racy bom  of  free  land,  strong  in  selfishness  and  individualism,  intoler- 
ant of  administrative  experience  and  education,  and  pressing  indi- 
vidual liberty  beycMid  its  proper  boimds,  has  its  dangers  as  well  as 
its  benefits.  Individualism  in  America  has  allowed  a  laxity  in  regard 
to  governmental  affairs  which  has  rendered  possible  the  spoils  system 
and  all  the  manifest  evils  that  follow  from  the  lack  of  a  highly  devd- 
oped  civic  spirit.  In  this  connection  may  be  noted  also  the  influence 
of  frontier  conditions  in  permitting  inflated  paper  currency  and  wild- 
cat banking.  The  colonial  and  revolutionary  frontier  was  the  region 
whence  emanated  many  of  the  worst  forms  of  paper  currency.  The 
West  in  the  War  of  1812  repeated  the  phenomenon  on  the  frontier 
of  that  day,  while  the  ^)eculation  and  wild-cat  banking  of  the  period 
of  the  crisis  of  1837  occurred  on  the  new  frontier  belt  of  the  next  tier 
of  states.  Thus  each  one  of  the  periods  of  paper-money  projects 
coincides  with  periods  when  a  new  set  of  frontier  communities  had 
arisen,  and  coincides  in  area  with  these  successive  frontiers,  for  the 
most  part.  The  recent  radical  Populist  agitation  is  a  case  in  point. 
Many  a  state  that  now  declines  any  connection  with  the  tenets  of  the 
PopuUsts  itself  adhered  to  such  ideas  in  an  earlier  stage  of  the  develop- 
ment of  the  state.  A  primitive  society  can  hardly  be  expected  to 
show  the  appreciation  of  the  complexity  of  business  interests  in  a 
developed  society.  The  continual  recurrence  of  these  areas  of  paper- 
money  agitation  is  another  evidence  that  the  frontier  can  be  isolated 
and  studied  as  a  factor  in  American  history  of  the  highest  importance. 

Intellectual  traits. — ^From  the  conditions  of  frontier  life  came 
intellectual  traits  of  profoimd  importance.    The  works  of  travelers 


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72  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

along  each  frontier  from  colonial  days  onward  describe  certain  common 
traits,  and  these  traits  have,  while  softening  down,  still  persisted 
as  survivals  in  the  place  of  their  origin,  even  when  a  higher  social 
organization  succeeded.  The  result  is  that  to  the  frontier  the  Ameri- 
can intellect  owes  its  striking  characteristics.  That  coarseness  and 
strength  combined  with  acuteness  and  inquisitiveness;  that  practical 
inventive  tiun  of  mind,  quick  to  find  expedients;  that  masterful 
grasp  of  material  things,  lacking  in  the  artistic,  but  powerful  to  effect 
great  ends;  that  restiess,  nervous  energy;  that  dominant  individual- 
ism, working  for  good  and  for  evil,  and,  withal,  that  buoyancy  and 
exuberance  which  come  with  freedom — ^these  are  traits  of  the  frontier, 
or  traits  called  out  elsewhere  because  of  the  existence  of  the  frontier. 
We  are  not  easily  aware  of  the  deep  influence  of  this  individualistic 
way  of  thinking  upon  our  present  conditions.  It  persists  in  the 
midst  of  a  society  that  has  passed  away  from  the  conditions  that 
occasioned  it.  It  makes  it  difficult  to  secure  social  regulation  of 
business  enterprises  that  are  essentially  public;  it  is  a  stumbling- 
block  in  the  way  of  civil-service  reform;  it  permeates  our  doctrines 
of  education;  but  with  the  passing  of  the  free  lands  a  vast  extension 
of  the  social  tendency  may  be  expected  in  America. 

Ratzel,  the  well-known  geographer,  has  pointed  out  the  fact  that 
for  centuries  the  great  imoccupied  area  of  America  furnished  to  the 
American  spirit  something  of  its  own  largeness.  It  has  given  a 
largeness  of  design  and  an  optimism  to  American  thought.  Since 
the  days  when  the  fleet  of  Columbus  sailed  into  the  waters  of  the  New 
World,  America  has  been  another  name  for  opportimity,  and  the 
people  of  the  United  States  have  taken  their  tone  from  the  incessant 
expansion  which  has  not  only  been  open,  but  has  even  be«i  forced 
upon  them.  He  would  be  a  rash  prophet  who  should  assert  that  the 
expansive  character  of  American  life  has  now  entirely  ceased.  Move- 
ment has  been  its  dominant  fact,  and,  unless  this  training  has  no 
effect  upon  a  people,  the  American  energy  will  continually  demand  a 
wider  field  for  its  exercise.  But  never  again  will  such  gifts  of  free 
land  offer  themselves.  For  a  moment,  at  the  frontier,  the  bonds  of 
custom  are  broken  and  imrestraint  is  triumphant.  There  is  not 
tabula  rasa.  The  stubborn  American  environment  is  there  with  its 
imperious  sunmions  to  accept  its  conditions;  the  inherited  wa3rs  of 
doing  things  are  also  there;  and  yet,  in  spite  of  environment,  and  in 
^te  of  custom,  each  frontier  did  indeed  furnish  a  new  field  of  oppor- 
tunity, a  gate  of  escape  from  the  bondage  of  the  past;  and  freshness, 


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NATURAL  RESOURCES  AS  ECONOMIC  FACTORS  73 

and  confidence,  and  scorn  of  older  society,  impatience  of  its  restraints 
and  its  ideas,  and  indifference  to  its  lessons  have  accompanied  the 
frontier.  What  the  Mediterranean  Sea  was  to  the  Greeks,  breaking  the 
bond  of  custom,  offering  new  experiences,  railing  out  new  institutions 
and  activities,  that,  and  more,  the  ever-retreating  frontier  has  been  to 
the  United  States  directiy,  and  to  the  nations  of  Europe  more  remotely. 
And  now,  four  centuries  from  the  discovery  of  America,  at  the  end  of 
a  hundred  years  of  life  imder  the  Constitution,  the  frontier  has  gone, 
and  with  its  going  has  closed  the  first  period  of  American  history. 

20.  AN  ILLUSTRATION  OF  THE  LAW  OF  DIMINISHING 
RETURNS 


A 

B 

C 

D 

E 

A  certain  homogeneous  strip  of  land  was  divided  into  five  equal 
parts.  These  equal  areas  had  the  same  exposure  to  the  sun  and 
weather,  and  soil  analysis  demonstrated  that,  humanly  speaking, 
they  were  equal  in  every  particular. 

On  strip  A,  the  application  of  100  doses  of  labor,  capital  and 
organization  resulted  in  a  yield  of  200  bushels  of  product. 

On  strip  B  the  application  of  200  doses  of  precisely  the  same  kinds 
of  labor,  capital  and  organization  resulted  in  a  yield  of  350  bushels. 
This  yield  was,  of  course,  equivalent  to  200  bushels  for  the  first  100 
doses  and  150  bushels  for  the  second  100  doses. 

On  strip  C  the  application  of  300  doses  of  this  labor,  capital  and 
organization  resulted  in  a  yield  of  450  bushels  of  product,  or  200 
bushels  for  the  first  100  doses,  150  bushels  for  the  second  100  doses 
and  100  bushels  for  the  third  100  doses. 

On  strip  D  the  application  of  400  doses  of  this  labor,  capital  and 
organization  yielded  500  bushels  of  product,  or  200  bushels  for  the 
first  100  doses,  150  bushels  for  the  second  100  doses,  100  bushels 
for  the  third  100  doses,  and  50  bushels  for  the  fourth  100  doses. 

On  strip  E,  the  application  of  500  doses  of  this  labor,  capital  and 
organization,  resulted  in  500  bushels  of  product.  Obviously  enough 
the  last  100  doses  of  labor,  capital  and  organization  yielded  o  bushels 
of  product;  in  other  words  the  returns  to  the  last  100  doses  had 
diminished  to  nothing,  and  the  cultivation  of  the  land  had  reached 
that  stage  known  as  maximum  returns. 


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74  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

21.  FACTORS  COUNTERACTING  DIMINISIHNG  RETURNS' 

There  is  another  agency,  in  habitual  antagonism  to  the  law  of 
diminishing  return  from  land;  and  to  the  consideration  of  this  we 
shall  now  proceed.  It  is  no  other  than  the  progress  of  civilization. 
I  use  this  general  and  somewhat  vague  expression,  because  the  things 
to  be  included  are  so  various,  that  hardly  any  term  of  a  more  restricted 
signification  would  comprehend  them  all. 

Of  these,  the  most  obvious  is  the  progress  of  agricultural  knowl- 
edge, skill,  and  invention.  Improved  processes  of  agriculture  are  of 
two  kinds:  some  enable  the  land  to  yield  a  greater  absolute  produce, 
without  an  equivalent  increase  of  labor;  others  have  not  the  power  of 
increasing  the  produce,  but  have  that  of  diminishing  the  labor  and 
expense  by  which  it  is  obtained.  Among  the  first  are  to  be  reckoned 
the  disuse  of  fallows,  by  means  of  the  rotation  of  crops;  and  the  intro- 
duction of  new  articles  of  cultivation  capable  of  entering  advan- 
tageously into  the  rotation.  The  change  made  in  British  agriculture 
toward  the  close  of  the  [eighteenth]  century,  by  the  introduction  of  tur- 
nip husbandry,  is  spoken  of  as  amounting  to  a  revolution.  These  im- 
provements operate  not  only  by  enabling  the  land  to  produce  a 
crop  every  year  instead  of  remaining  idle  one  year  in  every  two  or 
three  to  renovate  its  powers,  but  also  by  direct  increase  of  its 
productiveness;  since  the  great  addition  made  to  the  number  of 
cattle  by  the  increase  of  their  food  affords  more  abundant  manure 
to  fertilize  the  corn  lands.  Next  in  order  comes  the  introduction 
of  new  articles  of  food  containing  a  greater  amount  of  sustenance, 
like  the  potato,  or  more  productive  species  or  varieties  of  the  same 
plant,  such  as  the  Swedish  turnip.  In  the  same  class  of  improve- 
ments must  be  placed  a  better  knowledge  of  the  properties  of  ma- 
nures, and  of  the  most  effectual  modes  of  applying  them;  the  intro- 
duction of  new  and  more  powerful  fertilizing  agents,  such  as  guano, 
and  the  conversion  to  the  same  purpose,  of  substances  previously 
wasted;  inventions  like  subsoil-ploughing  or  tile-draining;  improve- 
ments in  the  breed  or  feeding  of  laboring  cattle;  augmented  stock  of 
the  animals  which  consume  and  convert  into  human  food  what  would 
otherwise  be  wasted;  and  the  like.  The  other  sort  of  improvements, 
those  which  diminish  labor,  but  without  increasing  the  capacity  of 
the  land  to  produce,  are  such  as  the  improved  construction  of  tools; 
the  introduction  of  new  instruments  which  spare  manual  labor,  as  the 

» From  John  Stuart  Mill,  Principles  of  Political  Economy j  Book  I,  chap.  xii. 


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NATURAL  RESOURCES  AS  ECONOMIC  FACTORS  75 

winnowing  and  threshing  machines;  a  more  skilful  and  economical 
application  of  muscular  exertion,  such  as  the  introduction,  so  slowly 
accomplished  in  England,  of  Scotch  ploughing,  with  two  horses 
abreast  and  one  man,  instead  of  three  or  four  horses  in  a  team  and 
two  men,  etc.  These  improvements  do  not  add  to  the  productive- 
ness of  the  land,  but  they  are  equally  calculated  with  the  former  to 
counteract  the  tendency  in  the  cost  of  production  of  agricultural 
produce,  to  rise  with  the  progress  of  population  and  demand. 

Analogous  in  effect  to  this  second  class  of  agricultural  improve- 
ments, are  improved  means  of  commimication.  Good  roads  are 
equivalent  to  good  tools.  It  is  of  no  consequence  whether  the 
economy  of  labor  takes  place  in  extracting  the  produce  from  the  soil, 
or  in  conveying  it  to  the  place  where  it  is  to  be  consumed.  Not  to 
say  in  addition,  that  the  labor  of  cultivation  itself  is  diminished  by 
whatever  lessens  the  cost  of  bringing  manure  from  a  distance,  or  facili- 
tates the  many  operations  of  transport  from  place  to  place  which 
occur  within  the  bounds  of  the  farm.  Railways  and  canals  are 
virtually  a  diminution  of  the  cost  of  production  of  all  things  sent  to 
market  by  them;  and  literally  so  of  all  those,  the  appliances  and  aids 
for  producing  which,  they  serve  to  transmit.  By  their  means  land 
can  be  cultivated  which  would  not  otherwise  have  remimerated  the 
cultivators  without  a  rise  of  price.  Improvements  in  navigation  have, 
with  respect  to  food  or  materials  brought  from  beyond  sea,  a  corre- 
sponding effect. 

From  similar  considerations,  it  appears  that  many  purely  mechan- 
ical improvements,  which  have,  apparently  at  least,  no  peculiar  con- 
nection with  agriculture,  nevertheless  enable  a  given  amount  of  food 
to  be  obtained  with  a  smaller  expenditure  of  labor.  A  great  im- 
provement in  the  process  of  melting  iron,  would  tend  to  cheapen 
agricultural  implements,  diminish  the  cost  of  railroads,  of  wagons 
and  carts,  ships,  and  perhaps  buildings,  and  many  other  things 
to  which  iron  is  not  at  present  applied,  because  it  is  too  costly; 
and  wotild  thence  diminish  the  cost  of  production  of  food.  The  same 
effect  would  follow  from  an  improvement  in  those  processes  of  what 
may  be  termed  manufacture,  to  which  the  material  of  food  is  sub- 
jected after  it  is  separated  from  the  ground.  The  first  application  of 
wind  or  water  power  to  grind  corn,  tended  to  cheapen  bread  as  much 
as  a  very  important  discovery  in  agrictilture  would  have  done;  and 
any  great  improvement  in  the  construction  of  corn-mills,  would  have, 
in  proportion,  a  similar  influence.    The  effects  of  cheapening  loco- 


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76  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

motion  have  been  already  considered.  There  are  also  engineering 
inventions  which  facilitate  all  great  operations  on  the  earth's  surface. 
An  improvement  in  the  art  of  taking  levels  is  of  importance  to  drain- 
ing, not  to  mention  canal  and  railway  making;.  The  fens  of  Holland, 
and  of  some  parts  of  England,  are  drained  by  pumps  worked  by  the 
wind  or  by  steam.  Where  canals  of  irrigation,  or  where  tanks  or 
embankments  are  necessary,  mechanical  skill  is  a  great  resource  for 
cheapening  production. 

There  is,  thus,  no  possible  improvement  in  the  arts  of  production 
which  does  not  in  one  or  another  mode  exercise  an  antagonistic 
influence  to  the  law  of  diminishing  return  to  agricultural  labor.  Nor 
is  it  only  industrial  improvements  which  have  this  effect.  Improve- 
ments in  government,  and  almost  every  kind  of  moral  and  social 
advancement,  operate  in  the  same  manner.  Suppose  a  country  in 
the  condition  of  France  before  the  Revolution:  taxation  imposed 
almost  exclusively  on  the  industrious  classes,  and  on  such  e  principle 
as  to  be  an  actual  penalty  on  production;  and  no  redress  obtainable 
for  any  injiuy  to  property  or  person,  when  inflicted  by  people  of  rank 
or  court  influence.  Was  not  the  hurricane  which  swept  away  this 
system  of  things,  even  if  we  look  no  further  than  to  its  effect  in  a\ig- 
menting  the  productiveness  of  labor,  equivalent  to  many  industrial 
inventions  ?  The  removal  of  a  fiscal  burthen  on  agriculture,  such  as 
tithe,  has  the  same  effect  as  if  the  labor  necessary  for  obtaining  the 
existing  produce  were  suddenly  reduced  one-tenth.  The  abolition 
of  com  laws,  or  of  any  other  restrictions  which  prevent  commodities 
from  being  produced  where  the  cost  of  their  production  is  lowest, 
amoimts  to  a  vast  improvement  in  production.  When  fertile  land, 
previously  reserved  as  hunting  ground,  or  for  any  other  purpose  of 
amusement,  is  set  free  for  cultiure,  the  aggregate  productiveness 
of  agricultural  industry  is  increased.  It  is  well  known  what  has 
been  the  effect  in  England  of  badly  administered  poor  laws,  and  the 
still  worse  effect  in  Ireland  of  a  bad  system  of  tenancy,  in  rendering 
agricultural  labor  slack  and  ineffective.  No  improvements  operate 
more  directly  upon  the  productiveness  of  labor  than  those  in  the  tenure 
of  farms,  and  in  the  laws  relating  to  landed  property.  The  breaking 
up  of  entails,  the  cheapening  of  the  transfer  of  property,  and  whatever 
else  promotes  the  natui^l  tendency  of  land  in  a  system  of  freedom,  to 
pass  out  of  hands  which  can  make  little  of  it  into  those  which  can 
make  more;  the  substitution  of  long  leases  for  tenancy  at  will,  and  of 
any  tolerable  system  of  tenancy  whatever  for  the  wretched  cottier 


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NATURAL  RESOURCES  AS  ECONOMIC  FACTORS  77 

system;  above  all,  the  acquisition  of  a  permanent  interest  in  the  soil 
by  the  cultivators  of  it;  all  these  things  are  as  real,  and  some  of  them 
as  great,  improvements  in  production,  as  the  invention  of  the  spinning 
jenny  or  the  steam  engine. 

We  may  say  the  same  of  improvement  in  education.  The  intelli- 
gence of  the  workman  is  a  most  important  element  in  the  productive- 
ness of  labor.  So  low,  in  some  of  the  most  civilized  countries,  is  the 
present  standard  of  intelligence,  that  there  is  hardly  any  source  from 
which  a  more  indefinite  amoimt  of  improvement  may  be  looked  for  in 
productive  power,  than  by  endowing  with  brains  those  who  now  have 
only  bands.  The  carefulness,  economy,  and  general  trustworthiness 
of  laborers  are  as  important  as  their  intelligence.  Friendly  relations, 
and  a  commimity  of  interest  and  feeling  between  laborers  and  employ- 
ers, are  eminently  so:  I  should  rather  say,  would  be;  for  I  know  not 
where  any  such  sentiment  of  friendly  alliance  now  exists.  Nor  is  it 
only  in  the  laboring  class  that  improvement  of  mind  and  character 
operates  with  beneficial  effect  even  on  industry.  In  the  rich  and  idle 
classes,  increased  mental  energy,  more  solid  instruction,  and  stronger 
feelings  of  conscience,  public  spirit,  or  philanthropy,  would  qualify 
them  to  originate  and  promote  the  most  valuable  improvements, 
both  in  the  economical  resources  of  their  country,  and  in  its  institu- 
tions and  customs.  To  look  no  further  than  the  most  obvious 
phenomena,  the  backwardness  of  French  agriculture  in  the  precise 
points  in  which  benefit  might  be  expected  from  the  influence  of  an 
educated  class,  is  partly  accounted  for  by  the  exclusive  devotion  of 
the  richer  landed  proprietors  to  town  interests  and  town  pleasures. 
There  is  scarcely  any  possible  amelioration  of  human  affairs  which 
would  not,  among  its  other  benefits,  have  a  favorable  operation, 
direct  or  indirect,  upon  the  productiveness  of  industry.  The  intensity 
of  devotion  to  industrial  occupations  would  indeed  in  many  cases  be 
moderated  by  a  more  liberal  and  genial  mental  culture,  but  the  labor 
actually  bestowed  on  those  occupations  would  almost  alwa3rs  be 
rendered  more  effective. 

22.  NATURAL  RESOURCES  OF  THE  UNITED  STATES,  AND 
THEIR  CONSERVATION* 

In  the  growth  of  the  coxmtry  and  the  gradual  development  of  its 
natural  resources  there  have  been  three  noteworthy  stages.    The  first 

■  C(»npiled  from  the  Report  of  the  National  Conservation  Commission  (1909). 


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78  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

stage  was  that  of  individual  enterprise  for  personal  and  family  bene- 
fit.   It  led  to  the  conquest  of  the  wilderness. 

The  next  stage  was  that  of  collective  enterprise,  either  for  the 
benefit  of  communities  or  for  the  profit  of  individuals  forming  the 
conmiunities.  It  led  to  the  development  of  cities  and  states,  and  too 
often  to  the  growth  of  great  monopolies. 

The  third  stage  is  the  one  we  are  now  entering.  Within  it  the 
enterprise  is  collective  and  largely  co-operative,  and  should  be  directed 
toward  the  larger  benefit  of  commimities,  states,  and  the  people 
generally. 

In  the  first  stage,  the  resources  received  little  thought.  In  the 
second,  they  were  wastefuUy  used.  In  the  stage  which  we  are  enter- 
ing, wise  and  beneficial  uses  are  essential,  and  the  checking  of  waste 
is  absolutely  demanded. 

The  wastes  which  most  urgently  require  checking  vary  widely  in 
character  and  amount.  The  most  reprehensible  waste  is  that  of  de- 
struction, as  in  forest  fires,  imcontrolled  flow  of  gas  and  oil,  soil 
wash,  and  abandonment  of  coal  in  the  mines.  This  is  attributable, 
for  the  most  part,  to  ignorance,  indifference,  or  false  notions  of 
economy,  to  rectify  which  is  the  business  of  the  people  collectively. 

Nearly  as  reprehensible  is  the  waste  arising  from  misuse,  as  in  the 
consumption  of  fuel  in  furnaces  and  engines  of  low  eflSciency,  the 
loss  of  water  in  floods,  the  emplo3maent  of  ill-adapted  structiu"al 
materials,  the  growing  of  ill-chosen  crops,  and  the  perpetuation  of 
inferior  stocks  of  plants  and  animals,  all  of  which  may  be  remedied. 

Reprehensible  in  less  degree  is  the  waste  arising  from  nonuse. 
Since  the  utilization  of  any  one  resource  is  necessarily  progressive 
and  dependent  on  social  and  industrial  conditions  and  the  concurrent 
development  of  other  resources,  nonuse  is  sometimes  imavoidable.  It 
becomes  reprehensible  when  it  affects  the  common  welfare  and  entails 
future  injury.    Then,  it  should  be  rectified  in  the  general  interest. 

For  the  prevention  of  waste  the  most  effective  means  will  be  found 
in  the  increase  and  diffusion  of  knowledge,  from  which  is  sxire  to 
result  an  aroused  public  sentiment  demanding  prevention.  The 
people  have  the  matter  in  their  own  hands.  They  may  prevent  or 
limit  the  destruction  of  resources  and  restrain  misuse  through  the 
enactment  and  enforcement  of  appropriate  state  and  federal  laws. 

Wastes  reduced  and  resources  saved  are  the  first  but  not  the  last 
object  of  conservation.    The  material  resources  have  an  additional 


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value  when  their  preservation  adds  to  the  beauty  and  habitability  of 
the  land.  Ours  is  a  pleasant  land  in  which  to  dwell.  To  increase 
its  beauty  and  augment  its  fitness  cannot  but  multiply  our  pleasure 
in  it  and  strengthen  the  bonds  of  our  attachment. 

MINERALS 

The  mineral  production  of  the  United  States  for  1907  exceeded 
$2,000,000,000,  and  contributed  65  per  cent  of  the  total  freight  traffic 
of  the  country.  The  waste  in  the  extraction  and  treatment  of  min- 
eral products  during  the  same  year  was  equivalent  to  more  than 
$300,000,000. 

The  production  for  1907  included  395,000,000  tons  of  bitiuninous 
and  85,000,000  tons  of  anthracite  coal,  166,000,000  barrels  of  petro- 
leum, 52,000,000  tons  of  iron  ore,  2,500,000  tons  of  phosphate  rock, 
and  869,000,000  pounds  of  copper.  The  values  of  other  mineral 
products  during  the  same  year  included  clay  products,  $162,000,000; 
stone,  $71,000,000;  cement,  $56,000,000;  natural  gas,  $53,000,000; 
gold,  $90,000,000;  silver,  $37,000,000;  lead,  $39,000,000,  and  zinc 
$26,000,000. 

The  available  and  easily  accessible  supplies  of  coal  in  the  United 
States  aggregate,  approximately,  1,400,000,000,000  tons.  At  the 
present  increasing  rate  of  production  this  supply  will  be  so 
depleted  as  to  approach  exhaustion  before  the  middle  of  the  next 
century. 

The  coal  fields  are  divided,  for  the  sake  of  convenience  in  classi- 
fication, into  six  main  provinces,  as  follows: 

1.  The  eastern  province,  containing  the  anthracite  coal  fields  of 
Pennsylvania  and  the  bituminous  coal  fields  of  the  Appalachian 
r^on,  i.e.,  those  of  western  Pennsylvania,  Ohio,  Virginia,  West 
Virginia,  Kentucky,  Tennessee,  (Jeorgia,  Alabama,  and  small  out- 
lying areas  in  North  Carolina. 

2.  The  interior  province,  containing  the  bituminous  coal- 
producing  regions  of  Michigan,  Illinois,  Indiana,  western  Kentucky, 
Iowa,  Kansas,  Missouri,  Oklahoma,  Arkansas,  and  Texas. 

3.  The  Gulf  province,  containing  the  lignite  areas  of  Alabama, 
Mississippi,  Louisiana,  Arkansas,  and  Texas. 

4.  The  northern  Great  Plains  province,  containing  the  lignite 
subbitmninous  areas  of  North  and  South  Dakota,  eastern  Montana 
and  northeastern  Wyoming. 


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5.  The  Rocky  Mountain  province/containing  the  bituminous  and 
subbituminous  areas  of  western  Montana  and  western  Wyoming, 
Colorado,  Utah,  and  New  Mexico. 


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6.  The  Pacific  coast  province,  containing  the  areas  of  Washington, 
Oregon,  and  California. 

The  known  supply  of  high-grade  iron  ores  in  the  United  States 
approximates  4,788,150,000  tons,  which  at  the  present  increasing 


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82  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

rate  of  consumption  cannot  be  expected  to  last  beyond  the  middle  of 
the  present  century.  In  addition  to  this,  there  are  assumed  to  be 
75,116,070,000  tons  of  lower  grade  iron  ores  which  are  not  available 
for  use  under  existing  conditions. 

The  supply  of  stone,  clay,  cement,  lime,  sand,  and  salt  is  ample, 
while  the  stock  of  the  precious  metals  and  of  copper,  lead,  zinc, 
sulphur,  asphalt,  graphite,  quicksilver,  mica,  and  the  rare  metals 
cannot  well  be  estimated,  but  is  clearly  exhaustible  within  one  to 
three  centuries  unless  unexpected  deposits  be  foxmd. 

The  known  supply'  of  petroleum  is  estimated  at  15,000,000,000  to 
20,000,000,000  barrels,  distributed  through  six  separate  fields  having 
an  aggregate  area  of  8,900  square  miles.  The  production  is  rapidly 
increasing,  while  the  wastes  and  the  loss  through  misuse  are  enor- 
mous. The  supply  cannot  be  expected  to  last  beyond  the  middle  of 
the  present  centiuy. 

The  known  natural-gas  fields  aggregate  an  area  of  9,000  square 
miles,  distributed  through  22  states.  Of  the  total  jdeld  from  these 
fields  during  1907,  400,000,000,000  cubic  feet,  valued  at  $62,000,000, 
were  utilized,  while  an  equal  quantity  was  allowed  to  escape  into  the 
air.  The  daily  waste  of  natural  gas — ^the  most  perfect  known  fuel 
— ^is  over  1,000,000,000  cubic  feet,  or  enough  to  supply  fevery  dty  in 
the  United  States  of  over  100,000  population. 

Phosphate  rock,  used  for  fertilizer,  represents  the  slow  acciunula- 
tion  of  organic  matter  during  past  ages.  In  most  countries  it  is 
scrupulously  preserved;   in  this  coimtry  it  is  extensively  exported, 

'  The  petroleum  fields  of  the  United  States  are:  (i)  the  Appalachian  field, 
extending  from  western  New  York  to  Tennessee;  (2)  the  Lima-Indiana  field  in 
northwestern  Ohio  and  eastern  Indiana;  (3)  the  Illinois  field,  near  the  eastern 
edge  of  the  state;  (4)  the  mid-continent  field,  comprising  the  pools  in  Kansas, 
Oklahoma,  northwestern  Louisiana,  and  northern  Texas;  (5)  the  Gulf  field,  lying 
mainly  in  Texas  and  Louisiana,  and  (6)  the  California  field.  These  great  fields 
control  the  industry.  West  of  the  mid-continent  field  and  east  of  the  California 
field  are  several  smaller  ones  (as  thus  far  developed)  in  Colorado  and  Wyoming, 
with  promises  of  fields  in  New  Mexico,  Utah,  Idaho,  Montana,  Oregon,  and 
Washington.  In  Alaska  at  least  two  petroleum  pools  have  been  discovered  which 
may  possibly  be  capable  of  considerable  output  when  the  market  conditions 
become  favorable. 

There  are  many  regions  in  the  United  States  where  there  b  no  geological 
improbability  of  finding  petroleum.  Such  geological  improbability  exists  where 
the  rocks  are  greatly  disturbed  and  broken  up  to  such  a  depth  as  to  prevent 
probable  drilling  to  the  undbturbed  sedimentary  rocks  which  could  furnish 
good  storage  for  petroleum. 


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MATERIALS  FOR  ELEMENTARY  ECONOMICS 


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NATURAL  RESOURCES  AS  ECONOMIC  FACTORS  85 

and  largely  for  this  reason  its  production  is  increasing  rapidly.  The 
mginal  supply  cannot  long  withstand  the  increasing  demand. 

The  consumption  of  nearly  all  our  mineral  products  is  increasing 
far  more  rapidly  than  our  population.  In  many  cases  the  waste  is 
increasing  more  rapidly  than  the  niunber  of  our  pec^le.  In  1776 
but  a  few  dozen  pounds  of  iron  were  in  use  by  the  average  family; 
now  our  annual  consumption  of  high-grade  ore  is  over  1,200  pounds 
p^  capita.  In  1812  no  coal  was  used;  now  the  consumption  is  over 
5  tons  and  the  waste  nearly  3  tons  per  capita. 

While  the  production  of  coal  is  increasing  encHinously,  the  waste 
and  loss  in  mining  are  diminishing.  At  the  beginning  of  our  mineral 
devdc^ment  the  coal  abandoned  in  the  mine  ¥ras  two  or  three  times 
the  amount  taken  out  and  used.  Now  the  mine  waste  averages  little 
more  than  half  the  amoimt  saved.  The  chief  waste  is  in  imperfect 
combustion  in  furnaces  and  fire  boxes.  Steam  engines  utilize  on  the 
average  about  8  per  cent  of  the  thermal  energy  of  the  coal.  Internal- 
combustion  engines  utilize  less  than  20  per  cent,  and  in  electric  light- 
ing far  less  than  i  per  cent  of  the  thermal  energy  is  rendered  available. 

With  increasing  industries  new  mineral  resources  become  available 
from  time  to  time.  Some  lignites  and  other  low-grade  coals  are 
readily  gasified  and,  through  the  development  of  internal-combustion 
engines,  may  be  made  to  check  the  consumption  of  high-grade  coals. 

Peat  is  becoming  important;  it  is  estimated  that  14,000,000,000 
tons  are  available  in  the  United  States.  Its  value  is  enhanced  because 
of  distribution  through  states  generally  remote  from  the  fields  of 
coal,  oil,  and  natural  gas. 

The  uses  of  all  our  mineral  resources  are  interdependent.  This  is 
especially  true  of  coal  and  iron,  of  which  neither  can  be  produced  or 
used  without  aid  from  the  other,  and  in  the  production  or  reduction 
of  all  other  minerals  both  coal  and  iron  are  employed.  The  same 
standard  minerals  are  necessary  to  the  development  of  power,  of 
which  the  use  is  increasing  more  rapidly  than  that  of  any  other  com- 
modity. 

The  building  operations  of  the  coimtry  now  aggregate  about 
$1 ,000,000,000  per  year.  The  direct  and  indirect  losses  from  fire  in  the 
United  States  during  1907  approximated  $450,000,000,  or  one-half  the 
cost  of  construction.  Of  this  loss  four-fifths,  or  an  average  of 
$1,000,000  per  day,  could  be  prevented,  as  shown  by  comparison  with 
the  standards  of  construction  and  fire  losses  in  the  larger  European 
countries. 


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86  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

So  far  as  the  ores  are  taken  from  the  mines  and  reduced  to  metals, 
these  resources  are  capitalized;  but  after  thus  being  changed  to  a 
more  valuable  form  they  should  be  so  used  as  to  reduce  to  a  miniTniim 
the  loss  by  rust,  electrolytic  action,  and  other  wastes. 

There  is  lu-gent  need  for  greater  safety  to  the  miner.  The  loss  of 
life  through  mine  accidents  is  appalling,  and  preventive  measures 
cannot  be  taken  too  soon. 

The  national  government  should  exercise  such  control  of  the  min- 
eral fuels  and  phosphate  rocks  now  in  its  possession  as  to  check  waste 
and  prolong  our  supply. 

While  the  distribution  and  quantity  of  most  of  our  important  min- 
eral substances  are  known  in  a  general  way,  there  is  imperative  need 
for  further  surveys  and  investigations  and  for  researches  concerning 
the  less-known  minerals. 

LANDS 

The  total  land  area  of  continental  United  States  is  1,920,000,000 
acres.  Of  this  but  little  more  than  two-fifths  is  in  farms,  and  less 
than  one-half  of  the  farm  area  is  improved  and  made  a  source  of  crop 
production.  We  have  nearly  6,000,000  farms;  they  average  146  acres 
each.  The  value  of  the  farms  is  nearly  one-fourth  the  wealth  of  the 
United  States.  There  are  more  than  300,000,000  acres  of  public  graz- 
ing land.  The  niunber  of  persons  engaged  in  agricultural  pursuits 
is  more  than  10,000,000. 

We  grow  one-fifth  of  the  world's  wheat  crop,  three-fifths  of  its 
cotton  crop,  and  four-fifths  of  its  com  crop.  We  plant  nearly  50,000,- 
000.  acres  of  wheat  annually,  with  an  average  yield  of  about  14 
bushels  per  acre;  100,000,000  acres  of  com,  yielding  an  average  of 
25  bushels  per  acre;  and  30,000,000  acres  of  cotton,  yielding  about 
12,000,000  bales. 

We  had  on  January  i,  1908,  71,000,000  cattle,  worth  $1,250,000,- 
000;  54,000,000  sheep,  worth  $211,000,000;  and  5^,000,000  swine, 
worth  $339,000,000.  The  census  of  1900  showed  $137,000,000  worth 
of  poultry  in  this  country,  which  produced  in  1899,  293,000,000 
dozen  eggs. 

There  has  been  a  slight  increase  in  the  average  yield  of  our  great 
staple  farm  products,  but  neither  the  increase  in  acreage  nor  the 
jdeld  per  acre  has  kept  pace  with  oiu"  increase  in  population.  Within 
a  century  we  shall  probably  have  to  feed  three  times  as  many  people 
as  now;  and  the  main  bulk  of  our  food  supply  must  be  grown  on 
our  own  soil. 


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88  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

The  area  of  cultivated  land  may  possibly  be  doubled.  In  addition 
to  the  land  awaiting  the  plow,  75,000,000  acres  of  swamp  land  can  be 
reclaimed,  40,000,000  acres  of  desert  land  irrigated,  and  millions  of 
acres  of  brush  and  wooded  land  cleared.  Our  population  will  in- 
crease continuously,  but  there  is  a  definite  limit  to  the  increase  of 
our  cidtivated  acreage.  Hence  we  must  greatly  increase  the  yield  per 
acre.  The  average  3deld  of  wheat  in  the  United  States  is  less  than 
14  busheb  per  acre,  in  Germany  28  bushels,  and  in  England  32 
bushels.  We  get  30  bushels  of  oats  per  acre,  England  nearly  45, 
and  Germany  more  than  47.  Our  soils  are  fertile,  but  our  mode  of 
farming  neither  conserves  the  soil  nor  secures  full  crop  returns.  Soil 
fertility  need  not  be  diminished,  but  may  be  increased.  The  large 
yields  now  obtained  from  farms  in  Europe  which  have  been  cultivated 
for  a  thousand  years  prove  this  conclusively.  Proper  management 
will  double  our  average  yield  per  acre.  The  United  States  can  grow 
the  farm  products  needed  by  a  population  more  than  three  times 
as  great  as  our  country  now  contains. 

The  greatest  imnecessary  loss  of  our  soil  is  preventable  erosion. 
Second  only  to  this  is  the  waste,  nonuse,  and  misuse  of  fertilizer 
derived  from  animals  and  men. 

The  losses  to  farm  products  due  to  injurious  mammals  is  estimated 
at  $130,000,000  annually;  the  loss  through  plant  diseases  reaches 
several  hundred  million  dollars;  and  the  loss  through  insects  is  reck- 
oned at  $659,000,000.  The  damage  by  birds  is  balanced  by  their 
beneficent  work  in  destro}dng  noxious  insects.  Losses  due  to  the 
elements  are  large,  but  no  estimate  has  been  made  of  them.  Losses 
to  live  stock  from  these  causes  are  diminishing  because  of  protection 
and  feeding  during  winter.  The  annual  losses  from  disease  among 
domestic  animals  are:  Horses,  i .  8  per  cent;  cattle,  2  per  cent;  sheq>, 
2 . 2  per  cent,  and  swine,  5 .  i  per  cent.  Most  of  these  farm  losses  are 
preventable. 

There  is  a  tendency  toward  consolidation  of  farm  lands.  The  esti- 
mated area  of  abandoned  farms  is  16,000  square  miles,  or  about  3 
per  cent  of  the  improved  land.  The  causes  of  abandonment  differ 
in  different  parts  of  the  coimtry.  Where  most  prevalent,  it  is  caused 
principally  by  erosion  and  exhaustion  of  the  soil. 

The  product  of  the  fisheries  of  the  United  States  has  an  annual 
value  of  $57,000,000.  Fish  culture  is  carried  on  by  the  nation  and 
the  states  on  an  enormous  scale.  Most  of  the  more  important  food 
species  are  propagated,  and  several  species  are  maintained  in  that 


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way.    Fish  from  forest  waters  furnish  $2i,cxx>,ocx>  worth  of  food 
yearly,  a  supply  dependent  on  the  preservation  of  the  forests. 

PERCENTAGE  OF  IMPROVED  LAND  TO  TOTAL  AREA. 

to  go       , 30       .       40  &0  60 

ILUN0I8 

OHIO 

INDIANA 

DELAWARE 

MARYLAND 

KENTUCKY 

MISSOURI 

NEW  YORK 

KANSAS 

PENNSYLVANIA 

NEW  JERSEY 

VIRQINIA 

TENNESSEE 

NEBRASKA 

VERMONT 

WEST  VIRGINIA 

MINNESOTA 

CONNECTICUT 

MKMIQAN 

WISCONSIN 

SOUTH  CAROUNA 

QEORQU 

RHODE  ISLAND 

NORTH  CAROUNA 


MISSISStPPI 
MASSACHUSETTS 
SOUTH  DAKOTA 
NORTH  DAKOTA 


OKLAHOMA 

NEW  HAMPSHIRE 

LOUISIANA 

DIST.  OF  COLUMBIA 

CAUFORNIA 

TEXAS 

WASHINGTON 

OREGON 

FLORIDA 

COLORADO 

IDAHO 

UTAH 

MONTANA 

WYOMING 

NEVADA 

NEW  MEXICO 

ARIZONA 


Our  wild  game  and  fur-bearing  animals  have  been  largely  ex- 
terminated.   To  prevent  their  complete  extinction  the  states  and  the 


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90  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

United  States  have  taken  in  hand  their  protection,  and  their  numbers 
are  now  increasing.  Forest  game  jdelds  over  $10,000,000  worth  of 
food  each  year. 

With  game  birds  the  story  is  much  the  same — ^wanton  destructions 
until  the  number  has  been  greatly  reduced,  followed  in  recent  years 
by  wise  protection,  which  in  some  cases  allows  the  remnant  to  survive 
and  even  to  increase. 

Each  citizen  of  the  United  States  owns  an  6qual  undivided  interest 
in  about  387,000,000  acres  of  public  lands,  exclusive  of  Alaska  and 
the  insular  possessions.  Besides  this  there  are  about  235,000,000 
acres  of  national  forests,  national  parks,  and  other  lands  devoted  to 
public  use. 

Good  business  sense  demands  that  a  definite  land  policy  be  formu- 
lated. The  National  Conservation  Commission  believes  that  the  fol- 
lowing will  serve  as  a  basis  therefor: 

1.  Every  part  of  the  public  lands  should  be  devoted  to  the  use 
which  will  best  subserve  the  interests  of  the  whole  people. 

2.  The  classification  of  all  public  lands  is  necessary  for  their  ad- 
ministration in  the  interests  of  the  people. 

3.  The  timber,  the  minerals,  and  the  surface  of  the  public  lands 
should  be  disposed  of  separately. 

4.  Public  lands  more  valuable  for  conserving  water  supply,  timber, 
and  natural  beauties  or  wonders  than  for  agriculture  should  be  held 
for  the  use  of  the  people  from  all  except  mineral  entry. 

5.  Title  to  the  surface  of  the  remaining  nonmineral  public  lands 
should  be  granted  only  to  actual  home  makers. 

6.  Pending  the  transfer  of  title  to  the  remaining  public  lands  they 
should  be  administered  by  the  government  and  their  use  should  be 
allowed  in  a  way  to  prevent  or  control  waste  and  monopoly. 

The  present  public-land  laws  as  a  whole  do  not  subserve  the  best 
interests  of  the  nation.  They  should  be  modified  so  far  as  may  be 
required  to  bring  them  into  conformity  with  the  foregoing  outline  of 
policy. 

FORESTS 

Next  to  our  need  of  food  and  water  comes  our  need  of  timber. 

Our  industries  which  subsist  wholly  or  mainly  upon  wood  pay  the 
wages  of  more  than  1,500,000  men  and  women. 

Forests  not  only  grow  timber,  but  they  hold  the  soil  and  they  con- 
serve the  streams.    They  abate  the  wind  and  give  protection  from 


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92  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

excessive  heat  and  cold.  Woodlands  make  for  the  fiber,  health,  and 
happiness  of  the  citizen  and  the  nation. 

Our  forests  now  cover  550,000,000  acres,  or  about  one-fourth  of  the 
United  States.  The  original  forests  covered  not  less  than  850,000,000 
acres. 

Forests  publicly  owned  contain  one-fifth  of  all  our  standing  timber. 
Forests  privately  owned  contain  four-fifths  of  the  standing  timber. 
The  timber  privately  owned  is  not  only  four  times  that  publicly 
owned,  but  is  generally  more  valuable. 

Forestry  is  now  practiced  on  70  per  cent  of  the  forests  publicly 
owned  and  on  less  than  i  per  cent  of  the  forests  privately  owned,  or 
on  only  18  per  cent  of  the  total  area  of  forests. 

The  yearly  growth  of  wood  in  our  forests  does  not  average  more 
than  12  cubic  feet  per  acre.  This  gives  a  total  yearly  growth  of  less 
than  7,000,000,000  cubic  feet. 

We  have  200,000,000  acres  of  mature  forests,  in  which  yearly 
growth  is  balianced  by  decay;  250,000,000  acres  partly  cut  over  or 
burned  over,  but  restocking  naturally  with  enough  young  growth  to 
produce  a  merchantable  crop,  and  100,000,000  acres  cut  over  and 
burned  over,  upon  which  young  growth  is  lacking  or  too  scanty  to 
make  merchantable  timber. 

We  take  from  our  forests  yearly,  including  waste  in  logging  and  in 
manufacture,  23,000,000,000  cubic  feet  of  wood.  We  use  each  year 
100,000,000  cords  of  firewood;  40,000,000,000  feet  of  lumber;  more 
than  1 ,000,000,000  posts,  poles,  and  fence  rails ;  1 1 8,000,000  hewn  ties ; 
1,500,000,000  staves;  over  133,000,000  sets  of  heading;  nearly  500,- 
000,000  barrel  hoops;  3,000,000  cords  of  native  pulp  wood;  165,000,- 
000  cubic  feet  of  round  mine  timbers,  and  1,250,000  cords  of  wood  for 
distillation. 

Since  1870  forest  fires  have  destroyed  a  yearly  average  of  50  lives 
and  $50,000,000  worth  of  timber.  Not  less  than  50,000,000  acres  of 
forest  is  burned  over  yearly.  The  yovmg  growth  destroyed  by  fire  is 
worth  far  more  than  the  merchantable  timber  burned. 

One-fourth  of  the  standing  timber  is  lost  in  logging.  The  boxing 
of  long-leaf  pine  for  turpentine  has  destroyed  one-fifth  of  the  forests 
worked.  The  loss  in  the  mill  is  from  one-third  to  two-thirds  of  the 
timber  sawed.  The  loss  of  mill  product  in  seasoning  and  fitting  for 
use  is  from  one-seventh  to  one-fourth. 

Of  each  1,000  feet  which  stood  in  the  forest,  an  average  of  only 
320  feet  of  lumber  is  used. 


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93 


We  take  from  our  forests  each  year,  not  counting  the  loss  by  fire, 
three  and  a  half  times  their  yearly  growth.  We  take  40  cubic  feet 
per  acre  for  each  12  cubic  feet  grown;  we  take  260  cubic  feet  per 
capita,  while  Germany  uses  37  and  France  25  cubic  feet. 

We  tax  our  forests  imder  the  general  property  tax,  a  method  aban- 
doned long  ago  by  every  other  great  nation.  Present  tax  laws  pre- 
vent reforestation  of  cut-over  land  and  the  perpetuation  of  existing 
forests  by  use. 

Great  damage  is  done  to  standing  timber  by  injurious  forest  insects. 
Much  of  this  damage  can  be  prevented  at  small  expense. 

To  protect  our  farms  from  wind  and  to  reforest  land  best  suited 
for  forest  growth  will  require  tree  planting  on  an  area  larger  than 


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Pennsylvania,  Ohio,  and  West  Virginia  combined.  Lands  so  far  suc- 
cessfuUy  planted  make  a  total  area  smaller  than  Rhode  Island;  and 
year  by  year,  through  careless  cutting  and  fires,  we  lower  the  capacity 
of  existing  forests  to  produce  their  like  again,  or  else  totally  destroy 
them. 

In  spite  of  substitutes  we  shall  always  need  much  wood.  So  far 
our  use  of  it  has  steadily  increased.  The  condition  of  the  world's 
supply  of  timber  makes  us  already  dependent  upon  what  we  produce. 
We  send  out  of  our  covmtry  one  and  a  half  times  as  much  timber  as 
we  bring  in.  Except  for  finishing  woods,  relatively  small  in  amount, 
we  must  grow  our  own  supply  or  go  without.  Until  we  pay  for  our 
lumber  what  it  costs  to  gfow  it,  as  well  as  what  it  costs  to  log  and 
saw,  the  price  will  continue  to  rise. 


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MATERIALS  FOR  ELEMENTARY  ECONOMICS 


The  preservation  by  use,  under  the  methods  of  practical  forestry, 
of  all  public  forest  lands,  either  in  state  or  federal  ownership,  is 
essential  to  the  permanent  public  welfare.  In  many  forest  states 
the  acquirement  of  additional  forest  lands  as  state  forests  is  neces- 
sary to  the  best  interests  of  the  states  themselves. 

The  conservation  of  our  moimtain  forests,  as  in  the  Appalachian 
system,  is  a  national  necessity.  These  forests  are  required  to  aid  in 
the  regulation  of  streams  used  for  navigation  and  other  purposes. 
The  conservation  of  these  forests  is  impracticable  through  private 
enterprise  alone,  by  any  state  alone,  or  by  the  federal  government 


FOREST  PROOUCTS   IN 

CLASSES 

FIRCWOOCX 

LUMBER  AND  SHINGLES 

POLES,  POSTS.  AND   RAILS. 

1907. 

FOREST  MATERIAL  REQUIREC 
BILUONS  or  CUBIC  FEET 

1 

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HEWED  CROSS-TIES 

COOPERAGE   STOCK ^.... 

PULP-W00a~ 

ROUND  MINE  TIMBERS. 

OlSTILLAriON  WOOD. 

alone.  Effective  and  immediate  co-operation  between  these  three 
agencies  is  essential.  Federal  ownership  of  limited  protective  areas 
upon  important  watersheds,  effective  state  fire  patrol,  and  the  co- 
operation of  private  forest  owners  are  all  required. 

The  true  remedy  for  unwise  tax  laws  lies  not  in  laxity  in  their 
application  nor  in  special  exemptions,  but  in  a  change  in  the  method 
of  taxation.  An  annual  tax  upon  the  land  itself,  exclusive  of  the 
value  of  the  timber,  and  a  tax  upon  the  timber  when  cut,  is  well 
adapted  to  actual  conditions  of  forest  investment,  and  is  practicable 
and  certain.  It  is  far  better  that  forest  land  should  pay  a  moderate 
tax  permanently  than  that  it  should  pay  an  excessive  revenue  tem- 
porarily and  then  cease  to  pay  at  all. 


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NATURAL  RESOURCES  AS  ECONOMIC  FACTORS 


95 


Forests  in  private  ownership  cannot  be  conserved  unless  they  are 
protected  from  fire.  We  need  good  fire  laws,  well  enforced.  Fire 
control  is  impossible  without  an  adequate  force  of  men  whose  sole 
duty  is  fire  patrol  diuing  the  dangerous  season. 

The  conservative  use  of  the  forest  and  of  timber  by  American 
citizens  will  not  be  general  imtil  they  learn  how  to  practice  forestry. 
Through  a  vigorous  national  campaign  in  education,  forestry  has 
taken  root  in  the  great  body  of  American  citizenship.    The  basis 


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ahready  exists  upon  which  to  build  a  structure  of  forest  conservation 
which  will  endure.  This  needs  the  definite  commitment  of  state 
governments  and  the  federal  government  to  their  inherent  duty 
of  teaching  the  people  how  to  care  for  their  forests.  The  final  re- 
sponsibility, both  for  investigative  work  in  forestry  and  for  making 
its  results  known,  rests  upon  the  states  and  upon  the  nation. 

By  reasonable  thrift,  we  can  produce  a  constant  timber  supply 
beyond  our  present  need,  and  with  it  conserve  the  usefulness  of  our 
streams  for  irrigation,  water  supply,  navigation,  and  power. 


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96  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

Under  right  management  our  forests  will  yield  over  four  times  as 
much  as  now.  We  can  reduce  waste  in  the  woods  and  in  the  mill  at 
least  one-third,  with  present  as  well  as  futiu^  profit.  We  can  per- 
petuate the  naval-stores  industry.  Preservative  treatment  will  reduce 
by  one-fifth  the  quantity  of  timber  used  in  the  water  or  in  the  groimd. 
We  can  practically  stop  forest  fires  at  a  cost  yearly  of  one-fifth  the 
value  of  the  merchantable  timber  burned. 

We  shall  suffer  for  timber  to  meet  our  needs  until  our  forests  have 
had  time  to  grow  again.  But  if  we  act  vigorously  and  at  once  we 
shall  escape  permanent  timber  scarcity. 

WATERS 

The  sole  source  of  our  fresh  water  is  rainfall,  including  snow. 
From  this  source  all  running,  standing,  and  groimd  waters  are 
derived.  The  habitability  of  the  country  depends  on  these  waters. 
Our  mean  annual  rainfall  is  about  30  inches;  the  quantity  about 
215,000,000,000,000  cubic  feet  per  year,  equivalent  to  ten  Mississippi 
rivers. 

Of  the  total  rainfall,  over  half  is  evaporated;  about  a  third  flows 
into  the  sea;  the  remaining  sixth  is  either  consumed  or  absorbed.. 
These  portions  are  sometimes  called,  respectively,  the  fly-off,  the 
run-off,  and  the  cut-off.  They  are  partly  interchangeable.  About  a 
third  of  the  run-off,  or  a  tenth  of  the  entire  rainfall,  passes  through 
the  Mississippi.  The  run-off  is  increasing  with  deforestation  and 
cultivation. 

Of  the  70,000,000,000,000  cubic  feet  annually  flowing  into  the  sea, 
less  than  i  per  cent  is  retained  and  utilized  for  inunicipal  and  com- 
munity supply;  less  than  2  per  cent  (or  some  10  per  cent  of  that  in 
the  arid  and  semi-arid  regions)  is  used  for  irrigation;  perhaps  5  per 
cent  is  used  for  navigation,  and  less  than  5  per  cent  for  power. 

For  municipal  and  conmiunity  water  supply  there  are  protected 
catchment  areas  aggregating  over  1,000,000  acres,  and  over  $250,- 
000,000  are  invested  in  waterworks,  with  nearly  as  much  more  in  the 
appurtenant  catchment  areas  and  other  lands.  The  population  so 
supplied  approaches  10,000,000,  and  the  annual  consumption  is  about 
37,500,000,000  cubic  feet.  The  better  managed  systems  protect  the 
catchment  areas  by  forests  and  grass;  the  water  is  controlled  and  the 
storm  product  used,  but  there  is  large  waste  after  the  water  enters 
the  mains. 


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98  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

For  irrigation  it  is  estimated  that  there  are  $200,000,000  invested 
in  dams,  ditches,  reservoirs,  .and  other  works  for  the  partial  control 
of  the  waters,  and  that  1,500,000,000,000  cubic  feet  are  annually 
diverted  to  irrigable  lands,  aggregating  some  20,000  square  miles. 
Except  in  some  cases  through  forestry,  few  catchment  areas  are  con- 
trolled, and  few  reservoirs  are  large  enough  to  hold  the  storm  waters. 
The  waste  in  the  public  and  private  projects  exceeds  60  per  cent, 
while  no  more  than  25  per  cent  of  the  water  actually  available  for 
irrigation  of  the  arid  lands  is  restrained  and  diverted. 

There  are  in  continental  United  States  287  streams  navigated  for 
an  aggregate  of  26,226  miles,  and  as  much  more  navigable  if  im- 
proved. There  are  also  45  canals,  aggregating  2,189  miles,  besides 
numerous  abandoned  canals.  Except  through  forestry  in  recent 
years,  together  with  a  few  reservoirs  and  canal  locks  and  movable 
dams,  there  has  been  little  effort  to  control  headwaters  or  catchment 
areas  in  the  interests  of  navigation,  and  none  of  our  rivers  are  navi- 
gated to  more  than  a  small  fraction  even  of  their  effective  low-water 
capacity. 

The  water  power  now  in  use  is  5,250,000  horse-power;  the  amount 
running  over  government  dams  and  not  used  is  about  1,400,000  horse- 
power; the  amount  reasonably  available  equals  or  exceeds  the  entire 
mechanical  power  now  in  use,  or  enough  to  operate  every  mill,  drive 
every  spindle,  propel  every  train  and  boat,  and  light  every  dty,  town, 
and  village  in  the  country.  While  the  utilization  of  water-power 
ranks  among  our  most  recent  and  most  rapid  industrial  developments, 
little  effort  has  been  made  to  control  catchment  areas  or  storm  waters 
in  any  large  way  for  power,  though  most  plants  effect  local  control 
through  reservoirs  and  other  works.  Nearly  all  the  freshet  and  flood 
water  runs  to  waste,  and  the  low  waters  which  limit  the  eflBiciency  of 
power  plants  are  increasing  in  frequency  and  duration  with  the  in- 
creasing flood  run-off. 

The  practical  utility  of  streams  for  both  navigation  and  power  is 
measured  by  the  effective  low-water  stage.  The  volume  carried  when 
the  streams  rise  above  this  stage  is  largely  wasted  and  often  does 
serious  damage.  The  direct  yearly  damage  by  floods  since  1900  has 
increased  steadily  from  $45,000,000  to  over  $238,000,000.  The  indi- 
rect loss  through  depreciation  of  property  is  great,  while  a  large  loss 
arises  in  impeded  traflSc  through  navigation  and  terminal  transfers* 

The  freshets  are  attended  by  destructive  soil  erosion.  The  soil 
matter  annually  carried  into  lower  rivers  and  harbors  or  into  the  sea 


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NATURAL  RESOURCES  AS  ECONOMIC  FACTORS  99 


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lOO  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

is  computed  at  783,000,000  tons.  Soil  wash  reduces  by  10  or  20  per 
cent  the  productivity  of  upland  farms  and  increases  channel  cutting 
and  bar  building  in  the  rivers.  The  annual  loss  to  the  farms  alone 
is  fully  $500,000,000,  and  large  losses  follow  the  fouling  of  the  waters 
and  the  diminished  navigability  of  the  streams. 

Through  imperfect  control  of  the  running  waters  lowlands  are  tem- 
porarily or  permanently  flooded.  It  is  estimated  that  there  are  in 
mainland  United  States  about  75,000,000  acres  of  overflow  and  swamp 
lands  requiring  drainage;  that  by  systematic  operation  these  can  be 
drained  at  moderate  expense,  and  that  they  would  then  be  worth  two 
or  three  times  the  present  value  and  cost  of  drainage,  and  would  fur- 
nish homes  for  10,000,000  people. 

It  is  estimated  that  the  quantity  of  fresh  water  stored  in  lakes  and 
ponds  (including  the  American  portion  of  the  Great  Lakes)  is  about 
600,000,000,000,000  cubic  feet,  equivalent  to  three  years'  rainfall  or 
eight  years'  nm-off.  Some  6,000,000  of  our  people  draw  their  water 
supply  from  lakes. 

A  large  part  of  that  half  of  the  annual  rainfall  not  evaporated 
lodges  temporarily  in  the  soil  and  earth.  It  is  estimated  that  the 
ground  water  to  the  depth  of  100  feet  averages  i6f  per  cent  of  the 
earth  voliune,  or  over  1,400,000,000,000,000  cubic  feet,  equivalent  to 
seven  years'  rainfall  or  twenty  years'  run-off.  This  subsurface  reser- 
voir is  the  essential  basis  of  agriculture  and  other  industries  and  is 
the  chief  natural  resource  of  the  country.  It  sustains  forests  and  all 
other  crops  and  supplies  the  perennial  springs  and  streams  and  wells 
used  by  four-fifths  of  our  population  and  nearly  all  our  domestic 
animals.  Its  quantity  is  diminished  by  the  increased  run-off  due  to 
deforestation  and  injudicious  farming.  Although  the  volume  of  the 
available  ground  water- is  subject  to  control  by  suitable  treatment 
of  the  surface,  little  effort  has  been  made  to  retain  or  increase  it,  and 
it  is  probable  that  fully  10  per  cent  of  this  rich  resource  has  been 
wasted  since  settlement  began.  The  water  of  the  strata  below  100  feet 
supplies  artesian  and  deep  wells,  large  springs,  and  thermal  and  mineral 
waters.    It  can  be  controlled  only  through  the  subsurface  reservoir. 

Of  the  35,000,000,000,000  cubic  feet  of  cut-off,  the  chief  share  is 
utilized  by  natural  processes  or  by  agriculture  and  related  industries. 
On  an  average  the  plant  tissue  of  annual  growths  is  three-fourths  and 
of  perennial  growths  three-eighths  water;  of  him[ian  and  stock  food 
over  80  per  cent  is  water,  and  in  animal  tissue  the  ratio  is  about  the 
same;   and  since  water  is  the  medium  for  organic  circulation,  the 


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NATURAL  RESOURCES  AS  ECONOMIC  FACTORS  lOl 

plants  and  animals  of  the  country  yearly  require  an  amount  many 
times  exceeding  their  aggregate  volume.  Even  in  the  more  humid 
sections  of  the  country  the  productivity  of  the  soil  and  the  possible 
human  population  would  be  materially  increased  by  a  greater  rain- 
fall, leaving  a  larger  margin  for  organic  and  other  chemical  uses. 
Except  through  agriculture  and  forestry  little  general  effort  is  made 
to  control  the  annual  cut-off,  although  some  farmers  in  arid  regions 
claim  to  double  or  triple  the  crop  from  given  soil  by  supplying  water 
just  when  needed  and  withholding  it  when  not  required. 

Water  is  like  other  resources  in  that  its  quantity  is  limited.  It 
differs  from  such  mineral  resources  as  coal  and  iron,  which  once 
used  are  gone  forever,  in  that  the  supply  is  perpetual;  and  it  differs 
from  such  resources  as  soils  and  forests,  which  are  capable  of  re- 
newal or  improvement,  in  that  it  cannot  be  augmented  in  quantity, 
though  like  all  other  resources  it  can  be  better  utilized. 

The  inventory  of  our  natural  resources  made  by  your  commission 
with  the  vigorous  aid  of  all  federal  agencies  concerned,  of  many 
states,  and  of  a  great  number  of  associated  and  individual  co-op- 
erators, furnishes  a  safe  basis  for  general  conclusions  as  to  what  we 
have,  what  we  use  and  waste,  and  what  may  be  the  possible  saving. 
But  for  none  of  the  great  resources  of  the  farm,  the  mine,  the  forest, 
and  the  stream  do  we  yet  possess  knowledge  definite  or  wide  enough 
to  insure  methods  of  use  which  will  best  conserve  them. 

In  order  to  conserve  a  natural  resource,  we  must  know  what 
that  resource  is  by  taking  stock.  We  greatly  need  a  more  complete 
inventory  of  our  natural  resources;  and  this  cannot  be  made  except 
through  the  active  co-operation  of  the  states  with  the  nation. 

The  permanent  welfare  of  the  nation  demands  that  its  natural 
resources  be  conserved  by  proper  use.  To  this  end  the  states  and  the 
nation  can  do  much  by  legislation  and  example.  By  far  the  greater 
part  of  these  resources  is^  in  private  hands.  Private  ownership  of 
natural  resources  is  a  public  trust;  they  should  be  administered  in 
the  interests  of  the  people  as  a  whole.  The  states  and  nation  should 
lead  rather  than  follow  in  the  conservative  and  efficient  use  of  prop- 
erty under  their  inmiediate  control.  But  their  first  duty  is  to  gather 
and  distribute  a  knowledge  of  our  natural  resources  and  of  the  means 
necessary  to  insure  their  use  and  conservation,  to  impress  the  body  of 
the  people  with  the  great  importance  of  the  duty,  and  to  promote  the 
co-operation  of  all.  No  agency,  state,  federal,  corporate,  or  private, 
can  do  the  work  alone. 


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I02  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

Finally,  the  conservation  of  our  resources  is  an  immediate  and 
vital  concern.  Our  welfare  depends  on  conservation.  The  pressing 
need  is  for  a  general  plan  imder  which  citizens,  states,  and  nation 
may  unite  in  an  effort  to  achieve  this  great  end.  The  lack  of  co- 
operation between  the  st^,tes  themselves,  between  the  states  and  the 
nation,  and  between  the  agencies  of  the  national  government,  is 
a  potent  cause  of  the  neglect  of  conservation  among  the  people.  An 
organization  through  which  all  agencies — state,  national,  municipal, 
associate,  and  individual — ^may  imite  in  a  common  effort  to  conserve 
the  foundations  of  our  prosperity  is  indispensable  to  the  welfare  and 
progress  of  the  nation.  To  that  end  the  immediate  creation  of  a 
national  agency  is  essential.  Many  states  and  associations  of  citizens 
have  taken  action  by  the  appointment  of  permanent  conservation 
commissions.  It  remains  for  the  nation  to  do  likewise,  in  order  that 
the  states  and  the  nation,  associations  and  individuals,  may  join 
in  the  accomplishment  of  this  great  purpose. 

23.  THE  ECONOMIC  POSSIBILITIES  OF  CONSERVATION' 

The  real  heart  of  the  conservation,  problem  presents  an  issue 
which  taxes  the  resources  of  economic  theory  to  the  utmost.  This 
issue  is  the  problem  of  adjusting  the  conflict  between  the  interest  of 
present  and  future.  In  America  the  possibilities  of  conservation  have 
been  considered  largely  from  the  standpoint  of  natural  science,  while 
the  economic  limitations  have  been  but  little  appreciated. 

It  is  first  necessary  to  determine  the  relation  between  the  utiliza- 
tion of  natural  resources  and  their  exhaustion.  If  utilization  did  not 
result  in  exhaustion,  the  problem  of  conservation,  as  it  was  stated 
above,  obviously  would  not  exist.  Accordingly,  natural  resources 
may  be  classified  as  follows: 

I.  Resources  which  exist  in  such  abundance  that  there  is  no  apparent 
necessity  for  economy,  either  in  present  or  future;  for  instance,  water 
in  some  localities. 
II.  Resources  which  will  probably  become  scarce  in  the  remote  future, 
although  so  abundant  as  to  have  no  market  value  in  the  present;  for 
instance,  building  stone  and  sand  in  some  localities. 
III.    Resources  which  have  a  present  scarcity — 

1.  Not  exhaustible  through  normal  use:  water-powers. 

2.  Necessarily  exhausted   through  use,   and  non-restorable    after 
exhaustion:  mineral  deposits. 

'  Adapted  from  L.  C.  Gray,  "The  Economic  Possibilities  of  Conservation"  in 
he  Quarterly  Journal  of  Economics,  XXVII,  499-509  (May,  19 13). 


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NATURAL  RESOURCES  AS  ECONOMIC  FACTORS  103 

3.  Necessarily  exhausted  through  use,  but  restorable:  forests,  fish. 

4.  Exhaustible  in  a  given  locality  but  restorable  through  the 
emplo3anent  of  other  resources  of  a  different  kind  or  of  similar 
resources  in  different  locations:  agricultural  land. 

Is  private  property  in  natural  objects  favorable  or  unfavorable  to 
the  realization  of  the  ideals  of  the  conservationist  ?  Whether  or  not 
the  individual  will  pursue  a  policy  of  exploitation  or  one  of  conserva- 
tion, depends  on  a  number  of  conditions,  the  most  important  of  which 
are  the  rate  of  interest,  the  law  of  diminishing  productivity,  and  the 
value  of  the  natural  resources  under  the  individual's  control. 

The  influence  of  the  rate  of  interest  may  be  illustrated  by  the 
motives  which  govern  the  owner  of  a  coal  mine  in  the  utilization  of  his 
property.  Were  it  possible  to  remove  all  of  this  content  in  the  present 
as  cheaply  as  over  a  period  of  time,  the  owner  would  most  certainly  do 
so.  This  is  true  because  the  proceeds  from  the  sale  of  the  product 
may  be  put  out  at  interest,  whereas  the  mineral  3delds  no  interest  so 
long  as  it  remains  imsold.  It  is  assumed,  of  course,  that  no  changes 
in  the  price  of  the  product  are  anticipated. 

The  owner  is  prevented,  however,  from  the  immediate  appropria- 
tion of  the  entire  valuable  content  because  the  removal  of  the  product 
is  subject  to  the  law  of  diminishing  productivity.  After  a  certain  rate 
of  removal  is  achieved,  an  increase  in  that  rate  results  in  a  smaller 
return  per  unit  of  expense.  By  postponing  the  extraction  of  this 
additional  coal  until  some  future  period,  the  owner  of  the  mine  can 
remove  the  entire  content  at  a  minimum  expense. 

The  rate  of  extraction  of  the  coal  which  will  be  most  profitable  to 
the  owner  is  necessarily  a  rate  between  the  two  extremes  which  have 
just  been  explained.  If  the  interest  rate  is  high,  the  postponement  of 
removal  until  a  future  period  becomes  less  profitable  than  would  be 
the  case  under  a  lower  rate  of  interest.  The  greater  amoimt  of 
interest  which  may  be  secured  from  the  realized  product  more  than 
balances  the  loss  from  diminishing  returns  through  an  increase  in  the 
rate  of  present  removal.  Thus  the  general  effect  of  a  high  interest 
rate,  other  things  being  equal,  is  rapid  exploitation;  whereas  a  lower 
interest  rate  makes  a  policy  of  conservation  more  profitable  to 
the  owner. 

The  market  value  of  the  natural  resource  influences  the  rate  of 
utilization  in  several  ways.  In  the  first  place,  the  rise  of  value 
increases  the  amoimt  of  land  that  may  be  profitably  utilized.  It 
becomes  profitable  to  farm  new  areas,  to  sink  shafts  in  mineral  deposits 
which  it  would  not  have  been  profitable  to  mine  under  the  lower  level 


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I04  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

of  prices,  and  to  seek  lower  levels  in  the  old  shafts.  In  short,  the 
result  of  the  increase  in  value  is  to  increase  rapidity  of  utilization  by 
stimulating  the  appropriation  of  resources  hitherto  not  subject  to  use, 
thereby  intensifying  the  drain  upon  the  supply  of  natural  resources. 

The  second  result  of  the  increase  in  value  is  to  encourage  a  more 
intensive  utilization  of  the  resources  formerly  employed.  Does  this 
mean  conservation  or  more  rapid  utilization?  There  has  been  a 
widespread  belief  that  an  intensive  use  of  land  is  a  conservative  use 
and  that  high  land  values  will  result  in  a  cessation  of  soil  mining.  In 
general,  however,  a  more  intensive  use  implies  merely  the  association 
of  a  relatively  large  amoimt  of  labor  and  capital  with  a  ^ven  surface 
of  land.  A  larger  amoimt  of  labor  and  capital  associated  with  a  giv^ 
surface  may  mean  a  more  rapid  utilization  ot  the  content  of  the  land 
than  under  more  extensive  methods.  It. may  mean  deeper  plowing, 
more  frequent  cultivation,  larger  harvests,  more  rapid  exhaustion. 

There  are  several  reasons,  however,  which  justify  the  view  that 
utilization  will  tend  to  be  exploitative  when  land  is  cheap,  and  con- 
servative when  it  is  dear.  In  the  first  place,  conservation  frequently 
requires  a  present  expenditure  in  order  to  prevent  the  waste  or 
deterioration  of  the  residuum  of  resources  not  immediately  needed. 
For  instance,  it  may  be  possible  to  retard  the  erosion  of  the  soil  by 
present  expenditiures  in  terracing  and  drainage.  The  economic 
problem  involved  is  the  balancing  of  present  expenditures  against 
future  benefits.  The  more  valuable  the  natiu'al  resource,  the  more 
likely  is  the  owner  to  pursue  a  policy  which  will  prevent  the  waste  of 
the  land  by  utilization  or  otherwise.  Moreover  the  rate  of  discount  on 
the  future  plays  an  influential  r61e  in  this  phase  of  conservation  as  in 
others;  for  the  higher  the  rate,  the  smaller  is  the  present  value  of  the 
expected  benefits  to  be  balanced  against  the  requisite  present  expense. 

In  the  second  place,  high  value  of  a  natiu'al  object  is  favorable  to 
conservation  because  a  tendency  results  for  other  less  valuable 
resoiurces  to  be  substituted  in  place  of  it. 

The  effect,  therefore,  of  the  rise  in  the  value  of  natural  resources 
is  twofold:  first,  to  increase  the  quantity  of  resoiurces  that  are  brought 
under  utilization;  and  second  to  create  motives  for  economizing  those 
already  in  use.  In  the  one  direction  the  influence  is  favorable  to 
conservation;  in  the  other  direction,  unfavorable. 

If  we  widen  our  point  of  view  and  consider  utilization  and 
conservation  from  the  standpoint  of  society,  the  explanation  of  the 
paradox  just  noted  will  be  seen  to  arise  from  the  conditions  which 
determine  market  value. 


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IV.    HUMAN  BEINGS  AS  ECONOMIC  FACTORS 

24-    SOME  DEFINITIONS  OF  LABOR 

"Labor  is  a  wealth-creating  eflfort " — ^J.  B.  Clark,  Essen- 

tials  of  Economic  Theory ^  chap.  i. 

"The  term  labor  ....  includes  all  human  exertion " 

— ^Henry  George,  Progress  and  Poverty,  Book  I,  chap.  ii. 

"Labor  is  any  human  eflfort  having  an  aim  or  purpose  outside 
of  itself." — F.  A.  Fetter,  The  Principles  of  Economics^  chi^).  xx. 

"Labor  is  the  application  of  hmnan  faailties  to  the  production 
of  wealth." — ^A.  S.  Johnson,  Introduction  to  Economics,  chap.  x. 

"Labor  is  the  voluntary  exertion  of  bodily  or  mental  faailties 
for  the  purpose  of  production." — ^N.  W.  Senior,  Political  Economy. 

"We  may  define  labor  as  any  exertion  of  mind  or  body  under- 
gone partly  or  wholly  with  a  view  to  some  good  other  than  the 
pleasure  derived  directly  from  the  work." — ^Alfred  Marshall,  Principles 
of  Economics,  Book  II,  chap.  iii. 

"Labor  may  be  pr(^rly  defined  any  sort  of  action  or  operation, 
whether  performed  by  man,  the  lower  animals,  machinery,  or  natural 
agents,  that  tends  to  bring  about  any  desirable  result." — ^J.  R. 
M'CuUoch,  Supplemental  Note  I  to  Smith's  Wealth  of  Nations, 

"Labor,  i.  Exertion  of  the  faculties  of  the  body  or  mind, 
especially  when  p>ainful  or  compulsory;  bodily  or  mental  toil. 

"2.  Ph3rsical  exertion  directed  to  the  supply  of  the  material 
wants  of  the  community;  the  specific  service  rendered  to  production 
by  the  laborer  and  artisan." — Miurray,  New  English  Dictionary. 

"Labor  is  ....  a  process  in  which  both  man  and  Nature 
participate,  and  in  which  man  of  his  own  accord  starts,  regulates, 
and  controls  the  material  reactions  between  himself  and  Nature. 
He  opposes  himself  to  Nature  as  one  of  her  own  forces,  setting  in 
motion  arms  and  legs,  head  and  hands,  the  natural  forces  of  his 
body,  in  order  to  appropriate  Nature's  productions  in  a  form  adapted 
to  his  own  wants." — Karl  Marx,  Capital  (En^ePs  translation) 
Vol.  I,  chap.  vii. 

"Labor  is  either  bodily  or  mental;  or,  to  express  the  distinction 
more  comprehensively,  either  muscular  or  nervous;  and  it  is  necessary 


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lo6  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

to  include  in  the  idea,  not  solely  the  exertion  itself,  but  all  feelings 
of  a  disagreeable  kind,  all  bodily  inconvenience  or  mental  annoyance, 
connected  with  the  employment  of  one's  thoughts,  or  muscles,  or 
both,  in  a  partiailar  occupation 

"Labor  ....  in  the  physical  world,  is  always  and  solely 
employed  in  setting  objects  in  motion;  the  properties  of  matter,  the 
laws  of  nature,  do  the  rest." — ^John  Stuart  Mill,  Principles  of  Political 
Economy,  Book  I,  chap.  i. 

"Labor  is  the  contest  of  the  life  of  man  with  an  opposite; — the 
term  *life'  including  his  intellect,  soul  and  physical  power,  contend- 
ing with  question,  diflSculty,  trial,  or  material  force 

".  ...  it  is  the  quantity  of  ...  .  loss,  or  failure  of  human 
life,  caused  by  any  effort.  It  is  usually  confused  with  effort  itself, 
or  the  application  of  power  ....  but  there  is  much  effort  which  is 
merely  a  mode  of  recreation,  or  of  pleasure.  The  most  beautiful 
actions  of  the  human  body,  and  the  highest  results  of  the  human 
intelligence,  are  conditions,  or  achievements,  of  quite  unlaborious, — 

nay,  of  recreative, — effort.    But  labor  is  the  suffering  in  effort " 

John  Ruskin,  Unto  This  Last,  §70,  and  Munera  PidveriSy  §59. 

25.  THE  RELATION  OF  LABOR  TO  NATURAL  AGENTS  IN 
PRODUCTION' 

Cases  in  which  a  certain  amount  of  labor  has  been  dispensed  with, 
its  work  being  devolved  upon  some  natural  agent,  are  apt  to  suggest 
an  erroneous  notion  of  the  comparative  functions  of  labor  and  natural 
powers;  as  if  the  co-operation  of  those  powers  with  human  industry 
were  limited  to  the  cases  in  which  they  are  made  to  perform  what 
would  otherwise  be  done  by  labor;  as  if,  in  the  case  of  things  made 
(as  the  phrase  is)  by  hand,  Nature  only  furnished  passive  materials. 
This  is  an  illusion.  The  powers  of  Nature  are  as  actively  operative 
in  the  one  case  as  in  the  other.  A  workman  takes  a  stalk  of  the 
flax  or  hemp  plant,  splits  it  into  separate  fibers,  twines  together 
several  of  these  fibers  with  his  fingers,  aided  by  a  simple  instrument 
called  a  spindle;  having  thus  formed  a  thread,  he  lays  many  such 
threads  side  by  side,  and  places  other  similar  threads  directly  across 
them,  so  that  each  passes  alternately  over  and  under  those  which 
are  at  right  angles  to  it;  this  part  of  the  process  being  facilitated  by 
an  instrument  called  a  shuttle.    He  has  now  produced  a  web  of  cloth, 

'  From  John  Stuart  Mill,  Principles  ofPoHticol  Economy ,  Book  I,  chap,  i,  S  2. 


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HUMAN  BEINGS  AS  ECONOMIC  FACTORS  lo? 

either  linen  or  sack-cloth,  according  to  the  material.  He  is  said  to 
have  done  this  by  hand,  no  natural  force  being  supposed  to  have 
acted  in  concert  with  him.  But  by  what  force  is  each  step  of  this 
operation  rendered  possible,  and  the  web,  when  produced,  held 
together  ?  By  the  tenacity,  of  force  of  cohesion,  of  the  fibers:  which 
is  one  of  the  forces  of  Nature,  and  which  we  can  measure  exactly 
against  other  mechanical  forces,  and  ascertain  how  much  of  any  of 
them  it  suffices  to  neutralize  or  coimterbalance. 

If  we  examine  any  other  case  of  what  is  called  the  action  of  man 
upon  Nature,  we  shall  find  in  like  manner  that  the  powers  of  Nature, 
or  in  other  words  the  properties  of  matter,  do  all  the  work,  when 
once  objects  are  put  into  the  right  position.  This  one  operation, 
of  putting  things  into  fit  places  for  being  acted  upon  by  their  own 
internal  forces,  and  by  those  residing  in  other  natural  objects,  is  all 
that  man  does,  or  can  do,  with  matter.  He  only  moves  one  thing 
to  or  from  another.  He  moves  a  seed  into  the  ground;  and  the 
natural  forces  of  vegetation  produce  in  succession  a  root,  a  stem, 
leaves,  flowers,  and  fruit.  He  moves  an  axe  through  a  tree,  and  it 
falls  by  the  natural  force  of  gravitation;  he  moves  a  saw  through  it, 
in  a  partioilar  manner,  and  the  physical  properties  by  which  a  softer 
substance  give  way  before  a  harder,  make  it  separate  into  planks, 
which  he  arranges  in  certain  positions,  with  nails  driven  through 
them,  or  adhesive  matter  between  them,  and  produces  a  table,  or  a 
house.  He  moves  a  spark  to  fuel,  and  it  ignites,  and  by  the  force 
generated  in  combustion  it  cooks  the  food,  melts  or  softens  the  iron, 
converts  into  beer  or  sugar  the  malt  or  cane-juice,  which  he  has 
previously  moved  to  the  spot.  He  has  no  otib^  means  of  acting  on 
matter  than  by  moving  it.  Motion,  and  resistance  to  motion,  are 
the  only  things  which  his  muscles  are  constructed  for.  By  muscular 
contraction  he  can  create  a  pressure  on  an  outward  object,  which,  if 
sufficiently  powerful,  will  set  it  in  motion,  or  if  it  be  already  moving, 
will  check  or  modify  or  altogether  arrest  its  motion,  and  he  can  do 
no  more.  But  this  is  enough  to  have  given  all  the  command  which 
mankind  have  acquired  over  natural  forces  immeasurably  more 
powerful  than  themselves;  a  command  which,  great  as  it  is  ahready, 
is  without  doubt  destined  to  become  indefinitely  greater.  He  exerts 
this  power  either  by  availing  himself  of  natural  forces  in  existence, 
or  by  arranging  objects  in  those  mixtures  and  combinations  by  which 
natural  forces  are  generated;  as  when  by  putting  a  lighted  match 
to  fuel,  and  water  into  a  boiler  over  it,  he  generates  the  expansive 


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MATERIALS  FOR  ELEMENTARY  ECONOMICS 


force  of  steam,  a  power  which  has  been  made  so  largely  available 
for  the  attainment  of  human  purposes. 

Labor,  then,  in  the  physical  world,  is  always  and  solely  employed 
in  putting  objects  in  motion;  the  properties  of  matter,  the  laws  of 
nature,  do  the  rest.  The  skill  and  ingenuity  of  human  beings  are 
chiefly  exercised  in  discovering  movements,  practicable  by  their 
powers,  and  capable  of  bringing  about  the  effects  which  they  desire. 


26.  THE  INCREASE  OF  POPULATION  IN  THE  UNITED  STATES' 

Under  normal  conditions,  the  rate  of  increase  of  a  body  of  popula- 
tion slowly  decreases.  Other  things  being  equal,  as  the  density  of 
population  increases  and  as  the  difficulty  of  breadwinning  becomes 
greater  with  diminished  opportimity,  natural  increase  and  inmiigra- 
tion  decrease.  The  rate  of  increase  may  be,  and  frequently  has  been, 
affected  by  disturbing  factors,  causing  it  to  increase  temporarily  or 
to  decrease  more  rapidly  than  normal.  As  an  illustration,  the  popu- 
lation, increases  in  nvmibers,  and  rates  of  increase  in  the  United  States 
by  decades  from  1790  to  1900  are  given  in  the  following  table: 


Year 


Population 


Increase 


Rate  of  Increase 


1790. 
1800. 
1810. 
1830. 
1830. 
1840. 
1850. 
i860. 
1870. 
1880. 
1890. 
1900. 


3,929,000 

5,308,000 

7,240,000 

9,638,000 

12,866,000 

1 7f  069,000 

23,192,000 

31,443,000 

38,558,000 

50,156,000 

62,622,000 

75,569,000 


1,379,000 

1,931,000 

2,399,000 

3,228,000 

4,203,000 

6,122,000 

8,251,000 

7,115,000 

11,597,000 

12,466,000 

12,946,000 


Percentace 

35 
36 
33 
33 
33 
36 
36 
23 
30 

as 

21 


Froni  1780  to  1840  the  population  was  little  disturbed  and  immi- 
gration was  small,  and  the  rate  of  increase  dropped  from  35  or  36 
per  cent  to  33  per  cent.  Between  1840  and  1850  there  was  a  great 
wave  of  immigration,  which  increased  in  the  succeeding  decade  and 
raised  the  rate  of  increase  to  36  per  cent.  Then  came  the  blighting 
effects  of  the  Civil  War;  deaths  from  casualty  and  diseases  and  the 
reduction  of  births  (aided  to  an  uncertain  extent  by  omission  in  the 

*  Adapted  from  Henry  Gannett's  "Estimates  of  Future  Population,"  in  the 
Report  of  the  National  Conservation  Commission  (1909),  11,  7-8. 


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HUMAN  BEINGS  AS  ECONOMIC  FACTORS  109 

census  of  1870)  reduced  the  rate  in  that  decade  to  23  per  cent.  Be- 
tween 1870  and  1880  the  country  b^an  to  recover  from  the  effects 
of  the  war,  and  the  rate  of  pq>ulation  increased  to  30  per  cent.  The 
succeeding  decade  witnessed  a  drop  of  5  per  cent,  and  the  following 
one  of  4  per  cent.  Thus  in  no  years  the  rate  of  increase  of  popula- 
tion has  been  reduced  from  35  to  21  per  cent.  If  normal  conditions 
prevail  in  the  future,  it  is  certain  that  the  rate  of  increase  will  con- 
tinue to  diminish  until  the  rate  reaches  that  of  the  densely  popu- 
lated countries  of  western  Europe — about  10  per  cent  increase  per 
decade.  It  will  be  noted  that  in  the  table  the  numerical  increase  has 
been  steady  excepting  for  the  period  between  i860  and  1870. 

A  great  variety  of  populaticm  conditions  exists  in  the  United  States. 
There  are  conununities  where  increase  is  supplied  wholly  by  inmii- 
gration;  others  receive  no  inmiigration,  but  are  dependent  upon  the 
excess  of  births  over  deaths;  there  are  r^ons  where  conmierce  and 
manufacturing  cause  dense  population;  thickly  populated  farming 
r^ons  now  passing  into  manufacturing  communities;  prosperous 
farming  r^ons;  sparsely  peopled  pastoral  lands;  and  desert  wastes 
with  few  people.  All  have  different  rates  of  increase,  and  the  figures 
discussed  represent  the  total  of  all  the  different  conditions. 


27.  THE  MALTHUSIAN  THEORY  OF  POPULATION 

The  Malthusian  theory  of  population  was  formulated  in  ^n  Essay 
on  the  Principle  of  Popidaiion,  written  in  1798  by  Thomas  Robert 
Maithus  (1766-1834),  a  young  Englishman  whose  scientific  interests 
had  turned  to  the  social  questions  of  his  time.  The  Essay  was  at  first 
an  anonymous  argument  intended  to  prove  that  the  evils  of  excessive 
human  increase  constituted  a  fatal  obstacle  in  the  way  of  certain 
visionary  schemes  of  social  equality  which  had  recently  been  proposed. 
In  later  editions,  beginning  with  1803,  the  argimient  was  slightly 
modified  and  was  si^ported  by  historical  and  contemporary  evidence. 
The  substance  of  the  developed  argimient  may  be  stated  somewhat 
as  follows. 

All  living  creatures  seem  to  be  characterized  by  a  capacity  for 
greater  increase  in  numbers  than  the  external  conditions  of  life  permit. 
In  the  case  of  man,  if  there  were  no  limits  upon  reproduction  except 
the  physiological  limits  to  procreation  and  child-bearing,  multiplica- 
tion would  continue  at  a  rapid  and  approximately  constant  rate. 
Abstractly  considered,  population  may  be  said  to  increase  naturally  in 


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no  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

a  geometrical  ratio,  and  to  be  capable  of  doubling  itself  as  often  as 
once  in  every  twenty-five  years. 

In  comparison  with  this  potential  increase  of  population,  the 
actual  increase  of  the  means  of  subsistence  is  slow.  Land  is  limited. 
Methods  of  cultivation  improve,  but  not  so  much  as  to  double  and 
redouble  the  products  of  the  soil.  "It  may  be  fairly  pronounced, 
therefore,  that,  considering  the  present  average  state  of  the  earth,  the 
means  of  subsistence,  under  drciunstances  the  most  favorable  to 
hiunan  industry,  could  not  possibly  be  made  to  increase  faster  than 
in  an  arithmetical  ratio." 

The  inherent  tendency  of  population  is  thus  to  increase  faster  than 
the  means  of  its  support.  But  actual  increase  beyond  the  food  supply 
is  obviously  impossible.  That  is,  the  abstract  tendency  of  increase  of 
population  must  be  arrested  by  certain  checks,  "These  checks  to 
population,  which  are  constantly  operating  with  more  or  less  force  in 
every  society,  and  keep  down  the  niunber  to  the  level  of  the  means 
of  subsistence,  may  be  classed  under  two  general  heads — the  preven- 
tive, and  the  positive  checks."  The  preventive  checks  comprise 
various  influences  which  diminish  the  possible  number  of  births;  and 
include,  in  particular,  moral  restraint^  or  the  postponement  of  marriage, 
from  motives  of  economic  prudence,  "with  a  conduct  strictly  moral 
during  the  period  of  this  restraint."  The  positive  checks  "include 
every  cause,  whether  arising  from  vice  or  misery,  which  in  any  degree 
contributes  to  shorten  the  natural  duration  of  hiunan  life."  They  are 
the  forces  acting  to  reduce  already  redundant  numbers,  and  range  in 
form  from  outright  starvation  to  the  least  of  the  various  hardships  in 
which  destruction  of  life  may  be  disguised.  The  checks  are  thus  "all 
resolvable  into  moral  restraint,  vice,  and  misery,"  and  since  moral 
restraint  may  be  regarded  as  a  counsel  of  perfection,  the  pressure  of 
population  is  a  constant  source  of  want  and  wretchedness. 

The  somber  and  rather  pessimistic  tone  of  the  Malthusian  theory 
was  in  large  measure  due  to  the  backgroimd  of  economic  conditions 
prevailing  at  the  time  when  Malthus  wrote.  The  social  shock  of  the 
industrial  revolution  in  England  and  the  burden  of  foreign  war  had 
aggravated  the  evik  of  an  antiquated  system  of  poor  reb'ef  which 
seemed  to  many  a  cause  rather  than  a  corrective  of  destitution  and 
degraded  living.  Not  surprisingly,  poverty  arising  from  overpopula- 
tion seemed  to  Malthus  an  ever-threatening  evil.  If  today  the 
gloomy  implications  of  Malthusianism  are  taken  less  seriously,  the 
explanation  is  to  be  found  chiefly  in  two  facts:   (i)  the  nineteenth 


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III 


century,  with  its  progress  in  manufacturing  methods  and  in  trans- 
portation, has  brought  an  \mexpected  increase  in  our  economic 
resources;  and  (2)  new  checks  to  population  have  become  operative 
with  surprising  effect  in  response  to  subtle  but  powerful  motives 
which  may  be  traced  back  to  the  increasing  exactions  and  oppor- 
timities  of  life  in  modem  society. 

28.    ECONOMIC  INFLUENCES  ON  THE  MARRIAGE-RATE' 

The  accompanying  diagrams  are  drawn  to  show  the  relation 
between  the  marriage-rate,  in  England,  and  the  extent  of  bank  clear- 
ings and  of  imemployment,  respectively.    The  curves  have  been 

Fig.  I 

Comparative  Fluctuations  of  the  Marriage-Rate   (Upper  Curve)   and 
Per  Capita  Bank  Clearings  (Lower  Curve)  in  England,  1872-96 
1875  1880  1885  1890  1893 


>  The  diagrams  are  adapted  from  G.  U.  Yule,  "  Changes  in  the  Marriage-  and 
Birth-Rates  in  England  and  Wales  During  the  Past  Half  Century,"  Journal  of 
the  Royal  Stalistical  Society,  LXIX,  95-96  (March,  1906). 

The  data  plotted  in  both  diagrams  are  differences  from  periodic  means — 
9-year  means  in  Fig.  I.  and  ii-year  means  in  Fig.  II. 


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MATERIALS  FOR  ELEMENTARY  ECONOMICS 


plotted  in  such  a  way  as  to  eliminate  the  e£fect  of  long-run  changes  in 
the  phenomena  in  question:  they  represent  in  every  case  simply  the 
annual  variations  from  the  general  trend  which  is  indicated,  arbi- 
trarily, by  the  horizontal  line  through  each  curve. 

In  Fig.  I  the  scales  are  such  that  the  maximum  fluctuations  repre- 
sent a  change  of  about  i  in  the  marriage-rate  (which  during  this 

Fig.  II 
Comparative  Fluctuations  of  the  Masriage-Rate  (Upper  Curve)  and  the 
Amount  of  Unemployment  (Lower  Curve)  in  England,  1864-96 
1865  1870  187&  1880  1886  1880  1896 


period  averaged  roughly  16  per  thousand  of  population)  and  about 
£50  bank  clearings  per  capita.  In  Fig.  11  unemployment  is  indicated 
by  calculated  values  of  an  "index-number,"  which  makes  it  imprac- 
ticable to  state  in  simple  terms  the  absolute  amount  of  unemployment 
represented. 

29.  THE  QUALITY  OF  POPULATION 

(a)   NON-SIIRVIVAL  OF  THE  FITTEST* 

My  thesis  is  this:  that  the  indisputable  effect  of  the  state  of 
social  progress  and  culture  we  have  reached,  of  our  high  civilization 
in  its  present  stage  and  actual  form,  is  to  counteract  and  suspend  the 

'  Adapted  from  W.  R.  Greg,  Enigmas  of  lAfCt  chap,  iii,  Trilbner  &  Co., 
1872.  The  substance  of  the  passage  originally  appeared  in  Fraser^s  Magmiu 
(London),  September,  1868. 


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HUMAN  BEINGS  AS  ECONOMIC  FACTORS  113 

operation  of  that  righteous  and  salutary  law  of  ''natural  selection" 
in  virtue  of  which  the  best  specimens  of  the  race — the  strongest,  the 
finest,  the  worthiest — are  those  which  survive,  multiply,  become 
paramount,  and  take  precedence;  succeed  and  trivunph  in  the  struggle 
for  existence,  become  the  espedal  progenitors  of  future  generations, 
continue  the  species,  and  propagate  an  ever  improving  and  perfecting 
type  of  humanity. 

The  principle  of  the  "Survival  of  the  Fittest"  does  not  appear  to 
fail  in  the  case  of  races  of  men.  Here  the  abler,  the  stronger,  the 
more  advanced,  the  finer,  in  short,  are  still  the  favored  ones,  succeed 
in  the  competition.  The  principle  of  "natural  selection"  therefore 
— of  the  superior  and  fitter  races  of  mankind  trampling  out  and 
replacing  the  poorer  races,  in  virtue  of  their  superior  fitness — ^would 
seem  to  hold  good  imiversally. 

So  probably  it  does  also,  and  always  has  done,  in  the  case  of 
nations;  and  the  apparent  exceptions  to  the  rule  may  be  due  only 
to  our  erroneous  estimate  of  the  true  elements  of  superiority. 

But  when  we  come  to  the  case  of  individuals  in  a  people,  or  classes 
in  a  community — the  phase  of  the  question  which  has  far  the  most 
practical  and  immediate  interest  for  ourselves — the  principle  would 
appear  to  fail,  and  the  law  is  no  longer  supreme.  Civilization,  with 
its  social,  moral,  and  material  complications,  has  introduced  a  dis- 
turbing and  conflicting  element.  It  is  not  now,  as  Mr.  Wallace 
depicts,  that  intellectual  has  been  substituted  for  physical  superiority, 
but  that  artificial  and  conventional  have  taken  the  place  of  natural 
advantages  as  the  ruling  and  deciding  force.  It  is  no  longer  the 
strongest,  the  healthiest,  the  most  perfectiy  organized;  it  is  not  men 
of  the  finest  physique^  the  largest  brain,  the  most  developed  intel- 
ligence, the  best  morale^  that  are  "favored"  and  successful  "in  the 
struggle  for  existence" — that  survive,  that  rise  to  the  surface,  that 
"natural  selection"  makes  the  parents  of  future  generations,  the 
continuators  of  a  picked  and  perfected  race.  It  is  still  "the  most 
favored,"  no  doubt,  in  some  sense,  who  bear  away  the  palm,  but  the 
indi^)ensable  favor  is  too  often  that  of  fortime,  not  of  nature.  The 
various  influences  of  our  social  system  combine  to  traverse  the 
righteous  and  salutary  law  which  God  ordained  for  the  preservation 
of  a  worthy  and  improving  hmnanity;  and  the  "varieties"  of  man 
that  endure  and  multiply  their  likenesses,  and  mold  the  features  of 
the  coming  times,  are  not  the  soimdest  constitutions  that  can  be 
found  among  us,  nor  the  most  subtle  and  resourceful  minds,  nor  the 


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114  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

most  amiable  or  self-denying  tempers,  nor  the  most  sagacious  judg- 
ments, nor  even  the  most  imperious  and  persistent  wills,  but  often 
the  precise  reverse — often  those  emasculated  by  luxury  and  those 
damaged  by  want,  those  rendered  reckless  by  squalid  poverty,  and 
those  whose  physical  and  mental  energies  have  been  sapped,  and 
whose  characters  have  been  grievously  impaired,  by  long  indulgence 
and  forestalled  desires. 

The  two  great  instruments  and  achievements  of  civilization  are 
respect  for  life  and  resp>ect  for  property.  In  proportion  as  both  are 
secure,  as  life  is  prolonged  and  as  wealth  is  accumulated,  and  as  the 
poor  and  weak  are  cared  for,  so  nations  rise — or  consider  that  they 
have  risen.  Among  wild  animals  the  sick  and  maimed  are  slain; 
among  savages  they  succumb  and  die  or  are  suppressed;  among  us 
they  are  cared  for,  kept  alive,  enabled  to  marry  and  multiply.  In 
uncivilized  tribes,  the  ineffective  and  incapable,  the  weak  in  body 
or  in  niind,  are  unable  to  provide  themselves  food;  they  fall  behind 
in  the  chase  or  in  the  march;  they  fall  out,  therefore,  in  the  race  of 
life.  With  us,  sustenance  and  shelter  are  provided  for  them,  and  they 
survive.  We  pride  ourselves — and  justly — on  the  increased  length 
of  life  which  has  been  effected  by  our  science  and  our  humanity. 
But  we  forget  that  this  higher  average  of  life  may  be  compatible 
with,  and  may  in  a  measure  result  from,  a  lower  average  of  health. 
We  have  kept  alive  those  who,  in  a  more  natural  and  less  advanced 
state,  would  have  died — ^and  who,  looking  at  the  physical  perfection 
of  the  race  alone,  had  better  have  been  left  to  die.  Among  savages, 
the  vigorous  and  sound  alone  survive;  among  us,  the  diseased  and 
enfeebled  survive  as  well;  but  is  either  the  physique  or  the  intel- 
ligence of  cultivated  man  the  gainer  by  the  change  ?  In  a  wild  state, 
by  the  law  of  natural  selection,  only  or  chiefly,  the  sounder  and 
stronger  specimens  were  allowed  to  continue  their  species;  with  us, 
thousands  with  tainted  constitutions,  frames  weakened  by  malady 
or  waste,  brains  bearing  subtle  and  hereditary  mischief  in  their 
recesses,  are  suffered  to  transmit  their  terrible  inheritance  of  evil  to 
other  generations,  and  to  spread  it  through  a  whole  commimity. 

Security  of  property,  security  for  its  transmission  as  well  as  for 
its  enjoyment,  is  one  of  our  chief  boasts.  Thousands  upon  thousands 
who  never  could  themselves  have  acquired  property  by  industry,  or 
conquered  it  by  courage,  or  kept  it  by  strength  or  ingenuity,  and  who 
are  utterly  incompetent  to  use  it  well,  are  yet  enabled  by  law  to 
inherit  and  retain  it.    They  are  bom  to  wealth,  they  revel  in  wealth, 


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HUMAN  BEINGS  AS  ECONOMIC  FACTORS  11$ 

though  destitute  of  all  the  qualities  by  which  wealth  is  won,  or  its 
possession  made  a  blessing  to  the  community.  In  a  natiural  state 
of  society  they  would  have  been  pushed  out  of  existence,  stripped 
of  their  inherited  and  ill-used  possessions,  jostled  aside  in  the  struggle 
and  the  race,  and  left  by  the  wayside  to  die.  In  civilized  commimities 
they  are  protected,  fostered,  flattered,  married,  and  empowered  to 
hand  down  their  vapid  incapacities  to  numerous  offspring,  whom 
perhaps  they  can  leave  wealthy  too.  In  old  and  highly  advanced 
nations,  the  classes  who  wield  power  and  alBluence  and  social  suprem- 
acy as  a  consequence  of  the  security  of  property,  do  not  as  a  rule 
consist — ^nay,  may  consist  in  a  very  small  measure — of  individuals 
who  have  won,  or  could  have  won,  those  influences  for  themselves 
— of  natural  "kings  of  men";  the  61ite  lots  in  life  do  not  fall  to  the 
£lite  of  the  race  or  the  community.  Those  possessions  and  that 
position,  which  in  more  simply  organized  tribes  would  be  an  indica- 
tion and  a  proof  either  of  strength,  of  intelligence,  or  of  some  happy 
adaptation  to  surroimding  exigencies,  now  in  our  complicated  world 
indicate  nothing — at  least  in  five  cases  out  of  six — ^but  merit  or  energy 
or  luck  in  some  ancestor,  perhaps  inconceivably  remote,  who  has 
bequeathed  his  rank  and  property  to  his  successors,  but  without  the 
qualities  which  won  them  and  warranted  them.  Yet  this  property 
and  rank  still  enable  their  possibly  unworthy  and  incapable  inheritors 
to  take  precedence  over  others  in  many  of  the  walks  of  life,  to  carry 
off  the  most  desirable  brides  from  less  favored  though  far  nobler  rivals, 
and  (what  is  our  present  point)  to  make  those  brides  the  mothers 
of  a  d^enerating,  instead  of  an  ever  improving  race. 

But  even  this  by  no  means  presents  the  whole  strength  of  the  case. 
Not  only  does  civilization,  as  it  exists  among  us,  enable  rank  and 
wealth,  however  diseased,  enfeebled,  or  unintelligent,  to  become  the 
continuators  of  the  species  in  preference  to  larger  brains,  stronger 
frames,  and  soimder  constitutions;  but  that  very  rank  and  wealth, 
thus  inherited  without  effort  and  in  absolute  security,  often  tend  to 
produce  enervated  and  imintelligent  offspring.  To  be  bom  in  the 
purple  is  not  the  right  introduction  to  healthy  energy;  to  be  sur- 
rounded from  the  cradle  with  all  temptations  and  facilities  to  self- 
indulgence  is  not  the  best  safeguard  against  those  indulgences  which 
weaken  the  intellect  and  exhaust  the  frame.  No  doubt  noblesse 
oblige  and  riches  can  buy  the  highest  education — always  excepting 
that  education  by  surrounding  circumstances  which  is  really  the  only 
one  that  tells  very  effectually  on  the  youthful  plant.    No  doubt,  too, 


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Ii6  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

there  are  splendid  and  numerous  exceptions — ^instances  in  which  rank 
is  used  to  mold  its  heir  to  its  duties,  and  in  which  wealth  is  used  to 
purchase  and  achieve  all  that  makes  life  noble  and  beneficent.  But 
we  have  only  to  look  aroimd  us,  and  a  little  below  the  surface,  and  then 
ask  ourselves  whether,  as  a  rule,  the  owners  of  rank  and  wealth — 
still  more  the  owners  of  wealth  without  rank — are  those  from  whose 
paternity  we  should  have  most  right  to  anticipate  a  healthy,  a  noble, 
an  energetic,  or  a  truly  intellectual  oflFspriiig — a  race  fitted  to  control 
and  guide  themselves  as  well  as  others,  to  subdue  the  earth  as  well 
as  to  replenish  it,  to  govern,  to  civilize,  to  illustrate,  to  carry  for- 
ward, the  future  destinies  of  man  ? 

And  if  it  is  not  from  the  highest  and  most  opulent  that  we  can 
expect  this  desiderated  posterity,  assuredly  it  is  not  from  the  lowest 
and  most  indigent.  The  physique  and  the  morale  of  both  the  extreme 
classes  are  imperfect  and  impaired.  The  physique  of  the  rich  is 
injured  by  indulgence  and  excess — that  of  the  poor  by  privation  and 
want.  The  morale  of  the  former  has  never  been  duly  called  forth 
by  the  necessity  for  exertion  and  self-denial;  that  of  the  latter  has 
never  been  adequately  cultivated  by  training  and  instruction.  The 
intellects  of  both  have  been  exposed  to  opposite  disadvantages.  The 
organizations  of  neither  class  are  the  best  in  the  conmiunity;  the 
constitutions  of  neither  are  the  soundest  or  most  imtainted.  Yet 
these  two  classes  are  precisely  those  which  are,  or  are  likely  to  be, 
preponderatingly,  the  fathers  of  the  coming  generation.  Both 
marry  as  early  as  they  please  and  have  as  many  children  as  they 
please — the  rich  because  it  is  in  their  power,  the  poor  because  they 
have  no  motive  for  abstinence:  and  scanty  food  and  hard  circum- 
stances do  not  oppose  but  rather  encourage  procreation.  Malthus' 
"prudential  check"  rarely  operates  upon  the  lowest  classes;  the 
poorer  they  are,  usually,  the  faster  do  they  multiply;  certainly  the 
more  reckless  they  are  in  reference  to  multiplication.  It  is  the  middle 
classes,  those  who  form  the  energetic,  reliable,  improving  element  of 
the  population,  those  who  wish  to  rise  and  do  not  choose  to  sink, 
those,  in  a  word,  who  constitute  the  true  strength  and  wealth  and 
dignity  of  nations — ^it  is  these  who  abstain  from  marriage  or  post- 
pone it.  Thus  the  imprudent,  the  desperate,  those  whose  standard 
is  low,  those  who  have  no  hope,  no  ambition,  no  self-denial,  on  the 
one  side,  and  the  pampered  favorites  of  fortime  on  the  other,  take 
precedence  in  the  race  of  fatherhood,  to  the  disadvantage  or  the 
exclusion  of  the  prudent,  the  resolute,  the  striving,  and  the  sdf- 


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HUMAN  BEINGS  AS  ECONOMIC  FACTORS  117 

restrained.  The  very  men  whom  a  philosophic  statesman,  or  a  guide 
of  some  superior  nattire,  would  select  as  most  quaUfied  and  deserving 
to  continue  the  race  are  precisely  those  who  do  so  in  the  scantiest 
measure.  Those  who  have  no  need  for  exertion,  and  those  who  have 
no  (^portunities  forcultture,  those  whose  frames  are  damaged  by 
indulgence,  and  those  whose  frames  are  weakened  by  privation,  breed 
ad  libUum:  while  those  whose  minds  and  bodies  have  been  hardened, 
strengthened,  and  purified  by  temperance  and  toil,  are  elbowed 
quietly  aside  in  the  unequal  press.  Surely  the  "selection"  is  no 
longer  "natural."  The  careless,  squalid,  unaspiring  Irishman,  fed 
on  potatoes,  living  in  a  pig-stye,  doting  on  a  superstition,  multiplies 
like  rabbits  or  ephemera;  the  frugal,  fore-seeing,  self-respectiog, 
ambitious  Scot,  stem  in  his  morality,  spiritual  in  his  faith,  sagacious 
and  disciplined  in  his  intelligence,  passes  his  best  years  in  struggle 
and  in  celibacy,  marries  late,  and  leaves  few  bdiind  him.  Given  a 
land  originally  peopled  by  a  thousand  Saxons  and  a  thousand  Celts, 
and  in  a  dozen  generations,  five-sixths  of  the  population  would  be 
Celts,  but  five-sixths  of  the  property,  the  power,  and  the  intellect 
would  belong  to  the  one-sixth  of  Saxons  that  remained.  In  the 
eternal  "struggle  for  existence,"  it  would  be  the  inferior  and  less 
favored  race  that  had  prevailed — and  prevailed  by  virtue  not  of  its 
qualities  but  of  its  faults,  by  reason  not  of  its  stronger  vitality  but 
of  its  weaker  reticence  and  its  narrower  brain. 

Of  course  it  will  be  urged  that  the  principle  of  natiural  selection 
fails  thus  utterly  because  our  civilization  is  imperfect  and  misdirected; 
because  our  laws  are  insufficient;  because  ova  social  arrangements 
are  unwise;  because  our  moral  sense  is  languid  or  unenlightened. 
No  doubt,  if  otu:  legislators  and  rulers  were  quite  sagacious  and  quite 
stem,  our  people  in  all  ranks  quite  wise  and  good,  the  beneficent 
tendencies  of  nattire  would  continue  to  operate  uncounteracted.  No 
constitutions  would  be  impaired  by  insufficient  nutriment  and  none 
by  unhealthy  excess.  No  classes  would  be  so  undeveloped  either  in 
mind  or  muscle  as  to  be  unfitted  for  procreating  soimd  and  vigorous 
offspring.  The  sick,  the  tainted,  and  the  maimed  would  be  too 
sensible  and  too  unselfish  to  dream  of  marrying  and  handing  down 
to  their  children  the  curse  of  diseased  or  feeble  frames;  or  if  they 
did  not  thus  control  themselves,  the  state  would  exercise  a  salutary 
but  unrelenting  paternal  despotism,  and  supply  the  deficiency  by 
vigilant  and  timely  prohibition.  A  republic  is  conceivable  in  which 
paupers  should  be  forbidden  to  propagate;  in  which  all  candidates 


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Ii8  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

for  the  proud  and  solemn  privilege  of  continuing  an  untainted  and 
perfecting  race  should  be  subjected  to  a  pass  or  a  competitive  exami- 
nation, and  those  only  be  suffered  to  transmit  their  names  and 
families  to  future  generations  who  had  a  pure,  vigorous,  and  well- 
developed  constitution  to  transmit;  so  that  paternity  should  be  the 
right  and  fimction  exclusively  of  the  61ite  of  the  nation,  and  humanity 
be  thus  enabled  to  march  on  securely  and  without  drawback  to  its 
ultimate  possibilities  of  progress.  Every  damaged  or  inferior  tem- 
perament might  be  eliminated,  and  every  special  and  superior  one 
be  selected  and  enthroned,  till  the  himian  race,  both  in  its  manhood 
and  its  womanhood,  became  one  glorious  fellowship  of  saints,  sages, 
and  athletes;  till  we  were  all  Blondins,  all  Shakespeares,  Pericles', 
Socrates',  Columbuses,  and  F6nelons.  But  no  nation — ^in  modem 
times  at  least — ^has  ever  yet  approached  or  aimed  at  this  ideal;  no 
such  wisdom  or  virtue  has  ever  been  foimd  except  in  isolated  indi- 
vidual instances;  no  government  and  no  statesman  has  ever  yet 
dared  thus  to  supplement  the  inadequacy  of  personal  patriotism  by 
laws  so  sapiently  despotic.  The  faces  of  the  leading  peoples  of  the 
existing  world  are  not  even  set  in  this  direction — ^at  present  notably 
the  reverse.  The  more  marked  tendencies  of  the  age  are  three;  and 
all  three  run  coimter  to  the  operation  of  the  wholesome  law  of  "natural 
selection."  We  are  learning  to  insist  more  and  more  on  the  freedom 
of  the  individual  will,  the  right  of  everyone  to  judge  and  act  for 
himself.  We  are  growing  daily  more  foolishly  and  criminally  lenient 
to  every  natural  propensity,  less  and  less  inclined  to  resent,  or  control, 
or  punish  its  indulgence.  We  absolutely  refuse  to  let  the  poor,  the 
incapable,  the  lazy,  or  the  diseased  die;  we  enable  or  allow  them,  if 
we  do  not  actually  encourage  them,  to  propagate  their  incapacity, 
poverty,  and  constitutional  disorders.  And,  lastly,  democracy  is 
every  year  advancing  in  power,  and  claiming  the  supreme  right  to 
govern  and  to  guide;  and  democracy  means  the  management  and 
control  of  social  arrangements  by  the  least  educated  classes — ^by  those 
least  trained  to  foresee  or  measure  consequences,  least  acquainted 
with  the  fearfully  rigid  laws  of  hereditary  transmission,  least  habitu- 
ated to  repress  desires,  or  to  forego  inmiediate  enjoyment  for  future 
and  remote  good. 

(b)   EUGENICS 

The  quality  of  the  population  has  only  within  a  few  years  begun 
to  command  from  economists  and  other  students  of  social  problems 
the  attention  which  so  important  a  topic  deserves.    The  influence 


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HUMAN  BEINGS  AS  ECONOMIC  FACTORS  119 

of  Malthus,  at  the  beginning  of  the  last  century,  committed  the 
economic  opinion  of  that  period  to  the  abready  prevalent  view  that 
questions  of  wise  public  policy  in  regard  to  population  were  essen- 
tially questions  of  mere  numbers — the  number  of  men  who  could  be 
compelled  to  fight,  labor,  or  pay  taxes,  and  the  numerical  proportion 
between  existing  food-supply  and  the  human  beings  to  be  fed. 
Almost  no  one  then  recognized  the  menace  of  the  unequal,  increase 
of  social  and  economic  classes  unequally  endowed  with  the  mental 
and  physical  characteristics  which  make  for  success.  Indeed,  the 
inequalities  of  innate  human  capacity  were  little  appreciated  until 
Darwin's  Origin  of  Species,  by  pointing  out  the  r61e  of  inherited 
variations  throughout  the  animal  world,  suggested  how  far-reaching 
might  be  the  effect  of  hereditary  defects  and  abilities  in  determining 
the  careers  of  individual  men,  and  even  the  whole  course  of  civiliza- 
tion. This  suggestion  presently  led  the  late  Sir  Francis  Galton  to 
publish — tentatively,  at  first,  in  1865,  and  later,  in  1869,  in  his 
classic  Hereditary  Genius — an  impressive  array  of  evidence  bearing 
on  the  inheritance  of  human  talents  and  aptitudes,  and  an  epoch- 
making  argimient  in  favor  of  selective  improvement  of  the  human 
breed  as  a  promising  means  of  increasing  human  welfare.  Subse- 
quently Galton  adduced  new  proofs  of  hereditary  ability;  won  new 
followers  to  his  project  of  race-betterment,  and  raised  the  program 
of  investigations  which  he  had  begun  to  the  level  of  an  incipient 
science,  bearing  the  name,  "Eugenics." 

"Eugenics,"  in  the  words  of  Galton,  "is  the  study  of  agencies 
imder  sodal  control  that  may  improve  or  impair  the  racial  qualities 
of  future  generations  either  phjrsically  or  mentally."  Primarily  it 
is  the  study  of  human  heredity  and  of  social  influences  which  act, 
through  heredity,  for  racial  degeneracy  or  racial  improvement. 

The  study  of  human  heredity  has  made  great  advances  within 
the  past  decade.  The  investigations  of  Professor  Karl  Pearson  and 
his  associates,  conducted  according  to  statistical  methods  which 
Galton  had  first  outlined,  led  to  the  important  conclusions  that 
heredity  is  as  strong  in  man  as  in  other  animals,  and  that  our  mental 
qualities  are  as  much  controlled  by  heredity  as  our  more  obvious 
phjrsical  traits.  "All  human  qualities,"  according  to  Professor 
Pearson,  "are  inherited  in  a  marked  and  probably  equal  degree." 
As  for  the  comparative  effects  of  heredity  and  environment,  he  be- 
lieves it  "quite  safe  to  say  that  the  influence  of  environment  is  not 
one-fifth  that  of  heredity,  and  quite  possibly  not  one-tenth  of  it. " 


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I20  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

This  conviction  of  the  superior  potency  of  inheritance  is  borne  out 
by  the  results  of  other  researches,  which  not  only  have  afforded 
substantial  confirmation  of  many  of  Pearson's  generalizations,  but 
have  also  brought  out  specific  evidence  of  the  way  in  which  heredity 
transmits  such  characteristics  as  feeble-mindedness,  deaf-mutism, 
forms  of  insanity,  color-blindness,  and  a  long  list  of  other  defects. 
In  many  cases  it  is  now  possible  to  predict  with  no  littie  accuracy 
the  sorts  of  disability  which  marriages  of  unsound  stocks  are  likely  to 
bring  forth.  Similarly,  the  reappearance  of  specific  aptitudes  in  gifted 
families  may  be  foretold,  though,  because  of  the  comparatively  com- 
plex and  indefinite  nature  of  such  affirmative  talents,  the  outcome  is 
here  less  certain. 

Practical  attempts  to  apply  existing  knowledge  of  heredity  in 
the  betterment  of  racial  quality  fall  imder  two  heads:  positive,  or 
constructive  eugenics,  and  negative,  or  restrictive  eugenics.  On 
the  one  hand  we  may  attempt  to  develop  a  better  human  type;  on 
the  other,  we  may  content  ourselves  with  eliminating  the  worst 
lapses  from  the  normal  type  which  now  exists.  Whichever  program 
is  adopted,  applied  eugenics  must  work  mainly  through  the  force 
which  eugenic  teaching  can  bring  to  bear  on  marriage  selection. 
The  course  of  either  procedure  is  therefore  likely  to  be  obstructed 
by  ignorance,  inertia,  prejudice,  and  the  reluctance,  desirable  or 
undesirable,  which  is  aroused  by  any  attempt  to  transfer  marriage 
and  parenthood  from  the  sway  of  the  emotions  to  the  domain  of 
reason.  But  apart  from  this  general  difficulty,  positive  and  negative 
eugenics  have  their  special  and  respective  limitations.  Positive 
eugenics  is  particularly  uncertain.  Even  if  the  powers  of  heredity 
were  completely  understood  and  entirely  amenable  to  our  control, 
we  should  lack  adequate  understanding  of  the  most  desirable  human 
type  to  create.  We  cannot  assxmie  that  abilities  which  now  bring 
exceptional  advantages  to  exceptional  individuals  would  offer  equal 
advantages  to  all  if  possession  of  these  abilities  became  universal. 
Negative  eugenics,  indirectiy,  is  beset  by  the  same  imcertainty.  More 
immediately,  it  involves  restraint  which,  if  practiced  at  all,  would 
probably  be  practiced  more  vigorously  by  the  more  thoughtful  mem- 
bers of  the  community,  with  the  result  of  still  further  aggravating 
the  disproportion  between  the  slow  increase  of  the  intellectual  classes 
and  the  teeming  multiplication  of  the  ignorant  and  improvident.  On 
the  whole,  however,  negative  eugenics  seems  thus  far  the  more  hope- 
ful.   Within  limits,  and  in  cases  where  the   action  of  heredity  is 


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HXmAN  BEINGS  AS  ECONOMIC  FACTORS  1 21 

highly  definite,  such  restriction  of  non-eugenic  marriages,  by  social 
compulsion  or  from  individual  sense  of  duty,  holds  out  the  prospect 
of  a  real  reduction  of  human  suffering.  To  this  end,  therefore,  the 
advocates  of  eugenics,  in  growing  numbers,  are  working.  How  far 
their  efforts  have  a  scientific  justification  is  yet  to  be  proven.  At 
least  they  have  enlisted  in  their  support  the  altruism  which  offers  a 
present  self-sacrifice  for  the  welfare  of  posterity,  and  the  half-mystical 
veneration  that  an  age  of  evolutionary  ideals  feels  for  life  and  the 
continuance  of  life,  as  the  physical  process  through  which  mankind 
works  upward. 

30.  THE  COST  TO  SOCIETY  OF  A  FAMILY  OF  DEGENERATES^ 

Passing  from  the  actual  record,  I  submit  an  estimate  of  the 
damage  of  the  family,  based  on  what  is  known  of  those  whose  lives 
have  been  learned.  The  total  number  of  persons  included  in  the 
forgoing  statement  reach  709;  besides  these,  125  additional  names 
have  been  gathered  since  the  text  of  this  essay  was  prepared,  whose 
general  character  is  similar.  If  all  the  collateral  lines  which  have 
not  been  traced  could  be  added  to  the  709  here  tabulated,  the  aggre- 
gate would  reach  at  least  1,200  persons,  living  and  dead.  Now,  out 
of  700  persons  we  have  180  who  have  either  been  to  the  poor-house 
or  received  outdoor  relief  to  the  extent  of  800  years.  Allowing  that 
the  best  members  of  the  family  have  emigrated,  it  would  be  a  low 
estimate  to  say  that  80  of  the  additional  500  are,  or  have  been, 
dependents,  adding  350  years  to  the  relief,  making  an  aggregate  of 
280  persons  under  pauper  training,  receiving  1,150  years  of  public 
charity.  Great  as  this  is,  it  is  not  all.  In  a  former  portion  of  this 
report,  it  was  stated  the  pauper  records  cover  255  years,  of  which 
only  64  could  be  consulted,  the  difficulties  of  getting  the  remaining 
191  years  being,  in  most  cases,  insuperable.  Allowing  that  these 
191  years  would  yield  as  many  years  of  reUef  as  the  64  which  have 
actually  been  searched,  we  should  have  an  aggregate  of  2,300  years 
of  out-door  reUef.  Allowing  150  years  of  alms-house  life  at  $100  a 
year,  the  sum  expended  equals  $15,000,  and  for  2,150  years  of  out- 
door relief,  at  the  moderate  rate  of  $15  a  year,  $32,250,  making  an 
aggregate  expenditure  of  $47,250  in  75  years  for  this  single  family, 
52  per  cent  of  whose  women  are  harlots  in  some  degree.    Making  a 

« From  R.  L.  Dugdale,  The  Jukes,  pp.  67-70.  New  edition,  G.  P.  Putnam's 
Sons,  1 9 10. 


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122 


MATERIALS  FOR  ELEMENTARY  ECONOMICS 


like  computation  for  the  other  items  of  the  schedule,  allowing  for 
all  contingencies  a  financial  estimate  may  be  summed  up  as  follows: 


Cott 


Total  number  of  persons 

Number  of  pauperized  adults 

Cost  of  abns-house  relief 

Cost  of  out-door  relief 

Niunber  of  criminals  and  offenders 

Years  of  imprisonment 

Cost  of  maintenance,  at  $300  a  year 

Number  of  arrests  and  trials 

Cost  of  arrests  and  triab,  $100  each 

Number  of  habitual  thieves,  convicted  and  uncon- 
victed  

Number  of  years  of  depredation,  at  1 2  years  each  . . 

Cost  of  depredation,  $120  a  year 

Number  of  lives  sacrificed  by  murder 

Value,  at  $1,200  each 

Number  of  common  prostitutes 

Average  number  of  years  of  debauch 

Total  number  of  years  of  debauch 

Cost  of  maintaining  each  per  year 

Cost  of  maintenance 

Niunber  of  women  specifically  diseased 

Average  number  of  men  each  woman  contaminates 
with  permanent  disease 

Total  number  of  men  contaminated 

Number  of  wives  contaminated  by  above  men 

Total  nimiber  of  persons  contaminated 

Cost  of  drugs  and  medical  treatment  during  rest  of 
.  life,  at  $200  each , 

Average  loss  of  wages  caused  by  disease  dimng  rest 
of  life,  in  years 

Total  years  of  wages  lost  by  400  men 

Loss,  at  $500  a  year .". 

Average  number  of  years  withdrawn  from  produc- 
tive industry  by  each  courtesan 

Total  number  of  years  lost  by  50  courtesans 

Value  estimated  at  $125  a  year 

Aggregate  curtailment  of  life  of  490  adults,  equiva- 
lent to  50  mature  individuals , 

Cash  cost,  each  life  at  $1,200 

Aggregate  of  children  who  died  prematurely 

Average  years  of  life  of  each  child 

Cash  cost,  each  child  at  $50 

Number  of  prosecutions  in  bastardy 

Average  cost  of  each  case,  $100 

Cost  of  property  destroyed,  blackmail,  brawls' 

Average  capital  employed  in  houses,  stock,  furniture, 
etc.,  for  brothels 

Compound  interest  for  26  years  at  6  per  cent 

Charity  distributed  by  church 

Charity  obtained  by  begging 


1,200 
280 


140 
140 


250 


60 
720 


Total. 


7 


SO 

15 

750 

$300.00 


40 

10 
400 

40 
440 


3 
1,200 


lO 

500 


50 


300 
2 


30 


$15,000.00 
32,250.00 


28,000.00 
25,000.00 


86,400.00 
8,400.00 


225,000.00 


88,000.00 


600,000.00 


62,500.00 


60,000.00 


15,000.00 


3,000.00 
20,000.00 

6,000.00 
18,000.00 
10,000.00 

SASOOO 


$1,308,000.00 


'One  house  with  furniture  worth  $z,xoo  was  burned  by  a  mob. 


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HUMAN  BEINGS  AS  ECONOMIC  FACTORS 


123 


Over  a  million  and  a  quarter  dollars  of  loss  in  75  years,  caused 
by  a  single  family  1,200  strong,  without  reckoning  the  cash  paid  for 
whiskey,  or  taking  into  account  the  entailment  of  pauperism  and 
crime  of  the  survivors  in  succeeding  generations,  and  the  incurable 
disease,  idiocy  and  insanity  growing  out  of  this  debauchery,  and 
reaching  further  than  we  can  calculate.  It  is  getting  to  be  time  to 
ask,  do  our  courts,  our  laws,  our  alms-houses  and  our  jails  deal  with 
the  question  presented  ? 

31.  THE  CONSERVATION  OF  HUMAN  ENERGY^ 

I.      THE  LENGTHENING  OF  LIFE 

There  is  no  doubt  that  it  is  possible  to  prolong  life.  Making 
every  allowance  for  inadequacies  of  statistics,  we  have  strong  reason 
to  believe  that  life  is  twice  as  long  as  three  or  four  centuries  ago,  and 
modem  records  show  that  it  is  today  increasing  more  rapidly  than 
ever.  The  rate  at  which  this  lengthening  proceeds  per  century  is 
shown  in  the  following  table: 

Rate  of  Lengthening  Life  (in  Years,  Per  Century) 


Coantry 

Periods 

Males 

Females 

England ......... 

1838-54  to  1871-81,  or  30  years 

1871-^1  to  1891-1900,  or  20  years 

181 7-3 1  to  1898-1903,  or  76  years 

1867-77  to  1891-1900,  or  23  years 

1835-44  to  1895-1900,  or  57  years 

1816-40  to  1891-1900,  or  67  years 

1780  to  18??,  or  66  years 

5 

14 
10 

25 
13 

_  ^7 

I 

t'6 

Endand 

France 

II 

Pnissia 

29 

IS 

15  _ 

7 

Denmark 

Sweden 

United  States: 
Massachusetts . . 

Massachusetts . . 

18^?  to  180^-07.  or  40  years 

4 

India 

1881  to  1901,  or  20  years 

0 

From  this  table  we  observe: 

First.  That  the  rate  of  progress  is  extremely  variable  in  different 
countries.  It  is,  perhaps,  no  accident  that  the  maximum  rate  obtains 
in  Prussia,  which  is  probably  the  most  progressive  country  in  the 
discovery  and  application  of  scientific  medicine.  If  progress  con- 
tinues for  a  century  at  merely  the  present  rate,  human  life  in  Prussia 
will  be  twenty-five  to  twenty-nine  years  longer  than  at  present.  The 
average  rate  of  improvement  for  all  the  countries,  excepting  India,  is 
about  fifteen  years  per  century. 

*  Adapted  from  Irving  Fisher's  report  on  "National  Vitality,  Its  Wastes  and 
Conservation,"  in  the  Report  of  the  National  Conservation  Commission  (1909),  III, 
724--3I1  655-^1  739-42,  748-51. 


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124  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

Second.  It  is  noticeable  that  in  practically  all  cases  the  improve- 
ment is  more  among  females  than  males.  This  is  one  expression  of 
the  progress  which  womankind  is  now  making  in  all  lands. 

Third.  This  table,  as  well  as  the  estimate  of  Professor  Finkeln- 
burg,  shows  that  not  only  is  the  average  duration  of  himian  life 
increasing,  but  that  the  rate  of  increase  is  also  increasing.  The  esti- 
mate of  Finkelnburg  that  the  lengthening  of  life  during  the  interval 
between  the  sixteenth  century  and  the  end  of  the  eighteenth  centiuy 
was  from  eighteen  or  twenty  years  to  a  little  over  thirty  years,  shows 
a  rate  of  increase  of  about  four  years  per  century.  Diuing  the  fol- 
lowing century  he  estimated  that  the  life  span  increased  from  a  little 
over  thirty  to  thirty-eight  or  forty  years,  or  about  nine  years  per 
century.  In  the  table  we  see  that  in  England  the  length  of  life  was 
increasing  in  the  middle  of  the  nineteenth  century  at  a  rate  of  frofn 
five  to  nine  years  per  centiuy,  while  diuing  the  last  quarter  it  was 
increasing  at  from  fourteen  to  sixteen  years  per  century.  In  Massa- 
chusetts the  imperfect  data  indicate  that  life  lengthened  in  the  first 
half  of  the  eighteenth  century  at  the  rate  of  about  seven  years  a 
century.  The  indication  for  the  last  part  of  the  nineteenth  century 
is  that  it  increased  at  the  rate  of  fourteen  years  per  century. 

We  may  briefly  smnmarize  chronologically  the  general  rate  of 
increase  as  follows: 

Lengthening  of  Human  Lipe  Per  Centxtry 

During  seventeenth  and  eighteenth  centuries 4 

During  first  three  quarters  of  the  nineteenth  century 9 

Present  rate  in  Massachusetts 14 

Present  rate  in  Europe 17 

Present  rate  in  Prussia 27 

It  would  be  surprising  if  the  future  should  not  witness  a  further 
lengthening  of  human  life,  and  at  an  increasing  rate.  Of  course 
there  is  a  limit  to  the  further  increase  of  human  life,  but  there  is  good 
reason  to  believe  that  the  limit  is  still  far  oflF. 

It  has  been  estimated  that  it  is  possible  to  prolong  life  fifteen 
years.'  This  is  equivalent  to  reducing  the  death-rate  by  about  one- 
fourth.    This  estimate  is  but  a  minimum. 

n.      THE  BROADENING  OF  LIFE 

Length  of  life  is  but  one  indication  of  vitality.  Everyone  recog- 
nizes that  the  life  of  a  valetudinarian  or  an  invalid,  however  long,  is 

■  [The  extensive  statistical  study  upon  which  this  estimate  is  based  is  omitted. 
—Editors.) 


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HUMAN  BEINGS  AS  ECONOMIC  FACTORS  125 

but  a  narrow  stream.  We  may  therefore  conceive,  besides  the  dimen- 
sion of  length,  another  dimension  of  life,  which  may  be  called  its 
"breadth."  By  the  breadth  of  life  we  mean  its  healthiness.  An 
ideally  healthy  life,  free  throughout  from  ailment  and  disability,  is 
rarely,  if  ever,  found.  But  it  is  the  aim  of  hygiene  to  approximate 
such  an  ideal. 

a)  Prevalence  of  serious  illness, — 

The  amount  of  invalidity  or  illness  in  a  community  has  been  esti- 
mated by  a  number  of  different  investigators,  and  in  a  number  of 
different  ways.  While  the  results  vary  somewhat,  on  the  whole  they 
harmonize  fairly  well. 

The  most  careful  consideration  of  the  various  illness  statistics 
available  was  made  by  Farr.  He  finds  that  the  rate  of  invalidity 
increases  with  age,  and  at  the  later  ages  increases  with  great  rapidity. 
The  material  he  has  used  has  come  chiefly  from  various  friendly 
societies  in  Great  Britain  and  Scotland,  and  especially  from  the  East 
India  Company.  His  final  conclusion  is  probably  nearly  as  valid 
today  as  then.  It  is  that  corresponding  to  each  death  in  a  community, 
there  are  a  little  more  than  two  years  of  illness. 

Another  way  of  expressing  the  same  fact  is  that  for  each  annual 
death,  there  are  on  the  average  two  persons  constantly  sick  during 
the  year.  Applying  this  estimate  to  the  United  States,  in  which 
about  1,500,000  persons  die  per  annum,  there  are  probably  at  all 
times  about  3,000,000  persons  seriously  ill.  This  means  an  average 
of  thirteen  days  per  annum  for  each  inhabitant ^ 

b)  Prevalence  of  minor  ailments, — 

The  statistics  of  morbidity  which  we  have  given,  refer  to  forms 
which  are  relatively  acute;  but  there  are  many  milder  forms  which 
do  not  incapacitate  the  patient  from  work  or  compel  him  to  take  to 
his  bed.  The  extent  of  these  milder  ills  is  not  generally  appreciated. 
They  are  often  carefully  guarded  secrets.  The  individual  often 
knows  only  his  own  physical  troubles,  but  is  unaware  of  the  fact  that 
almost  every  person  about  him  has  such  troubles  also.  Once  you 
penetrate  beneath  conventional  acquaintance  there  will  almost  invari- 
ably be  found  some  fimctional  impairment  of  heart,  liver,  kidneys,  or 
bladder;  or  dyspepsia,  gastritis,  jaundice,  gallstones,  constipation, 
diarrhea;  or  insonmia,  neiu'asthenia,  nervousness,  neuritis,  neuralgia, 

'  [One  disease  after  another  is  here  taken  up;  and  it  is  shown  how  a  consider- 
able proportion  of  serious  illness  is  preventable. — ^EDrroRS.] 


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126  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

sick  headache;  or  tonsilitis,  bronchitis,  hay  fever,  catarrh,  grip,  colds, 
sore  throat;  or  rupture,  hernia,  phlebitis,  skin  eruption;  or  rheuma- 
tism, lumbago,  gout,  obesity;  or  decayed  teeth,  baldness,  deafness, 
eye  ailment,  spinal  curvature,  lameness,  broken  bones,  dislocations, 
sprains,  bruises,  cuts,  bums,  or  other  "troubles." 

That  almost  all  minor  ailments  can  be  avoided  is  scarcely  to  be 
doubted.  Doctor  Gulick  is  "inclined  to  believe  that  something  like 
nine-tenths  of  all  the  minor  ailments  that  we  have,  and  which  con- 
stitute the  chief  source  of  decreasing  our  daily  eflSciency,  could  be 
removed  by  careful  attention." 

c)  Prevalence  of  undue  fatigue, — 

When  a  person  is  free  from  all  specific  ailments,  both  serious  and 
minor,  he  usually  calls  himself  "well."  There  is,  however,  a  vast 
difference  between  such  a  "well"  man,  and  one  in  ideally  robust 
health.  The  difference  is  one  of  endurance  or  susceptibility  to  fatigue. 
Many  "well"  men  cannot  run  a  block  for  a  street  car  or  climb  more 
than  one  flight  of  stairs  without  feeling  completely  tired  out,  while 
another  "well"  man  will  nm  twenty-five  miles  or  climb  the  Matter- 
horn  from  pure  love  of  sport.  The  Swiss  guides,  throughout  the 
siunmer  season,  day  after  day,  spend  their  entire  time  in  climbing. 
A  Chinese  coolie  will  run  for  hours  at  a  stretch.  That  the  world 
regards  such  performances  as  "marvelous  feats  of  endurance"  only 
shows  how  marvelously  out  of  training  the  world,  as  a  whole,  really  is. 
In  mental  work  some  persons  are  unable  to  apply  themselves  more 
than  an  hour  at  a  time,  while  others,  like  Humboldt  or  Mommsen,  can 
work  almost  continuously  through  fifteen  hours  of  the  day. 

As  Mosso  and  others  have  proved,  muscular  fatigue  is  a  chemical 
effect,  due  to  the  circulation  of  "fatigue  poisons"  in  the  blood.  This 
has  been  strikingly  shown  by  experiments  by  Weishardt  and  others 
on  dogs;  when  blood  is  transfused  from  an  exhausted  dog  to  a  " frisky  " 
one,  the  latter  immediately  wilts  and  becomes  fatigued  like  the 
former,  although  he  has  not  exerted  himself  in  the  least.  In  order  to 
reduce  fatigue,  therefore,  we  should  keep  down  fatigue  poisons.  It  is 
not  unlikely  that  almost  all  poisons  produce  fatigue,  whether  the 
poisons  come  from  infections,  from  drugs,  from  impure  or  excessive 
food,  from  bad  air,  or  from  exertion ' 

'  [Here  follows  a  discussion  of  the  various  causes  of  fatigue,  such  as  the  use  of 
alcohol  and  tobacco,  improper  diet,  overexertion,  excessive  hours  of  labor,  etc. — 
Ed  [TORS.] 


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HUMAN  BEINGS  AS  ECONOMIC  FACTORS  J27 

The  economic  waste  from  imdue  fatigue  is  probably  much  greater 
than  the  waste  from  serious  iUness.  We  have  seen  that  the  average 
serious  iUness  per  capita  is  usually  about  two  weeks  each  year.  This 
is  about  4  per  cent  of  the  year.  Expressed  differently,  about  4  per 
cent  of  the  population  is  constantly  sick. 

On  the  other  hand,  the  number  that  suffer  partial  disability 
through  undue  fatigue,  certainly  constitute  the  great  majority  of  the 
population.  No  observer  can  fail  to  conclude  that  this  is  true  of  the 
American  working,  business,  and  professional  classes,  and  the  latest 
word  among  the  students  of  school  hygiene  is  that  it  is  true  to  a 
large  extent  even  among  children.  If,  therefore,  we  assume  that  only 
SO  per  cent  of  the  population  is  suffering  some  impairment  of  its  best 
powers  through  undue  fatigue,  we  are  on  safe  groimd.  The  extent 
to  which  the  power  of  this  supposed  50  per  cent  of  the  population  is 
impaired  must  certainly  exceed  10  per  cent.  When  we  consider  that 
yoimg  men,  supposed  to  be  perfectly  well,  have  the  enormous  room 
for  improvement  indicated  in  this  chapter,  and  when  we  consider  the 
gratifying  results  of  experiments  with  a  shorter  work  day,  it  will  be 
seen  that  the  true  impairment  is  probably  several  times  10  per  cent. 
Yet,  if  only  50  per  cent  of  the  population  are  suffering  an  impairment 
equal  to  only  10  per  cent  of  their  working  powers,  the  result  is 
equivalent  to  5  p^r  cent  of  the  population  suffering  total  impairment, 
which  is  more  than  the  4  per  cent  impairment  from  serious  illness. 

The  relatively  slight  impairment  of  efficiency  due  to  overfatigue 
leads  to  more  serious  impairment.  Just  as  minor  ailments  prove  to 
have  an  imsuspected  importance  when  considered  as  gateways  to 
serious  illness,  so  the  inefficiency  from  fatigue  is  vested  with  great 
significance  as  the  first  step  toward  minor  ailments.  Obviously,  if 
overfatigue  could  be  reduced  to  a  minimum,  this  reduction  would 
carry  with  it  the  prevention  of  the  major  part  of  minor  ailments, 
which  in  turn  would  lead  to  a  great  reduction  in  more  serious  illness, 
and  this  finally  would  lead  to  a  great  reduction  in  mortality.  A 
typical  succession  of  events  is  first  fatigue,  then  colds,  then  tubercu- 
losis, then  death.  Prevention,  to  be  effective,  must  begin  at  the 
beginning. 

m.      THE  MONEY  VALUES  OF  PREVENTABLE  WASTES 

Estimates  of  the  money  value  of  preventable  wastes  depend  on 
the  valuation  of  human  life,  of  which  several  appraisals  have  been 
attempted.  ....  We  take,  in  the  absence  of  any  good  statistics, 


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128 


MATERIALS  FOR  ELEMENTARY  ECONOMICS 


$700  per  annum  as  a  guess,  but  a  safe  minimum  for  the  average 
earnings  of  the  workers  of  all  grades,  from  day  laborers  to  railroad 
presidents.  This  assumes  that  all  of  the  working  years  are  actually 
employed  in  work.  But,  since  about  one-foiuth  of  the  persons  of 
working  age  are  not  workers,  but  are  supported  (for  the  most  part) 
by  earnings  of  capital,  the  average  should  be  cut  down  to  three- 
fourths  of  this  figure,  or  $525. 

Using  this  as  a  basis,  we  may  compute  the  minimum  worth  of  the 
average  American  life  at  different  ages,  as  follows: 


Age 

Net  Worth  oi 

Age 

Net  Worth  of 

a  Pexson,  in 

Dolkn 

0 

90 

950 

2,000 

4,000 

«o 

4,100 
2,900 

-700 

c 

CO 

10 

80 

20 

From  the  table  from  which  these  figures  are  taken  it  is  possible  to 
base  minimum  estimates  for  (i)  the  average  economic  value  of  the 
inhabitants  of  the  United  States  by  using  the  census  figures  for  age 
distribution  of  population;  this  calculated  average  is  $2,900;  (2)  the 
average  economic  value  of  the  lives  now  sacrificed  by  preventable 
deaths,  using  the  age  distribution  of  deaths,  and  the  percentages  of 
preventability;  this  calculated  average  is  $1,700. 

The  first  figure  shows  that  what  might  be  called  the  vital  assets 
of  the  United  States  for  the  population  of  over  85,500,000,  as  estimated 
for  1907  by  the  census,  amount  in  value  to  85,5oo,oooX $2,900,  or 
$250,000,000,000,  which,  though  a  minimum  estimate,  greatly  exceeds 
the  value  of  all  other  wealth;  the  second  figure  enables  us  to  estimate 
the  needless  waste  of  our  vital  assets. 

If  we  take  the  estimate  of  Professor  Willcox  of  the  death-rate  in 
the  United  States,  as  at  least  18  per  1,000  for  the  85,500,000  persons 
estimated  by  the  census  as  the  population  of  the  United  States  in 
1907,  we  have  1,500,000  as  the  number  of  deaths  in  the  United  States 
per  annum.  Of  these  1,500,000  deaths,  42  per  cent,  or  630,000,  are 
annually  preventable  or  postponable.  Since  each  postponement 
would  save  on  the  average  $1,700,  the  national  annual  unnecessary 
loss  of  capitalized  net  earnings  is  63o,oooX$i,7oo,  or  $1,070,000,000, 
or  about  $1,000,000,000. 

With  our  present  population,  there  are  always  about  3,000,000 
persons  in  the  United  States  on  the  sick  list.    For  the  most  part,  these 


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HUMAN  BEINGS  AS  ECONOMIC  FACTORS  129 

persons  are  older  than  the  average.  Farr  gives  a  table  showing  that 
morbidity  increases  with  age  in  geometric  progression.  By  means  of 
his  table  we  may  calculate  on  the  same  basis  as  the  previous  calcula- 
tions— that  of  the  3,000,000  sick,  very  close  to  a  third,  or  1,000,000 
persons,  are  in  the  working  period  of  life.  Assuming  that  average 
earnings  in  the  working  period  are  $700,  and  that  only  three-fourths 
of  the  one  million  potential  workers  would  be  occupied,  we  find  over 
$500,000,000  as  the  minimum  loss  of  earnings. 

The  cost  of  medical  attendance,  medicine,  nursing,  etc.,  is  con- 
jectured by  Dr.  Biggs  in  New  York,  to  average  for  the  consimiptive 
poor  at  least  $1.50  per  day  of  illness.  The  cost  per  day  of  other 
illnesses  than  tuberculosis  is  presumably  greater,  and  also  the  cost  per 
day  for  other  classes  is  higher  than  for  the  poor.  Applying  this  to 
the  3,000,000  years  of  illness  annually  experienced,  we  should  have 
$1,500,000,000  in  all  as  the  minimum  annual  cost  of  this  kind. 

The  statistics  of  the  Commissioner  of  Labor  show  that  the  average 
expenditure  for  illness  and  death  amounts  to  $27  per  annum.  This  is 
for  workingmen's  families  only.  But  even  this  figure,  if  applied  to 
the  17,000,000  families  of  the  United  States,  would  make  the  total 
bill  for  caring  for  illness  and  death  $460,000,000.  The  true  cost  may 
well  be  more  than  twice  this  sum.  Certainly  this  estimate  is  more 
than  safe,  and  is  only  one-third  of  the  simi  obtained  by  using  Dr. 
Biggs's  estimate. 

The  sum  of  the  costs  of  illness,  including  loss  of  wages  and  cost  of 
care,  is  thus  $46o,ooo,ooo-|-$5oo,ooo,ooo,  or  $960,000,000. 

The  above  estimate  is  a  general  one  for  all  illness.  It  would  be 
possible  to  offer  figures  for  the  particular  losses  from  particular  dis- 
eases. Thus,  from  tuberculosis,  the  gross  loss  of  earnings  by  illness 
and  of  potential  earnings  cut  off  by  death,  together  with  the  expenses 
of  illness,  etc.,  amount  to  over  $1,000,000,000  per  annum. 

Of  the  sum  mentioned,  the  loss  to  the  consumptives  themselves 
amounts  to  over  $660,000,000,  leaving  $440,000,000  as  the  loss  to 
other  members  of  the  commimity.  At  least  three-fourths  of  these 
costs  are  preventable.  Dr.  George  M.  Kober  thinks  it  is  conservative 
to  say  that  the  annual  cost  of  typhoid  in  the  United  States  is  $350,- 
000,000,  and  Dr.  L.  O.  Howard  believes  that  malaria  alone  costs  the 
country  $100,000,000  annually,  and  the  insect  diseases  generally 
$200,000,000.  He  points  out  that  one  great  item  of  loss  is  the  reduced 
value  of  real  estate  in  malarial  r^ons.  By  drainage  and  destruction 
of  mosquitos,  most  of  this  waste  could  be  saved.    The  cost  of  the 


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I30  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

care  of  the  insane  and  feeble-minded  is  estimated  by  Charles  L.  Dana 
at  $85,000,000  annually.  What  fraction  of  these  costs  is  preventable 
it  is  difficult  to  say.  The  economic  loss  due  to  alcohol  has  been 
variously  estimated.  Of  the  billion  dollars  or  more  found  to  repre- 
sent the  cost  of  illness,  by  far  the  major  part  is  certainly  avoidable. 
This  is  the  belief  of  the  best  observers,  such  as  Dr.  Gulick,  Dr.  Kellogg, 
Mrs.  Richards,  Dr.  Anderson,  and  others.  Unfortimately,  there  are 
no  exact  statistics  of  preventability.  We  feel  safe,  however,  in  con- 
cluding that  at  least  half  a  billion  could  be  saved  from  the  present 
cost  of  illness.  This,  added  to  the  loss  by  preventable  deaths  of 
potential  earnings  of  a  billion,  gives  at  least  a  billion  and  a  half  of 
preventable  waste.  This  does  not  include  the  losses  from  inefficient 
work  due  to  dnmkenness  or  other  vicious  habits;  nor  does  it  include 
the  cost  of  "undue  fatigue,"  which  we  have  some  reason  to  believe 
exceeds  in  its  effect  on  efficiency  the  loss  from  illness.  But  it  would 
not  be  possible  to  state  this  loss  in  any  definite  or  convincing  figures. 

The  actual  economic  saving  annually  possible  in  this  country  by 
preventing  needless  deaths,  needless  illness  (serious  and  minor),  and 
needless  fatigue,  is  certainly  far  greater  than  one  and  a  half  billions, 
and  may  be  three  or  more  times  as  great. 

Dr.  George  M.  Gould  estimated  that  sickness  and  death  in  the 
United  States  cost  $3,000,000,000  annxially,  of  which  at  least  a  third 
is  regarded  as  preventable. 

IV.     THINGS  WHICH  NEED  TO  BE  DONE 

In  order  that  American  vitality  may  reach  its  maximum  develop- 
ment, many  things  need  to  be  done.    Among  them  are  the  following: 

1.  The  national  government,  the  states,  and  the  municipalities 
should  steadfastly  devote  their  energies  and  resources  to  the  protec- 
tion of  the  people  from  disease.  Such  protection  is  quite  as  properly 
a  governmental  function  as  is  protection  from  foreign  invasion,  from 
criminals,  or  from  fire.  It  is  both  bad  policy  and  bad  economy  to 
leave  this  work  mainly  to  the  weak  and  spasmodic  efforts  of  charity, 
or  to  the  philanthropy  of  physicians. 

2.  The  national  government  should  exercise  at  least  three  public- 
health  functions:  first,  investigation;  second,  the  dissemination  of 
information;  third,  administration. 

It  should  remove  the  reproach  that  more  pains  are  now  taken  to 
protect  the  health  of  farm  cattle  than  of  human  beings.  It  should 
provide  more  and  greater  laboratories  for  research  in  preventive 


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HUMAN  BEINGS  AS  ECONOMIC  FACTORS  131 

medidne  and  public  hygiene.  Provision  should  also  be  made  for 
better  and  more  imiversal  vital  statistics,  without  which  it  is  impos- 
sible to  know  the  exact  conditions  in  an  epidemic,  or,  in  general,  the 
sanitary  or  insanitary  conditions  in  any  part  of  the  country.  It 
should  aim,  as  should  state  and  mimidpal  legislation,  to  procure 
adequate  registration  of  births,  statistics  of  which  are  at  present 
lacking  throughout  the  United  States. 

The  national  government  should  prevent  transportation  of  disease 
from  state  to  state  in  the  same  way  as  it  now  provides  for  foreign 
quarantine  and  the  protection  of  the  nation  from  the  importation  of 
disease  by  foreign  immigrants.  It  should  provide  for  the  protection 
of  the  passenger  in  interstate  railway  travel  from  infection  by  his 
fellow-passengers  and  from  insanitary  conditions  in  sleeping-cars,  etc. 

It  should  enact  suitable  legislation  providing  against  pollution  of 
interstate  streams. 

It  should  provide  for  the  dissemination  of  information  in  regard 
to  the  prevention  of  tuberculosis  and  other  diseases,  the  dangers  of 
impure  air,  impure  foods,  impure  milk,  imperfect  sanitation,  ventila- 
tion, etc.  Just  as  now  the  Department  of  Agriculture  supplies 
specific  information  to  the  farmer  in  respect  to  raising  crops. or  live 
stock,  so  should  one  of  the  departments,  devoted  principally  to  health 
and  education,  be  able  to  provide  every  health  officer,  school  teacher, 
employer,  physician,  and  private  family  with  specific  information  in 
regard  to  public,  domestic,  and  personal  hygiene. 

It  should  provide  for  making  the  national  capital  into  a  model 
sanitary  dty,  free  from  insanitary  tenements  and  workshops,  air 
pollution,  water  pollution,  food  pollution,  etc.,  with  a  rate  of  death 
and  a  rate  of  illness  among  infants  and  among  the  population  generally 
so  low  and  so  free  from  epidemics  of  typhoid  or  other  diseases  as  will 
arouse  the  attention  of  the  entire  country  and  the  world. 

There  should  be  a  constant  adaptation  of  the  pure-food  laws  to 
changing  conditions.  Meat  in^)ection,  and  other  inspection,  should 
be  so  arranged  as  to  protect,  not  only  foreigners,  but  our  own  dtizens. 
The  existing  health  agendes  of  the  government  should  be  concentrated 
in  one  department,  better  co-ordinated,  and  given  more  powers  and 
appropriations. 

3.  State  boards  of  health  and  state  legislation  should  provide  for 
the  regulation  of  labor  of  women,  should  make  ph3rsiological  addi- 
tions for  women's  work,  and  prevent  their  employment  before  and 
after  childbirth;  should  regulate  the  age  at  which  children  shall  be 


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132  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

employed,  make  reasonable  regulations  in  regard  to  hours  of  labor 
and  against  the  dangers  in  hazardous  trades,  and  especially  against 
the  particular  dangers  of  dust  and  poisonous  chemicals;  should  make 
regulations  for  sanitation  and  provide  inspection  of  factories,  schools, 
asylums,  prisons,  and  other  public  institutions.  Where  mimidpalities 
have  not  the  powers  to  enact  the  legislation  above  mentioned  with 
refetence  to  local  conditions,  the  necessary  legislation  or  authority 
should  be  provided  by  the  state.  Or  where,  by  reason  of  the  small 
size  of  the  town,  no  sufficient  local  action  is  possible,  the  state  should 
exercise  the  necessary  functions.  It  should,  in  such  cases,  advise  and 
supervise  local  boards  of  health.  It  should  have  an  engineering 
department  and  advise  regarding  the  construction  of  sewers  and  water 
suppUes.  Pollution  of  such  supplies,  unless  entirely  local,  should  be 
prevented  by  the  state,  which  should  be  equipped  with  laboratories 
for  the  analysis  of  water,  milk,  and  other  foods.  Suitable  legislation 
should  be  passed  regulating  the  sale  of  drugs,  especially  preparations 
containing  cocaine,  opium,  or  alcohol.  Legislation — ^not  too  far  in 
advance  of  public  sentiment  needed  to  enforce  it — should  be  passed 
regulating  the  sale  of  alcoholic  beverages.  State  registration  of 
births,  deaths,  and  cases  of  illness  should  be  much  more  general  and 
efficient  than  at  present. 

4.  Municipal  boards  of  health  need  to  have  more  powers  and 
greater  appropriations;  less  political  interference  and  better  trained 
health  officers;  more  support  in  public  opinion.  Their  ordinances  in 
regard  to  expectoration,  notification  of  infectious  disease,  etc.,  should 
be  better  enforced  by  the  poUce  departments. 

More  legislation  should  be  advocated,  passed,  and  enforced  to 
the  end  that  streets  may  be  kept  clean,  garbage  properly  removed, 
sewage  properly  disposed  of,  air  pollution  of  all  kinds  prevented,, 
whether  by  smoke,  street  dust,  noxious  gases,  or  any  other  source. 
Noises  also  should  be  lessened. 

Mimidpalities  need  also  to  take  measures  to  prevent  infection 
being  carried  by  ffies,  mosquitoes,  other  insects  and  vermin,  and  by 
prostitution.  They  need  to  guard  with  greater  care  the  water  supply, 
and  in  many  cases  to  filter  it;  they  should  make  standards  for  milk 
purity  and  enforce  them;  they  should  also  regularly  inspect  other 
foods  exposed  for  sale;  provide  for  sanitary  inspection  of  local  slaugh- 
ter houses,  dairies,  shops,  lodging  and  boarding-houses,  and  other 
establishments  within  the  power  of  the  particular  mimidpality;  they 
should  make  and  enforce  stricter  building  laws,  espedally  as  relating 


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HUMAN  BEINGS  AS  ECONOMIC  FACTORS  133 

to  tenements,  to  the  end  that  dark-room  tenements  may  be  elimi- 
nated and  all  tenements  be  provided  with  certain  minimmn  standard 
requirements  as  to  light,  air,  and  sanitary  arrangements. 

5.  School  children  should  be  medically  inspected  and  school 
hygiene  universally  practiced.  This  involves  better  protection 
against  school  epidemics,  better  ventilation,  light,  and  cleanliness  of 
the  schpokoom,  the  discovery  and  correction  of  adenoids,  eye  strain, 
and  nervous  strain  generally,  and  the  provision  for  playgrounds. 
Sound  scientific  hygiene  should  be  taught  in  all  schools,  public,  pri- 
vate, normal,  and  technical,  as  also  in  colleges  and  imiversities. 

6.  The  curricula  of  medical  schools  should  be  rearranged  with  a 
greater  emphasis  on  prevention  and  on  the  training  of  health  officers. 
Sanatoria  and  hospitals,  dispensaries,  district  nursing,  tuberculosis 
classes,  and  other  semi-public  institutions  should  be  increased  in 
niunber  and  improved  in  quaUty.  The  medical  profession,  keeping 
pace  with  these  changes,  should  be  the  chief  means  of  conveying 
their  benefits  to  the  pubUc.  Universities  and  research  institutions 
need  to  take  up  the  study  of  hygiene  in  all  its  branches.  Now  that 
the  diseases  of  childhood  are  receiving  attention,  the  next  step  should 
be  to  study  the  diseases  of  middle  life.  These  are  diseases,  to  a  large  ex- 
tent, of  nutrition  and  circulation,  and  consequently  these  subjects  should 
receive  special  attention.  Intelligent  action  must  rest  on  knowledge, 
and  knowledge  of  preventing  disease  is  as  yet  extremely  imperfect. 

7.  In  industrial  and  commercial  establishments  employers  may 
greatly  aid  the  health  movement,  and  in  many  cases  make  their  phi- 
lanthropy self-supporting  by  providing  social  secretaries,  lunch  and 
rest  rooms,  physiological  (generally  shorter)  hours  of  work,  pro- 
vision for  innocent  amusements,  seats  for  women,  etc. 

Life  insurance  companies  could  properly  and  with  much  profit 
club  together  to  instruct  their  risks  in  self-care  and  secure  general 
legislation  and  enforcement  of  legislation  in  behalf  of  public  health. 

8.  The  present  striking  change  in  personal  habits  of  living  should  be 
carried  out  to  its  logical  conclusion  until  the  health  ideals  and  the  ideals 
of  athletic  training  shall  become  imiversal.  This  change  involves  a 
quiet  revolution  in  habits  of  living,  a  more  intelligent  utilization  of  one's 
environment,  especially  in  regard  to  the  condition  of  the  air  in  our 
houses,  the  character  of  the  clothes  we  wear,  of  the  site  and  architec- 
ture of  the  dwelling  with  respect  to  sunlight,  soil,  ventilation,  and  sani- 
tation, the  character  of  food,  its  cooking,  the  use  of  alcohol,  tobacco, 
and  drugs,  and  last,  but  not  least,  sex  hygiene  in  all  its  bearings. 


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134  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

9.  The  fight  against  disease  will  aid  in  the  fight  against  pauper- 
ism and  crime.  It  is  also  true  that  any  measures  which  tend  to 
eliminate  poverty,  vice,  and  crime  will  tend  to  improve  sanitary 
conditions. 

ID.  Finally,  eugenics,  or  hygiene  for  future  generations,  should  be 
studied  and  gradually  put  in  practice.  This  involves  the  prohibi- 
tion of  flagrant  cases  of  marriages  of  the  imfit,  such  as  syphilitics, 
the  insane,  feeble-minded,  epileptics,  paupers,  or  criminals,  etc.  The 
example  of  Indiana  in  this  regard  should  be  considered  and  followed 
by  other  states,  as  also  in  regard  to  the  unsexing  of  rapists,  criminals, 
idiots,  and  degenerates  generally.  A  public  opinion  should  be  arotised 
which  will  not  only  encourage  healthy  and  discoimtenance  d^enerate 
marriages,  but  will  become  so  imbedded  in  the  minds  of  the  rising 
generation  as  will  unconsciously,  but  powerfully,  affect  their  marriage 
choices. 

32.  CAUSES  OF  THE  GROWTH  OF  CITIES' 

The  industries  of  the  human  race  may  be  conveniently  grouped 
thus:  (i)  extractive,  including  agriculture,  mining;  (2)  distributive, 
including  commerce,  wholesale  and  retail  trade,  transportation,  com- 
munication, and  all  the  media  of  exchange;  (3)  manufacturing; 
(4)  services  and  free  incomes,  including  domestic  servants,  govern- 
ment officials,  professional  men  and  women,  students,  etc. 

The  extractive  industries  generally  require  the  dispersion  of  the 
persons  engaged  therein.*  In  particular,  agriculture,  the  principal 
extractive  industry,  cannot  be  prosecuted  by  persons  residing  in  large 
groups.  It  is  conceivable  that  transportation  methods  might  be  so 
perfected  as  to  permit  the  cultivator  of  the  soil  to  reside  in  a  city,  but 
it  is  very  unlikely.  On  the  contrary,  the  improvements  heretofore 
made  in  transportation  have  only  strengthened  the  dispersion  of  the 
agricultural  population  by  permitting  uninhabited  parts  of  the  earth's 
surface  to  be  settled  and  brought  into  cultivation.  This  will  probably 
be  the  development  of  the  future  as  far  as  human  eyes  can  see. 

The  distributive  industries,  on  the  other  hand,  are  distinctly 
centralizing  in  their  effects  upon  the  distribution  of  the  population 

'  Adapted  from  Adna  F.  Weber,  The  Growth  of  Cities  in  the  Nineteenth  Century, 
pp.  223-29.  Columbia  University  Studies  in  History,  Economics  and  Public  Law, 
Vol.  XI,  1899. 

*  In  mining  dbtricts,  it  is  true,  the  population  is,  oftener  than  not,  quite  dense. 
Nevertheless,  it  is  seldom  concentrated  in  great  cities,  the  Transvaal  being  an  ex- 
cq[>tion  to  the  general  rule. 


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HUMAN  BEINGS  AS  ECONOMIC  FACTORS  135 

engaged  in  them.  As  methods  of  distribution  have  been  improved 
and  the  distributive  area  enlarged,  the  tendency  toward  concentration 
has  increased.  The  consolidation  of  two  railway  lines  transfers 
employees  from  the  junction  to  the  terminal  dty.  Every  improve- 
ment in  the  mechanism  of  exchange  favors  the  conmierdal  center.  Of 
even  greater  importance  b  the  fact  that  the  production  of  wealth  is 
increasing  at  leaps  and  bounds;  every  year  there  is  vastly  greater 
wealth  to  distribute,  and  the  process  of  distribution  will  require  a 
growing  percentage  of  all  the  workers  for  its  efficient  action.  Hence, 
the  more  the  social  organism  grows,  and  the  higher  its  evolution,  so 
much  greater  will  the  conmiercial  centers  become. 

Manufacturing  industries  also  tend  toward  the  concentration  of 
population,  and  up  to  recent  years  manufacturing  centers  were  co- 
incident with  the  commercial  centres,  i.e.,  the  great  cities.  Recently 
the  equalization  of  transportation  facilities  and  the  excessive  rents 
of  great  cities  have  caused  the  managers  of  a  good  many  industries 
to  abandon  them  as  sites  in  favor  of  the  suburb  or  small  town.  The 
reason  that  this  movement  does  not  make  for  complete  decentraliza- 
tion is  that  production  on  a  large  scale  is  the  goal  toward  which  all 
industries  are  tending  with  enlarging  and  more  regular  markets,  and 
more  convenient  means  of  communication;  and  production  on  a  large 
scale  requires,  as  a  rule,  the  large  factory  and  the  grouping  of  allied 
trades.  Other  obstacles  to  decentralization  are  the  presence  in  the 
large  dty  of  a  supply  of  cheap,  imskilled  labor;  of  the  best  knowledge 
of  art  and  technique;  and  espedally  of  numerous  industries  whose 
products  are  intended  for  local  consimiption. 

The  remainder  of  the  population  will  in  the  main  follow  where  the 
preceding  classes  lead.  Those  engaged  in  the  professions  or  the 
rendering  of  personal  service  must  reside  near  the  consimiers  of  their 
products,  that  is,  where  people  are  numerous  and  money  is  plenty. 

Thus  it  appears  that  the  effident  industrial  organization  of  a 
nation  on  modem  lines  requires  the  concentration  of  population 
in  virtually  all  the  industries  except  agriculture;  and  since  this 
industry,  for  several  decades,  has  been  able  to  deliver  its  product 
by  employing  a  continually  smaller  proportion  of  the  total  popula- 
tion, it  follows  that  the  proportion  in  the  centers  of  population  has 
been  increasing. 

In  the  immediate  futiu^e,  we  may  expect  to  see  a  continuation  of 
the  centralizing  movement.  While  many  manufacturers  are  locating 
their  factories  in  the  small  dties  and  towns,  there  are  other  industries 


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136  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

that  prosper  most  in  the  great  cities.  Commerce,  moreover,  em- 
phatically favors  the  great  centers,  rather  than  the  small  or  inter- 
mediate centers.  And  since,  with  ever-increasing  production  flowing 
from  improved  methods,  conmierce  and  trade  are  constantly  expand- 
ing and  absorbing  an  increasing  proportion  of  the  population,  while 
manufacturing  in  a  country  where  it  has  reached  the  stage  of  self- 
sufficiency  employs  a  constant  or  even  declining  proportion  of  the 
population,  the  prospect  is  that  the  larger  cities,  including  of  course 
their  suburbs,  will  continue  to  absorb  the  superfluous  population  of 
the  rural  districts  and  villages. 


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138  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

34.    SOURCES  OF  IMMIGRATION  AND  CHARACTER  OF 
IMMIGRANTS' 

From  1820  to  June  30, 1910,  27,918,992  immigrants  were  admitted 
to  the  United  States.  Of  this  number  92.3  per  cent  came  from 
European  countries,  which  countries  are  the  source  of  about  93.7 
per  cent  of  the  present  immigration  movement.  From  1820  to 
1883  more  than  95  per  cent  of  the  total  inmiigration  from  Europe 
originated  in  the  United  Kingdom,  Germany,  Scandinavia,  the 
Netherlands,  Belgium,  France,  and  Switzerland.  In  what  follows 
the  movement  from  these  countries  will  be  referred  to  as  the  "old 
immigration."  Following  1883  there  was  a  rapid  change  in  the 
ethnical  character  of  European  inmiigration,  and  in  recent  years 
more  than  70  per  cent  of  the  movement  has  originated  in  southern 
and  eastern  Eiu^ope.  The  change  geographically,  however,  has  been 
somewhat  greater  than  the  change  in  the  racial  character  of  the 
inmiigration,  this  being  due  very  largely  to  the  number  of  Germans 
who  have  come  from  Austria-Hungary  and  Russia.  The  move- 
ment from  southern  and  eastern  Europe  will  be  referred  to  as  the  "new 
immigration."  In  a  single  generation  Austria-Hungary,  Italy,  and 
Russia  have  succeeded  the  United  Kindgom  and  Germany  as  the  chief 
sources  of  immigration.  In  fact,  each  of  the  three  countries  first 
named  furnished  more  immigrants  to  the  United  States  in  1907  than 
came  in  the  same  year  from  the  United  Kingdom,  Germany,  Scandi- 
navia, France,  the  Netherlands,  Belgium,  and  Switzerland  combined. 

The  old  immigration  movement  in  recent  years  has  rapidly  declined, 
both  numerically  and  relatively,  and  under  present  conditions  there 
are  no  indications  that  it  will  materially  increase.  The  new  immi- 
gration movement  is  very  large,  and  there  are  few,  if  any,  indications 
of  its  natural  abatement.  The  new  immigration,  coming  in  such 
large  numbers,  has  provoked  a  widespread  feeling  of  apprehension  as 
to  its  effect  on  the  economic  and  social  welfare  of  the  country 

The  old  immigration  movement  was  essentially  one  of  permanent 
settlers.  The  new  immigration  is  very  largely  one  of  individuals  a 
considerable  proportion  of  whom  apparently  have  no  intention  of 
permanently  changing  their  residence,  their  only  purpose  in  coming 
to  America  being  to  temporarily  take  advantage  of  the  greater  wages 
paid  for  industrial  labor  in  this  coimtry.  This,  of  course,  is  not  true 
of  all  the  new  immigrants,  but  the  practice  is  sufficiently  common  to 

»  From  Reports  of  the  ImmigraHon  Commission  (191 1),  I,  23-24. 


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HUMAN  BEINGS  AS  ECONOMIC  FACTORS 


139 


warrant  referring  to  it  as  a  characteristic  of  them  as  a  class.  From 
all  data  that  are  available  it  appears  that  at  least  40  per  cent  of  the 
new  inmiigration  movement  returns  to  Europe  and  that  about  two- 
thirds  of  those  who  go  remain  there.  This  does  not  mean  that  all  of 
these  inmiigrants  have  acquired  a  competence  and  returned  to  live 
on  it.  Among  the  inmiigrants  who  return  permanently  are  those  who 
have  failed,  as  well  as  those  who  have  succeeded.  Thousands  of 
those  returning  have,  under  imusual  conditions  of  climate,  work, 
and  food,  contracted  tuberculosis  and  other  diseases;  others  are 
injured  in  our  industries;  still  others  are  the  widows  and  children  of 

Immigration  to  the  United  States  by  Decades,  1820  to  19 10' 


ToTAi.  NmcBER  or 
Immiorants 

Pbr  Cent  irom 

YxAR  Endino 

JUMB  30 

Northern 

and  Western 

Europe 

Soathem 

and  Eastern 

Europe 

other  Specified 
Countries 

182O-183O 

151,824 
599,125 
1,713,251 
2,598,214 
2,314,824 
2,812,191 
5,246,613 
3,687,564 
8,795,386 

87.0 
92.5 
95.9 
94.6 
88.5 
73.7 
72.0 
44.8 
21.8 

2.9 
I.I 

1.5 

7.1 

18.3 

52.8 

71.9 

16. 1 

i8^i-i8ao 

6.5 
3.8 

4.5 
10. 1 

I84I— 1850 

I85I-I860 

I86I-I870 

I87I-I880 

19.2 
9.7 
2.5 
6.3 

I88I-I890 

I89I— 1900 

I90I-I9IO 

aliens  dying  here.  These,  with  the  aged  and  temperamentally  imfit, 
make  up  a  large  part  of  the  aliens  who  return  to  their  former  homes 
to  remain. 

The  old  immigration  came  to  the  United  States  during  a  period  of 
general  development  and  was  an  important  factor  in  that  develop- 
ment, while  the  new  inmiigration  has  come  during  a  period  of  great 
industrial  expansion  and  has  furnished  a  practically  unlimited  supply 
of  labor  to  that  expansion. 

As  a  class  the  new  immigrants  are  largely  imskilled  laborers  coming 
from  countries  where  their  highest  wage  is  small  compared  with  the 
lowest  wage  in  the  United  States.  Nearly  75  per  cent  of  them  are 
males.  About  83  per  cent  are  between  the  ages  of  14  and*  45  years, 
and  consequently  are  producers  rather  than  dependents.  They  bring 
little  money  into  the  country  and  send  or  take  a  considerable  part  of 
their  earnings  out.    More  than  35  per  cent  are  illiterate,  as  compared 

'  Adapted  from  data  in  Reports  of  the  Immigration  Commission  (191 1),  IV,  16. 


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I40  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

with  less  than  3  per  cent  of  the  old  unmigrant  class.  Immigration 
prior  to  1882  was  practically  unregulated,  and  consequently  many 
were  not  self-supporting,  so  that  the  care  of  alien  paupers  in  several 
states  was  a  serious  problem.  The  new  immigration  has  for  the  most 
part  been  carefully  regulated  so  far  as  health  and  likelihood  of  pauper- 
ism are  concerned,  and,  although  drawn  from  classes  low  in  the 
economic  scale,  the  new  inmiigrants  as  a  rule  are  the  strongest;  the 
most  enterprising,  and  the  best  of  their  class. 

35.  CAUSES  OF  EMIGRATION' 

The  present  movement  of  population  from  Europe  to  the  United 
States  is,  with  few  exceptions,  almost  entirely  attributable  to  economic 
causes.  Emigration  due  to  political  reasons  and,  to  a  less  extent, 
religious  oppression,  undoubtedly  exists,  but  even  in  countries  where 
these  incentives  prevail  the  more  important  cause  is  very  largely  an 
economic  one.  This  does  not  mean,  however,  that  emigration  from 
Europe  is  now  an  economic  necessity.  At  times  in  the  past,  notably 
during  the  famine  years  in  Ireland,  actual  want  forced  a  choice 
between  emigration  and  literal  starvation,  but  the  present  movement 
results  in  the  main  from  a  widespread  desire  for  better  economic  con- 
ditions rather  than  from  the  necessity  of  escaping  intolerable  ones. 
In  other  words,  the  emigrant  of  today  comes  to  the  United  States  not 
merely  to  make  a  living,  but  to  make  a  better  living  than  is  possible 
at  home. 

The  purely  economic  condition  of  the  wage-worker  is  generally 
very  much  lower  in  Europe  than  in  the  United  States.  This  is  espe- 
cially true  of  the  unskilled  laborer  class  from  which  so  great  a  propor- 
tion of  the  emigration  to  the  United  States  is  drawn.  Skilled  labor 
also  is  poorly  paid  when  compared  with  returns  for  like  service  in  the 
United  States,  but  the  opportunity  for  continual  employment  in  this 
field  is  usually  good  and  the  wages  sufficiently  high  to  lessen  the 
necessity  of  emigration.  A  large  proportion  of  the  emigration  from 
southern  and  eastern  Europe  may  be  traced  directly  to  the  inability 
of  the  peasantry  to  gain  an  adequate  livelihood  in  agricultural  pur- 
suits either  as  laborers  or  proprietors.  Agricultural  labor  is  paid 
extremely  low  wages,  and  employment  is  quite  likely  to  be  seasonal 
rather  than  continuous.  In  cases  where  peasant  proprietorship  is 
possible,  the  land  holdings  are  usually  so  small,  the  methods  of  culti- 

» Adapted  from  Reports  of  ike  Immigration  Commission  (191 1),  IV,  53-62. 


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HUMAN  BEINGS  AS  ECONOMIC  FACTORS 


141 


vation  so  primitive,  and  the  taxes  so  high,  that  even  in  productive 
years  the  struggle  for  existence  is  a  hard  one,  while  a  crop  failure  means 
practical  disaster  for  the  small  farmer  and  farm  laborer  alike.  In 
agrarian  Russia,  where  the  people  have  not  learned  to  emigrate,  a 
crop  failure  results  in  a  famine,  while  in  other  sections  of  southern 
and  eastern  Europe  it  results  in  emigration,  usually  to  the  United 
States.  Periods  of  industrial  depression  as  well  as  crop  f ailiu'es  stimu- 
late emigration,  but  the  effect  of  the  former  b  not  so  pronounced,  for 
the  reason  that  disturbed  financial  and  industrial  conditions  in  Europe 
are  usually  coincidental  with  like  conditions  in  the  United  States,  and 
at  such  times  the  emigration  movement  is  alwa3rs  relatively  smaller. 
The  fragmentary  nature  of  available  data  relative  to  wages  in 
many  European  coimtries  makes  a  satisfactory  comparison  with  wages 
in  the  United  States  impossible.  Unfortimately,  too,  these  data  are 
missing  for  countries  which  are  now  the  chief  sources  of  European 
emigration  to  the  United  States.  It  is  possible,  however,  to  show  the 
relative  wages  and  hours  of  labor  at  a  comparatively  recent  date  in 
some  leading  occupations  in  the  United  States,  Great  Britain,  Ger- 
many, and  France,  and  as  the  economic  status  of  wage-workers  is 
much  higher  in  the  three  latter  countries  than  in  southern  and  eastern 
European  countries  the  approximate  difference  between  wages  in 
such  countries  and  in  the  United  States  may  be  inferred. 

Wages  and  Hours  of  Labor  in  Leading  Occupations  in  the  United  States, 
Great  Britain,  Germany,  and  France,  1903 

(Compiled  from  Bulletin  of  the  United  States  Bureau  of  Labor,  No.  54,  pp. 
II 20-11 25.) 


Occupation 


Wages  pek  Hour  im- 


UnHed 
States 


Great 
Britain 


Ger- 
many 


France 


HouKS  PE»  Week  in— 


United 
SUtes 


Great 
Britain 


Ger- 
many 


France 


Blacksmiths. . 
Boiler  makers, 
Bricklayers. . 
Carpenters. . . 
Compositors. 
Hod  carriers. 
Iron  molders. 

Laborers 

Machinists. . . 

Painters 

Plumbers. . . . 
Stonecutters. 
Stonemasons. 


I0.30 
.28 
.55 
.36 

•45 
.29 

•30 
.17 
.27 

•35 
.44 
.42 
.46 


$0.17 

•  17 
.21 
.20 
.18 
.13 
.17 
.10 

.17 
.18 
.20 
.20 
.21 


I0.12 
II 
13 
13 
14 
08 


I0.16 
.15 
.13 
.15 
.13 
.10 

.13 
.10 

•13 
•13 
.15 
.14 

.14 


56.56 
56.24 

47.83 
49.46 
49.81 
47.98 
56.80 
56.29 
56.12 
48.89 
48.91 
48.67 
49.54 


53.67 
53.67 
51.83 
50.17 
50.00 

51.83 
53  67 
52.50 
53  67 
51.00 
49.17 
50.17 
50.17 


60.19 
60.00 
56.50 
55.30 
51.08 
59.50 


56.36 
60.00 
56.25 
56.68 
54.00 
56.50 


60.19 
61.50 
63.00 
60.00 
60.00 
63.91 
60.00 
60.00 
61.50 
60.00 
54.00 
60.00 
66.00 


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142  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

In  the  above  table  the  figures  for  the  United  States  cover  a  wide 
area,  representing  the  smaller  as  well  as  the  larger  centers  of  industry, 
while  those  for  the  European  countries  were  taken  in  two  or  three  of 
the  larger  centers  of  industry  in  each  country. 

As  before  stated,  there  are  available  but  little  official  data  relative 
to  wages  in  southern  and  southeastern  Europe,  but  it  is  a  well-known 
fact  that  they  are  very  much  lower  there  than  in  Great  Britain,  Ger- 
many, or  France.  The  Commission  found  this  to  be  true  in  the  por- 
tions of  Italy,  Austria-Hungary,  Greece,  Turkey,  Russia,  and  the 
Balkan  States  visited.  In  fact,  it  may  safely  be  stated  that  in  the 
latter  countries  the  average  wage  of  men  engaged  in  common  and 
agricultural  labor  is  less  than  50  cents  per  day,  while  in  some  sections 
it  is  even  much  lower.  It  is  true  that  in  some  countries  agricultural 
laborers  receive  from  employers  certain  concessions  in  the  way  of 
fuel,  food,  etc.,  but  in  cases  of  this  nature  which  came  to  the  attention 
of  the  Commission,  the  value  of  the  concessions  was  insufficient  to 
affect  materially  the  low  wage  scale. 

It  is  a  common  but  erroneous  belief  that  peasants  and  artisans  in 
the  European  countries  from  which  the  new  inmiigrant  comes  can 
live  so  very  cheaply  that  the  low  wages  have  practically  as  great  a 
piu'chasing  power  as  the  higher  wages  in  the  United  States.  The  low 
cost  of  living  among  the  working  people,  especially  of  southern  and 
eastern  Europe,  is  due  to  a  low  standard  of  living  rather  than  to  the 
cheapness  of  food  and  other  commodities.  As  a  matter  of  fact,  meat 
and  other  costly  articles  of  food,  which  are  considered  as  almost 
essential  to  the  everyday  table  of  the  American  workingman,  cannot 
be  afforded  among  laborers  in  like  occupations  in  southern  and  east- 
ern Europe. 

Notwithstanding  the  bad  economic  conditions  siurounding  the 
classes  which  furnish  so  great  a  part  of  the  emigration  from  southern 
and  eastern  Europe,  the  Commission  believes  that  a  laudable  ambi- 
tion for  better  things  than  they  possess  rather  than  a  need  for  actual 
necessities  is  the  chief  motive  behind  the  movement  to  the  United 
States.  Knowledge  of  conditions  in  America,  promulgated  through 
letters  from  friends  or  by  emigrants  who  have  returned  for  a  visit  to 
their  native  villages,  creates  and  fosters  among  the  people  a  desire  for 
improved  conditions  which,  it  is  believed,. can  be  attained  only 
through  emigration.  Unfortunately,  but  inevitably,  the  returned 
emigrant,  in  a  spirit  of  braggadocio,  is  inclined  to  exaggerate  his  eco- 
nomic achievements  in  America.    In  consequence,  some  whose  emi- 


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HUMAN  BEINGS  AS  ECONOMIC  FACTORS  143 

gration  is  influenced  by  these  highly  colored  statements,  accompanied 
perhaps  by  a  display  of  what  to  them  seems  great  wealth,  are  doomed 
to  disappointment.  The  latter,  however,  naturally  hesitate  to  admit 
their  failures,  and  consequently  there  is  little  to  disturb  the  belief 
prevailing  in  southern  and  eastern  Europe  that  success  awaits  all  who 
are  able  to  emigrate  to  the  United  States. 

It  is  entirely  safe  to  assert  that  letters  from  persons  who  have 
emigrated  to  friends  at  home,  have  been  the  immediate  cause  of  by 
far  the  greater  part  of  the  remarkable  movement  from  southern  and 
eastern  Europe  to  the  United  States  during  the  past  twenty-five  years. 
There  is  hardly  a  village  or  commimity  in  southern  Italy  and  Sicily 
that  has  not  contributed  a  portion  of  its  popidation  to  swell  the  tide 
of  emigration  to  the  United  States,  and  the  same  is  true  of  large  areas 
of  Austria,  Hungary,  Greece,  Turkey,  and  the  Balkan  States.  There 
is  a  tendency  on  the  part  of  emigrants  from  these  countries  to  retain 
an  interest  in  the  homeland,  and  in  consequence  a  great  amoimt  of 
correspondence  passes  back  and  forth.  It  was  frequently  stated  to 
members  of  the  Commission  that  letters  from  persons  who  have 
emigrated  to  America  were  passed  from  hand  to  hand  until  most  of 
the  emigrants'  friends  and  neighbors  were  acquainted  with  the  con- 
tents. In  periods  of  industrial  activity,  as  a  rule,  the  letters  so  cir- 
culated contain  optimistic  references  to  wages  and  opportimides  for 
employment  in  the  United  States,  and  when  comparison  in  this  regard 
is  made  with  conditions  at  home  it  is  inevitable  that  whole  com- 
munities should  be  inoculated  with  a  desire  to  emigrate.  The  reverse 
is  true  during  seasons  of  industrial  depression  in  the  United  States. 
At  such  times  intending  emigrants  are  quickly  informed  by  their 
friends  in  the  United  States  relative  to  conditions  of  employment, 
and  a  great  faUing  off  in  the  tide  of  emigration  is  the  inmiediate  result. 

Emigrants  who  have  returned  for  a  visit  to  their  native  land  are 
also  great  promoters  of  emigration.  This  is  particularly  true  of 
southern  and  eastern  European  emigrants,  who  as  a  class  make  more 
or  less  frequent  visits  to  their  old  homes.  Among  the  returning 
emigrants  are  always  some  who  have  failed  to  achieve  success  in 
America,  and  some  who  through  changed  conditions  of  life  and 
employment  return  in  broken  health.  It  is  but  natural  that  these 
should  have  a  slightly  deterrent  effect  on  emigration,  but,  on  the 
whole,  this  is  relatively  imimportant,  for  the  returning  emigrant,  as 
a  rule,  is  one  who  has  succeeded  and,  as  before  stated,  is  inclined  to 
exaggerate  rather  than  minimize  his  achievements  in  the  United 


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144  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

States.  In  times  of  industrial  inactivity  in  the  United  States  the  large 
number  of  emigrants  who  return  to  their  native  lands  of  course  serve 
as  a  temporary  check  to  emigration,  but  it  is  certain  that  in  the  long 
run  such  returning  emigrants  actually  promote  rather  than  retard  the 
movement  to  the  United  States. 

Next  to  the  advice  and  assistance  of  friends  and  relatives  who  have 
already  emigrated,  the  propaganda  conducted  by  steamship  ticket 
agents  is  imdoubtedly  the  most  important  inunediate  cause  of  emi- 
gration from  Europe  to  the  United  States.  This  propaganda  flour- 
ishes in  every  emigrant-furnishing  country  of  Europe,  notwithstanding 
the  fact  that  the  promotion  of  emigration  is  forbidden  by  the  laws  of 
many  such  coimtries  as  well  as  by  the  United  States  inunigration  law. 

No  data  are  available  to  show  even  approximately  the  total  nimi- 
ber  of  such  agents  and  subagents  engaged  in  the  steerage  ticket 
business.  One  authority  stated  to  the  Commission  that  two  of  the 
leading  steamship  lines  had  five  or  six  thousand  ticket  agents  in  Galida 
alone,  and  that  there  was  "a  great  hunt  for  emigrants"  there.  The 
total  nimiber  of  such  agents  is  undoubtedly  very  large,  for  the  steer- 
age business  is  vastly  important  to  all  the  Unes  operating  passenger 
ships,  and  all  compete  for  a  share  of  it.  There  is  at  present  an  agree- 
ment among  the  larger  steamship  companies  which  in  a  measure 
regulates  the  distribution  of  this  traffic  and  prevents  imrestricted 
competition  between  the  lines,  but  this  does  not  affect  the  vigorous 
and  widespread  hunt  for  steerage  passengers  which  is  carried  on 
throughout  the  chief  emigrant-furnishing  countries. 

36.    THE  PROBLEMS  OF  IMMIGRATION' 

The  chief  subjects  of  a  study  of  immigration  may  be  briefly  simi- 
marized  as  follows: 

1.  The  effect  of  inmiigration  upon  the  physical  characteristics  of 
the  American  people  as  shown  by: 

a)  The  health  of  the  immigrant  on  his  arrival  in  this  coimtry, 
and  his  effect  upon  the  health  of  the  commimity. 

b)  The  effect  of  the  American  environment  upon  the  physical 
characteristics  of  the  immigrant  and  his  children. 

2.  The  effect  of  the  inmiigrant  upon  the  mental  characteristics  of 
the  American  people,  as  shown  by: 

'Adapted  from  J.  W.  Jenks  and  W.  J.  Lauck,  The  Immigraiion  Problem ^ 
pp.  6-9.    Copyright  by  Funk  &  Wagnalls  Co.,  191 2. 


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HUMAN  BEINGS  AS  ECONOMIC  FACTORS  145 

a)  Illiteracy  of  the  various  races  of  immigrants. 

b)  The  relation  of  the  inmiigrants  to  our  public  schools,  and  the 
effect  of  the  schools  upon  the  children  of  immigrants. 

c)  The  papers,  books,  and  associations  foimded  and  supported  by 
the  immigrants. 

d)  The  occupations  of  the  immigrants  that  may  serve  to  indicate 
mental  characteristics. 

3.  The  effect  of  immigration  upon  the  morals  of  the  American 
people,  as  shown  by: 

a)  The  criminal  immigrant.  The  moral  characteristics  of  the 
various  races  may  be  indicated  by  the  number  of  crimes  and  the  char- 
acter of  the  crimes  committed  by  them. 

b)  The  social  evil  and  the  white-slave  traffic,  indicated  in  part  by 
court  records  and  observations  of  social  workers  and  special  investi- 
gators. 

c)  The  immigrant  pauper:  A  study  of  the  immigrants  in  the 
charity  hospitals  and  of  the  relief  given  by  the  charitable  societies 
to  immigrants.' 

4.  The  effect  of  immigration  upon  American  institutions,  as 
shown  by: 

a)  Political  effects,  indicated  by  the  relative  number  of  immigrants 
of  various  races  that  become  naturalized,  and  by  the  methods  employed 
by  political  managers  to  influence  the  votes  of  the  immigrants. 

b)  The  social  effects  as  indicated  by: 

(i)  The  church  affiliations  and  religious  practices  and  customs 
of  the  immigrants  of  different  races. 

(2)  The  immigrant  family,  as  shown  in  part  by  the  marriage  rela- 
tions; the  fecimdity  of  immigrant  women,  as  compared  with  American 
women;  and  the  children  of  the  immigrants.  The  tendency  also 
toward  establishing  families  here,  or  leaving  families  in  Europe,  with 
the  expectation  of  returning  to  them. 

(3)  The  inmiigrant  colony.  Both  in  our  large  cities  and  in  agri- 
cultural districts,  the  effect  of  immigration  upon  our  institutions  has 
been  profoimdly  modified  by  the  frequent  inclination  of  the  immi- 
grants to  form  separate  colonies  which  are  maintained  sometimes  for 
generations. 

(4)  Housing  and  living  conditions.  The  congestion  of  immigrants 
in  certain  sections  of  our  cities  and  industrial  centers,  the  bimk-house 

'  Pauperism  is,  of  course,  to  be  conddered  also  in  other  than  its  moral  aspects, 
but  it  is  conveniently  classified  here. 


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146  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

or  lodging-house  for  men  without  families  who  do  not  become  per- 
manent residents,  the  ownership  of  homes,  and  similar  matters  which 
affect  living  conditions,  are  of  profound  significance  to  society. 

5.  The  effect  of  immigration  upon  the  economic  and  industrial 
conditions  of  the  United  States,  as  shown  by: 

a)  The  occupations  of  the  immigrant  and  of  his  children.  Have 
racial  characteristics  or  the  European  customs  of  the  immigrants  so 
determined  the  occupations  which  they  enter  here  as  to  have  produced 
any  material  modification  of  the  relations  between  agriculture,  manu- 
facturing, mining,  trading,  transportation,  and  other  occupations? 

b)  Changes  in  industrial  methods.  Has  the  incoming  of  the 
immigrant  affected  the  use  of  machinery  or  modified  the  form  of  our 
industrial  organization  ?  How  has  it  affected  the  geographical  dis- 
tribution of  industries  ? 

c)  The  employment  of  women  and  children  as  wage-earners. 

d)  The  displacement  of  American  laborers  or  the  immigrant  wage- 
earners  who  arrived  in  this  country  twenty  years  ago  by  the  recent 
immigrants  from  different  countries. 

e)  Labor  organizations.  Have  the  immigrants  strengthened  or 
weakened  the  labor  organizations,  and  has  the  effect  upon  them  been 
beneficial  or  injurious  to  the  wage-earning  classes  ? 

/)  The  standard  of  living.  At  the  base  of  every  civilization  stand 
the  ideals  of  the  people  and  their  standards  of  living.  The  standard 
of  living  has  so  profound  an  influence  upon  the  probability  of  the 
attainment  of  many  ideals  that  it  is  to  be  considered  possibly  the 
most  fundamental  factor  in  determining  the  quality  of  the  coimtry's 
civilization.  While  one  may  well  agree  with  James  Russell  Lowell, 
that  "material  success  is  good,  but  only  as  the  necessary  preliminary 
to  better  things,"  it  is  impossible  to  deny  the  fact  that  material 
success  is  often,  if  not  always,  a  preliminary  that  is  absolutely  neces- 
sary to  better  things,  so  far  as  the  question  concerns  development  of 
mental  characteristics,  and  perhaps  also  the  modification  of  moral 
and  social  institutions. 

37.  IMMIGRATION  AND  THE  BIRTHRATE* 

About  1830,  however,  we  reach  a  turning-point  in  the  history  of 
our  population.    In  the  decade   1830-40  the  number  of  foreign 

'Adapted  from  Francis  A.  Walker,  *' Immigration  and  Degradation,"  in 
Discussions  in  Economics  and  Statistics ^  Vol.  II,  pp.  421-26.  Henry  Holt  &  Co., 
1899. 


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HUMAN  BEINGS  AS  ECONOMIC  FACTORS  147 

arrivals  greatly  increased.  Immigration  had  not,  indeed,  reached 
the  enormous  dimensions  of  these  later  days.  Yet,  during  the  decade 
in  question,  the  foreigners  coming  to  the  United  States  were  almost 
exactly  fourfold  those  coming  in  the  decade  preceding,  or  599,000. 
The  question  now  of  vital  importance  is  this:  Wa^  the  population  of 
the  country  correspondingly  increased?  I  answer,  No!  The  popu- 
lation of  1840  was  almost  exactly  what,  by  computation,  it  would 
have  been  had  no  increase  in  foreign  arrivals  taken  place.  Again, 
between  1840  and  1850,  a  still  further  access  of  foreigners  occurred, 
this  time  of  enormous  dimensions,  the  arrivals  of  the  decade  amount- 
ing to  not  less  than  1,713,000.  Of  this  gigantic  total,  1,048,000  were 
from  the  British  IsleSj  the  Irish  famine  of  1846-47  having  driven 
hundreds  of  thousands  of  miserable  peasants  to  seek  food  upon  our 
shores.  Again  we  ask:  Did  this  excess  constitute  a  net  gain  to  the 
population  of  the  country?  Again  the  answer  is.  No!  Population 
showed  no  increase  over  the  proportions  established  before  immigra- 
tion set  in  like  a  flood.  In  other  words,  as  the  foreigners  began  to 
come  in  larger  nmnbers,  the  native  population  more  and  more  with- 
held their  own  increase. 

Now,  this  correspondence  might  be  accounted  for  in  three  differ- 
ent ways:  (i)  It  might  be  said  that  it  was  a  mere  coincidence,  no 
relation  of  cause  and  effect  existing  between  the  two  phenomena. 
(2)  It  might  be  said  that  the  foreigners  came  because  the  native  popu- 
lation was  relatively  declining,  that  is,  failing  to  keep  up  its  pristine 
rate  of  increase.  (3)  It  might  be  said  that  the  growth  of  the  native 
peculation  was  checked  by  the  incoming  of  the  foreign  elements  in 
such  large  numbers. 

The  true  explanation  of  the  remarkable  fact  we  are  considering, 
I  believe  to  be  the  last  of  the  three  suggested.  The  access  of  foreigners, 
at  the  time  and  under  the  drcmnstances,  constituted  a  shock  to  the 
principle  of  population  among  the  native  element.  That  principle 
is  always  acutely  sensitive,  alike  to  sentimental  and  to  economic 
conditions.  And  it  is  to  be  noted,  in  passing,  that  not  only  did  the 
decline  in  the  native  element,  as  a  whole,  take  place  in  singular  corre- 
spondence with  the  excess  of  foreign  arrivals,  but  it  occurred  chiefly 
in  just  those  regions  to  which  the  newcomers  most  freely  resorted. 

But  what  possible  reason  can  be  suggested  why  the  incoming 
of  the  foreigner  should  have  checked  the  disposition  of  the  native 
toward  the  increase  of  population  at  the  traditional  rate  ?  I  answer 
that  the  best  of  good  reasons  can  be  assigned.    Throughout  the 


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148  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

northeastern  and  northern  middle  states,,  into  which,  during  the 
period  under  consideration,  the  newcomers  poured  in  such  numbers, 
the  standard  of  material  living,  of  general  intelligence,  of  social 
decency,  had  been  singularly  high.  Life,  even  at  its  hardest,  had 
always  had  its  luxuries;  the  babe  had  been  a  thing  of  beauty,  to  be 
delicately  nurtured  and  proudly  exhibited;  the  growing  child  had 
been  decently  dressed,  at  least  for  school  and  church;  the  house  had 
been  kept  in  order,  at  whatever  cost,  the  gate  hung,  the  shutters  in 
place,  while  the  front  yard  had  been  made  to  bloom  with  simple 
flowers;  the  village  church,  the  public  schoolhouse,  had  been  the  best 
which  the  community,  with  great  exertions  and  sacrifices,  could  erect 
and  maintain.  Then  came  the  foreigner,  making  his  way  into  the 
little  village,  bringing — small  blame  to  him! — not  only  a  vastly  lower 
standard  of  living,  but  too  often  an  actual  present  incapacity  even  to 
understand  the  refinements  of  life  and  thought  in  the  commimity 
in  which  he  sought  a  home.  Our  people  had  to  look  upon  houses  that 
were  mere  sheUs  for  human  habitations,  the  gate  unhung,  the  shutters 
flapping  or  falling,  green  pools  in  the  yard,  babes  and  yoimg  children 
rolling  about  half  naked  or  worse,  neglected,  dirty,  imkempt.  Was 
there  not  in  this  a  sentimental  reason  strong  enough  to  give  a  shock 
to  the  principle  of  population  ?  But  there  was,  besides,  an  economic 
reason  for  a  check  to  the  native  increase.  The  American  shrank  from 
the  industrial  competition  thus  thrust  upon  him.  He  was  unwilling 
himself  to  engage  in  the  lowest  kind  of  day-labor  with  these  new  ele- 
ments of  the  population;  he  was  even  more  unwilling  to  bring  sons 
and  daughters  into  the  world  to  enter  into  that  competition.  For 
the  first  time  in  our  history,  the  people  of  the  free  states  became 
divided  into  classes.  Those  classes  were  natives  and  foreigners. 
Politically,  the  distinction  had  only  a  certain  force,  which  yielded  more 
or  less  readily  under  partisan  pressure;  but  socially  and  industrially 
that  distinction  has  been  a  tremendous  power,  and  its  chief  effects 
have  been  wrought  upon  population. 

If  the  foregoing  views  are  true,  or  contain  any  considerable  degree 
of  truth,  foreign  inunigration  into  this  country  has,  from  the  time  it 
first  assumed  large  proportions,  amounted,  not  to  a  re-enforcement 
of  our  population,  but  to  a  replacement  of  native  by  foreign  stock. 
That  if  the  foreigners  had  not  come,  the  native  element  would  long 
have  filled  the  places  the  foreigners  usurped,  I  entertain  not  a  doubt. 
The  competency  of  the  American  stock  to  do  this  would  be  absurd  to 
question,  in  the  face  of  such  a  record  as  that  for  1790  to  1830. 


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HUMAN  BEINGS  AS  ECONOMIC  FACTORS 


149 


Whatever  were  the  causes  which  checked  the  growth  of  the  native 
population,  they  were  neither  physiological  nor  climatic.  They  were 
mainly  social  and  economic;  and  chief  among  them  was  the  access  of 
vast  hordes  of  foreign  immigrants,  bringing  with  them  a  standard  of 
living  at  which  our  own  people  revolted. 

38.  FECUNDITY  OF  NATIVE  AND  IMMIGRANT  WOMEN  IN 
RHODE  ISLAND,  ^900* 

All  data  are  for  women  under  45  ytan  of  ace,  married  ten  to  twenty  years 


Nationauty  (as  Dbreminbo  by 

CouHTRY  or  BntTH  OP 

Both  Parxmts) 


PiaciMTAOB  or  WOIIKN  Beaung 


No 
Chfldren 


I  or  a 
Children 


Children 


More  than 
5  Chfldren 


AVKKACE 

NuMBBR  or 

CHILOaSN 
BOEN  PBE 

Woman 


AU 

Native  white  of  native  parentage . . 

White  of  foreign  parentage 

First  generation  (bom  abroad)  . . 
Secona  generation  (bom  in  U.S.) 

Canadian,  KTig^Hb 

First  generation 

Second  generation 

Canadian,  French 

First  generation 

Second  generation 

P^irst  generation 

Secona  generation 

German  ..••..••.••••..••..••■ 

First  generation 

Second  generation 

Irish 

First  generation 

Second  generation 

Italian 

First  generation 

Second  generation 

Scotch 

First  generation 

Second  generation 

Swedish 

FiiBt  generation 

Secona  generation 

Other  foreign 

First  generation 

Second  generation 

NaUve 


II. 3 
X7  S 

8.0 

7. a 

10. 5 

9. a 
9.1 
10.4 

S.2 
5.2 
5  a 

ll 
14.6 

10.4 
OS 
za.o 

8.8 

7.6 

10.3 

S.x 
5.x 
(a) 

10. 1 

XS.6 

7.0 

7.3 
7.0 
X6.7 


a6.i 
41. a 

18.9 
17. a 
a3-9 

a6.8 
aS-3 
37.3 

II. a 
10.  a 
17.3 

30.0 
a7.8 
39.4 

a6.8 
19. 6 
39.0 

XS-S 
13.0 
X8.7 

lo.s 
X0.6 
(a) 

37.6 
233 
46.7 

ai.8 
ax. 9 

(•) 

ao.7 
ao.3 
30.0 

a6.a 


35. 7 
3a. 3 

37.7 
37.8 
37.6 

38.9 

40.4 
a8.4 

ao.3 
28.3 
34.8 

40.0 
40.7 
37.0 

43.3 
46.0 
38.9 

38.0 
37.3 
38.9 

43.5 

Ui" 

38.9 
41.6 
26.7 


46.0 
}6.o 

:«) 


t 


4X.3 
41.7 
30.0 

25 .0 


26.9 
9. a 

35. 4 
37.8 
a8.i 

a5.x 
a5.3 
a4.o 


56.3 
4a.8 

ao.a 
aa.7 
9.0 

19.4 
24  9 
10. 1 

37.7 
4a. I 
3a. o 

40.8 
40.8 
(a) 

aj.5 
ao.a 


as. I 
25.0 
(a) 

30.8 
31. 1 
23.4 

26.5 


3.8 
a. 5 


4.5 

4.7 
30 

3.8 
3.9 
3.4 

5.7 
5.9 
40 

3.5 

a. 6 

3.5 

4.6 
4.8 

4. a 

SO 

t^ 

3.6 
3-9 
a. 4 

4.0 

4. a 
4. a 
3.3 

3.3 


(a)  Not  computed  owing  to  small  number  involved. 

'Adapted  from  Reports  of  the  ImmigraPion  Commission  (191 1),  XXVIII, 
743-48. 


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ISO  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

39.    IMMIGRATION  AND  THE  USE  OF  MACHINERY' 

The  remarkable  development  of  machinery  and  division  of  labor 
in  the  United  States  has  been  coincident  with  the  enormous  inmiigra- 
tion  of  foreign  laborers.  There  is  a  close  relationship  between  the 
two  movements.  In  the  first  place,  from  the  earliest  beginnings  of 
modern  industry  both  skilled  and  unskilled  laborers  in  England  and 
America  have  implicitly  argued  that  these  mechanical  innovations, 
which  before  their  very  dyes  both  substituted  unskilled  for  skilled 
labor  and  displaced  both  kinds  of  labor,  were  hostile  to  their  interests. 
Where,  as  in  England,  it  has  been  possible  for  labor  to  organize,  or 
where,  as  in  England  and  Germany,  without  effective  organization, 
there  have  been  long  accepted  traditions  and  customary  lethargic 
methods  of  doing  work,  the  introduction  of  machinery  and  division 
of  labor  have  been  seriously  checked.  But  in  America,  with  its 
mixed  races,  there  has  of  late  years  been  neither  organization  nor 
tradition,  or,  rather,  obstacles  imposed  by  tradition  and  organization 
have  been  easily  broken  down.  The  same  is  true  in  England  itself 
in  those  few  trades  where  the  inmiigrant  has  entered,  as  in  the 
clothing  trade.  It  was  the  Russian  Jew  who,  in  that  country,  intro- 
duced the  sewing  machine  and  the  minute  subdivision  of  labor  in  the 
face  of  the  English  journeyman  tailor,  who  despised  these  innovations 
as  destructive  to  his  trade  skill.  In  America  this  process  has  been 
nearly  universal  in  all  trades,  and  the  high  degree  of  machine  industry 
in  this  country,  with  its  low  cost  of  production  and  large  growing 
exports,  may  almost  be  said  to  be  a  direct  effect  of  immigration. 
The  industrial  menace  to  Europe  from  American  manufactures  is 
very  largely  the  work  of  the  European  immigrant  himself  removed 
to  America.  Not  that  the  inunigrant  has  been  prominent  as  an 
inventor  and  organizer  of  machine  production,  but  that  he  has 
removed  all  obstacles  to  its  free  and  rapid  introduction,  and  so  has 
stimulated  invention  and  business  organization.  The  minute  sub- 
division of  labor  in  the  sewing  trade,  has  indeed  been  devised  in  order 
to  put  the  hordes  of  unskilled  immigrants  easily  to  work,  and  they 
have  created  for  themselves  practically  a  new  industry,  that  of  ready- 
made  clothing  for  the  country  at  large,  alongside  that  of  the  journey- 
man tailor,  who  continues  his  traditional  methods  of  work  for  the 
more  expensive  custom  garments.    In  other  trades,  likewise,   the 

'From  John  R.  Commons,  'Inmiigration  and  Its  Economic  Effects/'  in 
the  Report  of  the  Industrial  Commission  (1901),  XV,  313-14. 


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HUMAN  BEINGS  AS  ECONOMIC  FACTORS  151 

objections  of  the  old-time  trade  unions  to  the  introduction  of  ma- 
chinery or  to  its  rapid  speeding  have  been  nullified  by  competing 
establishments  springing  up  and  entering  the  race  with  him  on  the 
basis  of  machinery  and  inmiigrant  labor.  Ultimately  he,  too,  has 
been  compelled  to  accept  the  innovations  or  lose  his  job.  The  last 
few  years  have  seen  a  number  of  imions,  like  the  glass  blowers  and 
the  iron  and  steel  workers,  formally  remove  through  their  national 
conventions  several,  if  not  all,  their  restrictions  on  machinery, 
business  management,  and  speeding  of  work. 

In  the  second  place,  the  fact  that  machinery  and  division  of  labor 
opens  a  place  for  imskilled  immigrants,  makes  it  possible  not  only  to  get 
the  advantages  of  machinery,  but  also  to  get  the  advantages  of  cheap 
labor.  If  machinery  were  to  be  considered  as  strictly  an  economic 
force,  then  the  labor  employed  to  operate  the  machinery  should 
receive  the  same  wages  as  the  skilled  labor  which  it  displaces.  The 
economy  would  show  itself  in  the  greatly  increased  output.  This  has 
been  the  actual  outcome  in  the  case  of  the  printers  who,  owing  to 
their  strong  organization  and  their  natural  protection  against  immi- 
gration in  the  fact  of  the  English  language,  receive  even  better  wages 
on  the  typesetting  machine  than  they  formerly  received  in  setting 
type  by  hand,  and,  at  the  same  time,  the  cost  of  the  work  has  been 
greatly  reduced.  But  if,  on  the  other  hand,  the  new  machinery  is 
used  to  displace  well-paid  labor  by  iU-paid  labor,  it  is  a  means  of 
increasing  permanently  the  proportion  of  low  standard  population 
in  our  midst.  This  result  in  past  years  has,  in  many  cases,  accom- 
panied immigration.  It  is  shown  in  the  cotton  textile  industry, 
where,  with  the  chronic  revolution  in  machinery,  there  has  been  found 
a  place  for  continuous  succession  of  lower  and  lower  standards  of 
living,  following  in  order  the  native  American,  the  Irish,  the  French 
Canadian,  the  Armenian,  and  the  Syrian.  The  fate  of  the  higher  dis- 
placed classes  and  their  ability  to  make  the  transition  to  other  indus- 
tries depends  upon  the  expansion  of  industry  and  the  restriction  on 
the  growth  of  their  numbers.  While,  therefore,  immigration  has 
furnished  a  field  for  the  rapid  expansion  of  machinery,  it  has  permitted 
that  machinery  to  be  used  as  a  refuge  for  the  low-standard  population. 
Whether  this  population  in  course  of  time  is  itself  able  to  rise  in  the 
scale  is  a  problem.  Hitherto  organization  has  been  able  to  do  but 
little  for  those  industries  where  automatic  machinery  and  division  of 
labor  have  displaced  skilled  labor  by  \mskilled  labor.  This  is  partly 
owing  to  another  factor — the  introduction  of  women  and  children. 


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152  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

40.    THE  RECOMMENDATIONS  OF  THE  IMMIGRATION 
COMMISSION* 

As  a  result  of  the  investigation,  the  Commission  is  unanimously 
of  the  opinion  that  in  framing  I^slation  emphasb  should  be  laid 
upon  the  following  prindples: 

1.  While  the  American  people,  as  in  the  past,  welcome  the 
oppressed  of  other  lands,  care  should  be  taken  that  immigration  be 
such  both  in  quality  and  quantity  as  not  to  make  too  difficidt  the 
process  of  assimilation. 

2.  Since  the  existing  law  and  further  special  legislation  recom- 
mended in  this  report  deal  with  the  physically  and  morally  unfit, 
further  general  legislation  concerning  the  admission  of  aliens  should 
be  based  primarily  upon  economic  or  business  considerations  touching 
the  prosperity  and  economic  well-being  of  oiu:  people. 

3.  The  measure  of  the  rational,  healthy  development  of  a  coimtry 
is  not  the  extent  of  its  investment  of  capital,  its  output  of  products, 
or  its  exports  and  imports,  imless  there  is  a  corresponding  economic 
opportunity  afforded  to  the  citizen  dependent  upon  employment 
for  his  material,  mental,  and  moral  development. 

4.  The  development  of  business  may  be  brought  about  by  means 
which  lower  the  standard  of  living  of  the  wage-earners.  A  slow 
expansion  of  industry  which  would  permit  the  adaptation  and  assimi- 
lation of  the  incoming  labor  supply  is  preferable  to  a  very  rapid 
industrial  expansion  which  results  in  the  immigration  of  laborers  of 
low  standards  and  eflSdency,  who  imperil  the  American  standard 
of  wages  and  conditions  of  employment. 

The  Commission  agrees  that: 

I.  To  protect  the  United  States  more  effectively  against  the 
immigration  of  criminal  and  certain  other  debarred  classes — 

a)  Aliens  convicted  of  serious  crimes  within  a  period  of  five  years 
after  admission  should  be  deported  in  accordance  with  the  provisions 
of  House  bill  20980,  Sixty-first  Congress,  second  session. 

b)  Under  the  provisions  of  section  39  of  the  immigration  act  of 
February  20,  1907,  the  President  should  appoint  commissioners  to 
make  arrangements  with  such  countries  as  have  adequate  police 
records  to  supply  emigrants  with  copies  of  such  records,  and  that 
thereafter  immigrants  from  such  countries  should  be  admitted  to 
the  United  States  only  upon  the  production  of  proper  certificates 
showing  an  absence  of  convictions  for  excludable  crimes. 

'  Reports  of  the  Immigration  Commission  (191 1),  I,  45-48. 


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HUMAN  BEINGS  AS  ECONOMIC  FACTORS  153 

c)  So  far  as  practicable  the  immigration  laws  should  be  so 
amended  as  to  be  made  applicable  to  alien  seamen. 

d)  Any  alien  who  becomes  a  public  charge  within  three  years 
after  his  arrival  in  this  coimtry  should  be  subject  to  deportation  in 
the  discretion  of  the  Secretary  of  Conmierce  and  Labor. 

2.  Sufficient  appropriation  should  be  regularly  made  to  enforce 
vigorously  the  provisions  of  the  laws  previously  reconmiended  by 
the  Commission  and  enacted  by  Congress  regarding  the  importation 
of  women  for  immoral  purposes. 

3.  As  the  new  statute  relative  to  steerage  conditions  took  effect 
so  recently  as  January  i,  1909,  and  as  the  most  modem  steerage  fully 
complies  with  all  that  is  demanded  under  the  law,  the  Commission's 
only  recommendation  in  this  connection  is  that  a  statute  be  imme- 
diately enacted  providing  for  the  placing  of  government  officials, 
both  men  and  women,  on  vessels  carrying  third-class  or  steerage 
passengers  for  the  enforcement  of  the  law  and  the  protection  of  the 
imjnigrant.  The  system  inaugurated  by  the  Commission  of  sending 
investigators  in  the  steerage  in  the  guise  of  immigrants  should  be 
continued  at  intervals  by  the  Biireau  of  Immigration. 

4.  To  strengthen  the  certainty  of  just  and  himiane  decisions  of 
doubtful  cases  at  ports  of  entry  it  is  reconmiended — 

That  section  25  of  the  immigration  act  of  1907  be  amended  to 
provide  that  boards  of  special  inquiry  should  be  appointed  by  the 
Secretary  of  Commerce  and  Labor,  and  that  they  should  be  com- 
posed of  men  whose  ability  and  training  qualify  them  for  the  per- 
formance of  judicial  fimctions;  that  the  provisions  compelling  their 
hearings  to  be  separate  and  apart  from  the  public  should  be  repealed, 
and  that  the  office  of  an  additional  Assistant  Secretary  of  Conmierce 
and  Labor  to  assist  in  reviewing  such  appeals  be  created. 

5.  To  protect  the  immigrant  against  exploitation;  to  discourage 
sending  savings  abroad;  to  encourage  permanent  residence  and 
naturalization;  and  to  secure  better  distribution  of  alien  immigrants 
throughout  the  country — 

a)  The  states  should  enact  laws  strictly  regulating  immigrant 
banks. 

b)  Proper  state  legislation  should  be  enacted  for  the  regulation 
of  employment  agencies. 

c)  Since  numerous  aliens  make  it  their  business  to  keep  immi- 
grants from  influences  that  may  tend  toward  their  assimilation  and 
naturalization  as  American  citizens  with  the  purpose  of  using  their 


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iS4  MATERIALS  fOR  ELEMENTARY  ECONOMICS 

funds,  of  encouraging  investment  of  their  savings  abroad,  and  their 
return  to  their  home  land,  aliens  who  attempt  to  persuade  inmii- 
grants  not  to  become  American  citizens  should  be  made  subject  to 
deportation. 

d)  Since  the  distribution  of  the  thrifty  inmiigrant  to  sections  of 
the  country  where  he  may  secure  a  permanent  residence  to  the  best 
advantage,  and  especially  where  he  may  invest  his  savings  in  farms 
or  engage  in  agricidtural  pursuits,  is  most  desirable,  the  division  of 
information  should  be  so  conducted  as  to  co-operate  with  states 
desiring  inmiigrant  settlers;  and  information  concerning  the  oppor- 
tunities for  settlement  should  be  brought  to  the  attention  of  inmii- 
grants  in  industrial  centers  who  have  been  here  for  some  time  and 
who  might  be  thus  induced  to  invest  their  savings  in  this  country 
and  become  permanent  agricultural  settlers.  The  division  might 
also  secure  and  furnish  to  all  laborers  alike  information  showing 
opportunities  for  permanent  employment  in  various  sections  of  the 
country,  together  with  the  economic  conditions  in  such  places. 

6.  One  of  the  provisions  of  section  2  of  the  act  of  1907  reads  as 
follows: 

And  provided  further f  That  skilled  labor  may  be  imported  if  labor 
of  like  kind  unemployed  can  not  be  found  in  this  country. 

Instances  occasionally  arise,  especially  in  the  establishment  of 
new  industries  in  the  United  States,  where  labor  of  the  kind  desired, 
unemployed,  cannot  be  foimd  in  this  country  and  it  becomes  necessary 
to  import  such  labor.  Under  the  law  the  Secretary  of  Commerce 
and  Labor  has  no  authority  to  determine  the  questions  of  the  neces- 
sity for  importing  such  labor  in  advance  of  the  importation,  and  it 
is  recommended  that  an  amendment  to  the  law  be  adopted  by  adding 
to  the  clause  dted  above  a  provision  to  the  effect  that  the  question 
of  the  necessity  of  importing  such  skilled  labor  in  any  particular 
instance  may  be  determined  by  the  Secretary  of  Commerce  and 
Labor  upon  the  application  of  any  person  interested  prior  to  any 
action  in  that  direction  by  such  person;  such  determination  by  the 
Secretary  of  Commerce  and  Labor  to  be  reached  after  a  full  hearing 
and  an  investigation  into  the  facts  of  the  case. 

7.  The  general  policy  adopted  by  Congress  in  1882  of  excluding 
Chinese  laborers  should  be  continued. 

The  question  of  Japanese  and  Korean  inmiigration  should  be 
permitted  to  stand  without  further  legislation  so  long  as  the  present 
method  of  restriction  proves  to  be  effective. 


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HUMAN  BEINGS  AS  ECONOMIC  FACTORS  155 

An  understanding  should  be  reached  with  the  British  Govern- 
ment whereby  East  Indian  laborers  should  be  effectively  prevented 
from  coming  to  the  United  States. 

8.  The  investigations  of  the  Commission  show  an  oversupply 
of  \mskilled  labor  in  basic  industries  to  an  extent  which  indicates  an 
oversupply  of  unskilled  labor  in  the  industries  of  the  country  as  a 
whole,  and  therefore  demand  legislation  which  will  at  the  present 
time  restrict  the  further  admission  of  such  unskilled  labor. 

It  is  desirable  in  making  the  restriction  that — 

a)  A  sufficient  nmnber  be  debarred  to  produce  a  marked  effect 
upon  the  present  supply  of  unskilled  labor. 

b)  As  far  as  possible,  the  aliens  excluded  should  be  those  who 
come  to  this  country  with  no  intention  to  become  American  citizens 
or  even  to  maintain  a  permanent  residence  here,  but  merely  to  save 
enough,  by  the  adoption,  if  necessary,  of  low  standards  of  living,  to 
return  permanently  to  their  home  country.  Such  persons  are  usually 
men  imaccompanied  by  wives  or  children. 

c)  As  far  as  possible  the  aliens  excluded  should  also  be  those  who, 
by  reason  of  their  personal  qualities  or  habits,  would  least  readily  be 
assimilated  or  would  make  the  least  desirable  citizens. 

The  following  methods  of  restricting  immigration  have  been 
suggested: 

a)  The  exclusion  of  those  imable  to  read  or  write  in  some 
1  anguage. 

b)  The  limitation  of  the  nimiber  of  each  race  arriving  each  year 
to  a  certain  percentage  of  the  average  of  that  race  arriving  during 
a  given  period  of  years. 

c)  The  exclusion  of  imskilled  laborers  unaccompanied  by  wives 
-or  families. 

d)  The  limitation  of  the  number  of  immigrants  arriving  annually 
at  any  port. 

e)  The  material  increase  in  the  amount  of  money  required  to  be 
in  the  possession  of  the  immigrant  at  the  port  of  arrival. 

f)  The  material  increase  of  the  head  tax. 

g)  The  levy  of  the  head  tax  so  as  to  make  a  marked  discrimi- 
nation in  favor  of  men  with  families. 

All  these  methods  would  be  effective  in  one  way  or  another  in 
securing  restrictions  in  a  greater  or  less  degree.  A  majority  of  the 
Commission  favor  the  reading  and  writing  test  as  the  most  feasible 
single  method  of  restricting  undesirable  immigration. 


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IS6  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

The  Commission  as  a  whole  recommends  restriction  as  demanded 
by  economic,  morale  and  social  considerations,  furnishes  in  its  report 
reasons  for  such  restriction,  and  points  out  methods  by  which  Congress 
can  attain  the  desired  result  if  its  judgment  coincides  with  that  of 
the  Commission. 


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V.    CAPITAL  GOODS  AS  ECONOMIC  FACTORS 

41.    THE  ROUNDABOUT  PROCESS^ 

A  peasant  requires  drinking  water.  The  spring  is  some  distance 
from  his  house.  There  are  various  ways  in  which  he  may  supply  his 
daily  wants.  First,  he  may  go  to  the  spring  each  time  he  is  thirsty 
and  drink  out  of  his  hollowed  hand.  This  is  the  most  direct  way; 
satisfaction  follows  immediately  on  exertion.  But  it  is  an  incon- 
venient way,  for  our  peasant  has  to  take  his  way  to  the  well  as  often 
as  he  is  thirsty.  And  it  is  an  insufficient  way,  for  he  can  never 
collect  and  store  any  great  quantity  such  as  he  requires  for  various 
other  purposes.  Second,  he  may  take  a  log  of  wood,  hollow  it  out  into 
a  kind  of  pail,  and  carry  his  day's  supply  from  the  spring  to  his 
cottage.  The  advantage  is  obvious,  but  it  necessitates  a  roundabout 
way  of  considerable  length.  The  man  must  spend,  perhaps  a  day, 
in  cutting  out  the  pail;  before  doing  so  he  must  have  felled  a  tree  in  the 
forest;  to  do  this,  again,  he  must  have  made  an  axe,  and  so  on.  But 
there  is  still  a  third  way;  instead  of  felling  one  tree  he  fells  a  number 
of  trees,  splits  and  hollows  them,  lays  them  end  for  end,  and  so  con- 
structs a  runnel  or  rhone  which  brings  a  full  head  of  water  to  his 
cottage.  Here,  obviously,  between  expenditure  of  the  labor  and  the 
obtaining  of  the  water  we  have  a  very  roundabout  way,  but  then,  the 
result  is  ever  so  much  greater.  Our  peasant  needs  no  longer  take 
his  weary  way  from  house  to  well  with  the  heavy  pail  on  his  shoulder, 
and  yet  he  has  a  constant  and  full  supply  of  the  freshest  water  at  his 
very  door. 

Another  example.  I  require  stone  for  building  a  house.  There  is 
a  rich  vein  of  excellent  sandstone  in  a  neighboring  hill.  How  is  it  to 
be  got  out  ?  First,  I  may  work  the  loose  stones  back  and  forward  with 
my  bare  fingers,  and  break  oflf  what  can  be  broken  off.  This  is  the 
most  direct,  but  also  the  least  productive  way.  Second,  I  may  take 
a  piece  of  iron,  make  a  hammer  and  chisel  out  of  it,  and  use  them  on 
the  hard  stone — a  roundabout  way,  which,  of  course,  leads  to  a  very 
much  better  result  than  the  former.  Third  method — ^having  a  hammer 
and  chisel  I  use  them  to  drill  a  hole  in  the  rock;  next  I  turn  my 

*  From  Eugen  von  Bdhm-Bawerk,  Positive  Theory  of  Capital,  translated  by 
W.  Smart,  pp.  18-19.    Macmillan  &  Co.,  1891. 

157 


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IS8  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

attention  to  procuring  charcoal,  sulphur,  and  nitre,  and  mixing  them 
in  a  powder,  then  I  pour  the  powder  into  the  hole,  and  the  explosion 
that  follows  splits  the  stone  into  convenient  pieces — still  more  of  a 
roundabout  way,  but  one,  which,  as  experience  shows,  is  as  much 
superior  to  the  second  way  in  result  as  the  second  was  to  the  first. 

Yet  another  example.  I  am  short-sighted,  and  wish  to  have  a 
pair  of  spectacles.  For  this  I  require  ground  and  polished  glasses,  and 
a  steel  framework.  But  all  that  nature  offers  toward  that  end  is 
silicious  earth  and  iron  ore.  How  am  I  to  transform  these  into  spec- 
tacles ?  Work  as  I  may,  it  is  as  impossible  for  me  to  make  spectacles 
directly  out  of  silicious  earth  as  it  would  be  to  make  the  steel  frames 
out  of  the  iron  ore.  Here  there  is  no  immediate  or  direct  method  of 
production.  There  is  nothing  for  it  but  to  take  the  roundabout 
way,  and,  indeed,  a  very  roundabout  way.  I  must  take  the  silicious 
earth  and  fuel,  and  build  furnaces  for  smelting  the  glass  from  the 
silicious  earth;  the  glass  thus  obtained  has  to  be  carefully  purified, 
worked,  and  cooled  by  a  series  of  processes;  finally,  the  glass  thus 
prepared — again  by  means  of  ingenious  instruments  carefully  con- 
structed beforehand — ^is  ground  and  polished  into  the  lens  fit  for  short- 
sighted eyes.  Similarly,  I  must  smelt  the  ore  in  the  blast  furnace, 
change  the  raw  iron  into  steel,  and  make  the  frame  therefrom — 
processes  which  cannot  be  carried  through  without  a  long  series  of 
tools  and  buildings  that,  on  their  part  again,  require  great  amounts 
of  previous  labor.  Thus,  by  an  exceedingly  roundabout  way  the 
end  is  attained. 

The  lesson  to  be  drawn  from  all  these  examples  alike  is  obvious. 
It  is — that  a  greater  result  is  obtained  by  producing  goods  in  round- 
about ways  than  by  producing  them  directly.  Where  a  good  can  be 
produced  in  either  way,  we  have  the  fact  that,  by  the  indirect  way,  a 
greater  product  can  be  got  with  equal  labor  or  the  same  product 
with  less  labor.  But,  beyond  this,  the  superiority  of  the  indirect 
way  manifests  itself  in  being  the  only  way  in  which  certain  goods  can 
be  obtained;  if  I  might  say  so,  it  is  so  much  the  better  that  it  is  often 
the  only  way! 

42.    MACHINERY  USED  IN  THE  MAKING  OF  PINS' 

Pins. — In  the  manufacture  of  pins,  unit  486,  as  in  most  of  the 
units  of  this  industry,  the  first  operation  was  that  of  straightening  the 

»  From  the  Thirteenth  Annuel  Report  of  the  Commissioner  of  Labor  (1898),  I, 
338-39. 


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CAPITAL  GOODS  AS  ECONOMIC  FACTORS  159 

wire.  This  was  done  by  means  of  a  wire-straightening  machine  imder 
both  methods,  but  the  time  under  the  modem  method  was  only  6 
minutes,  while  4  hours,  or  forty  times  as  long,  were  required  under 
the  primitive  method.  Under  the  machine  method,  in  the  second 
operation,  the  wire  was  cut  and  the  pins  headed  and  pointed  by  pin 
machines,  12  of  which  were  tended  by  i  person.  The  total  time 
charged  to  this  operation  was  26 . 4  minutes.  Under  the  hand  method 
the  pin  was  made  in  two  parts,  the  head  being  made  in  the  form  of  a 
coil  and  dosed  over  the  end  of  the  shaft.  It  required  seven  (^)erations 
to  make  the  pin  under  this  method,  and  the  aggregate  time  required 
was  129  hoiu^,  or  two  hundred  and  ninety-three  times  as  long  as  was 
required  under  the  machine  method  to  accomplish  the  same  result. 
Whitening  the  pins  was  accomplished  by  means  of  a  whitening  tank 
operated  by  hand  under  both  methods.  Under  the  modem  method 
this  (^ration  required  1.8  minutes  as  against  30  minutes  required 
under  the  primitive  method.  The  operation  of  drying  and  cleanmg  the 
pins  was  performed  imder  the  machine  method  by  the  use  of  a  fanning 
mill  in  3  minutes,  while  under  the  hand  method,  by  means  of  a  drying 
pan,  I  hour  was  required.  The  pins  were  polished  in  a  tiunbling  barrel 
under  both  methods,  requiring  i .  2  minutes  under  the  modem  and  30 
minutes,  or  twenty-five  times  as  long,  under  the  primitive  method. 
Pin-sticking  machines  were  used  under  the  modem  method  for  stick- 
ing the  pins  into  paper,  the  work  being  done  in  30  minutes.  Under 
the  hand  method  this  was  accomplished  in  two  operations,  crimping 
the  paper,  which  required  15  minutes,  and  sticking  in  the  pins,  which 
required  2  hours.  Folding  the  papers,  packing  and  labeling,  and 
overseeing  each  required  less  time  under  the  machine  than  under 
the  hand  method.  Under  the  hand  method  the  time  charged  to 
ftmiishing  the  power  was  i  hour,  while  imder  the  machine  method 
the  motive  power  was  water,  and  there  was  no  time  charged  to 
furnishing  it;  but  6  minutes  were  charged  to  keeping  the  machinery 
in  order. 

The  total  time  required  for  the  production  of  12  packages  of  i 
pound  each  of  pins  under  the  machine  method  was  i  hour  and  33.9 
minutes  as  against  140  hours  and  55  minutes  required  under  the  hand 
method — a  ratio  of  about  90  to  i  in  favor  of  the  modem  method. 
The  handmade  pins  were  made  in  England  by  the  labor  of  12  persons 
and  finished  in  the  United  States  by  5  persons,  while  16  persons  worked 
on  the  machine  product.  The  machine-made  pin  is  a  much  more 
desirable  article  than  the  handmade. 


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MATERIALS  FOR  ELEMENTARY  ECONOMICS 


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CAPITAL  GOODS  AS  ECONOMIC  FACTORS  i6i 

44.    MACHINERY  vs.  HAND  LABOR  IN  THE  RAISING  OF 
SMALL  GRAINS' 

SmaU  grains, — ^Units  3,  barley;  13,  oats;  17,  rice;  18,  rye,  and 
26  and  27,  wheat  may  be  grouped  under  this  head  and  be  considered 
together  as  to  a  number  of  operations.  In  seeding,  a  sack  was  the 
tool  or  implement  used  in  all  these  units  under  the  earlier  methods, 
the  seed  being  sown  broadcast  and  covered  by  the  use  of  a  brush, 
drag,  or  harrow.  The  time  for  sowing  the  seed  was  quite  uniform, 
being,  under  the  primitive  method,  i  hour  and  25  minutes  in  units 
3,  13,  and  27;  I  hour  and  22.5  minutes  in  unit  17;  i  hour  and  15 
minutes  in  unit  26,  and  i  hour  in  unit  18.  Under  the  modem  method 
a  broadcast  seeder  was  used  in  units  13  and  26,  the  sowing  being  done 
in  20  minutes  and  15  minutes,  respectively,  or  in  about  one-fourth 
and  one-fifth  of  the  time  required  by  hand,  as  just  shown.  The  sub- 
sequent harrowing  to  cover  the  seed  occupied  50  minutes  and  12 
minutes,  respectively,  in  these  \mits  as  against  2  hours  and  50  minutes 
and  2  hours  and  30  minutes  under  the  earlier  method.  In  unit  17 
the  seed  was  sown  and  covered  at  one  operation  in  55  minutes  as 
against  a  total  of  3  hours  and  12.5  minutes  required  for  the  work 
done  in  two  operations  under  the  more  primitive  method.  The  same 
conditions  were  found  in  unit  18  as  in  unit  17,  the  time  being  i  hour 
under  the  modem  and  2  hours  and  40  minutes  under  the  primitive 
method.  The  greatest  advance  in  these  imits  is  to  be  seen  in  those 
numbered  3  and  27,  where,  under  the  machine  method,  a  combined 
gang  plow,  seeder,  and  harrow  broke  the  ground,  sowed  and  covered 
the  seed,  and  pulverized  the  topsoil  at  one  operation.  This  was 
accomplished  in  \mit  3  in  10.9  minutes,  the  power  being  a  traction 
engine  requiring  the  attention  of  two  men,  making  the  aggregate 
time  21.8  minutes.  In  \mit  27  the  same  work  was  done  in  15  minutes, 
the  aggregate  time  for  the  engineer  and  fireman  necessary  to  run  the 
machine  being  30  minutes.  Strictly  speaking,  the  time  of  the  water- 
hauler  should  be  added,  as  he  was  necessary  for  the  operation  of  the 
machines  used.  Adding  this  time  and  comparing  it  with  the  total 
time  required  for  the  operations  done  separately  by  the  primitive 
method,  the  time  was  32 . 7  minutes  under  the  modern  as  against  10 
hours  and  55  minutes  under  the  primitive  method  in  imit  3,  and  45 
minutes  as  against  10  hours  and  55  minutes  in  unit  27,  a  reduction 
to  about  one-twentieth  and  one-fifteenth  the  time  required  under  the 

'From  the  Thirteenth  Annual  Report  of  the  Commissioner  of  Labor  (1898), 
I,  84-87. 


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l62  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

hand  method  in  the  respective  units.  This  great  saving  b  accounted 
for  by  the  fact  that  the  implement  used  under  the  modern  method 
was  a  6-gang  plow,  each  gang  having  4  plows,  each  plow  cutting  10 
inches — ^total  240  inches — ^with  a  seeder  and  harrow  attached  to  each 
gang,  and  all  operated  by  a  traction  engine.  This  would  seem  to 
mark  the  limit  of  progress  in  this  direction,  and  such  machinery  is 
obviously  of  profitable  use  only  in  a  level  country  where  farming  is 
conducted  on  a  large  scale. 

The  operation  of  harvesting  was  uniformly  accomplished  by  the 
use  of  a  sickle  under  the  earlier  method,  the  cutting  and  binding  being 
done  by  hand.  Comparisons  cannot  be  made  in  all  of  the  units,  as 
the  operations  vary  so  much  under  the  modem  method.  Three  units 
show  the  use  of  self-binders  and  three  the  use  of  the  combined  reapers 
and  thrashers  which  do  away  with  the  operations  of  binding  and 
shocking  the  grain.  In  unit  13  the  use  of  the  self-binder  reduced  the 
time  for  cutting,  binding,  and  shocking  under  the  modem  method  to 
2  hours  as  against  16  hours  and  40  minutes  under  the  primitive,  these 
operations  under  the  primitive  method  requiring  more  than  eight 
times  as  long  as  under  the  modem.  In  imit  17  the  saving  was  still 
greater,  the  cutting  and  binding  being  done  in  55  minutes  under  the 
modem  as  against  33  hours,  or  thirty-six  times  as  long,  under  the 
primitive  method  by  the  use  of  sickles,  no  shocking  being  reported. 
The  grain  was  shocked  in  unit  18,  but  the  operation  is  kept  separate, 
so  that  a  comparison  can  be  made  as  to  the  different  operations.  The 
cutting  and  binding  required  i  hour  with  the  self-binder,  and  11  hoiu^ 
and  33.8  minutes  with  sickles,  while  the  shocking  required  2  hoiu^ 
under  each  method.  The  more  complex  machines,  reported  in  imits 
3,  26,  and  27,  were  propelled  by  steam  in  units  3  and  27,  and  by  26 
horses  in  imit  26.  Here  the  grain  was  reaped,  thrashed,  and  sacked 
in  one  continuous  operation.  In  unit  3  the  operations  necessary  to 
do  this  work  under  the  earlier  method  required  48  hours  and  40 
minutes,  while  under  the  later  method  the  time  required  by  the 
machine  was  7 . 5  minutes,  7  men  being  employed,  making  the  total 
time  52.5  minutes;  including  the  time  of  the  two  water-haulers,  for 
the  same  reasons  as  noted  in  discussing  the  combined  plow  and  seeder, 
the  total  time  under  the  machine  method  was  i  hour  and  7 . 5  minutes, 
or  about  one-forty-third  the  time  required  when  sickles  and  flails 
were  used.  In  unit  27  the  totals  are  49  hours  and  20  minutes  under 
the  earlier  method  and  i  hour  and  21  minutes  under  the  later.  The 
totals  in  unit  26  show  the  best  proportionate  results  from  the  use  of 


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CAPITAL  GOODS  AS  ECONOMIC  FACTORS  163 

the  combined  reaper  and  thrasher,  being  46  hours  and  40  minutes 
under  the  earlier  and  i  hour  under  the  later  method.  The  time  for 
binding  and  shocking  grain  and  stacking  straw  is  included  in  the  time 
for  the  hand  methods  given  above  (units  3,  26,  and  27),  which  opera- 
tions were  not  necessary  under  the  machine  method. 

Thrashing  is  reported  as  a  separate  operation  in  units  13,  17,  and 
18.  In  units  13  and  18  the  work  was  done  under  the  earlier  method 
entirely  by  hand,  the  flail,  pitchfork,  shovel,  and  winnowing  sheet 
being  the  tools  used,  while  in  unit  17  a  horse-power  thrasher  was  used 
in  1870.  This  thrasher  took  13  hours  and  17.5  minutes  to  do  the 
work  done  by  the  steam  thrasher  in  2  hours  and  37.5  minutes.  In 
tmit  13,  under  the  hand  method,  the  thrashing  required  41  hours  and 
5  minutes  as  against  i  hour  and  16.8  minutes,  the  time  required  by 
the  use  of  the  modem  thrasher  (including  the  time  charged  to  hauling 
water) — a  ratio  of  more  than  32  to  i  in  favor  of  the  machine.  In 
unit  18,  the  time  required  under  the  earlier  and  later  methods,  respec- 
tively, was  26  hours  and  45.1  minutes  and  7  hours.  This  dispro- 
portionately long  time  required  (7  hours)  is  explained  in  part  by  the 
fact  that  the  length  of  the  rye  straw  made  the  work  much  slower  than 
with  other  grains,  and  in  part  by  the  fact  that  the  rye  being  thrashed 
from  the  bam  mow,  more  men  were  necessary  than  if  it  had  been 
thrashed  from  wagons.  The  actual  nmning  time  of  the  thrasher  in 
this  case  was  30  minutes. 

This  group  presents  a  comparison  of  extremes,  the  appliances 
being  entirely  changed  throughout  in  some  of  the  units,  showing  a 
more  complete  supplanting  of  hand  by  machine  labor  than  can  be 
found,  perhaps,  in  any  other  line  of  agriculture.  These  changes  have 
taken  place  in  the  past  65  years,  as  indicated  by  the  dates  given  in 
these  units,  though  in  fact  most  of  them  have  occurred  in  a  much 
shorter  period.  In  units  3  and  27  the  number  of  operations  is  prac- 
tically reduced  to  two,  and  it  is  in  these  units  that  the  greatest  aggre- 
gate saving  was  effected,  the  total  time  in  unit  3  being  63  hours  and 
35  minutes  under  the  earlier  and  2  hours  and  42 . 8  minutes  under  the 
later  method — a  ratio  of  more  than  23  to  i  in  favor  of  the  modem 
method;  while  in  \mit  27  the  respective  totals  are  64  hours  and  15 
minutes  and  2  hours  and  58.2  minutes — a  ratio  of  nearly  22  to  i. 
These  results  are  the  best  shown  in  this  industry. 


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l64  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

45.    MACHINE  METHODS  IN  AGRICULTURE' 

The  Thirteenth  Annual  Report  of  the  Department  of  Labor  gives 
the  results  of  an  extended  investigation  concerning  production  by 
hand  and  by  machine  methods,  and  affords  the  means  for  a  reliable 
estimate  of  the  influence  of  machine  power.  That  portion  devoted 
to  agricultural  operations  shows  in  detail,  for  example,  how  many 
persons  were  ordinarily  required  for  the  production,  by  hand  or  by 
machine  methods,  of  a  given  quantity  of  barley;  what  separate  opera- 
tions were  necessary  in  that  production,  as  plowing,  sowing,  harrow- 
ing, etc.;  what  time  was  required  for  each  operation,  what  tools  or 
machines,  if  any,  or  other  helps  were  used,  and  the  money  cost  of 
each  operation. 

From  the  sunmiary  given  on  pp.  24-25  of  that  report  it  appears 
that  the  man-labor  power  requisite  for  the  production  of  thirty 
bushels  of  barley  by  the  methods  commonly  in  use  in  the  season  of 
1829-30,  amounted  to  63  hours  and  35  minutes.  The  man-labor 
power  required  for  accomplishing  the  same  result,  by  the  methods 
commonly  in  use  in  the  season  of  1895-96,  is  shown  to  have  been  only 
2  hours  and  42 .8  minutes.  From  such  data,  the  barley  crop  of  1896 
being  known,  we  may  readily  determine  not  only  what  amount  of 
man-labor  was  requisite  for  the  production  of  that  crop  by  the  means 
commonly  in  use  at  that  time,  but  also  how  much  barley  that  same 
labor-power  could  have  produced  by  the  means  commonly  in  use  in 
the  season  of  1829-30.  The  difference  between  the  quantity  actually 
produced  in  the  season  of  1895-96,  and  the  quantity  which  the  labor- 
power  required  for  the  work  of  that  season  could  have  produced  by 
the  earlier  hand  methods,  will  represent  the  greater  product  due  to 
the  use  of  machinery.  The  crediting  of  the  whole  of  this  difference 
to  the  use  of  machinery  is,  doubtless,  crediting  it  with  too  much. 
Credit  is  due,  also,  to  better  methods  of  cultivation,  to  pulverization 
of  soils,  to  the  use  of  fertilizers,  to  irrigation,  rotation  of  crops,  better 
seed,  etc.  These  are  not  machine  forces,  although  they  are  largely 
dependent  upon  the  use  of  machinery  as  the  use  of  machinery  is,  in 
some  degree,  dependent  upon  them.  But  to  attempt  the  separation 
of  these  credits  would  be  much  like  attempting  to  determine  which 
blade  of  a  pair  of  shears  does  the  cutting.  Moreover,  these  various 
other  forces  play,  comparatively,  a  very  incidental  and  subsidiary 

'  Adapted  from  H.  W.  Quaintance,  The  Infliunce  of  Farm  MacMnery  on  Pro- 
duction and  Labor f  in  Publications  of  the  American  Economic  Association,  Third 
Series,  Vol.  V  (1904),  No.  4,  pp.  19-27. 


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CAPITAL  GOODS  AS  ECONOMIC  FACTORS 


I6S 


part.  I  believe  that  the  following  pages  will  justify  this  opinion  and 
venture,  therefore,  to  disregard  whatever  inaccuracy  there  may  be 
involved  in  the  statement  and  to  say  that  the  entire  increased  product 
is  due  to  the  use  of  machinery.* 

It  will  be  sufficient,  for  purposes  of  illustration,  to  consider  only 
a  few  of  the  principal  crops  in  the  production  of  which  machinery  has 
become  a  recognized  factor.  The  crops  selected  for  this  purpose, 
together  with  the  time  of  man-labor  requisite  for  producing  stated 
quantities  of  each  crop  by  hand  and  by  machine  methods,  as  reported 
by  the  Department  of  Labor,  are  shown  in  the  following  table: 


Unit 

No.* 


Name  and  Quantity  or  Ckop 

Produced  and  Desgeiption 

or  Work  Done 


Year  or 

PR(H>UCnON 


Hand      Machine 


Tdcb  Worked 


Hand 


Hra.       Min. 


Machine 


Hn.        Min. 


12. 

13. 
16. 

17. 
18. 
26. 


Barley:  30  bushels  (i  acre) 

barley 

Com:  40  busheb  (i  acre) 

yellow    corn,    husked; 

stalks  left  in  field. . . 
Cotton:     By   hand,    750 

pounds;     by    machine 

1000    pounds  (i  acre) 

seed  cotton 

Hay:    Harvesting   i   ton 

(i  acre)  timothy  hay. . 
Oats:  40  busheb  (i  acre) 

oats 

Potatoes:    220  bushels  (i 

acre)  potatoes 

Rice:  2640  pounds  (i  acre) 

rough  rice 

Rye:   25  busheb  (i  acre) 

rye 

Wheat:  20 bushels  (i  acre) 

wheat 


1829-30 
1855 

1841 
1850 
1830 
1866 
1870 
1847-48 
1829-30 


1895^ 
1894 

189s 
189s 
1893 
189s 
1895 
1894-95 
1895-96 


63 
38 

167 
21 
66 

108 
62 
62 
61 


35.0 
45  o 

48.0 
5.0 

150 

55.0 
50 

58.9 
5.0 


15 

78 

3 

7 

38 

17 

25 

3 


42.8 
7.8 

42.0 

56.5 
5.8 

2-5 
10. o 
19.2 


*  The  "unit  numbers"  here  given  are  the  unit  numbers  made  use  of  in  the  Tkirteemth  Annual 
Report  of  the  Department  of  Labor,  from  which  the  data  in  the  table  are  taken.  The  numbers  are 
repeated  here  only  for  purposes  of  reference. 

These  several  crops  for  the  years  covered  by  the  data  concerning 
production  by  the  aid  of  machine  power,  were  as  follows: 

'  For  the  purpose  of  this  discussion  I  shall  use  the  term  machinery,  generally, 
to  signify  not  only  machines,  but  also  tools  or  implements,  and  other  man-labor- 
saving  forces  when  used  as  essential  adjuncts  or  parts  of  machines.  For  example, 
horses,  when  used  to  draw  a  reaping  machine,  will  be  considered  as  much  a  part 
of  the  machine  as  an  engine  and  boiler  would  be,  if  used  for  the  same  purpose. 


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MATERIALS  FOR  ELEMENTARY  ECONOMICS 


Name 

Barley 

Com 

Cotton 

Hay. 

Oats 

Potatoes 

Rice 

Rye 

Wheat 


Qnantity  Produced 


(bushels) 

(bushels) 

(500-pound 

(tons) 

(bushels) 

(bushels) 

(potmds) 

(bushels) 

(bushels) 


1,212,770,052 
7,161,094 

47,078,541 
638,854,850 
297,237,370 
168,685,440 

27,210,070 
427,684,346 


The  niunber  of  days'  work  of  man-labor  requisite  for  producing  the 
foregoing  specified  crops  by  the  aid  of  machine  power,  together  with 
the  quantity  of  those  several  crops  which  the  same  labor-power  could 
have  produced  by  the  earlier  hand  method,  are  shown  in  the  fdlowing: 


Namx 


Crop  of 


Days'  Work  of 
Man-Labor 
Required 


The  Sake  Labor-Power 


By  Methods 
of 


Could  H&ve  Produced 


Barley.. 
Com. .. 
Cotton.. 
Hay.... 
Oats.... 
Potatoes 

Rice 

Rye 

Wheat.. 


1896 
1894 
189s 
189s 
1893 
i39S 
189s 
1895 
1896 


630,354 
45,873,027 
28,178,904 
18,556,791 
11,334,266 
5,134,100 
108,889 

2,739,147 
7,099,560 


1829-30 

1855 
1841 
1850 
1830 
1866 
1870 
1847-48 
1829-30 


(bushels) 

(bushels) 

(bales) 

(tons) 

(bushels) 

(bushels) 

(pounds) 

(bushels) 

(busheb) 


2,972,839 

473,528,022 

2,518,972 

8,801,640 

68,433,307 

103,703,321 

46,303,587 

10,872,795 

23,245,490 


Finding  next  the  difference  between  the  quantities  of  the  several 
crops  actually  produced  under  machine  methods,  in  the  years  indi- 
cated, and  the  quantities  which  the  labor-power  requisite  for  their 
production  with  the  aid  of  machines  could  have  produced  had  it  been 
devoted  to  the  production  of  those  same  crops  by  hand  methods,  we 
have  the  following: 


Name 


Crop  of 


Due  to  Use  of  Machinery 


Percentage  of 
Actual  Product 


Bariey. . 

Com 

Cotton.. 
Hay. . . . 

Oats 

Potatoes 

Rice 

Rye 

Wheat.. 


1896 
1894 
1895 
1895 
1893 
1895 
1895 
1895 
1896 


(bushels) 

(bushels) 

(bales) 

(tons) 

(bushels) 

(bushels) 

(pounds) 

(bufihels) 

(busheb) 


66,722,384 

739,242,030 

4,642,122 

38,276,901 
570,421,543 

193.534,049 
122,381,853 

16,337,275 
404438,856 


95-7 
60.9 
64.8 
81.3 
89.2 
65.1 
72.5 
60.0 

94.5 


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CAPITAL  GOODS  AS  ECONOMIC  FACTORS  167 

The  increased  effectiveness  of  man-labor  power  when  aided  by 
the  use  of  machinery,  as  indicated  by  these  figures,  varies  from  150 
per  cent  in  the  case  of  rye  to  2244  per  cent  in  the  case  of  barley. 
From  this  point  of  view  a  machine  is  not  a  labor-saving  but  rather 
a  product-making  device.  Taking  the  per  cent  of  labor  saved,  as 
indicating  the  average  proportion  of  these  crc^  due  to  the  use  of 
machinery,  it  appears  that  the  quantity  of  product  is  almost  five 
times  as  great,  per  unit  of  labor,  as  it  formerly  was. 

Touching  the  difference  in  the  cost  of  production  per  unit  of 
product  the  Tkirteenlh  Annual  Report  of  the  Department  of  Lobar 
furnishes  some  data  that  will  well  repay  a  somewhat  extended  con- 
sideration. It  should  be  observed,  however,  that  these  data  with 
reference  to  the  cost  of  production,  although  collected  at  the  same 
time  and,  doubtless,  with  the  same  care,  as  the  data  already  taken 
from  that  report,  are,  nevertheless,  for  the  purposes  of  generalization, 
far  less  reliable.  The  average  workman  will  perform  the  same  quan- 
tity of  work  in  a  day,  whether  he  works  in  one  locality  or  in  another; 
but  rates  of  wages  vary  with  localities  and  may  vary  both  absolutely 
and  relatively  with  differences  in  time.  With  this  qualification  in 
mind,  it  will  be  safe  to  take  up  the  consideration  of  the  data. 

Including  the  crc^s  above  considered,  the  report  of  the  Depart- 
ment of  Labor  gives  detailed  information  concerning  the  cost  oi 
production,  by  hand  and  by  machine  methods,  of  twenty-one  differ- 
ent crops.  The  table  "Cost  of  Producing  by  Hand  and  by  Machine 
Methods"  gives  the  results  of  the  several  investigations  in  this 
particular,  arranged  in  the  order  of  the  greatest  saving  in  cost  of 
production  by  machine  as  compared  with  hand  methods.* 

'In  the  production  of  peas  and  in  both  tobaccx)  crops  there  has  been  an 
increase  in  the  cost.  This  increase  is  not,  however,  from  the  use  of  machinery  in 
the  production  of  these  crops,  but  rather  from  the  lack  of  it.  In  the  case  of  tobacco 
(unit  22),  for  example,  in  which  there  has  been  the  greatest  increase  in  cost,  the 
hand  method  production  was  with  the  aid  of  the  following:  wagon,  spades,  hoes, 
rakes,  wooden  moldboard  plows,  harrow,  turn  plow,  wooden  pegs  for  setting  plants, 
plow  for  cultivating,  and  tobacco  knives.  The  total  extent  of  the  machinery  used 
in  the  production  of  this  crop  by  machine  methods  was  as  follows:  plow,  harrow 
rakes,  hoes,  disk  harrow,  drag,  wagon  and  barrels,  tran^lanter,  double-shovel 
plow,  tobacco  knives,  wagon  and  racks,  and  screw  racket  prize.  {TkirteetUk 
Annual  Report,  Department  of  Labor,  page  464.) — It  must  be  evident  at  once 
from  a  comparison  of  these  items  that  the  difference  in  machinery  cannot  account 
for  the  difference  in  cost  of  production.  The  cause  of  the  increased  cost  in  the 
production  of  tobacco  and  peas  (units  15,  22,  and  23)  was  a  higher  rate  of  wages. 
In  the  case  of  peas,  wages  rose  from  62}  cents  to  $1 .00  per  day.    In  the  case  of 


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MATERIALS  FOR  ELEMENTARY  ECONOMICS 


The  per  cent  column  of  the  table  on  p.  169  shows  that,  for  the 
most  part,  there  has  been  a  very  great  decrease  in  the  cost  of  pro- 
ducing these  various  crops.  The  median  is  39.92  per  cent,  but  this 
number  is  clearly  too  low,  for  the  crops  in  which  machinery  is  most 
used  are  principally  in  the  upper  part  of  the  table. 

The  data  requisite  for  a  similar  showing  with  respect  to  all  farm 
crops  and  for  any  certain  period  are,  I  think,  not  to  be  had;  but  we 
can  apply  the  data  presented  in  the  table  on  p.  169  to  the  principal 
crops  of  the  year  1899,  as  reported  by  the  Twelfth  Census.  The 
results  are  as  follows: 

Cost  of  Producing  Certain  Crops  of  the  Year  1899,  by  Hand  and  by 
Machine  Methods 


Cost  of  Production 

Namx 

Hand  Method 

Machine  Method 

Barley 

(bushels)      119,634,877 
(jX)unds)        90,947,370 
(bushels)   2 ,666,440, 2  79 
(bales)             9,534,707 
(tons)             84,011,299 
(bushels)      943,389,375 
(bushels)        11,791,121 
(bushels)          9,440,269 
(busheb)      273,328,207 
(pounds)      283,722,627 
(bushels)        25,568,625 
(tons)               6,441,578 
(busheb)        42,526,696 
(pounds)      868,163,275 
(busheb)      658,534,252 

$  15,472,777 
4,107,576 

58I638U48 

161,301,694 

90,801,227 

1,535,675 
3,143,609 

16,373,935 

773,788 

5,369411 

12,986,221 

41,676,162 

6,424,408 

126,109,309 

S    4..227.008 

Bioom-corn 

Com 

1,153,650 

220,64.7,0^^ 

Cotton 

44,808,460 

Hay 

^2,027.118 

zz  ^ 

Oats 

37,735,575 

I.I26.7<0 

Onions 

Peas 

^.100.810 

Potatoes 

Rice 

7,417,133 
223,539 

Rye 

4..  ^07.80^ 

Sugar  cane 

Sweet  potatoes. . . 
Tobacco 

4,167,616 
18,491,859 

Wheat 

66,841,226 

Total 

$880,019,105 

$472,719,019 

tobacco  (unit  22),  wages  rose  from  30  cents  per  day  to  $20  and  $23  per  month; 
in  unit  23,  the  rise  of  wages  was  from  75  cents  to  $1 .00  per  day.  It  will  be  readily 
understood  that  when  there  is  little  or  no  change  in  the  methods  of  production  a 
rise  in  the  rate  of  wages  must  caiise  a  rise  in  the  total  cost  of  production. 

The  "hand  method"  of  production,  as  explained  in  the  report  of  the  depart- 
ment, "should  not  be  construed  to  mean  a  method  whereby  a  product  is  made 
entirely  by  the  imaided  hand  and  absolutely  without  the  use  of  machines,  but 
rather  as  the  primitive  method  of  production  which  was  in  vogue  before  the  general 
use  of  automatic  or  power  machines." — (Thirteenth  Annual  Report^  Department 
of  Labor,  page  11.) — Similarly,  it  shoidd  be  observed,  in  this  connection,  that 
"machine  method"  does  not  necessarily  imply  that  machines  are  used,  but  only 
that  the  work  was  done  by  the  most  approved  methods  practiced  in  more  recent 
years. 


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CAPITAL  GOODS  AS  ECONOMIC  FACTORS 
Cost  of  Producing  by  Hand  and  3y  Machine  Methods 


169 


Umit 
No* 


Name  and  Quamtity  or  Ckop 
Pkoduceo 


Yeas  07  Productioii 


Hand 
Method 


Machine 
Method 


Cost 


Hand 
Method 


Machine 
Method 


Pbkcbntw 

AGE  or 

Dbckbasb 


3- 
27. 

5. 
17. 
21. 


20. 
13. 
19- 

H- 

16. 

26. 
II. 


7. 

14. 

I. 


18. 
25- 

6. 

IS. 

23. 

22. 


Barley:  30  bushels  (i  acre) 
Wheat:  20  bushels  (i  acre) 
Broom-com:  i  ton  (^  acres) 
Rice:  2,640 poundsTi  acre) 
Sweet  potatoes:  105  bushels 

(i  acre) 

Hay:  Harvesting  i  ton  (i 

acre)  timothy  hay 

Com:   40  bushels  (i  acre) 

yellow   corn,    shelled; 

stalks,  husks,  and  blades 

cut  into  fodder 

Sugar  com :  20  tons  ( i  acre) 
Oats:  40  bushels  (i  acre) . . 
Strawberries:  4,000  quarts 

(i  acre) 

Tomatoes:    150  busheb  (i 

acre) 

Potatoes:    220  bushels  (i 

acre) 

Wheat:  20  bushels  (i  acre) 
Hay:  Harvesting  and  bal- 
ing I  ton  (i  acre)  timothy 

hay 

Apple  trees:  10,000  (i  acre) 

32  months,  from  grafts. . 
Beets:  300  bushels  (i  acre) 
Com:   40  bushels  (i  acre) 

yellow  corn,   husked; 

stalks  left  in  field 

Carrots:  30  tons  (i  acre) . . 
Onions:  250 bushels  (i  acre) 
Apple  trees:  10,000  (i  acre) 

32  months,  from  gnSts . . 
Cottonf:     By   hand,    750 

pounds;      by    machine, 

1,000  pounds  (i  acre) . . . 
Rye:  25  bushels  (i  acre) . . 
Turnips:    350  bushels   (i 

acre) 

Carrots:  30  tons  (i  acre) . . 

Peas:  20  bushels  (i  acre) 
field  peas 

Tobacco:  1,500  pounds  (i 
acre)  Spanish  seed  leaf. . 

Tobacco  J:  By  hand,  1,200 
pounds;  by  machine, 
1,250  pounds  (i  acre) . . 


1829-30 

1829-30 

i860 

1870 

1868 

1850 


185s 
185s 
1830 

1871-72 

1870 

1866 
1829-30 

i860 

1870-72 
1850 


1855 
1850 
1850 

1869-71 


1841 
1847-48 

185s 
1855 

1856 
1853 

1844 


1895-96 

1895-96 

1895 

1895 

1895 

1895 


1894 
1895 
1893 

1894-95 

1895 

1895 
1895-96 

1894 

1893-95 
1895 


1894 
1895 
1895 

1893-95 


1895 
1894-95 

1895 
1895 

1895 
1895 

1895 


3.88 
4.00 

9033 
7.20 

34.30 
1.92 


16.34 

40.32 

3.8s 

231.28 

36.62 

13.18 
3.83 

3.19 

200.00 
32.30 


S.03 
38.71 
32.56 


6.15 
5. 25 

25.63 
30.61 


6.66 
25.85 

.74 


$    1.06 
1. 12 

25.37 
2.08 

10.29 
.63 


6.62 

16.37 
1.60 

97.92 

15.88 

5.97 
2.03 

1. 91 

121.00 
20.01 


3.31 
37-21 
23.89 

150.69 


4.71 
4.30 

23.36 
29.96 

6.76 
27.99 

2.67 


72.62 
71.98 
71.92 
71.09 

70.00 

66.95 


59.49 
59.40 
58.47 

57.66 
56.64 

54.68 
47.11 

39.92 

39.50 
38.05 


34.20 
29.72 
26.64 

25.41 


23.42 
18.10 

8.88 

2.13 

Percentage 
of  Increase 

1.56 


8.28 


261.42 


*  See  note  to  tabk  on  page  165. 

t  The  data  have  been  modified  to  show  a  comparison  on  the  basis  of  equal  quantities  pro- 
duced. If  the  equal  areas  be  taken  instead,  the  line  should  read:  Cotton:  By  hand,  etc.,  $9.33; 
$0.43;  2.09. 

X  The  data  have  been  modified  to  show  a  comparison  on  the  basis  of  equal  quantities  pro- 
duced. If  the  equal  areas  be  taken  instead,  the  line  should  read:  Tobacco:  By  hand,  eU., $8.88; 
$33.39;  a76.33 


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MATERIALS  FOR  ELEMENTARY  ECONOMICS 


The  estimated  cost  of  producing  these  crops  by  machine  method 
is  only  53 . 7  per  cent  of  the  estimated  cost  of  producing  the  same  crops 
by  hand  method.  In  other  words,  the  saving  in  cost  of  production 
amounts  to  46.3  per  cent.  The  average  date  of  the  hand  method 
investigations  made  use  of  in  this  presentation  is  1850;  the  average 
date  for  the  machine  method  investigations  is  1895 — a  difference  of 
forty-five  years.  Surely  it  will  not  be  too  much  to  say  that  during 
the  last  half  of  the  nineteenth  century  the  cost  of  production  of  these 
crops  was  reduced  by  one-half.  If  we  take  into  account  the  decreased 
cost  to  the  farmer  of  food  and  lodging  for  his  hired  workmen  and 
the  decreased  cost  of  storage  room  for  grain  in  the  straw,  then  the 
total  saving  must  appear  to  be  even  greater  than  this. 


46.    RELATIVE  INCREASE  OF  CAPITAL  AND  EMPLOYEES 
IN  MANUFACTURING 

All  Manvtactuees  in  thk  United  States 


x8so 

x86o 

1870 

x88o 

1890 

1900 

X910 

Percenfage 

Increase 

1910  over 

1850 

Avenge  per  esUbUthment — 

$8,280 

I4.330 

7.7 

$13,420 

$7,190 

9.3 

'«i» 

$3X,XOO 

$xo,o6o 
X0.6 

$28,070 

$19,020 

13.8 

$as.4i8 

$19,269 

10.4 

25.0 

22s 

Capital 

Number  of  employees 

Iron  and  Steel 


x8so 


x86o 


1870 


x88o 


1890 


X910 


Percentage 

Increase 

X910  over 

X850 


Number  of  establishments 

Average  product 

Average  capital 

Average  number  of  em- 
ployees  


468 
$43,600 
$46,700 

53 


542 
97,000 
82,000 

6S 


$27S.< 
$i6x,c 


726 


$4X9,c 
$295.0 


699 


$683.0 


X03 


,000  .$591 
197 


699 
,000 
,000 

250 


668 

$1,203,500 

$858,000 

333 


654 
$2,1x9,000 
$2,282,000 

426 


40 
4.760 
4.787 

704 


47.    SOME  SOURCES  OF  THE  SUPPLY  OF  CAPITAL' 

The  Census  Bureau  gives  fairly  complete  data  as  to  the  wages 
and  incomes  of  those  engaged  in  manufacturing  and  in  some  other 
industries.  This  enables  us  to  make  a  rough  estimate  of  the  earnings 
or  income  of  the  people  of  the  United  States.  By  leading  industries 
this  estimate  is  as  follows: 

»  From  The  Wall  Street  Journal^  January  13  and  10, 191 2. 


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CAPITAL  GOODS  AS  ECONOMIC  FACTORS- 


171 


Industry 

Peiaons  Employed 

Wages  and  Salaries 

EamiDgsforDis- 
triEution 

Manufacturing 

7,405,313 
1,662,550 

851438 

2,072,112 

358,808 

12,561,936 

10,558,265 

♦4,365,613,000 
1,170432400 

574,720,650 
1,191464400 

430,569,600 
2,300,993,068 
5,329,848,660 

$2,219472,000 
744,775,000 
338,626,296 
921,366,392 
215,285,277 
2412,855450 
3,627,199400 

Railroads 

Mining 

Merrh^indizipg 

Rst^nVing 

Agriculture 

Other  occupations 

35470422 

♦15,363,641,778 

$10479,519,815 

Wages  and  salaries,  in  the  aggregate,  are  50  per  cent  larger  than 
the  total  net  earnings  available  for  distribution,  notwithstanding 
that  we  have  included  with  the  latter  the  net  earnings  of  farmers 
and  planters,  which,  in  a  majority  of  cases,  might,  with  equal  logic, 
be  classed  with  wages  and  salaries.  Small  farms  are  in  the  majority, 
and  their  owners  as  a  rule  earn  no  more  than  a  high  wage,  or  a  fair 
salary. 

One  of  the  surprising  features  disclosed  by  the  financial  history 
of  191 1  is  the  large  amounts  of  new  capital  raised  by  railroad  and 
industrial  corporations  in  face  of  a  general  decline  in  earnings.  When 
margins  of  profit  are  narrow  and  net  earnings  unusually  small  one 
would  naturally  suppose  that  supplies  of  new  capital  would  be  limited; 
but  it  is  evident  that  the  amount  of  new  financing  actually  done  last 
year  was  greater  than  that  accomplished  during  any  previous  year 
since  1901. 

In  the  following  exhibit  is  displayed  the  contrast  between  new 
capital  raised  on  the  one  hand  and  railroad  and  industrial  earnings 
on  the  other. 


New  Finandag 
Dooe 


Railroad  Net 
(I.  C.  C.  Figures) 


F^ifpings  of  30  Industrial 
Companies 


1911. 
1910. 
1909. 
1908. 
1907. 
1906. 
1905. 


$1,739,487,720 
1,518,272,579 
1,681,620,680 
1423,199,371 
1,393,913,300 
1,637,013,350 
1,238,978,000 


$881,219,144 
940,076,364 
828,122,822 

787,882414 
900,567,262 
848,836,771 
742,993486 


$315,000,000* 
365435,284 
337413,083 
318,200,752 
384,550,204 
356,302,339 
300,883,399 


*  Partly  estimated. 

In  1908  the  amount  of  new  capital  raised  increased  in  face  of 
declining  earnings;  but  the  divergence  was  in  part  due  to  the  fact 


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172  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

that  the  earnings  here  given  are  in  general  for  fiscal  years,  whereas 
the  financing  done  is  for  calendar  years.  Moreover,  the  amount  of 
capital  raised  in  1907  had  declined  as  one  would  naturally  expect. 
In  191 1,  however,  the  earnings  of  both  calendar  and  fiscal  years 
showed  marked  declines,  and  yet  the  amount  of  new  capital  raised 
increased  more  than  $220,000,000,  as  compared  with  a  gain  of  less 
than  $30,000,000  in  1908. 

It  is  particularly  surprising  that  the  supply  of  investment  funds 
should  be  so  large  in  a  year  when  railroad  net  earnings  shrank  6 .  i 
per  cent,  industrial  earnings  about  13.8  per  cent,  and  agricultural 
earnings  more  than  9  per  cent.  Nor  should  it  be  overlooked  that 
our  total  borrowings  of  European  capital  last  year  are  estimated  at 
only  about  $173,200,000,  as  compared  with  $340,500,000  the  previous 
year.  Almost  beyond  a  doubt  the  explanation  lies  in  the  reinvest- 
ment of  an  unusually  large  proportion  of  the  dividends  and  interest 
received  by  stock  and  bondholders,  like  insurance  companies,  and 
in  the  large  accumulation  of  savings  or  "capital"  by  our  great  wage- 
earning  and  salaried  classes.  Wages  and  salaries  greatly  exceed 
dividends  and  interest;  and  a  moderate  increase  in  frugality  on  the 
part  of  these  classes  would  seem  a  sufficient  explanation. 

48.    CAPITAL— DEMAND  AND  SUPPLY' 

London,  May  31. — ^The  year  1913  promises  to  exceed  all  others  in 
amount  of  new  capital  raised  in  this  country.  Indeed,  the  quantity 
of  new  securities  is  so  vast  that  underwriters  and  others  have  begun  to 
call  a  halt. 

The  amount  of  new  capital  which  this  country  can  provide  for 
new  securities  (apart  from  the  capital  needed  for  buildings  and 
private  enterprises)  at  the  present  time  is,  according  to  the  Statist, 
somewhere  about  £220,000,000  a  year,  and  no  surprise  need  be  felt 
that  underwriters  are  becoming  less  and  less  keen  to  take  new  securi- 
ties, seeing  that  the  amount  placed  in  five  months  has  been  nearly 
£150,000,000.  It  is,  of  course,  possible,  that  a  much  larger  amount 
than  an  additional  £70,000,000  may  be  subscribed  before  the  end  of 
the  year,  but  in  that  case  the  instalments  on  the  new  issues  must  be 
extended  well  into  1914. 

In  recent  years,  continues  the  Statist^  the  amount  of  new  capital 
annually  subscribed  in  this  country  has  somewhat  exceeded  £200,- 
000,000.    The  subscriptions  have  by  no  means  been  regularly  spread 

*  From  The  Journal  of  Commerce  and  Commercial  Bulletin ^  1913. 


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CAPITAL  GOODS  AS  ECONOMIC  FACTORS 


173 


over  the  various  parts  of  each  year.  Sometimes  the  amounts  placed 
in  the  early  part  of  the  year  have  been  large;  at  other  times  they 
have  been  small  during  that  period.  On  some  occasions  the  sub- 
scriptions are  heaviest  in  the  last  quarter.  Last  year  the  total  sub- 
scriptions reached  £211,000,000  for  the  year,  of  which  about  one- 
half  was  raised  in  the  first  five  months.  In  the  period  to  the  end  of 
May  of  this  year  the  subscriptions  have  been  nearly  £150,000,000,  in 

Table  I 

Purposes  for  Which  Capital  Was  Subscribed  in  the  United  Kingdou 
IN  the  First  Five  Months  of  the  Last  Two.  Years 


Description  of  Security 


First  Five  Months 


X913 


X9X> 


Government 

Municipal 

Railways 

Banks 

Breweries 

Commercial,  industrial,  etc 

Electric  light  and  power 

Fin.,  land,  investment  and  trust. . 

Gas  and  water 

Insurance 

Iron,  coal,  steel  and  engineering. . . 

Mines 

Motors  and  motor  manufacturing. 

Nitrate 

Oil 


£44 
12 

47 

I 


3931O31 
,075iSi6 
,123,220 
,944,96s 


Rubber 

Shipping 

Tea  and  coffee 

Telegraphs  and  telephones. 
Tramways 


,126,323 
,103,028 
,614,322 
892410 
132,430 
,895,964 
,829,550 
488,750 
110,000 
,446,100 
816,094 
,102,993 
109,750 
592,000 
,594,000 


Total*. 


£147,390450 


£8,021,332 

9,466,946 

28,621,346 

3,020,000 

7S,ooo 

15,096,625 

4,092,354 

6,481,350 

702,000 

132,500 

4,166,605 

3,087,823 

131,812 

2,'oi87,78i 
1,664,040 
8,023,812 
97,100 
2,614,970 
6,629,232 


£104,217,628 


•INOTE.— -The  arithmetical  discrepancies  occur  in  the  original  table  {Statist,  May  3^1 1913)- — 
Eorross.] 

comparison  with  £104,000,000  last  year  and  £110,000,000  in  1891. 
In  considering  the  amount  of  capital  placed  in  the  five  months  just 
ended  we  must  not  forget  that  the  subscriptions  in  the  last  five  months 
of  1913  were  abnormally  small,  amounting  to  only  £50,000,000,  and 
that  the  instalments  on  loans  placed  last  year  which  had  to  be  paid 
in  the  early  part  of  the  present  year  were  unusually  light.  Still, 
when  all  the  circumstances  are  taken  into  account,  it  is  obvious  that 
the  issues  of  new  securities  are  hea\der  and  faster  than  can  be  easily 
absorbed,  and  it  is  probable  that  after  the  end  of  June  a  halt  will  be 


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174 


MATERIALS  FOR  ELEMENTARY  ECONOMICS 


called  until  October  in  order  that  the  accumulations  of  securities  in 
the  hands  of  the  underwriters  may  be  disposed  of. 

In  May,  1913,  the  new  issues  have  reached  the  large  total  of  about 
£33,500,000,  in  comparison  with  £29,000,000  in  May  last  year  and 
£24,000,000  in  May,  191 1.  Of  the  £38,500,000  subscribed  for  this 
month  no  less  than  £17,000,000  had  been  for  government  loans,  con- 
sisting of  £10,670,000  for  Brazil  and  £6,675,000  for  China.  An 
exceptionally  large  amount  of  capital  has  been  asked  for  by  mis- 
cellaneous imdertakings  of  various  kinds  and  descriptions. 

Table  n 

Destination  of  Capital  Subscribed  in  the  United  Kingdom  in  the  Fisst 
Five  Months  or  the  Last  Two  Years 


First  Five  Months 


1913 


191a 


United  Kingdom. 
India  and  Ceylon 
British  Colonies. . 
Foreign  countries 

Total 


£22,871,317 

2,902,467 

58,701,120 

62,915,546 


£25,021,776 

3,222,8x8 

25,582,782 
50.390,252 


£147,390,450 


£104,817,628 


The  purposes  for  which  capital  was  raised  in  the  United  Kingdom 
for  the  five  months  are  shown  in  Table  I. 

Three-fourths  of  the  new  capital  subscribed  has  been  for  foreign 
countries  and  the  bulk  of  the  remainder  has  been  for  the  United 
Kingdom.  The  destination  of  the  capital  subscribed  in  May  and  in 
the  first  five  'months  of  the  past  two  years  is  shown  in  Table  II. 

Referring  to  the  causes  for  the  high  rates  that  railroads  and  other 
large  corporations  are  being  forced  to  pay  for  funds,  Henry  Clews  in 
his  ourent  market  letter  says: 

"The  controlling  influence  in  the  stock  market  is  the  money  situa- 
tion. By  this  is  meant  not  so  much  the  lack  of  ordinary  loaning 
facilities,  as  serious  inroads  upon  the  available  supply  of  capital. 
There  is  plenty  of  what  is  technically  known  as  money  in  the  country, 
but  the  demands  for  both  credit  and  capital  have  been  extraordinary 
for  several  years.  This  is  a  world-wide  phenomenon.  International 
trade  has  been  running  upon  an  unprecedented  scale.  Industrial 
development    has   progressed    marvelously    in    all    parts    of    the 


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CAPITAL  GOODS  AS  ECONOMIC  FACTORS  175 

world,  and  the  strain  upon  capital  thus  induced  was  seriously 
aggravated  by  the  losses  and  hoardings  of  the  Balkan  war.  We  have 
been  turning  capital,  which  comes  from  savings  only,  from  fluid  into 
fixed  forms  with  excessive  rapidity,  the  result  being  temporary 
scarcity  and  high  rates.  In  the  United  States  the  situation  has  been 
aggravated  by  home  conditions.  Trade  was  very  active,  and  there 
followed  a  considerable  expansion  of  credit.  The  home  requirements 
for  capital  have  been  enormous.  They  have  been  held  in  restraint 
somewhat  by  recent  high  interest  rates — the  usual  warning  against 
excess.  It  is  well  known  that  many  important  issues  are  still  pending 
for  industrial,  railroad,  and  municipal  or  state  purposes.  These 
high  rates  forced  a  readjustment  of  market  values  to  new  conditions, 
and  the  low  rates  at  which  some  of  the  new  issues,  notably  St.  Paul 
and  Baltimore  &  Ohio,  have  been  placed,  focused  public  attention 
upon  the  diflScuIties  of  the  situation." 

49.    WHAT  IS  MEANT  BY  DEPRECIATION' 

Depreciation  is  a  comparatively  new  phrase  in  raibroad  accounting, 
and,  judging  from  the  articles  which  have  appeared  on  the  subject, 
there  seems  to  be  some  confusion  as  to  just  what  is  meant.  Does 
depreciation  mean  the  loss  of  value  in  a  car  or  an  engine  due  to  wear 
and  tear  ?  If  so,  this  sort  of  depreciation  is  amply  covered  by  proper 
maintenance;  in  other  words,  it  is  usual  when  an  engine  or  car  goes 
into  the  repair  shop,  whether  damaged  in  an  accident  or  by  legitimate 
wear,  to  replace  its  worn-out  or  damaged  parts  and  restore  it  to  its 
original  condition.  Repairs  are  classed  as  "running  repairs,"  by 
which  are  meant  the  repairs  necessary  to  keep  equipment  in  safe 
running  condition;  and  "general  repairs,"  by  which  are  meant  the 
repairs  needed  to  restore  the  equipment  to  its  original  condition. 
There  are  plenty  of  cases  on  roads  both  in  this  country  and  in  Europe, 
where  locomotives  and  cars  are  so  well  maintained  that  there  is  no 
appreciable  depreciation.  Indeed,  locomotives  are  running  on 
English  roads  which  are,  though  obsolete  in  many  respects,  as  good  as 
new,  though  fifty  years  old;  and  there  are  many  cases  upon  roads  in 
this  country  where  engines  and  cars  twenty-five  years  old  have  been  so 
well  maintained  that  they  are  as  good  as  when  originally  built. 

In  respect  to  buildings  and  other  structures,  their  ultimate  life 
depends   entirely  upon   the   character  of   maintenance   and   care. 

'  Adapted  from  F.  A.  Delano,  "The  Application  of  a  Depreciation  Charge  in 
Railway  Accounting,"  Journal  of  Political  Economy,  XVI,  586-90  (November,  1908) . 


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Wooden  buildings  well  roofed  and  painted,  repaired  when  necessary, 
will  last  indefinitely,  and  of  coiurse,  stnictiures  of  masonry  or  iron  are 
even  more  permanent.  Buildings  and  stnictiures  on  railroads  are 
rarely  discarded  except  because  they  have  outlived  their  usefulness, 
and  something  of  a  more  efficient  type  is  needed  in  their  place. 

From  the  foregoing  it  will  be  seen  that  if  by  depreciation  is  meant 
the  loss  due  to  wear  and  tear,  it  may  be  illustrated  as  to  each  piece  of 
equipment  or  each  building  or  structure,  by  a  mathematical  curve 
something  like  that  indicated  in  the  accompanying  Diagram  I.  The 
distance  from  "A"  to  "B"  represents  the  period  of  time  in  which 
under  normal  conditions  the  deterioration  takes  places  in  the  case  of 
locomotives,  say  three  years;  in  the  case  of  passenger  cars,  say  two 
years;  in  the  case  of  freight  cars,  a  very  variable  quantity,  averaging 

Diagram  I 

Curve  illustrating  condition  of  equipment,  buildings,  or  structures  over  a  long 
period  of  time.  Space  along  vertical  lines  represents  value  of  equipment,  etc. 
Space  along  horizontal  lines  represents  time  interval 


100% 
80 


60 


40 


perhaps  three  years;  in  the  case  of  buildings  and  structures,  depending 
wholly  on  the  character  of  the  building  and  structure,  climatic  condi- 
tions, etc.  The  distance  from  "  A  "  to  "  C  "  represents  the  diminution 
in  value  due  to  wear  and  tear  down  to  the  point  where  it  becomes 
necessary  to  make  extensive  repairs.  This  is  one  view  of  what  is 
meant  by  depreciation. 

Another  view  of  depreciation  is  that  it  represents  the  amoxmt  by 
which  the  average  condition  of  the  ph)rsical  property  has  deteriorated 
below  the  original  or  new  condition.  It  is  assiuned  that  each  piece  of 
physical  property  on  the  railroad,  other  than  the  real  estate,  is 
depreciating  in  value  in  the  way  represented  by  the  curve  already 
drawn,  but  that  because  the  railroad  is  a  composite  of  an  immense 
niunber  of  units,  the  average  condition  of  all  the  separate  imits 
combined  is  represented  by  a  line  at  some  point  between  the  upper 
and  lower  nodes  of  this  curve.  Obviously,  this  will  vary  a  little  bit  on 
the  different  roads  according  to  the  personal  equation  of  management. 


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CAPITAL  GOODS  AS  ECONOMIC  FACTORS 


177 


local  conditions,  etc.,  which  in  tiurn  are  affected  by  good  or  bad 
business  conditions.  A  corporation  differs  from  an  individual  only  in 
degree.  In  good  times,  expenditures  for  maintenance  are  liberally 
made:  in  hard  times  all  expenditures  of  this  kind  which  can  be  safely 
postponed  necessarily  cease.  If  then  by  depredation  is  meant  the 
drop  from  the  original  cost  down  to  the  average-condition  value  of 
equipment,  buildings  or  structiures,  it  is  evident  that  there  is  a  line,  or 
more  acciff^tely,  a  band  or  zone  somewhere  between  100  per  cent  value 
and  the  50  per  cent  value,  and  this  band,  speaking  very  liberally,  will 
be  somewhere  between  60  per  cent  and  75  per  cent  of  the  original  cost. 
It  is  obvious,  however,  that  when  the  lower  limit  of  this  band  which 
represents  the  average  condition  of  the  units  is  reached,  depreciation 
does  not  continue  farther,  and  that  therefore  if  a  regular  fixed  charge 

Diagram  II 

The  result  of  composite  curves  similar  to  those  shown  below  is  a  line  or  more 
strictly  a  band  or  zone  representing  average  condition 


100% 


is  to  be  made  to  cover  this  alleged  loss  of  value  the  charge  should  cease 
at  that  point  as  the  limit  of  actual  depreciation  of  the  units  considered 
as  a  whole  has  been  reached. 

Still  a  third  view  of  depreciation  is  that  it  means  the  depredation 
due  to  "obsolescence."  It  is  argued  that  while  each  piece  of  equip- 
ment or  every  building  or  structtu-e  may  be  restored  to  its  original 
condition,  there  is  a  diminution  in  value,  due  to  obsolescence.  Every 
manufacttu-er,  as  well  as  every  corporation,  fully  appreciates  this.  In 
a  country  which  is  developing  rapidly  it  is  frequentiy  necessary  to 
discard  perfectiy  good  equipment,  buildings,  and  structtu-es,  and  to 
replace  them  with  something  more  eflSdent.  It  is  possible  that  con- 
ditions will  warrant  "writing  off"  the  cost  of  such  equipment  or 
structiures  and  charging  to  cost  of  operation  the  entire  cost  of  renewal 
with  more  modern  and  more  effident  tools  or  equipment.  It  may  be 
argued  that  this  is  the  kind  of  depredation  which  it  is  the  business  of 
the  railroad  to  provide  for  by  monthly  charge  in  its  operation.  The 
difficulty  is  to  estimate  the  rate  at  which  such  depredation  takes  place. 


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MATERIALS  FOR  ELEMENTARY  ECONOMICS 


To  illustrate  it,  we  may  represent  such  a  depreciation  as  this  by  a 
mathematical  curve  for  each  piece  of  equipment,  building  and  struc- 
ture, as  shown  in  Diagram  III.  The  difference  between  the  curve  in 
Diagram  III  and  that  of  Diagram  I  lies  in  the  fact  that  Diagram  III 
shows  a  depredation  due  to  obsolescence,  whereas  Diagram  I  does  not. 
In  III  we  make  a  line  "A — D,"  which  is  at  a  slight  angle  to  the 
horizontal.  It  represents  the  rate  of  depreciation  due  to  obsolescence. 
It  contemplates  that  every  time  a  unit  of  equipment,  a  building  or  a 
structure,  is  restored  to  a  condition  "  as  good  as  new,''  it  is  not  brought 

Diagram  III 

Diagram  showing  condition  of  equipment,  buildings,  and  structures  as  in  Diagram  I, 
but  taking  into  account  depreciation  due  to  obsolescence 
Rate  of  DEPSEaATiON  Due  to  Obsolescence 


ioo% 


80 


60 


40 


20 


back  to  a  value  equal  to  that  represented  by  its  original  cost,  but  to 
a  value  as  much  less  than  its  original  cost  as  the  depreciation  due  to 
obsolescence  may  have  brought  it.  To  provide  for  this  sort  of 
depreciation  it  is  obviously  necessary  to  determine  the  rate  of  deprecia- 
tion due  to  obsolescence.  Who  shall  say  ?  Shall  we  be  guided  in  the 
future  from  the  results  in  the  past  ?  Shall  we  say  in  respect  to  loco- 
motives that  because  locomotives  are  now  as  high,  as  wide,  and 
perhaps  as  long  as  they  may  be  built,  there  can  be  no  further  develop- 
ments in  that  direction  ?  Or,  shall  we  accept  the  arguments  of  those 
who  believe  in  electric  transportation,  that  the  steam  locomotive  will 
soon  be  discarded  and  the  electrically  driven  motor  take  its  place  ? 
In  one  case,  the  rate  of  depreciation  due  to  obsolescence  will  be  small, 
while  in  the  other  case,  it  can  be  determined  only  by  our  surmise  as  to 
how  soon  the  revolution  from  steam  to  electricity  is  going  to  take  place. 


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CAPITAL  GCX)DS  AS  ECONOMIC  FACTORS  179 

SO.  INROADS  OF  WAR  ON  THE  SAVABLE  FUNIM 

It  would  seem  desirable  at  this  point,  now  that  all  feeling  in  regard 
to  the  subject  from  its  bearing  on  political  questions  has  apparently 
passed  away,  to  place  upon  record  the  exact  cost  of  the  war,  as  nearly 
as  the  same  can  be  determined.  With  this  object  attention  is  asked 
to  the  following  exhibit: 

The  amount    of    outstanding    national    indebtedness 

March  7,  1861,  was  $76,455,299. 28. 
During  the  four  years  of  war  which  terminated  in  April, 

1865  (April  I,  1861,  to  April  i,  1865),  the  actual 

receipts  of  the  treasury,  were  as  follows: 

From  internal  revenue I3i4i337i3i7 •  01 

From  customs 280,861,618. 45 

From  lands 1,812,083.80 

From  direct  tax 4,668,259, 31 

From  miscellaneous  sources 74,120,413. 37 

Total  receipts $675,799,691.94 

The  receipts  of  revenue  from  April  i,  1865,  to  June  30, 

1869,  inclusive,  during  which  period  the  larger  portion 

of  the  expenditures  has  been  directly  in  consequence 

of  the  war,  were  as  follows: 

From  internal  revenue $967,207,221 .  41 

From  customs 729,991,875. 97 

From  lands 7,402,188. 28 

From  direct  tax 9,017,217.30 

From  miscellaneous  sources 194,949,122 .  13 

Total  receipts $1,908,576,625.09 

The  amoimt  of  outstanding  indebtedness,  less  cash  and 
sinking  fund  in  treasury,  June  30,  1869,  was  $2,489,- 
002,480.58. 

Deducting  from  this  the  amount  of  outstanding  in- 
debtedness at  the  outbreak  of  the  war  ($76,455,- 
299. 28),  we  have,  as  the  sum  borrowed  for  war  pur- 
.  poses  and  not  repaid  out  of  the  receipts  above  in- 
dicated    $2,412,547,181.30 

making  the  total  expenditure  (loans  and  receipts) 
in  eight  and  a  quarter  years  of  war  and  its  effects  $4,996,914,498 .  33 
Deducting  the  amount  which,  but  for  the  war,  might  be 
taken  as  the  average  expenditure  of  the  government 
during  this  period,  say  $100,000,000  per  annum 825,000,000. 00 

We  shall  have $4,171,914,498.33 

'  From  the  Report  of  the  Special  Commissioner  of  the  Revenue  (1869),  pp.  iv-vi. 


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l8o  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

which  sum  represents  the  cost  of  the  war  to  the  United  States  govern- 
ment down  to  June  30,  1869. 

To  this  sum  should  be  added  the  value  of  the  pensions  now  paid 
by  the  government  on  account  of  the  war,  if  the  same  were  capitalized. 
This  at  eight  years'  purchase  of  the  present  annual  payment,  would 
amoimt  to  about  two  hundred  millions. 

But  this  aggregate,  however  large,  must  still  further  be  increased 
by  other  items  if  we  would  reach  the  true  cost  of  the  war  to  us  as  a 
people,  the  above  representing  only  the  expenditures  of  the  national 
government 

'  These  additional  charges  are  substantially  as  follows: 

Increase  of  state  debts,  mainly  on  war  account $123,000,000. 00 

Coimty,   city,   and  town  indebtedness  increased  on 

account  of  the  war  (estimated) 200,000,000. 00 

Expenditures  of  states,  counties,  cities,  and  towns,  on 

account  of  the  war,  not  represented  by  funded  debt 

(estimated) 600,000,000.00 

Estimated  loss  to  the  loyal  states  from  the  diversion  and 

suspension  of  industry,  and  the  reduction'  of  the 

American  marine  and  carrying  trade 1,200,000,000. 00 

Estimated  direct  expenditures  and  loss  of  property  by 

the  Confederate  states  by  reason  of  the  war 2,700,000,000. 00 

These  estimates,  which  are  believed  to  be  moderate  and  reasonable, 
show  an  aggregate  destruction  of  wealth,  or  diversion  of  industry, 
which  would  have  produced  wealth  in  the  United  States  since  1861 
approximating  nine  thousand  millions  of  dollars — a  sum  nominally 
in  excess  of  the  entire  increase  of  wealth,  as  returned  by  the  census 
for  the  whole  country  from  1850  to  i860. 

This,  then,  was  the  cost  of  the  destruction  of  slavery;  the  cost 
of  compromise;  the  cost  of  the  xmfaithfulness  of  those  who  founded 
this  nation  to  the  idea  by  which  the  nation  lives.  What  does  it 
measure?  It  is  substantially  a  thousand  millions  a  year  for  nine 
years;  or  at  the  wages  of  five  hxmdred  dollars  a  year,  the  labor  of 
two  millions  of  men  exerted  continuously  during  the  whole  of  that 
period.  It  is  three  times  as  much  as  the  slave  property  of  the  coimtry 
was  ever  worth.  It  is  a  sum  which  at  interest  would  yield  to  the  end 
of  time  twice  as  much  as  the  annual  slave  product  of  the  South  in  its 
best  estate.* 

'[Cf.  in  this  connection  the  charts  showing  federal  expenditure  and  the 
national  debt  (Selections  239  and  242).— Editoxs.] 


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VI.    THE  ORGANIZATION  OF  INDUSTRY 

A.    SPECIALIZATION 
SI.  LIMITATIONS  OF  THE  DIVISION  OF  LABOR' 

The  division  of  labor,  as  all  writers  on  the  subject  have  remarked, 
is  limited  by  the  extent  of  the  market.  It  can  only  be  advantageously 
carried  to  the  extent  which  will  produce  the  quantity  demanded.  The 
extent  of  the  market  may  be  limited  by  several  causes:  too  small  a 
popidation;  the  population  too  scattered  and  distant  to  be  easily 
accessible;  deficiency  of  roads  and  water  carriage;  or,  finally,  the 
population  too  poor,  that  is,  their  collective  labor  too  little  effective, 
to  admit  of  their  being  large  consumers.  Indolence,  want  of  skill, 
and  want  of  combination  of  labor,  among  those  who  would  otherwise 
be  buyers  of  a  commodity,  limit,  therefore,  the  practicable  amount  of 
combination  of  labor  among  its  producers.  In  an  early  stage  of  civil- 
ization, when  the  demand  of  any  particular  locality  was  necessarily 
small,  industry  flourished  only  among  those  who  by  their  command 
of  the  sea-coast  or  of  a  navigable  river,  coidd  have  the  whole  world,  or 
all  that  part  of  it  which  lay  on  coasts  or  navigable  rivers,  as  a  market 
for  their  productions.  The  increase  of  the  general  riches  of  the  world, 
when  accompanied  with  freedom  of  commercial  intercourse,  improve- 
ments in  navigation,  and  inland  commimication  by  roads,  canals,  or 
railwa3rs,  tends  to  give  increased  productiveness  to  the  labor  of  every 
nation  in  particular,  by  enabling  each  locality  to  supply  with  its  special 
products  so  much  larger  a  market,  that  a  great  extension  of  the 
division  of  labor  in  their  production  is  an  ordinary  consequence. 

The  division  of  labor  is  also  limited,  in  many  cases,  by  the  nature 
of  the  employment.  Agriculture,  for  example,  is  not  susceptible  of  so 
great  a  division  of  occupations  as  many  branches  of  manufactures, 
because  its  different  operations  cannot  possibly  be  simultaneous. 
One  man  cannot  be  always  ploughing,  another  sowing,  and  another 
reaping.  A  workman  who  practiced  only  one  agricultural  operation 
would  be  idle  eleven  months  of  the  year.  The  same  person  may 
perform  them  all  in  succession,  and  have,  in  almost  every  climate,  a 
considerable  amount  of  unoccupied  time.    To  execute  a  great  agricul- 

« Adapted  from  John  Stuart  Mill,  Principles  of  Political  Economy,  Book  I, 
chap.  viii. 

i8i 


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l82  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

tural  improvement,  it  is  often  necessary  that  many  laborers  should 
work  together;  but  in  general,  except  the  few  whose  business  is 
superintendence,  they  all  work  in  the  same  manner.  A  canal  or  a 
railway  embankment  cannot  be  made  without  a  combination  of  many 
laborers;  but  they  are  all  excavators,  except  the  engineer  and  a 
few  clerks. 

52.    THE  TIN-PEDDLER  AND  THE  DEVELOPMENT  OF  CON- 
NECTICUT INDUSTRIES' 

Among  the  factors  that  have  promoted  industry  in  New  England 
one  is  usually  overlooked,  namely,  the  service  rendered  by  the  Yankee 
tin-peddler  in  marketing  the  products  of  the  manufactming  plants. 

In  Connecticut  few  pkces  outside  the  rich  river  valleys  where  the 
first  colonists  had  settled  gave  adequate  retiurn  for  the  efforts  of 
farmers  in  tilling  the  thin,  rocky  soil.  The  settlers  were  thus  com- 
pelled to  find  employment  other  than  farming,  or  to  emigrate  to  lands 
more  generously  endowed  by  natiure.  One  of  the  earliest  breaks 
from  the  traditional  occupation  of  agricultiure  was  the  manufacture 
of  tinware.  This  industry  was  introduced  at  Berlin,  Conn.,  in  1740, 
by  two  Irish  immigrants,  the  brothers  William  and  Edward  Pattison, 
who  imported  sheet  tin  from  England  and  worked  it  into  kitchen 
utensils  at  their  Berlin  home.  Since  all  tinware  had  previously  been 
imported,  and  was  very  expensive,  the  brothers'  cheaper  articles 
found  ready  sale.  When  their  home  market  had  been  supplied,  they 
began  the  practice  of  making  journeys  on  foot  to  near-by  settlements, 
with  their  wares  carried  on  their  backs  in  a  sack.  The  success  of 
these  ventm-es  induced  other  Berliners  to  make  tin  and  carry  it  to 
neighboring  colonies.  At  first  the  journeys  were  made  on  foot,  then 
on  horseback,  and  finally  in  an  ingeniously  arranged  wagon.  As  the 
country  opened,  and  turnpikes  and  canals  were  built,  the  peddler's 
wagon  traveled  farther  and  farther  from  home.  Gradually  a  dis- 
tributing organization  was  perfected  that  reached  every  village  and 
remote  hamlet. 

As  an  industry,  tin  manufacturing  was  too  simple  to  become  very 
important,  although  it  continued  in  Connecticut  until  1850.  But  the 
selling  organization  built  up  for  tin  was  very  important  because  it 
provided  an  adequate  outlet  for  other  industries  in  which  the  manu- 

*  Adapted  from  a  note  by  R.  Malcolm  Keir  in  The  Journal  of  Political 
Economy f  XXI,  255  (March,  1913)- 


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THE  ORGANIZATION  OF  INDUSTRY  183 

facturing  processes  were  not  simple,  and  which  employed  more  and 
more  men  at  home.  It  was  in  building  up  these  industries  that  have 
been  permanent  valuable  assets  to  the  state,  by  enabling  the  products 
of  the  industries  to  reach  their  markets,  that  the  peddler's  great 
service  was  rendered.  Lack  of  transportation  was  the  greatest  natiural 
throttle  to  early  American  manufacturing.  Carrying  charges  soon 
ate  up  any  profits  an  industry  might  have,  and  limited  it  to  a  very 
narrow  local  field.  However,  if  those  products  were  small  in  bulk, 
with  a  relatively  high  value  and  a  brisk  demand,  transportation  difiS- 
culties  were  solved  by  placing  the  articles  in  the  hands  of  the  peddler. 
If  there  had  been  no  peddler  there  would  have  been  no  way  for  the 
producers  of  the  goods  to  reach  the  consxmiers,  and  hence  no 
production. 

Today  the  peddler  is  seldom  seen.  Raihroads  and  cross-country 
trolley  freight  lines  have  driven  him  out  of  existence.  In  remote 
commimities  occasionally  he  may  be  met.  In  his  time  he  rendered 
the  service  of  transportation  agent  and  salesman,  linking  scattered 
consumers  to  producers  and  giving  to  incipient  manufactiu*e  the 
opportimities  of  a  widened  market.* 

S3.    CLASSIFICATION  OF  OCCUPATIONS 

The  following  schemes  of  classification,  from  the  Index  to  Occupa- 
tions issued  by  the  United  States  Bureau  of  the  Census,  indicate  the 
method  of  classification  which  has  been  adopted  for  the  Census  of  1910. 

I.    Industries  and  Industrial  Groups* 

(a)    extractive  industries 

I.  Agriculture,  Forestry,  and  Animal  Husbandry: 
Agriculture 
Forestry 
Animal  husbandry 

II.   EXTRACnON  OF  MINERALS*. 

Mining 
Coalmines 
Copper  mines 
Gold  and  silver  mines 

>[0n  this  tc^ic  see  also  Selection  74:  ''Widening  of  the  Market  Through 
Improved  Transportation."— Editors.) 

•  From  the  Classified  Index  to  Occupations,  Thirteenth  Census  of  the  United 
States  (1910),  pp.  vi-viii. 


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i84  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

Iron  mines 

Lead  and  zinc  mines 

Other  mines 

Mine  workers  (mine,  not  s[>ecified) 
Quarrying 

Quarries  (stone,  cement,  sand,  day,  etc.) 
Production  of  salt,  oil,  and  natural  gas 

Production  of  salt 

Production  of  oil  and  natural  gas 

(b)    industries  of  thansfokmation,  thansportahon,  and  trade 

in.  Manufacturing  and  Mechanical  Industries: 
Building  trades 

(Lbted  as  building  and  hand  trades  under  Miscellaneous  industries) 
Chemi  als  and  allied  products 

Fertilizer  makers 

Paint  makers 

Powder,  cartridge,  dynamite,  fuse,  and  fireworks  makers 

Soap  makers 

Other  chemical  workers 
Clay,  glass,  and  stone  products 

Brickmakers 

Potteries 

Tile  makers 

Glass 

Terra-cotta  workers 

Lime,  cement,  and  gypsum 

Marble  and  stone  cutters 
Clothing 

Clothing  makers  (suits,  coats,  cloaks,  and  overalls) 

Clothing  makers  (other  than  suits,  coats,  cloaks,  and  overalls) 

Corset  makers 

Glove  makers 

Hat  makers  (wool  or  felt) 

Shirt,  collar,  and  cuff  makers 
Food  and  kindred  products 

Bakeries 

Butter  and  cheese  makers 

Candy 

Fish  curers  and  packers 

Flour  and  grain  mills 

Fruit  and  vegetable  canners,  picklers,  and  preservers 

Slaughter  and  packing  houses 


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THE  ORGANIZATION  OF  INDUSTRY  185 

Sugar  makers  and  refiners 
Other  food  preparers 
Iran  and  sUel  and  their  products 
Agricultural  implements 
Automobile  factories 
Car  and  railroad  shops 
Foundries  and  metal  working 
Iron  and  steel  mills 
Ship  and  boat  building 
Wagons  and  carriages 
Other  iron  and  steel  workers 
Leather  and  Us  finished  products 
Harness  and  saddle  makers  and  repairers 
Leather-belt,  leather-case,  and  pocketbook  makers 
Shoes 
Tanneries 
Trunk  makers 
Liquors  and  beverages 
Breweries 
Distilleries 

Other  liquor  and  beverage  workers 
Lumber  and  its  remanufacture 
Box  makers  (wood) 
Furniture 
Pianos  and  organs 
Saw  and  planing  mills 
Other  woodworkers 
Metals  and  metal  products  except  iron  and  steel 
Brass  mills 
Clock  factories 
Copper  factories 
Gold  and  silver  workers 
Jewelry  factories 
Lead  and  zinc  factories 
Tin-plate  factories 
Tinware  factories 
Watch  factories 
Other  metal  workers 
Paper 
Box  makers  (paper) 

Makers  of  blank  books,  envelopes,  tags,  paper  bags,  etc. 
Paper  mills 
Pulp  mills 


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i86  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

Printing  and  bookbinding 

Printing  and  publishing  establishments 
Textiles 

Carpet  mills 

Cotton  mills 

Dyeing  and  finishing  textiles 

Hemp  and  jute  mills 

Knitting  mills 

Lace  and  embroidery  makers 

Linen  mills 

Print  works 

Rope  and  cordage  factories 

Sail,  awning,  and  tent  makers 

Silk  mills 

Woolen  mills 

Worsted  mills 

Not  specified  textile  workers 
Miscellaneous  industries 

Broom  and  brush  makers 

Button  makers 

Charcoal  and  coke  burners 

Cigars 

Electric  light  and  power  companies 

Electrical  supplies 

Gas  works  * 

Oil  works 

Rubber  factories 

Straw  workers 

Tobacco 

Turpentine  distillers 

Building  and  hand  trades 

Other  miscellaneous  industries  and  occupations 

Workers  in'  ''Not   specified''   manufacturing   and   mechanical 

industries 

IV.  Transportation: 
Water  transportation 

Water  transportation 
Road,  street,  and  bridge  transportation 

Construction  and  maintenance  of  streets,  roads,  sewers,  and  bridges 

Livery  stables 

Truck,  transfer,  cab,  and  hack  companies 

Street  railways 
Transportation  by  railroad 

Transportation  by  railroad 


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THE  ORGANIZATION  OF  INDUSTRY  187 

Express  companies 

Express  companies 
Posty  telegraphy  and  telephone 

Post 

Telegraph  and  telephone 
Other  persons  in  transportation 

Other  [>ersons  in  transportation 
V.  Trade: 

Banking  and  brokerage 

Insurance 

Real  estate 

Wholesale  and  retail  trade 

Elevators 

Stock  yards 

Warehouses  and  cold-storage  plants 

Other  persons  in  trade 

Clerical  assistants 

(C)      SERVICE 

VI.  PxjBUC  Service  (not  Elsewhere  Classified): 
Public  administralion 
Federal  officials  and  employees 
State  officials  and  employees 
County  officials  and  employees 
City  or  town  officials  and  employees 
Public  defense  and  maintenance  of  law  and  order 
National  defense 

Army 

Navy 
Maintenance  of  law  and  order 

United  States  marshals 

County  sheriffs 

City  marshals 

Constables 

Detectives 

Guards  in  parks,  prisons,  public  institutions,  and  public  buildings 

Policemen 

Probation  and  truant  officers 

Watchmen 
VII.  Professional  Service: 

(Whole  class) 
Vin.  Domestic  and  Personal  Service: 
Occupations  not  in  industries 
Laundries  and  laundry  work 


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i88 


MATERIALS  FOR  ELEMENTARY  ECONOMICS 


II.    Division  of  Labor  within  a  Typical  Industry — Cotton 

Mills' 


Manufacturers  and  pro- 
prietors 

Officials 

Managers  and  superin- 
tendents 

Foremen  and  overseers 

Clerks 

Apprentices 

Back  boys 

Bailers 

Banders 

Beaders 

Beamers 

Bobbin  boys 

Breaker  hands 

Card  clothiers 

Card  fixers 

Card  grinders 

Card  strippers 

Carders 

Carpenters 

Chainers 

Cleaners 

Cloth  balers 

Cloth  cutters 

Cloth  menders 

Cloth  steamers 

Combers 

Cotton  shakers 

Creelers 

Designers 

Doffers 


Doublers 
Drawers-in 

Drawers  and  drawing- 
frame  tenders 
Dressers 
Drillers 
Dryers 
Dyers 
Engineers 
Filling  carriers 
Finishers 
Folders 

Harness  brushers 
Harness  makers 
Helpers 
Inspectors 
Jack-frame  tenders 
Laborers 
Lappers 
Loom  fixers 
Machinists 
Nappers 
Oilers 
Packers 
Pickers 
Piecers 
Pressmen 
Printers 
Quillers 
Reelers 
Ribbers 


Roll  coverers 

Rollers  (cloth) 

Ropers 

Rovers 

Roving-frame  tenders 

Scrubbers 

Section  hands 

Sewers  and  Seamers 

Shearers 

Sizers 

Slasher  tenders 

Slubber  tenders 

Sorters 

Spare  hands 

Speeders 

Spumers 

Spoolers 

Spool  fixers 

Stampers 

Starchers 

Sweepers 

Trimmers 

Twisters 

Warpers 

Washers 

Weavers 

Winders 

Wrappers 

Yam  pourers 

Other  occupations 

Not  specified 


The  several  occupations  as  shown  in  Classification  II  are  subject 
to  still  further  division. 

Thus  the  item  "Laborers"  is  subdivided  as  follows: 


Laborer,  room,  cotton  mill 
Laborer,  thread  mill  (cotton) 
Laborer,  wadding  mill  (cotton) 
Opener,  cotton  bale 
Trucker,  cloth,  cotton  mill 
Trucker,  cotton  mill 


Day  laborer,  cotton  mill 

General  hand,  cotton  mill 

Laborer,  bleaching  (cotton) 

Laborer,  cotton  null 

Laborer,  cotton  waste 

Laborer,  finishing  company  (cotton) 

Laborer,  gingham  mill  (cotton) 

It  is  estimated  that  the  Census  Index  designates  in  the  aggregate 
between  7,000  and  8,000  distinct  occupations. 

» From  the  Classified  Index  to  Occupations^  Thirteenth  Census  of  the  United 
States  (1910),  pp.  211-18. 


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THE  ORGANIZATION  OF  INDUSTRY 


189 


54.    STAGES  IN  THE  PRODUCTION  OF  IRON  AND  STEEL 
PRODUCTS' 

An  idea  of  the  sequence  of  the  stages  m  the  production  of  iron 
and  steel  commodities  may  be  obtained  from  the  following  diagram: 


Blooms 


Ore 
Coke 


Sled 


Basic 


Ingots 


SlaU 


Large  billets 


Small  billeU 


Sheet  and  tin 
plate  bars 

Rails 

Structural 
shapes: 

Bouns 

Channeb 

Angles 

Tees 

Zees 

Axles 

Plates: 
Structural 
Boiler 

Skdp 


Rods  l^"*'  ^"^  '"^»  *"<^  '"'* 

\    products 
Merchant  bars 
Angle  bars 
SpUcebars 
Hoops  and  bands 

Merchant  bars 
Light  hoops 
Cotton  ties 
Seamless  tubes 


galvanized  and  other  fin- 


Sheets, 

ished 
Bhtck  pUte  for  /Tin   pbtte   and 

tinnmg  \    tern  plate 


Bridge  and  other  fabricating  ma- 


iridgei 
tmal 


Wrought  pipe  and  tubing 


Castings    Forgings 
Foundry  iron    Castings 

Malleable  Bessemer  iron  Castings  Malleable  rasfings 

Forge  iron     Muck  bar     Merchant  bar  iron  and  other  roUed-iron  products 


55.  THE  LOCALIZATION  OF  MANUFACTURING  INDUSTRIES* 

Some  of  the  various  advantages  which  influence  the  localization 
of  industries  may  be  stated  as  follows:  (i)  nearaess  to  materials; 
(2)  nearness  to  markets;  (3)  water-power;  (4)  a  favorable  climate; 
(5)  a  supply  of  labor;  (6)  capital  available  for  investment  in  manu- 
factiures;  (7)  the  momentum  of  an  early  start;  (8)  the  habit  of 
industrial  imitation;  (9)  economic  advantages  of  specialized  centers. 

I.  Nearness  to  materials. — ^The  localization  of  several  of  the  indus- 
tries illustrates  this  advantage — the  paper  industry  near  the  spruce 

« From  the  Report  of  the  Untied  States  Commissioner  of  Corporations  on  the 
Steel  Industry,  Part  III  (i9i3)»  P-  i3- 

•  Adapted  from  the  Twelfth  Census  of  the  United  States  (1900),  Vol.  VII,  pp. 
ccx-ccxiv. 


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I90  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

and  poplar  forests;  the  tanning  industry  near  the  chief  tanning 
materials;  slaughtering  and  meat-packing  near  the  stock-raising 
centers;  the  manufacture  of  agricultiural  implements  near  the  great 
hardwood  forests  and  the  iron-producing  centers;  the  pottery  in- 
dustry near  its  clay;  the  recent  growth  of  cotton  manufacturing 
near  the  cotton  fields;  and  the  beginnings  of  shoe  manufacturing 
in  Massachusetts  near  the  supply  of  leather. 

Fuel  is  regarded,  for  census  purposes,  as  a  material  of  manufacture, 
and  the  influence  of  its  supply  is  very  marked  in  the  localization  of 
the  glass  industry  near  the  natural  gas  wells,  and  in  the  iron  industry 
in  Pennsylvania  and  Alabama. 

2.  Nearness  to  markets, — ^This  is  an  important  factor  in  the  locali- 
zation of  all  industries,  its  influence  upon  the  localization  of  manu- 
facturing in  general  being  especially  apparent.  Nearly  48  per  cent 
of  the  manufacturing  of  the  country  is  in  Massachusetts,  Connecticut, 
Rhode  Island,  New  York,  New  Jersey,  and  Pennsylvania — ^not  so 
much  because  there  is  better  water-power  or  more  abimdant  material 
for  manufactures  in  these  states,  but  very  largely  because  the  greatest 
population  was  there  when  the  manufacturing  developments  of  the 
coimtry  began.  The  influence  of  the  market  in  causing  a  migration 
of  manufacturing  in  general  may  be  observed  by  comparing  the 
movement  of  the  center  of  manufactures  and  of  the  center  of 
population  since  1850.  The  center  of  manufactures  has  moved 
steadily  westward,  following  roughly  the  movement  of  the  center 
of  population. 

Eight  of  the  fifteen  selected  industries^  are  localized  east  of  the 
AUeghenies,  chiefly  because  they  became  established  in  this  section  at 
a  time  when  it  was  the  only  important  market  in  the  coimtry.  In 
certain  of  the  industries  the  influence  of  the  market  upon  the  locali- 
zation has  been  especially  marked,  i.e.,  the  iron  and  steel  industry 
in  Illinois,  the  manufacture  of  agricultural  implements,  the  .paper 
and  pulp  manufacture,  and  the  jewelry  and  silk  industries. 

Nearness  to  materials  and  nearness  to  markets,  in  so  far  as  these 
expressions  are  used  with  reference  to  an  effect  upon  localization, 

'These  industries  are:  (i)  agricultural  implements;  (2)  boots  and  shoes, 
factory  product;  (3)  collars  and  cuffs;  (4)  cotton  goods,  including  small  cotton 
wares;  (5)  fur  hats;  (6)  glass;  (7)  hosiery  and  knit  goods;  (8)  iron  and  steel; 
(9)  jewelry;  (10)  leather  gloves  and  mittens;  (11)  leather,  tanned,  curried,  and 
finished;  (12)  paper  and  wood  pulp;  (13)  pottery,  terra  cotta,  and  fire-clay  prod- 
ucts; (14)  siUc  and  silk  goods;  (15)  slaughtering  and  meat-packing,  wholesale. 


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THE  ORGANIZATION  OF  INDUSTRY  191 

mean  more  than  mere  geographical  distance.  They  include  the 
general  accessibility  to  materials  or  markets,  affected  as  this  is  by  the 
supply  or  lack  of  good  and  cheap  means  of  conmiunication.  Water- 
ways have  thus  had  a  tremendous  influence  upon  the  localization  of 
industries,  for  they  have  allowed  localities  through  which  they  passed 
to  make  an  early  start  in  manufacturing,  and  by  the  momentum  thus 
acquired  to  retain  their  prominence  in  many  cases,  even  after  the 
building  of  railroads  has  removed  the  special  advantages  which  they 
at  first  possessed. 

It  is  evident,  moreover,  that  the  importance  of  the  two  advantages 
just  explained  varies  greatly  among  the  several  industries  according  as 
their  products  are  easily  and  cheaply  transportable  or  are  transported 
only  with  great  difficulty  and  at  a  great  expense.  In  all  industries 
where  the  product  is  not  transportable,  such,  for  example,  as  the 
construction  of  houses,  the  market  controls  the  localization  absolutely. 
It  is  plain,  also,  that  the  power  of  materials  and  market  over  industry 
is  less,  just  in  proportion  as  the  materials  and  products  are  more 
easily  and  more  cheaply  shipped.  From  the  manufactiurer's  stand- 
point it  is  alwa)rs  a  coimting  of  the  costs  of  shipment.  If  these  are 
heavy,  the  industry  tends  to  locate  where  the  amount  of  transporta- 
tion will  be  least,  but  if  they  are  light,  the  influence  of  materials  and 
market  is  so  slight  that  it  often  disappears  altogether.  The  words 
"heavy"  and  "light,"  as  used  in  this  connection,  are  not  to  be  under- 
stood in  an  absolute  sense,  but  relative  to  the  value  of  the  material 
or  product  transported.  A  cheap  and  heavy  raw  material,  such  as 
clay,  will  be  carried  only  a  very  short  distance.  Transportation 
charges,  after  a  few  hundred  miles,  would  constitute  too  large  a  part 
of  the  cost  of  manufactiure.  But  an  equal  weight  of  this  same  clay 
after  its  value  has  been  trebled  by  being  converted  into  pottery  might 
be  carried  a  long  distance  before  the  shipping  costs  would  become 
prohibitory. 

3.  Waier-pawer. — ^This  has  been  in  the  past  a  very  important 
advantage,  but  today  its  influence  upon  localization  of  industries  is 
not  very  apparent.  Naturally,  this  influence  was  greatest  before 
the  days  of  steam.  All  industries  requiring  power  grouped  them- 
selves along  those  waterways  which  had  a  good  natiural  fall.  This 
early  impetus,  combined  with  forces  to  be  described  later,  has  tended 
to  perpetuate  such  industries  in  their  original  locations,  even  when 
steam  has  become  more  important,  as  a  source  of  power,  than 
water. 


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192  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

It  is  interesting  in  this  connection  to  compare  the  manufacture 
of  cotton  goods  with  the  manufacture  of  shoes.  Power  has  been 
applied  to  some  branches  of  the  cotton  manufacture  for  more  than  a 
hundred  years,  while  shoe  manufacturing  has  been  a  power  industry 
less  than  half  that  time.  Largely  as  a  result  of  this  fact,  water 
supplies  31  per  cent  of  the  power  used  in  the  cotton  industry  today, 
and  but  4 . 6  per  cent  of  that  used  in  the  manufacture  of  shoes.  That 
is  to  say,  the  localization  of  both  industries  began  in  the  early  days, 
but  the  manufacture  of  shoes,  being  for  years  a  hand  industry,  was 
independent  of  water-power,  while  the  cotton  manufacture,  of  neces- 
sity, sought  the  waterways.  When  the  necessity  for  power  in  the 
shoe  manufacture  arose,  the  industry  was  too  thoroughly  established 
away  from  the  sources  of  water-power,  and  recourse  was  had  to  steam. 
Water-power  has  been  an  important  factor  in  the  localization  of  three 
of  the  other  industries  specified  above — silk  goods,  hosiery  and  knit 
goods,  and  the  pulp  manufacture. 

4.  A  favorable  climate, — ^This  has  also  an  influence  which  is  dis- 
cernible in  the  localization  of  industries.  The  influence  of  a  moist 
climate,  which  is  also  even  throughout  the  day,  upon  cotton  spinning 
in  New  Bedford  and  Fall  River,  Mass.,  is  a  conspicuous  instance. 
More  often,  however,  the  advantage  of  a  favorable  climate  makes 
itself  felt  through  its  invigorating  effect  on  labor. 

5.  A  supply  of  labor. — ^Two  other  advantages  must  be  mentioned, 
for  there  are  times  when  they  have  considerable  weight.  These  are 
the  supply  of  labor  and  the  supply  of  capital  and  credit  facilities. 
The  "supply  of  labor"  is  something  far  from  mobile.  It  is  very 
human,  with  all  the  attachments  of  home  and  friends.  It  can  be 
easily  lured  into  a  new  industry  which  is  established  "at  home"  or 
near  by,  but  the  wages  paid  must  be  considerably  greater  to  attract 
it  into  other  sections.  Manufacturing  industries  tend,  therefore,  to 
become  established  in  a  section  where  there  is  a  good  supply  of  labor. 
The  New  England  towns  have  been  pre-eminently  of  this  t3T>e.  All 
about  them  were  farms  which  had  reached  the  point  of  exhaustion, 
and  could  therefore  employ  profitably  only  a  small  part  of  the  rising 
generation.  The  siuplus  labor  thus  created  gravitated  naturally  to 
the  nearest  town  in  search  of  employment  and  the  early  development 
of  numerous  manufactures  was  thus  made  easy.  For  opposite  reasons 
there  can  be  no  extensive  manufacture  in  those  parts  of  the  West 
where  the  increasing  population  is  mostly  absorbed  in  agriculture, 
which  is  still  incompletely  developed. 


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THE  ORGANIZATION  OF  INDUSTRY  193 

6.  A  supply  of  capital. — It  is  almost  equally  important  to  have  a 
supply  of  local  capital.  Although  most  large  enterprises  are  now 
financed  from  the  great  financial  centers,  the  plants  are  located  usually 
in  places  which  have  already  become  industrial  centers  in  a  smaller 
way  through  the  efforts  of  the  people  there,  and  by  means  of  their 
money.  The  cotton  mills  which  are  springing  up  through  the  South 
just  now  illustrate  the  tendency  of  a  town  to  own  itself  in  the  early 
stages  of  its  industrial  life,  and  Fall  River  affords  a  most  remarkable 
illustration  of  the  perseverance  of  this  tendency.  A  prosperous  town, 
therefore,  where  the  people  are  "making  money,"  is,  in  so  far,  a 
favorable  locality  for  the  establishment  of  manufacturing  industries 
of  some  sort.  Outside  capital  will  undoubtedly  be  solicited,  but  it 
will  be  obtained  more  easily  and  more  surely  after  the  people  them- 
selves "have  taken  largely  of  the  stock."  Banking  facilities  exert  a 
similar  influence,  making  the  community's  capital  more  available  for 
investment  than  it  would  otherwise  be.  All  of  these  considerations 
have  operated  to  favor  the  early  development  of  manufacturing  cen- 
ters in  New  England  and  the  Middle  Atlantic  states,  agricultiu'e 
absorbing  a  large  share  of  the  available  local  capital  in  the  southern 
and  western  states.  One  of  the  causes  which  led  to  the  establishment 
of  the  cotton  manufacture  in  New  Bedford  about  1850  was  the  supply 
of  local  capital  set  free  about  that  time  by  the  decline  in  the  whaling 
industry. 

7.  The  mofnetUum  of  an  early  start, — ^The  various  advantages 
which  have  been  described  thus  far  can  be  expressed  in  dollars  and 
cents.  The  places  possessing  these  advantages  attract  manufacturers 
on  account  of  the  comparatively  low  cost  there  of  producing  and 
marketing  goods.  But  these  advantages,  in  almost  all  cases,  account 
for  localization  only  in  its  broader  sense.  They  prescribe  an  industry's 
possible  area,  but  they  fail  to  explain  the  most  marked  form  of 
localization — that  within  a  single  city  or  town,  or  group  of  cities 
and  towns. 

Somewhere  within  the  possible  area — ^made  such  because  of  the 
advantages  just  described — an  enterprising  man  started  the  pioneer 
establishment  of  a  certain  industry.  Why  was  this  place  chosen 
rather  than  any  other  within  the  possible  area?  Or  why  was  this 
industry  chosen  rather  than  any  other  for  which  this  place  was  suited  ? 
This  is  the  first  problem,  and  the  second  follows  naturally:  Why, 
after  the  first  factory  had  become  established,  was  it  to  the  advantage 
of  competitors  to  choose  the  same  spot  for  their  establishments,  rather 


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194  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

than  other  localities  within  the  possible  area  ?  The  solution  of  the 
first  problem  in  the  case  of  any  industry  is  to  be  found  by  reference 
to  its  early  history  in  this  country. 

In  most  cases  it  will  be  foimd  that  the  original  establishment  of 
an  industry  in  a  locality  was  largely  a  matter  of  chance.  The  shoe 
industry  in  Lynn,  Mass.,  is  a  case  in  point.  In  the  early  colonial 
days  this  settlement  had  its  quota  of  cobblers,  who  made  as  well  as 
repaired  the  shoes  for  the  region  thereabout,  but  did  not  attempt  a 
broader  market.  In  1750,  however,  John  Adams  Dagjrr,  a  Welshman 
and  a  skilled  shoemaker,  settled  in  L3mn,  and  began  to  teach  his 
apprentices  the  art  of  fine  shoemaking.  It  soon  became  known  that 
shoes  were  being  made  in  Lynn  nearly  as  good  as  the  best  made 
abroad,  and  as  early  as  1764  Dagyr  was  spoken  of  in  a  Boston  news- 
paper as  "the  celebrated  shoemaker  of  Essex."  Had  this  man  settled 
in  Roxbury,  Mass.,  rather  than  Lynn,  the  bias  toward  shoe  manufac- 
turing might  have  become  established  in  that  quarter,  and  Roxbury 
instead  of  Lynn  might  today  be  one  of  the  three  great  shoe  centers 
of  the  United  States. 

The  nature  of  many  a  city's  industry  has  been  shaped  in  just  this 
way,  in  the  early  days  of  its  history,  by  the  decision  of  one  man. 
Instances  of  this  might  be  dted  in  connection  with  the  localization 
of  collars  and  cuffs,  hosiery  and  knit  goods,  jewelry,  gloves,  and 
fiu:  hats. 

The  decision  of  the  pioneer  in  an  industry  at  a  given  point  rests 
on  various  groimds.  He  establishes  usually  an  industry  with  which 
he  is  familiar  because  of  experience  obtained  elsewhere.  Several  of 
the  above  selected  industries  have  been  established  in  their  respective 
localities  by  the  emigration  from  Europe  of  individual  skilled  work- 
men or  groups  of  skilled  workmen.  The  town  where  such  a  man 
chances  to  settle  is  taken  for  a  location  of  the  industry,  in  most  cases, 
without  much  questioning  whether  or  not  it  is  better  adapted  for  it 
than  any  other  town.  But  if  he  searches  for  a  suitable  place,  his 
chance  acquaintance  with  one  locality,  or  the  offer  of  a  friend  to  assist 
him  if  he  establishes  there,  often  influences  his  decision  at  the  expense 
of  another  and  perhaps  more  suitable  locality  where  he  has  never 
visited,  or  where  no  acquaintance  appeared  to  offer  inducements. 
In  many  instances  towns  offer  inducements  to  manufacturers,  such 
as  exemption  from  taxation  for  a  period  of  years,  and  such  efforts 
have  often  been  successful  in  building  up  an  entirely  new  industry  in 
the  town. 


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THE  ORGANIZATION  OF  INDUSTRY  195 

But,  if  the  industry  is  to  be  perpetuated  and  to  increase  in  the 
locality,  the  original  establishment  must  succeed,  for  it  is  the  influence 
of  its  success  which  causes  other  establishments  to  spring  up  around 
it.  In  the  early  history  of  every  industry  numerous  enterprises  fail, 
not  so  much  because  of  the  unfitness  of  the  locality  chosen,  as  because 
of  the  unfitness  of  the  man  who  attempts  to  carry  on  the  industry  at 
that  point. 

8.  The  habU  of  industrial  imikUion. — ^It  is  only  after  the  first 
enterprise  has  succeeded  in  any  locality  that  the  real  localizing 
process  b^ins.  The  mainspring  of  this  process  is  the  habit  of  indus- 
trial imitation — a  habit  as  powerful  as  it  is  universal,  and  so  impor- 
tant in  this  connection  that  it  warrants  a  somewhat  closer  analysis. 

It  has  been  shown  above  that  one  of  the  normal  requisites  of  an 
industrial  locality  is  a  good  supply  of  local  labor  and  local  capital. 
Suppose  the  enterprising  man  establishes  himself  in  such  a  community 
and  succeeds  there.  His  success  proves  that  the  economic  conditions 
are  favorable — that  he  is  within  the  possible  area  of  that  industry. 
But  it  does  more,  it  creates  a  local  bias  toward  this  particular  industry. 
This  bias  affects  all  three  dasses  necessary  to  its  expansion:  entre- 
preneurs, capitalists,  and  laborers. 

In  the  first  place  entrepreneurs  naturally  choose  the  existing 
industry  rather  than  establish  a  new  one.  On  the  assumption  of  a 
prosperous  and  growing  town,  there  is  continually  arising  a  dass  of 
enterprising  men  who  wish  to  embark  in  manufacturing  for  them- 
sdves,  and  they  naturally  choose  an  industry  with  which  they  are 
familiar — one  which  they  have  actually  seen  succeed.  It  requires 
courage  to  be  an  industrial  pioneer;  more  coiurage,  in  fact,  than  most 
men  possess.  They  have  read,  perhaps,  of  much  larger  profits  being 
made  in  branches  of  manufacturing  not  carried  on  in  their  neighbor- 
hood; they  may  have  visited  towns  in  another  part  of  the  coimtry 
where  some  such  industry  has  been  very  successful,  and  they  are 
tempted  to  establish  this  industry  in  their  town,  rather  than  to  imi- 
tate the  establishment  which  has  been  operating  there  successfuUy. 
The  chances  are  great,  however,  that  they  will  resist  the  temptation 
of  larger  profits  in  favor  of  what  they  regard  as  surer  profits,  and  will 
choose  the  local  industry.  The  other  industry  may  be  just  as  safe, 
but  the  probability  of  success,  if  they  follow  the  beaten  path,  has  been 
emphasized  to  them  each  day  as  they  have  watched  the  smoking 
chimney  of  the  local  factory,  and  have  noticed  the  rise  of  the  pro- 
prietor from  moderate  drciunstances  to  comparative  affluence.    Their 


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196  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

choice  of  this  industry  becomes,  therefore,  almost  inevitable.  More- 
over, it  is  probable  that  the  men  who  thus  launch  out  for  themselves 
have  been  employes  or  foremen  in  the  local  factory.  They  are  rela- 
tives, perhaps,  of  the  proprietor,  and  are  familiar  with  all  the  details 
of  this  industry,  while  in  any  other  they  would  have  all  to  learn. 
This  last  featiure  has  been  illustrated  in  fuUy  half  of  the  industries 
specified  above. 

In  the  second  place,  the  capital  needed  to  finance  the  new  estab- 
lishment— ^in  addition  to  that  supplied  by  the  new  entrepreneur  him- 
self— ^is  much  more  easily  obtained  if  the  new  establishment  is  to 
produce  the  same  line  of  goods  as  the  one  already  in  exbtence.  If  a 
loan  is  desired  for  the  establishment  of  an  outside  and  less  familiar 
industry,  there  is  naturally  a  raising  of  the  interest  rate  as  a  means  of 
insurance;  or  the  stock,  if  offered  for  sale,  will  for  the  same  reason 
sell  at  a  lower  figure.^ 

In  the  third  place,  the  best  grade  of  local  labor  prefers  to  have 
employment  in  an  industry  which  seems  to  offer  a  f utiure  rather  than 
in  one  which  seems  in  the  nature  of  an  experiment.  This  influence 
is  comparatively  slight,  however,  for  all  ordinary  labor  takes  such 
employment  as  is  offered  without  much  questioning. 

9.  Economic  advantages  of  specialized  centers. — ^All  the  above  deci- 
sions— the  decision  of  the  pioneer  in  the  industry,  and  the  decisions 
of  the  few  who  follow  immediately  in  his  steps — seem  to  be  made  with 
but  little  consideration  of  the  economic  advantages  which  the  locality 
chosen  may  possess  for  carrying  on  the  industry  in  question,  i.e.,  the 
possibility  of  producing  cheaper  at  this  point  than  elsewhere,  or  being 
better  able  there  to  market  the  products.  Very  quickly,  however, 
certain  decided  economic  advantages  emerge.  Workmen,  skilled  in 
the  specialty  for  which  the  center  begins  to  be  known,  flock  there  and 
wait  their  chance  "to  be  taken  on  at  one  of  the  mills."  In  many 
cases  an  immigration  of  skilled  labor  from  corresponding  centers 
abroad  sets  in.  East  Liverpool,  Ohio,  was  at  one  time  chiefly  an 
English  town  as  the  result  of  such  inunigration.    A  pool  of  specially 

'  The  opposition  of  the  manufacturer  or  the  manufacturers  already  established 
in  the  industry  must,  however,  be  counted  on  in  many  cases,  especially  if  the 
products  made  are  for  sale  in  a  comparatively  limited  market.  As  far  as  such 
opposition  seems  likely  to  develop,  the  advantage  above  described  is  counteracted, 
local  investors  becoming  doubtful  regarding  the  safety  of  their  money  under  such 
circumstances. 


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skilled  labor  is  thus  formed  which  acts  as  a  powerful  inducement  to 
the  expansion  of  the  industry  from  within,  while  at  the  same  time  it 
draws  prospective  manufacturers  to  this  center  from  without. 

The  use  of  machinery  has,  however,  tended  to  lessen  the  impor- 
tance of  a  specially  skilled  labor  supply.  In  proportion  as  an  industry 
*  becomes  automatic,  its  localization  becomes  independent  of  its  supply 
of  special  labor.  It  is  interesting  to  note  in  this  connection  that  six  of 
the  fifteen  industries  selected  for  study  on  account  of  their  marked 
localization  are  industries  in  which  handwork  constituted  for  many 
years  the  most  important  part  of  the  operations.  In  some  instances, 
such  as  the  glove,  collar,  and  hat  manufacturing,  handwork  is  still 
an  important  factor,  while  in  the  manufacture  of  boots  and  shoes 
handwork  persisted  to  a  large  extent  as  late  as  1870. 

In  a  specialized  conununity  of  this  sort  the  contact  of  workmen 
and  employers  with  each  other  results  in  a  mutual  improvement  in 
manufacturing  methods.  Laborers  "talk  shop"  more  or  less  when 
not  at  work,  and  the  devices  adopted  in  one  establishment  for  making 
the  work  easier  are  soon  adopted  in  all.  Similarly,  it  is  easy  for  a 
manufacturer  in  such  a  place  to  note  the  experiments  with  patented 
improvements  carried  on  in  another  establishment,  and  to  adopt  such 
improvements  just  as  soon  as  their  value  is  demonstrated,  by  pa3ang 
the  royalty  demanded. 

In  the  course  of  time  another  advantage  arises  in  such  a  specialized 
center — the  possibility  of  subdividing  the  processes  of  manufacture 
among  several  establishments — a  division  of  labor  among  employers. 
In  the  Massachusetts  shoe  cities,  for  example,  there  are  establish- 
ments which  make  only  uppers,  and  others  which  make  only  "findings" 
(coimters,  shanks,  heel  stiffeners,  etc.).  Soon,  also,  subsidiary  indus- 
tries spring  up  for  the  supply  of  the  special  machinery  and  tools 
required.  As  a  result,  new  and  up-to-date  tools  and  machinery  may 
be  had  in  such  centers  with  the  least  possible  delay,  and  existing 
machinery  may  be  kept  continually  in  repair. 

Thus  a  town's  specialization  increases  its  supply  of  specialized 
labor  and  specialized  machinery.  These,  in  turn,  react  to  increase 
the  specialization  of  the  town.  Success  breeds  success  in  an  almost 
geometrical  ratio.  Cause  and  eflfect  propel  each  other  in  a  continuaUy 
expanding  circle,  the  self-created  local  advantages  becoming  in  time 
so  powerful  that  they  entirely  neutralize  the  greater  general  advan- 
tages of  location  which  other  localities  may  have  come  to  possess. 


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198  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

56.  THE  DIVISION  OF  LABOR  IN  PIN-MAKING« 

To  take  an  example,  therefore,  from  a  very  trifling  manufacture, 
but  one  in  which  the  division  of  labor  has  been  very  often  taken 
notice  of,  the  trade  of  the  pin-maker;  a  workman  not  educated  to 
this  business  (which  the  division  of  labor  has  rendered  a  distinct 
trade),  nor  acquainted  with  the  use  of  the  machinery  employed  in  it 
(to  the  invention  of  which  the  same  division  of  labor  has  probably 
given  occasion),  could  scarce,  perhaps,  with  his  utmost  industry, 
make  one  pin  in  a  day,  and  certainly  could  not  make  twenty.  But 
in  the  way  in  which  this  business  is  now  carried  on,  not  only  the 
whole  work  is  a  peculiar  trade,  but  it  is  divided  into  a  number  of 
branches  of  which  the  greater  part  are  likewise  peculiar  trades.  One 
man  draws  out  the  wire,  another  straights  it,  a  third  cuts  it,  a  fourth 
points  it,  a  fifth  grinds  it  at  the  top  for  receiving  the  head;  to  make 
the  head  requires  two  or  three  dbtinct  operations;  to  put  it  on  is 
a  peculiar  business,  to  whiten  the  pins  is  another;  it  is  even  a  trade 
by  itself  to  put  them  into  the  paper;  and  the  important  business  of 
making  a  pin  is,  in  this  manner,  divided  into  about  eighteen  distinct 
operations,  which,  in  some  manufactories,  are  all  performed  by  dis- 
tinct hands,  though  in  others  the  same  man  will  sometimes  perform 
two  or  three  of  them.  I  have  seen  a  small  manufactory  of  this  kind 
where  ten  men  only  were  employed,  and  where  some  of  them  conse- 
quently performed  two  or  three  distinct  operations.  But  though 
they  were  very  poor,  and  therefore  but  indifferently  accommodated 
with  the  necessary  machinery,  they  could,  when  they  exerted  them- 
selves, make  among  them  about  twelve  poimds  of  pins  in  a  day. 
There  are  in  a  poimd  upward  of  four  thousand  pins  of  a  middling 
size.  Those  ten  persons,  therefore,  could  make  among  them  upward 
of  forty-eight  thousand  pins  in  a  day.  Each  person,  therefore, 
making  a  tenth  part  of  forty-eight  thousand  pins,  might  be  considered 
as  making  four  thousand  eight  hundred  pins  in  a  day.  But  if  they 
had  all  wrought  separately  and  independently,  and  without  any  of 
them  having  been  educated  to  this  peculiar  business,  they  certainly 
could  not  each  of  them  have  made  twenty,  perhaps  not  one  pin  in  a 
day;  that  is,  certainly,  not  the  two  hundred  and  fortieth,  perhaps 
not  the  four  thousand  eight  hundredth  part  of  what  they  are  at 
present  capable  of  performing,  in  consequence  of  a  proper  division 
and  combination  of  their  different  operations. 

>  From  Adam  Smith,  The  WeaUh  of  Nations,  Book  I,  chap.  i. 
[For  a  description  of  modem  machine  methods  in  pin-making  see  Selection 
4a.— Editoks.) 


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199 


57.  DIVISION  OF  LABOR  IN  MEAT  PACKING^ 

Notwithstanding  the  high  skill  required,  the  proportion  of  skilled 
workmen  in  the  butchers'  gang  is  very  small,  owing  to  a  minute 
division  of  labor.  It  would  be  diflicult  to  find  another  industry  where 
division  of  labor  has  been  so  ingeniously  and  microscopically  worked 
out.  The  animal  has  been  sxirveyed  and  laid  off  like  a  map;  and  the 
men  have  been  classified  in  over  thirty  specialties  and  twenty  rates  of 
pay,  from  16  cents  to  50  cents  an  hour.  The  so-cent  man  is  restricted 
to  using  the  knife  on  the  most  delicate  parts  of  the  hide  (floorman) 
or  to  using  the  axe  in  splitting  the  backbone  (splitter);  and,  wherever 
a  less  skilled  man  can  be  slipped  in  at  18  cents,  18^  cents,  20  cents,  21 
cents,  22^  cents,  24  cents,  25  cents,  and  so  on,  a  place  is  made  for  him, 
and  an  occupation  mapped  out.  In  working  on  the  hide  alone  there 
are  nine  positions,  at  eight  different  rates  of  pay.  A  20-cent  man 
pulls  off  the  tail,  a  22^-cent  man  poimds  off  another  part  where  the 
hide  separates  readily,  and  the  knife  of  the  40-cent  man  cuts  a  different 
texture  and  has  a  different  "feel"  from  that  of  the  so-cent  man. 
Skill  has  become  specialized  to  fit  the  anatomy. 

In  this  way,  in  a  gang  of  230  men,  killing  105  cattle  an  hour,  there 
are  but  11  men  paid  50  cents  an  hour,  3  men  paid  45  cents,  while  the 
number  getting  20  cents  and  over  is  86,  and  the  number  getting  under 
20  cents  is  144,  as  follows: 

Typical  Crew  of  Cattle  Butchers  and  Helpers 

Rate  of  pay  per  hour  No.  of  men  at  rate 

II 

3 

S 

6 

2 

2 

4 

6 

6 

I 

16 

4 

20 

5 

15  to  18  cents 139 


so  cents 

45 

40 

32i 

31* 

30 

26i 

25 

24 

22^ 

21 

20 

iH 

Average  21  Total 230 

'From  John  R.  Commons,  "Labor  Conditions  in  Meat  Packing  and  the 
Recent  $trike,"  in  The  Quarterly  Journal  oj  Economics,  XDC,  3-4. 


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200  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

S8.     DIVISION  OF  LABOR  IN  THE  SHOE-MAKING  INDUSTRY' 

In  the  cutting-room  the  parts  which  form  the  upper  are  cut  out. 
For  the  best  goods  this  is  done  with  a  hand  knife.  For  the  less  expen- 
sive classes  of  leather,  and  for  linings  and  gussets — ^which  are  usually 
cut  from  doth — a  die  is  used.  The  die-cutters  are  also  called  block- 
handSy  dinkers,  and  clickers,  A  skiver  works  in  the  fitting-  or  stitching- 
room,  and  skives  or  cuts  to  a  bevel  in  a  skiving  machine  the  edges  of 
the  pieces  for  the  uppers.  Cementers  or  pesters  put  cement  on  the 
skived  siu'faces  w}nch  folders  fold  over  and  stick  together  by  pressure 
either  in  a  machine  or  by  hand,  thus  producing  a  finished  instead  of 
a  raw  edge.  Upper-stitchers  include  all  workers  on  sewing-machines 
in  the  fitting-room,  whether  on  leather  or  linings.  An  eyelet-row 
stitcher  puts  stitching  on  the  quarter,  just  outside  the  place  where 
the  row  of  hooks  and  eyelets  will  be.  A  closer  stitches  or  closes  the 
quarters  together  at  the  back,  and  a  seam-rubber  or  seam-pounder 
smooths  this  seam  by  rubbing  or  pressing  it  out  as  flat  as  possible  on 
a  machine.  A  gore-  or  gusset-stitcher  stitches  in  gores  or  gussets  such 
as  appear  in  congress  boots.  A  lining-stitcher ,  lining-maker,  or  liner 
sews  together  the  different  pieces  of  the  lining,  and  a  closer-on  or 
in-seamer  stitches  the  lining  into  the  quarters.  When  the  vamps 
are  lined  separately  a  vamp-liner  does  the  work.  On  fine  work  a 
facing-stitcher  binds  the  lining  with  a  facing  of  leather.  A  beader 
operates  a  machine  of  the  same  name  which  presses  together  the 
seam  made  aroimd  the  top  of  the  quarters  by  closing  on.  A  top- 
stitcher  or  corder  runs  stitching  around  the  quarters  just  below  this 
seam,  through  the  quarter  and  lining.  A  buttonhole-machine  operator 
puts  the  quarters  for  button  shoes  through  her  machine,  which  makes 
a  cut,  lays  a  heavy  cord  around  the  edge,  and  stitches  over  the  cord 
and  through  the  edge,  making  a  buttonhole.  The  buttonhole-finisher* s 
machine  sews  down  that  part  of  the  heavy  cord  which  passes  from 
buttonhole  to  buttonhole.  The  buttons  are  sewed  on  by  hand  or  by 
machine,  or  are  fastened  on  with  wire  staples.  A  gang-punch  operator 
punches  the  holes  for  eyelets  in  laced  shoes.  An  eyeleter  or  fastener- 
setter  sets  in  the  eyelets  with  an  eyeleting  machine.  A  hooker  puts  in 
the  hooks  with  a  hooking  machine.  A  marker  or  tip-marker  marks  on 
the  vamp  the  place  where  the  tip  is  to  go,  and  a  tipper  or  tip-stitcher 
stitches  it  on;   sometimes  a  tip-paster  pastes  or  gxmis  the  tips  onto 

'Adapted  from  the  U.S.  Census  Special  Report  on  Employees  and  Wages 
(i903)»PP-  1 199-1201. 


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THE  ORGANIZATION  OF  INDUSTRY  201 

the  vamps  before  they  are  stitched.  A  perforaiar  perforates  the  edges, 
'  and  a  tip-fixer  glues  down  or  otherwise  adjusts  them.  A  vamp-closer 
stitches  the  two  ends  of  the  vamp  together  behind.  A  vamper  sews 
together  the  quarters  and  vamps.  A  barrer  or  stayer  stitches  back 
and  forth  through  the  edges  of  the  two  quarters.  A  heel-stay  stitcher 
and  an  eyelet-stay  stitcher  put  on  heel  stays  and  eyelet  sta)rs,  respec- 
tively, after  the  lining  has  been  closed  on.  A  fancy  stitcher  is  employed 
on  some  work  to  do  stitching,  which  serves  merely  as  decoration. 
A  foxing  stitcher  sews  to  the  back  of  the  vamp  of  some  shoes  a  piece 
of  leather  called  a  foxing.  On  iSne  work,  a  tongue-binder  binds  the 
edges  of  the  tongues  with  cloth  or  leather;  the  tongues  are  stitched 
into  place  by  tongue-stitchers,  A  strap-maker  makes  leather  strs^s 
for  ladies'  slippers,  or  straps  by  which  shoes  are  pulled  onto  the  foot. 
Table  workers  are  imskilled  operatives  who  do  such  work  as  gumming 
or  pasting,  tip  marking,  and  sewing  on  buttons,  by  hand,  at  tables 
in  the  stitching-room. 

In  the  sole-leather  room,  the  parts  which  are  to  form  the  bottom 
of  the  shoe  are  made.  These  parts  are:  outsoles,  half  soles,  and 
inner  soles;  heels,  composed  of  heel  lifts  and  top  lifts;  and  shanks. 
Each  of  these  parts  is  cut  by  a  cutter  designated  by  the  particular 
part  he  cuts,  the  work  being  done  with  dieing-out  machines  like 
those  used  in  the  cutting-room.  The  outsole-cutter  takes  a  side  of 
sole  leather  and  cuts  the  best  parts  of  it  into  outsoles;  what  cannot 
be  used  for  these  goes  to  the  half-sole  cutter,  then  in  turn  to  the  inner- 
sole,  top-lift,  and  heel-lift  cutters.  Sole-cutters  and  top-lift  cutters 
have  to  use  good  judgment  in  deciding  what  parts  of  a  side  of  leather 
are  fit  for  the  different  soles  and  for  the  top  lifts.  A  stock-sorter 
selects  the  stock  for  the  various  orders,  an  occupation  requiring  skill 
acquired  only  by  long  experience.  A  rander  makes  the  rand — a 
horseshoe-shaped  piece  of  leather  used  to  make  the  heel  fit  the  curve 
of  the  shoe  bottom.  A  splitter  runs  the  soles  through  a  splitting 
machine,  which  reduces  them  to  a  imiform  thickness  by  splitting  a 
thin  slice  from  the  flesh  side.  A  rounder  rounds  them  in  a  rounding 
machine.  A  channeler  cuts  a  groove  or  channel  in  the  outsoles  and 
inner  soles  a  short  distance  inside  the  edge.  A  stock-wetter  or  damper, 
by  immersing  the  leather  in  water  for  a  short  time,  brings  it  to  the 
temper  required  for  the  successful  cutting  of  the  channel.  The 
stitching  of  the  soles  is  done  through  the  floor  of  this  channel,  the  leaf 
of  leather  made  in  cutting  the  channel  having  been  turned  back  out 


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202  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

of  the  way  of  the  needle  by  a  channd-turner,  A  sole-skiver,  working 
with  a  skiving  or  scarfing  machine,  skives  the  back  edges  of  the  half 
soles,  which  are  to  lie  between  the  outsoles  and  the  inner  soles,  so  that 
they  shall  fit  the  angle  where  these  come  together.  A  feather-edger 
skives  the  shanks  of  the  outer  sole.  Stock-fiUer  is  a  general  term  for 
an  operative  who  does  any  of  several  operations  in  fitting  the  soles 
and  heels.  A  half-sole  fitter  cements  the  half  sole  to  the  outsole. 
A  sole-mclder  places  the  soles  one  at  a  time  on  the  metal  form  of  a 
molding  machine,  molding  them  into  the  shape  required  for  the 
finished  shoe.  A  roUer  passes  the  soles  between  heavy  steel  rollers, 
which  compress  and  level  them.  A  heel-maker  or  tacker  assembles 
the  several  heel  lifts,  with  the  exception  of  the  top  lift,  presses  them 
together  in  a  heel-building  machine,  and  drives  a  few  tacks  through 
them.  A  heelr-campressor  molds  them  into  shape  in  a  powerful 
machine.  In  the  poorer  grades  of  shoes  the  heel  is  made  of  scrap 
leather  and  leather  board  or  pulp.  The  composite  material,  called 
pancake,  is  made  by  an  operative,  usually  a  girl,  called  a  pancake- 
maker.  A  counter-cutter  cuts  out  on  a  machine  the  counters  which 
keep  the  back  of  the  vamp  in  place;  a  counter-skiver  skives  their 
edges,  and  a  counter-molder  with  a  powerful  machine  shapes  them 
between  steel  forms.  A  shank-cutter  cuts  with  a  die  that  part  of  the 
shank  which  is  composed  of  leather  or  leather  board. 

The  uppers  and  the  several  parts  which  form  the  bottoms  are 
brought  together  in  the  making-  or  bottoming-room.  A  bottomer 
is  any  operative  occupied  with  any  of  the  operations  in  the  bottom- 
ing of  a  shoe.  A  puller-over  fastens  an  inner  sole  with  one  or  two 
tacks  to  the  bottom  of  a  last.  Then,  taking  an  upper,  he  inserts 
the  counter  and  box  toe  in  their  places  under  the  lining  and  draws 
the  upper  over  the  last.  A  laster  is  a  skilled  man  who,  with  the  aid 
of  a  lasting  machine,  pulls  the  upper  down  over  the  inner  sole  evenly 
and  firmly,  and  tacks  it  all  the  way  around  the  sole.  A  shanker 
tacks  the  shank  in  place,  cuts  away  the  superfluous  upper  leather 
gathered  imder  the  toe,  beats  the  edge  of  the  upper  out  as  flat  as  pos- 
sible wherever  it  is  gathered,  and  draws  out  the  tacks  which  hold 
the  inner  sole  to  the  last.  If  a  shoe  is  to  be  made  by  the  Goodyear 
or  welt  S)rstem,  a  Goodyear  welter  or  welt-sewer  sews  on  a  welt  aroimd 
the  bottom  of  the  shoe.  A  welt-butter  butts  or  joins  welts  on  Good- 
year and  hand-sewed  shoes.  A  joiner  joins  the  ends  of  the  welt 
when  it  is  run  around  the  heel.  A  sole-filler  fills  the  space  inclosed 
by  the  welt,  which  would  form  an  air  space  if  the  outsole  were  put 


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THE  ORGANIZATION  OF  INDUSTRY  203 

on  immediately,  with  a  piece  of  tarred  felt,  or  with  a  paste  of  ground 
cork  and  cement.  A  sole-layer  or  stacker  lays  the  outsole  in  cement 
on  the  bottom  of  the  shoe  and  firmly  presses  it  in  a  machine.  A 
Goodyear  stitcher  sews  the  outsole  to  the  welt.  A  rough  rounder 
operates  a  machine  of  the  same  name,  which  cuts  down  the  outsole 
to  the  shape  of  the  last.  After  the  stitching  a  channel-cementer 
brushes  cement  into  the  channel.  A  leveler  or  heater-out  then  presses 
down  the  leaf  of  the  channel  by  rubbing  over  it  a  piece  of  steel  and, 
by  pressing  out  or  leveling  the  bottom  in  a  machine,  gives  the  sole 
the  shape  it  is  to  take  in  the  finished  shoe. 

The  shoe  now  has  all  its  parts.  The  rest  of  the  work  in  the 
making-room  consists  in  trinmiing  the  edges  of  the  soles  and  heels 
aivi  preparing  them  for  the  finishing.  For  the  sake  of  clearness, 
the  operations  on  the  soles  will  be  considered  consecutively,  then 
those  on  the  heels.  An  edger  or  edge-trimmer  trims  smooth  the 
forepart  edges  or  edges  of  the  sole  on  a  revolving  cutter.  A  prick- 
stitcher  brings  into  prominence  the  stitches  on  the  surface  of  the 
projecting  sole,  using  a  small  machine  with  which  little  grooves  are 
impressed  between  the  stitches.  A  heel-slugger  drives  into  the  heel 
a  row  of  steel  or  brass  nails.  A  heel-trimmer  or  shaver  trims  or  shaves 
the  curved  edge  of  the  heel.  A  heel-scourer  sandpapers  the  heel, 
the  sandpaper  being  attached  to  the  circumference  of  a  wheel.  A 
heel-breaster  cuts  smooth  the  front  of  the  heel  with  a  knife  driven 
by  a  foot  lever.  In  the  bottom-finishing  room  a  bottomr-sander,  buffer, 
scourer,  or  cuffer  sands,  buffs,  or  scours  the  bottoms  of  the  soles  and 
heels  with  a  revolving  roll  covered  with  sandpaper.  Naumkeag- 
machine  operators,  with  a  Naumkeag  machine,  treat  the  shanks  in 
the  same  way.  Blackers  include  all  who  blacken,  paint,  or  stain  the 
top,  edges,  or  bottom  of  shoes  in  the  final  processes.  An  edge-blacker, 
a  boy,  applies  blacking  or  ink  to  the  edges  with  a  brush.  An  edge- 
setter  sets  the  edges  with  a  block  of  steel  cut  to  fit  the  edge  and  heated 
by  gas  or  by  friction.  A  heel-blacker  blacks  the  edge  of  the  heel. 
A  bottom-  or  shank-blacker  or  painter  blackens  or  paints  the  soles,  the 
bottoms  of  the  heels,  and  the  shanks.  A  burnisher,  shank-burnisher, 
or  shank-fakir  burnishes  the  better  class  of  blacked  bottoms  by  rubbing 
them  with  a  heated  hand  iron.  A  bottom-finisher  polishes  both  painted 
and  blacked  surfaces  with  revolving,  cloth-covered  rolls  and  revolving 
brushes.  On  some  shoes,  bottom-gummers  place  a  thin  coat  of  gum 
solution  before  the  last  polishing,  thus  giving  a  smooth  hard  finish. 
Stamping-machine  operators,  impress  a  name,  trade-mark,  or  design 


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204  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

of  some  kind  on  the  soles  of  many  shoes.  A  wheeler  runs  a  small 
cogged  wheel  around  the  upper  edge  of  the  heels  of  most  shoes  and 
the  soles  of  many,  thus  leaving  the  imprint  of  its  cogs. 

In  the  upper-finishing  and  packing-room  a  Ireer  puts  the  shoe 
on  a  horizontal  form  and  applies  a  paste  dressing  to  the  upper, 
rubbing  it  in  thoroughly  with  a  stick.  A  dresser y  brusher,  or  polisher 
dresses  and  polishes  the  shoes  with  revolving  power  brushes.  A 
cleaner  cleans  the  kid  uppers  of  men's  and  women's  fine  shoes  with 
water  on  the  revolving  brush,  and  then  nearly  all  are  ironed  while 
on  a  tree  by  an  ironer  who  rubs  a  hot  iron  over  them,  in  order  to  make 
them  stand  up  and  give  them  form.  All  these  operatives  are  col- 
lectively csilled  finishers.  A  sock-liner  puts  in  the  sock  and  heel  linings, 
which  are  pieces  of  thin  leather  or  cloth  gummed  to  the  inside  of  the 
shoe  bottom.  A  stringer  or  lacer  laces  the  shoes,  or  a  butioner  buttons 
them.  Inspectors  look  over  the  finished  shoes,  and  wrappers  wrap 
them  in  paper  and  place  them  in  paper  boxes  or  cartons.  Labelers 
paste  on  the  carton  labels,  packers  put  the  goods  in  cases,  and  they 
are  shipped  by  shippers,  A  bench-hand  is  a  hand  sewer  at  a  bench, 
or  one  who  does  any  hand  mending  or  repairing  that  is  necessary. 
In  this  category  are  cobblers^  toe-repairers,  hand  heel-shavers^  etc. 


B.    MANAGEMENT 
59.    THE  PROBLEM  OF  THE  BUSINESS  MAN 

The  statement  that  the  great  majority  of  business  enterprises 
result  in  failure  is  sufficiently  startling,  but  it  is  not  a  statement 
which  is  likely  to  be  questioned  by  anyone  who  really  appreciates 
the  complexity  of  the  problem  of  the  business  man.  One  way  of 
stating  that  problem  is  to  say  that  all  business  consists  of  two  ele- 
ments: production  of  goods  and  marketing  of  goods.  This  descrip- 
tive classification  in  itself  conveys  a  considerable  idea  of  complexity 
to  anyone  who  has  seen  any  of  the  modern  literature  on  Scientific 
Management,  or  who  has  seen  a  portion  of  the  material  on  scientific 
methods  of  distribution.  There  is,  however,  an  analytical  method 
of  stating  the  business  man's  task  which  serves  to  bring  out  more 
clearly  its  complexities.  The  problem  may  be  regarded  as  primarily 
the  mechanical  problem  of  combining  labor,  capital,  natural  resources, 
and  directive  skill  in  advantageous  proportions.  But  this  primary 
problem  is  indefinitely  complicated  by  the  fact  that  the  advantageous 
proportions  of  labor,  capital,  etc.,  are  constantly  changing  and  inde- 


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THE  ORGANIZATION  OF  INDUSTRY  205 

terminate  as  a  result  of  the  operation  of  the  laws  of  price  and  in 
consequence  of  progressive  methods. 

The  mechanical  problem  alone  is  exceedingly  complex,  as  is  suffi- 
ciently implied  by  a  mere  statement  of  the  law  of  diminishing  returns 
in  its  imiversal  application.  If  a  business  man  were  told,  "Take  any 
grade  or  grades  of  land  in  any  quantity  you  choose,  take  any  grade  or 
grades  of  labor  in  any  quantity  you  choose,  take  any  of  the  present 
forms  of  capital  in  any  quantity  you  choose,  and  set  up  an  organization 
which  will  be  of  maximum  efficiency,*'  his  problem  would  be  formid- 
able although  in  attacking  it  he  could  secure  expert  guidance  from  the 
mechanical  engineer,  for  after  all,  this  arrangement  of  the  productive 
factors  is  primarily  a  matter  of  mechanics.  Yet  however  intricate 
the  original  mechanical  problem  may  be,  it  suggests  but  the  beginning 
of  the  complications  in  which  the  business  man  finds  himself.  He  is 
not  able  to  take  any  grade  of  land  in  any  quantity  he  chooses;  he  may 
not  select  any  grade  of  labor  in  any  quantity  he  chooses;  he  may  not 
utilize  any  existing  form  of  capital  in  any  quantity  he  chooses,  but 
in  every  case,  the  element  of  price  enters,  and  he  is  forced  to  ask  him- 
self such  questions  as  these:  "Will  this  grade  of  land  for  which  I  must 
pay  X  dollars  be  better  for  me  than  that  grade  of  land  for  which  I 
must  pay  y  dollars  ?  Shall  I  use  this  grade  of  labor  at  this  given 
price,  or  would  it  be  better  for  me  to  use  another  grade  of  labor  at  a 
different  price  ?  Shall  I  use  this  particular  machine  at  this  price,  or 
shall  I  use  one  of  the  other  scores  of  machines  which  will  be  furnished 
me  at  different  prices?"  And  after  he  has  reached  some  solution  to 
these  questions,  he  learns  that  price  is  again  the  significant  consid- 
eration when  he  comes  to  disposing  of  his  product.  In  all  of  these 
price  intricacies,  the  business  man  is  pretty  much  the  victim  of  circum- 
stances. Unless  he  has  monopoly  power,  he  has  as  an  individual  very 
little  to  say  concerning  the  price  at  which  he  may  secure  any  factor 
of  production;  and  still  less  to  say  concerning  the  price  at  which  he 
may  dispose  of  his  product. 

Still  fiurther  complicating  the  business  man's  intricate  mechanical 
problem,  shot  through  and  through  as  it  is  with  the  variable  factor 
of  price,  we  must  recognize  another  variable:  the  influence  of  progress 
in  industrial  or  commercial  methods.  Changes  in  methods  may 
influence  and  very  likely  will  influence  practically  all  of  the  other 
variables  in  the  problem.  They  may  be  changes  which  the  business 
man  has  brought  about  from  an  intensive  study  of  his  own  business. 
They  may  be  changes  which  are  forced  upon  him  by  inventions  of 
new  equipment.    They  may  be  changes  forced  upon  him  by  some 


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2o6  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

revolution  in  the  methods  of  production  or  of  marketing  his  goods. 
The  chances  are  that  here  also  he  will  be  the  victim  of  circumstances. 
He  will  as  an  individual  have  little  influence  in  determining  the  course 
of  events,  but  the  slightest  misjudgment  of  the  actual  course  of  events 
means  for  his  business  only  one  possible  outcome:  failure. 

60.    PROBLEMS  OF  FARM  MANAGEMENT' 


Fiom  T.  N.  Carver,  Principles  of  Rural  Economics,  p.  223.    Ginn  &  Co., 
1911. 


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THE  ORGANIZATION  OF  INDUSTRY  207 

61.   THE  PRINCIPLES  OF  BUSINESS  ORGANIZATION* 

In  defining  business  organization,  we  must  not  take  for  our  unit 
of  measurement  a  complete  modem  corporate  institution.  We  must 
go  back  of  this  to  the  two  fundamental  elements  governing  all  business 
transactions  between  members  of  the  human  race.  These  two 
elements  we  can  class  simply  as  "producing"  and  "selling."  Any 
individual  or  any  body  of  individuals  doing  either  one  or  both  of  these 
things  becomes  a  business  organization.  Joining  together  these 
two  primal  elements  there  is  a  third  element  which  becomes  a  most 
important  factor  in  any  business.  This  can  be  described  \mder  the 
title  of  "  accoimting  "  or  "  reckoning."  When  a  farmer  raises  a  bushel 
of  turnips,  takes  them  to  market,  sells  them  and  records  the  trans- 
action in  the  back  of  the  family  almanac,  he  has  performed  all  the 
functions  of  a  business  organization. 

HOW  CONTROL  IS  VESTED  AND  EXERCISED  IN  BUSINESS 

Turning  now  from  the  analysis  of  the  functions  of  a  business  to 
an  examination  of  its  sources  of  authority,  we  find  a  variety  of  methods 
in  which  control  may  be  exercised.  In  every  organization  there  is  an 
ownership  element  which  constitutes  its  primal  authority  and  control. 
Fundamentally,  the  form  of  this  ownership  is  of  no  material  impor- 
tance, whether  it  is  vested  in  an  individual,  in  a  partnership  or  in  a  cor- 
poration of  stockholders.  The  essential  fact  is  that  this  ownership 
constitutes  the  fountain  head  of  all  business  organization,  and  sub- 
ordinate to  this  authority,  however  it  may  be  vested,  are  ranged  the 
three  departments  of  production,  accounting  and  selling,  by  which  the 
purposes  of  the  owning  power  are  put  into  effect.  The  form  of  any 
business  organization  so  far  as  developed  up  to  this  point  can  be 
Ulustrated  in  a  simple  diagram  such  as  shown  in  Form  i,  on  p.  208. 

Such  an  organization  is  characteristic  and  complete.  It  applies 
to  any  business  enterprise,  whether  the  yearly  volume  of  business  is 
nimibered  in  three  or  eight  figures.  The  comer  groceryman  who 
constitutes  his  own  business  organization  performs  all  the  functions 
of  the  great  department  store.  He  becomes  the  "production" 
division  when  he  buys  his  goods  from  the  wholesaler  and  prepares 
them  for  the  shelves.  He  becomes  the  "sales"  division  when  he 
writes  a  price  card  to  put  in  the  window  and  sells  some  of  the  goods  to 
a  customer  over  the  counter,  and  he  becomes  the  "accoimting" 
division  when  he  goes  to  his  desk  and  makes  an  entry  of  the  sales  in 

*  Adapted  from  Business  Administration ^  pp.  13-29.     The  System  Co.,  1909. 


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208 


MATERIALS  FOR  ELEMENTARY  ECONOMICS 


his  order  or  cash  book.     At  the  same  time  he  is  exercising  these  offices 
by  power  of  the  appointment  received  at  his  own  hands  as  owner. 

When  ownership  is  vested  in  one  individual,  the  matter  of  control 
and  authority  is  of  the  simplest  form.  The  owner  may  have  a 
factory  manager,  an  office  manager  and  a  sales  manager,  but  all 
three  divisions  are  under  his  absolute  control  and  dictation.  It  is 
possible  that  the  individual  owner  may  arrange  his  organization  so 
that  he  need  not  give  it  his  actual  personal  supervision  and  yet  retain 


>^CONTROL     >s^ 

y^              THROUGH                Xv 
y^             OVVNCRSHIP  BY                >. 

y^                1.    INDIVIDUAL                              ^Sw 

y^                       2.    PARTNCRSHIP.  OR                        ^V 

/^                                a.   CORPORATION                                              >v 

1 

1 

1                 1 

II 

1 
III 

PRODUCTION 

OR  SOURCE  or 
SUPPLY  by: 

ACCOUNTING  OR 

OFFICE  division:. 

selung: 
direct  and 

1.   ORIGINAL 

INCLUDING  ALL 

INDIRECT  MEANS 

PRODUCTION 

RECORDS  AND 

OF  BRINGING 
PRODUCT  TO  PUBUC 

2.    MANUFACTURE.  OR 

SYSTEMS  EMPLOYED 

NOTICE  AND  PLACING 

a    PURCHASE  FROM 

IN  CONDUCTING 

IT  IN  THE  HANDS 

OTHER  PRODUCERS 

THE  BUSINESS 

OF  THE  CONSUMER 

Form  i. — ^The  factors  fundamental  in  any  business  are  here  represented. 
Producing,  accounting,  and  selling  are  the  three  indispensable  mercantile 
activities,  over  which  control  is  exercised  by  some  fonn  of  ownership. 

a  cohesive  and  co-operative  administration.  This  can  be  done  by 
forming  an  executive  committee  made  up  of  his  division  managers, 
who,  while  retaining  their  respective  positions  in  the  organization, 
will  be  botmd  by  united  action  of  the  committee  on  all  important 
matters  of  business  policy,  the  owner  delegating  his  control  to  such  a 
committee  under  general  instructions. 

HOW  A  PARTNERSHIP  IS  FORMED 

In  a  partnership,  two  or  more  individuals  are  bound  into  one 


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THE  ORGANIZATION  OF  INDUSTRY 


209 


ment  is  in  legal  form  and  should  be  of  the  most  exact,  detailed  and 
binding  character  to  avoid  any  misunderstandings,  or  complications. 
This  legal  partnership  becomes  in  reality  the  controlling  ownership 
in  itself  and  the  members  of  the  firm  are  circumscribed  by  its  pro- 
visions. The  partnership  agreement  defines  the  shares  that  each 
member  of  the  firm  shall  have  in  the  conduct  of  the  business,  his 
duties,  the  voice  that  he  shall  have  in  deciding  any  matters  of  policy^ 
It  determines  the  division  of  profits,  the  proportionate  assessment 
for  losses,  and  the  manner  and  methods  by  which  the  business  shall 


A.  C.  JONES 

E.  B.  SMITH 

D.  F.  BROWN 

■^ 

...^^^^ 

^ 

^ 

FORM  BY  PARTNERSHIP 

AGREEMENT,  FIRM  OF 

JONES,  SMITH  &  BROWN 

^ 

^ 

-"""'^ 

- 

...^ 

JONES.  MGR. 

PRODUCTION 

DIVISION 

SMITH.  MGR. 

OFFICE 

DIVISION 

BROWN.  MGR. 
SELLING 
DIVISION 

FoKM  3. — This  chart  and  the  two  which  follow  represent  three  common 
methods  of  business  control  exercised  through  a  partnership.  In  this  case,  three 
partners  put  their  capital  together  and  manage  their  own  business,  each  member 
of  the  firm  taking  chaxge  of  one  department. 

be  conducted.  The  agreement  may  also  provide  for  a  receivership 
or  sale  of  the  respective  interests  in  case  of  vital  disagreement  among 
the  partners.  In  the  matter  of  determining  the  control  of  the  busi- 
ness, th^  partnership  agreement  may  provide  for  a  division  of  duties 
and  of  authority  among  the  various  partners  (Form  2),  or  delegate 
the  entire  management  to  one  of  the  partners  (Form  3),  or  all  the 
members  of  the  firm  may  form  an  executive  committee  under 
whose  general  control  and  authority  the  division  managers  carry  on 
the  business  (Form  4).  It  is  frequently  the  case  that  some  member 
of  the  firm  is  a  "silent  partner,"  known  to  the  world  only  under  the 
title  "and  Company." 


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2IO  MATERIAI.S  FOR  ELEMENTARY  ECONOMICS 


JONES,  SMITH   &    BROWN 

BOUND  BY  PARTNERSHIP  AGREEMENT 

DELEGATE   MANAGEMENT   TO 

BROWN 
GENERAL   MANAGER 

PRODUCTION    MGR 

OFFICE    MGR. 

SALES   MGR. 

Form  3. — ^In  this  partnership  arrangement,  two  members  of  the  firm  are  not 
actively  engaged  in  the  business.  By  a  general  agreement,  the  third  member  is 
placed  in  entire  charge,  with  authority  to  appoint  his  assistants,  at  the  head  of 
the  three  branches  of  the  work. 


n 

JONES.  SMITH   &  CO. 

BY   PARTNERSHIP  AGREEMENT 

COMPOSE   THE 

EXECUTIVE   COMMITTEE 
WHICH   APPOINTS 

r^ 

PRODUCTION    MGR 

OFFICE   MGR. 

SALES   MGR. 

Form  4. — ^In  this  partnership  scheme,  one  or  more  silent  partners  are  repre- 
sented by  the  word  "Company."  The  members  of  the  firm  here  exercise  general 
appointing  power  and  oversight,  while  delegating  everyday  control  to  their  chosen 
managers. 


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THE  ORGANIZATION  OF  INDUSTRY  211 

In  Form  4  it  will  be  noted  that  the  managers  of  the  producing, 
accounting  and  selling  divisions  are  given  the  actual  working  or  opera- 
tive authority  over  the  business,  under  guidance  of  a  committee  made 
up  of  the  partners  of  the  firm. 

Owing  to  the  various  advantages  of  a  corporation,  such  a  form  of 
ownership  is  best  adapted  to  modem  business  conditions.  Such 
ownership  also  permits  a  more  systematic  and  cohesive  organization 
and  more  successful  co-operation  of  the  working  parts  because  of  the 
definiteness  of  its  control  and  its  acciirate  and  fairly  defined  limits  of 
authority. 

In  a  corporate  organization,  ownership  is  vested  in  the  stock- 
holders of  record,  and  these  stockholders  are  bound  by  the  stock 
subscription  list,  the  articles  of  incorporation  and  the  constitution  and 
by-laws.  These  documents  provide  for  the  election  of  a  board  of 
directors,  an  executive  committee  and  various  officers,  to  whom  the 
administration  of  business  is  thus  delegated  by  vote  of  the  stock- 
holders.    Form  5  shows  the  analysis  of  a  corporate  organization. 

FORMATION  OF  AN  INCORPORATED  STOCK  COMPANY 

The  process  of  forming  an  incorporated  stock  company  is  some- 
what complex  and  varies  in  different  states.  The  general  plan,  how- 
ever, is  based  on  a  stock  subscription  list  to  which  those  who  wish  to 
become  stockholders  attach  their  signatures,  specifying  the  number 
of  shares  for  which  they  subscribe.  Heading  this  subscription  list 
is  the  form  agreement  stating  the  purposes  of  the  organization,  its 
name,  the  amoimt  of  capital  stock,  and  the  par  value  of  each  share. 
After  the  required  amount  of  capital  has  been  subscribed,  a  stock- 
holders' meeting  is  held,  at  which  a  constitution  and  by-laws  are 
adopted  and  directors  are  elected  who  subsequently  choose  the  officers. 
The  amoimts  subscribed  having  been  paid  in,  in  whole  or  in  part,  the 
state  charter  of  incorporation  may  then  be  obtained  and  the  company 
may  conunence  business. 

The  board  of  directors  may  arrange  the  further  details  of  organiza- 
tion as  it  sees  fit,  but  i£  frequently  transfers  its  authority  largely  to 
the  president,  who  may  become  the  general  manager.  Or  any 
director  or  an  outside  individual  may  be  appointed  by  the  directors 
as  general  manager  and  given  full  authority,  subject  to  the  board. 
The  board  may  elect  an  executive  conunittee  to  which  its  authority 
is  delegated,  and  in  some  cases  another  conunittee  is  chosen  as  an 
advisory  committee,  at  the  head  of  which  stands  the  general  manager 


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MATERIALS  FOR  ELEMENTARY  ECONOMICS 


This  advisory  committee,  in  most  large  institutions,  is  made  up  of  the 
general  manager,  who  is  closely  connected  with  the  operation  of  the  fac- 
tory and  the  organization  of  the  office;  the  treasurer,  who  is  interested 


STOCKHOLDERS 

BOUND  BY  ARTICLES  OF  INCORPORATION 
CONSTITUTION  AND  BY-LAWS 


BOARD  OF  DIRECTORS 


EXECUTIVE  COMMITTEE 


PRESIDENT 


GENERAL  MANAGER 

(APPOINTED  OR  ELECTED) 


OR  BUSINESS  MOR. 


PRODUCTION    MGR. 
OR  FACTORY  SUPT. 


SALES  MGR. 


Form  5. — ^The  usual  organization  plan  for  a  corporation  is  here  represented. 
A  nice  adjustment  of  authorities  to  duties  results  from  the  several  centers  of 
control,  each  with  a  definitely  limited  power. 

in  the  financial  work;  the  legal  advisor;  and  in  many  instances  some 
officers  of  the  banking  house  through  which  the  institution  conducts  its 


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213 


financial  work.    This  advisory  committee  is  able  to  meet  successfully 
the  diflSculties  of  administration  which  come  up  from  time  to  time. 

But  although  authority  is  passed  from  stockholders  to  directors, 
from  directors  to  an  executive  committee,  and  again  to  an  advisory 
committee,  there  must  be  some  positive  limitation  that  will  prevent 
any  of  these  bodies  violating  the  general  policy  of  the  institution. 
For  example,  one  of  the  largest  organizations  in  the  country  places  a 
limit  of  $10,000  upon  the  expenditures  which  can  be  made  by  the 
advisory  committee.  Any  expenditure  \mder  this  amoimt  could  not 
seriously  affect  the  policy  or  the  finances  of  the  company.    If  an 


STOCKHOLDERS 


DIRECTORS 


PRESIDENT 


X 


I  OCNCWALIIAMAOm 


lomce  MANAOCII 


•ALCS  MANAOCII 


1. 

1' 


Six 


FosM  6.— In  this  chart  are  shown  the  same  elements  of  corporate  oontiol  as 
in  Form  5.  Here,  however,  are  added  the  many  smaller  factors  that  are  more  or 
less  necessary  in  any  business,  arranged  according  to  their  duties  and  the  authority 
to  which  each  is  subordinated. 

expenditiure  between  $10,000  and  $25,000  is  to  be  made,  it  must 
first  be  approved  by  the  executive  committee,  and  if  an  expenditure 
of  more  than  $25,000  is  deemed  necessary,  it  must  be  passed  upon  by 
the  board  of  directors.  It  is  impracticable  for  any  unimportant 
details  of  such  a  business  as  this  to  pass  beyond  the  general  manager 
or  the  advisory  committee,  but  the  financial  limit  which  has  been 
placed  upon  their  actions  makes  it  impossible  for  any  step  of  a  serious 
nature  to  be  taken  unless  it  has  the  approval  of  the  executive  commit- 
tee, or,  in  the  most  vital  matters,  of  the  directors  themselves.    Thus 


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2i6  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

details  are  decided  by  the  lower  officials  and  only  questions  of  general 
policy  reach  higher. 

ALL  BUSINESS  ORGANIZATIONS  BASED  ON  ONE  PRINCIPLE 

The  details  of  the  business  organization  following  ownership  con- 
trol are  practically  the  same,  whatever  form  that  ownership  takes. 
No  matter  how  complicated  an  organization  may  appear,  when 
properly  analyzed  it  can  always  be  reduced  to  the  rudimentary  form 
shown  in  the  diagram:  that  is  to  say,  ownership  concentrating  its 
power  of  control  into  a  central  authority,  known  as  the  general 
manager,  whence  such  power  is  administered  through  the  medium 
of  three  executives  over  the  main  divisions  of  the  organization,  thus 
carrying  out  the  three  functions  of  the  business:  production,  account- 
ing and  selling. 

The  special  organization  of  these  three  divisions  varies  according 
to  the  nature  of  the  business,  its  size  and  the  perfection  of  the  system 
to  which  its  operation  has  been  reduced.  The  complete  ftmction  of 
each  division  which  will  be  performed  through  the  different  depart- 
ments of  work  may  be  so  closely  involved  as  to  make  their  separation 
not  easily  distinguishable.  Frequently  a  general  manager  is  his  own 
production  manager,  sales  manager  and  chief  accoimtant  combined, 
and  when  acting  as  such  performs  all  the  duties  of  the  minor  execu- 
tives of  each  division.  It  is  also  true  that  the  heads  of  divisions  or 
departments  are  sometimes  so  named  as  to  make  their  real  position 
in  the  organization  seem  imcertain.  For  example,  an  official  may 
hold  the  title  of  "business  manager"  and  have  charge  of  both  the 
accounting  and  sales  divisions,  when,  in  fact,  his  proper  title  is  that 
of  assistant  general  manager,  as  he  simply  represents  the  executive 
in  his  detail  work. 

THE  AUDITOR  AN  OFFICAL  OF  PECULIAR  INDEPENDENCE 

It  will  be  noticed  that  the  office  of  auditor  is  (see  Form  6) 
subordinate  only  to  the  board  of  directors.  The  position  of  auditor 
may  be  filled  in  either  one  of  two  ways.  There  are  at  present  large 
auditing  companies  which  from  time  to  time  go  over  the  work  of  an 
entire  business  organization  in  order  to  prove  the  accuracy  of  the 
work  in  each  department.  The  position  of  auditor  on  this  chart, 
however,  means  that  there  is  a  certain  official  retained  by  the  execu- 
tive conunittee  as  an  active  member  of  the  organization.  The 
work  which  the  auditor  performs  in  an  organization  of  this  kind 


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217 


is  usually  of  a  statistical  and  reportorial  nature,  such  as  drawing  up 
comparative  tables  of  the  work  done,  particularly  that  of  the  account- 
ing department.  For  this  reason  he  is  not  put  imder  the  general 
manager  nor  under  the  secretary  or  treasurer,  who  may  be  interested 
in  the  conduct  of  the  work,  but  keeps  an.  independent  p)osition  and  is 
responsible  only  to  the  executive  conunittee.  Only  in  this  way  can 
he  be  so  independent  that  he  can  criticize  either  favorably  or  unfavor- 
ably the  work  that  has  been  done.  He  must  be  able  to  act  without 
fear  or  bias,  and  bring  before  the  executive  committee  the  exact 
details  of  the  business  which  they  need  most  to  know.    They  have 


FoKM  8. — ^A  single  department,  that  of  accounting,  is  here  analyzed.  The 
line  at  the  left  represents  material  purchased  from  the  producer.  The  bill 
for  this  purchase  goes  to  the  records;  the  material  passes  to  the  stock  room  to  be 
met  by  orders  from  customers  and  shipped  in  satisfaction  of  these  sales. 

given  up  their  authority,  but  at  the  same  time  they  must  know  that 
the  trust  they  have  imposed  is  carried  out. 

THE  FUNCTIONS  OF  THE  CONTROLLER 

Another  important  official  whose  duties  demand  that  he  be  inde- 
pendent of  the  department  heads  is  the  controller.  Sometimes  the 
work  of  this  official  and  of  the  auditor  are  performed  by  the  same 
man,  but  the  functions  should  be  discriminately  named  if  not  sepa- 
rated in  fact.  The  controller  is,  as  his  title  suggests,  the  safety 
check  on  a  business.    He  has  absolute  control  over  disbursements 


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2i8  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

and  all  purchase  orders  are  submitted  to  him  before  leaving  the  office. 
He  also  may  check  the  work  of  the  plant  superintendent  if  he  thinks 
that  production  is  being  carried  on  too  rapidly  for  economy.  His 
power  of  limitation  extends  also  to  the  credit  manager,  whose  deci- 
sions on  the  extending  of  credit  he  may  review  and  reverse.  He  is 
accountable  only  to  the  board  of  directors  from  whom  he  receives  his 
authority. 

In  a  stock  corporation,  as  earlier  stat^,  the  officers  play  an 
inconspicuous  part  in  the  actual  operation  of  the  business,  and  yet, 
by  special  act  of  the  directors  or  by  authority  of  the  by-laws,  they 
may  become  active  elements  of  the  working  organization.  The 
president,  by  virtue  of  his  position,  is  at  the  same  time  chairman 
of  the  executive  committee.  Working  along  with  him,  with  authority 
received  from  the  same  source,  are  the  vice-president,  the  treasurer, 
and  the  secretary. 

The  vice-president  ordinarily  has  no  other  duties  than  to  take 
the  place  of  the  president  in  case  of  the  latter's  inability  to  perform 
his  usual  work.  However,  in  many  modem  organizations,  in  order 
that  the  vice-president  may  be  more  closely  associated  with  the 
organization  and  because,  in  many  instances,  he  is  financially  inter- 
ested to  a  large  extent,  he  also  acts  as  general  manager,  sales  manager, 
or  in  some  eqtlally  responsible  position. 

The  secretary  and  treasurer  may  have  charge  of  different  depart- 
ments of  the  office  work.  Where  these  offices  are  held  by  different 
men,  the  secretary  may  have  charge  of  the  general  stenographic  and 
office  work,  and  the  treasiu-er  may  have  oversight  of  the  accounting 
functions  which  are  closest  connected  with  the  finances  of  the  organi- 
zation. Officers  of  the  company  are  frequently  appointed  to  execu- 
tive positions  and  retain  their  corporation  titles,  while  in  reality  those 
titles  should  be  used  only  in  their  connection  with  the  stock  corpora- 
tion itself.  For  example,  the  treasurer  of  a  corporation  might  be 
appointed  to  or  given  the  position  of  a  controller,  and  his  work  in  the 
latter  capacity  might  be  done  under  the  title  of  treasurer  but  in 
reality  he  is  simply  controller  while  he  occupies  the  controller's  desk. 
In  large  corporations,  however,  the  secretary  and  treasurer,  instead 
of  directing  any  department,  will  be  busied  with  the  more  important 
statistical  and  financial  conduct  of  the  company. 


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THE  ORGANIZATION  OF  INDUSTRY  219 

62.  SCIENTIFIC  MANAGEMENT' 

I.    THE  FUNCTION  OF  SCrENTIFIC  MANAGEMENT 

In  the  past  the  prevailing  idea  has  been  well  expressed  in  the  sa)dng 
that  "Captains  of  industry  are  born,  not  made";  and  the  theory 
has  been  that  if  one  could  get  the  right  man,  methods  could  be  safely 
left  to  him.  In  the  future  it  will  be  appreciated  that  our  leaders 
must  be  trained  right  as  well  as  born  right,  and  that  no  great  man 
can  (with  the  old  system  of  personal  management)  hope  to  compete 
with  a  nimiber  of  ordinary  men  who  have  been  properly  organized 
so  as  efficiently  to  co-of)erate. 

This  paper  has  been  written: 

First.  To  point  out,  through  a  series  of  simple  illustrations,  the 
great  loss  which  the  whole  coimtry  is  suffering  through  inefficiency  in 
almost  all  of  our  daily  acts. 

Second.  To  try  to  convince  the  reader  that  the  remedy  for  this 
inefficiency  lies  in  systematic  management,  rather  than  in  searching 
for  some  imusual  or  extraordinary  man. 

Third.  To  prove  that  the  best  management  is  a  true  science, 
resting  upon  clearly  defined  laws,  rules,  and  principles,  as  a  founda- 
tion. And  further  to  show  that  the  fundamental  principles  of 
scientific  management  are  applicable  to  all  kinds  of  human  activities, 
from  our  simplest  individual  acts  to  the  work  of  our  great  corporations, 
which  call  for  the  most  elaborate  co-operation.  And,  briefly,  through 
a  series  of  illustrations,  to  convince  the  reader  that  whenever  these 
principles  are  correctly  applied,  results  must  follow  which  are  truly 
astounding. 

Under  the  old  type  of  management  success  depends  almost  entirely 
upon  getting  the  "initiative"  of  the  workmen,  and  it  is  indeed  a  rare 
case,  in  which  this  initiative  is  really  attained.  Under  scientific 
management  the  "initiative"  of  the  workmen  (that  is,  their  hard 
work,  their  good-will,  and  their  ingenuity)  is  obtained  with  absolute 
imiformity  and  to  a  greater  extent  than  is  possible  imder  the  old 
system;  and  in  addition  to  this  improvement  on  the  part  of  the  men, 
the  managers  assume  new  burdens,  new  duties,  and  responsibilities 
never  dreamed  of  in  the  past.  The  managers  assume,  for  instance, 
the  burden  of  gathering  together  all  of  the  traditional  knowledge 
which  in  the  past  has  been  possessed  by  the  workmen  and  then  of 
classif)dng,  tabulating,  and  reducing  this  knowledge  to  rules,  laws, 

*  Adapted  from  F.  W.  Taylor,  The  Principles  of  ScierUific  Management ^  passim. 
Harper  &  Brothers,  1913.     (Copyright,  191 1,  by  Frederick  W.  Taylor.) 


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226  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

and  formulae  which  are  immensely  helpful  to  the  workmen  in  doing 
their  daily  work.  In  addition  to  developing  a  science  in  this  way, 
the  management  take  on  three  other  types  of  duties  which  involve 
new  and  heavy  burdens  for  themselves. 

These  new  duties  are  grouped  imder  four  heads: 

First.  They  develop  a  science  for  each  element  of  a  man's  work, 
which  replaces  the  old  rule-of-thumb  method. 

Second.  They  scientifically  select  and  then  train,  teach,  and 
develop  the  workman,  whereas  in  the  past  he  chose  his  own  work  and 
trained  himself  as  best  he  could. 

Third.  They  heartily  co-operate  with  the  men  so  as  to  insure  all 
of  the  work  being  done  in  accordance  with  the  principles  of  the 
science  which  has  been  developed. 

Fourth.  There  is  almost  equal  division  of  the  work  and  the  respon- 
sibility between  the  management  and  the  workmen.  The  manage- 
ment take  over  all  work  for  which  they  are  better  fitted  than  the 
workmen,  while  in  the  past  almost  all  of  the  work  and  the  greater 
part  of  the  responsibility  were  thrown  upon  the  men. 

n.    SOME  OF  THE  PRINCIPLES  OF  SCIENTIFIC  MANAGEMENT  EXPLAINED 

[The  author  presents  many  cases  of  scientific  study  of  industrial 
methods;  for  example,  "time  studies"  of  the  movements  required 
by  a  workman  in  doing  each  part  of  his  work,  scientific  study  of 
the  proper  types  of  implements  to  be  used,  investigations  of  the 
tiring  effect  of  heavy  labor  upon  a  first-class  man,  to  determine  the 
"law"  governing  the  proportion  of  the  day  during  which  the  laborer 
may  wisely  be  "imder  load"  and  the  "law"  governing  the  frequency 
and  length  of  periods  of  rest,  etc.  Even  the  method  of  wage  payment, 
it  is  argued,  is  governed  by  "laws"  discovered  through  investigation 
of  the  motives  which  influence  men. — Editors.] 

Perhaps  the  most  important  law  belonging  to  this  class,  in  its 
relation  to  scientific  management,  is  the  effect  which  the  task  idea 
has  upon  the  efficiency  of  the  workman.  This,  in  fact,  has  become 
such  an  important  element  of  the  mechanism  of  scientific  management, 
that  by  a  great  number  of  people  scientific  management  has  come 
to  be  known  as  "task  management."  ....  The  average  work- 
man will  work  with  the  greatest  satisfaction,  both  to  himself  and  to 
his  employer,  when  he  is  given  each  day  a  definite  task  which  he  is 
to  perform  in  a  given  time,  and  which  constitutes  a  proper  day's 
work  for  a  good  workman.    This  furnishes  the  workman  with  a 


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THE  ORGANIZATION  OF  INDUSTRY  221 

dear-cut  standard,  by  which  he  can  throughout  the  day  measure  his 
own  progress,  and  the  accomplishment  of  which  affords  him  the 
greatest  satisfaction. 

The  writer  has  described  in  other  pap)ers  a  series  of  experiments 
made  upon  workmen,  which  have  resulted  in  demonstrating  the  fact 
that  it  is  impossible,  through  any  long  f)eriod  of  time,  to  get  workmen 
to  work  much  harder  than  the  average  men  around  them,  imless  they 
are  assured  a  large  and  a  permanent  increase  in  their  pay.  This 
series  of  experiments,  however,  also  proved  that  plenty  of  workmen 
can  be  foimd  who  are  willing  to  work  at  their  best  speed,  provided 
they  are  given  this  liberal  increase  in  wages.  The  workman  must, 
however,  be  fully  assured  that  this  increase  beyond  the  average  is  to 
be  f)ermanent.  Our  experiments  have  shown  that  the  exact  f)ercent- 
age  of  increase  required  to  make  a  workman  work  at  his  highest 
sp)eed  depends  upon  the  kind  of  work  which  the  man  is  doing. 

These  two  elements,  the  task  and  the  bonus  (which,  as  has  been 
pointed  out  in  previous  papers,  can  be  applied  in  several  ways), 
constitute  two  of  the  most  important  elements  of  the  mechanism  of 
scientific  management.  They  are  especially  important  from  the  fact 
that  they  are,  as  it  were,  a  climax,  demanding  before  they  can  be  used 
almost  all  of  the  other  elements  of  the  mechanism;  such  as  a  planning 
department,  accurate  time  study,  standardization  of  methods  and 
implements,  a  routing  system,  the  training  of  fimctional  foremen  or 
teachers,  and  in  many  cases  instruction  cards,  slide-rules,  etc. 

The  necessity  for  systematically  teaching  workmen  how  to  work 
to  the  best  advantage  has  been  referred  to.  It  seems  desirable,  there- 
fore, to  explain  in  rather  more  detail  how  this  teaching  is  done.  In 
the  case  of  a  machine  shop  which  is  managed  imder  the  modem 
system,  detailed  written  instructions  as  to  the  best  way  of  doing  each 
piece  of  work  are  prepared  in  advance,  by  men  in  the  planning  depart- 
ment. These  instructions  represent  the  combined  work  of  several 
men  in  the  planning-room,  each  of  whom  has  his  own  specialty  or 
fimction.  One  of  them,  for  instance,  is  a  specialist  on  the  proper 
speeds  and  cutting  tools  to  be  used.  He  uses  specially  prepared  slide- 
rules  as  an  aid,  to  guide  him  in  obtaining  proper  speeds,  etc.  Another 
man  analyzes  the  best  and  quickest  motions  to  be  made  by  the  work- 
man in  setting  the  work  up  in  the  machine  and  removing  it,  etc. 
Still  a  third,  through  the  time-study  records  which  have  been  acciunu- 
lated,  makes  out  a  time-table  giving  the  proper  sf)eed  for  doing  each 
element  of  the  work.    The  directions  of  all  of  these  men,  however, 


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222  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

are  written  on  a  single  instruction  card  or  sheet.  Human  nature 
is  such,  however,  that  many  of  the  workmen,  if  left  to  themselves, 
would  pay  but  little  attention  to  their  written  instructions.  It  is 
necessary,  therefore,  to  provide  teachers  (called  fimctional  foremen) 
to  see  that  the  workmen  both  imderstand  and  carry  out  these  written 
instructions. 

Under  functional  management,  the  old-fashioned  single  foreman 
is  superseded  by  eight  different  men,  each  of  whom  has  his  own  special 


Diagram  Illustrating  the  Routes  of  Authority  Under  the  Traditional 
OR  Military  Type  op  Management* 

9 

666 

^ 

AA 

666 

^ 

66  6 

i  i  i  i 

I 

i  i  A 

duties,  and  these  men,  acting  as  the  agents  for  the  planning  depart- 
ment, are  the  expert  teachers,  who  are  at  all  times  in  the  shop  helping 
and  directing  the  workmen.  Being  each  one  chosen  for  his  knowledge 
and  personal  skill  in  his  specialty,  they  are  able  not  only  to  tell  the 
workman  what  he  should  do,  but  in  case  of  necessity  they  do  the 
work  themselves  in  the  presence  of  the  workman,  so  as  to  show  him 
not  only  the  best  but  also  the  quickest  methods. 

One  of  these  teachers  (called  the  inspector)  sees  to  it  that  he 
understands  the  drawings  and  instructions  for  doing  the  work.    He 

'This  diagram  is  taken  from  Frank  B.  Gilbreth,  "Units,  Methods,  and 
Devices  of  Measurement  under  Scientific  Management,"  in  The  Journal  of  Political 
Economy,  XXI,  619  (July,  191 3). 


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TJIE  ORGANIZATION  OF  INDUSTRY 


223 


teaches  him  how  to  do  work  of  the  right  quality;  how  to  make  it  fine 
and  exact  where  it  should  be  fine,  and  rough  and  quick  where  accuracy 
is  not  required — the  one  being  just  as  important  for  success  as  the 
other.  The  second  teacher  (the  gang  boss)  shows  him  how  to  set  up 
the  job  in  his  machine,  and  teaches  him  to  make  all  of  his  personal 
motions  in  the  quickest  and  best  way.  The  third  (the  speed  boss) 
sees  that  the  machine  is  rim  at  the  best  speed  and  that  the  proper 


DiAGRAU  Illustrating 

THE  Principu:  0?  Functional  or 

SOENTinC 

Manageuent* 

(     $»PT 

x^^ 

nuaum 

/OMCt  in 

V    IMTC    i 

/^3\       i 

1  f  *cSBn  y 

TWK  Ml  A 
CMT    J 

mmsupimA 

L     MiM     ) 

pnrMMUM 

P^ 

\p^f^ 

^""ITN    i 

P^ 

\(   into   1 

l\l      MM     J 

1 

10 

ICPAttS   j  / 

[nmkctmJ 

TlNM«IO«AlJ 

tool  is  used  in  the  particular  way  which  will  enable  the  machine  to 
finish  its  product  in  the  shortest  possible  time.  In  addition  to  the 
assistance  given  by  these  teachers,  the  workman  receives  orders  and 
help  from  four  other  men:  from  the  "repair  boss"  as  to  the  adjust- 
ment, cleanliness,  and  general  care  of  his  machine,  belting,  etc.; 
from  the  "time  clerk,"  as  to  everything  relating  to  his  pay  and  to 
proper  written  reports  and  returns;   from  the  "route  clerk,"  as  to 

'This  diagram  is  taken  from  Frank  B.  Gilbreth,  "Units,  Methods,  and 
Devices  of  Measurement  under  Scientific  Management,"  in  The  Journal  of  Political 
Economy  J  XXI,  6x9  (July,  19x3). 


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224  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

the  order  in  which  he  does  his  work  and  as  to  the  movement  of  the 
work  from  one  part  of  the  shop  to  another;  and,  in  case  a  workman 
gets  into  any  trouble  with  any  of  his  various  bosses,  the  "discipli- 
narian" interviews  him. 

The  history  of  the  development  of  scientific  management  up  to 
date,  however,  calls  for  a  word  of  warning.  The  mechanism  of 
management  must  not  be  mistaken  for  its  essence,  or  underlying 
philosophy.    As  elements  of  this  mechanism  may  be  dted: 

Time  study,  with  the  implements  and  methods  for  properly 
making  it. 

Functional  or  divided  foremanship  and  its  superiority  .to  the  old- 
fashioned  single  foreman. 

The  standardization  of  all  tools  and  implements  used  in  the 
trades,  and  also  of  the  acts  or  movements  of  workmen  for  each  class 
of  work. 

The  desirability  of  a  planning-room  or  department. 

The  "exception  principle''  in  management. 

The  use  of  slide-rules  and  similar  time-saving  implements. 

Instruction  cards  for  the  workman. 

The  task  idea  in  management,  accompanied  by  a  large  bonus 
for  the  successful  performance  of  the  task. 

The  "differential  rate." 

Mnemonic  systems  for  classifying  manufactured  products  as  well 
as  implements  used  in  manufacturing. 

A  routing  system. 

Modem  cost  system,  etc.,  etc. 

These  are,  however,  merely  the  elements  or  details  of  the  mechan- 
ism of  management.  Scientific  management,  in  its  essence,  consists 
of  a  certain  philosophy,  which  results,  as  before  stated,  in  a  combina- 
tion of  the  four  great  underl)dng  principles  of  management:  first,  The 
development  of  a  true  science;  second.  The  scientific  selection  of  the 
workman;  third.  His  scientific  education  and  development;  fourth. 
Intimate  friendly  co-operation  between  the  management  and  the  men. 

in.    SOME    ILLUSTRATIONS    OF   THE  APPLICATION   OF   THE    PRINCIPLES 
OF  SCIENTIFIC  MANAGEMENT 

A  niunber  of  years  ago  a  company  employing  about  three  hundred 
men,  which  had  been  manufacturing  the  same  machine  for  from  ten 
to  fifteen  years,  sent  for  us  to  report  as  to  whether  any  gain  could  be 
made  through  the  introduction  of  scientific  management.    Their 


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THE  ORGANIZATION  OF  INDUSTRY  225 

shops  had  been  run  for  many  years  under  a  good  superintendent  and 
with  excellent  foremen  and  workmen,  on  piecework.  The  whole 
establishment  was,  without  doubt,  in  better  ph3rsical  condition  than 
the  average  machine  shop  in  this  country.  The  superintendent  was 
distinctly  displeased  when  told  that  through  the  adoption  of  task 
management  the  output,  with  the  same  number  of  men  and  machines, 
could  be  more  than  doubled.  He  said  that  he  believed  that  any  such 
statement  was  mere  boasting,  absolutely  false,  and  instead  of  inspir- 
ing him  with  confidence,  he  was  disgusted  that  anyone  should  make 
such  an  impudent  daim.  He,  however,  readily  assented  to  the  prepo- 
sition that  he  should  select  any  one  of  the  machines  whose  output  he 
considered  as  representing  the  average  of  the  shop,  and  that  we  should 
then  demonstrate  on  this  machine  that  through  scientific  methods 
its  output  could  be  more  than  doubled. 

The  machine  selected  by  him  fairly  represented  the  work  of  the 
shop.  It  had  been  nm  for  ten  or  twelve  years  past  by  a  first-dass 
mechanic  who  was  more  than  equal  in  his  ability  to  the  average 
workmen  in  the  establishment.  In  a  shop  of  this  sort,  in  which 
similar  machines  are  mad^  over  and  over  again,  the  work  is  neces- 
sarily greatly  subdivided,  so  that  no  one  man  works  upon  more  than 
a  comparatively  small  niunber  of  parts  during  the  year.  A  careful 
record  was  therefore  made,  in  the  presence  of  both  parties,  of  the 
time  actually  taken  in  finishing  each  of  the  parts  which  this  man 
worked  upon.  The  total  time  required  by  him  to  finish  each  piece, 
as  well  as  the  exact  sf)eeds  and  feeds  which  he  took,  were  noted,  and 
a  record  was  kept  of  the  time  which  he  took  in  setting  the  work  in 
the  machine  and  removing  it.  After  obtaining  in  this  way  a  state- 
ment of  what  represented  a  fair  average  of  the  work  done  in  the  shop, 
we  applied  to  this  one  machine  the  prindples  of  sdentific  management. 

By  means  of  four  quite  elaborate  slide-rules,  which  have  been 
espedally  made  for  the  purpose  of  determining  the  all-round  capadty 
of  metal-cutting  machines,  a  careful  analysis  was  made  of  every 
element  of  this  machine  in  its  relation  to  the  work  in  hand.  Its 
pulling  power  at  its  various  sf)eeds,  its  feeding  capadty,  and  its 
prof)er  speeds  were  determined  by  means  of  the  slide-rules,  and 
changes  were  then  made  in  the  coimtershaft  and  driving  pulleys  so 
as  to  nm  it  at  its  proper  speed.  Tools,  made  of  high-speed  steel, 
and  of  the  prof)er  shapes,  were  properly  dressed,  treated,  and  groimd. 
(It  should  be  imderstood,  however,  that  in  this  case  the  high-speed 
steel  which  had  heretofore  been  in  general  use  in  the  shop  was  also 


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226  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

used  in  our  demonstration.)  A  large  special  slide-rule  was  then  made, 
by  means  of  which  the  exact  sf)eeds  and  feeds  were  indicated  at  which 
each  kind  of  work  could  be  done  in  the  shortest  possible  time  in  this 
particular  lathe.  After  preparing  in  this  way  so  that  the  workman 
should  work  according  to  the  new  method,  one  after  another,  pieces 
of  work  were  finished  in  the  lathe,  corresponding  to  the  work  which 
had  been  done  in  our  preliminary  trials,  and  the  gain  in  time  made 
through  nmning  the  machine  according  to  scientific  principles  ranged 
from  two  and  one-half  times  the  speed  in  the  slowest  instance  to 
nine  times  the  sp)eed  in  the  highest. 

[In  the  case  of  a  factory  where  a  staff  of  girls  inspected  balls  to 
be  used  in  the  bearings  of  bicydes] — ^the  final  outcome  of  all  the 
changes  was  thsit  thirty-five  girls  did  the  work  formerly  done  by  one 
hundred  and  twenty.  And  that  the  accuracy  of  the  work  at  the  higher 
speed  was  two-thirds  greater  than  at  the  former  slow  speed. 

The  good  that  came  to  the  girls  was:  first,  that  they  averaged 
from  80  to  100  per  cent  higher  wages  than  they  formerly  received; 
second,  their  hours  of  labor  were  shortened  from  loj  to  8i  per  day, 
with  a  Saturday  half-holiday,  and  they  were  given  four  recreation 
f)eriods  properly  distributed  through  the  day,  which  made  overwork- 
ing impossible  for  a  healthy  girl;  third,  each  girl  was  made  to  feel 
that  she  was  the  object  of  especial  care  and  interest  on  the  part  of 
the  management,  and  that  if  anything  went  wrong  with  her  she 
could  always  have  a  helper  and  teacher  in  the  management  to  lean 
upon. 

The  benefits  which  came  to  the  company  from  these  changes 
were:  first,  a  substantial  improvement  in  the  quality  of  the  product; 
second,  a  material  reduction  in  the  cost  of  inspection,  in  spite  of  the 
extra  expense  involved  in  clerk  work,  teachers,  time  study,  over- 
inspectors,  and  in  paying  higher  wages;  third,  that  the  most  friendly 
relations  existed  between  the  management  and  the  employees,  which 
rendered  labor  troubles  of  any  kind  or  a  strike  impossible. 

Bricklaying  is  one  of  the  oldest  of  our  trades.  For  himdreds  of 
years  there  has  been  little  or  no  improvement  made  in  the  imple- 
ments and  materials  used  in  this  trade,  nor  in  fact  in  the  method  of 
laying  bricks.  In  spite  of  the  millions  of  men  who  have  practiced 
this  trade,  no  great  improvement  has  been  evolved  for  many  gener- 
ations.   Here,  then,  at  least,  one  would  expect  to  find  but  little  gain 


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THE  ORGANIZATION  OF  INDUSTRY  227 

possible  through  scientific  analysis  and  study.  Mr.  Frank  B.  Gilbreth 
who  had  himself  studied  brickla)dng  in  his  youth,  became  interested 
in  the  principles  of  scientific  management,  and  decided  to  apply 
them  to  the  art  of  bricklaying.  He  made  an  intensely  interesting 
analyst  and  study  of  each  movement  of  the  bricklayer,  and  one 
after  another  eliminated  all  unnecessary  movements  and  substituted 
fast  for  slow  motions.  He  experimented  with  every  minute  element 
which  in  any  way  affects  the  speed  and  the  tiring  of  the  bricklayer. 

He  develof)ed  the  exact  position  which  each  of  the  feet  of  the 
bricklayer  should  occupy  with  relation  to  the  wall,  the  mortar  box, 
and  the  pile  of  bricks,  and  so  made  it  unnecessary  for  him  to  take 
a  step  or  two  toward  the  pile  of  bricks  and  back  again  each  time  a 
brick  is  laid. 

He  studied  the  best  height  for  the  mortar  box  and  brick  pile,  and 
then  designed  a  scaffold,  with  a  table  on  it,  upon  which  all  of  the 
materials  are  placed,  so  as  to  keep  the  bricks,  the  mortar,  the  man, 
and  the  wall  in  their  proper  relative  positions.  These  scaffolds  are 
adjusted,  as  the  wall  grows  in  height,  for  all  of  the  bricklayers  by  a 
laborer  especially  detailed  for  this  purpose,  and  by  this  means  the 
bricklayer  is  saved  the  exertion  of  stooping  down  to  the  level  of  his 
feet  for  each  brick  and  each  trowelful  of  mortar  and  then  straighten- 
ing up  again. 

As  a  result  of  further  study,  after  the  bricks  are  imloaded  from 
the  cars,  and  before  bringing  them  to  the  bricklayer,  they  are  care- 
fully sorted  by  a  laborer,  and  placed  with  their  best  edge  up  on  a 
simple  wooden  frame,  constructed  so  as  to  enable  him  to  take  hold 
of  each  brick  in  the  quickest  time  and  in  the  most  advantageous 
position.  In  this  way  the  bricklayer  avoids  either  having  to  turn 
the  brick  over  or  end  for  end  to  examine  it  before  laying  it,  and  he 
saves,  also,  the  time  taken  in  deciding  which  is  the  best  edge  and  end 
to  place  on  the  outside  of  the  wall.  In  most  cases,  also,  he  saves 
the  time  taken  in  disentangling  the  brick  from  a  disorderly  pile  on 
the  scaffold.  This  "pack'*  of  bricks  (as  Mr.  Gilbreth  calls  his 
loaded  wooden  frames)  is  placed  by  the  helper  in  its  proper  position 
on  the  adjustable  scaffold  close  to  the  mortar  box. 

We  have  all  been  used  to  seeing  bricklayers  tap  each  brick  after 
it  is  placed  on  its  bed  of  mortar  several  times  with  the  end  of  the 
handle  of  the  trowel  so  as  to  secure  the  right  thickness  for  the  joint. 
Mr.  Gilbreth  foimd  that  by  tempering  the  mortar  just  right,  the 
bricks  could  be  readily  bedded  to  the  prof)er  depth  by  a  downward 


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228  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

pressure  of  the  hand  with  which  they  are  laid.  He  insisted  that  his 
mortar  mixers  should  give  special  attention  to  tempering  the  mortar, 
and  so  save  the  time  consimied  in  tapping  the  brick. 

Through  all  of  this  minute  study  of  the  motions  to  be  made  by 
the  bricklayer  in  la)dng  bricks  imder  standard  conditions,  Mr.  Gilbreth 
has  reduced  his  movements  from  eighteen  motions  per  brick  to  five, 
and  even  in  one  case  to  as  low  as  two  motions  per  brick.  He  reports 
that  a  few  months  ago,  in  a  large  brick  building  which  he  erected,  he 
demonstrated  on  a  conmiercial  scale  the  great  gain  which  is  possible 
from  practically  appl)dng  his  scientific  study.  With  union  brick- 
layers, in  laying  a  factory  wall,  twelve  inches  thick,  with  two  kinds 
of  brick,  faced  and  ruled  joints  on  both  sides  of  the  wall,  he  averaged, 
after  his  selected  workmen  had  become  skilful  in  his  new  methods, 
350  bricks  per  man  per  hour;  whereas  the  average  speed  of  doing 
this  work  with  the  old  methods  was,  in  that  section  of  the  coimtry, 
120  bricks  per  man  per  hour.  His  bricklayers  were  taught  his  new 
method  of  bricklaying  by  their  foreman.  Those  who  failed  to  profit 
by  their  teaching  were  dropf)ed,  and  each  man,  as  he  became  pro- 
ficient imder  the  new  method,  received  a  substantial  (not  a  small) 
increase  in  wages. 

The  writer  has  gone  thus  fully  into  Mr.  Gilbreth's  method  in  order 
that  it  may  be  perfectly  clear  that  this  increase  in  output  and  that  this 
harmony  could  not  have  been  attained  under  the  management  of  "ini- 
tiative and  incentive"  (that  is,  by  putting  the  problem  up  to  the  work- 
man and  leaving  him  to  solve  it  alone)  which  has  been  the  philosophy 
of  the  past.  And  that  his  success  has  been  due  to  the  use  of  the  four 
elements  which  constitute  the  essence  of  scientific  management. 

63.   CRITICISMS  OF  SCIENTIFIC  MANAGEMENT* 

There  have  been  nine  principal  criticisms  of  scientific  manage- 
ment. Three  are  concerned  with  its  effect  on  the  individual  workman 
physically  and  temperamentally.  The  others  are  concerned  with  its 
influence  on  labor  as  a  productive  group. 

First, — The  taking  of  time  studies  and  the  determination  and 
setting  of  a  task  are  a  reflection  upon  the  good  faith  of  labor.  It  sets 
up  the  relationship  of  master  and  slave.  This  criticism  is  undoubtedly 
prompted  by  a  sensitiveness  which  is  aroused  by  too  much  emphasis, 

*  Adapted  from  pp.  10-16  of  H.  S.  Person's  introduction  to  the  volume  of 
Addresses  and  Discussions  at  the  Conference  on  Scientific  Management  held  by  the 
Amos  Tuck  School  of  Dartmouth  College,  October  12.  13,  14,  191 1. 


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THE  ORGANIZATION  OF  INDUSTRY  229 

in  expositions  of  scientific  management,  upon  the  treatment  of  labor. 
Most  expositions  have  been  for  the  benefit  of  management,  and  have 
emphasized  the  handling  of  labor.  In  the  application  of  scientific 
management,  however,  the  managerial  force  is  studied  just  as  keenly 
and  reorganized  just  as  thoroughly  as  is  the  labor  force.  Each  person 
concerned  with  the  executive  op)erations  has  a  task  and  is  held  strictly 
accountable  for  its  performance.  In  plants  in  which  scientific  man- 
agement has  been  applied,  and  in  such  plants  only,  is  labor  enabled  to 
judge  of  the  efficiency  of  the  executive  force  and  to  hold  it  up  to 
established  standards  of  efficiency.  Scientific  management  recog- 
nizes no  difference,  in  determining  standards  of  efficiency,  between 
management,  capital  goods,  and  labor. 

Second, — The  removal  from  the  workman  of  individual  responsi- 
bility for  determining  the  method  of  an  operation  and  leaving  to  him 
attention  to  the  skilful  performance  only,  makes  his  work  uninteresting 
and  monotonous  and  is  bound  to  stunt  him  intellectually.  My  own 
observations  and  the  observations  of  others  in  plants  where  scientific 
management  has  been  applied  do  not  support  this  criticism.  The 
first  error  in  the  criticism  is  the  assumption  that  taking  from  the  work- 
man the  necessity  of  going  after  and  selecting  the  proper  kinds  of 
material,  tools,  etc. — and  that  is  one  of  the  principal  responsibilities 
of  which  the  redistribution  of  duties  deprives  him — takes  from  him 
something  intellectually  stimulating.  Another  error  is  the  assump- 
tion that  p)erforming  an  operation  according  to  the  best  method  is 
intellectually  less  stimulating  than  performing  it  according  to  an 
inefficient  method.  A  third  error  is  the  assumption  that  a  method 
handed  down  by  tradition  is  intellectually  more  stimulating  than  a 
method  derived  by  experiment. 

Third. — The  effect  of  scientific  management  is  to  ^^ speed  up^^  the 
workman,  wear  him  out,  and  cause  him  to  be  cast  aside.  Again, 
actual  investigation  in  plants  so  organized  does  not  support  this  criti- 
cism. Its  error  is  the  assmnption  that  ,the  increased  productivity- 
comes  from  a  greater  expenditure  of  muscular  and  nervous  energy  i^ 
a  working  day.  The  increased  productivity  comes,  however,  from 
other  things;  from  saving  in  overhead  charges,  from  the  using  of 
material  in  a  predetermined  correct  way,  from  the  using  of  machinery 
in  a  predetermined  most  efficient  way,  from  the  elimination  of  the  time 
a  workman  wastes  in  going  after  material  and  tools,  from  the  elimina- 
tion of  the  misapplication  of  muscular  and  nervous  energy  in  imneces- 
sary  motions,  and  from  compulsory  periods  of  rest,  even,  which  the 


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230  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

workman  will  ordinarily  not  take  for  himself.  The  beginner  at  golf 
expends  more  energy  in  a  roimd  of  nine  holes  than  the  experienced 
player  in  a  roimd  of  eighteen;  the  skilful  carpenter  expends  far  less 
energy  in  planing  a  board  than  does  the  novice.  Scientific  manage- 
ment strives  to  teach  the  workman  skill,  and  to  prevent  over-exertion 
as  much  as  to  prevent  loafing.  One  of  the  most  impressive  things  to 
the  visitor  at  a  plant  so  organized  is  the  absence  on  the  one  hand  of 
loitering  and  on  the  other  hand  of  haste. 

Fourth. — Scientific  management  is  inapplicable  because  of  the 
mobility  of  labor;  to  teach  the  laborer  the  best  method  requires  thai 
he  be  retained  for  a  period,  but  as  a  rule  labor  is  continucJly  coming 
into  and  going  out  of  a  plant,  and  before  a  laborer  becomes  skilful  he 
is  off  and  a  new,  awkward  man  has  been  hired  to  take  his  place.  This 
criticism  over-emphasizes  the  mobility  of  labor;  it  premises  a  mobility 
which  the  average  manager  does  not  experience.  I  once  asked  the 
manager  of  a  plant  organized  according  to  the"  principles  of  scientific 
management  what  was  the  average  time  a  workman  remained  with 
him.  Eight  years,  he  replied.  He  stated  fmrther  that  the  average 
time  was  increasing  imder  the  new  conditions  of  organization.  Scien- 
tific management  carries  with  it  its  own  corrective  of  the  loss  which 
comes  from  too  great  a  mobility  of  labor.  The  fact  that  a  workman  is 
permitted  to  work  under  conditions  which  render  him  more  produc- 
tive and  that  he  is  paid  according  to  his  ability  keeps  him  in  the  plant. 

Fifth. — It  inaugurates  a  spying  system  among  the  laborers  which 
results  in  mutual  distrust,  quarrels,  and  absence  of  esprit.  1  do  not 
know  what  is  meant  by  spying  system,  imless  it  refers  to  the  supposed 
fact  that,  in  a  sequence  of  processes,  if  one  workman  fails  to  keep  up 
to  standard,  it  will  cause  loss  to  another  workman  who  to  protect 
himself  will  have  to  complain  of  the  first  workman.  This  criticism  is 
due  to  assiunptions  concerning  scientific  management  which  are  not 
true.  No  workman  has  to  complain  of  another;  if  a  workman  is 
derelict  the  fact  is  reported  automatically  to  the  management  by  the 
impersonal  time  slip,  and  it  is  the  duty  of  management  to  relieve  the 
situation  before  any  other  workman  can  become  aware  of  it.  The 
relationship  is  not  between  workman  and  workman,  but  between  work- 
man and  the  order-of-work  clerk.  The  persons  of  whom  the 
workman  may  have  occasion  to  complain  are  those  in  the  routing,  an 
executive,  department.  And  as  a  matter  of  fact,  finally,  I  have  not 
observed,  and  no  one  has  reported  that  he  has  observed,  in  a  plant  in 
which  scientific  management  has  become  well  established,  any  lack  of 


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THE  ORGANIZATION  OF  INDUSTRY  231 

harmony  in  the  labor  force;  on  the  contrary,  it  is  the  consensus  of 
opinion  that  a  fine  spirit  of  co-of)eration  is  conspicuous  in  such  plants. 

Sixth. — Workmen  have  had  a  bitter  experience  with  the  piece- 
rate  system;  have  been  ^^  speeded  up^^  by  increases  in  piece-rates  only 
to  have  the  rates  cut.  May  not  the  differential  wage  system  of  scientific 
management  be  used  against  the  workman  in  a  similar  way?  This 
is  a  reasonable  question.  Such  a  manipulation  of  the  differential 
wage  system  seems  to  me  to  be  possible,  but  I  doubt  whether  it  is 
probable.  In  the  first  place,  the  experience  of  manufacturers  who 
have  reduced  piece-rates  has  been  as  bitter  as  the  experience  of  the 
laborer.  They  are  coming  to  consider  the  rate-cutting  of  the  past  as 
one  of  the  great  blimders  of  management.  It  will  take  exceedingly 
strong  temptation  to  induce  them  to  try  it  again.  In  the  second 
place,  piece-rates  in  the  past  have  been  established  without  a  sufficient 
knowledge  of  the  conditions  of  production.  They  gave  to  the  work- 
man all  the  increase  of  production  except  that  resulting  from  reduc- 
tion in  overhead  costs.  The  invention  of  new  and  improved  machines 
brought  practically  nothing  to  management,  and  placed  it  at  a  dis- 
astrous disadvantage  in  competition  with  firms  paying  day-wages,  to 
which  came  all  the  advantages  of  the  introduction  of  more  efficient 
machines.  Rate-cutting  was  compelled  by  the  circiunstances  of 
comf)etition.  Under  scientific  management,  on  the  other  hand,  rates 
are  determined  only  after  exhaustive  investigations  of  the  productivity 
of  a  laborer  in  combination  with  a  given  machine,  and  a  separate  rate 
is  established  for  every  such  combination.  If  a  new  and  more  efficient 
machine  is  introduced,  a  new  rate  is  established  as  the  result  of  a  new 
investigation.  So  long  as  plants  organized  imder  scientific  manage- 
ment enjoy  the  resulting  differential  advantage  in  comf)etition  with 
plants  pa)dng  day-wages,  there  will  be  little  danger  of  rate-cutting, 
for  in  proportion  as  the  earnings  of  workmen  increase  does  the  unit 
cost  of  the  product  decrease.  If  the  time  should  come,  as  it  is  reason- 
able to  expect  it  will  come,  when  all  plants  in  a  competitive  industry 
should  be  organized  according  to  the  principles  of  scientific  manage- 
-ment,  so  that  the  differential  advantage  would  no  longer  exist,  there 
might  be  temptation  to  rate-cutting.  But  under  those  conditions  the 
temptation  would  be  no  greater  than  to  cut  imder  the  day-wage  sys- 
tem. And  if  imions  still  existed  labor  would  be  in  as  good  a  position 
to  protect  itself  in  the  one  case  as  in  the  other. 

Seventh. — The  increase  of  efficiency  which  results  from  scientific 
management  will  throw  labor  out  of  employment.    The  untenable 


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232  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

assertion  that  such  would  be  its  ultimate  effect  is  not  deserving  of 
serious  consideration.  But  that  there  may  be  temporarily  such  a 
result  in  a  given  industry  is  possible,  if  increased  demand  resulting 
from  decreased  selling  price  should  not  pari  passu  accompany  in- 
creased efficiency  in  production.  It  is  good  economics  to  assume  that 
in  the  long  nm  improved  methods  will  make  emplojnnent  for  a  larger 
niunber  of  persons;  but  it  is  also  good  sense  for  the  laborer  to  take 
into  consideration  the  possible  inmiediate  consequences  of  lack  of 
emplo3nnent  for  a  season.  The  saving  factor  in  the  situation  is  that 
scientific  management  cannot  be  applied  in  a  day.  To  apply  it  to  a 
given  plant  is  a  matter  of  years.  The  organizing  engineers  capable 
of  applying  it  with  such  results  in  increased  productive  efficiency  as 
have  been  of  late  brought  to  our  attention  are  and  always  will  be  few. 
If  there  is  an  imp)ending  revolution  in  industry  comparable  to  the 
revolution  at  the  beginning  of  the  nineteenth  centiuy,  it  will  be  quite 
different  in  at  least  one  respect:  systems  of  scientific  management  will 
not  be  turned  out  as  was  cotton  and  power  machinery,  in  great  quanti- 
ties at  a  relatively  low  cost  and  standardized  to  fit  any  and  all  plants. 
Each  plant  presents  a  distinct  problem  to  the  organizing  engineer,  a 
problem  of  several  years'  duration.  There  can  therefore  never  be  \m- 
employment  of  a  large  body  of  men  on  account  of  sudden,  widespread, 
more  efficient  organization.  The  firms  which  introduce  scientific  man- 
agement usually  enjoy  such  a  differential  advantage  that  they  are  able 
to  make  prices  which  enable  them  to  increase  their  plants  so  as  to  take 
care  of  the  small  amoimt  of  what  would  otherwise  be  surpHis  labor. 
Eighth, — It  is  asserted  that  labor  is  not  allowed  to  help  fix  the 
rate  of  compensation.  Labor  has  as  yet  expressed  no  desire  to  do  so. 
In  all  cases  of  reorganization  rates  have  been  fixed  so  that  labor  has 
been  able  to  earn  more  than  it  has  demanded.  If  the  time  should 
come,  as  it  surely  will  come,  when  labor  asks  to  be  allowed  a  voice  in 
establishing  differential  rates  imder  scientific  management,  there  is 
nothing  in  the  nature  of  that  form  of  organization  to  make  it  impos- 
sible. On  the  contrary,  it  is  probable  that  such  co-operation  between 
management  and  labor  would  work  out  more  smoothly  than  imder 
present  conditions.  The  methods  of  determining  what  the  combina- 
tion of  a  machine  and  a  man  can  do  is  so  scientifically  accurate  that 
facts  coidd  be  easily  ascertained,  and  both  labor  and  manager  are 
reasonable  when  they  know  the  facts.  Whether  labor  would  enjoy 
the  opportunity  of  helping  fix  rates  would  depend  on  the  solidarity 
of  the  group  in  making  its  demand. 


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THE  ORGANIZATION  OF  INDUSTRY  233 

NifUh, — //  is  asserted  that  scientific  management  would  impair 
the  solidarity  of  labor;  that  it  would  break  down  unionism  by  substi- 
tuting individual  bargaining  in  the  place  of  collective  bargaining  for 
which  unionism  is  now  struggling.  Scientific  management  aims  to.  do 
away  with  equal  payment  to  all  laborers  irresf)ective  of  their  pro- 
ductivity, but  it  does  not  aim  to  do  away  with  collective  bargaining. 
It  is  possible  under  scientific  management  for  a  imion  through  its 
selected  representatives  to  take  a  part  in  determining  what  is  the 
best  method  of  performing  an  operation,  what  would  be  a  reasonable 
task,  and  what  would  be  a  reasonable  division  of  the  increased  returns. 
These  things  once  determined,  it  would  have  to  permit  its  individual 
members  to  be  paid  according  to  their  individ\ial  contributions  to  the 
increased  returns.  Scientific  management  would  impair  the  solidarity 
of  unionism  to  the  extent  that  that  solidarity  is  dependent  upon  flat 
hour-rates  for  all  men;  it  would  not  impair  the  solidarity  by  making 
collective  bargaining  impossible. 

I  have  not  eniunerated  as  a  criticism  of  scientific  management  the 
assertion  that  a  great  niunber  of  ineflScient,  of  "fake,**  organizing 
engineers  is  likely  to  arise  to  exploit  the  new  profession  and  to  work 
havoc  with  those  plants  whose  managers  they  induce  to  accept  their 
services.  It  is  a  real  danger,  but  it  is  not  a  legitimate  criticism  of 
scientific  management.  Managers  should  realize  that  ability  to  organ- 
ize successfully  a  business  def)ends  upon  a  combination  of  qualities  not 
found  together  in  many  men — ^largeness  of  vision,  capacity  for  details, 
patience,  tact  which  is  bom  of  sympathy,  the  capacity  to  analyze  and 
to  combine,  and  scientific  knowledge  of  technical  processes. 

64.  PARTNERSfflP  ARTICLES 

James  E.  Smith  and  John  Doe,  both  of  the  City  of  Chicago, 
Illinois,  hereby  mutually  agree  to  become  partners  under  the  firm 
name  of  "  Smith  &  Doe  "  to  conduct  the  trade  and  business  of  printing 
in  the  said  city  for  the  period  of  five  years  from  date. 

The  said  Smith  invests  his  stock  of  presses,  paper,  ink,  and  other 
material,  estimated  to  be  worth  ten  thousand  dollars,  and  the  said 
Doe  invests  ten  thousand  dollars  in  cash. 

Both  partners  shall  give  their  entire  time  and  shall  share  losses 
and  gams  eq\ially. 

All  amounts  earned  or  received  by  either  partner  for  work,  mate- 
rials, or  anything  pertaining  to  the  business,  shall  be  deposited  in  the 
First  National  Bank  of  Chicago  in  the  name  of  both  partners,  and 


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234  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

shall  be  checked  out  as  needed  for  expenses  and  supplies,  by  the 
signatures  of  both  partners,  and  an  equal  amount  shall  be  drawn 
each  Monday  morning  for  each  partner  for  personal  expenses,  but 
a  balance  of  five  hundred  dollars  shall  always  be  kept  and  held. 

When  the  firm  shall  be  dissolved  the  balance  on  hand  shall  be 
divided  equally  and  all  debts  shall  be  paid  from  the  money  in  bank^ 
after  which  the  money  shall  be  divided  equally  between  the  partners. 

Witness  our  hands  and  seals  this  2Sth  day  of  October,  1911. 
Attest:  James.  E.  Smith.  [l.s.] 

Charles  Robinson  John  Doe.  [l.s.1 

65.  FORM  OF  CORPORATION  CHARTER 

Certificate  op  Incorporation 

We,  the  undersigned,  in  order  to  form  a  corporation  for  the  pur- 
poses hereinafter  set  forth,  under  and  pursuant  to  the  provisions  of 
the  Act  of  the  Legislature  of  the  State  of  New  Jersey,  entitled  "An 
Act  Concerning  Corporations  (Revision  of  1896),"  and  the  acts 
amendatory  thereof  and  supplemental  thereto,  do  hereby  certify  as 
follows: 

ARTICLE  I 

The  name  of  the  corporation  is: 

article  n 
The  principal  and  registered  office  of  the  Company  is  in  the 

Building  ,  New  Jersey,  and  the  name  of  the 

agent  therein  and  in  charge  thereof,  and  upon  whom  process  against 
this  corporation  may  be  served,  is 

article  III 

The  objects  for  which  and  for  each  of  which  the  corporation  is 
formed  are:* 

It  is  the  intention  that  the  objects,  purposes,  and  powers  specified 
in  the  clauses  contained  in  this  third  paragraph  shall,  except  where 
otherwise  expressed  in  said  paragraph,  be  nowise  limited  or  restricted 
by  reference  to  or  inference  from  the  terms  of  any  other  clause  of 
this  or  any  other  paragraph  in  this  charter,  but  that  the  objects, 

'  [This  "object  clause"  varies  with  the  nature  of  the  business.  Ordinarily  it 
is  comparatively  simple,  but  it  may  be  made  very  broad  and  comprehensive,  as  in 
the  case  of  the  U.S.  Steel  Corporation,  given  in  the  following  selection. — Editors.] 


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THE  ORGANIZATION  OF  INDUSTRY  235 

purposes,  and  powers  specified  in  each  of  the  clauses  of  this  para- 
graph shall  be  regarded  as  independent  objects,  purposes,  and 
powers. 

ARTICLE  IV 

The  following  provisions  for  the  regulation  of  the  business  and 
the  conduct  of  the  affairs  of  the  Company  are  hereby  established: 

The  corporation  may  use  and  apply  its  surplus  earnings  or  accu- 
mulated profits  authorized  by  law  to  be  reserved  to  the  purchase  or 
acquisition  of  property,  and  to  the  purchase  or  acquisition  of  its  own 
capital  stock  from  time  to  time,  to  such  extent  and  in  such  manner 
and  upon  such  terms  as  its  Board  of  Directors  shall  determine;  and 
neither  the  property  nor  the  capital  stock  so  purchased  and  acquired, 
nor  any  of  its  capital  stock  taken  in  payment  or  satisfaction  of  any 
debt  due  to  the  corporation,  shall  be  regarded  as  profits  for  the  pur- 
poses of  declaration  or  payment  of  dividends,  unless  otherwise  deter- 
mined by  a  majority  of  the  Board  of  Directors  or  a  majority  of  the 
stockholders. 

The  corporation  in  its  by-laws  may  prescribe  the  number  neces- 
sary to  constitute  a  quorum  of  the  Board  of  Directors,  which  niunber 
may  be  less  than  a  majority  of  the  whole  niunber. 

The  Board  of  Directors  shall  have  power,  without  the  assent  or 
vote  of  the  stockholders,  to  make,  alter,  rescind,  or  amend  the  by-laws 
of  the  corporation,  to  fix  the  amount  to  be  reserved  as  working  capi- 
tal, to  authorize  and  cause  to  be  executed  mortgages  and  liens  upon 
the  real  and  personal  property  of  the  corporation;  and  from  time 
to  time  to  sell,  assign,  transfer,  or  otherwise  dispose  of  any  or  all 
of  the  property  of  the  corporation,  but  no  such  sale  of  all  the  property 
shall  be  made  except  pursuant  to  the  vote  of  at  least  two-thirds  of  the 
Board  of  Directors. 

The  Board  of  Directors  from  time  to  time  shall  determine  whether 
and  to  what  extent,  and  at  what  times  and  places,  and  under  what 
conditions  and  regulations,  the  accounts  and  books  of  the  corpora- 
tion, or  any  of  them,  shall  be  open  to  the  inspection  of  the  stock- 
holders; and  no  stockholder  shall  have  any  right  of  inspecting  any 
account  or  book  or  docvunent  of  the  corporation,  except  as  conferred 
by  statute  or  authorized  by  the  Board  of  Directors,  or  by  a  resolu- 
tion of  the  stockholders. 

The  Board  of  Directors  shall  have  power  to  hold  its  meetings,  to 
have  one  or  more  offices,  and  to  keep  the  books  of  the  corporation 


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236  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

(except  the  stock  and  transfer  books)  outside  of  the  State  of  New 
Jersey  at  such  places  as  may  be  from  time  to  time  designated  by  them. 

ARTICLE  V 

The  Company  shall  be  authorized  to  issue  capital  stock  to  Ihe 
amount  of  dollars.  The  nvimber  of  shares  of  which  the  capital 
stock  shall  consist  is         shares  of  the  par  value  of  dollars  each. 

(If  preferred  stock  is  desired,  insert  provisions  therefor  at  this  point.) 

ARTICLE  VI 

The  names  and  post-office  addresses  of  the  incorporators,  and  the 

number  of  shares  of  stock  for  which  severally  and  respectively  we 

do  hereby  subscribe,  the  aggregate  of  our  said  subscriptions  being 

dollars,  which  is  the  amount  of  capital  stock  with  which 

the  Company  will  begin  business,  are  as  follows: 

Names  Post-Office  Addresses  No.  of  Shares 

AETicLE  vn 
The  duration  of  the  Company  shall  be  perpetual. 
In  Witness  Whereof,  we  have  hereunto  set  our  hands  and  seals 
this  day  of  191 

[l.s. 
[l.s. 
[l.s. 

66.  A  CHARTER  "OBJECT  CLAUSE"' 

III.    The  objects  for  which  the  corporation  are  formed  are: 

To  manufacture  iron,  steel,  manganese,  coke,  copper,  Ivunber,  and 
other  material,  and  all  or  any  articles  consisting,  or  partly  consist- 
ing, of  iron,  steel,  copper,  wood,  or  other  materials,  and  all  or  any 
products  thereof. 

To  acquire,  own,  lease,  occupy,  use,  or  develop  any  lands  contain- 
ing coal  or  iron,  manganese,  stone,  or  other  ores,  or  oil,  and  any  wood 
lands,  or  other  lands  for  any  purpose  of  the  company. 

To  mine  or  otherwise  to  extract  or  remove  coal,  ores,  stone,  and 
other  minerals,  and  timber  from  any  lands  owned,  acquired,  leased, 
or  occupied  by  the  company,  or  from  any  other  lands. 

To  buy  and  sell,  or  otherwise  to  deal  or  to  traffic  in  iron,  steel, 
manganese,  copper,  stone,  ores,  coal,  coke,  wood,  lumber,  and  other 
materials,  and  any  of  the  products  thereof,  and  any  articles  con- 
sisting or  partly  consisting  thereof. 

To  construct  bridges,  buildings,  machinery,  ships,  boats,  engines, 
cars,  and  other  equipment,  railroads,  docks,  slips,  elevators,  water- 

*  From  the  charter  of  the  United  States  Steel  Corporation. 


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THE  ORGANIZATION  OF  INDUSTRY  237 

works,  gas  works,  and  electric  works,  viaducts,  aqueducts,  canals, 
and  other  water-ways,  and  other  means  of  transportation,  and  to 
sell  the  same  or  otherwise  to  dispose  thereof,  or  to  maintain  and 
operate  the  same  except  that  the  company  shall  not  maintain  or 
operate  any  railroad  or  canal  in  the  state  of  New  Jersey. 

To  apply  for,  obtain,  register,  purchase,  lease,  or  otherwise  to 
acquire,  and  to  hold,  use,  own,  operate,  and  introduce,  and  to  sell, 
assign,  or  otherwise  to  dispose  of,  any  trade-marks,  trade-names, 
patents,  inventions,  improvements,  and  processes  used  in  connection 
with  or  secured  under  letters  patent  of  the  United  States,  or  else- 
where or  otherwise,  and  to  use,  exercise,  develop,  grant  licenses  in 
respect  of,  or  otherwise  to  turn  to  account  any  such  trade-marks, 
patents,  licenses,  processes,  and  the  like,  or  any  such  property  or  rights. 

To  engage  in  any  other  manufacturing,  mining,  construction,  or 
transportation  business  of  any  kind  or  character  whatsoever,  and 
to  that  end  to  acquire,  hold,  own,  and  dispose  of  any  and  all  property, 
assets,  stocks,  bonds,  and  rights  of  any  and  every  kind,  but  not  to 
engage  in  any  business  hereunder  which  shall  require  the  exercise 
of  the  right  of  eminent  domain  within  the  state  of  New  Jersey. 

To  acquire  by  purchase,  subscription,  or  otherwise,  and  to  hold  or 
to  dispose  of  stocks,  bonds,  or  any  other  obligations  of  any  corpora- 
tion formed  for,  or  then  or  theretofore  engaged  in  or  pursuing,  any 
one  or  more  of  the  kinds  of  business,  purposes,  objects,  or  operations 
above  indicated,  or  owning  or  holding  any  property  of  any  kind  herein 
mentioned,  or  of  any  corporation  owning  or  holding  the  stocks  or 
the  obligations  of  any  such  corporation. 

To  hold  for  investment,  or  otherwise  to  use,  sell,  or  dispose  of, 
any  stock,  bonds,  or  other  obligations  of  any  such  other  corporation; 
to  aid  in  any  manner  any  corporation  whose  stock,  bonds,  or  other 
obligations  are  held  or  in  any  manner  guaranteed  by  the  company, 
and  to  do  any  other  acts  or  things  for  the  preservation,  protection, 
improvement,  or  enhancement  of  the  value  of  any  such  stock,  bonds, 
or  other  obligations,  or  to  do  any  acts  or  things  designed  for  any 
such  purpose;  and  while  owner  of  any  such  stock,  bonds,  or  other 
obligations,  to  exercise  all  the  rights,  powers,  and  privileges  of  owner- 
ship thereof,  and  to  exercise  any  and  all  voting  power  thereon. 

The  business  or  purpose  of  the  company  is  from  time  to  time  to 
do  any  one  or  more  of  the  acts  and  things  herein  set  forth;  and 
it  may  conduct  its  business  in  other  states,  and  in  territories,  and 
in  foreign  coimtries,  and  may  have  one  oflSce,  or  more  than  one 
office,  and  keep  the  books  of  the  company  outside  of  the  state  of 


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MATERIALS  FOR  ELEMENTARY  ECONOMICS 


New  Jersey,  except  as  otherwise  may  be  provided  by  law;  and  may 
hold,  purchase,  mortgage,  and  convey  real  and  personal  property, 
either  in  or  out  of  the  state  of  New  Jersey. 

Without  in  any  particular  limiting  any  of  the  objects  and  powers 
of  the  corporation,  it  is  hereby  expressly  declared  and  provided  that 
the  corporation  shall  have  power  to  issue  bonds  and  other  obliga- 
tions in  payment  for  property  purchased  or  acquired  by  it,  or  for 
any  other  object  in  or  about  its  business;  to  mortgage  or  pledge 
any  stocks,  bonds,  or  other  obligations,  or  any  property  which  may 
be  acquired  by  it,  to  secure  any  bonds  or  other  obligations  by  it 
issued  or  incurred;  to  guarantee  any  dividends,  or  bonds,  or  con- 
tracts, or  other  obligations;  to  make  and  perform  contracts  of  any 
kind  and  description  and  in  carrying  on  its  business  or  for  the  pur- 
pose of  attaining  or  furthering  any  of  its  objects,  to  do  any  and  all 
other  acts  and  things,  and  to  exercise  any  and  all  other  powers  which 
a  copartnership  or  natural  person  could  do  and  exercise,  and  which 
now  or  hereafter  may  be  authorized  by  law. 

67.    ACTS  OF  INCORPORATION  FOR  PRIVATE  BUSINESS 

PURPOSES  GRANTED  IN  TIHS  COUNTRY 

BEFORE  THE  YEAR  i8oo« 


State 


New  Hampshire. 
Massachusetts . . , 
Rhode  Island... 

Connecticut 

New  York 

New  Jersey 

Pennsylvania 

Ddaware 

Maryland 

Virgmia 

North  Carolina  . 
South  Carolina. . 

Georgia 

Vermont 

Kentucky 

Tennessee 

United  Sutes. .. 


Total. 


38 


36 


26 


38 


16 


88 

3 

37 


4 
9 
o 
13 
3 


23$ 


Of  the  335  corporations  shown  in  the  above  table  64  per  cent  were  created  in  New  England, 
states  next  in  order  being  New  York,  Virginia,  and  Pennsylvania.  Banks  and  insurance  companies 
make  up  34  per  cent  of  the  total  number. 

'  From  Simeon  E.  Baldwin,  "Private  Corporations,"  in  Two  Centuries*  Growth 
of  American  Law,  1701-1901,  p.  312.    Charles  Scribner's  Sons,  1902. 


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239 


68.    THE  HOLDING  COMPANY' 

The  Atlantic  Coast  Line  Company  was  chartered  in  Connecticut 
in  1889  for  the  purpose  of  consolidating  under  one  ownership  the 
network  of  southern  railways  along  the  Atlantic  coast,  these  railways 

Intercorporate  Relationships  of  the  Atlantic  Coast  Ijne  System 
[Size  of  rectangles  indicates  relative  amounts  of  capital  stock  outstanding. 
Cross-hatching  shows  percentage  of  capital  stock  owned  by  controlling  company.] 


ATLANTIQ 
STOCK 


CDA5T 
tt0.5[D.0DD 


LINE  CD. 


TUNER-RXQ. 


iHVILLE  R.RXD. 


GEORGIA  R.R. 
LE55EE  ORGANIZATION 


GEORGIA 


/^OUTHERli 
\  RY.  CD.  / 


CHICAGO,  INOlAi 


UOUEVILLE 
RY.  CO. 


R.R. 


being  amalgamated  in  1900  into  the  Atlantic  Coast  Line  Railroad 
Company.  The  Atlantic  Coast  Line  Company,  the  holding  company, 
on  June  30,  1906,  owned  (including  capital  stock  subscribed  for  but 

'  From  Interstate  Conunerce  Commission,  Special  Report  No.  i,  Intercorpo- 
rate  ReUUionskips  of  Railways  in  the  United  States  as  of  June  30 ,  igo6  (1908), 
pp.  23-25. 


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MATERIALS  FOR  ELEMENTARY  ECONOMICS 


not  fully  paid)  $25,266,300  out  of  $50,134,206  of  the  stock  of  the 
Atlantic  Coast  Line  Raikoad  Company,  or  a  little  over  50  per  cent. 
It  also  owned  $11,500,000  of  the  bonds  of  the  same  company.    This 


stock  ownership  carried  with  it  equities  of  very  great  value.  This 
becomes  clear  when  we  observe  that  the  Atlantic  Coast  Line  Railroad 
owned  on  the  same  date  $30,600,000  out  of  $60,000,000  or  51 


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THE  ORGANIZATION  OF  INDUSTRY  241 

per  cent  of  the  stock  of  the  Louisville  and  Nashville  Railroad 
Company.  This  latter  corporation  and  its  controlling  railway,  the 
Atlantic  Coast  Line  Railroad  Company,  were  the  lessees,  of  the 
railway  properties  of  the  Georgia  Railroad  and  Banking  Company; 
and  the  Louisville  and  Nashville  Railroad  Company,  jointly  with  the 
Southern  Railway  Company,  owned  88  per  cent  of  the  stock  of  the 
Chicago,  Indianapolis  and  Louisville  Railway  Company.  The  capital 
stock  of  the  Atlantic  Coast  Line  Company  was  reduced  in  May,  1897, 
from  $10,000,000  to  $5,000,000  by  the  issue  of  certificates  of  indebted- 
ness in  lieu  of  the  shares  retired.  In  1898  the  stock  was  again  restored 
to  the  original  amoimt  of  $10,000,000  by  a  stock  dividend  of  100  per 
cent,  representing  the  accumulated  profits.  The  company  had  out- 
standing on  Jime  30,  1906,  $10,500,000  of  stock  (excluding  $2,100,000 
of  stock  subscribed  for  but  not  fully  paid)  and  $13,000,000  of  certifi- 
cates of  mdebtedness.  It  therefore  appears  that  an  ownership  of 
sUghtly  over  $5,000,000  of  capital  stock  in  this  holding  company 
controlled  solely  and  jointly  through  ownership  and  lease  a  railway 
system  of  over  11,000  miles  in  extent,  with  a  capitalization  of  over 
$725,000,000.' 

69.    A  CLASSIFICATION  OF  BONDS* 

A  comprehensive  basis  for  the  classification  of  bonds  is  not  to 
be  foimd  in  the  bond  lists  nor  in  current  market  reports.  The  names 
and  classes  thus  arranged  are  for  purposes  of  convenient  reference 
and  usually  follow  the  practice  of  the  local  exchange.  Generally 
speaking,  bonds  receive  their  titles  from  one  or  more  of  the  fol- 
lowing characteristics:  (i)  The  character  of  the  corporation  using 
them;  (2)  the  purpose  of  issue;  (3)  the  nature  of  security  given 
for  payment;  (4)  the  terms  of  payment,  and  (5)  evidence  of  owner- 
ship and  transfer.  The  first  of  these  five  characteristics  is  used  as 
a  basis  for  general  classification.  That  is  to  say,  quotations  are 
usually  arranged  imder  the  following  heads: 

Government — state  and  national. 

Mimidpal  and  coimty. 

Railroad,  express,  and  steamship  companies. 

Traction  companies. 

'[See  also  Selection  90:  ''Companies  whose  Stocks  were  Acquired  by  the 
United  States  Steel  Corporation."— Edftors.] 

•  Adapted  from  F.  A.  Cleveland,  "  Classification  and  Description  of  Bonds," 
in  Annals  of  the  American  Academy  of  Political  and  Social  Science ,  XXX,  400-411 . 


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242  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

Gas,  electric  light,  and  water  companies. 

Bank  and  trust  companies. 

Investment  companies. 

Industrials. 

Mining  companies. 

Miscellaneous. 

CLASSrPICATIGN  ACCORDING  TO  PURPOSE  OF  ISSUE 

Among  the  many  varieties  of  bonds  which  take  their  names  from 
the  purpose  of  issue  the  following  may  be  noted: 

Adjustment  bonds,  bridge  bonds,  construction  bonds,  consoli- 
dated bonds,  car  trust  bonds,  dock  and  wharf  bonds,  equipment 
bonds,  extension  bonds,  foimders'  bonds,  ferry  bonds,  general  bonds, 
improvements  bonds,  interim  bonds,  interest  bonds,  purchase  money 
bonds,  refunding  bonds,  reorganization  bonds,  revenue  bonds,  sub- 
sidy bonds,  terminal  bonds,  timnel  bonds,  temporary  bonds,  unified 
bonds. 

CLASSIFICATION  OF  BONDS  ACCORDING  TO  THE  CHARACTER  OF  SECURITY 
PROVIDED  FOR  PAYMENT 

From  the  point  of  view  of  the  security  given  for  [>ayment,  bonds 
fall  into  two  general  classes,  viz.,  (i)  unsecured,  and  (2)  secured. 
The  secured  bonds  may  again  be  divided  into  two  general  classes  (a) 
those  having  personal  security  and  (b)  those  secured  by  liens  on 
specific  property.    These  in  turn  may  be  subdivided  as  follows: 

I.  Unsecured. 

a)  Government  bonds. 

b)  Corporate  debentures. 
n.  Secured. 

a)  Personal  security. 

1.  Indorsed  bonds. 

2.  Guaranteed  bonds.   • 

a)  Guaranteed  as  to  principal. 

b)  Guaranteed  as  to  interest. 

c)  Guaranteed  as  to  both  principal  and  interest. 

b)  Lien  security. 

I.   By  character  of  property  pledged. 
a)  Real  property. 

1.  Land  grant  bonds. 

2.  Real  estate  bonds. 


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THE  ORGANIZATION  OF  INDUSTRY  243 

b)  Personal  property. 

1.  Collateral  trust  bond. 

2.  Sinking  fund  bonds. 

2.  By  the  character  or  priority  of  lien. 

a)  First,  second,  or  third  mortgage  bonds. 

b)  General  mortgage  bonds. 

c)  Blanket  mortgage  bonds. 

d)  Consolidated  mortgage  bonds. 

e)  Income  bonds. 

/)  Profit-sharing  bonds. 
g)  Dividend  bonds. 

3.  By  the  character  of  the  holding  participation  receipts. 

BONDS  CLASSIFIED  ACCORDING  TO  EVIDENCE  OF  OWNERSHIP  AND 

TRANSFER 

Considered  from  this  viewpoint  there  are  three  classes,  viz., 
coupon  bonds,  registered  bonds,  and  coupon  registered  bonds. 

Coupon  bonds  are  issues  the  contracts  for  payment  of  interest  on 
which  are  evidenced  by  separate  coupons  or  contracts  for  payment, 
which  fall  due  consecutively  on  the  interest-paying  dates.  The 
coupons  may  be  detached  and  constitute  complete  promissory  notes 
in  themselves,  payable  to  bearer.  The  coupons  are  usually  written 
on  small  sections  of  a  sheet  of  paper  attached  to  the  principal  obliga- 
tion and  as  they  mature  are  dipped  oflE  and  presented  for  payment. 
They  are  frequently  presented  for  payment  through  a  bank  as  a 
check  or  draft  would  be. 

Registered  bonds  are  credit  instruments  the  interest  obligation 
in  which  is  expressed  in  the  same  writing  or  paper  as  in  a  promissory 
note,  the  ownership  of  the  bond  being  registered  as  a  means  of  pro- 
tecting the  payee  against  loss,  necessitating  a  formal  transfer  and 
registration  to  transfer  the  title  when  the  old  instnunent  is  canceled 
and  a  new  one  issued.  Interest  is  payable  by  money  delivery  or 
by  check  sent  by  mail  to  the  address  of  the  registered  holder.  Notice 
should  be  given  of  any  change  in  address. 

Registered  coupon  bonds  are  issues  the  principal  of  which  is  regis- 
tered, the  coupons  being  made  payable  to  bearer. 

In  practice  a  single  bond  issue  may  have  any  number  of  these 
many  distinguishing  characteristics,  so  long  as  they  are  not  in  con- 
flict. When  applied  to  specific  issues  the  number  of  classes  may 
be  equal  to  the  mathematical  possibility  of  the  several  elements 


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244  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

described  in  combination.  The  advantage  of  the  analytical  classi- 
fication here  used  is  that  by  classifying  and  defining  bond  character- 
istics the  terminology  may  be  imderstood  in  any  combination  used. 

70.    EXAMPLES  OF  TYPICAL  INVESTMENT  SECURITIES 

On  the  following  pages  are  printed  examples  illustrating  typical 
forms  of  bonds  and  of  stock  certificates.^  The  reproductions  are  in 
no  cases  facsimiles.  They  do,  however,  repeat  the  wording  of  the 
original  documents. 

*  The  examples  of  bonds  are  taken  from  W.  G.  Sumner,  Specimens  of  InvesPmeni 
Securiiies,  E.  P.  Judd  Co.,  1901.  The  forms  of  stock  certificates  are  taken  from 
actual  certificates. 


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[FosM  OF  Assignment  on  the  Back  of  the  Pennsylvania  Railroad 
Company  Stock  Certificate] 


g  ^  that ,  the  undersignedjor  value  received^  have  bargained, 

I  5  sold,  assigned,  and  transferred,  and  by  these  presents  do 

^  S  bargain,  sell,  assign,  and  transfer,  unto 

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1 1      Shares  of  the  Capital  Stock  of  The  Pennsylvania 

z  g      Railroad  Company,  and  do  hereby  constitute  and  appoint 


%  8      true  and  lawful  Attorney,  irrevocable,  for.— _and  in. 


S  5  name  and  stead,  but  to  the  use  of  the  above-named  assignee 

I  g  to  make  and  execute  aU  necessary  acts  of  assignm^ent  and 

g  g  transfer  of  the  said  stock  on  the  books  of  the  said  Company^ 

8  I  and  Attorneys  one  or  more  to  substitute  with  likefuU  power 

^  for  the  purposes  aforesaid,  hereby  ratifying  and  confirming 

g  8  all  that  said  Attorney,  or  his  substitute  or  substitutes  shall 

1  «  lawfuUy  do  by  virtue  hereof. 
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S  55      hand  and  seal,  this day 

2  \      of _ one  thousand  nine  hundred 

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S  g  5   Signed,  Sealed,  and  Delivered 
fl  0  "  ift  presence  of 


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[FosM  OF  Assignment  on  the  Back  of  the  United  States  Steel  Corporation 
Preferred  Stock  Certificate] 


For  value  Received hereby  selly  assign^  and  transfer  unto    6  s  i 

s  S  " 
Shares    I^B 

sis 

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of  the  Capital  Stock  represented  by  the  within  Certificate 
and  do  hereby  irrevocably  constitute  and  appoint 

Attorney 

to  transfer  the  said  stock  on  the  Books  of  the  within  named    \^\ 
Corporation  with  full  power  of  substitution  in  the  premises,    g  g  | 


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252  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

71.    THE  BASIS  OF  CAPITALIZATION' 

I.      ORIGINAL  INVESTMENT 

The  popular  theory  on  this  subject  is  that  capitalization  should  be 
based  on  the  original  cost  of  the  property  or  the  actual  investment  of 
capital  in  the  enterprise.  The  stocks  and  bonds  should  represent 
money  paid  in.  It  is  contended  that  investors  are  entitled  to  fair 
returns  upon  this  amoimt,  but  to  nothing  more. 

The  proposition  that  capital  be  limited  to  the  real  investment 
seems,  on  first  examination,  to  be  a  fair  one,  but  further  reflection 
will  show  that  there  are  certain  objections  to  such  a  nile.  In  some 
cases  the  actual  amount  invested  in  the  enterprise  would  give  too  high 
and  in  other  cases  too  low  a  capitalization.  This  basis  would  give 
too  high  a  capitalization  in  cases  where  the  original  cost,  on  account  of 
high  price  of  labor,  high  rate  of  interest,  incompetence  of  manage- 
ment, or  other  causes  had  been  much  greater  than  would  be  the  present 
cost  of  building  the  road.  Another  factor  has  been  cogently  stated  in 
a  recent  case — 

The  state  can  not  permit  the  capitalization  of  dishonesty,  extravagance, 
or  incomi>etence,  nor  can  it  permit  the  burden  of  obsolete  industrial  pro- 
cesses or  administration  to  be  laid  on  future  generations. 

It  is  unquestionable  that  in  the  case  of  many  Western  roads  capital 
was  recklessly  squandered  in  the  process  of  construction.  The  basis 
of  original  cost  would  give  too  low  a  capitalization  in  the  case  of  roads 
which  have  been  compelled,  in  the  interest  of  unity  and  efficiency  of 
service,  to  make  heavy  expenditures  for  the  purchase  of  competing  or 
contributing  systems.  The  public  has  no  legitimate  daim  to  all 
gains  resulting  from  economy  in  the  refunding  of  indebtedness  and 
in  the  operation  of  roads.  It  seems  not  unreasonable  that  skillful 
management  should  be  capitalized  to  some  extent. 

II.      EARNING  CAPACITY 

The  preference  of  railroad  financiers  for  earning  capacity  as  a 
basis  of  railroad  capitalization  is  easily  understood.  Capitalization 
on  this  basis  enables  a  road  to  conceal  the  extent  of  its  profits  and  to 
absorb  increasing  revenue  without  incurring  public  displeasure  and 
arousing  agitation  for  lower  rates.  Furthermore,  a  company  that  is 
highly  capitalized  can  usually  be  sold  to  better  advantage  than  one 

'  Adapted  from  tbe  Final  Report  (Vol.  XIX)  of  the  Industrial  Commission 
(1902),  pp.  408-if 


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THE  ORGANIZATION  OF  INDUSTRY  253 

with  a  low  capitalization.  As  has  been  observed,  people  seem  to  like 
to  deal  in  large  figures,  and  the  average  investor  prefers  to  buy  200 
shares  of  stock  quoted  at  50  and  paying,  say,  3  per  cent,  than  100 
shares  of  stock  quoted  at  par  and  paying  6  per  cent.  A  large  capitali- 
zation, therefore,  is  thought  to  confer  some  advantage  for  purposes 
of  sale. 

There  are  two  legitimate  arguments  which  may  be  advanced  in 
favor  of  capitalization  on  the  basis  of  earning  capacity.  One  is  that — 
in  no  other  way  can  the  risks  incident  to  the  novel  enterprise,  repelling 
timid  capital,  be  overweighted  by  possible  profits  through  premiums  in 
the  form  of  securities  purchasable  at  discount. 

This  argument  does  not  hold,  however,  in  the  case  of  railroad 
undertakings  that  involve  no  real  initial  risk;  and  it  is  probably  true 
that  the  element  of  risk  in  most  railroad  enterprises  projected  in  recent 
years  is  very  inconsiderable.  The  second  argument  is  more  weighty. 
It  is  contended  that  a  quick  capital,  in  the  form  of  credit  or  cash,  is 
needed  for  the  profitable  operation  of  any  plant.    As  stated — 

Without  such  working  capital  the  plant,  not  being  a  "going"  concern, 
loses  much  of  its  value.  Consequendy,  it  b  urged,  capital  in  excess  of  the 
value  of  the  plant  may  rightfully  be  created  for  this  purpose  by  the  sale  of 
stocks  or  bonds. 

The  force  of  this  argument  is  considerably  qualified  by  the  con- 
sideration that  a  railroad  corporation  possesses  a  valuable  franchise, 
attachable  for  debt,  which  seems  to  give  sufficient  security  to  enable 
it  to  obtain  working  capital  by  the  ordinary  means. 

The  chief  objection  to  capitalization  on  the  basis  of  earning 
capacity  is  that  it  obscures  the  relation  between  rates,  wages,  and 
profits.  It  is  impossible  to  discover,  without  a  careful  appraisal  of  the 
property,  whether  an  overcapitalized  road  is  earning  more  than  a  fair 
return  upon  the  investment.  The  principle  is  generally  accepted  at  the 
present  time  that  capital  is  not  entitled  to  more  than  a  certain  fair 
rate  of  profits.  The  issuance  of  additional  securities  on  the  basis  of 
increasing  earning  power  makes  it  possible  for  a  company  covertly  to 
secure  exorbitant  returns  on  the  actual  investment.  This  objection 
seems  conclusive  against  the  policy  of  full  capitalization  up  to  the 
limit  of  earning  power. 

III.      COST  OF  REPRODUCTION 

Neither  original  cost  nor  earning  power,  then,  furnishes  an  entirely 
satisfactory  basis  of  capitalization.    As  a  substitute,  cost  of  repro- 


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254  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

duction  has  been  suggested,  and  in  some  cases  applied.  By  this  is 
meant  simply  the  actual  cost  of  laying  down  the  roads  at  the  present 
time,  including  proper  allowance  for  value  of  terminals  and  right  of 
way.  Whether  the  present  capitalization  of  American  railroads  is 
in  excess  of  the  probable  cost  of  reproduction  is  dbputed.  By  some 
it  is  asserted  that  railroad  capital  is  much  greater  than  the  cost  of 
constructing  the  roads  at  the  present  time.  By  others  it  k  declared 
to  be  actually  less. 

IV.      COMBINATION  OF  FACTORS  IN  CAPITALIZATION 

It  would  seem  that  a  fair  basis  of  capitalization  is  to  be  found  only 
by  taking  into  consideration  both  cost  of  reproduction  and  earning 
capacity.  The  United  States  Supreme  Court,  in  the  case  of  Smythe 
vs.  Ames  has  decided  that  the  following  items  should  be  considered 
in  estimating  the  value  of  railroad  property:  The  original  cost  of 
construction,  the  amount  expended  in  permanent  improvements,  the 
amount  and  market  value  of  its  bonds  and  stock,  the  present  as  com- 
pared with  the  original  cost  of  construction,  the  probable  earning 
capacity  of  the  property  under  particular  rates  prescribed  by  statute, 
and  the  sum  required  to  meet  operating  expenses.  The  Nebraska 
Maximum  Freight  Rate  Case  also  bears  directly  upon  this  issue. 

A  valuation  of  railroad  property,  with  regard  to  both  cost  of 
reproduction  and  earning  capacity,  was  undertaken  recently  by  the 
Board  of  Tax  Commissioners  of  Michigan.  The  commission  imder- 
took,  first,  to  appraise  the  physical  properties  of  the  roads,  and, 
second,  to  appraise  what  might  be  termed  the  nonphysical  elements 
in  their  value.  In  appraising  the  physical  properties  the  cost  of 
reproduction  was  taken  as  a  basis.  This  was  determined  by  a  thorough 
survey  of  the  roads,  made  by  experts.  The  nonphysical  elements  of 
railroad  property,  which  constitute  what  is  usually  called  the  franchise 
value  of  railway  corporations,  were  valued  according  to  a  plan  devised 
by  Professor  Henry  C.  Adams.  This  value  was  determined  (i)  by 
deducting  aggregate  expenses  of  operation  from  gross  earnings  and 
adding  the  income  from  corporate  investments;  (2)  by  deducting  from 
the  total  income  thus  obtained  an  amount  properly  chargeable  to 
capital — that  is,  a  certain  per  cent  on  the  appraised  value  of  the 
physical  properties — rents  paid  for  the  lease  of  property  operated  and 
permanent  improvements  charged  directly  to  income ;  (3)  by  capitaliz- 
ing the  remainder  at  a  certain  rate  of  interest.  Exceptions  from  this 
procedure  were  made  in  the  case  of  particular  roads  peculiarly  situ- 


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THE  ORGANIZATION  OF  INDUSTRY  255 

ated.  This  method  of  valuation  would  seem  to  give  the  true  basis  of 
capitalization,  which  would  then  represent  both  the  cost  of  repro- 
ducing the  property  and  the  franchise  value  arising  from  surplus 
earning  capacity.  Such  a  valuation  of  railroad  property  is  useful 
for  purposes  both  of  taxation  and  of  rate  making. 

The  relation  of  capitalization  to  rates  is  a  much-debated  question. 
Opinions  differ  as  to  whether  overcapitalization  results  in  an  increase 
of  freight  and  passenger  charges.  Hon.  Martin  A.  Knapp,  Chairman 
of  the  Interstate  Conmierce  Commission,  testified  before  the  Indus- 
trial Commission  that  he  had  not  seen  an  instance  in  which  rates 
seemed  much  to  depend  upon  or  be  influenced  by  the  capitalization  of 
the  road.  Capitalization,  he  held,  cuts  no  figure  in  the  rate  question. 
He  admitted,  however,  that  when  the  reasonableness  of  a  particular 
rate  was  called  into  question,  capitalization  had  to  be  considered  in 
determining  what  the  road  in  question  ought  to  charge.  In  deciding 
upon  the  reasonableness  or  unreasonableness  of  a  road's  charges  the 
Interstate  Commerce  Commission  takes  into  consideration  its 
financial  condition.  If  a  road  is  embarrassed  with  fixed  charges  of 
large  amount,  a  rate  may  be  justifiable  which  would  be  altogether 
unreasonable  in  the  case  of  a  road  with  only  slight  incumbrances 
of  indebtedness. 

Mr.  T.  L.  Woodlock,  a  witness  before  the  Industrial  Conmiission, 
also  maintains  that  rates  are  not  affected  by  overcapitalization. 
Capitalization,  he  declares,  has  no  bearing  whatever  on  rates  or 
earnings.  It  is  a  resultant  of  forces,  and  not  a  force  itself.  Similarly, 
Mr.  H.  T.  Newcomb,  then  chief  of  the  Division  of  Statistics  of  the 
United  States  Department  of  Agriculture,  is  of  the  opinion  that  stock 
watering  has  no  material  bearing  on  rates.  In  support  of  this  opinion 
the  general  fact  of  the  heavy  decline  in  railroad  rates  since  1870  is 
cited.  Mention  is  also  made  of  particular  roads  which  have  increased 
their  capitalization  and  at  the  same  time  reduced  rates.  The  New 
York  Central  has  increased  its  capitalization  since  1892  from  $202,000 
to  $348,000  per  mile,  yet  rates  have  steadily  declined.  On  the  other 
hand,  the  Southern  Pacific  has  a  remarkably  low  capitalization  of 
only  $18,000  per  mile,  yet  its  rates  are  so  high  as  to  arouse  public 
antagonism. 

It  may  be  conceded  upon  this  point  that  fixed  charges  and  divi- 
dends do  not  directly  affect  rates.  The  main  consideration  in  the 
adjustment  of  railroad  charges  is  the  development  of  traffic.  The 
cost  of  service  enters  in  only  so  far  as  the  actual  expense  of  hauling 


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2S6  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

goods  constitutes  a  minimum  below  which  rates  are  not  reduced. 
Above  this  minimum,  Kites  are  determined  by  the  possibility  of 
developing  traflSc. 

But  indirectly  capital  does  have  some  connection  with  rates. 
In  the  long  nm  excessive  capitalization  tends  to  keep  rates  high; 
conservative  capitalization  tends  to  make  rates  low.  Rates,  as  we 
have  seen,  are  governed  by  "what  the  traffic  will  bear."  An  impor- 
tant element  in  determining  what  the  traffic  will  bear  is  the  pressure 
of  competition,  where  this  exists.  Two  kinds  of  competition  are  to  be 
distinguished  here,  which  have  been  termed,  respectively,  direct  and 
indirect  competition.  Direct  competition  is  that  between  lines  cover- 
ing the  same  territory  or  connecting  the  same  terminals;  indirect 
competition  takes  place  between  roads  having  no  territory  in  com- 
mon but  serving  producers  who  are  competing  for  the  supply  of  the 
same  markets. 

Our  wheat  roads  must  compete  not  only  with  those  in  Canada, 
but  with  Indian,  Russian,  and  Argentine  railroads,  as  well  as  with 
enormous  maritime  agencies  all  over  the  world.  This  sort  of  indirect 
competition  in  the  distribution  of  products  puts  a  certain  check  upon 
rates,  even  where  direct  competition  is  entirely  absent.  Where 
competition  of  either  kind  exists,  rates  are  not  dominated  by  the 
amoimt  of  capitalization.  But  competition  in  either  form  is  not 
always  present.  Where  it  is  absent,  overcapitalization  with  high 
fixed  charges  and  dividend  requirements  may  lead  to  the  raising  of 
rates  above  the  amount  that  would  give  reasonable  returns  upon  the 
actual  investment. 

High  capitalization  tends,  moreover,  to  keep  up  rates  by  prevent- 
ing voluntary  concessions  which  might  otherwise  have  taken  place. 
A  company  paying  high  dividends  may  find  it  expedient  to  lower  its 
rates  in  order  that  the  appearance  of  exorbitant  profits  may  not 
excite  a  hostile  public  opinion.  But  if  returns  from  excessive  rates 
can  be  distributed  in  dividends  on  watered  capital,  the  public  is  not 
aroused  to  demand  reductions.  High  capitalization,  therefore,  has 
at  least  an  indirect  bearing  on  rates.  The  amoimt  of  railroad  capital 
is  not  to  be  r^arded  as  a  matter  of  no  concern  to  shippers. 


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THE  ORGANIZATION  OF  INDUSTRY  257 

72.    METHODS  OF  STOCK  WATERING' 

Methods  of  inflating  capitalization  are  various.  Formerly  sheer 
fraud  was  often  practiced  in  issuing  stock  for  speculative  purposes. 
Between  1868  and  1872,  for  example,  the  share  capital  of  the  Erie 
Road  was  increased  from  $17,000,000  to  $78,000,000  for  the  purpose 
of  manipulating  the  market.  This  action  led  the  Board  of  the  New 
York  Stock  Exchange  in  1869  to  refuse  to  quote  the  Erie  shares. 
Another  fraudulent  device  consisted  in  paying  excessive  simis  to 
diunmy  construction  companies,  composed  of  members  of  the  railroad 
company  and  their  friends.  For  instance,  the  original  Southern  Pa- 
cific road  cost  actually  only  $6,500,000;  although  it  is  a  matter  of 
record  that  $15,000,000  was  paid  a  construction  company,  and  the 
bankers'  syndicate,  which  financed  the  road,  received  $40,000,000 
in  securities,  or  an  average  of  $6  in  bonds  and  stock  for  each  dollar 
of  actual  cost.  The  same  thing  happened  in  connection  with  other 
Pacific  roads.  It  was  also  not  uncommon  for  directors  of  railroad 
companies  to  purchase  other  railroad  properties,  and  then  sell  them 
to  their  own  company  at  excessive  prices.  Again,  stock  has  in  many 
instances  been  given  away  by  railroad  companies  simply  as  a  bonus 
to  bait  piu*chasers  of  the  bonds  which  the  concerns  were  trjdng  to  float. 
It  is  well  known  that  the  New  York  Central,  Erie,  Reading,  St.  Paul, 
Chicago  and  Northwestern,  gave  away  in  this  manner  a  portion  of 
their  earlier  stock  issues.  These  flagrant  methods  of  stock  watering 
have  been  largely  discontinued  during  recent  years. 

The  principal  methods  of  stock  watering  still  employed  are  the 
following: 

1.  The  commonest  is  the  payment  of  so-called  stock  dividends  to 
shareholders.  "These  consist  either  of  an  outright  bonus  of  new 
shares  of  stocks  or  bonds,  or  in  a  mitigated  form,  of  stocks  sold  below 
par  or  at  less  than  market  quotations."  Examples  are  the  80  per 
cent  stock  dividend  of  the  New  York  Central,  in  1868;  the  Reading 
scrip  dividends  between  the  years  1871  and  1876;  the  Chicago, 
Burlington  and  Quincy  and  Atchison  stock  dividends  of  20  per  cent 
and  50  per  cent,  respectively,  in  1880  and  1881 ;  and  the  famous  Boston 
and  Albany  distribution  of  state  stock  in  1882. 

2.  Consolidation  of  railroad  properties  offers  opportimities  to 
increase  capital  surreptitiously  in  various  ways,     (a)  One  is  through 

'  From  the  Final  Report  (Vol.  XIX)  of  the  Industrial  Commission  (1902), 
pp.  405-7. 


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258  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

the  issue  of  new  stock  to  defray  the  entire  expenses  of  betterment  of 
the  operating  plant,  (b)  Sometimes,  again,  the  constituent  companies 
are  gerrymandered  so  that  the  successful  concerns  with  surplus  earn- 
ings are  combined  with  roads  less  favorably  situated,  thus  making 
it  possible  to  distribute  earnings  at  a  comparatively  low  dividend 
rate,  (c)  The  third  device  connected  with  consolidation  consists  in 
substituting  a  high-grade  for  a  low-grade  security.  A  weak  com- 
pany, whose  stock  is  quoted,  say,  at  50,  may  be  merged  in  a  second 
corporation  whose  stock  stands  at  100.  The  latter  may  then  issue 
new  stock  worth  $100  in  exchange  for  the  $50  stock,  share  for  share. 

3.  A  third  method  is  the  substitution  of  stock  issues  for  funded 
debt.  It  has  the  advantage  of  giving  great  elasticity  to  future 
dividend  possibilities.  The  substitution  of  8  per  cent  stock  for  4  per 
cent  bonds  facilitates  the  absorption  of  increasing  earnings  in  the 
future.  The  stocks  also  permit  of  cessation  of  dividends  during 
periods  of  depression.  The  substitution  of  stocks  for  bonds  in  thk 
way  is  not,  however,  so  harmful  to  the  public  interest,  provided  the 
stock  issues  are  subject  to  control  by  state  conmiissions. 

4.  Another  expedient  for  increasing  capitalization  is  the  fimding  of 
contingent  liabilities.  Large  amounts  of  such  liabilities,  in  the  form 
of  bills  payable,  wages  and  salaries  due,  and  the  like,  may  be  covered 
by  issues  of  interest-bearing  scrip.  This  is  unquestionably  bad 
financiering,  as  floating  debts  should,  in  general,  be  provided  for 
out  of  earnings. 


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VII.  EXAMPLES  OF  MODERN  CAPITALISTIC 
ORGANIZATION 

A.    RAILROADS 

73.    TRANSPORTATION  COSTS  IN  THE  PIONEER  MIDDLE 

WEST' 

About  the  year  1805,  the  usual  price  of  carriage  over  the  country 
roads  was  stated  to  have  been  50  cents  for  100  pounds  for  every 
twenty  miles.  At  this  rate,  com,  which  before  1835  rarely  sold  for 
as  much  as  35  cents  per  bushel,  would  not  stand  the  expense  of 
moving  twenty-five  miles,  even  though  it  had  been  produced  without 
cost.  On  the  same  basis,  the  area  in  which  wheat  could  be  sold  at 
a  profit  to  the  farmer  was  limited  to  a  radius  of  from  fifty  to  seventy- 
five  miles.  In  Kentucky,  the  most  populous  state  in  the  West  in 
1805,  "there  was  not  a  single  species  of  product,  with  the  exception 
of  ginseng,  that  would  bear  the  expense  of  carriage  by  land  from  that 
state  to  Philadelphia."  In  view  of  this  situation,  it  is  easy  to  see 
why  the  farmers  turned  their  com  into  whiskey,  or  fed  it  to  hogs, 
driving  the  animals  to  market,  rather  than  attempting  to  make  a 
profit  from  the  sale  of  the  grain.  The  same  condition  that  made  it 
unprofitable  for  the  farmer  to  ship  bulky  articles  like  grain,  made  it 
impossible  for  him  to  import  from  any  great  distance  tools  used  on 
the  farm,  including  heavy  agricultural  implements,  and  thus,  in  the 
absence  of  adequate  means  of  transportation,  the  burden  of  manu- 
facture fell  upon  the  small  mechanics,  chiefly  blacksmiths,  in  every 
locality — a  fact  which  explains  the  wide  dispersion  of  manufacturing 
industry  during  the  pioneer  days. 

Not  only  were  the  various  portions  of  the  West  in  a  large  measure 
isolated  from  each  other,  but  because  of  the  distance  down  river  by 
way  of  New  Orleans  and  the  ocean  to  the  sea-board  cities  of  the 
Atlantic,  and  on  account  of  the  bad  roads  over  the  Alleghany  Moun- 
tains, the  westem  region  as  a  whole,  before  the  building  of  the  canals, 
was  shut  out  from  any  considerable  commercial  relation  with  the 
East.  These  difficulties  are  reflected  in  the  freight  rates  prevailing 
between  the  East  and  West  during  the  pioneer  period.    In  1784  it 

'Adapted  from  Isaac  LippincOtt,  "Pioneer  Industry  in  the  West,"  in  The 
Journal  of  PoliUcal  Economy,  XVIII,  270-72  (April,  1910). 

259 


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26o 


MATERIALS  FOR  ELEMENTARY  ECONOMICS 


cost  $249  a  ton  to  bring  iron  from  Philadelphia  to  Presque  Isle  (Erie), 
Pennsylvania.  Salt,  a  very  necessary  article,  brought  over  the  moun- 
tains on  the  backs  of  animals,  sold  for  as  much  as  eight  and  ten 
dollars  a  bushel,  its  great  cost  making  the  quest  of  salt  springs  one 
of  the  very  first  duties  of  the  western  pioneers.  Between  Pittsburg 
and  Wheeling  and  the  eastern  cities  the  freight  rate  for  years  ranged 
from  $5.00  to  $8.00  per  hundredweight.  To  the  more  distant 
points  in  the  Ohio  valley  the  rate  was,  of  course,  higher.  The  cost 
of  bringing  one  hundred  pounds  from  New  Orleans  to  Pittsburg 
by  flatboat  or  barge  during  the  years  1786  to  181 1  had  been  about 
$6.75  per  hundredweight.  In  1802  the  cost  of  carriage  from  Phila- 
delphia and  Baltimore  to  Lexington,  Kentucky,  ranged  from  $7.00 
to  $8.00  per  hundred.  From  Baltimore  to  Zanesville,  Ohio,  the  rate 
was  $10.00  in  181 8,  and  up  river  from  New  Orleans  to  Zanesville, 
via  Shippingport,  it  was  $6. 50. 

74.    WIDENING  OF  THE  MARKET  THROUGH  IMPROVED 
TRANSPORTATION 

Assuming  wheat  to  be  worth  $1.00  a  bushel  and  corn  50  cents 
a  bushel  at  the  market,  and  that  there  are  33  bushels  in  a  ton  of  each, 
the  following  indicates  the  value  of  a  ton  of  either  at  given  distances 
from  the  market  under  varying  methods  of  transportation.  It  is 
assumed  that  cost  of  transportation  over  the  ordinary  highway  of 


Wheat 


Transported  over 


Highway 


Early 
Railroad 


Modern 
Railroad 


COKN 


Transported  over 


Highway 


Early 
Railroad 


Modem 
Railroad 


Value  at  market . . . 
25  miles  distant. . 
50  miles  distant. . 

100  miles  distant. . 

150  miles  distant.. 

200  miles  distant. . 

300  miles  distant. . 

500  miles  distant. . 
1,000  miles  distant. . 
2,000  miles  distant. . 
3,000  miles  distant. . 
4,000  miles  distant. . 
5,000  miles  distant.. 
6,000  miles  distant. . 
7,000  miles  distant. . 


$33  00 
29.25 
25.50 
18.00 
10.50 
3  00 
o 


$33.00 
32.63 
32.25 
31.50 
30.75 
30.00 
28.50 
25.50 
18.00 
3.00 
o 


$33.00 

32.88 

32.75 

32.50 

32.25 

32.00 

31.50 

30.50 

28.00 

23.00 

18.00 

13.00 

8.00 

3.00 

o 


$16.50 
12.75 

9.00 

1-50 

o 


$16.50 
16.13 

15.75 
15.00 
14.25 
13.50 

12.00 
9.00 

1.50 

o 


$16.50 

16.38 

16.25 
16.00 

15.75 
15.50 
1500 
14.00 
11.50 
6.50 
1.50 

o 


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MODERN  CAPITALISTIC  ORGANIZATION  261 

about  1850  was  15  cents  per  ton  mile,  over  the  railroad  of  that  period 
ij  cents  per  ton  mile,  and  over  the  railroad  of  today  J  cent  per  ton 
mile.  While  the  actual  figures  used  are  only  approximations  they 
give  a  substantially  correct  conception  of  the  widening  of  the  market 
for  a  commodity  through  improved  means  of  transportation.  If, 
moreover,  we  deduct  from  the  values  here  indicated  the  farmer^s  cost 
of  growing  the  grain,  it  will  be  better  appreciated  how  extremely 
limited  the  inland  markets  were  before  the  railroads  came  in. 

75.  THE  RELATION  OF  THE  TRANSPORTATION  CHARGE 
TO  PRICES' 

The  price  paid  by  the  housekeeper  per  dozen  for  eggs  diuing  the 
season  of  shipment  seldom  exceeds  by  more  than  five  cents  the  price 
received  by  the  western  fanner  who  takes  them  to  the  coimtry  store. 
That  is,  the  railroads  bring  eggs  a  thousand  miles  to  New  York  for 
a  cent  or  a  cent  and  a  half  a  dozen,  and  two  thousand  miles  or  so  for 
about  two  cents  and  a  half  a  dozen,  the  dealers  taking  the  remainder 
of  the  five  cents  as  payment  for  handling.  The  net  difference  between 
the  price  paid  per  poimd  for  butter  at  the  creamery,  whether  in 
New  York  City  or  in  the  Mississippi  Valley,  and  that  paid  by  the 
New  York  retail  dealer  averages  about  one  and  one-half  cents  for 
commission  and  one  cent  for  freight. 

In  December,  January,  and  February  turkeys  are  taken  from  the 
Texas  ranches  to  marketing  centers,  the  transportation  charge  on 
ten  birds  weighing  one  himdred  and  twenty  pounds  being  about  2$ 
cents.  After  these  ten  birds  have  been  dressed  and  packed  they 
weigh  about  one  himdred  and  two  poimds,  and  the  freight  rate  from 
Texas  to  New  York  is  $1.50  for  100  poimds.  That  is,  a  Texas 
turkey  that  retails  in  the  New  York  market  for  20  cents  a  pound  will 
have  paid  one  and  three-fourths  cents  per  pound  to  the  raihroads  that 
took  it  from  the  ranch  to  the  concentration  point  and  thence  to  the 
market.  The  fanner  in  Texas  received  about  nine  cents  per  pound, 
leaving  a  trifle  over  nine  cents  to  be  divided  between  the  packing- 
house, the  produce  merchant,  and  the  retail  dealer. 

The  rail  rate  from  Chicago  to  New  York  on  grain  and  grain 
products  for  domestic  consumption  has  been  about  17^  cents  per  100 
poimds;  that  is,  a  bushel  of  oats  or  com  or  wheat,  that  may  bring 
in  New  York  anywhere  from  40  cents  to  $1 ,  has  been  brought  from  the 

'Adapted  from  Logan  G.  McPherson,  Railway  Freight  Rates,  pp.  48-66 
Henry  Holt  &  Co.,  1909. 


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262  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

western  fann  for  from  eight  to  fifteen  cents.  Hay  that  has  yielded 
the  farmer  $18  or  $19  a  ton  and  sells  in  New  York  at  about  $24  has 
paid  the  railroads  somewhere  from  $3  to  $5  per  ton,  according  to 
whether  it  came  from  the  meadows  of  the  Ohio  or  the  Mississippi 
valleys. 

On  potatoes  the  freight  rate  per  barrel  containing  about  two  and  a 
half  bushels  b  $1.05  from  Florida,  65  cents  from  South  Carolina, 
45  cents  from  North  Carolina,  30  cents  from  Virginia,  and  from  this 
12  cents  per  bushel  the  rate  scales  down  to  five  or  six  cents  per  bushel 
from  nearby  regions.  The  freight  rate  on  tomatoes  from  Florida  is 
25  cents  per  package  of  six  baskets, -from  Texas  15  cents  for  twelve 
quarts,  from  Mississippi  76  cents  per  100  pounds,  and  from  the  nearby 
farms  eight  cents  per  bushel  of  tw«ity-eight  quarts.  The  freight 
rate  on  cantaloups  to  New  York  ranges  from  less  than  a  cent  for  a 
melon  from  the  Carolinas  to  about  two  and  a  half  cents  for  that  from 
California.  Oranges  from  Florida  to  New  York  pay  the  railroads  from 
four  to  nine  cents  a  dozen,  and  those  from  California  six  to  twelve  cents 
a  dozen,  as  they  may  be  large  or  small.  A  three-pound  can  of  tomatoes 
from  Maryland  pays  the  railroad  about  one-half  cent  per  can. 

The  freight  rates  to  New  York  on  foodstuffs  have  been  selected  as 
typical  of  the  transportation  charges  applying  on  such  commodities 
in  the  main  channels  of  traffic  from  the  West  to  the  East;  and,  in  so 
far  as  fruits  and  vegetables  are  concerned,  from  the  South  to  the 
East.  The  transportation  charge  per  consimier's  unit  on  these 
foodstuffs  is  a  trifle  less  to  Philadelphia  and  adjacent  Delaware  and 
New  Jersey;  another  fraction  lower  to  the  great  Pittsburgh  dbtrict, 
and  still  lower  to  the  cities  of  the  West  and  South  that  are  nearer 
the  places  of  production.  As  prices  of  food  products  fluctuate  within 
a  fairly  wide  range  and  freight  rates  also  fluctuate,  though  within 
but  a  very  narrow  range,  the  rates  and  prices  specified  in  the  fore- 
going, as  well  as  in  the  succeeding  paragraphs  of  this  chapter,  cannot 
be  considered  as  of  specific  application  at  any  given  time  in  the 
future.  They  were  exact  at  the  time  they  were  collated  and  will 
very  closely  approximate  accuracy  at  any  period. 

As  New  York  may  be  considered  representative  of  the  places  to 
which  edible  products  of  the  West  and  South  are  consigned,  so  also 
may  St.  Louis  be  considered  a  typical  center  of  reception  of  the 
manufactured  products  of  the  East.  The  information  given  in  the 
inmiediately  following  paragraphs  was  obtained  from  merchants  and 
manufacturers  of  that  city. 


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MODERN  CAPITALISTIC  ORGANIZATION  263 

The  transportation  charge  on  the  material  entering  into  a  pair  of 
shoes  made  in  a  St.  Louis  factory  averages  one  and  one-quarter  cents. 
The  transportation  charge  required  to  place  that  pair  of  shoes  in  the 
hands  of  a  consumer  in  any  part  of  the  United  States  averages  between 
two  and  three  cents.  The  material  entering  into  an  ordinary  bed- 
stead, such  as  retails  in  St.  Louis  for  $S,  will  have  paid  the  railroad 
about  40  c«its.  From  ten  poimds  of  nails  made  in  Pittsburgh  and 
retailed  in  St.  Louis  the  railroad  will  have  obtained  a  trifle  over  two 
cents,  and  from  ten  pounds  of  wire  two  and  one-half  cents.  An  axe 
made  in  the  Pittsburgh  district  that  retails  in  St.  Louis  for  $1  will 
have  paid  the  railroads  one  and  one-fourth  cents.  At  Kansas  City 
that  same  axe  will  have  paid  freight  of  a  fraction  over  four  cents,  and 
at  Denver,  where  the  retail  price  will  have  advanced  to  $1 .  30,  it  will 
have  paid  14  cents  freight.  A  padlock  retailing  in  St.  Louis  at 
50  cents  will  have  paid  the  railroads  a  little  more  than  one-half  cent; 
at  Kansas  City  it  will  have  paid  one  cent,  and  at  Denver,  where 
the  retail  price  advances  to  75  cents,  it  will  have  paid  two  cents 
to  the  railroads.  An  eighteen-gallon  galvanized  iron  tub  that  retails 
in  St.  Louis  at  80  cents  will  have  paid  the  railroad  from  place  of  manu- 
facture two  and  three-tenths  cents;  to  Kansas  City  the  freight  rate 
will  have  been  six  and  one-fourth  cents,  and  to  Denver  15  cents, 
but  here  the  retail  price  of  that  tub  is  $1.  A  stove  that  weighs 
two  himdred  pounds  and  retails  in  St.  Louis  for  $1 8  will,  in  carload  lots, 
pay  44  cents  to  Kansas  City  or  Omaha,  and  retail  there  for  $22; 
$1 .48  to  Denver,  and  retail  there  for  $25;  $2 .  50  to  Seattle,  and  retail 
there  for  $30.  When  a  housewife  of  St.  Louis  buys  a  dozen  clothes- 
pins she  has  paid  the  railroad  five  ten  thousandths  of  a  cent.  If  she 
buys  a  washboard  at  50  cents  she  has  paid  the  railroad  forty-two 
one  himdredths  of  a  cent.  In  Denver  she  would  pay  for  that  wash- 
board 60  cents,  of  which  the  railroad  would  have  received  two  cents. 
The  higher  rates  and  prices  that  have  been  specified  as  applying  in 
Kansas  City  and  Denver  may  also  be  taken  as  applicable  to  cities 
in  the  interior  South  and  Southwest,  such  as  Oklahoma,  Fort  Worth, 
and  San  Antonio. 

In  response  to  inquiries  made  concerning  certain  staple  articles 
of  daily  and  general  use  in  various  of  the  smaller  cities  and  towns 
extending  from  Massachusetts  to  Georgia  and  Illinois,  and  from 
Michigan  to  Mississippi,  it  has  been  ascertained  that  throughout 
this  region  the  transportation  charge  on  such  articles  ranges  as 
follows:  On  a  man's  suit  of  clothes,  from  two  to  eight  cents;  on  calicoes 


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264  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

and  ginghams,  from  one-fiftieth  of  a  cent  to  one-fifth  of  a  cent  a  yard; 
the  freight  charge  paid  on  the  entire  apparel  of  a  fully  dressed  man 
or  woman  in  this  section  would  range  perhaps  from  six  or  seven  to 
16  or  18  cents.  The  rate  on  an  ordinary  dining-room  suite  consist- 
ing of  table,  sideboard,  six  chairs,  and  a  china  closet  would  average 
from  75  cents  to  $5,  on  a  parlor  suite  of  sofa  and  four  chairs  from 
50  cents  to  $4,  on  a  bedstead  and  its  equipment  from  75  cents 
to  $1 .  50,  in  each  case  from  the  factory  to  the  home.  The  limiber 
used  in  the  ordinary  eight-room  house  will  have  paid  the  railroads  from 
$35  to  $150,  and  the  brick  from  $6  or  $8  to  $50  or  $60,  as  the  kihi  may 
be  near  or  remote.  A  fifty-pound  sack  of  flour  from  the  mill,  even  at 
Minneapolis,  in  but  a  few  cases  has  paid  a  freight  rate  of  over  eight  or 
nine  cents  to  the  consimier.  Products  of  the  beef  or  the  hog  are  car- 
ried from  the  western  packing-houses  throughout  this  territory  at  rates 
that  vary  from  a  fifth  of  a  cent  to  not  exceeding  a  cent  per  pound. 

The  transportation  charge  on  a  pair  of  rubber  overshoes,  including 
the  rubber  from  South  America,  the  cotton  stock,  and  the  shipment  to 
the  western  markets,  averages  about  two  and  one-half  per  cent  of 
the  cost  of  those  markets.  That  is,  a  pair  of  rubber  overshoes  retail- 
ing for  75  cents  will  have  paid  for  transportation,  all  told,  less  than 
one  and  nine-tenths  cents. 

The  claim  of  the  railroads  that  the  rates  on  foodstuffs  are  not  high 
enough  to  enter  as  a  factor  in  fixing  the  selling  price  is  fully  substanti- 
ated by  the  statements  of  the  dealers  in  such  products.  That  is, 
the  conditions  are,  with  negligible  exceptions,  such  that  if  the  price 
obtainable  in  the  markets  be  sufficient  to  encourage  the  growing  of 
livestock,  grains,  dairy  products,  fruits,  or  vegetables,  the  rate  of 
freight,  from  whatever  locality  to  whatever  market,  is  sufficiently 
low  to  allow  the  producer  to  enter  that  market.  His  profits  are, 
however,  as  a  matter  of  course,  diminished  by  the  amoimt  of  freight 
which  he  pays,  and,  as  a  rule,  the  farther  the  place  of  production  from 
the  markets  the  greater  is  the  freight  charge.  The  differences  in  the 
net  return  to  the  producer  are  almost  invariably  reflected  in  the  value 
of  the  land,  which  is  lower  as  the  distance  from  the  markets  is  greater. 
Largely  because  of  the  defective  system  of  mercantile  distribution  the 
grower  of  foodstuffs  obtains  a  smaller  proportion  of  the  price  paid  by 
the  consumer  than  accrues  to  the  grower  of  any  other  agricultural 
product. 

The  rates  on  raw  materials  are  so  adjusted  as  to  permit  the  manu- 
facture of  any  staple  article  at  any  logical  place  of  manufacture.    On 


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MODERN  CAPITALISTIC  ORGANIZATION  265 

the  raw  material  of  wearing  apparel  the  freight  rate  is  entirely  \mini- 
portant.  On  the  lumber  that  enters  into  building  material,  on  the 
ore,  coke,  and  limestone  used  in  the  manufacture  of  iron  and  steel 
the  freight  rate  is  sufficient  to  become  an  appreciable  factor  in  the  cost 
of  manufacture.  On  brick,  coal,  and  cement  the  selling  price  is  the 
higher  by  the  amount  of  the  freight  charge,  which  for  distances  some- 
times not  considerable  exceeds  the  value  of  the  commodity  at  the 
place  of  production.  The  freight  charge,  even  on  those  heavier 
commodities,  however,  is  far  less  in  proportion  to  the  wage  of  the 
day  laborer  as  well  as  to  the  incomes  and  salaries  received  in  the 
United  States  than  in  any  other  country. 

Specific  complaint  in  regard  to  the  freight  rates  of  the  United  States 
for  many  years  has  not,  except  in  a  small  minority  of  cases,  been  based 
on  the  groimd  that  they  have  prevented  foodstuffs  from  finding  a 
market,  raw  material  from  reaching  places  of  manufacture,  or  finished 
products  from  distribution.  While  the  difference  of  a  cent  or  two 
in  the  rate  of  freight  may  not  in  the  least  interfere  with  the  conduct 
of  industry  or  commerce  in  the  aggregate,  such  a  slight  difference  may 
perhaps  determine  whether  a  manufacturer  obtain  his  raw  material 
from  this  or  that  source  of  supply,  whether  a  wholesale  dealer  obtain 
his  stock  from  the  manufacturer  in  one,  or  the  manufacturer  in  another 
dty,  whether  a  retail  dealer  make  his  purchases  from  the  wholesale 
dealer  in  this  city  or  in  that  dty.  That  is,  for  example,  the  prices  of 
the  products  at  the  sources  of  supply  being  equal,  a  difference  in  the 
rate  of  freight  may  determine  whether  Cleveland,  Ohio,  obtain 
potatoes  from  Michigan  or  from  upper  New  York;  whether  a  factory 
in  Louisville  obtain  coal  from  the  fields  of  southern  Indiana  or  central 
Kentucky.  A  carpenter  in  Des  Moines  may  perhaps  pay  a  dollar 
for  twenty  poimds  of  nails  without  knowing  or  caring  what  the  freight 
rate  may  have  been,  or  where  they  may  have  come  from.  A  differ- 
ence, however,  of  a  few  cents  a  hundred  pounds  in  the  rate  of  freight 
may  have  led  the  hardware  dealer  to  have  purchased  the  nails  in 
Chicago  or  St.  Louis  or  even  directly  from  Pittsburgh. 

As  the  purchase  of  raw  material  tends  toward  the  prosperity  of 
the  region  where  it  is  produced,  as  the  operation  of  a  factory  tends 
to  the  increase  of  population,  to  appreciation  in  the  value  of  real 
estate  and  the  augmentation  of  business  at  the  place  of  its  location,  so 
also  does  the  growth  of  a  wholesale  business  or  of  a  retail  business  aid 
in  the  development  of  its  surroimdings.  Producers,  manufacturers, 
wholesalers,  and  retailers  naturally  all  desire  to  extend  their  sales. 


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266  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

to  reach  further  markets  in  competition  with  their  rivals,  and  are 
supported  in  this  desire  by  the  commimities  to  whose  welfare  they 
contribute.  Any  difference  in  freight  rates  that  gives  a  producer  of 
raw  material,  a  manufacturer,  a  wholesale  distributer,  or  a  retail 
merchant  an  advantage  over  a  competitor  of  another  locality  is 
therefore  promptly  made  the  subject  of  complaint. 

76.    COSTS  IN  RAILROAD  OPERATION* 

The  costs  of  raikoad  transportation  may  be  divided  into  two 
classes:  (i)  the  direct,  or  variable  costs,  that  is  those  items  of  cost 
which  represent  the  extra  expenditure  to  which  a  rail  carrier  is  put 
by  the  transportation  of  any  particular  shipment,  e.g.,  extra  fuel  for 
power,  handling  of  the  freight,  etc. ;  (2)  indirect  or  constant  costs,  in- 
cluding those  expenditures  which  do  not  vary  with  each  shipment  but 
which,  within  certain  limits,  remain  the  same  irrespective  of  the 
amoimt  of  trafBc  carried,  e.g.,  taxes,  interest  on  bonds,  a  large  share 
of  the  cost  of  maintaining  roadbed,  etc.  While  no  sharp  line  can  be 
drawn  between  direct  and  indirect  costs,  it  is  necessary  to  examine 
in  the  rough,  the  relationship  existing  between  these  two  kinds  of 
cost. 

Railroad  expenditures,  aside  from  dividend  payments,  may  be 
divided  roughly  as  follows: 

1.  Maintienance  of  Way  and  Structures 15  per  cent 

2.  Maintenance  of  Equipment 14      " 

3.  Conducting  transportation 40      " 

4.  General  expense 3      " 

5.  Fixed  charges 28      " 

Total 100  per  cent 

The  expenditures  for  maintenance  of  way  and  structures  are 
made  up  of  several  items.  These  expenditures  vary,  partly  with  the 
amount  of  traflSc  carried,  and  partly  from  other  influences.  Heavy 
hauling  wears  on  rails,  roadbed,  bridges  and  culverts,  but  half  loaded 
trains  wear  nearly  as  much  as  loaded  ones.  The  elements  of  nature 
cause  rails  to  rust,  ties  to  rot,  and  wash  out  roadbeds,  while  bridges 
and  culverts  both  rust  or  rot,  and  become  out  of  date.  Repairs 
and  renewals  of  fences,  road  crossings,  signs,  and  cattle  guards  are 
not  in  the  least  affected  by  the  amount  of  freight  hauled.     Stations 

»  Adapted  from  J.  F.  Strombeck,  Freight  Classification ^  pp.  ii-iS,  32.  Hough- 
ton Mifflin  Co.,  191 2. 


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MODERN  CAPITALISTIC  ORGANIZATION  267 

do  not  wear  out,  but  on  accoimt  of  wind  and  weather  need  repainting 
and  repairing.  Docks  and  wharves  are  aflFected  by  the  volume  of 
business,  and  also  by  the  elements.  All  wear  and  tear  from  the  action 
of  the  elements  goes  on  irrespective  of  the  amoimt  of  traffic  carried. 
While  such  wear  and  tear  varies  according  to  climate,  soil,  rainfall, 
number  of  bridges,  etc.,  on  the  whole  it  may  be  said  that  of  the  total 
expenditures  required  for  maintenance  of  way  and  structures,  five- 
eighths  represent  constant  (indirect)  and  three-eighths  variable 
(direct)  expenses.  As  maintenance  of  way  and  structures  represents 
fifteen  per  cent  of  the  total  expenditures  aside  from  dividend  pay- 
ments, this  makes  9.37  per  cent  of  the  expenditures  constant  and  5 .  63 
per  cent  variable. 

Likewise  the  items  included  under  the  head  of  maintenance  of 
equipment  are  part  constant  and  part  variable.  Rolling  stock  gener- 
ally needs  repairs  because  worn  out.  These  repairs  vary  largely  with  the 
traffic.  Cars  are,  however,  worn  almost  as  much  by  carrying  a  half  as 
a  whole  load.  Engines  deteriorate  little  more  from  hauling  a  heavy 
load  than  from  a  light  one.  Locomotives  and  cars  are  replaced  by  new 
ones  quite  as  much  because  they  become  antiquated  and  out-of-date 
as  because  they  are  worn  out.  On  the  whole  it  is  probably  not  imf air 
to  apportion  expenditures  for  maintenance  of  equipment  equally 
between  constant  and  variable  expenses.  Maintenance  of  equip- 
ment pajrments  being  14  per  cent  of  the  total  pajonents  aside  from 
dividend  payments,  7  per  cent  may  be  called  constant  costs  and  7 
per  cent  variable. 

Taking  up  the  items  which  constitute  the  expenditures  for  con- 
ducting transportation,  it  is  found  that  station  expense,  cost  of  station 
service  and  supplies,  switchmen,  flagmen  and  watchmen,  signalling 
and  similar  items  are  practically  constant  costs.  Such  expenses  as 
wages  of  engineers  and  roundhouse  men,  cost  of  fuel  and  water,  train 
service  and  train  supplies,  and  items  of  similar  nature  are  variable, 
although  the  expense  for  a  full  train  does  not  differ  much  from  that 
for  an  empty  one. 

Roughly  speaking,  one  third  of  the  expense  of  conducting  trans- 
portation may  be  taken  as  constant.  These  expenditures  being  40 
per  cent  of  the  total  aside  from  dividend  payments  there  are  26.67 
per  cent  to  be  added  to  the  variable  and  13.33  per  cent  to  the 
constant  expenditures. 

The  items  of  general  expense  are  for  the  service  as  a  whole.  They 
are  only  slightly  affected  by  changes  in  traffic  and  should  be  con- 


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268  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

sidered  as  constant.    The  several  items  included  under  fixed  charges 
are  also  constant.    These  two,  i.e.,  general  expenses  and  fixed  charges, 
amount  to  3  per  cent,  and  28  per  cent  respectively. 
Summarizing  the  above  gives  the  following: 

Indirect         Direct 
Expenditures  (aside  from  dividend  payments)  or  or 

Constant      Variable 

1.  Maintenance  of  way  and  structures 9.37  5 .  63 

2.  Maintenance  of  equipment 7. 00  7. 00 

3.  Conducting  transportation 13 . 33  26. 67 

4.  General  expense 3 .  00 

5.  Fixed  charges 28.00 

Total 60. 70      39-30 

Thus,  approximately  60  per  cent  of  the  expenditures  analyzed 
are  constant  and  40  per  cent  are  variable.  It  must  be  remembered 
that  these  expenditures  do  not  include  payments  for  dividends,  reserve 
funds,  etc.,  and  therefore  the  proportion  of  an  average  freight  rate, 
under  average  conditions,  that  goes  to  cover  variable  expenditures 
is  less  than  40  per  cent  of  the  total.  This  item  of  variable  expendi- 
tures represents  what  might  well  be  termed  a  minimum  rate  which 
must  be  charged  on  every  shipment  carried.  Other  traffic  will  not 
be  burdened  if  additional  freight  is  carried  at  this  minimum  rate. 
There  are,  however,  cases  in  which  the  rate  might  properly  be  even 
less  than  this  minimum. 

One  fundamental  principle,  having  almost  universal  application, 
can  be  laid  down,  namely,  every  freight  rate  must  be  at  least  sufficiently 
high  to  provide  an  amount  of  revenue  which  equals  the  direct  costs  of  trans- 
porting the  commodity  upon  which  it  applies. 

Granting  this  principle,  there  remains  the  question,  how  shall  the 
indirect  costs  of  a  railway,  and  this  item  includes  a  fair  return  on 
investment,  be  apportioned  upon  the  several  unit  shipments  that  are 
carried?  This  is  where  the  real  difficulty  in  rate-making  begins. 
The  problems  connected  with  determining  the  minimum  rate  are 
largely  for  the  accountant  to  solve.  Those  relating  to  the  apportion- 
ment of  the  constant  expenditures  upon  the  imit  shipments  carried 
are  vastly  greater  and  of  an  entirely  different  nature,  involving  a 
consideration  of  all  the  industrial  and  social  interests  of  the  country. 

The  indirect  cost  may  be  apportioned  in  either  of  two  ways: 
(i)  each  unit  shipment  may  be  made  to  bear  a  portion  equal  to  that 
borne  by  each  and  every  other  unit,  or  (2)  the  amoimt  that  the 
various  units  shall  bear  may  be,  broadly  speaking,  in  proportion  to 
their  ability  to  pay.    The  former  method  is  impracticable  because 


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MODERN  CAPITALISTIC  ORGANIZATION  269 

it  would  make  the  rate  on  some  cheap  commodities  so  high  that  they 
could  not  be  transported.  The  second  method  is  the  one  that  has 
been  adopted  in  order,  to  secure  the  greatest  good  to  carriers,  ship- 
pers, and  society  in  general. 

It  is  possible  to  formulate  a  second  fundamental  principle  govern- 
ing classification  and  rates,  as  follows:  The  indirect  costs  of  transporta- 
tion may  be  apportioned  upon  the  units  of  traffic  in  unequal  proportions ^ 
taking  into  consideration  the  ability  of  each  particular  commodity  to 
payy  but  in  so  doing,  no  undue  or  unreasonable  preference  or  advantage 
whatsoever  shall  be  given  to  any  particular  party,  commodity,  or  locality. 
This  is,  in  fact,  the  governing  principle  of  freight  classification. 

77.    ADDED  TRAFFIC  PAYS' 

The  reason  for  the  continued  and  rapid  biiilding  of  branches  in 
spite  of  their  apparent  improductiveness  is  simply  this:  They  con- 
tribute traflBc  to  the  main  line  which,  as  it  is  merely  an  increment, 
costs  always  comparatively  little  to  move,  and  often  nothing  at  aU. 
The  company,  therefore,  receives  from  its  contributed  traflSc  rates 
for  a  haul  of  perhaps  500  miles  at  a  cost  for  hauling  due  to  only 
100  or  200  miles.  Rudely  speaking,  if  we  call  the  average  cost  per 
ton  or  passenger-mile  100,  we  may  say: 

Average  cost  per  unit  of  traffic  = 100 

Extra  passengers,  singly,  cost 0+ 

"  "  in  car-loads  cost 5  to  30 

"  "  in  train-loads  cost 50 

Extra  freight  in  small  lots  costs  often  in  both  directions  and 

usually  in  one  direction 0+ 

"  "     in  car-loads 5  to  20 

"  "  in  train-loads  (and  all  car-loads  must  ordinarily  be 
considered  to  be  made  up  into  extra  trains  in  the 
direction  of  heaviest  traffic)  not  over 60 

Not  unfrequently  when  a  large  part  of  the  traffic  of  a  branch 
goes  over  the  main  line  in  the  direction  of  favoring  grades  it  is  handled 
over  the  main  line  at  no  appreciable  extra  cost  by  simply  filling  up 
trains,  and  the  branch  is  then  enormously  profitable. 

78.    A  RESULT  OF  RAILROAD  COMPETITION' 

The  Empire  Transportation  Company,  which  was  the  organiza- 
tion which  transported  the  oil  over  our  lines,  had  engaged  in  the 
business  of  refining  oil;   the  Standard  Company  complained  to  the 

'  From  A.  M.  Wellington,  The  Economic  Theory  cf  the  Localion  of  Railways, 
pp.  732-33.    John  Wiley  &  Sons,  i8gi. 

*  From  testimony  of  A.  J.  Cassatt,  of  the  Pennsylvania  R.R.  Co.,  in  House 
Reports,  soth  Congress,  ist  session,  IX,  175-76. 


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270  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

oflficers  of  the  Pennsylvania  Railroad  Company  that  they  did  not 
get  fair  treatment  from  the  Empire  Transportation  Company  in 
the  matter  of  the  distribution  of  cars  when  cars  were  scarce;  that 
they  did  not  believe  they  got  as  good  rates  as  the  Empire  Transporta- 
tion Company  did,  and  that  in  every  possible  way  the  Empire  Trans- 
portation Company,  they  believed,  favored  their  own  refineries  as 
against  theirs,  and  they  took  the  position  and  stated  that  they  would 
not  be  subject;  they  would  not  transport  their  oil  by  an  organiza- 
tion which  was  also  a  rival  of  theirs  in  the  refining  business.  We 
endeavored  to  try  to  get  those  difllculties  harmonized;  talked  of 
getting  the  Empire  Transportation  Company  to  lease  its  refineries 
to  the  Standard  Oil  Company  or  put  them  into  other  hands,  but  we 
did  not  succeed  in  doing  that  and  bringing  these  two  companies 
together  in  that,  and  it  resulted  in  a  complete  breach,  and  the  Stand- 
ard Oil  Company  took  their  business  off  our  road,  and  we  had  a  very 
severe  contest  from  the  time  they  did  so  until  the  17th  of  October. 
During  that  time  the  Empire  Transportation  Company  itself  did 
all  the  refining  it  could  in  competition  with  the  Standard,  and  all 
the  other  refineries  not  connected  with  the  Standard  Oil  Company 
we  induced  to  come  on  our  line  and  ship,  but  we  did  it  at  a  very 
great  loss  to  the  company.  We  paid  very  large  rebates;  in  fact, 
we  took  anything  we  could  get  for  transporting  their  oil;  in  some 
cases  we  paid  out  rebates  more  than  the  whole  freight.  I  recollect 
one  instance  where  we  carried  oil  to  New  York  for  Mr.  Ohlen,  or 

some  one  he  represented,  I  think,  at  8  cents  less  than  nothing 

I  do  not  say  any  large  quantities,  but  oil  was  carried  at  that  rate. 

79.    SOME  FORMS  OF  RAILROAD  DISCRIMINATION' 

The  foUowing  are  a  few  of  the  most  important  discriminations 
and  the  methods  by  which  they  were  obtained: 

(i)  For  about  ten  years  the  New  England  territory  has  been  in 
control  of  the  Standard  Oil  Company  by  reason  of  the  reftisal  of  the 
New  York,  New  Haven  and  Hartford  road  and  of  the  Boston  and 
Maine  road,  on  all  but  a  few  divisions,  to  prorate — ^i.e.,  to  join  in 
through  rates — on  oil  shipped  from  west  of  the  Hudson  River,  and 
by  means  of  the  adjustment  of  published  rates. 

The  Standard  is  entitled  to  the  advantage  of  its  water  shipping 
points  in  reaching  New  England,  but  that  advantage  was  greatly 
and  imfairly  increased  when  the  railroads,  by  refusing  to  prorate, 

*  From  the  Report  of  the  Commissioner  of  Corporations  on  the  Transportation 
of  Petroleum  (1906),  pp.  xxii-xxv. 


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MODERN  CAPITALISTIC  ORGANIZATION  271 

virtuaUy  kept  independent  refiners  from  using  aU-rail  routes.  The 
refusal  to  prorate  increased  the  rail  rates  from  the  West  from  8  to 
10  cents  per  hundred  pounds.  These  raihroads  do  prorate  on  all 
other  commodities;  their  refusal  to  do  so  in  the  case  of  oil  amounted 
to  imposing  a  substantial  tax  on  all  constmiers  in  the  region  they 
cover,  and  is  also  a  heavy  discrimination  against  the  smaller  refiners. 

(2)  The  Standard  Oil  Company  has  been  able  to  absolutely  con- 
trol for  many  years  the  sale  of  oil  in  the  northeastern  part  of  New 
York  and  in  a  portion  of  Vermont  by  means  of  secret  rates  from  its 
refineries  at  Olean  and  Rochester. 

The  Pennsylvania  Railroad  has  given  the  Standard  a  rate  of  9 
cents  a  barrel  from  Olean,  N.Y.,  to  Rochester,  while  the  independent 
refineries  situated  in  territory  adjacent  to  Olean  were  given  a  rate  of 
38  cents  a  barrel.  By  means  of  this  9-cent  rate,  in  combination  with 
a  rate  from  Rochester  to  Norwood,  N.Y.,  a  virtually  secret  and  very 
low  rate  from  Norwood,  N.Y.,  to  Burlington,  and  secret  local  rates 
therefrom,  the  Standard  has  been  able  to  supply  central  and  northern 
Vermont  with  oil  at  a  rate  of  from  15  to  21  cents  per  hundred  pounds, 
whereas  no  independent  refiner  could  reach  that  territory  from 
western  Pennsylvania  save  by  a  rate  varying  from  33  to  50  cents 
per  hundred  pounds. 

The  saving  to  the  Standard  during  1904  by  the  secret  rate  from 
Olean  to  Rochester  alone  was  $115,000.  This  and  other  less  impor- 
tant rates  from  Olean  were  unknown  to  the  independent  refiners,  and 
were  not  published  on  the  groimd  that  they  were  wholly  State  rates; 
yet  in  fact  they  were  used  for  oil  consigned  to  points  beyond  the 
State  boimdary  of  New  York.  Furthermore,  all  the  shipments  from 
Olean  on  these  secret  rates  were  blind-billed — ^i.e.,  the  rates  were 
not  shown  on  the  waybills. 

(3)  The  Standard  Oil  Company  has  maintained  absolute  con- 
trol of  almost  the  whole  section  of  the  country  south  of  the  Ohio 
River  and  east  of  the  Mississippi  by  means  of  secret  rates  and  open 
discriminations  in  rates  from  Whiting,  Ind. 

For  example,  the  published  tariff  rate  from  Whiting,  Ind.,  the 
great  western  refinery  of  the  Standard,  to  Birmingham,  Ala.,  was  44 
cents  per  hundred  pounds.  For  at  least  ten  years  the  Standard,  by 
means  of  a  secret  combination  of  rates  by  way  of  Grand  Junction, 
Tenn.,  over  the  lines  of  the  Chicago  and  Eastern  Illinois,  the  Illinois 
Central,  and  the  Southern  Railway,  has  shipped  oil  to  Birmingham 
for  29^  cents.  The  Toledo  competitor,  no  farther  distant,  had  to 
pay  47^  cents. 


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272  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

A  great  area  in  the  South  has  been  reached  by  this  same  secret 
combination  at  rates  averaging  one-fourth  less  than  the  published 
rates.  The  total  saving  to  the  Standard  on  these  rates  has  been 
about  $70,000  per  year. 

Again,  the  open  rate  from  Whiting  to  Evansville,  Ind.,  has  been 
for  many  years  11  cents.  The  Standard  has  for  about  ten  years 
shipped  oil  to  Evansville,  for  local  use  and  for  many  points  beyond 
in  the  Southeast,  at  so-called  State  rates  of  6  cents  and  8J  cents. 
The  freight  paid  by  the  Standard  in  this  case  has  been  about  $10,000 
a  year  less  tJian  the  open  rate. 

The  rates  to  this  same  territory  from  the  independent  refining 
points  at  Toledo  and  Cleveland  were  from  8  to  28  cents  per  hundred 
pounds,  or  from  J  to  i J  cents  a  gallon  higher  than  the  rate  paid  by 
the  Standard. 

The  records  of  the  Chicago  and  Eastern  Illinois  Railroad  Com- 
pany show  plainly  that  these  Grand  Junction  and  Evansville  rates 
were  intended  to  be  secret,  were  given  for  the  sole  benefit  of  the 
Standard,  and  were  handled  as  secret  rates  with  the  knowledge  of 
Standard  officials. 

(4)  The  Standard  Oil  Company  has  for  at  least  ten  years  shipped 
oil  from  Whiting  to  East  St.  Louis,  111.,  at  a  rate  of  6  or  6 J  cents  on 
three  of  the  five  railroads  running  between  those  places,  while  the 
only  duly  published  rate  on  all  roads  has  been  18  cents  during  all  that 
period.  The  discrimination  saved  the  Standard  about  $240,000  in 
1904. 

For  many  years  East  St.  Louis  has  been  the  gateway  for  oil 
shipments  by  the  Standard  into  the  Southwest.  The  rates  from  the 
independent  refining  points  of  Ohio  to  East  St.  Louis  have  been 
about  12  cents  higher  than  the  rate  from  Whiting,  whereas  on  other 
commodities  of  similar  grade  these  points  pay  only  about  5  cents 
more  than  Whiting. 

Whiting  is  located  in  Indiana,  about  two  miles  from  the  Illinois 
line.  East  St.  Louis  is  in  Illinois,  just  across  the  river  from  St.  Louis. 
The  secret  low  rates  were  given  by  the  Chicago,  Burlington  and 
Quincy,  Chicago  and  Alton,  and  Chicago  and  Eastern  lUinob  railroads. 
They  were  not  published  on  the  ground  that  they  were  State  rates. 
In  dealing  with  these  rates,  one  of  the  roads — the  Chicago  and  Alton — 
falsely  waybilled  the  freight  at  18  cents,  and  collected  from  the  Stand- 
ard at  6  cents.  The  Chicago  and  Eastern  Illinois  blind-billed  its 
shipments.  The  Chicago,  Burlington  and  Quincy  billed  and  collected 
at  the  6-cent  rate,  but  it  was  none  the  less  secret. 


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MODERN  CAPITALISTIC  ORGANIZATION  273 

(s)  In  the  Kansas-Territory  field  there  are  some  unfair  open 
rates.  A  more  important  discrimination  has  been  in  the  arbitrary 
weights  fixed  by  the  raihx>ads  on  crude  oil  and  fuel  oil.  Thb  dis- 
crimination prevents  the  Kansas  producer  from  selling  his  crude  oil, 
especially  that  of  low  gravity,  advantageously  in  competition  with 
the  fuel  oil  produced  by  the  Standard  and  the  small  local  refiners. 

Crude  oil  is  charged  on  the  basis  of  7.4  pounds  per  gallon;  its 
actual  wei^t  is  about  7 . 2  poimds.  Fuel  oil  produced  by  the  refineries 
is  charged  at  6.4  poimds;  it  actually  weighs  about  7.6  poimds. 
A  barrel  of  crude  oil  shipped  from  Kansas  to  St.  Louis  is  charged 
nearly  10  cents  more  than  a  barrel  of  fuel  oil;  this  difference  in  freight 
charges  is  equal  to  more  than  one-third  of  the  price  of  low-grade 
Kansas  crude. 

This  discrimination  has  existed  for  about  four  years.  It  does  not 
exist  in  any  other  field.  The  legislation  of  Kansas  in  1905  put  an 
end  to  it  so  far  as  shipments  within  the  State  are  concerned. 

(6)  In  California  direct  rebates,  as  well  as  discriminations  by  the 
use  of  secret  rates,  have  been  given  on  oil. 

These  rebates  and  discriminations  benefited  the  Standard  to  the 
extent  of  about  $100,000  in  1904.  The  Associated  Oil  Company, 
the  Union  Oil  Company,  and  some  consumers  of  oil  also  received 
rebates  and  secret  rates,  but  the  Standard  apparently  received  as 
much  as  all  other  interests  combined.  These  favors  were  almost 
invariably  denied  the  ordinary  shipper.  On  shipments  to  Arizona, 
rebates  on  state  rates  were  received  by  the  Standard  in  connection 
with  interstate  shipments;  this  virtually  was  a  rebate  on  interstate 
business.  Owing  to  the  fact  that  fuel  oil  is  extensively  sold  under 
contract  on  the  Pacific  coast  rate  discriminations  obtained  by  a  few 
favored  shippers  have  enabled  them  to  monopolize  markets  for  long 
periods. 

Great  injury  has  been  inflicted  by  railroads  upon  independent 
shippers  through  discriminations  in  the  distribution  of  tank  cars. 

(7)  Open  published  rates  from  Whiting  into  a  large  part  of  the 
United  States  have  given  the  Standard  Oil  Company  an  imfair 
advantage  of  from  i  to  20  cents  per  hundred  pounds. 

This  discrimination  seriously  limits  independent  refiners  in  some 
markets,  and  shuts  them  out  completely  from  other  markets.  It  is 
accomplished  by  the  use  of  commodity  rates — that  is,  rates  which 
apply  only  to  petroleiun  and  its  products — and  by  refusal  to  prorate. 

The  true  principle  of  commodity  rate  making  is  to  more  nearly 
eqtialize  competitive  conditions,  but  the  general  effect  of  commodity 


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274  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

rates  on  oil  has  been  to  give  the  Standard  relatively  much  lower 
rates  to  common  markets  than  those  given  to  its  competitors. 

For  instance,  in  shipments  to  New  Orleans  and  other  points  on 
the  lower  Mississippi  River  and  the  Gulf,  the  ordinary  class  rates  on 
similar  low-grade  articles  from  Toledo,  Cleveland,  and  Pittsburgh 
are  only  2  cents  above  the  rates  from  Whiting.  The  commodity 
rates  on  oil  are  from  9^  to  13^  cents  above  the  rates  from  Whiting. 
The  normal  principle  of  commodity  rates  would  tend  to  make  the 
charge  the  same  from  aU  four  of  these  points,  instead  of  increasing 
the  diflferential. 

Prior  to  the  establishment  of  the  Whiting  refinery  the  railroads 
west  of  the  Mississippi  prorated  with  the  eastern  roads  on  oil  ship- 
ments from  the  Pennsylvania  and  Ohio  districts  into  most  parts  of  the 
West  and  Southwest.  After  the  establishment  of  the  Whiting  refinery 
these  roads  refused  to  prorate  from  points  east  of  Whiting.  This 
refxisal  increased  the  natural  disadvantage  of  the  eastern  refineries  by 
from  I  to  19^  cents  per  himdred  pounds.  This  discrimination  is  the 
more  conspicuous  in  the  case  of  the  southwestern  railroads  because 
they  do  prorate  with  the  railroads  from  Chicago  to  St.  Louis  on  oil 
from  Whiting  going  to  certain  sections. 

80.    EXTRACTS  FROM  THE  INTERSTATE  COMMERCE  ACT' 

Section  i.  (As  amended  June  2p,  igod,  April  13,  iQoSf  and  June 
18,  igio.)  That  the  provisions  of  this  Act  shall  apply  to  any  corpo- 
ration or  any  person  or  persons  engaged  in  the  transportation  of  oil 
or  other  commodity,  except  water  and  except  natural  or  artificial 
gas,  by  means  of  pipe  lines,  or  partly  by  pipe  lines  and  partly  by 
railroad,  or  partly  by  pipe  lines  and  partly  by  water,  and  to  telegraph, 
telephone,  and  cable  companies  (whether  wire  or  wireless)  engaged  in 
sending  messages  from  one  State,  Territory,  or  District  of  the  United 
States  to  any  other  State,  Territory,  or  District  of  the  United  States 
or  to  any  foreign  country,  who  shall  be  considered  and  held  to  be 
common  carriers  within  the  meaning  and  purpose  of  this  Act,  and  to 

'  An  act  to  regulate  commerce,  approved  February  4,  1887,  and  in  effect 
April  5, 1887  (24  Statutes  at  Large,  379J,  as  amended  by  an  act  approved  March  2, 
1889  (25  Statutes  at  Large,  855),  by  an  act  approved  February  10,  1891  (26 
Statutes  at  Large,  743),  by  an  act  approved  February  8,  1895  (28  Statutes  at 
Large,  643),  by  an  act  approved  June  29,  1906  (34  Statutes  at  Large,  584),  by  a 
joint  resolution  approved  June  30,  1906  (34  Statutes  at  Large,  838),  by  an  act 
approved  April  13,  1908  (35  Statutes  at  Large,  60),  by  an  act  approved  February 
25,  1909  (35  Statutes  at  Large,  648),  and  by  an  act  approved  June  18,  1910  (36 
Statutes  at  Large,  539). 


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MODERN  CAPITALISTIC  ORGANIZATION  275 

any  common  carrier  or  carriers  engaged  in  the  transportation  of 
passengers  or  property  wholly  by  railroad  (or  partiy  by  railroad  and 
partiy  by  water  when  both  are  used  under  a  common  control,  manage- 
ment, or  arrangement  for  a  continuous  carriage  or  shipment),  from 
one  State  or  Territory  of  the  United  States  or  the  District  of  Coltunbia 
to  any  other  State  or  Territory  of  the  United  States  or  the  District 
of  Coltunbia,  or  from  one  place  in  a  Territory  to  another  place  in  the 
same  Territory,  or  from  any  place  in  the  United  States  to  an  adjacent 
foreign  country,  or  from  any  place  in  the  United  States  through  a 
foreign  country  to  any  other  place  in  the  United  States,  and  also  to 
the  transportation  in  like  manner  of  property  shipped  from  any  place 
in  the  United  States  to  a  foreign  coimtry  and  carried  from  such  place  to 
a  port  of  trans-shipment,  or  shipped  from  a  foreign  coimtry  to  any  place 
in  the  United  States  and  carried  to  such  place  from  a  port  of  entry 
either  in  the  United  States  or  an  adjacent  foreign  country 

The  term  "common  carrier"  as  used  in  this  Act  shall  include 
express  companies  and  sleeping  car  companies.  The  term  " railroad" 
as  used  in  this  Act  shall  include  all  bridges  and  ferries  used  or  operated 
in  connection  with  any  railroad,  and  also  all  the  road  in  use  by  any 
corporation  operating  a  railroad,  whether  owned  or  operated  under 
a  contract,  agreement,  or  lease,  and  shall  also  include  all  switches, 
spurs,  tracks,  and  terminal  facilities  of  every  kind  used  or  necessary 
in  the  transportation  of  the  persons  or  property  designated  herein, 
and  also  all  freight  depots,  yards,  and  groimds  used  or  necessary  in 
the  transportation  or  delivery  of  any  of  said  property;  and  the  term 
"transportation"  shall  include  cars  and  other  vehicles  and  all  instru- 
mentalities and  facilities  of  shipment  or  carriage,  irrespective  of 
ownership  or  of  any  contract,  express  or  implied,  for  the  use  thereof 
and  all  services  in  connection  with  the  receipt,  delivery,  elevation, 
and  transfer  in  transit,  ventilation,  refrigeration  or  icing,  storage, 
and  handling  of  property  transported;  and  it  shall  be  the  duty  of 
every  carrier  subject  to  the  provisions  of  this  Act  to  provide  and 
furnish  such  transportation  upon  reasonable  request  therefor,  and 
to  establish  through  routes  and  just  and  reasonable  rates  applicable 
thereto;  and  to  provide  reasonable  facilities  for  operating  such 
through  routes  and  to  make  reasonable  rules  and  r^ulations  with 
respect  to  the  exchange,  interchange,  and  return  of  cars  used  therein, 
and  for  the  operation  of  such  through  routes,  and  providing  for 
reasonable  compensation  to  those  entitled  thereto. 

All  charges  made  for  any  service  rendered  or  to  be  rendered  in 
the  transportation  of  passengers  or  property  and  for  the  transmission 


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276  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

of  messages  by  telegraph,  telephone,  or  cable,  as  aforesaid,  or  in 
connection  therewith,  shaU  be  just  and  reasonable;  and  every  imjust 
and  unreasonable  charge  for  such  service  or  any  part  thereof  is 
prohibited  and  declared  to  be  unlawful 

And  it  is  hereby  made  the  duty  of  all  common  carriers  subject 
to  the  provisions  of  this  Act  to  establish,  observe,  and  enforce  just 
and  reasonable  classifications  of  property  for  transportation,  with 
reference  to  which  rates,  tariflFs,  regulations,  or  practices  are  or  may 
be  made  or  prescribed,  and  just  and  reasonable  regulations  and 
practices  affecting  classifications,  rates,  or  tariffs,  the  bsuance,  form, 
and  substance  of  tickets,  receipts,  and  bills  of  lading,  the  manner 
and  method  of  presenting,  marking,  packing,  and  delivering  property 
for  transportation,  the  facilities  for  transportation,  the  canying  of 
personal,  sample,  and  excess  baggage,  and  all  other  matters  relating 
to  or  connected  with  the  receiving,  handling,  transporting,  storing, 
and  delivery  of  property  subject  to  the  provisions  of  this  Act  which 
may  be  necessary  or  proper  to  secure  the  safe  and  prompt  receipt, 
handling,  transportation,  and  delivery  of  property  subject  to  the 
provisions  of  this  Act  upon  just  and  reasonable  terms,  and  every  such 
imjust  and  unreasonable  classification,  regulation,  and  practice  with 
reference  to  commerce  between  the  States  and  with  foreign  countries 
is  prohibited  and  declared  to  be  unlawful. 

No  common  carrier  subject  to  the  provisions  of  this  Act  shall, 
after  January  first,  nineteen  hundred  and  seven,  directly  or  indirectly, 
issue  or  give  any  interstate  free  ticket,  free  pass,  or  free  transporta- 
tion for  passengers,  except  to  its  employees  and  their  families,  its 
officers,  agents,  surgeons,  physicians,  and  attorneys  at  law;  to 
ministers  of  religion,  [and  to  certain  others,  mainly  those  engaged  in 
charitable  work] 

From  and  after  May  first,  nineteen  himdred  and  eight,  it  shall 
be  unlawful  for  any  railroad  company  to  transport  from  any  State, 
Territory,  or  the  District  of  Columbia,  to  any  other  State,  Territory, 
or  the  District  of  Columbia,  or  to  any  foreign  country,  any  article  or 
commodity,  other  than  timber  and  the  manufactured  products  thereof, 
manufactured,  mined,  or  produced  by  it,  or  under  its  authority,  or 
which  it  may  own  in  whole  or  in  part,  or  in  which  it  may  have  any 
interest,  direct  or  indirect,  except  such  articles  or  conunodities  as  may 
be  necessary  and  intended  for  its  use  in  the  conduct  of  its  business 
as  a  common  carrier. 

Any  common  carrier  subject  to  the  provisions  of  this  Act,  upon 
application  of  any  lateral,  branch  line  of  railroad,  or  of  any  shipper 


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MODERN  CAPITALISTIC  ORGANIZATION  277 

tendering  interstate  traffic  for  transportation,  shall  construct,  main- 
tain, and  operate  upon  reasonable  terms  a  switch  connection  with 
any  such  lateral,  branch  line  of  railroad,  or  private  side  track  which 
may  be  constructed  to  connect  with  its  railroad,  where  such  connec- 
tion is  reasonably  practicable  and  can  be  put  in  with  safety  and  will 
furnish  sufficient  business  to  justify  the  construction  and  maintenance 
of  the  same;  and  shall  furnish  cars  for  the  movement  of  such  traffic 
to  the  best  of  its  ability  without  discrimination  in  favor  of  or  against 
any  such  shipper 

Sec.  2.  That  if  any  common  carrier  subject  to  the  provisions  of 
this  Act  shall,  directly  or  indirectly,  by  any  special  rate,  rebate, 
drawback,  or  other  device,  charge,  demand,  collect,  or  receive  from 
any  person  or  persons  a  greater  or  less  compensation  for  any  service 
rendered,  or  to  be  rendered,  in  the  transportation  of  passengers 
or  property,  subject  to  the  provisions  of  this  act,  than  it  charges, 
demands,  collects,  or  receives  from  any  other  person  or  persons  for 
doing  for  him  or  them  a  like  and  contemporaneous  service  in  the 
transportation  of  a  like  kind  of  traffic  under  substantially  similar 
circumstances  and  conditions,  such  conunon  carrier  shall  be  deemed 
guilty  of  imjust  discrimination,  which  is  hereby  prohibited  and 
declared  to  be  unlawful. 

Sec.  3.  That  it  shall  be  unlawful  for  any  common  carrier  subject 
to  the  provisions  of  thb  act  to  make  or  give  any  undue  or  imreasonable 
preference  or  advantage  to  any  particular  person,  company,  firm, 
corporation,  or  locality,  or  any  particular  description  of  traffic,  in  any 
respect  whatesoever,  or  to  subject  any  particular  person,  company, 
firm,  corporation,  or  locality,  or  any  particular  description  of  traffic, 
to  any  undue  or  unreasonable  prejudice  or  disadvantage  in  any 
respect  whatsoever. 

Every  conmion  carrier  subject  to  the  provisions  of  this  Act  shall, 
according  to  their  respective  powers,  afford  all  reasonable,  proper, 
and  equal  facilities  for  the  interchange  of  traffic  between  their  respec- 
tive lines,  and  for  the  receiving,  forwarding,  and  delivering  of  pas- 
sengers and  property  to  and  from  their  several  lines  and  those  con- 
necting therewith,  and  shall  not  discriminate  in  their  rates  and  charges 
between  such  connecting  lines;  but  this  shall  not  be  construed  as 
requiring  any  such  conmion  carrier  to  give  the  use  of  its  tracks  or 
terminal  facilities  to  another  carrier  engaged  in  like  business. 

Sec.  4.  (As  amended  June  i8y  ipio.)  That  it  shall  be  unlawful 
for  any  common  carrier  subject  to  the  provisions  of  this  Act  to  charge 
or  receive  any  greater  compensation  in  the  aggregate  for  the  trans- 


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278  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

portation  of  passengers,  or  of  like  kind  of  property,  for  a  shorter 
than  for  a  longer  distance  over  the  same  line  or  route  in  the  same 
direction,  the  shorter  being  included  within  the  longer  distance,  or 
to  charge  any  greater  compensation  as  a  through  route  than  the 
aggregate  of  the  intermediate  rates  subject  to  the  provisions  of  this 
Act;  but  this  shall  not  be  construed  as  authorizing  any  common 
carrier  within  the  terms  of  this  Act  to  charge  or  receive  as  great 
compensation  for  a  shorter  as  for  a  longer  distance:  Provided,  however, 
That  upon  application  to  the  Interstate  Commerce  Commission  such 
common  carrier  may  in  special  cases,  after  investigation,  be  authorized 
by  the  Conmiission  to  charge  less  for  longer  than  for  shorter  distances 
for  the  transportation  of  passengers  or  property;  and  the  Conmiission 
may  from  time  to  time  prescribe  the  extent  to  which  such  designated 
common  carrier  may  be  relieved  from  the  operation  of  this  section 

Whenever  a  carrier  by  railroad  shall  in  competition  with  a  water 
route  or  routes  reduce  the  rates  on  the  carriage  of  any  species  of 
freight  to  or  from  competitive  points,  it  shall  not  be  permitted  to 
increase  such  rates  unless  after  hearing  by  the  Interstate  Commerce 
Commission  it  shall  be  found  that  such  proposed  increase  rests  upon 
changed  conditions  other  than  the  elimination  of  water  competition. 

Sec.  5.  That  it  shall  be  unlawful  for  any  common  carrier  subject 
to  the  provisions  of  this  Act  to  enter  into  any  contract,  agreement, 
or  combination  with  any  other  common  carrier  or  carriers  for  the 
pooling  of  freights  of  different  and  competing  railroads,  or  to  divide 
between  them  the  aggr^ate  or  net  proceeds  of  the  earnings  of  such 
railroads,  oY  any  portion  thereof;  and  in  any  case  of  an  agreement 
for  the  pooling  of  freights  as  aforesaid,  each  day  of  its  continuance 
shall  be  deemed  a  separate  offense. 

Sec.  6.  That  every  common  carrier  subject  to  the  provisions  of 
this  Act  shall  file  with^the  Commission  created  by  this  Act  and 
print  and  keep  open  to  public  inspection  schedules  showing  all  the 
rates,  fares,  and  charges  for  transportation 

No  change  shall  be  made  in  the  rates,  fares,  and  charges  or  joint 
rates,  fares,  and  charges  which  have  been  filed  and  published  by  any 
common  carrier  in  compliance  with  the  requirements  of  this  section, 
except  after  thirty  days'  notice  to  the  Commission  and  to  the 
public  published  as  aforesaid,  which  shaU  plainly  state  the  changes 
proposed  to  be  made  in  the  schedule  then  in  force  and  the  time 
when  the  changed  rates,  fares,  or  charges  will  go  into  effect;  and 
the  proposed  changes  shall  be  shown  by  printing  new  schedules,  or 
shall  be  plainly  indicated  upon  the  schedules  in  force  at  the  time 


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MODERN  CAPITALISTIC  ORGANIZATION  279 

and  kept  open  to  public  inspection:  Provided,  That  the  Commission 
may,  in  its  discretion  and  for  good  cause  shown,  allow  changes  upon 
less  than  the  notice  herein  specified,  or  modify  the  requirements  of 
this  section  in  respect  to  publishing,  posting,  and  filing  of  tariffs, 
either  in  particular  instances  or  by  a  general  order  applicable  to 
special  or  peculiar  drcimistances  or  conditions 

Sec.  id 

Any  common  carrier  subject  to  the  provisions  of  this  Act,  or, 
whenever  such  conmion  carrier  is  a  corporation,  any  ofiicer  or  agent 
thereof,  or  any  person  acting  for  or  employed  by  such  corporation, 
who,  by  means  of  false  billing,  false  classification,  false  weighing,  or 
false  report  of  weight,  or  by  any  other  device  or  means,  shall  know- 
ingly and  willfully  assist,  or  shall  willingly  suffer  or  permit,  any 
person  or  persons  to  obtain  transportation  for  property  at  less  than 
the  regular  rates  then  established  and  in  force  on  the  line  of  trans- 
portation of  such  conmion  carrier,  shall  be  deemed  guilty  of  a  mis- 
demeanor, and  shall,  upon  conviction  thereof  in  any  court  of  the 
United  States  of  competent  jurisdiction  within  the  district  in  which 
such  offense  was  conmiitted,  be  subject  to  a  fine  of  not  exceeding 
five  thousand  dollars,  or  imprisonment  in  the  penitentiary  for  a 
term  of  not  exceeding  two  years,  or  both,  in  the  discretion  of  the 
court,  for  each  offense.    [Similar  penalty  for  the  shipper] 

Sec.  13.  {As  amended  June  18,  igio.)  That  any  person,  firm, 
corporation,  company,  or  association,  or  any  mercantile,  agricultural, 
or  manufactiuing  society  or  other  organization,  or  any  body  politic 
or  mimidpal  organization,  or  any  conmion  carrier,  complaining  of 
anything  done  or  omitted  to  be  done  by  any  common  carrier  subject 
to  the  provisions  of  this  Act,  in  contravention  of  the  provisions  thereof, 
may  apply  to  said  Commission  by  petition,  which  shall  briefly  state 
the  facts;  whereupon  a  statement  of  the  complaint  thus  made  shaU 
be  forwarded  by  the  Commission  to  such  common  carrier,  who  shall 
be  called  upon  to  satisfy  the  complaint,  or  to  answer  the  same  in 
writing,  within  a  reasonable  time,  to  be  specified  by  the  Commission. 
K  such  common  carrier  within  the  time  specified  shall  make  repara- 
tion for  the  injury  alleged  to  have  been  done,  the  common  carrier 
shall  be  relieved  of  liability  to  the  complainant  only  for  the  particular 
violation  of  law  thus  complained  of.  If  such  carrier  or  carriers  shaU  not 
satisfy  the  complaint  within  the  time  specified,  or  there  shall  appear  to 
be  any  reasonable  ground  for  investigating  said  complaint,  it  shall  be 
the  duty  of  the  Commission  to  investigate  the  matters  complained 
of  in  such  manner  and  by  such  means  as  it  shall  deem  proper. . 


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28o  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

Said  Commission  shall,  in  like  manner  and  with  the  same  authority 
and  powers,  investigate  any  complaint  forwarded  by  the  railroad 
commissioner  or  railroad  commission  of  any  State  or  Territory  at 
the  request  of  such  commissioner  or  commission,  and  the  Interstate 
Commerce  Conmiission  shall  have  full  authority  and  power  at  any 
time  to  institute  an  inquiry,  on  its  own  motion,  in  any  case  and  as 
to  any  matter  or  thing  concerning  which  a  complaint  is  authorized 
to  be  made,  to  or  before  said  Commission  by  any  provision  of  this 
Ac^,  or  concerning  which  any  question  may  arise  under  any  of  the 
provisions  of  this  Act,  or  relating  to  the  enforcement  of  any  of  the 
provisions  of  this  Act.    And  the  said  Commission  shall  have  the 
same  powers  and  authority  to  proceed  with  any  inquiry  instituted 
on  its  own  motion  as  though  it  had  been  appealed  to  by  complaint 
or  petition  under  any  of  the  provisions  of  this  Act,  including  the 
power  to  make  and  enforce  any  order  or  orders  in  the  case,  or  relating 
to  the  matter  or  thing  concerning  which  the  inquiry  is  had  excepting 
orders  for  the  payment  of  money.    No  complaint  shall  at  any  time  be 
dismissed  because  of  the  absence  of  direct  damage  to  the  complainant. 
Sec.  15.  (As  amended  June  2p,  igo6,  and  June  18 ,  igio.)    That 
whenever,  after  full  hearing  upon  a  complaint  made  as  provided  in 
section  thirteen  of  this  Act,  or  after  full  hearing  under  an  order  for 
investigation  and  hearing  made  by  the  Commission  on  its  own  initia- 
tive (either  in  extension  of  any  pending  complaint  or  without  any 
complaint  whatever),  the  Commission  shall  be  of  opinion  that  any 
individual  or  joint  rates  or  charges  -whatsoever  demanded,  charged, 
or  collected  by  any  common  carrier  or  carriers  subject  to  the  pro- 
visions of  this  Act  for  the  transportation  of  persons  or  property  or 
for  the  transmission  of  messages  by  telegraph  or  telephone  as  defined 
in  the  first  section  of  this  Act,  or  that  any  individual  or  joint  classifi- 
cations, regulations,  or  practices  whatsoever  of  such  carrier  or  carriers 
subject  to  the  provisions  of  this  Act  are  unjust  or  unreasonable  or 
unjustly  discriminatory,  or  unduly  preferential  or  prejudicial  or 
otherwise  in  violation  of  any  of  the  provisions  of  this  Act,  the  Com- 
mission is  hereby  authorized  and  empowered  to  determine  and  pre- 
scribe what  will  be  the  just  and  reasonable  individual  or  joint  rate 
or  rates,  charge  or  charges,  to  be  thereafter  observed  in  such  case 
as  the  maximum  to  be  charged,  and  what  individual  or  joint  classi- 
fication, regulation,  or  practice  is  just,  fair,  and  reasonable,  to  be' 
thereafter  followed,  and  to  make  an  order  that  the  carrier  or  carriers 
shall  cease  and  desist  from  such  violation  to  the  extent  to  which  the 
Conunission  finds  the  same  to  exist,  and  shall  not  thereafter  publish. 


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MODERN  CAPITALISTIC  ORGANIZATION  281 

demand,  or  collect  any  rate  or  charge  for  such  transportation  or 
transmission  in  excess  of  the  maximum  rate  or  charge  so  prescribed, 
and  shall  ad(^t  the  classification  and  shall  conform  to  and  observe 
the  r^;ulation  or  practice  so  prescribed.  All  orders  of  the  Com- 
mission, except  orders  for  the  payment  of  money,  shall  take  eflFect 
within  such  reasonable  time,  not  less  than  thirty  days,  and  shall 
continue  in  force  for  such  period  of  time,  not  exceeding  two  years, 
as  shall  be  prescribed  in  the  order  of  the  Commission,  unless  the  same 
shall  be  suspended  or  modified  or  set  aside  by  the  Commission,  or  be 
suspended  or  set  aside  by  a  court  of  competent  jurisdiction.  When- 
ever the  carrier  or  carriers,  in  obedience  to  such  order  of  the  Com- 
mission or  otherwise,  in  respect  to  joint  rates,  fares,  or  charges,  shall 
fail  to  agree  among  themselves  upon  the  apportionment  or  division 
thereof,  the  Commission  may,  after  hearing,  make  a  supplemental 
order  prescribing  the  just  and  reasonable  proportion  of  such  joint 
rate  to  be  received  by  each  carrier  party  thereto,  which  order  shall 
take  eflFect  as  a  part  of  the  original  order. 

Whenever  there  shall  be  filed  with  the  Conunission  any  schedule 
stating  a  new  individual  or  joint  rate,  fare,  or  charge,  or  any  new 
individual  or  joint  classification,  or  any  new  individual  or  joint 
r^;ulation  or  practice  aflfecting  any  rate,  fare,  or  charge,  the  Com- 
mission shall  have,  and  it  is  hereby  giveip,  authority,  either  upon 
complaint  or  upon  its  own  initiative  without  complaint,  at  once, 
and  if  it  so  orders,  without  answer  or  other  formal  pleading  by  the 
interested  carrier  or  carriers,  but  upon  reasonable  notice,  to  enter 
upon  a  hearing  concerning  the  propriety  of  such  rate,  fare,  chargie, 
classification,  regulation,  or  practice;  and  pending  such  hearing  and 
the  decision  thereon  the  Conmiission  upon  filing  with  such  schedule 
and  delivering  to  the  carrier  or  carriers  aflfected  thereby  a  statement 
in  writing  of  its  reasons  for  such  suspension  may  suspend  the  opera- 
tion of  such  schedule  and  defer  the  use  of  such  rate,  fare,  charge, 
classification,  regulation,  or  practice,  but  not  for  a  longer  period  than 
one  himdred  and  twenty  days  beyond  the  time  when  such  rate,  fare, 
charge,  classification,  regulation,  or  practice  would  otherwise  go  into 
eflFect;  and  after  full  hearing,  whether  completed  before  or  after  the 
rate,  fare,  charge,  classification,  regulation,  or  practice  goes  into 
eflFect,  the  Commission  may  make  such  order  in  reference  to  such 
rate,  fare,  charge,  classification,  regulation,  or  practice  as  would  be 
proper  in  a  proceeding  initiated  after  the  rate,  fare,  charge,  classifica- 
tion, regulation,  or  practice  had  become  eflfective:  Provided,  That 
if  any  such  hearing  can  not  be  concluded  within  the  period  of  sus- 


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2^2  MATERIALS  FOR  ELEMENTARY  fiC6K0MlCS 

pension,  as  above  stated,  the  Interstate  Commerce  Commission  may, 
in  its  discretion,  extend  the  time  of  suspension  for  a  further  period 
not  exceeding  six  months.  At  any  hearing  involving  a  rate  increased 
after  January  first,  nineteen  hundred  and  ten,  or  of  a  rate  sought  to 
be  increased  after  the  passage  of  this  Act,  the  burden  of  proof  to 
show  that  the  increased  rate  or  proposed  increased  rate  is  just  and 
reasonable  shall  be  upon  the  common  carrier,  and  the  Commission 
shall  give  to  the  hearing  and  decision  of  such  questions  preference 
over  all  other  questions  pending  before  it  and  decide  the  same  as 
speedily  as  possible. 

The  Conmiission  may  also,  after  hearing,  on  a  complaint  or  upon 
its  own  initiative  without  complaint,  establish  through  routes  and 
joint  classifications,  and  may  establish  joint  rates  as  the  maximum 
to  be  charged  and  may  prescribe  the  division  of  such  rates  as  herein- 
before provided  and  the  terms  and  conditions  imder  which  such 
through  routes  shall  be  operated,  whenever  the  carriers  themselves 
shall  have  refused  or  neglected  to  establish  voluntarily  such  through 
routes  or  joint  classifications  or  joint  rates;  and  this  provision  shall 
apply  when  one  of  the  connecting  carriers  is  a  water  line.  The 
Conunission  shall  not,  however,  establish  any  through  route,  classi- 
fication, or  rate  between  street  electric  passenger  railways  not  engaged 
in  the  general  business  of  transporting  freight  in  addition  to  their 
passenger  and  express  business  and  railroads  of  a  different  character, 
nor  shall  the  Commission  have  the  right  to  establish  any  route, 
classification,  rate,  fare,  or  charge  when  the  transportation  is  wholly 
by  water,  and  any  transportation  by  water  affected  by  this  Act 
shaU  be  subject  to  the  laws  and  regulations  applicable  to  transporta- 
tion by  water 

If  the  owner  of  property  transported  under  this  Act  directly  or 
indirectly  renders  any  service  connected  with  such  transportation, 
or  furnishes  any  instrumentality  used  therein,  the  charge  and  allow- 
ance therefor  shall  be  no  more  than  is  just  and  reasonable,  and  the 
Commission  may,  after  hearing  on  a  complaint  or  on  its  own  initia- 
tive, determine  what  is  a  reasonable  charge  as  the  tnaYimi^m  to  be 
paid  by  the  carrier  or  carriers  for  the  services  so  rendered  or  for  the 
use  of  the  instrumentality  so  furnished,  and  fix  the  same  by  appro- 
priate order,  which  order  shall  have  the  same  force  and  effect  and  be 
enforced  in  like  manner  as  the  orders  above  provided  for  under  this 
section 

Sec.  i6.  (Amended  March  2,  i8Sq,  June  2p,  igo6,  and  June  18, 
1910,)    That  if,  after  hearing  on  a  complaint  made  as  provided  in 


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MODERN  CAPITALISTIC  ORGANIZATION  283 

section  thirteen  of  this  Act,  the  Commission  shall  determine  that 
any  party  complainant  is  entitled  to  an  award  of  damages  under  the 
provisions  of  this  Act  for  a  violation  thereof,  the  Commission  shall 
make  an  order  directing  the  carrier  to  pay  to  the  complainant  the 
smn  to  which  he  is  entitled  on  or  before  a  day  named 

Sec.  20.  {As  amended  June  2p,  IQ06,  February  25,  igop,  and 
June  i8y  iQio.)  That  the  Commission  is  hereby  authorized  to 
require  annual  reports  from  all  conmion  carriers  subject  to  the  pro- 
visions of  this  Act,  and  from  the  owners  of  all  railroads  engaged  in 
interstate  conmierce  as  defined  in  this  Act;  to  prescribe  the  manner 
in  which  such  reports  shall  be  made,  and  to  require  from  such  carriers 
specific  answers  to  all  questions  upon  which  the  Conunission  may  need 

information Such  reports  shall  also  contain  such  information 

in  relation  to  rates  or  regulations  concerning  fares  or  freights,  or 
agreements,  arrangements,  or  contracts  affecting  the  same  as  the 
Conmiission  may  require;  and  the  Commission  may,  in  its  discretion, 
for  the  purpose  of  enabling  it  the  better  to  carry  out  the  purposes  of 
this  Act,  prescribe  a  period  of  time  within  which  all  common  carriers 
subject  to  the  provisions  of  this  Act  shall  have,  as  near  as  may  be, 
a  uniform  system  of  accounts,  and  the  manner  in  which  such  accounts 
shall  be  kept 

Sec.  24.  (Added  June  2p,  igo6).  That  the  Interstate  Commerce 
Conunission  is  hereby  enlarged  so  as  to  consist  of  seven  members  with 
terms  of  seven  years,  and  each  shall  receive  ten  thousand  dollars 
compensation  annually.  The  qualifications  of  the  Commissioners  and 
the  manner  of  the  payment  of  their  salaries  shall  be  as.  already  pro- 
vided by  law.  Such  enlargement  of  the  Conmiission  shall  be  accom- 
plished through  appointment  by  the  President,  by  and  with  the  advice 
and  consent  of  the  Senate,  of  two  additional  Interstate  Conmierce 

Commissioners Not  more  than  four  Commissioners  shall  be 

appointed  from  the  same  political  party 

{Commerce  Court  and  other  additional  provisions  in  the  Act  of  June 
iS,  igio,)  (Sec.  i.)  That  a  court  of  the  United  States  is  hereby 
created  which  shall  be  known  as  the  Commerce  Court  and  shall  have 
the  jurisdiction  now  possessed  by  circuit  courts  of  the  United  States 
and  the  judges  thereof  over  all  cases  of  the  following  kinds: 

First.  All  cases  for  the  enforcement,  otherwise  than  by  adjudica- 
tion and  collection  of  a  forfeiture  or  penalty  or  by  infliction  of  criminal 
punishment,  of  any  order  of  the  Interstate  Commerce  Commission 
other  than  for  the  pa)mient  of  money. 

Second.    Cases  brought  to  enjoin,  set  aside,  annul,  or  suspend 


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284  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

in  whole  or  in  part  any  order  of  the  Interstate  Commerce  Com- 
mission. 

Third.  Such  cases  as  by  section  three  of  the  Act  entitled  "An 
Act  to  further  regulate  commerce  with  foreign  nations  and  among 
the  States,"  approved  February  nineteenth,  nineteen  hundred  and 
three,  are  authorized  to  be  maintained  in  a  circuit  court  of  the  United 
States. 

Fourth.  All  such  mandamus  proceedings  as  imder  the  provisions 
of  section  twenty  or  section  twenty-three  of  the  Act  entitled  "An 
Act  to  regulate  commerce,"  approved  February  fourth,  eighteen 
hundred  and  eighty-seven,  as  amended,  are  authorized  to  be  main- 
tained in  a  circuit  court  of  the  United  States. 

Nothing  contained  in  this  Act  shall  be  construed  as  enlarging  the 
jurisdiction  now  possessed  by  the  circuit  courts  of  the  United  States 
or  the  judges  thereof,  that  is  hereby  transferred  to  and  vested  in  the 
Commerce  Court. 

The  jurisdiction  of  the  Commerce  Court  over  cases  of  the  fore- 
going classes  shall  be  exclusive;  but  this  Act  shall  not  affect  the 
jurisdiction  now  possessed  by  any  circuit  or  district  court  of  the 
United  States  over  cases  or  proceedings  of  a  kind  not  within  the 
above-enumerated  classes. 

The  Commerce  Court  shall  be  a  court  of  record,  and  shall  have  a 
seal  of  such  form  and  style  as  the  court  may  prescribe.  The  said 
Court  shall  be  composed  of  five  judges,  to  be  from  time  to  time 
designated  and  assigned  thereto  by  the  Chief  Justice  of  the  United 
States,  from  among  the  circuit  judges  of  the  United  States,  for  the 
period  of  five  years,  except  that  in  the  first  instance  the  Court  shall 
be  composed  of  the  five  additional  circuit  judges  to  be  appointed  as 
hereinafter  provided,  who  shall  be  designated  by  the  President  to 
serve  for  one,  two,  three,  four,  and  five  years,  respectively,  in  order 
that  the  period  of  designation  of  one  of  the  said  judges  shall  expire  in 
each  year  thereafter.  In  case  of  the  death,  resignation,  or  termina- 
tion of  assignment  of  any  judge  so  designated,  the  Chief  Justice  shall 
designate  a  circuit  judge  to  fill  the  vacancy  so  caused  and  to  serve 
during  the  unexpired  period  for  which  the  original  designation  was 
made.  After  the  year  nineteen  hundred  and  fourteen  no  circuit 
judge  shall  be  redesignated  to  serve  in  the  Commerce  Court  until  the 
expiration  of  at  least  one  year  after  the  expiration  of  the  period  of 
his  last  previous  designation.  The  judge  first  designated  for  the 
five-year  period  shall  be  the  presiding  judge  of  said  Court,  and  there- 
after the  judge  senior  in  designation  shall  be  the  presiding  judge. 


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MODERN  CAPITALISTIC  ORGANIZATION  285 

Each  of  the  judges  during  the  period  of  his  service  in  the  com- 
merce court  shall,  on  account  of  the  regular  sessions  of  the  court  being 
held  in  the  city  of  Washington,  receive  in  addition  to  his  salary  as 
circuit  judge  an  expense  allowance  at  the  rate  of  one  thousand  five 
hundred  dollars  per  annum. 

The  President  shall,  by  and  with  the  advice  and  consent  of  the 
Senate,  appoint  five  additional  circuit  judges  no  two  of  whom  shaU 
be  from  the  same  judicial  circuit,  who  shall  hold  ofiice  during  good 
behavior  and  who  shall  be  from  time  to  time  designated  and  assigned 
by  the  Chief  Justice  of  the  United  States  for  service  in  the  circuit 
court  for  any  district,  or  the  circuit  court  of  appeals  for  any  circuit, 
or  in  the  conmierce  court 

(Sec.  2.)  That  a  final  judgment  or  decree  of  the  Conmierce 
Court  may  be  reviewed  by  the  Supreme  Court  of  the  United  States 
if  appeal  to  the  Supreme  Court  be  taken  by  an  aggrieved  party  within 
sixty  days  after  the  entry  of  said  final  judgment  or  decree.  Such 
appeal  may  be  taken  in  Uke  manner  as  appeals  from  a  circuit  coiut 
of  the  United  States  to  the  Supreme  Court,  and  the  Conunerce  Court 
may  direct  the  original  record  to  be  transmitted  on  appeal  instead  of 
a  transcript  thereof.  The  Supreme  Court  may  affirm,  reverse,  or 
modify  the  final  judgment  or  decree  of  the  ConmierQe  Court  as  the 
case  may  require. 

Appeal  to  the  Supreme  Court,  however,  shall  in  no  case  supersede 
or  stay  the  judgment  or  decree  of  the  Conmierce  Coiut  appealed  from, 
unless  the  Supreme  Court  or  a  justice  thereof  shall  so  direct,  and 
appellant  shall  give  bond  in  such  form  and  of  such  amount  as  the 
Si^)reme  Court,  or  the  justice  of  that  court  allowing  the  stay,  may 
require. 

An  appeal  may  also  be  taken  to  the  Supreme  Court  of  the  United 
States  from  an  interlocutory  order  or  decree  of  the  Commerce  Court 
granting  or  continuing  an  injunction  restraining  the  enforcement  of 
an  order  of  the  Interstate  Commerce  Commission,  provided  such 
appeal  be  taken  within  thirty  days  from  the  entry  of  such  order  or 
decree. 

Appeals  to  the  Supreme  Court  imder  this  section  shall  have 
priority  in  hearing  and  determination  over  all  other  causes  except 
criminal  causes  in  that  court 


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286  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

8i.    RAILWAY  RATE  THEORIES  OF  THE  INTERSTATE 
COMMERCE  COMMISSION' 

The  Commission  began  its  work  with  the  idea  that  value  of  service 
was  the  underlying  principle  of  railway  rates.  It  was  miable,  how- 
ever, to  furnish  such  a  precise  definition  or  explanation  of  this  term 
as  would  enable  it  to  be  used  as  a  concrete  measure  of  a  reasonable 
rate. 

At  the  outset  of  its  labors  the  Commission  was  not  inclined  to 
place  much  confidence  in  cost  of  service  as  a  principle  for  determining 
rates.  The  feeling  that  rates  fixed  in  this  way  would  prevent  the 
free  movement  .of  certain  commodities  explains  in  part  the  attitude 
of  the  Commissioners,  but  the  main  objection  has  seemed  to  be  the 
practical  impossibility  of  determining  the  exact  cost  of  transporting 
a  particiilar  commodity.  That  there  are  obstacles — ^insuperable 
ones — to  any  direct  determination  of  the  cost  of  performing  a  specific 
service  in  transportation  no  one  familiar  with  the  subject  would  deny. 
It  has  not  been  by  means  of  a  direct  determination  of  the  costs, 
however,  that  the  Commission  has  sought  a  solution.  The  method 
followed  has  been  that  of  comparison.  The  ascertainable  costs  of 
moving  a  certain  commodity  have  been  compared  with  the  costs  of 
moving  the  same  commodity  in  a  different  manner  or  under  different 
circumstances.  The  method  of  comparative  costs  does  not  yield 
absolutely  accurate  results  but  it  is  oftentimes  suflScient  for  practical 
purposes  and  we  must  remember  that  economics,  like  law,  does  not 
concern  itself  with  trifles. 

The  method  of  comparative  costs  has  not  always  been  applicable 
however.  In  some  cases,  as  we  have  seen,  distance  may  be  used  as  a 
means  of  measuring  the  reasonableness  of  rates.  Considered  as  the 
sole  element  in  the  determination  of  rates,  distance  would  of  course 
yield  unsatisfactory  results;  but  it  is  nevertheless,  as  the  Commission 
says,  "in  the  absence  of  other  influences  a  controlling  element." 
Its  value  as  a  measuring  instrument  lies  not  in  the  fact  that  it  is 
independent  of  costs  but  that  in  the  absence  of  other  influences  it 
reflects  costs. 

The  same  thing  may  be  said  of  the  effort  of  the  Commission  to 
preserve  for  a  place  its  natural  advantages  of  location.  A  place  can 
have  no  advantage  of  location  which  a  carrier  is  bound  to  respect 

» Adapted  from  M.  B.  Hammond,  "Railway  Rate  Theories  of  the  Interstate 
Commerce  Commission,"  in  The  Quarterly  Journal  of  Economics,  XXV,  529-38 
(May,  191 1). 


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MODERN  CAPITALISTIC  ORGANIZATION  287 

other  than  that  which  is  due  to  its  ability  to  place  its  products  on  the 
market  at  less  cost  than  can  its  competitors.  Rates  based  on  the 
principle  of  recognizing  natural  advantages  of  location  are  therefore 
true  to  the  cost  of  service  principle. 

Even  in  the  absence  of  these  indirect  methods  of  determining 
costs,  the  Commission  has  found  it  possible  to  reach  the  same  goal 
by  other  methods.  It  is  a  fundamental  principle  of  economics  that 
free  and  untrammeled  compeUtion,  operating  over  a  long  period  of 
time,  tends  to  reduce  prices  to  a  cost  basis.  We  have  therefore  only 
to  apply  this  principle  to  railway  rates  to  see  that  rates  which  have 
been  fixed  by  competition,  provided  that  this  competition  has  been 
of  a  normal  sort,  will  be  the  same  as  they  would  be  if  all  the  costs  of 
service  had  been  calculated  and  rates  had  then  been  based  on  costs. 

One  other  alternative  has  been  presented  to  the  Commission  in 
certain  cases  where  it  has  been  unable  to  calculate  the  costs  of  service 
and  this,  too,  has  been  in  accordance  with  well-known  economic 
principles.  What  the  economist  always  means  by  cost  price  is  that 
price  which  covers  not  only  actual  expenditures  made  in  production 
but  which  also  leaves  a  normal  rate  of  return  upon  aU  the  capital  invested. 
In  those  cases,  therefore,  in  which  the  Commission  has  been  called 
upon  to.  deal  with  a  whole  system  of  rates;  where  it  would  have  been 
cleady  impossible  to  have  calculated  all  the  costs;  where  even  the 
comparative  method  was  lacking  because  the  increase  of  rates  had 
been  made  general,  and  where  comp>etition  was  not  present,  it  has 
still  been  possible  to  ask  whether  these  rates  have  yielded  the  same 
results,  measured  by  their  effect  on  earning  power,  as  would  have 
resulted  if  the  cost  of  service  principle  had  been  applied. 

Two  other  considerations  emphasized  by  the  Commission,  value 
of  commodity,  and  sectional  or  class  interests,  still  remain  to  be  dealt 
with.  With  reference  to  the  last-named  consideration  it  is  hard 
to  see  how  it  can  be  made  to  fit  in  with  any  defensible  theory  of 
railway  rates.  Many  of  the  cases  in  which  value  of  commodity  was 
made  the  basis  of  the  Commission's  decision  might  easily  have  been 
grouped  under  the  heading  of  cost  of  service.  This  is  because  differ- 
ences in  rates,  measured  by  differences  in  values  of  commodities, 
were  allowed  becaiise  the  carrier  was  assiuned  to  have  accepted 
greater  risks  in  transporting  the  more  valuable  commodities.  In 
other  cases  where  low  rates  were  prescribed  for  low-grade  conmiodities, 
for  example  such  articles  as  are  usually  given  commodity  rates,  it  is 
obvious  that  the  low  rates  could  have  been  justified  as  easily  on  the 


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288  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

principle  that  the  costs  of  moving  these  commodities  were  low  as  on 
the  basis  of  their  low  values. 

If  the  conclusion  be  accepted  that  the  tendency  of  the  Interstate 
Commerce  Commission's  decisions  is,  on  the  whole,  toward  a  cost 
of  service  theory  of  rate-making,  there  still  remains  the  task  of  so 
stating  a  theory  of  rates  as  to  bring  in  the  various  considerations 
which  we  have  seen  the  Commission  has  emphasized  as  factors  in 
rate-making,  and  show  how  they  can  be  related  to  the  fimdamental 
principle.  It  is  perhaps  well  to  say  that  nowhere  has  the  Commis- 
sion imdertaken  to  state  such  a  comprehensive  theory  of  rate-making. 

1.  In  any  system  of  government-made  or  government-regulated 
railway  rates,  it  would  seem  that  this  fundamental  economic  principle 
should  be  kept  in  mind:  to  perform  the  service  of  transporting 
persons  and  goods  with  the  least  possible  expenditure  of  social  energy. 

2.  One  transportation  route  or  one  transportation  system  should 
never  be  allowed  to  take  from  another  route  or  system,  merely  as  a 
consequence  of  competition,  traffic  which  the  latter  route  or  system 
can  carry  at  less  expense. 

3.  Rates  should  be  so  adjusted  as  never  to  take  from  a  place  its 
natural  geographical  advantages  of  location;  but  natural  advantages 
should  not  be  so  construed  as  to  mean  monopoly  privileges. 

4.  Railway  rates  as  a  whole  should  just  cover  costs  as  a  whole, 
allowing  for  a  normal  rate  of  return  on  capital  actually  invested,  a 
normal  return  for  labor  of  all  sorts,  and  for  depreciation,  but  not  for 
betterments.  This  would  not  mean  that  superior  efficiency  in  rail- 
way management  was  not  entitled  to  reap  the  rewards  of  its  superiority 
in  the  same  way  as  it  does  in  the  ordinary  industrial  establishment 
where  competition  rules.  On  the  other  hand,  the  rule  must  not  be 
construed  to  mean  that  any  investment  in  a  railroad,  no  matter  how 
foolishly  or  recklessly  made,  is  entitled  to  exact  high  rates  from  persons 
and  industries  along  the  line  in  order  to  earn  current  interest  rates 
or  dividends.  Railway  property  is  not  more  sacred  than  other 
property,  nor  are  railway  investors  immune  from  the  consequences 
of  their  own  acts. 

5.  Each  commodity  transported  should,  as  far  as  possible,  be 
made  to  defray  its  own  share  not  only  of  operating  and  terminal 
costs  but  also  of  the  fixed  costs  and  dividends.  It  is  possible  under 
modem  accounting  methods  to  determine  these  costs  with  an  approxi- 
mate degree  of  accuracy  for  the  principal  commodities  and  classes 
of  traffic.    The  rates  on  other  commodities  may  be  determined  by 


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MODERN  CAPITALISTIC  ORGANIZATION  289 

comparing  their  ascertainable  costs  with  those  of  the  principal  com- 
modities, and  to  a  lesser  extent  by  a  comparison  of  the  relative 
values  of  the  commodities. 

6.  Differences  in  distance  may  be  made  a  test  of  the  reasonable- 
ness of  differences  in  rates  where  other  conditions  appear  to  be  similar; 
yet  the  general  rule  must  be  kept  in  mind  that  though  the  aggregate 
charge  should  increase  as  distance  increases,  the  ton-mile  rate  should 
decrease. 

7.  Where  the  application  of  none  of  the  above  principles  seems 
practicable,  competition,  which  has  been  conducted  in  a  normal 
manner  over  a  period  of  several  years,  may  be  assimied  to  have 
established  a  fair  relation  of  rates. 

8.  A  reasonable  rate  is  one  which  3delds  a  reasonable  compensa- 
tion for  the  service  rendered.  If  a  given  rate  is  reasonable  in  this 
sense,  an  increase  in  the  price  of  the  commodity  or  in  the  profits  to 
the  producer  will  not  be  a  valid  excuse  for  increasing  the  railway 
rate.  The  carrier  will  justly  share  in  the  increased  prosperity  of  the 
producer  by  securing  a  larger  traffic  in  this  conmiodity. 

The  possibility  of  applying  these  rules  to  the  business  of  railway 
transportation  is  proved  by  the  fact  that  the  application  of  every 
one  of  them  can  be  shown  by  illustrations  taken  from  the  Commission's 
decisions.  Their  consistent  application  would  mean  that  the  rail- 
roads would  neither  tax  the  industries  of  the  country  nor  have  their 
own  investments  sacrificed;  they  would  not  build  up  one  place  or 
industry  at  the  expense  of  some  other  place  or  industry;  they  would 
not  take  from  some  persons  or  commodities  their  proportionate  share 
of  the  costs  of  transportation  and  impose  them  upon  other  persons 
and  commodities;  and  finally  they  would  not  by  their  system  of  rate- 
making  retard  industrial  progress  or  have  their  own  development 
hindered  by  failing  credit  or  lack  of  revenue. 

82.  VALUATION  OF  PUBLIC  UTILITIES 
I' 
If  a  railroad  corporation  has  bonded  its  property  for  an  amount 
that  exceeds  its  fair  value,  or  if  its  capitalization  is  largely  fictitious, 
it  may  not  impose  upon  the  public  the  burden  of  such  increased  rates 
as  may  be  required  for  the  purpose  of  realizing  profits  upon  such 
excessive  valuation  or  fictitious  capitalization;    and  the  apparent 

Smy^  vs.  Ames,  169  U.S.  466  (1898). 


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290  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

value  of  the  property  and  franchises  used  by  the  corporation,  as 
represented  by  its  stocks,  bonds,  and  obligations,  is  not  alone  to 
be  considered  when  determining  the  rates  that  may  be  reasonably 
charged 

But  it  is  equally  true  that  the  corporation  performing  such  public 
services  and  the  people  interested  in  its  business  and  affairs  have 
rights  that  may  not  be  invaded  by  legislative  enactment  in  disregard 
of  the  fundamental  guaranties  for  the  protection  of  property.  The 
corporation  may  not  be  required  to  use  its  property  for  the  benefit  of 
the  public  without  receiving  just  compensation  for  the  services 
rendered  by  it.  How  such  compensation  may  be  ascertained,  and 
what  are  the  necessary  elements  in  such  inquiry,  will  always  be  an 
embarrassing  question 

We  hold,  however,  that  the  basis  of  aU  calculations  as  to  the 
reasonableness  of  rates  to  be  charged  by  a  corporation  maintaining 
a  highway  under  legislative  sanction  must  be  the  fair  value  of  the 
property  being  used  by  it  for  the  convenience  of  the  public.  And  in 
order  to  ascertain  that  value,  the  original  cost  of  construction,  the 
amount  expended  in  permanent  improvements,  the  amount  and  mar- 
ket value  of  its  bonds  and  stock,  the  present  as  compared  with  the 
original  cost  of  construction,  the  probable  earning  capacity  of  the 
property  under  particular  rates  prescribed  by  statute,  and  the  simi 
required  to  meet  operating  expenses,  are  all  matters  for  consideration, 
and  are  to  be  given  such  weight  as  may  be  just  and  right  in  each  case. 
We  do  not  say  that  there  may  not  be  other  matters  to  be  regarded  in 
estimating  the  value  of  the  property.  What  the  company  is  entitled 
to  ask  is  a  fair  return  upon  the  value  of  that  which  it  employs  for  the 
public  convenience.  On  the  other  hand,  what  the  public  is  entitled 
to  demand  is  that  no  more  be  exacted  from  it  for  the  use  of  a  public 
highway  than  the  services  rendered  by  it  are  reasonably  worth. 

The  most  important  fact  to  be  determined  is  the  value  of  the 
property.  The  value  to  be  ascertained  is  the  value  at  the  time  of  the 
inquiry.  Only  that  property  is  to  be  considered  which  was  then 
used  and  useful  in  supplying  San  Francisco  with  water.  Among  the 
proper  matters  to  be  considered  are  the  original  cost  of  construction; 
the  amount  expended  in  permanent  improvements;  the  amount  and 
market  value  of  stock  and  bonds;    the  present,  as  compared  with 

« Spring  Valley  Water  Works  vs.  San  Francisco ^  192  Fed.  137  (191 1). 


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MODERN  CAPITALISTIC  ORGANIZATION  291 

original,  cost  of  construction;  the  probable  earning  capacity  of  the 
property  under  the  particular  rates  prescribed  by  the  ordinance  for 
each  of  the  years  in  question;  the  sums  required  to  meet  operating 
expenses;  what  it  will  cost  to  obtain  water,  equal  in  quantity  and 
quality  to  the  present  supply,  from  the  next  most  available  source; 
the  depreciation  suffered  by  that  portion  of  the  plant  which  is  worn 
by  use  or  action  of  the  elements,  or  shorn  of  its  value  by  newer, 
cheaper,  and  more  efficient  appliances  and  machinery;  the  fact 
that  the  plant  has  a  franchise  and  is  a  going  concern,  with  an 
established  business  and  thousands  of  customers,  whose  buildings 
are  connected  with  the  distributing  system;  and  appreciation  in 
value  since  the  various  properties  constituting  the  plant  were  acquired. 
To  each  of  these  factors  just  and  proper  weight  must  be  given;  and 
finally,  the  result  must  be  the  reasonable  and  fair  value  of  the  plant 
as  between  the  company  and  the  public. 

III^ 
The  most  important  facts  on  which  to  base  a  determination  of 
the  value  of  a  railroad  property  are: 

First.    The  actual  cost  of  construction. 

Second.    Cost  of  reproduction,  new. 

Third.    The  depreciated  value. 

Fourth.    The  amount  and  market  value  of  stock  and  bonds 

issued,  with  a  full  financial  history  of  the  road. 
Fifth.    The  density  of  population  and  traffic. 
Sixth.    The  nature  and  permanence  of  population  and  traffic. 
Seventh.    Facilities  for  doing  business. 
Eighth.    Physical  characteristics. 
Ninth.    The  amount  of  earnings  and  operating  expenses. 

83.    SUGGESTIONS  FOR  EFFECTIVE  PUBLIC  UTILITY 
REGULATION* 

The  first  essential  of  effective  control  of  public  service  corpora- 
tions is  an  efficient  administrative  body.  Experience  indicates  that 
a  board  or  commission  best  meets  the  requirements  of  the  problem. 
The  requisite  powers  are  too  great  to  be  entrusted  to  a  single  person, 

'  Statement  of  J.  C.  Lawrence,  Proceedings  of  National  Association  of  Railway 
Commissioners,  19 10. 

■  Adapted  from  E.  H.  Downey,  "The  Regulation  of  Urban  Utilities  in  Iowa," 
in  Applied  History,  I,  208-27.    State  Historical  Society  of  Iowa,  191 2. 


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^ga  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

and  a  large  body  is  too  cumbersome  for  efficiency.  A  commission  of 
three  members  is  probably  preferable  to  a  larger  board,  even  if  of 
equal  individual  ability.  Moreover,  a  given  sum  laid  out  in  salaries 
is  more  likely  to  secure  competent  men  if  divided  among  three  men 
than  if  distributed  to  five.  As  to  the  method  of  selection,  appoint- 
ment seems  to  secure  better  results  than  popular  election.  The  term 
of  office  should  not  be  less  than  six  years,  one  commissioner  being 
appointed  every  second  year.  Commissioners  should  devote  their 
entire  time  to  the  duties  of  the  office  and  should  have  no  connection, 
by  stock  ownership  or  otherwise,  with  any  public  utility. 

With  respect  to  personnel,  one  commissioner  should  be  an  attorney 
skilled  in  railroad  law  and  should  act  as  the  commission's  coimsel, 
ex  officio.  Another  commissioner  should  be  a  public  utility  expert 
familiar  with  methods  of  valuation  and  accounting. 

Public  utility  regulation  is  a  scientific  matter.  If  the  r^;ulation 
is  to  be  effective,  the  commission  must  be  composed  of  high  grade 
men,  and  it  must  be  provided  with  a  staff  of  rate  experts,  accoimtants, 
statisticians,  and  engineers  at  least  equal  to  the  staff  of  any  public 
service  company  in  the  state. 

The  act  should  embrace  the  following  utilities:  (a)  railroads, 
interurban  railroads,  express  companies,  sleeping  car,  dining  car, 
refrigerator  car,  tank  car  and  other  car  lines,  pipe  lines,  steamboats, 
and  all  other  carriers  between  cities;  (6)  telegraph,  telephone,  and 
other  transmission  companies,  lines  or  systems;  and  (c)  street  rail- 
ways, telephone  exchanges,  gas,  electric  and  water  works,  heating 
and  refrigerating  plants,  terminals,  ferries,  toll  bridges,  warehouses, 
elevators,  cold  storage  houses,  and  any  creamery,  slaughter-house, 
meat  packing  establishment,  and  any  milk,  coal  or  ice  dealer  found 
upon  complaint  and  investigation  to  possess  substantial  monopoly 
power. 

The  term  "public  utility"  should  be  so  defined  as  to  embrace 
mimicipalities  and  every  individual,  partnership,  firm,  corporation, 
association,  trustee  or  receiver  owning  or  operating  any  of  the  fore- 
going plants,  businesses,  or  industries,  and  also  any  corporation  or 
association  formed  for  the  purpose  of  acquiring,  or  authorized  to 
acquire,  or  which  has  acquired  any  utility  franchise.  This  last 
provision,  modeled  upon  the  New  York  law,  is  intended  to  reach 
inchoate  or  inactive  companies  which  acquire  franchises  and  hold 
them  imtil  such  time  as  they  become  valuable.  Some  of  the  busi- 
nesses above  enumerated  are  not  usually  classed  as  public  Utilities 


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MODERN  CAPITALISTIC  ORGANIZATION  J93 

but  it  is  well  known  that  in  many  places  they  are,  and  tend  more 
and  more  to  become,  virtual  monopolies.  The  law  should  be  broad 
enough  to  cover  all  monopolies  and  explicit  enough  to  preclude 
evasion  by  a  mere  change  of  form. 

The  commission  should  be  required  to  ascertain,  as  speedily  as 
practicable,  the  fair  value  of  all  utility  properties  actually  devoted 
to  the  public  service  and  thereafter  to  keep  itself  informed  of  all  new 
construction  and  of  the  value  thereof.  No  particular  theory  of- 
valuation  should  be  prescribed  in  the  statute,  since  none  now  com- 
mands universal  assent,  but  no  allowance  should  be  permitted,  in 
any  valuation  for  rate-making  or  for  municipal  purchase,  for  any 
franchise,  except  the  compensation  actually  paid  to  the  public  grantor. 
The  valuations  so  found  should  be  conclusive,  as  of  the  date  when 
made,  for  the  purpose  of  municipal  purchase  and  also  in  any  subse- 
quent proceeding  in  any  court  of  the  state.  This  last  provision  would 
save  the  vast  expense  of  taking  expert  testimony  in  litigation,  and  it 
would  also  serve  the  ends  of  justice  much  more  nearly  than  does  the 
ordinary  court  appraisal. 

Uniform  accoimts,  to  be  prescribed  by  the  commission  for  each 
class  of  utilities,  should  be  compulsory.  Express  provision  should 
be  made  for  depreciation  accoimts  and  for  the  maintenance  by  each 
utility  of  such  depreciation  fimd  as  the  commission  shall  deem  ade- 
quate to  replace  the  plant  and  equipment  as  the  same  may  wear 
out  or  become  obsolete.  Both  ordinary  repairs  and  renewals  are 
properly  operating  expenses  which  ought  to  be  met  out  of  earnings 
before  dividends  are  declared  or  profits  computed.  Only  thus  can 
investors  be  protected  without  saddling  the  public  with  interest 
charges  upon  vanished  capital.  Further,  by  means  of  the  deprecia- 
tion accoimts,  together  with  the  construction  accoimts  above  spoken 
of,  continuing  valuations  will  be  automatically  secured  and  a  sound 
basis  established  for  rate-making. 

To  make  the  accounting  requirements  effective,  the  commission 
should  be  empowered  to  audit  the  accounts  of  any  utility  and  should 
be  required  to  examine  and  audit  the  books  of  municipal  plants. 
Municipally  operated  utilities  would  greatly  profit  by  such  super- 
vision as  would  compel  them  to  keep  intelligible  records.  Private 
investors,  also,  would  be  benefited  by  trustworthy  comparative  reports 
of  public  utilities. 

The  commission  should  have  full  power,  after  hearing,  to  fix  the 
exact  rates  for  each  class  of  service.    It  is  not  sufficient  to  prescribe 


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simply  maximum  rates.  In  most  cases  when  any  change  of  rates  is 
necessary,  justice  as  between  consumers  requires  revision  of  the  entire  * 
schedule.  To  simplify  the  commission's  work  and  to  secure  imi- 
formity  each  utility  shoidd  be  required  to  publish  and  file  schedules 
showing  all  rates  in  force.  No  change  in  the  schedule  should  be 
permitted  without  thirty  days'  notice  to  the  commission,  nor  any 
increase  over  the  rates  effective  at  a  given  date  without  the  com- 
mission's assent.  Unlawful  discrimination  should  be  defined  with 
some  particularity,  and  any  departure  from  the  published  schedules 
or  any  greater,  less,  or  different  charge  to  one  person  than  to  another 
for  a  like  and  contemi>oraneous  service  should  be  expressly  prohibited. 
As  a  further  precaution  the  conmiission  should  be  authorized  to 
cancel  discriminatory  contracts,  even  those  which  antedate  the 
passage  of  the  act.  Such  a  power  may  appear  anomalous;  but 
there  is  no  good  reason  for  the  continuance  of  an  admitted  wrong, 
and  what  is  more,  discriminatory  agreements  are  imlawful  and  hence 
ab  initio  void  at  common  law. 

The  commission  should  have  power  to  prescribe  standards  of 
products  and  services,  standard  units  of  measurement,  standard 
measuring  appliances,  standard  safety  equipment,  and  rules  for  the 
protection  of  the  health  and  safety  of  employees  and  of  the  public. 
It  should  be  authorized,  after  hearing,  to  require  improved  service 
or  facilities,  additions  to  plant  or  equipment,  and  extensions  to  new 
territory  when  reasonably  necessary  to  the  public  service.  To  make 
these  provisions  effective,  the  commission  should  be  required,  through 
competent  agents  and  with  reasonable  frequency,  to  inspect  railway 
tracks,  bridges,  and  equipment,  and  other  utility  properties,  to  test 
the  purity,  pressure,  heat  value  and  illuminating  power  of  gas,  the 
voltage  of  electric  currents,  the  initial  eflSciency  of  electric  lamps, 
the  purity  of  water,  the  strength  of  fire  streams,  and  the  adequacy 
of  telephone,  street  railway,  and  other  utility  service,  and  to  compel, 
upon  the  reports  of  its  inspectors,  and  without  formal  hearings,  full 
compliance  with  standards  fixed  by  law  or  by  the  lawful  orders  of  the 
commission.  Utilities  should  be  required  to  provide  standard  prov- 
ing apparatus,  to  prove  meters,  test  service,  and  keep  station  records 
according  to  the  rules  prescribed  by  the  commission.  No  utility 
should  be  allowed  to  install  any  gas  or  water  meter  until  tested, 
approved,  and  sealed  by  an  official  inspector,  nor  any  electric  meter 
of  a  type  not  approved  by  the  commission. 


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MODERN  CAPITALISTIC  ORGANIZATION  295 

No  provisions  of  a  public  utilities  act  are  more  important  or 
require  closer  attention  than  those  respecting  capitalization.  Word- 
ing as  well  as  substance  needs  to  be  watched  with  jealous  care  to 
guard  against  evasion.  Effective  control  of  capitalization  must 
embrace  at  least  the  following  features: 

First.  The  issue  of  stocks,  bonds,  or  any  form  of  note  or  deben- 
ture running  more  than  twelve  months,  should  be  permitted  only 
for  the  acquisition  of  property,  new  construction,  or  other  purpose 
properly  chargeable  to  capital  account — ^and  then  only  with  the 
authorization  of  the  conmiission  and  only  to  the  amount  and  for  the 
purposes  and  upon  the  terms  authorized  by  the  commission,  which 
shoidd  be  further  charged  with  the  duty  of  seeing  that  such  terms  and 
conditions  are  fulfilled. 

Second.  No  utility  should  be  permitted  to  issue  capital  stock  at 
less  than  par,  fully  paid  in  cash,  or  in  property  at  a  valuation  fixed  by 
the  commission.  The  securities  of  a  new  or  reorganized  company 
should  be  limited  to  an  amount  not  exceeding  in  the  aggregate  the 
structural  value  of  its  plant  and  equipment,  the  reasonable  expenses 
of  organization,  and  the  cash  actually  in  hand — ^all  to  be  ascertained 
and  certified  by  the  commission. 

Third.  Payment  for  labor  or  services  in  stock  or  other  securities 
and  the  capitalization  of  any  franchise  at  more  than  the  compensa- 
tion actually  paid  to  the  public  grantor  thereof,  or  of  "good  will" 
at  any  amoimt,  shoidd  be  expressly  prohibited.  To  permit  the 
promoter  or  underwriter  to  receive  a  block  of  stock  is  to  encoiu^ge 
speculative  enterprises  and  open  the  door  to  overcapitalization. 
L^timate  services  of  organization  should  be  compensated  in  the 
same  way  as  the  work  of  an  engineer  or  building  contractor.  "  Good 
will"  obviously  has  no  application  to  a  monopoly,  and  a  public  grant 
should  not  be  made  the  means  of  extraordinary  profits. 

Fourth.  Stock  or  scrip  dividends,  shareholders*  privileged  sub- 
scriptions to  stock  or  bonds,  and  every  other  form  of  "melon  cutting" 
should  be  expressly  forbidden.  As  a  preventive,  all  stock  and  other 
securities  shoidd  be  offered  at  public  sale.  It  should,  however,  be 
provided  that  a  minimum  or  refusal  price  may  be  fixed  by  the  issuing 
corporation,  and  that  the  securities  may  be  offered  in  successive 
blocks  or,  with  the  commission's  approval,  be  marketed  through 
underwriters.  Without  such  safeguards  public  sale  might  depress 
the  price  of  securities  below  their  real  value. 


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396  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

Mergers,  imder  proper  safeguards,  ought  to  be  encouraged.  The 
amalgamation  of  competing  utilities  avoids  much  senseless  waste. 
There  are  marked  economies  also  in  the  joint  operation  of  a  telegraph 
and  a  telephone  system,  of  a  street  railway  and  a  conunerdal  power 
plant,  or  of  a  gas  and  an  electric  lighting  establishment.  It  may 
even  be  advantageous  to  combine  all  the  utilities  of  the  same  com- 
munity. Such  a  consolidation  would  effect  important  savings  in 
superintendence  and  office  expenses,  in  the  cost  of  reading  meters 
and  making  collections,  in  the  purchase  of  fuel  and  materials,  and 
in  the  engineering  and  construction  departments.  Under  such  restric- 
tions as  will  secure  to  the  public  a  fair  share  in  these  economies,  the 
consolidation  of  utilities  in  the  same  territory  is  an  advantage  to 
consimiers  as  well  as  owners. 

To  protect  the  public,  while  permitting  legitimate  consolidations, 
three  restrictions  appear  to  be  necessary: 

First.  No  utility  shall  sell,  assign,  convey,  lease,  mortgage, 
create  any  lien  against,  or  transfer  in  any  manner  whatsoever,  its 
franchise,  works,  plant,  or  property  of  any  description  (except 
materials  and  supplies  disposed  of  in  the  ordinary  course  of  business), 
without  first  obtaining  from  the  commission  a  certificate  of  approval, 
to  be  granted  or  refused  within  the  discretion  of  the  commission; 
and  then  only  upon  terms  and  conditions  approved  by  the  conmiission. 

Second.  No  corporation,  company,  partnership,  firm  or  associa- 
tion shall  acquire  more  than  ten  per  cent  of  the  stock,  bonds,  or  other 
securities  of  any  utility,  except  with  the  conmiission's  approval  as 
above  set  forth. 

Third.  The  securities  issued  in  exchange  for  any  utility  plant 
or  property,  or  for  the  stock  or  bonds  thereof,  shall  not  exceed  the 
structural  value  of  the  property  devoted  to  the  public  service,  the 
"going  value"  of  the  biisiness  (in  which  term  shall  be  included  only 
the  reasonable  expenses  of  organization  and  the  reasonable  costs  of 
building  up  the  business)  and  the  compensation  actually  paid  to  the 
public  grantor  for  its  franchise — all  to  be  ascertained  and  certified 
by  the  commission. 

In  view  of  the  uniform  failure  of  attempts  at  competition,^  of  the 
enormous  losses  which  have  been  incurred  in  such  attempts,  and  of 

'  *'  There  are  few  things  which  the  industrial  history  of  advanced  nations 
proves  more  conclusively  than  that  competition  in  the  field  of  public  utilities  has 
failed  to  insure  reasonably  adequate  service  at  reasonable  rates." — ^B.  H.  Meyer, 
in  Amerkan  Political  Science  RnieWt  V,  386. 


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MODERN  CAPITAUSTIC  ORGANIZATION  297 

the  increases  of  capitalization  and  deterioration  of  service  that  iisually 
have  followed  upon  the  abandonment  of  these  experiments,  it  can 
hardly  be  doubted  that  regulated  monopoly  is  the  wiser  policy. 
None  the  less,  the  power  to  permit  competition  may  well  be  retained 
as  a  threat  or  club  to  hold  monopolists  to  the  faithful  performance 
of  their  public  duties.  These  two  objects  are  probably  best  secured 
by  prohibiting  the  establishment  of  any  utility  in  competition  with 
one  already  in  existence  imless  the  commission,  after  notice  to  all 
parties  concerned  and  a  hearing,  shall  find  and  certify  that  public 
convenience  and  necessity  require  such  additional  utility. 

With  respect  to  the  granting  of  franchises,  two  restrictions  appear 
necessary  for  the  protection  of  investors  as  well  as  of  the  public: 

First.  No  franchise  granted  by  any  municipality  or  other 
political  subdivision  of  the  state  should  be  valid  or  operative  until 
and  imless  the  commission,  after  hearing,  shall  find  that  such  franchise 
is  necessary  and  proper  for  the  public  convenience  and  properly 
conserves  the  public  interests;  and  the  commission  should  be  expressly 
emi>owered  to  impose  such  conditions  as  to  construction,  equipment 
maintenance,  service,  or  operation  as  the  public  interests  may  require. 
Such  a  provision,  coupled  with  the  referendum  requirement  would 
go  far  to  do  away  with  corruption  in  the  granting  of  franchises. 
What  is  equally  important,  "jokers"  would  have  little  chance  of 
surviving  the  triple  ordeal  of  the  city  coimcil,  the  electorate,  and  the 
commission. 

Second.  The  indeterminate  permit  law  of  Wisconsin  has  given 
general  satisfaction  both  to  the  public  and  to  the  utilities  affected. 
Under  it  the  companies  are  assured  of  their  rights  in  the  streets  and 
of  protection  against  competition  so  long  as  they  render  reasonably 
satisfactory  service  at  reasonable  rates.  They  have  no  need  to  dicker 
with  the  local  authorities  for  renewals  of  expiring  grants.  They  are 
relieved  from  all  fear  of  being  forced  to  sacrifice  their  property  at 
the  expiration  of  any  franchise  and  from  all  necessity  of  amortizing 
their  investment.  The  mimidpalities,  for  their  part,  are  no  longer 
bound  by  rigid  contracts  nmning  for  definite  terms  of  years.  If  any 
utility  fails  to  furnish  adequate  service  another  company  may  be 
chartered  by  the  dty,  with  the  commission's  consent,  without  regard 
to  existing  franchises.  If  any  dty  wishes  to  operate  its  own  utilities 
it  need  not  wait,  as  now,  for  the  termination  of  a  grant. 

Municipalities  should  have  i>ower  to  construct,  acquire  and 
operate  street  railways,  gas,  electric,  and  water  works,  ferries,  bridges, 


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markets,  elevators,  warehouses,  cold  storage  houses,  commercial 
heatmg  and  refrigerating  plants,  and  possibly  other  urban  utilities. 
This  list  is  much  longer  than  the  present  laws  allow;  but  all  the 
enterprises  mentioned  have  been  successfully  managed  by  European 
cities,  and  experiments  in  municipal  operation,  imder  proper  safe- 
guards, ought  to  be  encouraged. 

Municipal  plants  should  be  subject  to  the  commission's  jurisdic- 
tion with  respect  to  accounts,  rates,  and  service  to  the  same  extent 
as  privately  owned  utilities.  A  public  undertaking,  to  be  sure,  has 
not  the  same  motive  as  a  private  monopoly  to  exploit  its  patrons. 
But  there  is  considerable  danger  that  private  consumers  may  be 
compelled  to  pay  for  service  furnished  gratis  to  the  city  or,  on  the 
contrary,  that  rates  may  be  made  so  low  as  to  not  provide  for  interest, 
upkeep,  and  depreciation.  Wisconsin's  experience  shows  that  munici- 
pal utilities  are  likely  to  discriminate  as  between  different  classes  of 
private  consumers;  and  even  personal  discrimination  may  be  brought 
about  by  political  influence  or  otherwise.  Service,  also,  is  sure  to 
be  improved  by  state  inspection  and  the  requirement  of  station 
records. 

Every  municipality  should  have  power  (i)  to  determine  by 
franchise,  contract,  ordinance,  or  otherwise  the  terms  and  conditions 
ui>on  which  any  utility  may  occupy  its  streets,  alleys,  and  other 
public  places;  (2)  to  exercise  continuing  police  control  over  poles, 
wires,  conduits,  tracks,  and  other  structures  in,  imder,  over,  or  along 
such  highways  or  public  places,  and  over  all  cars  or  other  vehicles 
operated  thereon;  and  (3)  to  require  additions  to  plant  or  equipment 
or  extensions  into  new  territory.  To  prevent  injustice  an  appeal 
should  lie  to  the  commission  which  should  be  empowered  to  set 
aside  any  ordinance,  contract,  or  franchise  which  it  might  find  to 
be  imreasonable,  unlawful,  or  prejudicial  to  the  public  interest;  but 
no  utiUty  should  be  permitted  to  occupy  the  highways  of,  or  operate 
within,  any  municipality  without  first  obtaining  the  consent  of  the 
dty  council  and  of  a  majority  of  the  qualified  electors  voting  thereon. 

It  is  desirable  to  confine  appeals  from  the  commission  to  the 
courts  within  somewhat  narrow  limits,  not  alone  to  save  litigation 
but  to  make  the  intended  regulation  effective.  An  administrative 
board  constituted  like  the  Railroad  Commission  of  Wisconsin  is  far 
better  fitted  than  any  court  in  the  land  to  pass  ui>on  the  reasonable- 
ness of  rates,  the  adequacy  of  service,  or  the  necessity  of  additional 
stocks  or  bonds.    The  commission  is  more  expert  in  such  matters 


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MODERN  CAPITALISTIC  ORGANIZATION  299 

than  any  court  can  ever  become;  it  has  much  ampler  and  more 
trustworthy  sources  of  information;  it  is  equally  judicious;  and  it 
is  unhampered  by  that  technicality  which  has  ever  been  the  mother 
of  the  law's  delajrs.  There  is  no  merit  in  the  suggestion  that  the 
final  determination  of  such  questions  by  an  administrative  board 
would  be  an  arbitrary  exercise  of  power.  Final  decision  must  be 
vested  somewhere,  and  may  very  properly  be  entrusted  to  the  tribunal 
which  is  best  fitted  to  exercise  it. 

Ideally,  then,  the  commission's  findings  should  be  final  as  to 
facts,  including  even  idtimate  conclusions  of  fact,  and  should  be 
reviewable  only  on  the  grounds  that  the  commission  has  exceeded 
its  authority,  or  that  it  has  not  proceeded  in  accordance  with  law. 
Reason  and  analogy  support  such  a  limitation  of  judicial  review. 

The  courts  in  the  United  States  are  conmiitted,  however,  to  the 
doctrine  of  judicial  control  over  rate-making.  It  is  not  possible, 
therefore,  to  make  the  decision  of  an  administrative  body  conclusive 
as  to  the  reasonableness  of  rates  or  of  orders  affecting  property  rights. 
The  utmost  that  can  be  done  is  to  hedge  about  judicial  review  upon 
these  matters  with  such  safeguards  as  will  serve  to  make  the  public 
service  commission  something  more  than  an  advisory  body.  There 
is  no  doubt  that  a  state  may  to  the  extent  permitted  by  its  constitu- 
tion limit  the  jurisdiction  of  its  own  courts;  and  it  appears  to  be 
settled  that  when  a  limited  judicial  review  is  permitted  by  the  laws 
of  the  state  parties  will  be  required  to  exhaust  their  remedies  there 
before  applying  to  the  federal  courts. 

B.    INDUSTRIAL  COMBINATIONS 
84.  FORMS  OF  COMBINATION' 

I.    AGREEMENTS  ON  PRICES  AND  PRODUCTION 

Although  the  principle  of  combination  seems  to  have  become 
firmly  established  in  the  industrial  life  of  the  United  States  and  the 
leading  coimtries  of  Europe,  the  forms  have  varied  materially.  These 
forms  have  depended  in  part  upon  the  business  habits  of  the  com- 
mimity,  the  condition  of  the  business,  and  the  conunerdal  laws  of  the 
various  states  and  coimtries.  The  strongest  forms  of  combination 
appear  to  have  been  promoted  by  laws  intended  to  prevent  them. 

In  all  coimtries  the  forms  of  combination  which  first  appeared  were 
merely  agreements,  among  competing  manufacturers  or  dealers,  with 

»  From  the  Report  of  the  Industrial  Commission,  XIX,  605-8;  I,  21. 


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300  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

reference  to  prices.  When  competition  lowered  prices  beyond  the 
remunerative  point,  it  was  a  conmion  practice,  both  in  local  markets 
and  in  the  wider  business  field,  for  competitors  to  agree  that  prices 
should  not  be  cut  beyond  a  point  named,  which  would  give  to  all 
parties  a  fair  return.  Sometimes,  even  when  no  formal  agreement  is 
reached,  the  exigencies  of  trade  will  lead  competitors  to  establish  a 
customary  price  high  enough  to  enable  them  to  keep  in  profitable 
business. 

Arrangements  among  railroads  for  restricting  competition  some- 
times amount  merely  to  agreements  to  maintain  rates,  and  sometimes 
go  to  the  extent  of  a  division  of  traffic  or  receipts  imder  a  pool.  It  is 
also  well  known  that  oiu:  great  steel  manufactiurers  generally  for  a 
nimiber  of  years  have  had  agreements  regarding  the  prices  on  steel 
rails,  steel  billets,  and  other  leading  products  of  a  kind  manufactured 
byaU. 

Closely  connected  with  the  agreement  as  to  prices  is  often  found  an 
agreement  regarding  the  extent  of  the  output.  This  is  particularly 
true  Ivhere  the  market  is  limited  and  where  the  nimiber  of  producers 
is  small,  so  that  by  an  agreement  for  the  limitation  of  production, 
prices  can  be  readily  regulated.  Such  an  agreement  has  prevailed 
for  many  years  among  the  French  sugar  refiners,  and  is  generally 
known  as  the  French  sugar  trust.  From  time  to  time,  usually 
monthly,  the  half-dozen  leading  French  sugar  refiners,  producing  a 
large  percentage  of  the  total  of  refined  sugar,  meet,  and  agree  upon  the 
quantity  which  the  market  seems  to  demand  for  the  succeeding 
month.  Each  refiner  is  allowed  his  fixed  percentage  and  if  he  exceeds 
it  he  is  fined.  Although  agreements  of  this  sort  do  not  regularly 
contain  a  clause  fixing  the  price  of  the  product,  the  adaptation  of  the 
supply  to  the  probable  demand  determines  substantially  what  the 
price  shall  be.  Sometimes,  instead  of  limiting  the  product,  the 
marketing  territory  is  divided  among  the  producers,  each  being  boimd 
not  to  enter  the  territory  of  his  former  competitors. 

In  nearly  all  coimtries,  as  soon  as  imder  such  agreements  business 
begins  to  be  imiisually  profitable,  the  temptation  for  each  party  to 
extend  his  sales,  by  shading  the  price  or  entering  the  territory  of  his 
rival,  becomes  so  strong  that  some  will  secretly  break  the  agreement. 
This  often  happened  ii^^e  case  of  both  the  whisky  and  railroad  pools 
in  this  country.  Such  violation  of  the  contract  led  invariably  to  the 
failure  of  the  pool  and  a  method  had  to  be  devised  to  prevent  these 
practices.    For  example,  to  prevent  the  breaking  of  agreements,  a 


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MODERN  CAPITALISTIC  ORGANIZATION  301 

forfeit  is  fixed;  and  in  order  that  infractions  may  be  discovered,  some- 
times each  party  to  the  agreement  is  given  access  to  the  books  of  his 
rivals,  but  more  frequently  such  examination  is  left  to  a  small  execu- 
tive committee  trusted  by  all.  Frequently,  to  insure  the  payment  of 
a  fine  imposed,  each  party  to  the  agreement  is  required  to  deposit  the 
amoimt  of  the  forfeit,  either  in  cash  or  in  readily  negotiable  securities, 
in  the  hands  of  an  executive  committee  or  of  third  parties.  If  the 
laws  of  the  coimtry  recognize  such  agreements  as  legal,  this  form  of 
agreement  upon  prices  and  output  is  likely  to  become  permanent. 
Such  is  the  form  which  exists,  generally,  in  Germany  and  Austria. 
The  German  coiuls  hold  such  agreements  valid. 

n.    SELLING  BUREAUS 

The  failure  of  agreements  as  to  prices  and  production,  owing  to 
disapproval  by  the  courts,  has  led  to  other  devices.  The  one  most 
common  in  Europe,  and  at  times  found  in  the  United  States,  has 
been  that  of  the  selling  bureau.  In  France  and  Germany  these 
bureaus  are  ordinarily  organized  with  members  from  each  of  the 
establishments  entering  the  arrangement.  This  bureau  takes  cogni- 
zance of  market  conditions,  and  estimates  the  amoimt  of  product 
required  to  supply  the  trade;  it  then  allots  to  each  establishment  the 
output  considered  its  share,  takes  all  orders  for  good,  fixes  prices, 
and  manages  the  entire  selling  business.  Sometunes  the  different 
establishments  are  allowed  to  do  more  or  less  independent  selling 
imder  a  rigid  system  of  accoimting,  with  penalties  if  the  rules  are 
broken. 

The  former  Michigan  Salt  Association  in  the  United  States,  the 
Comptoir  metallurgique  de  Longwy  m  France,  and  the  Westphalian 
Coal  Syndicate  in  Germany  are  striking  examples  of  this  kind  of 
agreement  system.  All  worked  successfully  for  many  years,  and  the 
last  two  named  are  still  in  operation.  The  weakness  of  these  forms  of 
agreement  was  found  to  be  in  their  doubtful  legality  in  some  countries. 
They  are  ineflSdent,  because  they  do  not  permit  of  central  manage- 
ment of  the  manufacturing  plants. 

ni.    THE  TRUST 

Feeling  the  necessity  of  more  complete  control  over  its  separate 
manufacturing  establishments  than  had  beeppossible  under  the  loose 
agreements  of  the  preceding  ten  years,  the' Standard  Oil  Company 
in  1882  arranged  with  its  associate  companies  to  organize  a  ''trust," 
with  the  form  and  powers  previously  mentioned. 


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302  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

In  this  form  of  organization  the  Standard  Oil  was  followed  by  the 
whisky  trust,  the  sugar  trust,  and  others.  Experience  soon  showed 
that  the  trusts  were  irresponsible  bodies,  hard  to  control  by  the  courts. 
There  were  no  laws  providing  for  the  organization  of  such  institutions; 
the  trustees  in  various  instances  did  not  keep  proper  records  which 
they  were  ready  to  produce  in  court;  and  the  new  form  of  business 
organization  at  once  met  with  popular  and  judicial  disapproval.  In 
1890  the  sugar  trust  was  declared  illegal  in  the  State  of  New  York, 
under  the  common  law. 

As  a  consequence,  all  trusts  of  this  form  were  soon  dissolved  and 
the  combinations  reorganized  in  a  different  way.  With  the  exception 
of  the  Standard  Oil  Company  they  became  single  corporations,  and 
combinations  since  established  have  regularly  taken  this  form. 

rv.    THE  CORPORATION  FORM 

When  it  is  proposed  to  consolidate  different  establishments  imder 
the  corporation  form,  it  has  been  customary  to  organize  a  single  new 
corporation  to  purchase  and  own  the  varioxis  plants.  These  plants 
are  sometimes  paid  for  in  cash;  more  frequently  in  the  securities  of  the 
new  corporation.  When  the  plants  to  be  combined  have  been  owned 
by  corporations,  it  has  been  usual  to  effect  an  exchange  of  the  stock 
of  the  new  corporation  for  the  stock  of  the  old  companies  at  an  agreed 
ratio.  The  separate  corporations  may  then  be  dissolved  and  the 
plants  remain  in  the  ownership  of  the  new  corporation. 

This  was  the  plan  followed  by  the  whisky  trust  upon  its  reorganiza- 
tion into  the  Distilling  and  Cattle  Feeding  Company,  and  by  the 
American  Sugar  Refining  Company  when  it  was  reorganized. 

If  the  separate  plants  have  not  been  owned  by  corporations,  a  com- 
mon plan  of  the  later  combinations  is  to  first  organize  the  owners 
into  the  corporate  form.  A  new  corporation  is  then  organized,  which 
instead  of  purchasing  the  properties  buys  the  entire  stock,  or  at  least 
a  majority  interest  in  the  separate  companies.  The  separate  corpora- 
tions maintain  their  existence,  and  their  dividends  make  up  the  fund 
from  which  the  dividends  of  the  new  corporation  are  declared.  In 
effect,  this  form  of  corporation  is  substantially  the  same  as  the  old 
trust,  but  the  corporation  is  organized  regularly  imder  the  laws  of 
some  state,  and  is  subject  to  whatever  restrictions  the  laws  of  that 
state  place  upon  it,  instead  of  being  an  irresponsible  body,  as  the 
trust  was.  This  plan  of  organization  has  been  followed  by  the 
Federal  Steel  Company,  by  the  latest  reorganization  of  the  Distilling 


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MODERN  CAPITALISTIC  ORGANIZATION  303 

Company  of  America,  by  the  United  States  Steel  Corporation, 
and  others. 

In  the  management  of  this  form  of  combination  the  officers  and 
directors  of  the  central  company  legally  appear  only  as  a  board  of 
stockholders.  They  cannot,  ex  officio,  direct  the  action  of  the  officers 
of  the  constituent  companies;  they  can  merely  give  advice.  But  as 
they  have  the  power  of  electing  the  officers,  eventually  their  advice 
must  be  followed. 

This  form,  in  which  the  central  corporation  owns  the  stock  instead 
of  the  properties  of  the  separate  companies,  has  a  flexibility  and  con- 
venience in  organization  and  in  retaining  local  brands,  good-will,  etc., 
not  found  in  corporations  owning  the  plants. 

It  will  be  noted  that  pools,  agreements  on  prices,  etc.,  leave  the 
constituent  companies  each  independent  and  with  diverse  interests, 
whereas  the  trust  and  the  combination,  under  the  two  kinds  of  cor- 
porations mentioned,  secure  an  identity  of  interests  among  the  sepa- 
rate establishments;  if  one  is  weak  it  is  for  the  interest  of  all  that  it 
be  made  strong  or  put  out  of  existence.  The  control  is  much  more 
complete. 

v.    THE  FACTOR  SYSTEM 

Several  of  the  industrial  combinations  have  adopted  the  plan  of 
selling  their  goods  to  the  wholesalers  at  a  certain  fixed  price  and  at 
the  same  time  naming  a  price  at  which  they  were  to  furnish  them  to 
the  retailers.  After  an  interval  of  from  thirty  days  to  six  months, 
provided  the  wholesaler  woidd  make  affidavit  that  he  had  maintained 
the  prices  given  him,  and,  sometimes,  that  he  had  sold  only  the  goods 
of  the  combination,  he  would  receive  a  rebate  from  the  manufacturer. 
From  this  rebate  came  his  only  profits.  It  has  been  thought  by  many 
that  this  factor  syistem  was  a  means  employed  by  the  combination  to 
hold  its  monopolistic  control  over  the  wholesaler. 

This  system  is  perhaps  best  known  in  connection  with  rebates  on 
sugar,  but  for  a  time,  while  the  Distilling  and  Cattle  Feeding  Com- 
pany was  in  existence,  a  somewhat  similar  rebate  system  was  employed 
in  the  sale  of  spirits.  The  larger  distributers  and  rectifiers  received 
a  rebate  of  2  cents  a  gallon,  and  the  wholesalers,  after  an  interval, 
provided  they  had  sold  only  the  goods  of  the  company,  received  a 
rebate  of  usually  5  cents  a  gallon,  though  the  amoimt  of  the  rebate 
varied  somewhat  at  different  times. 

In  the  case  of  the  whisky  combination  the  company  failed  to  keep 
on  hand  a  sufficient  amount  of  cash  to  pay  these  rebates  promptly, 


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304  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

and  this  delay  in  pajonent  was  one  of  the  causes  which  led  to  throwing 
this  company  into  the  hands  of  a  receiver. 

A  similar  system  is  foimd  in  the  selling  of  soap,  baking  powders, 
etc.,  but  the  general  principles  vary  in  no  essential  particulars  from 
the  ones  just  given. 


85.    THE  STEEL  RAIL  POOL  OF  1887' 

MEMORANDUM  OF  AGREEMENT,  ENTERED  INTO  AUGUST  2,  1887,  BY 
AND  BETWEEN  THE  NORTH  CHICAGO  ROLLING  MILL  COMPANY,  THE 
CAMBRIA  IRON  COMPANY,  THE  PENNSYLVANIA  STEEL  COMPANY, 
THE  UNION  STEEL  COMPANY,  THE  LACKAWANNA  IRON  &  COAL 
COMPANY,  THE  JOLIET  STEEL  COMPANY,  THE  WESTERN  STEEL 
COMPANY,  THE  CLEVELAND  ROLLING  MILL  COMPANY,  CARNEGIE 
BROTHERS  &  CO.,  LIMITED;  CARNEGIE,  PHIPPS  &  CO.,  LIMITED; 
THE  BETHLEHEM  IRON  COMPANY,  THE  SCRANTON  STEEL  COMPANY, 
THE  TROY  STEEL  &  IRON  COMPANY,  THE  WORCESTER  STEEL  WORKS 
AND  THE  SPRINGFIELD  IRON  COMPANY. 

We,  the  before-named  companies  and  corporations,  manufac- 
turers of  steel  rails,  hereby  mutually  agree  one  with  the  other,  that 
we  will  restrict  our  sales  and  the  product  of  steel  rails  of  50  pounds  to 
the  yard  and  upward,  applying  to  orders  taken  by  us  and  to  be  deliv- 
ered by  us  from  our  respective  works  during  the  year  1888,  as.  herein- 
after allotted  and  limited;  and  we  respectively  bind  ourselves  not  to 
sell  in  excess  of  our  current  allotments,  without  first  obtaining  the  con- 
sent of  the  Board  of  Control  thereto — that  is  to  say: 

It  is  agreed,  there  shall  now  be  made  an  allotment  of  800,000 
tons  of  rails,  which  shall  be  divided  and  api>ortioned  to  and  among  the 
several  parties  hereto  to  be  sold  by  them  during  the  year  1888,  upon 
the  following  basis  of  percentages,  to  wit:  North  Chicago  Rolling  Mill 
Company,  12^  per  cent;  Pennsylvania  Steel  Company,  91^  per  cent; 
Bethlehem  Iron  Company,  9  per  cent;  Carnegie  Bros.  &  Co.,  Limited, 
and  Carnegie,  Phipps  &  Co.,  Limited  (jointly),  13^^  per  cent;  Joliet 
Steel  Company,  8  per  cent;  Lackawanna  Iron  &  Coal  Company,  8 
per  cent;  Cambria  Iron  Company,  8  per  cent;  Scranton  Steel  Com- 
pany, 8  per  cent;  the  Union  Steel  Company,  8  per  cent;  Cleveland 

'  From  the  Report  of  the  Commissioner  of  Corporations  on  the  Steel  Industry^ 
Part  I  (191 1),  pp.  69-71. 

[For  an  account  of  another  form  of  monopolistic  agreement  see  Selection  122, 
on  Coffee  Valorization. — ^Editors.] 


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MODERN  CAPITALISTIC  ORGANIZATION  305 

Rolling  Mill  Company,  4^  per  cent;  Troy  Steel  &  Iron  Company, 
4^  per  cent;  Western  Steel  Company,  4^^  per  cent;  Worcester  Steel 
Works,  1^  per  cent. 

And  in  addition  to  the  said  allotment  of  800,000  tons  of  rails  above 
allotted,  an  addi tonal  allotment  of  250,000  tons  is  hereby  made 
and  allotted  to  the  Board  of  Control,  to  be  reallotted  and  reappor- 
tioned by  it,  as  and  to  whom  it  may  deem  equitable,  in  the  adjustment 
of  any  differences  that  may  arise.  It  being  also  further  agreed  that  all 
subsequent  allotments  of  rails  hereafter  made,  to  be  sold  under  this 
agreement  during  the  year  1888,  shall  also  be  divided  and  apportioned 
to  the  several  parties  hereto  in  the  same  ratio  of  percentages  as  said 
apportionment  of  800,000  tons  is  herein  divided  and  apportioned. 

It  is  further  agreed,  that  the  Board  of  Control  shall,  from  time  to 
time,  make  such  further  allotments  as  shall  be  necessary  to  at  all 
times  keep  the  imsold  allotments  at  least  200,000  tons  in  excess  of  the 
total  current  sales,  as  shown  by  the  monthly  reports  of  sales.  This 
is  to  be  in  addition  to  the  then  imappropriated  part  of  the  250,000 
tons  hereinbefore  allotted  to  the  Board  of  Control  to  adjust  differences. 

It  is  further  agreed,  on  the  first  day  of  April,  July,  and  October, 
the  Board  of  Control  are  authorized  and  directed  to  cancel  such  part 
of  the  unmade  allotments  of  the  respective  parties  hereto  as  they,  the 
said  Board  of  Control  shall  determine  such  party  unable  to  make  in 
due  time,  and  all  allotments  so  cancelled  the  Board  of  Control  shall 
have  the  right  to  reallot  to  any  of  the  other  parties  hereto;  it  being 
imderstood  that  all  such  cancellations  shall  apply  only  to  allotments 
standing  to  the  credit  of  the  respective  parties  hereto  on  the  dates 
above  named,  but  no  reallotment  as  aforesaid  shall  be  made  by  the 
Board  of  Control  to  any  of  the  parties  hereto  for  the  purpose  of 
enabling  them,  or  any  of  them^  to  make  and  sell  rails  from  foreign 
made  blooms. 

It  is  further  agreed,  that  all  transfers  of  parts  of  allotments 
from  one  party  to  another  shall  be  made  by  the  Board  of  Control. 

It  is  further  agreed,  that  there  shall  be  a  Board  of  Control,  con- 
sisting of  three  members,  namely,  Orrin  W.  Potter,  Luther  S.  Bent, 
and  W.  W.  Thurston,  who  shall  have  power  to  employ  a  paid  secre- 
tary and  treasurer. 

It  is  further  agreed,  that  the  Board  of  Control,  upon  the  written 
consent  of  75  per  cent  of  the  percentages  as  hereinbefore  named, 
shall  increase  the  allotments  for  the  year  1888,  and  such  increase 
shall  be  allotted  to  the  parties  hereto  as  hereinbefore  provided. 


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3o6  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

It  is  further  agreed,  that  each  party  whose  name  is  hereunto 
annexed,  shall  and  will  make  monthly  ret\ims  to  the  Board  of  Control 
of  all  contracts  for  delivery  of  rails  of  50  poimds  to  the  )rard  and  up- 
ward during  the  year  1888,  and  also  of  all  shipments  of  such  rails 
made  by  them  during  said  year;  a  copy  of  such  return  shall  be  fur- 
nished to  each  party  hereto. 

It  is  further  agreed,  that  all  the  parties  hereto  shall  and  wiU,  on 
or  before  January  15,  1888,  make  a  written  return  to  the  Board  of 
Control  of  all  rails  of  50  poimds  to  the  yard  and  upward  (designating 
the  weight)  which  they  respectively  had  on  hand  January  i,  1888, 
stating  whether  the  same  are  sold,  and  if  sold,  on  what  order  they 
apply. 

It  is  further  agreed,  that  the  Board  of  Control  shall  have  the  right 
whenever  they  deem  it  expedient  to  convene  a  meeting  of  the  parties 
hereto,  and  they  shall  give  at  least  ten  day's  previous  notice  of  all 
meetings,  and  any  business  transacted  at  such  meetings,  and  receiv- 
ing 75  per  cent  of  the  votes  present  thereat,  either  in  person  or  by 
proxy,  shall  be  binding  on  all  the  parties  hereto,  except  as  to  a  change 
in  percentages  as  aforesaid. 

The  Board  of  Control  shall  be  required  to  call  a  meeting  of  the 
parties  hereto  when  requested  so  to  do  in  writing,  signed  by  any  three 
of.  the  contracting  parties,  but  such  request  and  such  notice  shall 
state  the  object  for  which  such  meeting  is  called. 

It  shall  be  the  duty  of  the  Board  of  Control  to  have  a  proper 
record  kept  of  all  the  returns  made  to  it,  with  power  from  time  to  time 
to  change  the  form  of  return  as  they  may  deem  expedient. 

The  Board  of  Control  shall  have  authority  to  levy  an  assessment, 
pro  rata  to  the  allotted  tonnage,  to  defray  the  actual  expenses  made 
necessary  to  carry  out  this  agreement. 

It  is  further  agreed,  that  we  will,  respectively,  immediately  make 
return  to  the  Board  of  Control  of  all  rails  of  50  pounds  to  the  yard 
and  upward  which  we  are  now  under  contract  to  deliver  during  the 
year  1888,  said  return  to  state  to  whom  such  rails  are  sold  and  when 
they  are  to  be  delivered. 

[Signatures] 


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MODERN  CAPITALISTIC  ORGANIZATION  307 

86.    THE  CONTINENTAL  WALL  PAPER  COMPANY* 

The  contract  and  agreement  is  one  between  98  per  cent  of  all  the 
wall-paper  makers  in  the  United  States,  who  co-operate  through  a 
corporation  organized  by  them  for  the  single  purpose  of  selling  their 
gross  product.  That  there  shall  be  no  competition  between  the 
combined  companies  is  insured  by  the  agreement  that  each  manu- 
facturer shall  sell  his  entire  product  at  an  agreed  price  to  the  plaintiff 
corporation,  which  is  to  nominally  make  all  sales,  either  directly  or 
indirectly,  at  a  imiform  price,  subject  to  an  agreed  scale  of  discoimts, 
varying  only  according  to  an  arbitrary  classification  of  buyers.  The 
difference  between  the  price  at  which  the  so-called  "vendors"  sell 
to  the  plaintiff  company  and  the  price  exacted  from  those  who  buy 
from  it  will  be  profit,  and  the  profits  will  constitute  the  dividends  to 
be  distributed  to  plaintiff's  shareholders,  and  plaintiff's  shareholders 
are  exclusively  composed  of  the  .combining  companies,  called  "vend- 
ors"; its  comparatively  insignificant  amount  of  stock  being  placed 
with  these  vendors  in  proportion  to  the  product  of  the  year  before 
the  combine  took  effect.  To  prevent  the  enlargement  of  the  product 
of  any  one  of  the  vendors,  it  is  provided,  in  effect,  that  there  shall  be 
no  enlargement  of  plant,  though  new  machinery  may  be  used  to 
replace  old  or  that  destroyed. 

To  insure  a  monopoly  of  the  business  to  themselves,  and  keep 
strangers  out  of  it,  it  is  alleged,  and  not  denied,  that  the  only  two 
manirfacturers  of  wall-paper  machinery  in  the  United  States  became 
parties  to  the  combination  by  agreeing  to  sell  no  machinery  to  stran- 
gers, and  to  confine  their  sales  to  the  combine.  To  add  to  the  pro- 
tective force  of  the  tariff  duties  tending  to  keep  out  foreign  products, 
it  is  also  averred  that  an  agreement  was  made  with  Canadian  paper 
makers  to  protect  each  other  against  any  cutting  of  prices.  To  insure 
against  any  kicking  out  of  the  agreement  or  violations  in  any  way, 
each  member  is  required  to  indorse  its  shares  in  the  Continental 
Wall  Paper  Company  to  that  corporation,  which  is  to  hold  and  apply 
the  same  as  liquidated  damages  in  case  of  any  breach.  But  that 
there  should  be  no  inducement  to  fly  the  contract,  the  scheme  con- 
templated that  every  wholesale  buyer  shoidd  engage  himself  to  buy 
his  entire  supply  from  the  combine;  and  to  secure  the  engagement  of 
each  such  jobber  or  wholesaler  to  the  scheme,  no  paper  was  to  be 
sold  to  such  as  did  not  sign.    This  made  the  contract  practically 

*  From  the  Continental  WaU  Paper  Co.  (plaintiff)  v.  Lewis  VoiifU  6-  Sons 
Co.f  148  Fed.  Rep.  946-48. 


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3o8  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

unbreakable,  for  if  a  factory  should  weary  of  the  monopoly,  it  could 
find  no  jobbers  or  wholesalers  free  to  buy  its  product,  and  it  would  be 
driven  to  rely  upon  such  orders  as  it  could  get  from  retailers  or 
consiuners.  That  this  union  of  former  competitors — a  union  embra- 
cing substantially  all  of  the  wall-paper  mills  in  the  land  (for  the  2  per 
cent  left  out  may  be  ignored  as  an  active  competition),  should  result 
in  an  imreasonable  enhancement  of  prices  is  precisely  what  we  might 
anticipate.  Wall  paper  is  a  product  of  universal  necessity,  and  the 
consumers  are  foimd  in  every  household.  Every  principle  of  eco- 
nomic law  instructs  us  that  under  such  conditions  there  will  be  an 
enhancement  of  price,  limited  only  by  the  imknown  boundary  of 
human  greed  and  corporate  avarice.  It  is  therefore  not  to  be  doubted 
that  the  averment  confessed  by  the  pleading,  that  prices  have  been 
advanced  50  per  cent,  is  substantially  true.  The  conspiring  mills 
were  situated  in  many  states.  The  consumers  embraced  the  whole 
citizenship  of  the  United  States.  The  jobbers  and  wholesalers  who 
were  to  be  coerced  into  contracts  to  buy  their  entire  demands  from 
the  Continental  Wall  Paper  Company,  or  be  driven  out  of  business, 
were  in  every  state. 

Before  the  combination,  each  of  the  combining  companies  was 
engaged  in  both  state  and  interstate  commerce.  The  freedom  of 
each,  with  respect  to  prices  and  terms,  was  restrained  by  the  agree- 
ment and  interstate  commerce  directly  affected  thereby,  as  well  as 
by  the  enhancement  of  prices  which  resulted.  A  more  complete 
monopoly  in  an  article  of  imiversal  use  has  probably  never  been 
brought  about.  It  may  be  that  the  wit  of  man  may  yet  devise  a 
more  complete  scheme  to  accomplish  the  stifling  of  competition;  but 
none  of  the  shifts  resorted  to  for  suppressing  freedom  of  conmierce 
and  seouring  imdue  prices,  shown  by  the  reported  cases,  is  half  so 
complete  in  its  details.  None  of  the  schemes  with  which  this  may 
be  compared  is  more  certain  in  its  results,  more  widespread  in  its 
operation,  and  more  evil  in  its  purposes. 

87.    THE  AMERICAN  TOBACCO  COMPANY' 

The  Tobacco  Combination  had  its  origin  in  1890  in  the  formation 
of  the  American  Tobacco  Company,  capitalized  at  $25,000,000, 
which  concern  combined  the  five  leading  cigarette  manufacturers  of 
the  country  and  thus  obtained  control  over  about  90  per  cent  of  the 

» Adapted  from  the  Report  of  the  Commissioner  of  Corporations  on  the  Tobacco 
Industry,  Part  I  (1909),  pp.  1-13. 


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MODERN  CAPITALISTIC  ORGANIZATION  309 

country's  dgarette  output.  In  1891  it  extended  its  business  along 
other  lines  by  acquiring  two  important  smoking-tobacco  concerns 
and  by  entering  the  plug  and  cheroot  branches  of  the  business.  Its 
proportion  of  the  total  output  in  these,  however,  was  small  for  several 
years.  In  1895  several  "aU-tobacco-dgarette"  concerns  came  under 
its  control,  which  practically  established  its  supremacy  in  this  branch. 
From  1894  to  1897  the  company,  taking  aggressive  steps  to  control 
the  plug  business  of  the  coimtry,  carried  on  its  so-called  ''plug- 
tobacco  war."  This  resulted  late  in  1898  in  the  organization,  sub- 
stantially imder  its  control,  of  the  Continental  Tobacco  Company 
with  $62,290,700  of  capital  stock,  almost  equally  divided  between 
preferred  and  conmion.  The  Continental  took  over  the  plug  busi- 
nesses of  a  nmnber  of  leading  independent  interests  and  also  that  of 
the  American  itself.  Early  in  1899,  moreover,  the  Continental 
acquired  the  Liggett  &  Myers  Tobacco  Company,  the  largest  and  most 
important  plug-tobacco  concern  of  the  coimtry,  increasing  its  own 
outstanding  capital  stock  at  this  time  to  $97,690,700.  The  Conti- 
nental, by  these  and  subsequent  acquisitions,  secured  substantial 
control  of  the  plug-tobacca  business  of  the  coimtry. 

Meantime  the  American  Tobacco  Company  made  nimierous  acqui- 
sitions of  smoking-tobacco  concerns,  and  by  the  end  of  1899  it  had 
almost  as  large  a  degree  of  control  over  this  branch  as  the  Continental 
Tobacco  Company  had  acquired  over  the  plug  branch.  The  out- 
standing capitalization  of  the  American  was  raised  in  this  year  from 
$35,000,000  to  $68,500,000. 

In  1 901  the  power  of  the  Combination  was  further  greatly 
increased  by  the  organization  of  the  Consolidated  Tobacco  Company, 
a  holding  concern  with  a  capitalization  of  $30,000,000,  later  increased 
to  $40,000,000,  aU  paid  in  in  cash.  The  Consolidated  was  the  means 
of  concentrating  control  within  the  Combination.  It  acquired  prac- 
tically aU  of  the  conmion  stock  of  the  American  and  Continental 
companies,  issuing  in  exchange  therefor  $157,378,200  of  4  per  cent 
bonds.  The  organization  of  this  company  was  planned  by  leading 
interests  in  the  two  older  companies.  The  stockholders  were  induced 
to  exchange  their  common  stock  for  bonds  bearing  a  fixed  rate  of 
interest.  As  a  result  the  greatly  increased  profits  in  the  business 
from  the  reduction  in  the  internal-revenue  tax  soon  afterward,  which 
increase  stockholders  generally  could  not  foresee,  accrued  in  large  part 
to  the  advantage  of  these  inside  interests  as  the  chief  holders  of  the 
Consolidated's  stock. 


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3IO  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

During  the  years  iqcx),  1901,  and  1902  the  Combination  rapidly 
extended  its  operations.  In  the  first  year  the  American  Snuff  Qun- 
pany  was  formed  with  a  capitalization  of  $23,001,700.  It  combined 
the  businesses  of  the  Atlantic  Snuff  Company  and  of  the  G.  W.  Helme 
Company  with  the  snuff  biisiness  of  the  American,  Continental,  and 
LoriUard  companies,  these  three  groups  together  representing  at  that 
time  about  60  per  cent  of  the  snuff  business  of  the  coimtry.  In  1901 
the  American  Cigar  Company  was  formed  with  a  capital  stock  of 
$10,000,000  (authorized;  $9,965,000  issued),  subsequently  increased 
to  $20,000,000,  all  outstanding.  This  company  acquired  several 
important  cigar  concerns  and  combined  them  with  the  dgar  business 
of  the  American  Tobacco  Company.  Through  the  Havana  Tobacco 
Company  the  Combination  in  1902  acquired  control  of  the  larger 
part  of  the  Cuban  cigar  and  cigarette  business.  A  campaign  for  the 
control  of  the  tobacco  business  of  Great  Britain  by  the  Combination, 
begun  in  1901,  but  only  partially  successful,  led  in  1902  to  the 
formation  of  the  British-American  Tobacco  Company,  which  concern 
now  handles  the  export  and  foreign  business  of  the  Combination. 
Two-thirds  of  the  total  outstanding  capitalization  of  this  concern, 
£5,820,000  ($28,323,000),  is  owned  by  the  American  Combination 
and  the  remaining  third  by  a  British  combination,  the  Imperial 
Tobacco  Company,  formed  as  a  result  of  the  American  invasion. 

In  1904  the  American,  Continental,  and  Consolidated  companies 
were  merged  into  the  present  American  Tobacco  Company,  the 
central  concern  of  the  Combination.  For  the  preferred  stock  of 
the  old  American  and  Continental  companies,  outstanding  and  in 
the  hands  of  the  public,  it  issued  bonds  on  such  a  basis  as  to  make  the 
return  to  the  holders  the  same  as  before.  For  the  bonds  of  the  Con- 
solidated Tobacco  Company,  aggregating  over  $157,000,000,  it 
issued  preferred  stock  and  4  per  Cent  bonds,  and  for  the  stock  of  the 
Consolidated  Tobacco  Company  it  exchanged  conmion  stock  at 
par.  The  amoimts  of  seauities  outstanding  at  the  end  of  1904 
were  $40,242,400  common  stock,  $78,689,100  preferred  stock,  and 
$136,360,600  bonds,  a  total  of  $255,292,100;  this  was  decreased  to 
$226,764,600  at  the  dose  of  1908  through  redemption  of  a  portion  of 
the  bonds.  Control  of  the  American  Tobacco  Company  is  vested  in 
the  common  stock,  which,  as  shown  above,  forms  only  about  one-sixth 
of  the  entire  capitalization,  but  which  in  recent  years  (1908-1910) 
has  received  nearly  one-half  the  entire  earnings  as  dividends. 

The  reorganized  American  Tobacco  Company  is  both  a  manu- 


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MODERN  CAPITALISTIC  ORGANIZATION  311 

facturing  and  a  holding  company.  It  produces  directly  the  larger 
part  of  the  Combination's  plug  and  smoking  tobacco  and  domestic 
cigarettes.  It  controls  a  large  nimiber  of  subsidiary  concerns, 
however,  engaged  in  the  same  branches  of  the  business,  as  well  as  the 
American  Snuff  Company  and  the  American  Cigar  Company,  which 
conduct,  respectively,  the  snuff  and  cigar  branches  of  the  Com- 
bination's business. 

As  a  result  of  the  consolidations  and  acquisitions  that  have  taken 
place,  the  American  Tobacco  Company,  either  directly  or  through 
its  subsidiaries,  controlled  at  the  close  of  1908  roughly  from  75  to  85 
per  cent  of  practically  every  branch  of  the  domestic  business  in  which 
it  is  interested,  with  the  exception  of  cigars,  in  which  its  share  was 
only  about  13  per  cent.  In  the  case  of  snuff  its  proportion  of  the 
total  was  95.7  per  cent. 

The  history  of  the  Tobacco  Combination  thus  presented  shows 
plainly  that  the  leading  purpose  of  the  men  who  have  controlled  it 
has  been  to  dominate  the  tobacco  industry.  They  started  out  by  prac- 
tically monopolizing  the  cigarette  business.  Vfiih  the  great  profits 
derived  from  that  source  they  carried  on  a  strenuous  competitive 
fight  in  the  plug  industry,  which  ultimately  forced  the  leading  com- 
peting manufacturers  into  combination  with  themselves.  This 
secured  for  the  Combination  a  dominant  position  in  the  manufacture, 
not  only  of  plug,  but  of  smoking  tobacco.  Soon  after,  the  combination 
in  the  snuff  industry  was  brought  about,  and  subsequently  a  combina- 
tion in  the  cigar  industry.  The  latter,  however,  controls  only  a 
limited  proportion  of  the  business. 

The  successive  combinations  which  these  men  have  established, 
except  that  in  the  cigar  business,  at  the  outset  took  in  the  leading  manu- 
facturers and  secured  a  very  large  degree  of  control  over  the  business. 
That  degree  of  control,  however,  has  been  further  extended  by  the  ac- 
quisition, either  by  direct  purchase  or  by  securing  a  controlling  stock 
interest,  of  a  very  large  nimiber  of  other  competing  concerns.  The 
total  nimiber  of  formerly  separate  concerns  and  combinations  which 
have  passed  under  the  control  of  the  Tobacco  Combination  is  in  the 
neighborhood  of  250.  This  niunber  includes  the  concerns  which  origin- 
ally entered  the  several  combinations,  but  such  original  acquisitions, 
though  in  general  they  were  the  largest  concerns,  were  much  less  nmner- 
ous  than  the  concerns  acquired  subsequent  to  the  formation  of  the  com- 
binations. It  appears  to  have  been  the  policy  in  fact  to  buy  up,  from 
time  to  time,  most  competitors  whose  business  had  become  successful, 


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312  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

The  effect  of  these  later  acquiations  is  best  seen  in  the  increase  in 
the  proportion  of  the  business  controlled.  In  1900,  shortly  after  the 
formation  of  the  Continental  Tobacco  Company,  the  Tobacco  Com- 
bination controlled  about  60  per  cent  of  the  production  of  chewing 
and  smoking  tobacco  in  the  United  States.  In  1906  it  controlled 
81.8  per  cent  of  the  chewing  tobacco  and  70 . 6  per  cent  of  the  smok- 
ing tobacco.  Its  proportion  of  the  manufacture  of  snuff  increased 
from  80. 2  per  cent  in  1901,  the  first  full  year  of  the  operation  of  the 
American  Snuff  Company,  to  96  per  cent  in  1906. 

A  significant  feature  of  many  of  the  acquisitions  of  the  Combi- 
nation, particularly  during  the  period  from  1902  to  1904,  is  the 
fact  that  they  were  made  secretly  and  that  the  American  Tobacco 
Company  interests,  as  long  as  possible,  concealed  their  control, 
continuing  to  operate  the  concerns  as  though  independent  and  often 
using  them  as  a  special  instrument  for  attacking  the  business  of 
genuine  competitors. 

Aside  from  concerns  engaged  in  tobacco  manufacture,  the  Ameri- 
can Tobacco  Company,  and  to  a  less  extent  the  other  aflUiated 
combinations,  have,  particularly  since  1899,  acquired  control  of 
many  concerns  engaged  in  enterprises  contributory  to  tobacco  manu- 
facture. Concerns  thus  brought  under  the  control  of  the  Combination 
include  many  engaged  in  the  wholesale  or  retail  distribution  of 
tobacco  products,  several  producing  leaf  tobacco  in  Cuba  and  Porto 
Rico,  a  niunber  which  make  packages  and  materials,  other  than 
tobacco,  used  in  tobacco  manufacture,  several  which  exploit  patents 
for  machinery  or  manufacture  machinery  for  the  use  of  tobacco 
factories,  and  a  few  which  handle  by-products,  make  smokers'  supplies, 
etc.  The  most  important  of  these  contributory  enterprises  of  which 
the  Combination  has  secured  control  is  the  manufacture  of  licorice 
which  is  a  very  important  material  in  tobacco  manufacture.  Through 
the  MacAndrews  &  Forbes  Company,  which  has  bought  up  several 
competing  concerns,  the  American  Tobacco  Company  interests  have 
substantially  a  complete  monopoly  of  the  licorice  business.' 

'  [A  suit  to  dissolve  the  American  Tobacco  Company  was  started  by  the  United 
States  government  and  in  191 1  the  Supreme  Court  decided  in  the  government's 
favor.  It  declared  that  the  company  was  unreasonably  restraining  interstate 
commerce,  contrary  to  the  Anti-Trust  Law,  and  decreed  its  dissolution.  Since 
then  the  trust  has  been  split  up  into  parts  and  each  of  the  various  branches  of  the 
business  distributed  to  two  or  more  separate  companies  which  are  enjoined  from 
combining  to  restrain  interstate  commerce. — ^Editors.] 


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MODERN  CAPITALISTIC  ORGANIZATION  313 

88.    THE  UNITED  STATES  STEEL  CORPORATION' 

The  basic  industry  of  steel  making  affects  the  whole  people  of  the 
United  States.  Its  organization  is  a  matter  of  public  concern  (not 
merely  of  private  interest),  and  a  great  national  resource — iron  ore — 
lies  at  the  foundation  of  the  business.  The  Steel  Corporation  was  the 
culmination  and  the  result  of  a  remarkable  and  even  dramatic  period 
in  the  steel  industry.  Until  about  1898  the  bulk  of  the  business 
was  distributed  among  a  very  considerable  niunber  of  concerns. 
There  was  sharp  competition,  modified  by  frequent  pools  and  price 
agreements  of  greater  or  less  duration  and  effectiveness. 

In  1898  began  an  era  of  great  consolidations,  with  capitalizations 
ranging  from  $30,000,000  to  $100,000,000,  usually  mergers  of  many 
smaller  companies.  In  most  of  these,  as  in  the  earlier  price  agree- 
ments, the  ruling  motive  was  the  removal  of  competition. 

They  did  not,  however,  finally  eliminate  competition.  On  the  con- 
trary, a  broad  movement  at  once  became  apparent  which  threatened 
competition  on  a  larger  scale  and  probably  more  severe  than  any  in 
steel  history.    This  was  the  process  known  as  "integration." 

The  situation  in  1899-1900  was  as  follows:  There  were  three  great 
companies — the  Carnegie  company,  the  Federal  Steel,  and  the 
National  Steel — dominating  the  production  of  crude  and  semifinished 
steel.  This  may  be  called  the  "primary"  group.  Six  other  large 
concerns — the  American  Steel  and  Wire,  American  Tin  Plate,  Ameri- 
can Steel  Hoop,  American  Sheet  Steel,  National  Tube,  and  American 
Bridge — severally  controlled  these  lighter  finished  products.  These 
formed  the  "secondary"  group. 

But,  large  as  these  concerns  were,  no  one  of  them  was  entirely 
self-suflident.  The  "secondary"  group  was  dependent  on  the 
"  primary  "  for  its  crude  steel;  the  "primary  "  largely  dependent  on  the 
"secondary"  for  a  market  for  its  products.  Few  were  completely 
"integrated";  that  is, few  carried  through  imder  one  control,  with  the 
accompanying  advantages,  the  entke  industrial  process  from  the  ore 
to  the  finished  product,  linking  up  ore  and  coal  mines,  transportation, 
blast  fiunaces,  steel  works,  rolling  mills,  and  finished  manufacture. 

Immediately,  however,  came  the  next  step.  These  great  con- 
cerns almost  simultaneously  began  the  final  linking  up  of  the  chain  of 
production.  Once  begun  by  one  concern,  others  followed  in  self- 
defense.    The  "  secondary  "  companies  began  to  reach  back,  acquiring 

« Adapted  from  the  Report  of  the  Commissioner  of  Corporations  on  the  Steel 
Industry,  Part  I  (191 1),  pp.  xvii-xxiv. 


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3i4  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

ore  reserves  and  crude  steel  plants.  For  example,  in  1900  the  Steel 
and  Wire  Company,  whose  supply  of  materials  had  previously  been 
purchased  mainly  from  the  Carnegie  or  the  Federal  company,  planned 
to  make  its  own  steel;  likewise  the  National  Tube  Company.  The 
"primary"  concerns,  finding  these  their  chief  customers  turning  into 
rivals,  retaliated  by  reaching  forward  to  the  manufacture  of  finished 
products. 

Paramoimt  in  importance  was  the  ore.  The  recognition  of  that 
importance  came  strangely  late,  but,  once  recognized,  it  became  an 
axiom  that  no  large  concern  could  stay  in  the  business  unless  fortified 
by  its  own  ore  reserves.  By  1900  the  bulk  of  the  lake  ores  was  in  the 
hands  of  less  than  a  dozen  companies,  with  a  similar  concentration 
in  coking  coal. 

Such  efforts  on  the  part  of  these  great  concerns,  in  striving  each 
to  "integrate,"  to  make  itself  wholly  independent,  threatened  to 
result  in  a  great  and  sudden  increase  and  duplication  of  the  steel  pro- 
ducing and  finishing  capacity  of  the  coimtry,  and  to  involve  them 
also  in  an  invasion  of  each  other's  business. 

Thus  there  was  suddenly  revealed  to  the  industry  what  the  trade 
press  at  the  time  called  "  the  impending  struggle  of  the  giants,"  a  con- 
test between  great  concerns  who  under  such  circumstances  might  be 
forced  to  work  out,  in  rigorous  competition,  the  survival  of  the  fittest. 

Such  were  the  conditions  in  the  steel  industry  in  1900.  The 
spark  that  lighted  the  train  was  the  threat  of  the  Carnegie  company  to 
erect  a  great  tube  plant  near  Cleveland,  thus  invading  the  field  of 
finished  manufacture. 

Steel  men  and  the  various  associated  financial  interests  regarded 
this  situation  with  much  alarm.  In  such  competition  they  saw  a 
great  danger  to  their  businesses,  especially  to  the  profitable  quasi- 
monopolies  in  certain  branches  of  the  trade.  In  averting  it  they  also 
saw  a  great  opportunity.  The  extraordinary  era  of  industrial  expan- 
sion was  still  on;  the  public  were  still  eagerly  absorbing  large  issues  of 
securities.  By  merging  these  conflicting  interests  into  a  great  corpora- 
tion, the  threatened  "steel  war"  would  be  averted,  and  great  profits 
realized  from  the  flotation  of  securities. 

With  amazing  swiftness,  in  a  few  weeks,  the  United  States  Steel 
Corporation  was  thus  organized,  and  began  business  on  April  i,  1901. 
Its  total  capitalization  was  a  little  over  $1,402,000,000  (including 
bonds).  It  is  strictly  a  "holding"  company — ^that  is,  it  does  not 
mine,  manufacture,  transport,  or  sell;  it  simply  owns  the  stock  (as  a 


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MODERN  CAPITALISTIC  ORGANIZATION  315 

rule  all  the  stock)  of  its  constituent  concerns.  Thus  competition 
between  these  concerns  was  eliminated,  while  enormous  profits  were 
made  from  the  flotation  of  securities,  with,  also,  an  imparalleled 
stock  commission  to  the  imderwriting  syndicate,  which  netted  a 
clear  profit  of  about  $62,500,000  in  cash. 

At  its  formation  the  United  States  Steel  Corporation  (referred  to 
herein  as  the  "Corporation")  controlled  about  two- thirds  of  the 
coimtry 's  production  of  crude  steel,  and  from  one-half  to  f oiur-fif ths  of 
the  principal  rolled  steel  products.  It  comprised  ore,  coal,  limestone, 
natural  gas,  railway  and  steamship  companies,  blast  furnaces,  steel 
works,  rolling  mills,  finishing  plants,  and  various  other  properties.  It 
was  thus  a  thoroughly  integrated  concern,  from  ore  to  finished  products. 

There  remained  outside  the  merger  a  niunber  of  great  companies  of 
the  primary  sort,  such  as  Jones  &  Laughlin,  the  Pennsylvania,  Cam- 
bria, Lackawanna,  Republic^  and  Colorado  Fuel  and  Iron  companies, 
and  niunerous  concerns  of  the  secondary  t3rpe.  While  overshadowed 
by  the  Steel  Corporation,  these  included  strong,  efficient,  and  growing 
businesses,  furnishing  a  basis  for  vigorous  competition. 

The  Steel  Corporation  is  the  greatest  industrial  concern  in  the 
United  States,  with  the  largest  properties,  and  of  international  impor- 
tance. It  is  the  most  conspicuous  example  of  the  modem  corporate 
organization  of  great  businesses.  As  sudi,  the  relation  of  its  invest- 
ment to  its  capitalization  and  to  its  earning  power  are  matters  of 
public  concern. 

The  corporation  was  organized  with  (in  roimd  numbers)  510 
millions  of  preferred  stock;  508  millions  of  conmion  stock;  303 
millions  of  corporation  bonds,  and  about  81  millions  of  imderlying 
and  miscellaneous  obligations;  a  total  of  over  1,402  million  dollars. 

Speaking  broadly,  such  capitalization  amoimted  to  the  daim, 
the  representation,  that  there  was  a  value  in  this  concern  which 
would  justify  a  fair  business  return  on  this  capitalization.  The 
Biureau  finds,  on  the  contrary,  that  in  1901  the  fair  market  value  of  its 
tangible  property  was  about  700  million  dollars,  slightly  less  than  one- 
half  its  capitalization.  The  other  half,  the  excess  of  about  700  million 
dollars,  is  thus  separated  and  stands  out,  embodying  the  essential 
public  questions  raised  by  the  Bureau's  analysis  of  its  investment. 
In  so  far  as  that  excess  represented  value  in  1901,  it  was  value  due 
either  to  increased  earning  power  from  elimination  of  competition; 
concentrated  ownership  of  the  basic  natural  resources,  iron  ore,  and 
coal;  or,  in  some  d^ee,  int^ation  efficiency. 


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3i6  MATERAILS  FOR  ELEMENTARY  ECONOMICS 

When  such  values  are  capitalized  into  dividend  or  interest  bearing 
securities,  they  involve  important  public  problems.  They  are  merely 
another  name  for  price  policy,  and  the  whole  public  is  ultimately 
concerned  in  steel  prices. 

Increases  in  property. — Since  its  formation,  the  corporation,  from 
siuplus  earnings  (allowing  for  depreciation  and  changes  in  securities), 
has  made  good  much  of  the  original  excess  of  its  capitalization  over 
tangible  property.  That  excess  in  1901  was  about  700  million  dollars, 
or  100  per  cent,  and  in  1910  only  about  280  million  dollars,  or  24  per 
cent.  The  total  tangible  value  in  1910  was  1,187  million  dollars. 
As  in  1901,  there  is  omitted  here  all  the  merger  values  heretofore 
referred  to,  and  all  appreciation  of  natural  resources  above  the 
actual  cost  thereof  to  the  corporation. 

Profits. — ^The  rate  of  profit  has  been  calculated,  not  on  the  corpora- 
tion's capital  stock,  but  on  the  total  investment  as  computed  by  the 
Bureau.  Operating,  administrative,  and  general  expenses,  as  well  as 
taxes,  have  been  deducted  from  earnings;  also  true  depreciation,  a 
matter  of  some  intricacy.  The  corporation's  allowance  for  deprecia- 
tion, including  mineral  exhaustion  and  obsolescence,  has  exceeded  a 
necessary  allowance.  The  Bureau  has  carefully  determined  from  the 
records  of  the  corporation  the  proper  depredation,  and  has  restored 
the  excess  to  profits. 

Thus  arrived  at,  the  average  rate  of  profit  on  actual  investment 
from  April  i,  1901,  to  December  31,  1910,  was  12  per  cent.  It  was 
highest  in  1902,  15.9  per  cent,  and  lowest  in  1904,  7.6  per  cent. 
The  yearly  rates  do  not  indicate  any  pronounced  tendency,  but  have 
on  the  whole  slightly  decreased. 

It  must  be  remembered,  however,  that  12  per  cent  profit  for  one 
small  concern  out  of  many  is  one  thing.  Other  concerns  may  make 
much  less.  It  is  a  very  different  thing  when,  as  in  this  case,  one-half 
of  the  whole  industry  has  been  maintained  on  the  level  of  a  12  per 
cent  profit. 

It  must  be  made  entirely  dear  that  this  12  per  cent  is  the  rate  of 
profit  on  the  whole  investment.  Were  that  part  of  the  investment 
deducted  which  may  be  said  to  be  borrowed  money,  chargeable  only 
with  a  low  fixed  rate  of  return,  the  rate  on  the  remainder,  on  that 
part  which  may  be  considered  as  put  in  by  the  stockholders,  would 
be  considerably  higher. 

Position  in  the  industry. — ^While  in  production  the  Steel  Corpora- 
tion from  the  beginning  has  overshadowed  its  prindpal  rivals,  and 


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MODERN  CAPITALISTIC  ORGANIZATION  317 

even  exceeded  all  of  its  competitors  combined,  its  proportion  of  the 
total  has  materially  diminished  in  the  ten  years  of  its  operation. 

In  pig-iron  production,  the  corporation  has  just  about  maintained 
its  original  position;  in  1901,  43.2  per  cent;  in  1910,  43.4  per  cent. 
But  in  steel,  both  crude  and  finished,  it  has  lost  groimd;  in  1901,  66 
per  cent  of  the  steel  ingots  and  castings;  in  1910,  only  54  per  cent, 
notwithstanding  great  additions  to  its  capacity.  Rolled  steel  products 
generally  show  an  almost  steady  loss,  especially  structural  shapes 
and  tin  plate.    Even  in  rails  there  has  been  no  gain. 

In  short,  speaking  broadly,  as  against  60  per  cent  of  all  crude  and 
finished  steel  production  in  1901,  the  corporation  now  has  not  much 
over,  50  per  cent,  indicating  conclusively  the  continuous  presence  of 
strong  and  increasing  independent  production.  The  competition  of 
these  independents  with  the  Steel  Corporation  so  far  as  prices  are 
concerned  has  been  modified  by  the  policy  of  "co-operation."  This 
will  be  discussed  in  a  later  part  of  the  report. 

In  efficiency,  location  of  plant,  and  equipment — ^in  capacity  rather 
than  actual  production — the  corporation  is  materially  stronger  than 
the  foregoing  figures  indicate,  and  in  case  of  continued  trade  depres- 
sion this  strength  would  probably  show  itself  in  increased  control. 
In  ownership  of  railroads  for  handling  its  materials  it  stands  in  a  class 
by  itself.  It  has  a  strong  but  not  exceptional  position  in  water  trans- 
portation. Its  control  of  the  best  qualities  of  coking  coal  is  very  strong 
though  modified  of  late  by  new  processes  which  make  other  coal  more 
or  less  available  for  coking  purposes. 

Its  position  in  ore  reserves,  on  the  other  hand,  is  much  stronger  than 
in  any  other  factor  in  the  business.  It  is  almost  impossible,  and  woiild 
be  imwise,  to  attempt  any  quantitative  statement  of  its  proportion 
of  the  total  ore  of  the  coimtry ;  but  of  the  lake  ores,  on  which  the  pres- 
ent steel  industry  is  based,  it  has  about  75  per  cent,  and  this  advantage 
is  materially  enhanced  by  its  extensive  control  of  the  rail  transporta- 
tion of  the  ore  from  the  mines  to  the  lakes.  The  so-called  Hill 
lease  made  by  the  corporation  in  1907,  with  an  imprecedentedly  high 
rate  of  royalty  and  other  onerous  conditions,  is  a  striking  instance 
of  the  policy  of  the  corporation  to  maintain  a  high  degree  of  control 
of  ore.    This  lease  covered  enormous  ore  holdings. 

There  is  much  significance,  also,  in  the  prevailing  custom  of 
leasing  ore  mines  imder  royalty  instead  of  purchasing  outright.  This 
system  as  applied  in  the  lake  ore  region,  without  any  effective 
restrictions  as  to  size  of  holdings,  plainly  facilitates  concentration  of 


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3i8  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

ore  property,  as  it  greatly  reduces  the  investment  required  to  control 
large  bodies  of  ore.  It  has  unquestionably  had  a  large  influence  in 
producing  the  high  concentration  of  control  now  existing  in  lake 
ores,  as  well  as  elsewhere. 


89.    THE  STEEL  CORPORATION  UNDERWRITING 
AGREEMENT" 

EXHIBIT   I 

An  agreement,  made  this  first  day  of  March,  nineteen  hundred  and 
one,  by  and  between  United  States  Steel  Corporation,  a  corporation 
existing  under  the  laws  of  the  State  of  New  Jersey  (hereinafter  caUed 
the  "  Steel  Company"),  party  of  the  first  part,  and  J.  P.  Morgan  &  Co., 
of  the  dty  of  New  York,  acting  in  behalf  of  a  Syndicate,  party  of 
the  second  part: 

Whereas,  the  Steel  Company  has  been  organized  with  a  capital 
of  $3,000,  of  which  one-half  is  7  per  cent  cumulative  preferred  stock 
and  one-half  is  common  stock,  as  shown  by  the  certificate  of  incorpora- 
tion of  the  Steel  Company,  recorded  in  Hudson  County,  New  Jersey, 
on  the  2Sth  day  of  February,  1901,  which  capital  stock  is  to  be  in- 
creased as  hereinafter  provided;  and 

Whereas,  as  hereinafter  stated,  the  board  of  directors  of  the  Steel 
Company  deem  it  necessary  for  its  business  now  to  acquire  the  stocks 
and  bonds  of  certain  other  corporations  and  also  to  obtain  for  its 
corporate  purposes  a  certain  simi  in  cash;  and 

Whereas,  after  careful  investigation  and  appraisement,  the  board 
of  directors  of  the  Steel  Company  has  ascertained,  adjudged  and 
determined  that  the  value  of  such  bonds  and  stocks  now  so  to  be 
acquired  and  hereinafter  specified,  exclusive  of  such  cash  siun  (which 
cash  sum  is  to  be  received  and  treated  by  the  Steel  Company  as  sur- 
plus), is  equal  at  least  to  the  par  value  of  the  stock  of  the  Steel  Com- 
pany and  of  the  bonds  of  the  Steel  Company  to  be  issued  therefor; 
and 

Whereas,  the  board  of  directors  of  the  Steel  Company  consider 
that  such  bonds,  stocks  and  cash  may  best  be  obtained  by  purchase, 
on  the  terms  hereinafter  stated,  from  the  Syndicate  represented  by 

'  From  the  Report  oj  the  Commissioner  of  Corporations  on  the  Steel  Industry, 
Parti  (1911),  pp.  383-86. 

[For  a  discussion  of  the  profits  of  thb  underwriting  oi>eration  see  Selection 
235.— EorroRsJ 


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MODERN  CAPITALISTIC  ORGANIZATION 


319 


Messrs.  J.  P.  Morgan  &  Co.,  party  of  the  second  part  hereto,  and 
managers  of  the  said  Syndicate;  and 

Whereas,  each  of  the  corporations,  the  capital  stock  of  which  it  is 
proposed  now  to  actiuire  hereunder,  has  been  organized  and  now  is 
existing  under  the  laws  of  the  State  of  New  Jersey,  and  has  outstand- 
ing capital  stock  divided  into  shares  each  of  the  par  value  of  $100 
(excepting  the  Carnegie  Company,  of  which  the  a^ital  stock  is 
divided  into  shares  of  the  par  value  of  $1,000),  and  divided,  also,  into 
classes  as  next  hereinafter  stated,  the  said  corporations,  and  the  total 
outstanding  capital  stock  and  the  classes  thereof,  being  as  follows, 
to  wit: 


Name  or  Cokpokatioii 

CommoD 

American  Sheet  Steel  Company 

$24,500,000 
14,000,000 
40,000,000 
18,325,000 

$24,500,000 
19,000,000 
50,000,000 
28,000,000 

Avnencftn  Steel  Hoop  Company 

American  Steel  and  Wire  (Company 

American  Tin  Plate.  Company 

Camesie  Comoanv 

160.000.000 

Federal  Steel  Company 

53,260,900 
27,000,000 
40,000,000 

46,484,300 
32,000,000 
40,000,000 

National  Steel  Company     . 

National  Tube  Company 

And  whereas,  the  Carnegie  Company  has  issued,  and  there  are  now 
outstanding,  its  5  per  cent  bonds  for  the  aggregate  principal  sum  of 
$160,000,000;  and 

Whereas,  the  Syndicate  has  arranged  for  the  acquisition  of  sub- 
stantially aU  of  the  bonds  and  the  stock  of  the  Carnegie  Company; 
and 

Whereas,  in  reliance  upon  this  contract  the  Syndicate  is  endeavor- 
ing to  effect  the  acquisition,  and  the  delivery  of  all  of  the  bonds  of 
the  Carnegie  Company,  and  all  of  the  outstanding  shares  of  the  capital 
stock  of  all  of  said  corporations,  upon  the  terms  herein  provided. 

Now,  therefore,  in  consideration  of  the  premises  and  of  other  good 
and  valuable  considerations,  and  of  the  efforts  and  expenses  whi  h 
both  parties  recognize  will  have  to  be  made  and  incxirred  by  the  Syndi- 
cate in  their  endeavor  to  consummate  such  sale: 

First.  The  Steel  Company  agrees  with  J.  P.  Morgan  &  Co.,  act- 
ing in  behalf  of  the  Syndicate,  as  foUows: 

(i)  If,  on  or  before  May  31,  1901,  J.  P.  Morgan  &  Co.,  in  behalf 
of  the  S3mdicate  shall 


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320  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

(a)  Sell  and  deliver,  or  cause  to  be  sold  and  delivered,  to  the  Steel 
Company,  at  least  fifty-one  per  cent  of  such  outstanding  shares  of 
the  capital  stock  of  each  of  the  corporations  above  named,  or  of  such 
of  said  corporations  as  finally  shall  be  embraced  within  the  operation 
of  this  agreement  with  the  approval  of  the  Steel  Company,  which 
fifty -one  per  cent  of  the  total  outstanding  capital  stock  of  each  of 
such  corporations  shall  include  not  less  than  fifty-one  per  cent  of  the 
total  outstanding  preferred  stock,  if  any,  of  such  company;  and  also 
aU  of  the  $160,000,000  of  bonds  of  the  Carnegie  Company  now 
outstanding,  or  such  lesser  amount  thereof  as  shall  be  tendered  by 
J.  P.  Morgan  &  Co.;  and 

(b)  Shall  pay,  or  shall  cause  to  be  paid,  to  the  Steel  Company 
twenty-five  million  dollars  in  cash: 

(2)  The  Steel  Company  will  purchase  such  shares  and  bonds,  and, 
in  payment  and  consideration  for  such  stock  and  bonds  and  for  such 
cash,  will  issue  to  such  persons  as  J.  P.  Morgan  &  Co.,  in  behalf  of 
the  Syndicate,  shall  indicate,  shares  of  its  preferred  stock  and  shares 
of  its  common  stock  (all  of  which  shall  be  fully  paid  and  non-assess- 
able), and  also  its  five  per  cent  gold  bonds  (which  bonds  shall  be  of 
such  form  and  tenor^  and  shall  be  secured,  as  J.  P.  Morgan  &  Co. 
may  determine),  as  follows: 

(a)  In  the  event  that  the  Steel  Company  shall  acquire  all  the 
shares  of  the  capital  stock  of  all  of  such  other  corporations  and  all 
such  bonds  ol  the  Carnegie  Company,  the  Steel  Company  will  issue 
for  all  such  stock,  and  such  bonds,  and  such  sum  in  cash,  four  million 
two  hundred  and  forty-nine  thousand  nine  hundred  and  eighty-five 
shares  of  its  preferred  stock,  and  four  million  two  himdred  and  forty- 
nine  thousand  nine  hundred  and  eighty -five  shares  of  its  common 
stock,  and  also  three  hundred  and  four  million  dollars  of  its  said  five 
per  cent  gold  bonds. 

(b)  In  the  event  that  the  Steel  Company  shall  not  acquire  all  the 
shares  of  the  capital  stock  of  all  of  such  other  corporations  and  aU 
such  bonds  of  the  Carnegie  Company,  the  Steel  Company  will  issue 
for  the  shares  of  stock  and  the  bonds  which  shall  be  acquired,  and  said 
sum  in  cash,  four  miUion  two  hundred  and  forty-nine  thousand  nine 
hundred  and  eighty-five  (4,249,985)  shares  of  its  preferred  stock, 
and  four  million  two  hundred  and  forty -nine  thousand  nine  hundred 
and  eighty-five  (4,249,985)  shares  of  its  common  stock  and  three 
hundred  and  four  million  dollars  ($304,000,000)  of  its  5  per  cent  gold 
bonds,  less  abatement  and  deduction  therefrom  to  be  made  as  follows: 


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MODERN  CAPITALISTIC  ORGANIZATION 


321 


For  each  $100  par  value  of  stock  of  such  other  companies  men- 
tioned in  the  following  table,  which  shall  not  be  acquired  by  the  Steel 
Company,  the  amount  of  the  preferred  stock  and  common  stock  or 
either,  set  opposite  to  such  class  of  stock  in  said  table  shall  be  deducted 
and  abated. 


Name  or  Company  and  Class  or  Stock 

Amount  of  Stock  to  bx  DsDUcntD 
IN  Par  Valtts 

Preferred  Stock 

Common  Stock 

Carnegie  Company 

$150.00 

110.00 
4.00 

117.50 

125.00 
8.80 

125.00 

125.00 
20.00 

100.00 
100.00 

$150.00 

Federal  Steel  Co.: 

Preferred  stock 

Common  stock 

107.50 

American  Steel  and  Wire  Co.  of  N.J.: 

Preferred  stock 

Common  stock 

102 . 50 

National  Tube  Co.: 

Preferred  stock 

Common  stock 

125.00 

National  Steel  Co.: 

Preferred  stock 

Common  stock 

125.00 

American  Tin  Plate  Co.: 

Preferred  stock 

Common  stock 

125.00 

American  Steel  Hoop  Co.: 

Preferred  stock 

Common  JJtock 

100.00 

American  Sheet  Steel  Co.: 

Preferred  stock 

Cornmon  «t<Kk 

100.00 

For  each  $1,000  par  value  of  such  bonds  of  the  Carnegie  Company 
that  shall  not  be  acquired  by  the  Steel  Company  $1,000  par  value  of 
such  bonds  of  the  Steel  Company  shall  be  abated  and  deducted. 

Second.  The  Steel  Company  further  agrees  that  in  the  event  of 
the  acquisition  by  it  pursuant  to  this  agreement  of  less  than  the  total 
issue  of  said  bonds  of  the  Carnegie  Company  or  less  than  the  total 
outstanding  capital  stock  of  each  of  said  corporations,  the  Steel  Com- 
pany from  time  to  time  will  purchase  from  such  persons  as  shall  be 
indicated  by  J.  P.  Morgan  &  Co.,  any  and  all  additional  outstanding 
bonds  of  the  Carnegie  Company  or  shares  of  the  capital  stock  of  any 
of  said  corporations  that  shall  be  tendered  to  the  Steel  Company 
prior  to  May  i,  1902;  and  in  payment  therefor  will  issue  and  deliver 
its  bonds  and  fully  paid-up  shares  of  its  preferred  stock  and  fully 
paid-up  shares  of  its  common  stock,  at  the  rates  at  which  deduction 


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322  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

and  abatement  shall  have  been  made  under  Article  First  hereof  in 
respect  of  the  additional  bonds  and  shares  of  stock  so  piurchased. 

Third.  The  Steel  Company  shall  credit  and  allow  to  J.  P.  Morgan 
&  Co.  on  accoimt  of  the  cash  sum  payable  imder  Article  First  hereof, 
or  shall  pay  to  J.  P.  Morgan  &  Co.  a  simi  equal  to  the  aggregate 
amount  which,  prior  to  April  i,  1901,  shall  have  accrued  upon  any 
installments  of  dividends  accruing,  but  not  matured,  on  any  such 
preferred  stock  at  the  date  of  delivery  thereof  to  the  Steel  Company. 

The  Steel  Company  further  agrees  that  the  dividends  on  ail  the 
preferred  stock  of  the  Steel  Company  to  be  issued  by  it  hereunder, 
shaU  begin  to  accrue  from  April  i,  1901. 

Fourth.  The  Steel  Company,  without  prejudice  to  the  further 
exercise  of  its  chartered  rights  to  increase  or  to  decrease  its  capital 
stock,  agrees  that  it  will  lawfully  increase  its  authorized  capital  stock 
to  an  amount  sujSdent  to  enable  it  to  issue  and  to  deliver  its  preferred 
stock  and  its  common  stock  to  the  aggregate  amount  hereinbefore 
provided. 

Fifth.  J.  P.  Morgan  &  Co.,  in  behalf  of  the  Syndicate,  will  bear 
and  will  pay  the  statutory  fees  and  taxes  for  the  proposed  increase  of 
the  capital  stock  of  the  Steel  Company. 

Sixth.  This  agreement,  and  any  agreement  in  pursuance  thereof, 
is  and  shall  be  strictly  inUr  partes;  and  no  stockholder  of  any  of  the 
corporations  above  referred  to  shaU  be  deemed  to  have  any  right 
hereimder. 

In  witness  whereof,  these  presents  have  been  duly  executed  by  the 
parties  hereto  the  day  and  year  first  above  written. 

United  States  Steel  Corporation, 

[L.S.]  By  W.  J.  Curtis,  PresidefU. 

Attest: 

Charles  MacVeagh, 

Secretary^  J,  P.  Morgan  &•  Co. 


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MODERN  CAPITALISTIC  ORGANIZATION  323 

90.  COMPANIES  WHOSE  STOCKS  WERE  ACQUIRED  BY  UNITED 
STATES  STEEL  CORPORATION  AT  OR  SHORTLY  AFTER 
rrS  ORGANIZATION  IN  1901,  AND  THE  PRINCIPAL  SUB- 
COMPANIES  OR  PROPERTIES  OF  THESE  CONSTITUENT 
COMPANIES' 

[See  reference  notes  on  p.  337.] 

(The  mbaidkry  oonpeaiee  or  pcopertiee  of  the  oonetitiient  concenw  here  given  are  tlioee  held 
by  them  on  April  i,  1901.  They  aey  differ  from  thoee  originaUv  acquired  by  Mich  constituent  con> 
oems,  first,  because  some  of  the  properties  originally  acquired  by  them  were  dinnantled  or  abandoned, 
and,  second,  because  the  constituent  concerns,  as  inmcated  on  this  table,  organised  some  of  these 
subsidiaries,  and  acquired  additional  properties.  Moreover,  a  number  of  the  plants  given  in  this 
table  were  dismantled  or  abandoned  immediately  after  the  formation  of  the  Steel  Corporation.  Such 
plants  are  indicated  in  italics.  Most  of  the  subsidiaries  of  the  main  constituent  concerns  were  owned 
in  fee  in  1901.    Those  stiU  held  by  stock  ownership  in  190X  axe  indicated  by  an  asterisk.) 

I.     COMPANIES  MAKING  CHIEFLy  C&UDB  AND  SEMIFINISHED  STEEL  OR  THE  HEAVIER 
FINISHED  STEEL  PRODUCTS 

Carnegie  Company  of  New  Jersey 

Carnegie   Steel   Company   of   Pennsylvania,  *  Pewabfe  Company  (so  per  cent). 

owning—  *  Pittsburg,  Bessemer,  and  Lake  Erie  Railroad 
Edgar  Thomson  Works,  Bessemer,  Pa.  Company  (53  per  cent). 

Duqnesne  Works,  Duquesne,  Pa.  *  Union  Railroad  Company. 

HooMstead  Works,  Munhall,  Pa.  *  Pittsburg  Steamship  Company  (83}  per  cent). 

Upper  and  Lower  Union  Mills,  Pittsburg,  •  Pittsburg  and  Conneaut  Dock  Company. 

Pa.  *  Pittsburg  Limestone  Company,  Ltd.  (7S  pw 
Carrie  Blast  Furnaces,  RanUn,  Pa.  cent). 

Lucy  Blast  Furnaces.  Pittsburg,  Pa.  •  Carnegie  Natural  Gas  Company. 

Howard  Axle  Works,  Howard,  Pa.  •  Youghiogheny  Northern  Railway. 

*  Pennsylvania  and  Lake  Erie  Dock  Company  •  Mount  Pleasant  Water  Company. 

Us . 6  per  cent).  •  Youghiogheny  Water  Company. 

*  New  York,  Pennsylvania,  and  Ohio  Dock  Com-       •  Trotter  Water  Company. 

pany  (35  P«r  cent).  •  Mingo  Coal  Company. 

*  Carnegie  Land  Company.  •  Union  Supply  Company. 

*  Conneaut  Land  Company.  •  H.  C.  Frick  Coke  Company— 

*  Oliver  Iron  Mining  Company  (83I  per  cent) —  Holding  by  direct  ownership  or  through  sub- 

Owning  a  large  number  of  active  and  in-  ^iary  companies  about  40,000  acres  of 

active  iron-ore  properties  on  the  Michigan  coking-coal    land;     xi,ooo   coke   ovens 

and  Mesabi  Ranges,  acquired  from  various  3,500  dwellings,  and  other  property, 

independent  mining  companies. 

Federal  Steel  Company 

*  nun/ih  Steel  Company—  *  MfamcsoU  Dock  Company  (55  pw  ctmi). 

South  C^^'^g^  Works.  *  Lorain  Steel  Company  (Ohio) — 

North  Chicago  Works.  Steel  plant  at  Lorain,  Ohio. 

Milwmnkee  Works.  *  Lorain  Steel  Company  of  Pennsylvania— 

Union  Works.  Steel  Plant  at  Johnstown,  Pa. 

Joliet  Works.  (Formerly  owned  by  the  Johnson  Com- 

*  Southwest  OmneUsville  Coke  Company.  pany.) 
^Chicago,  Lake  Shore,  and  Eastern  RaUway       *In^oiide  Coal  Company. 

Company.  •  *  Johnstown  and  Stony  Creek  Railroad  Com- 

*  Cundy  Iron  Company.  peny. 

*  Mount  Pleasant  Supply  Company.  *  Lake  Terminal  Railroad  Company. 

*  Miimesota  Iron  Omipany—  *  Elgin,  Joliet,  and  Eastern  Railway  Company, 

Ownfaig  various  ore  mines  and  undeveloped  *  Eureka  Fuel  Company.' 

mberal  lands  hi  Minnesota.  *Masontown  and  New  Salem  Raiboad  Com- 

*  Dukath  and  Iron  Range  Railroad  Company.  peny.' 

*  MinnesoU  Steamship  Company.  *  Huron  Water  Ompany  (50  per  cent).* 

« From  the  Report  of  the  Commissioner  of  Corporations  on  the  Steel  Industry 
Part  I  (1911),  p.  107. 

[Conmare  with  this  sUtemcnt  Selection  68:  "The  Holding  Company"— 
Editors.] 


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MATERIALS  FOR  ELEMENTARY  ECONOMICS 


National  SUel  Company 


*  (Miio  Sted  Company,  Youngstown,  Ohio — 

*  Biwabik  Mine  (as  per  cent). 
King,  Gilbert  &  Warner  Company,  Columbus, 
Ohio— 
*Coliunbus  Stone  Company,   Columbus, 
Ohio  (66i  per  cent). 
Shenango  Valley  Steel  Company,  New  Castle, 
Pa. 

*  Bdlaire  Steel  Company,  Bellaire,  Ohio. 

*  Aetna  Standard  Iron  and  Steel   Company, 

Mingo  Junction,  Ohio.* 
Buhl  Steel  Company,  Sharon.  Pa. 


Sharon  Iron  Company,  Ltd.,  Sharon,  Pa. 
Thomas  Furnace  Company,  Niles.  Ohio. 

*  Ohio  Iron  Company.  Zanesville,  Ohio. 

*  Rosena  Furnace  Company,  New  Castle,  Pa. 

*  National  Mining  Company  (33)  per  cent).* 

*  Chapin  Mining  Company. 

*  Wintlmq)  Iron  Company. 

*  Standard  Connellsville  Coke  Company,  Pleas- 

ant Unity,  Pa. 

*  Continental  Coke  Company,  Uniontown,  Pa. 

*  Mutual  Transportation  Company. 

*  Menominee  Transit  Company. 


n.     COMPANIES  MAKING  MOXE  HIGHLY  ELABORATED  PRODUCTS 

American  Steel  and  Wire  Company  of  Jfew  Jersey 


American  Steel  and  Wire  Company  of  Illinois — 

Consolidated  Steel  and  Wire  Company  (a 
consolidation,  with  6  i^ants  in  xgoz). 

Salem   Wire   Nail    Company,   Salem   and 
Findlay,  Ohio. 

H.  P.  Nail  Company,  Cleveland.  Ohio. 

American  Wire  Company,  Cleveland,  Ohio. 

American  Wire  Nail  Company,  Anderson, 
Ind. 

I.  L.  EUwood  Manufacturing  Company,  De 
Kalb.ni. 

Ellwood  Wire  and  Nail  Company.  De  Kalb, 
HI. 
Washburn  &  Moen  Manufacturing  Company 

(4  plants). 
Worcester  Wire  Company,  Worcester,  Mass. 
Cleveland  Rolling  Mill  Company,  Cleveland 

and  Newburg,  Ohio. 
Oliver  Wire  Company,  Pittsburg,  Pa. 
Oliver  &  Snyder  Steel  Company,  Pittsburg,  Pa. 
Pittsburg  Wire  Company,  Braddock,  Pa. 
IndioMd  Wire  Penct  Company,  CratefordsviUe, 

Ind. 
Garden    CUy    Wire    and    Spring    Company, 

Chicago,  lU, 


Consolidated  Barb  Wire  Company,  Joliet,  III. 

and  Lnwence,  Kan. 
Laidlaw  Bale  Tie  Company.  Joliet,  HL 
Cincinnati  Barb  Wire  Fence  Company,  Cin- 

cinnaH,  Ohio. 
Union  Rolling  Mill  Company,  aevdand.  Ohio. 
Portage  Iron  Company,  Duncansville,  Pa. 
Newbnrgh  Wire  and  Nail  Company,  Newburgk, 

N.Y. 
Allegheny  Furnace  Company,  Allegheny,  Pa. 
Shenango  Valley  Steel  Company,  New  Castle, 

Pa. 
Shoenberger  Steel  Company,  Pittsburg,  Pa. 
Puget  Sound  Wire  Nail  and  Steel  Company, 

EvereU,  Wash. 

*  American  Mining  Company.* 

*  American  Coke  Company.* 

*  Juniata  Coke  Company,  Dawson,  Pa.  (50  per 

cent). 

*  American  Steamship  Company.* 

*  Edgar  Zinc  Company,  St.  Louis,  Mo.,  and 

Cherryvale,  Kan.  (80  per  cent). 

*  Pennsylvania  and  Lake  Erie  Dock  Company 

(zg  per  cent). 

*  Huron  Water  Company  (50  per  cent).* 


National  Tube  Company 


'National  Tube  Works  Company,  McKeesport 
and  Pittsburg,  Pa.  * 

Riverside  Iron  Works,  Wheeling  and  Benwood, 
W.Va.,  and  Steubenville,  Ohio. 

Pennsylvania  Tube  Company,  Pittsburg,  Pa. 

Oil  Oty  Tube  Company,  Oil  City,  Pa. 

National  Galvanizing  Works,  Versailles,  Pa. 

Syracuse  Tube  Company,  Syracuse,  N.Y. 

Delaware  Iron  Company,  New  Castle,  Del. 

Allison  Manufacturing  Company,  Philadelphia 
Pa. 


Cohoes  Tube  Works,  Cohoes,  N.Y. 

Ohio  Tube  Company,  Warren,  Ohio,  and 
Norristown,  Pa. 

American  Tube  and  Iron  Company,  Middle- 
town,  Pa.,  and  Youngstown,  Ohia 

Chester  Pipe  and  Tube  Company.  Chester,  Pa. 

Oil  Well  Supply  Company,  Pittsburg,  Pa. 

*  Western  Tube  Company.  Kewanee,  HI. 

*  Pittsburg  Tube  Company,  Pittsburg,  Pa. 

*  Pennsylvania  and  Lake  Erie  Dock  Company 

(7  per  cent). 


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MODERN  CAPITALISTIC  ORGANIZATION 


32s 


Shelby  Steel  Tube  Company  of  New  Jersey 


Shelby  Sted  Tabe  Company  of  Pennqrtvania — 
Shdby  Steel  Tabe  Company  of  Ohio— 

Garwood  SoomUss  Ttibo  Company,  Gar- 
wood, N  J, 

EUwood  WekUesB  Tabe  Company,  Ell- 
wood  Gty,  Pa. 

Greenville  Tabe  Company,  Greenville, 
Pa. 

American  WekUeas  Tabe  Company, 
Toledo,  Ohio. 

Browor  TiAe  Company,  Tolodo,  Ohio. 


Mamfidd    MacUno    Works,    Man^fMd, 

Ohio. 
Unitod  States  Cold  Drawn  Stotl  Company, 

Cuyahoga  Potts,  Ohio. 
Shelby   Sted   Tabe   Company,    Shelby, 
Ohio. 
New  Castle  Tnbe  Company,  New  CasOe,  Pa. 
Albany  Manufacturing  Company,  Albany, 

Ind. 
Auburn  Bolt  and  Nut  Woriu,  Auburn.  Pa. 
Pope  Tube  Company,  Hartford,  Conn. 


American  Tin  Plaie  Company 


American  Tin  Plate  Company,  Elwood  and 
Monipdier,  Ind. 
*  New  Castle  Sheet  and  Tin  Plate  Company, 
New  Castle,  Pa. 

Shenango  VaUey  Steel  Company,  New  Castle, 
Pa.* 

Monongahela  Tin  Plate  Company,  PitUburg, 
Pa. 

United  States  Iron  and  Tin  Plate  Manufac- 
turing Company,  McKeesport,  Pa. 

National  Tin  Plate  Company,  Moneisen,  Pa., 
and  Anderson,  Ind. 

Pittsburg  Tin  Plate  Worics,  New  Kensington, 
Pa. 

Pennsylvania    Tin    Plate    Company,    New 
KensingUm,  Pa. 

Star  Thi  Plate  Company,  Pittsburg,  Pa. 

Humbert  Tin  Plate  Company,  Connellsville, 
Pa. 

Washington  Steel  and  Tin  Plate  Mills,  Wash- 
ington, Pa. 

Crescent  Sheet  and  Tm  Plate  Company,  Cleve- 
land, Ohio. 

Falcon  Tin  Plate  and  Sheet  Company,  Niles, 
Ohio. 

Beaver  Tb  Plate  Company,  Lisbon,  Ohio. 

Irondak  Steel  and  Iron  Company.  Middleton, 
Ind. 

La  Belle  Iron  Woriis,  Wheeling,  W.Va.« 

Wallace,  Banfield  &  Co.,  Irondale,  Ohio. 

Aetna  Standard  Iron  and  Steel  Company, 
Bridgeport,  Ohio.* 


AtUnU  Steel  and  Tin  Plate  Company,  At- 

lanU,  Ind. 
Baltimore  Tin  PUOe  Company,  Baltimore,  Md. 
Blairs9iae  Rotting  Mm  and  Tin  Plate  Mitt, 

Blairsvitte,  Pa, 
Cincinnati  Rolling  Mill  and  Tin  Plate  Com 

pany,  Cincinnati,  Ohio. 
Great  Western  Tin  Plate  Company,  JoUet,  HI 
Ellwood  Tm  Plate  Company,  Ellwood  Qty, 

Pa. 
Johnstown  Tin  Plate  Company,  Johnstown, 

Pa. 
Laui^lin  Nail  Company,  Martins  Ferry,  Ohio. 
Morewood  Company,  Gas  Gty,  Ind. 
Neskannock  Sheet  and  Tin  Plats  Company, 

NewCastU,Pa, 
Ohio  River  Sheet  and  Tm  Plate  Company, 

Rochester,  Pa. 
Hamilton  fir  Co.,  West  Newton,  Pa. 
Marshatt  Bros,  fir  Co.,  Philadelphia,  Pa. 
Britton  Rolling  Mill   Company,   Develand, 

Ohio.* 
Canonsburg  Iron  and  Steel  Company,  Canons- 
burg,  Pa. 

*  National  Mining  Company  (33)  per  cent).* 
Morton  Tb  Plate  Company,  Cambridge,  Ohio. 
Cnmberland  Stosl  and   Tin  PlaU  Company, 

Cnmbertand,  Md. 

*  Champion  Iron  and  Sted  Company.  Muske- 

gon, Mich. 
Reeves  Iron  Company,  Canal  Dover,  Ohio. 


American  Sheet  Steel  Company 


Cambridge  Iron  and  Sted  Company,  Cam- 
bridge, Ohio. 

Cambridge  Manufacturing  Company.  Cam- 
bridge, Ohio. 

Canton  Rolling  Mill  Company,  Canton,  Ohio. 

Coming  Steel  Company,  Hammond,  Ind, 


Dennison  Rolling  Mill  Company,  Dennison, 

Ohio. 
Dresden    Iron   and    Sted   Sheet    Company, 

Dresden,  Ohio. 
Falcon  Iron  and  Nail  Company,  Niles,  Ohio. 
p.  B.  Lastfman  fir  Co.,  Ltd.,  Panlton,  Pa, 


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MATERIALS  FOR  ELEMENTARY  ECONOMICS 


SalUburg  Rolling  Mill  Company,  Sfthsbuis, 

P». 
Midland  Stcd  Company,  Mtmde,  Ind. 
Old  Meadow  Rolling  Mill  Company,  Scott- 
dale,  Pa. 
Piqua  Rolling  Mill  Company,  Piqua,  Ohio. 
Cincinnati     Comigated    Company,     Piqua, 

Ohio. 
Struthen  In»  and  Steel  Company,  Stnithen, 

Ohio. 
Pittsburg     Stea     ManufaOmring     Company, 

Sk^msttnm,  Okh. 
West  Pmm  Sheet  Steel  Works,  Leeckbwrg,  Pa, 
Chester    Rolling    Mill    Company,    Chester, 

W.Va. 
Hyde  Park  Iron  and  Steel  Company,  Hyde 

Park,  Pa. 
Kirkpatrick  &  Co.,  Ltd..  Leechburg,  Pa. 


Charder*  Iron  and  Steel  Company,  Carnegie, 

Pa. 
Soottdale   Iron  and   Steel    Company,   Ltd., 

Scottdale,  Pa. 
New  Philadelphia  Iron  and  Stcd  Company, 

New  Philadelphia,  Ohio. 
Reeves  Iron  Company,  Canal  Dover,  Ohio. 
Aetna  Standard  Iron  and  Steel  Company, 

Bridgeport,  Ohio.' 
Apollo  Iron  and  Steel  Company,  ApoUo  and 

Vandergrift,  Pa.— 

*  Apollo  Gas  Company. 

*  W.  Dewees  Wood  Company,  McKeesport,  Pa. , 
and  WeOsville,  Ohio— 

*  Versailles  Fad  Gas  Company. 

*  McKeespwt  Terminal  Railroad  Company. 
Coskoctom  RMing  Mitt  Company,  Coshocton, 

Ohio. 


American  Steel  Hoop  Company 


*  Isabella  Furnace  Company,  Pittsburg,  Pa. 
William  Clark  &  Sons,  Pittsburg,  Pa. 
Lindsay  &  McCutcheon,  Pittsburg,  Pa. 
J.  Painter  k  Sons,  Pittsburg,  Pa. 
Monessen  Sted  Company.  Monessen.  Pa. 
Union  Iron  and  Sted  Company,  Youngstown, 

Warren,  and  Girard,  Ohio. 
Pomeroy  Iron  and  Sted  Company,  Pomeroy, 

Ohio. 
Portage  Iron  Company,  Ltd.,  DuncansviUe, 

Pa. 


P.  L.  Kimberly  k  Co.,  Greenville  and  Sharon, 
Pa. 

*  Mahoning  Ore  and  Sted  Company  (so  per 

cent). 

*  National  Mining  Company  (53}  per  cent).i 

*  Union  Ore  Company  (50  per  cent). 
•Pennsylvania  and  Lake  Erie  Dock  Company 

(8|  per  cent). 

*  Etna  and  Montrose  Railroad  Company. 


American  Bridge  Company 


American  Bridge  Works,  Chicago,  HI. 

Berlin  Iron  Bridge  Company,  East  Berlin, 

Conn. 
Buffalo  Bridge  and  Iron  Works,  Buffalo,  N.Y. 
Carnegie  Sted  Company,  Limited  (Kesrstone 

Bridge    Company,    bridge   and   structural 

plant),  Pittsburg,  Pa. 

*  Detroit  Bridge  and  Iron  Works.  Detroit,  Mich. 
Edge  Moor  Bridge  Works,  Wilmington.  Dd. 
Elmira  Bridge  Company,  Elmira,  N.Y. 
Gillette-Hersog     Manufacturing     Company, 

Minneapolis,  Minn. 
Groton  Bridge  and  Manufacturing  Company, 

Groton,  N.Y. 
Hilton  Bridge  Construction  Company.  Albany, 

N.Y. 
Horsdieads    Bridge    Company,    Horseheads, 

N.Y. 

*  Koken  Iron  Works,  St.  Louis,  Mo. 
LaFayette  Bridge  Company,  LaFayette,  Ind. 
Lassig  Bridge  and  Iron  Works,  Chicago,  HL 
Nelson  ft  Buchanan  Company,  Chambersburg, 

Pa." 


New  Columbus  Bridge  Company,  Columbus, 

Ohio. 
Pittsburg  Bridge  Company,  Pittsburg,  Pa. 
Post  ft  McCord,  Brooklyn.  N.Y. 
Rochester  Bridge  and  Iron  Works,  Rochester, 

N.Y. 
Schuha  Bridge  and  Iron  Company,  Pittsburg, 

Pa. 
Shiffler  Bridge  Company,  Pittsburg,  Pa. 
Union  Bridge  Company,  Athens,  Pa. 
J.  G.  Wagner  Company  (bridge  and  structural 

plant).  Milwaukee,  Wis. 
Wrought  Iron  Bridge  Company,  Canton,  Ohio, 
Youngstown  Bridge  Company,  Youngstown, 

Ohio. 

*  A.  ft  P.  Roberts  Company,  known  as  Pencojrd 

Bridge  Works.  Pencoyd,  Pa. 

*  Toledo  Bridge  Company,  Toledo,  Ohio. 

*  Alabama  Bridge  and  Iron  Company,  Decatur, 

Ala. 

*  New  Jersey  Sted  and  Iron  Company,  Trenton 

N.J. 


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MODERN  CAPITALISTIC  ORGANIZATION  327 

m.     KISCXLLANEOnS 

Lake  Superior  Consolidated  Iron  Mines 

Owning  various  important  iron  mines  and  Also  owning  the  sto^  of  Dulath.  Missabe 

ptopertfas  in  the  Lake  Superior  region,  oon-  and  Nortbem  Railway  Company, 

trolling  several  hundred  million  tons  of  ore. 

Bessemer  Steamship  Company 
Owning  a  fleet  of  as  steamers  and  31  barges. 


*  Indicates  stock  ownership  in  190Z. 

'  OrganiMd  by  and  in  bterest  of  Federal  Steel  Company.  It  may  also  be  noted  that,  eioept 
as  to  the  niinob  Steel  Company's  manufacturing  plants,  most  of  the  various  subsidiaries  of  the  oonstitu- 
ent  coooens  of  the  Federal  Steel  Company  were  directly  organised  by  them  and  not  acquired  from 
other  interests. 

"  Acquired  blast  furnaces  and  steel  works  only.    (See  note  6.) 

*  National  Mining  Company  was  promoted  and  organized  in  interest  of  National  Steel  Company, 
American  Sted  Hoop  Company,  and  American  Tin  Plate  Company. 

« Promoted  and  organised  in  interest  of  American  Steel  and  Wire  Company  of  New  Jersey  after 
its  organisation. 

*  Acquired  machinery  and  equipment  only. 

*  Acquired  tin-plate  machinery  and  equipment  only.  A  part  of  the  propeity  of  this  company 
was  acquired  by  other  constituent  concerns.    Such  a  division  of  plants  was  made  in  several  other 

y  Acquired  sheet-mill  machinery  and  equipment  (mly. 


91.    AN  EXAMPLE  OF  TRUST  EFFICIENCY' 

The  International  Harvester  Co.,  generally  speaking,  has  an  ad- 
vantage over  independent  manufacturers  with  respect  to  the  cost  of 
production  of  its  machines.  This  is  especially  marked  in  the  case  of 
grain  binders,  the  most  important  of  the  harvesting  machines.  Thus, 
the  average  factory  cost  of  binders  for  the  International  Harvester 
Co.  at  its  domestic  plants  for  the  two  years,  1910  and  191 1  combined, 
was  $56 .  32,  and  ranged  from  $54 . 1 1  to  $73 .  78  at  the  different  plants. 
While  the  company  produces  most  of  the  iron  and  steel  required — on 
which  its  subsidiary  steel  company  makes  a  very  large  profit — the 
cost  of  these  materials  to  its  implement  plants  is  based  on  prevailing 
market  prices,  so  that  its  costs  in  this  respect  are  comparable  with 
those  of  the  independent  producers.  For  the  four  independent  com- 
panies that  reported  to  the  Bureau  the  cost  of  their  binders,  the 
average  factory  cost  for  the  same  period  as  computed  from  the  data 
reported  by  them  was  $70.38.  There  was  a  wide  range  of  cost 
among  the  four  independent  concerns,  but  only  two  of  them  showed 

'  Adapted  from  the  Report  of  the  Commissioner  of  Corporations  on  the  Inter- 
national Harvester  Co,  (1913),  pp.  26-28. 


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328  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

a  materially  lower  cost  than  the  highest  cost  of  the  International 
Harvester  Co.  While  diflFerences  in  the  style  of  construction  of  differ- 
ent makes  of  binders  undoubtedly  explain  some  of  these  differences  in 
the  cost,  the  chief  reasons  therefor  were  differences  in  economy  of 
production,  in  which  the  International  Harvester  Co.  has  a  large 
advantage  in  its  great  volume  of  output,  at  least  at  its  McCormick  and 
Deering  plants.  The  output  at  these  plants,  however,  was  equally 
large  before  the  merger. 

These  figures  of  factory  costs  do  not  take  account  of  general  and 
miscellaneous  expenses,  nor  of  a  much  heavier  selling  expense  which 
for  binders  sometimes  amounts  to  $20 .  00  or  even  $25 .  00  per  machine. 
General  and  miscellaneous  expenditures  were  relatively  much  heavier 
for  the  independent  companies  than  for  the  International  Harvester 
Co.,  chiefly  on  accoimt  of  great  differences  in  volimie  of  business, 
though  possibly  due  also  to  differences  in  methods  of  keeping  cost 
accounts.  They  may  properly  be  grouped  with  manufacturing 
costs  for  the  purpose  of  this  comparison.  If  these  expenditures  are 
prorated  over  the  cost  of  production,  both  for  the  International 
Harvester  Co.  and  the  independents,  the  average  cost  of  binders  for 
the  International  Harvester  Co.  becomes  $s8.S7i  and  for  the  four 
independents  $76.18. 

A  proper  imderstanding  of  these  relations  of  cost  of  production  to 
the  competitive  position  of  the  independent  binder  manufacturers, 
requires  consideration  also  of  the  question  of  selling  expense.  The 
selling  expense  per  binder  for  the  International  Harvester  Co.  is 
considerably  higher  than  the  average  selling  expense  of  the  independ- 
ents, and  this  fact  partly  compensates  the  latter  for  their  higher 
average  costs  of  production.  Nevertheless  the  margin  of  profit 
between  prices  and  cost  of  production  and  selling  expense  combined 
is  markedly  lower  for  the  independents  than  for  the  International 
Harvester  Co.  Apparently  the  relatively  high  selling  expense  of  the 
International  Harvester  Co.  is  due  to  the  poUcy  of  maintaining  a 
very  elaborate  selling  organization,  which  gives  it  a  strong  hold  on  the 
trade  and  helps  to  seciure  to  it  a  large  volume  of  business.  It  appears 
to  be  the  company's  policy  thus  to  maintain  an  expensive  selling  organ- 
ization to  push  the  sale  of  its  goods  rather  than  reduce  prices  on  some 
of  its  most  important  lines,  particularly  harvesting  machines. 

Similarly  in  the  case  of  mowers  and  rakes,  for  which  the  Bureau 
had  sufficient  data  for  comparing  the  costs  of  the  International 
Harvester  Co.  with  those  of  independents,  it  was  foimd  that  the 


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MODERN  CAPITALISTIC  ORGANIZATION  329 

average  cost  of  manufacture  at  the  plants  of  the  International 
Harvester  Co.  for  the  years  1910  and  191 1  combined  was  lower  than 
the  average  cost  of  the  independents  reporting.  Prorating  general 
and  miscellaneous  expense  over  the  factory  cost  of  these  machines 
the  advantage  of  the  International  Harvester  Co.  in  this  respect  over 
the  independents  was  even  greater. 

Again  for  some  of  the  newer  lines,  data  secured  by  the  Bureau 
indicated  some  advantage  for  the  International  Harvester  Co.  in 
cost  of  production,  but  the  data  were  not  sufficient  to  be  conclusive. 

The  foregoing  comparisons  of  production  costs  indicate  one  of 
the  most  important  advantages  enjoyed  by  the  International  Har- 
vester Co.  The  striking  advantage  it  has  with  respect  to  cost  of  pro- 
duction of  binders,  taken  in  connection  with  the  great  importance  of 
this  machine  in  the  farm-implement  trade,  b  one  of  its  chief  elements 
of  power. 

92.   TRUST  ADVANTAGES,  DISADVANTAGES,  AND  REMEDIES* 

I.  ADVANTAGES 

Those  who  advocate  the  formation  of  large  industrial  combina- 
tions daim  that  they  possess,  over  the  system  of  production  on  a 
smaller  scale  by  competing  plants,  the  following  advantages: 

I.  Concenkation, — By  closing  individual  plants  less  favorably 
located  or  less  well  equipped  and  concentrating  production  into  the 
best  plants  most  favorably  located  a  great  saving  can  be  effected, 
both  in  the  amoimt  of  capital  necessary  for  the  production  of  a  given 
product  and  the  amount  of  labor  required. 

Another  advantage  of  the  concentration  of  industry  is  that  the 
plants  which  are  kept  employed  can  be  run  at  their  full  capacity 
instead  of  at  part  capacity,  and  can  largely  be  run  continuously 
instead  of  intermittently,  so  far  as  the  combination  happens  to  control 
the  larger  part  of  the  entire  output — a  material  soiurce  of  saving  in 
certain  lines  of  industry.  A  still  further  advantage  of  this  concen- 
tration comes  in  the  selling  of  the  product,  from  the  fact  that  custom- 
ers, being  always  sure  of  ready  supply  whenever  it  is  wanted,  more 
willingly  buy  from  the  large  producer,  and  that  there  is  less  loss  from 
bad  debts.  This  readiness  to  buy  from  trusts,  however,  is  denied, 
some  witnesses  holding  that  dealers  prefer  to  buy  from  independent 
producers. 

'  From  the  "Review  of  Evidence"  in  the  Report  of  the  Industrial  Commission 
(1900),  I,  32-38. 


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330  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

In  certain  lines  of  industry  much  greater  economy  can  be  prac- 
ticed, especially  in  the  way  of  using  by-products  to  better  advantage 
in  a  large  establishment  than  in  a  small  one.  Much  difference  of 
opinion  exists  among  witnesses  in  most  lines  of  industry  as  to  the 
size  of  plant  that  can  secure  the  most  economical  division  of  labor 
and  use  of  by-products,  without  making  adequate  supervision  too 
difficult. 

2.  FreigtUs, — ^Where  the  product  is  bulky,  so  that  the  freight  forms 
an  essential  element  of  the  cost,  much  can  be  saved  by  an  organiza- 
tion which  has  plants  established  at  favorable  locations  in  different 
sections  of  the  country  so  that  purchasers  can  be  supplied  from 
nearest  plants,  thus  saving  the  cross  freights,  which,  of  course,  must 
be  paid  where  customers  are  supplied  from  single  competing  plants. 

3.  PalerUs  and  brands, — ^Where  different  establishments,  selling 
separate  brands,  are  brought  together  into  one  combination,  the  use 
of  each  brand  being  made  common  to  all,  a  great  saving  is  often 
effected,  since  the  most  successful  can  be  more  efficiently  exploited. 

The  control  also  of  substantially  all  patents  in  one  line  of  industry 
sometimes  enables  the  combination  to  secure  a  monopoly  which  it 
could  not  otherwise  secure. 

4.  Single  management. — ^The  great  completeness  and  simplicity 
of  the  operation  of  a  single  great  corporation  or  trust  is  also  a  source 
of  saving.  Where  each  of  the  different  establishments  which  are 
united  had  before  a  president,  a  complete  set  of  officers,  and  a  separate 
office  force,  the  combined  establishment  need  have  but  its  one  set  of 
chief  officers,  and  subordinates  at  lesser  salaries  may  take  the  places 
of  the  heads  of  separate  establishments.  In  this  way  a  material 
saving  is  often  made  in  the  salaries  of  the  higher  officials;  while  a 
considerable  reduction  of  the  total  office  force  is  also  possible.  It  is 
likewise  true  that  this  same  form  of  (organization  enables  one  set  of 
traveling  salesmen  to  sell  all  of  the  brands  or  all  classes  of  goods  for 
the  separate  establishments,  and  in  that  way  much  labor  is  saved. 
This  is  considered  a  great  saving  from  the  standpoint  of  the  producer 
and  consmner,  but  is  likewise  naturally  considered  an  evil  from  the 
point  of  view  of  those  who  are  thus  thrown  out  of  work. 

The  more  complete  organizations  also  will  distribute  the  work 
among  the  different  plants  in  such  a  way  that  to  each  is  given  the 
particular  kind  of  product  for  which  it  is  specially  adapted,  and  in 
many  cases  changes  in  machinery  and  changes  of  workmen  from  one 
kind  of  product  to  another  are  avoided,  a  source  often  of  great  saving. 


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MODERN  CAPITAUSnC  ORGANIZATION  331 

5.  Skilled  management. — ^The  bringing  into  co-operation  of  leading 
men  from  the  separate  establishments,  each  having  different  elements 
of  skill  and  experience,  makes  it  possible  to  apply  to  the  business  the 
aggregate  ability  of  all,  a  factor  in  many  instances  doubtless  of  great 
advantage.  To  some  d^ree  there  may  be  a  finer  specialization  of 
business  ability,  each  man  being  placed  at  the  head  of  the  dq>artment 
for  which  he  is  specially  fitted,  thus  giving,  of  course,  the  most 
skilled  management  possible  to  the  entire  industry,  whereas  before 
the  combination  was  effected  only  a  com|>aratively  few  of  the  leading 
establishments  would  have  managers  of  equal  skill. 

.  But  this  advantage,  some  think,  is  limited.  The  chief  managers 
at  the  central  office  are  likely  to  be  large  stockholders,  and  thus  to 
have  a  strong  direct  interest  in  the  success  of  the  enterprise.  This 
may  hold  also  of  many  of  the  superintendents  of  departments.  But 
others  will  be  hired  managers,  and,  it  is  claimed,  a  hired  supmntend- 
ent  will  not  take  the  same  interest  in  the  establishment  or  be  able 
to  exert  the  same  intelligent  control  as  the  owner  of  a  comparatively 
small  establishment.  Moreover,  minute  supervision  cannot  well  be 
exercised  in  a  very  large  combination. 

6.  Export  trade. — ^The  control  of  large  capital  also,  it  is  asserted, 
enables  the  export  trade  to  be  developed  to  much  greater  advantage 
than  could  be  done  by  smaller  establishments  with  less  wealth  at 
their  disposal. 

n.     DISADVANTAGES 

Among  the  evils  of  the  great  combinations  those  most  frequently 
mentioned  are: 

1.  Employees  discharged, — ^When  different  establishments  come 
together  into  one,  it  is  often  the  case  that  certain  classes  of  employees 
are  needed  in  much  less  numbers  than  by  the  independent  plants. 
This  is  specially  true  in  the  case  of  commercial  travelers,  and,  also, 
perhaps  in  the  case  of  superintendents  and  clerks  in  the  offices. 
While  this  is  generally  admitted,  it  is  considered  by  many  to  be  an 
inevitable  condition  of  progress  and  only  a  temporary  hardship  which, 
like  that  resulting  from  the  introduction  of  a  new  machine,  will 
ultimately  result  in  a  greater  gain. 

2.  Methods  of  competition. — ^The  large  establishments,  by  cutting 
imces  in  certain  localities,  while  maintaining  the  prices  in  the  main, 
have  a  decided  advantage  over  the  smaller  competitors  whose  market 
is  limited  to  the  one  field  in  which  the  prices  are  cut,  and  consequently 
can  often  succeed  in  driving  their  rivals  out  of  the  business. 


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332  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

Connected  with  this  method  of  competition  is  also  the  use  of  imf air 
methods,  such  as  following  up  rivals'  customers,  bribing  employees 
of  rivals  to  fiunish  infonnation,  etc. 

The  sudden  raising  and  lowering  of  prices  by  the  combinations, 
without  notice  and  apparently  arbitrarily  to  embarrass  their  oppo- 
nents, is  also  considered  a  great  evil. 

3.  Increased  prices, — When  the  combinations  have  sufficient 
strength,  or  for  any  reason  get  monopolistic  control  more  or  less 
complete,  it  is  thought  that  they  often  raise  prices  above  competitive 
rates,  to  the  great  detriment  of  the  public. 

4.  Speculation  and  overcapitalization. — ^Another  evil  often  charged 
against  these  newer  combinations  is  that  the  promoter,  by  virtue  of 
misrepresentations  or  by  the  concealment  of  material  facts,  is  fre- 
quently able  to  secure  very  large  profits  for  himself  at  the  expense  of 
the  people  at  large  who  buy  the  stocks,  and  that  in  this  way  undue 
speculation  is  encouraged. 

Connected  with  this  evil  which  comes  with  the  modem  method  of 
promotion  is  that  of  overcapitalization.  Stock  is  frequently  issued 
to  four  or  five,  or  even  more,  times  the  amount  of  the  cash  value  of 
the  plants  that  are  brought  into  the  combinations.  These  stocks  then 
placed  upon  the  market  go  into  the  hands  of  persons  ignorant  of 
the  real  value  of  the  property,  who  afterward  are  Ukely  to  lose 
heavily.  Pools  are  sometimes  made  to  control  the  stock  market,  or 
other  of  the  common  ways  of  disposing  of  the  stock  by  unfair  methods 
are  employed. 

At  times  also  the  officers  and  directors  of  the  large  combinations 
seem  to  have  taken  advantage  of  their  inside  knowledge  of  the  business 
to  speculate  on  the  stock  exchange  in  their  own  securities  to  the 
great  detriment  of  the  other  shareholders. 

5.  Freight  discriminations. — ^Among  the  chief  evils  mentioned 
are  those  of  freight  discriminations  in  favor  of  the  large  companies, 
which  many  assert  are  the  chief  cause  for  the  growth  of  the  great 
combinations. 

6.  Monopoly;  its  social  effects. — ^The  fact  that  an  organization 
possesses  a  practical  monopoly  and  can  in  that  way  direct  its  opera- 
tions at  the  expense  of  its  rivals,  thereby  preventing  competitors 
from  coming  into  the  field,  it  is  thought,  takes  away  from  the  individ- 
ual initiative  of  business  men  and  prevents  particularly  the  younger 
men  from  going  into  business  independently.    The  formerly  inde- 


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MODERN  CAPITALISTIC  ORGANIZATION  333 

pendent  heads  of  establishments  entering  the  combinations  are  also, 
it  is  said,  reduced  to  the  position  of  hired  subordinates^  By  these 
means,  witnesses  claim,  the  trusts  are  in  reality  sa^^ing  the  courage 
and  power  of  im'tiative  of  perhaps  the  most  active  and  influential 
men  in  the  community.  This  evil  is  denied  by  many  of  the  members 
of  the  large  corporations,  who  think  that  within  those  corporations 
are  foimd  opportimities  for  the  exercise  of  judgment  and  enterprise 
and  for  rising  in  life  which  do  not  exist  outside. 

m.      REMEDIES 

1.  LeU^ione  policy, — ^Several  of  the  witnesses  are  of  the  opinion 
that  any  evils  connected  with  the  industrial  combinations  will  be 
remedied  in  the  ordinary  course  of  business,  and  that  any  attempt 
at  regulation  by  law  would  be  likely  to  result  in  more  harm  than  good. 
Competition,  either  active  or  potential,  is  believed  by  these  witnesses 
to  be  a  sufiGicient  preventive  of  monopoly  and  extortionate  prices, 
while  stockholders  and  investors  are  believed  to  be  already  sufl&dently 
protected  by  statute  and  common  law,  especially  in  view  of  the  fact 
that  the  state  cannot  guarantee  to  these  persons  immunity  from 
carelessness  and  ignorance  on  their  own  part.  It  is  also  lurged  that, 
under  the  conmion  law  alone,  the  courts  have  always  held  as  illegal 
any  monopoly  or  combination  distinctly  shown  to  be  in  restraint  of 
trade. 

While  making  this  general  expression  of  opinion,  some  of  these 
witnesses  afterward  admitted  that  certain  measures  tending  toward 
giving  the  public,  and  particularly  the  stockholders,  more  informa- 
tion regarding  the  nature  of  the  business  might  be  advisable. 

2.  Direct  suppression  of  monopolistic  combinations. — ^A  few  wit- 
nesses are  inclined  to  favor  the  more  general  enactment  of  statutes 
along  the  lines  of  those  already  adopted  by  numerous  states,  directly 
prohibiting  the  transaction  of  business  by  combinations  seeking  to 
restrain  trade  or  to  control  prices.  Some  witnesses  believe  that  the 
present  statutes,  in  regard  to  the  states  where  they  have  been  enacted, 
in  conjunction  with  the  national  antitrust  law  of  1890,  and  the 
interstate  commerce  law,  would,  if  vigorously  enforced,  be  all  the 
legislation  necessary. 

Perhaps  a  greater  number  of  witnesses,  however,  directly  expressed 
themselves  as  opposed  to  so-called  "antitrust"  legislation,  while 
others  distinctly  imply  a  similar  opposition.    These  witnesses,  includ- 


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334  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

ing  some  opponents  of  individual  combinations,  as  well  as  lawyers, 
hold  that  combination  is  a  natural  outgrowth  of  modem  conditions, 
and  that  it  is  practically  impossible  to  suppress  it.  If  any  legislation 
is  needed,  it  should  be  in  the  form  of  regulation  and  publicity  only. 

3.  ProkibiUon  of  deskucHve  compeHUon. — ^Two  or  three  witnesses 
testifying  in  opposition  to  the  Standard  Oil  Company  advocate 
legislation  to  prohibit  "destructive  competition."  The  witnesses 
have  in  mind  especially  the  cutting  of  prices  in  local  markets,  while 
retaining  them  at  high  figures  in  other  parts  of  the  country.  A 
requirement  that,  freight  rates  being  considered,  prices  should  be 
made  uniform  in  all  markets  is  advocated.  It  is  also  suggested  that 
general  cutting  of  prices  below  actual  cost  of  production  for  the  pur- 
pose of  driving  out  competitors  should,  perhaps,  be  prohibited.  No 
criticism  upon  these  suggestions  is  offered  directly  by  other  witnesses. 
In  connection  with  this  Senator  Lee  advocated  limiting  capitalization. 

4.  FublicUy. — ^Many  of  the  witnesses,  including  even  representa- 
tives of  combinations,  are  of  the  opmion  that  a  much  greater  publicity 
regarding  the  affairs  of  such  combinations  than  is  now  customary 
would  tend  to  remove  many  of  the  evils.  As  regards  the  general 
public,  the  knowledge  thus  secured  would  avail  to  prevent  the  main- 
tenance of  extortionate  prices  as  well  as  unfair  methods  and  condi- 
tions of  competition.  Stockholders  and  investors  would  also  be 
protected  against  abuses  by  promoters  and  officers  of  corporations. 

How  this  publicity  should  be  brought  about  and  the  degree  to 
which  it  should  extend  is  a  matter  upon  which  no  general  agreement 
existed  among  the  witnesses.  Some  are  inclined  to  think  that  it 
would  be  wise  if  somewhat  detailed  balance  sheets  of  the  accounts  of 
the  larger  combinations  could  be  made  public.  More  of  the  witnesses, 
including  especially  lawyers  and  officers  of  corporations,  seem  rather 
of  the  opinion  that  when  the  corporation  is  first  organized  the  details 
regarding  its  organization,  the  values  at  which  plants  and  other 
property  are  taken  in,  the  profits  of  the  promoters,  etc.,  should  be 
made  public.  After  the  corporation  has  been  engaged  in  business, 
however,  while  the  details  of  its  management  should  be  made  known 
with  considerable  fullness  to  the  stockholders,  the  outside  public 
should  be  given  little  more  information  than  at  present,  lest  thereby 
competitors  may  secure  an  advantage. 

Many  of  the  witnesses  believe  that  publicity,  if  properly  estab- 
lished and  enforced,  would  prove  a  very  efficient  remedy.  Others 
think  that,  while  it  might  be  useful,  it  would  not  alone  be  sufficient. 


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MODERN  CAPITALISTIC  ORGANIZATION  335 

At  least  one  of  the  witnesses  is  of  the  opinion  that  this  publicity 
should  be  enforced  upon  all  public  corporations,  such  as  railways, 
street  railwajrs,  etc.,  but  not  upon  ordinary  manufacturing  or 
mercantile  corporations. 

Strong  differences  of  opinion  exist  among  the  different  witnesses 
as  to  whether  legislation  along  any  of  the  lines  suggested,  or  additional 
legislation,  should  be  by  the  individual  states  or  by  the  federal 
government.  The  witnesses  also  disagree  as  to  the  constitutionality 
of  various  forms  of  legislation,  both  in  the  case  of  the  states  and  in 
the  case  of  the  federal  government.  Some  witnesses  were  of  the 
opinion  that  state  legislation  would  ba  of  little  service  unless  prac- 
tically all  of  the  states  adopted  uniform  laws,  and  this  is  considered 
an  impossibility.  Others  seem  to  think  that  legislation,  even  by  a 
few  of  the  states,  if  of  the  right  kind,  would  be  very  useful.  There 
is  perhaps,  however,  a  rather  general  expression  of  opinion  among 
those  who  favor  any  legislation  at  all  that  federal  legislation,  if  con- 
stitutional, is  desirable,  at  least  to  supplement  state  legislation  as  to 
combinations,  if  not,  perhaps,  to  take  entire  jurisdiction  regarding 
them. 

5.  Stale  legislation. — ^The  chief  specific  suggestions  regarding 
state  legislation  were: 

(a)  The  classification  of  corporations  should  be  made  much 
stricter  than  at  present,  and  each  class  should  be  confined  closely  to 
the  exercise  of  its  specified  powers. 

(b)  There  should  be  strict  inspection  of  corporations  by  state 
officials,  and  publicity  should  be  enforced  through  reports.  This, 
of  course,  applies  primarily  to  action  by  the  states  as  regards  their 
own  domestic  corporations. 

(c)  Combinations,  in  whatever  form  (even  if  it  be  that  of  a  single 
corporation),  between  different  corporations,  where  monopolistic 
intent  can  be  shown,  should  be  prohibited. 

(rf)  Foreign  corporations  should  be  forbidden  by  each  state  to  do 
business  within  its  borders  unless  conforming  to  its  laws.  As  to  this 
last  suggestion,  the  powers  of  states  over  foreign  corporations,  so  far 
as  their  interstate  business  is  concerned,  would  be  very  limited.  It 
appears  that  the  courts  would  be  likely  to  hold  that  the  states  would 
require  a  special  authorization  from  Congress  to  enable  them  to 
act  with  any  considerable  effectiveness  in  this  regard,  even  if  the 
power  could  be  secured  in  that  way. 

6.  Federal  legislation. — ^The  lines  of  federal  legislation  suggested 
fall  mainly  under  the  following  heads: 


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336  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

(a)  Creation  of  federal  corporations  under  strict  federal  laws. 
Some  would  favor  incorporation  under  federal  laws  only  in  case  of 
very  large  corporations,  while  from  the  legal  standpoint  some  others 
would  fix  the  distinction  between  state  and  federal  corporations 
along  the  line  of  commerce  within  the  states  as  distinguished  from 
interstate  commerce.  The  representatives  of  combinations  favoring 
such  federal  laws  consider  that  one  of  their  chief  advantages  would 
be  to  prevent  unwarranted  interference  with  the  business  of  the  cor- 
porations by  individual  states.  Some  of  the  witnesses,  however, 
consider  that  the  creation  of  federal  corporations  would  be  harmful 
as  well  as  imconstitutional.    • 

(b)  In  connection  with  federal  incorporation,  or  apart  from  it, 
certain  witnesses  favor  a  considerable  degree  of  regulation  of  corpora- 
tions on  the  part  of  the  federal  government.  In  this  connection, 
publicity,  through  reports  and  inspection,  is  advocated.  A  Bxireau 
of  Industry  is  suggested  by  one  witness,  having  powers  somewhat 
similar  to  those  of  the  Interstate  Commerce  Commission.  The 
reports  to  be  made  to  this  body  should  be  of  such  a  nature  as  to  dis- 
close the  condition  of  the  business  of  the  corporation,  especially  as  to 
whether  it  possessed  or  was  likely  to  acquire  a  monopoly  or  not. 

(c)  Strengthen  Interstate  Commerce  Commission. — Some  of  the 
witnesses  complain  of  the  inefl&ciency  of  the  Interstate  Commerce 
Commission.  Others  urge  that  it  be  given  greater  power,  even 
judicial  power,  and  that  pooling  among  railroads  be  permitted  under 
its  supervision.  Especially  is  it  recommended  in  the  testimony 
taken  before  the  subcommission  on  transportation  that  its  hands  be 
strengthened  by  giving  it  power  of  audit  of  railway  accounts,  power 
of  enforcing  its  decisions,  etc.,  it  being  urged  that  in  this  way  freight 
discriminations  in  favor  of  the  large  shippers,  the  combinations, 
could  be  prevented. 

(d)  Two  witnesses  are  inclined  to  the  opinion  that  unless  Congress 
in  some  way  assmnes  full  control  of  corporations  the  United  States 
Government  should  remove,  by  specific  act  of  Congress,  the  limita- 
tions which  now  are  likely  to  be  laid  by  the  courts,  on  the  basis  of 
the  federal  constitution,  upon  the  powers  of  the  states  over  monopo- 
listic combinations,  so  far  as  their  interstate  business  is  concerned. 
It  was  thought,  on  the  whole,  that  such  an  act  of  Congress  would 
probably  be  upheld  as  constitutional  by  the  courts. 

(e)  Removal  or  lowering  of  tariff, — Several  of  the  witnesses,  though 
not  objecting  in  the  main  to  the  principle  of  a  protective  tariff,  were 


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MODERN  CAPITALISTIC  ORGANIZATION  337 

of  the  opinion  that  in  some  cases  the  tariff  encouraged,  or,  even  as 
one  said,  was  the  chief  cause  of  the  trust.  In  such  cases  they  thought 
it  should  be  lowered  or  abolished.  Mr.  Havemeyer  expressed  him- 
self most  strongly  in  favor  of  a  low  horizontal  tariff  of  not  over  10 
per  cent,  while  Mr.  Buynitsky  proposed  that  if  there  were  shown  to  be 
a  monopoly  in  any  protected  industry  the  president  might  be  em- 
powered to  lower  the  tariff  on  the  products  of  that  industry,  by 
executive  order,  not  more  than  20  per  cent,  nor  for  a  longer  period 
than  five  years. 

(J)  Powers  of  Congress. — Much  discussion  was  presented  before 
the  Commission  as  to  the  constitutional  powers  of  Congress  to  enact 
legislation  along  any  of  the  lines  above  suggested.  It  is  admitted 
that  Congress  has  exclusive  control  over  interstate  commerce,  and 
the  preponderance  of  opinion  seems  to  be  that  it  has  power  to  create 
corporations  to  carry  on  such  commerce,  although  this  is  disputed. 
Congress  is  admitted  to  have  no  power  over  purely  manufacturing 
corporations  not  engaged  in  interstate  business.  There  is  much 
doubt,  however,  as  to  the  precise  line  where  business  ceases  to  be 
domestic  and  becomes  interstate.  Professor  Huffcut,  at  least,  is 
inclined  to  think  that  the  courts,  even  imder  the  present  constitution, 
would  uphold  quite  general  control  over  the  general  business  of  corpo- 
rations carrying  on  a  widespread  business  among  the  several  states, 
on  the  groimd  that  a  large  portion,  at  least,  of  tha£  business — ^perhaps 
most  of  it — is  interstate  in  character.  The  control  of  that  would 
practically  control  all.  In  this  connection  this  witness  suggests  that 
Congress  could  probably  constitutionally  compel  such  large  corpora- 
tions to  submit  to  federal  legislation,  and  perhaps  to  incorporate 
under  federal  laws,  by  one  of  the  three  following  methods: 

a)  By  forbidding  the  use  of  the  mails  to  state  corporations 
engaged  in  interstate  commerce,  especially  so  far  as  they  are  shown 
to  be  monopolistic  and  therefore  subject  to  the  police  power. 

b)  By  levying  a  practically  prohibitive  tax  upon  state  corpora- 
tions engaged  in  interstate  commerce,  as  has  been  done  with  note 
issues  of  state  banks.  Other  witnesses  suggest  that  the  Government 
can  acquire  jurisdiction,  in  order  to  compel  reports  and  publicity, 
by  imposing  taxes,  and  some  are  inclined  to  suggest  that  these  taxes 
should  be  made  progressive. 

c)  By  directly  prohibiting  state  corporations  from  engaging  in 
interstate  commerce. 


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338  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

93.    THE  SHERMAN  ANTI-TRUST  ACT« 

§  I.  Every  contract,  combination  in  the  form  of  trust  or  otherwise, 
or  conspiracy,  in.  restraint  of  trade  or  conmierce  among  the  several 
states,  or  with  foreign  nations,  is  hereby  declared  to  be  illegal.  Every 
person  who  shall  make  any  such  contract,  or  engage  in  any  such  com- 
bination or  conspiracy,  shall  be  deemed  guilty  of  a  misdemeanor,  and, 
on  conviction  thereof,  shall  be  punished  by  fine  not  exceeding  five 
thousand  dollars,  or  by  imprisonment  not  exceeding  one  year,  or  by 
both  said  punishments,  in  the  discretion  of  the  court. 

§  2.  Every  person  who  shall  monopolize,  or  attempt  to  monopolize, 
or  combine  or  conspire  with  any  other  person  or  persons  to  monopolize, 
any  part  of  the  trade  or  conunerce  among  the  several  states,  or  with 
foreign  nations,  shall  be  deemed  guilty  of  a  misdemeanor,  and,  on  con- 
viction thereof,  shall  be  punished  by  fine  not  exceeding  five  thousand 
dollars,  or  by  imprisonment  not  exceeding  one  year,  or  by  both  said 
punishments,  in  the  discretion  of  the  court. 

§  3.  Every  contract,  combination  in  form  of  trust  or  otherwise,  or 
conspiracy,  in  restraint  of  trade  or  commerce  in  any  territory  of  the 
United  States  or  of  the  District  of  Columbia,  or  in  restraint  of  trade  or 
commerce  between  any  such  territory  and  another,  or  between  any 
such  territory  or  territories  and  any  state  or  states  or  the  District  of 
Columbia,  or  with  foreign  nations,  or  between  the  District  of  Colum- 
bia and  any  state  or  states  or  foreign  nations,  is  hereby  declared 
illegal.  Every  person  who  shall  make  any  such  contract  or  engage  in 
any  such  combination  or  conspiracy  shall  be  deemed  guilty  of  a  mis- 
demeanor, and,  on  conviction  thereof,  shall  be  punished  by  fine  not 
exceeding  five  thousand  dollars,  or  by  imprisonment  not  exceeding 
one  year,  or  by  both  said  punishments,  in  the  discretion  of  the  court. 

§  4.  The  several  circuit  courts  of  the  United  States  are  hereby 
invested  with  jurisdiction  to  prevent  and  restrain  violations  of  this 
act;  and  it  shall  be  the  duty  of  the  several  district  attorneys  of  the 
United  States,  in  their  respective  districts,  under  the  direction  of  the 
Attorney-General,  to  institute  proceedings  in  equity  to  prevent  and 
restrain  such  violations.  Such  proceedings  may  be  by  way  of  petition 
setting  forth  the  case  and  praying  that  such  violation  shall  be  enjoined 
or  otherwise  prohibited.  When  the  parties  complained  of  shall  have 
been  duly  notified  of  such  petition  the  court  shall  proceed,  as  soon  as 
maybe,  to  the  hearing  and  determination  of  the  case;  and,  pending 

«  26  U.S.  Stotutes  209. 


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MODERN  CAPITALISTIC  ORGANIZATION  339 

* 
such  petition,  and  before  final  decree,  the  court  may  at  any  time  make 

such  temporary  restraining  order  or  prohibition  as  shall  be  deemed 
just  in  the  premises. 

§  5.  Whenever  it  shall  appear  to  the  court  before  which  any  pro- 
ceeding under  section  four  of  this  act  may  be  pending,  that  the  ends 
of  justice  require  that  other  parties  should  be  brought  before  the 
court,  the  court  may  cause  them  to  be  summoned,  whether  they  reside 
in  the  district  in  which  the  court  is  held  or  not;  and  subpoenas  to 
that  end  may  be  served  in  any  district  by  the  marshal  thereof. 

§  6.  Any  property  owned  under  any  contract  or  by  any  combina- 
tion, or  pursuant  to  any  conspiracy  (and  being  the  subject  thereof) 
mentioned  in  section  one  of  this  act,  and  being  in  the  course  of  trans- 
portation from  one  state  to  another,  or  to  a  foreign  country,  shall  be 
forfeited  to  the  United  States,  and  may  be  seized  and  condemned  by 
like  proceedings  as  those  provided  by  law  for  the  forfeiture,  seizure, 
and  condenmation  of  property  imported  into  the  United  States  con- 
trary to  law. 

§  7.  Any  person  who  shall  be  injured  in  his  business  or  property 
by  any  other  person  or  corporation  by  reason  of  an)rthing  forbidden  or 
declared  to  be  unlawful  by  this  act  may  sue  therefor  in  any  circuit 
court  of  the  United  States  in  the  district  in  which  the  defendant  resides 
or  is  found,  without  respect  to  the  amount  in  controversy,  and  shall 
recover  threefold  the  damages  by  him  sustained,  and  the  costs  of  suit, 
including  a  reasonable  attorney's  fee. 

§  8.  That  the  word  ''person"  or  "persons,"  wherever  used  in  this 
act,  shall  be  deemed  to  include  corporations  and  associations  existing 
under  or  authorized  by  the  laws  of  either  the  United  States,  the  laws 
of  any  of  the  territories,  the  laws  of  any  state,  or  the  laws  of  any  foreign 
country. 


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Vin.    MARKETS  AND  TRADING 

94.   METHODS  OF  MARKETING* 

I.     METHODS  OF  SALE 

In  the  early  stages  of  our  industrial  history,  sales  were  made 
in  bulk.  The  purchaser  saw  the  actual  goods  before  the  sale  was 
made. 

Later,  sale  by  sample  appeared.  The  purchaser  bought  goods 
represented  to  be  identical  with  the  sample  he  was  shown.  The  intro- 
duction of  this  method  of  sale  was  necessitated  by  the  widening  of  the 
market  and  was  made  possible  by  improvement  in  commercial  ethics 
and  by  increasing  standardization  of  the  product.  The  purchaser 
must  have  confidence  not  only  in  the  honest  intention  of  the  producer 
to  furnish  goods  identical  with  the  sample,  but  also  in  his  ability  to 
produce  identical  goods.  Hence,  increasing  imiformity  in  product 
through  machine  methods  of  manufacture  was  a  factor  in  the  increase 
of  sale  by  sample. 

Sale  by  description  is  the  most  modem  development  in  distri- 
bution. An  even  higher  ethical  standard  is  required  than  for  sale  by 
sample.  Moreover,  sale  by  description  requires  a  higher  level  of 
general  intelligence  than  sale  in  bulk  or  sale  by  sample.  Sale  by 
description  in  its  modem  development  is,  in  a  sense,  a  by-product  of 
the  printing  press. 

All  three  methods  of  sale  are  in  use  in  modem  commercial  life. 
The  consimier  still  purchases  a  large  part  of  the  commodities  which  he 
uses  under  a  system  of  sale  in  bulk.  He  sees  the  goods  before  he  buys 
them.  The  middleman,  bujdng  in  larger  quantities,  generally  pur- 
chases from  sample.  But  sale  by  description  becomes  each  year  of 
increasing  importance  at  every  stage  in  the  system  of  distribution. 
Even  where  the  purchaser  actually  sees  a  sample  or  the  goods  them- 
selves before  the  sale  is  concluded,  the  method  of  sale  by  description 
has  in  many  cases  previously  been  used  to  create  in  him  a  demand  for 
the  commodity. 

'Adapted  from  A.  W.  Shaw,  "Some  Problems  in  Market  Distribution," 
Quarterly  Journal  of  Economics ,  XXVI,  721-51  (August,  191 2). 

[See  also  Selection  102,  for  a  discussion  of  "Advertising  and  Demand"  by 
the  same  author  —Editors.] 

340 


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MARKETS  AND  TRADING  341 


AVAILABLE  AGENCIES  FOR  SELLING 


As  selling  is  the  initial  step  in  distribution,  it  is  necessary  to  con- 
sider the  agencies  for  selling  available  to  the  merchant-producer. 
There  are  three  general  agencies  to  be  considered.  These  are  (i) 
middlemen,  (2)  the  producer's  own  salesman,  and  (3)  advertising, 
direct  and  general.  The  business  man  faces  the  problem  of  what 
agency  or  what  combination  of  agencies  is  the  most  efficient  machinery 
for  the  distribution  of  his  particular  commodity. 

The  method  of  sale  adopted  will  largely  govern  the  choice  of  agency 
to  be  employed.  If  the  sale  is  to  be  in  bulk,  the  purchaser  seeing  the 
actual  goods  before  the  purchase  is  made,  distribution  through  a  series 
of  middlemen  is  generally  most  feasible.  However,  such  sale  in  bulk 
through  the  producer's  own  salesmen  is  possible  in  some  cases.  Small 
household  appliances  are  often  sold  in  this  manner  by  door-to-door 
salesmen. 

If  sale  by  sample  is  the  general  method  adapted  to  the  commodity 
in  question,  middlemen  or  salesmen  will  often  be  the  more  desirable 
agencies.  Many  commodities  are  distributed  through  middlemen, 
the  sale  at  each  stage  in  the  process  being  by  sample  save  for  the  final 
stage  from  retailer  to  consumer,  where  the  sale  is  in  bulk.  Direct 
salesmen,  perhaps  \a  the  majority  of  cases,  sell  from  sample.  And 
even  selling  by  direct  advertising  alone  is  in  some  cases  adapted  to  a 
method  of  sale  by  sample.  Thus  the  distributer  by  mail  of  a  com- 
modity which  is  not  bulky  may  enclose  in  his  direct  advertising 
material  a  sample  of  the  commodity. 

Where  sale  by  description  is  used  exclusively,  advertising,  direct 
or  general,  is  likely  to  be  the  most  efficient  agency.  Yet  here  again  it 
is  possible,  though  generally  not  economical,  to  distribute  a  commodity 
through  a  series  of  middlemen  and  yet  the  sale  at  each  stage  be 
accomplished  by  description.  And  the  use  of  salesmen  in  selling 
by  description  is  common,  as  where  heavy  machinery  is  sold  by 
the  use  of  photographs,  or  hardware  and  like  commodities  from 
catalogues. 

The  number  of  possible  combinations  of  methods  and  agencies 
renders  the  problem  of  the  producer-merchant  an  intricate  one.  It 
will  be  seen  that  he  has  a  difficult  task  in  analyzing  the  market 
with  reference  to  his  goods,  and  in  working  out  that  combination  of 
methods  and  agencies  which  will  give  him  the  most  efficient  system 
of  distribution. 


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342  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

m.      THE  MIDDLEMAN  IN  DISTRIBUTION 

The  middleman  is  a  by-product  of  a  complex  industrial  organiza- 
tion. Chart  I  shows  in  rough  outline  the  evolution  of  the  middleman 
from  the  early  period  when  producer  dealt  directly  with  consiuner  to 
the  appearance  of  the  orthodox  type  of  distribution  (late  in  the 
eighteenth  century  and  in  the  first  quarter  of  the  nineteenth  century) 
when  a  complicated  series  of  middlemen  existed.  It  should  be  noted 
that  this  chart  represents  the  typical  case  of  the  domestic  product 
rather  than  that  of  imported  conmiodities. 

In  the  more  primitive  barter  economy,  the  producer  deals  directly 
with  the  consumer,  and  middlemen  take  no  part  in  the  transaction. 
In  the  mediaeval  period,  as  the  handicrafts  become  specialized  occupa- 
tions under  a  town  market  regime,  the  producer  is  a  retailer  and  sells 
directly  to  the  consumers.  Then  as  the  market  widens,  a  division  of 
labor  is  necessary  and  the  merchant  appears  as  an  organizer  of  the 
market.  The  handicraftsman  becomes  a  steady  worker,  no  longer 
concerning  himself  with  selling.  He  becomes  in  many  cases  practi- 
cally an  employee  of  the  merchant-retailer,  who  provides  the  stock 
and  bears  the  risk.  The  merchant  takes  the  finished  goods  from  the 
producer  and  sells  them  to  the  consumer. 

Steadily  the  market  widens  until  we  find  a  national  market.  The 
merchant  is  no  longer  a  single  intermediary  between  the  producer  and 
the  consumer.  The  merchant  who  takes  the  goods  from  the  producer 
disposes  of  them  to  retail  merchants  who  in  turn  distribute  them  to 
the  consimier.  After  a  long  period,  we  find  the  producers  gradually 
strengthening  their  financial  position,  and  freeing  themselves  from  the 
control  of  a  single  merchant.  They  become  merchant-producers. 
They  assimie  the  burden  of  production,  and  dispose  of  the  product  to 
various  wholesalers  who  in  turn  sell  to  retailers,  and  they  to  the 
consumers.  As  a  world-market  appears,  the  producer  disposes  of  a 
part  of  his  product  to  the  export  merchant. 

In  the  early  days  of  the  factory  system,  shown  in  Chart  II,  we 
find  that  the  producers  have  lost  their  character  as  merchants  and  are 
devoting  themselves  to  the  problems  of  production.  The  pressure  on 
production  has  continued,  and  with  the  increasing  intricacy  of 
industry  producers  have  foimd  it  necessary  to  concentrate  their 
attention  on  production.  The  selling  agent  appears  as  a  link  in  the 
chain  of  distribution  to  relieve  the  producer  of  the  task  of  selling  his 
product.    The  selling  agent  undertakes  to  sell  the  entire  output  of  the 


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MARKETS  AND  TRADING 


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344  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

producer,  distributes  it  among  wholesalers,  who  in  turn  distribute  it 
to  retailers,  and  the  retailers  to  the  consuming  public. 

This  may  be  termed  the  orthodox  type  in  distribution,  a  type 
almost  imiversal  in  the  early  decades  of  the  nineteenth  century,  and 
still  common,  as  in  the  textile  industry  in  New  England. 

Just  as  the  long  period  of  development  from  a  S)rstem  of  barter 
economy  to  the  early  decades  of  the  factory  S)rstem  showed  a  con- 
tinuous tendency  for  increase  in  the  number  of  middlemen  intervening 
between  the  producer  and  the  consumer,  so  recent  years  have  shown 
a  growing  tendency  to  decrease  the  number  of  successive  steps  in 
distribution.  The  tendency  is  apparent  in  nearly  every  industry  and 
has  been  dearly  marked  in  recent  years. 

Under  the  orthodox  type  of  distribution,  with  numerous  middle- 
men intervening  between  the  producer  and  the  consumer,  the  producer 
is  in  a  position  of  disadvantage.  The  fixed  charges  under  which  he 
operates  render  it  necessary  that  he  operate  continuously.  The  outlet 
for  his  goods,  however,  is  controlled  by  middlemen.  Hence  the 
middleman  is  able  to  exert  pressure  upon  the  producer  and  force  a 
narrowing  of  his  margin  of  profit.  To  free  themselves  from  this 
pressure,  the  stronger  merchant-producers  seek  to  go  around  the 
immediate  middlemen,  thus  decreasing  the  number  of  steps  in  the 
system  of  distribution. 

Chart  II  is  an  attempt  to  show  diagrammatically  the  development 
of  this  tendency  to  decrease  the  number  of  successive  middlemen. 
By  the  use  of  salesmen  going  directly  to  the  wholesaler  and  by  adver- 
tising directed  to  the  retailer  the  producer  has  displaced  the  selling 
agent  in  many  cases.  Sometimes  the  advertising  is  directed  not  only 
to  the  retailers  but  also  to  the  wholesalers.  To  strengthen  still 
fiulher  his  position  the  producer  will  often  use  advertising  directed  to 
the  consimier  to  build  up  a  demand  for  his  product.  This  involves 
the  necessity  for  a  product  differentiated  by  trade  mark,  brand,  or 
trade  name.  When  the  producer  thus  directly  builds  up  a  demand 
among  consumers,  he  often  takes  the  further  step  of  sending  his  sales- 
men to  the  retailer,  thus  omitting  the  wholesaler  entirely  from  his 
system  of  distribution. 

The  most  extreme  step  in  the  process  is  the  complete  elimination 
of  middlemen,  and  the  sale  direct  from  the  merchant-producer  to  the 
consumer,  either  by  advertising  alone  or  by  salesmen  supplemented 
by  advertising.  Manufacturers  of  specialties  have  largely  adopted 
this  scheme  of  distribution  and  the  enormous  growth  of  the  mail-order 


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346  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

business  in  recent  years  gives  evidence  that  in  some  lines  of  distribution 
there  are  economies  in  this  system. 

The  tendency  to  decrease  the  number  of  middlemen  is  one  of  the 
most  characteristic  features  of  modern  distribution.  It  promises  to 
show  much  greater  development  in  the  future  if  present  economic 
conditions  substantially  continue.  The  attempts  of  associations  of 
retailers  to  check  the  growth  of  direct  selling  have  thus  far  not  been 
successful.  In  their  desire  to  force  the  manufacturer  to  dispose  of  his 
product  through  regular  trade  channels  they  sometimes  invoke  the 
boycott.  But  our  common  state  statutes,  prohibiting  combinations 
in  restraint  of  trade,  prevent  effective  agreements  to  boycott  pro- 
ducers who  sell  direct.  And  the  advantages  of  direct  selling  in  some 
lines  render  the  producer  willing  to  incur  the  disfavor  of  the  trade. 

To  imderstand  what  seems  to  be  a  present  tendency  to  go  aroimd 
the  middleman  as  well  as  to  consider  the  problem  of  the  merchant- 
producer  with  reference  to  the  use  of  middlemen  in  distribution,  it  is 
necessary  to  analyze  the  functions  performed  by  the  middleman. 
Roughly  the  general  functions  may  be  listed  as  follows: 

1.  Sharing  the  risk. 

2.  Transporting  the  goods. 

3.  Financing  the  operations. 

4.  Selling  (communication  of  ideas  about  the  goods). 

5.  Assembling,  assorting,  and  reshipping. 

These  functions  were  at  first  taken  over  by  areas;  that  is,  each 
successive  middleman  in  the  series  took  over  a  part  of  each  function. 
Each  took  the  risk  of  destruction  of  the  goods  while  he  held  title. 
Eadh  took  the  risk  of  credit  losses.  Each  took  a  share  in  the  trans- 
portation of  the  goods  along  4Jie  route  from  the  producer's  stockroom 
to  the  hands  of  the  consumers.  Each  took  a  part  in  financing  the 
entire  operation.  Each  had  a  part  in  the  selling,  disposing  of  the  goods 
he  purchased  to  succeeding  middlemen  and  finally  to  the  consumer. 
And  each  finally  took  a  part  in  assembling,  assorting,  and  reshipping 
the  goods  to  make  them  physically  available  to  the  consumer. 

But  at  a  relatively  early  date  a  taking-over  of  these  functions  by 
kind  instead  of  by  area  appeared.  Today  we  have  what  may  be 
termed  fimctional  middlemen  in  the  insurance  companies,  direct 
transportation  companies,  and  banks. 

The  insurance  company  is  in  a  real  sense  a  middleman  in  distri- 
bution. When  it  insures  the  producer  against  loss  of  goods  by  fire, 
against  credit  losses,  and  the  like,  it  is  taking  over  the  function  of  risk 


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MARKETS  AND  TRADING  347 

fonnerly  shared  by  successive  middlemen.  Today  the  insurance 
company  will  assume  practically  the  entire  element  of  risk.  It  is 
possible,  for  instance,  for  a  large  department  store  to  insure  against 
unseasonable  holiday  weather.  The  insurance  company  differs  from 
the  ordinary  middleman  in  that  it  takes  over  one  fimction  as  such 
rather  than  portions  of  a  number  of  functions. 

So  improvements  in  direct  transportation  have  enabled  the  pro- 
ducer to  turn  to  a  fimctional  middleman  to  convey  the  goods  to  the 
consiuner.  The  transportation  companies  and  the  express  companies 
are  in  a  true  sense  middlemen  in  distribution,  though  they  perform 
but  one  of  the  fimctions  formerly  shared  by  the  successive  middlemen 
who  took  over  functions  by  area.  The  physical  conveyance  of  the 
goods  to  the  consumer  was  formerly  one  of  the  most  important  func- 
tions performed  by  a  series  of  middlemen. 

So  the  function  of  financing  the  operations  has  largely  been  taken 
from  the  regular  middleman.  In  former  times  the  middleman  took 
his  part  in  the  burden  of  finance  in  addition  to  his  other  functions.  In 
most  industries  today  the  bank,  as  a  functional  middleman,  cares  for 
the  element  of  finance  in  the  operations  of  distribution.  By  advancing 
on  goods  and  on  commercial  paper,  it  largely  absorbs  the  fimction  of 
finance  in  distribution. 

Another  development  has  lessened  the  dependence  of  the  producer 
upon  the  middleman  for  financial  assistance.  The  application  of  the 
corporate  form  to  industrial  organization  has  made  it  possible  to  draw 
together  larger  bodies  of  operating  capital  and  hence  to  place  the 
producer  in  a  stronger  financial  position. 

As  a  result  of  the  development  of  fimctional  middlemen,  ready  to 
take  over  the  functions  of  sharing  the  risk,  transporting  the  goods,  and 
financing  the  operations,  the  importance  of  the  middleman  for  these 
functions  has  diminished.  There  remain  the  fimction  of  selling  (the 
communication  of  ideas  about  the  goods)  and  the  function  of  assem- 
bling, assorting,  and  reshipping.  It  is  as  to  these  functions  that  the 
middleman  is  of  most  importance  today. 

IV.      THE  SALESMAN  AS  AN  AGENCY  IN  DISTRIBUTION 

A  less  detailed  analysis  than  was  necessary  in  the  case  of  the 
middleman  will  be  required  for  the  salesman.  The  primary  function 
for  which  salesmen  are  used  is  the  communication  of  ideas  about  the 
goods  to  the  prospective  purchaser;  that  is,  the  selling  function. 

The  salesman,  in  the  sense  of  a  man  sent  to  prospective  purchasers. 


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348  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

generally  sells  from  sample.  In  some  few  cases  the  sale  may  be  in 
bulk,  the  salesman  showing  the  prospective  purchaser  the  actual  goods 
to  be  purchased.  And  as  has  been  suggested,  the  salesman  may  sell 
entirely  by  description,  merely  showing  the  prospective  purchaser 
pictures  of  the  goods,  as  in  selling  from  catalogue. 

When  the  producer  finds  it  desirable  to  go  around  a  middleman 
and  to  sell  directly  to  a  subsequent  middleman  or  to  the  consiuner,  he 
may  use  for  the  selling  function  either  his  own  salesmen  or  advertis- 
ing, or  the  two  in  combination. 

When  one  analyzes  the  salesman  as  an  agency  for  sale  by  descrip- 
tion in  contrast  with  advertising,  direct  or  general,  he  must  take  into 
account  the  hiunan  element  again.  Advertising  has  the  obvious 
advantage  that  you  can  convey  exactly  the  idea  you  wish  to  convey 
in  the  form  you  wish  to  convey  it.  It  lacks,  however,  the  personality 
and  the  timeliness  of  the  salesman's  visit;  it  lacks  adaptability,  the 
opportunity  to  use  the  mood  of  the  customer  and  all  the  various 
human  factors  that  make  the  salesman  effective. 

More  than  this,  when  the  salesman  has  aroused  in  the  prospective 
purchaser  a  demand  for  the  goods  in  question,  he  is  on  the  ground  to 
close  the  sale  at  once.  In  the  case  of  advertising,  the  demand  aroused 
must,  in  general,  be  strong  enough  to  lead  the  prospective  purchaser 
to  go  to  some  trouble  before  he  obtains  the  actual  goods.  Hence  a  less 
intensive  demand  may  be  more  immediately  effective  in  the  case  of  the 
salesman  than  when  advertising  is  concerned. 

It  should  here  be  emphasized  that  the  analogy  between  direct 
salesmen  and  advertising  is  very  close.  Each  agency  is  largely  used  to 
enable  the  producer  to  take  over  one  function  of  the  middleman,  that 
is,  the  selling  fimction.  And  in  each  case  the  root  idea  is  the  same. 
The  producer  seeks  to  conmiunicate  to  the  prospective  purchaser 
through  one  or  the  other  agency,  or  a  combination  of  the  two,  such 
ideas  about  the  goods  as  will  create  a  conscious  demand  for  them. 
The  direct  salesman  and  advertising  are  different  modes  of  accom- 
plishing the  same  end. 

V.      ADVERTISING  AS  AN  AGENCY  IN  DISTRIBUTION 

Advertising  in  the  modem  conunercial  sense  is  of  comparatively 
recent  development.  Only  in  the  middle  of  the  nineteenth  century 
did  it  commence  to  be  of  real  importance  in  the  commercial  world.  It 
is  a  necessary  consequence  of  sale  by  description.  So  long  as  the 
prevailing  code  of  conunercial  ethics  made  sale  in  bulk  the  only 


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MARKETS  AND  TRADING  349 

practical  method,  the  middleman  was  an  indispensable  selling  agency. 
But  now  that  the  general  average  of  intelligence  enables  the  prospec- 
tive purchaser  to  gain  an  idea  of  the  goods  without  seeing  them  and 
without  seeing  a  sample,  and  now  that  the  prevailing  code  of  business 
ethics  is  such  that  the  prospective  buyer  feels  that  he  may  rely  upon 
the  description  given  him,  advertising  becomes  in  many  lines  the  most 
economical  agency  for  the  exercise  of  the  selling  function.  Even 
where  the  actual  sale  is  made  by  salesmen  from  sample,  advertising  is 
used  as  a  supplementary  agency  to  build  up  a  demand  which  the 
salesman  crystallizes.  And  sale  by  advertising  alone  may  be  applied 
today  even  where  the  purchaser  demands  to  see  the  goods  before 
concluding  the  purchase,  by  sending  the  goods  to  him  on  approval. 

Not  only  is  the  modem  development  of  advertising  dependent  upon 
the  possibility  of  sale  by  description,  but  it  also  depends  upon  the 
increasing  differentiation  of  commodities  by  trade  marks,  brands,  and 
trade  names.  The  producer  cannot  profitably  convey  to  the  consimier 
ideas  about  a  certain  food  product  which  will  build  up  a  demand  for 
that  product,  unless  the  consimier  is  able  to  identify  the  particular 
product  when  he  goes  into  the  grocery  store  to  purchase  it. 

Advertising,  in  the  broad  sense,  includes  not  only  selling  letters 
and  circulars,  but  newspaper  and  periodical  advertising,  billboards 
and  window  cards,  electric  signs,  street-car  advertising,  catalogues, 
and  all  the  varied  forms  of  modem  commercial  publicity.  A  rough 
classification  is  made  between  general  and  direct  advertising.  General 
advertising  includes  newspj^r  and  magazine  advertising,  billboards, 
electric  signs,  street-car  advertising  and  the  like,  aimed  at  the  general 
public  or  some  section  of  it.  Direct  advertising  is  used  in  reference  to 
the  sending  of  selling  letters,  circulars,  or  catalogues  to  the  persons 
whose  names  appear  on  a  mailing  list  and  to  reach  whom  the  material 
sent  is  specially  adapted. 

VI.      ANALYSIS  OF  THE  MARKET 

The  problem  presented  by  the  United  States  as  a  consiuning 
market  is  a  complex  one.  Here  are  ninety-odd  million  people  dis- 
tributed over  an  area  of  more  than  3,000,000  square  miles  (excluding 
Alaska).  Some  are  gathered  in  the  large  cities,  where  millions  jostle 
elbows.  Some  are  scattered  over  great  areas  with  considerable 
distances  between  them  and  their  neighbors.  Some  daily  pass 
hundreds  of  retail  stores;  some  must  ride  miles  to  reach  the  nearest 
store.    Wide  extremes  in  purchasing  power  exist.    Millions  have  a 


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3SO  MATERIALS  FOR  ELEMENTARY  ECONOMICS 

purchasing  power  scarcely  sufficient  to  obtain  for  themselves  the  barest 
necessities  of  life.  A  few  can  satisfy  the  most  extravagant  whims  of 
the  himian  imagination.  Between  these  extremes  lie  all  degrees  of 
purchasing  power,  the  nimiber  in  each  class  becoming  greater  as  you 
descend  in  the  scale  of  purchasing  power. 

Their  wants  are  as  varied  as  their  purchasing  power.  Environ- 
ment, education,  social  custom,  individual  habits,  and  all  the  varia- 
tions in  body  and  mind  tend  to  render  human  wants  diverse.  In  each 
individual  there  are  certain  conscious  needs  being^  constantly  gratified 
by  the  purchase  of  goods  produced  for  such  gratification.  Then  there 
are  the  conscious  needs  which  go  imgratified  because  of  the  limitations 
upon  purchasing  power  and  the  existence  of  other  needs  of  greater  felt 
importance.  And  then  there  are  the  unformidated,  subconscious 
needs  which  fail  of  expression  because  the  individual  is  ignorant  of  the 
existence  of  goods  which  would  gratify  them. 

The  business  man  must  first  realize  the  intricacy  of  the  problems 
he  has  to  solve.  He  must  analyze  his  market.  The  market  splits 
up  into  economic  and  social  strata,  as  well  as  into  geographic  sections. 

The  distributer  cannot  disregard  the  geographic  distribution  of  the 
consuming  public.  He  may  be  able  to  sell  profitably  by  salesmen 
where  the  population  is  dense,  while  such  method  of  sale  would  be 
unprofitable  in  a  region  where  there  is  a  sparse  popidation.  If  he 
bases  a  judgment  upon  the  average  cost  of  selling  by  salesmen  for  the 
whole  market,  he  may  well  go  wrong,  since  the  average  might  show 
that  the  use  of  such  an  agency  was  on  the  whole  profitable,  while  yet 
in  some  sections  entering  into  the  average  the  use  of  salesmen  was 
actually  unprofitable.  Again,  it  might  be  economical  for  the  dis- 
tributer to  establish  his  own  branch  stores  in  the  denser  urban  centers, 
while  in  the  sparsely  popidated  regions  he  could  most  profitably 
distribute  his  product  through  the  regidar  channels. 

If,  then,  a  sound  system  of  distribution  is  to  be  established,  the 
business  man  must  realize  that  each  distinct  geographic  section  is  a 
separate  problem.    The  whole  market  breaks  up  into  differing  regions. 

Equally  important  is  a  realization  of  what  may  be  termed  the 
market  contour.  The  market,  for  the- purposes  of  the  distributer,  is 
not  a  level  plain.  The  distributer  of  a  staple  hat  at  $^ .  oo  appeals  to 
different  economic  and  social  strata,  faces  different  considerations,  and 
finds  different  selling  methods  necessary,  as  compared  with  distribu- 
ters selling  a  $5.00  trade-marked  hat,  or  those  distributers  selling 
$4 .  00  or  $6 .  00  trade-marked  hats.    Differences  in  economic  and  social 


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MARKETS  AND  TRADING  351 

strata  to  be  reached  are  as  important  as  differences  in  geographic 
location  and  density,  if  a  sound  system  of  distribution  is  to  be  worked 
out. 

Take  the  distributer  who  seeks  to  map  out  a  selling  campaign  for  a 
Catholic  publication.  It  is  essential  that  he  take  into  accoimt  not 
merely  the  geographic  distribution  of  the  Catholic  population  in  the 
United  States,  the  regions  where  it  is  relatively  dense,  and  the  regions 
where  it  constitutes  a  small  element  in  the  population,  but  also  he 
must  take  into  account  the  distribution  of  that  population  through  the 
economic  strata  of  society.  A  method  of  distribution  successful  in 
New  Orleans,  where  the  Catholic  population  is  dense  and  spread 
through  all  economic  strata  of  society,  might  well  fail  if  applied  in 
Maine,  where  the  Catholic  populati