Arthur Twining Hadley.

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Copyright by Edw. W. Wheeler, vr \

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E. W. Wheeler, Printer, \

This Summary is intended to replace the text book in
preparing for the examinations, and will also be found
extremely useful during the year in answering the weekly
written questions. The questions at the end have been
prepared especially as a guide for review.

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Political economy is the art which helps the statesman to promote
public wealth. The laws of this art are the basis of the science of
economics. Sect. i.

Public wealth is the utility and benefit both morally and physically
of the various properties of the nation. Property of the nation in-
cludes both private property, government property, and all the ad-
vantages of the country, such as good climate, etc. Sect. 2.

A property right is a title to a part of the public wealth. Property
rights may be created or destroyed without increasing or diminish-
ing public wealth. Sect. 3.

The wealth of a community depends on the utilization of the
means of public enjoyment. Public wealth is a flow, not a fund.
It is to be measured as income, not as capital. Sect. 4.

The capital of an individual or a community is the amount of wealth
in existence at that time. The income is the amount of wealth ob-
tained during a certain period. Capital and income may be con-
verted, each into the other. Sect. 5.

Wealth is the means of enjoyment. The use of this is the public
income. The total amount of public income at any moment is the
public capital- Ordinarily the term public capital is applied to that
capital which is employed for production. Sect. 8.

Private wealth is the right to a part of public wealth. The amount
which accrues to this is private income. The total amount of these
rights, at any moment, is private capital. Ordinarily the term private
capital is applied to that part of those rights which is applied to
production. Sect. 8.

The mercantile system of political economy taught that the na-
tion should strive to make money in the same manner as the indi-
vidual. The nation should get rich by selling more than it bought.

The excess of exports over imports was looked on as the index of
national prosperity. Sec. 9. «

The physiocrats said that national power lay not in the supply of
gold and silver, but in the supply of food. Sec. 10.

They laid too much stress on the quantity of food as a measure
of public wealth and too little on its utilization. Sec. 11.

Adam Smith showed that private wealth was a powerful agency
for furthering public wealth. Sec. 11.

Formerly trade was a struggle between buyer and seller. Today
it is regarded as a mutual service. Sec. 12.

This is the first result of Adam Smith's perception. Sec. 12.

A second result was the change in the attitude of economists to-
ward state interference. The restrictions to prevent extortion also
prevented mutual service. The doctrine of "laissez faire" (go as
you please) was introduced. Sec. 13.

A third result was to make people look on political economy as a
science rather than an art. Economics is the science of the laws of
business; it is not the art of conducting business. Sec. 14.

In economics, law has two meanings. A natural law is an ob-
served sequence of cause and effect. A positive law is a command,
both moral and jural, relating to wealth. Sec. 15.

"Laissez faire" led to individualism and freedom. This led to
the view that private property is good, because it was seen that free-
dom in other things had good results. Sec. 17.

The socialist distrusts that the loss from individual freedom out-
weights the gain. He believes the evils of individual freedom out-
weigh the gain. Sec. 18.

The individualist glorifies the pursuits of wealth since it is the
means of mutual service. Sec. 19.

Individualism calculates the large and remote results. Socialism
looks to the details. Too much state action tends to create new
evils. The good of state action is often tangible. But the evils are
much more indirect and bad because by their subtlety they are not
seen until they have become very bad indeed. Sec. 20.

Laws and institutions are the result of natural selection. Sec. 21 .

Education and imitation perpetuate in children the useful qualities
of their fathers. Sec. 22.

The human struggle for existence is between groups rather than
individuals. It is a struggle more for domination than annihilation.
This is true also of some of the higher animals ; ants, for instance,

have institutions and usages, which are like those of semi-civilized
man. Sec. 23.

In man physical characteristics are strikingly alike. In animals
they are different. Sec. 24.

In the community we have a natural selection of ethical types
rather than physical ones. This is a danger to the strength of the
community. Sec. 25.

Economics and ethics are closely connected. The preservation of
the ethical type is not good because it is not economically beneficial.
The present system of society is good because it prevents the group
type from becoming rigid, and its laws and customs so inflexible as
to render it unable to adapt itself to changed conditions. Sec. 26.

Economics is studied historically and deductively. Economics
must be studied with ethics, historically. Sec. 28.


As civilization progressed man learned to accumulate his income
jnto capital. Sec. 29.

The accumulation of capital permitted the institution of slavery.
Sec. 30.

The condition of serfdom gave to the people who lived under it
a positive advance in present enjoyment and in possibility of prog-
ress. Sec. 31.

Slavery, by its nature, offers little incentive to increased efficiency.
Sec. 32.

The two facts that capital originated in robbery and labor in slav-
ery do not prove that the capitalist is a thief or the laborer an in-
ferior. Sec. 33.

The progress of slavery raised the question of the legal owner-
ship of animals and slaves. Sec. 34.

The slaves enal:)led their owners to reach a higher state of moral
development. They also helped to make society more secure.
Therefore they were public wealth. Sec. 35,

By tending to preserve peace and to increasing the accumulation
of property, slavery led to the humanizing influences of family life.
Sec. 36.

This led to the gradual necessity for peace and order, in order to
secure the protection of accumulated wealth. Sec. 37.

From this, followed the recognition of rights among slaves. This
culminated in their emancipation. Sec. 38.


The emancipation often increased public wealth by making more
efficient workmen of the slaves. Sec. 39.

The change from slave to free labor took place first in manufac"
tures, then in agriculture. The metayer system provided that a
certain share of the produce be surrendered to the proprietor of the
land. This was the first step toward free labor in agriculture. Sec-

The free country is richest and most powerful in long war. Eman-
cipation, therefore, became a political necessity. Sec. 41.

The greater efficiency of the labor of the North helped overcome
the South. Sec. 42.

Emancipation often has effects of doubtful good. Serfdom is
often a good thing. Sec. 43.

In Russia the slave has become, by emancipation, the slave of the
money lender. Sec. 44.

Emancipation makes the slave depend on himself. This local"
izes poverty. The deserving poor are few. There are less famines
now, because every man looks out for himself. Sec. 45.

Poverty is diminishing. Industrial inequality has come to be a
grievance. Much poverty is due to causes for which the poor are to
blame. Sec. 46.

Malthus said that poverty was the necessary accident of the
struggle of existence. Society could not provide work for all. If
this is so, there is no need to attempt to eradicate poverty. If pov"
erty is preventable, the claims of our civilization for favorable judg"
ment can hardly stand for a moment. Sec. 47.

Malthus said that population was bound to increase faster than
the efficiency of production. Some, therefore, will lack food. Sec-

A low death rate is an index of social prosperity. Sec. 49.

If the productive efficiency increases as fast as population, agri-
cultural products will not be subject to the law of diminishing re-
turns. Sec. 50.

The children of those who have married young die for lack of
proper care and support. Sec. 51.

Generally the improvements in production of food will not keep
pace with the possible excess of the birth rate over the death rate.
Sec. 52.

The pressure of population on subsistence serves as a stimulus to
improvements in the arts. If the state provided for every child (1)

the stimulus to be self-supporting would be taken away, (2) the nat-
ural selection of the stronger families and individuals would cease
and the race would find a dead level, (3) the capital of the community
would be impaired by increased consumption and diminished pro-
duction. In order to restrict population each individual must be
responsible. Poverty, then, would exist through neglect of this
responsibility. Sec. 54.

The opponents of Malthus say (i) Population never presses on
subsistence. There is food enough if it were only properly distri-
buted. (2) If there were a more equal distribution of food popula-
tion would not be likely to press on subsistence, because increased
comfort lowers the birth rate. Sec. 55.

These critics overlook the fact that the surplus of food is the re-
sult of family responsibility. Private property and family life stim-
ulates production in all but this lowest. Sec. 56.

Increased comfort does not lower the birth rate necessarily, lioth
are the result of prudence. Sec. 57.

Fear of loss of social standing lowers the birth rate more than
that of starvation. Social ambition in itself does not prevent an in-
crease in population, but the need of subsistence is felt by all.
Those who possess it are stamped as bearing a higher intellectual
morality. Prudence is the prime cause of all restraint. Sec. 58.

The waste of more power in the exercise of prudence is a real evil.
This may lead to physical and moral evils. Sec. 59.

This danger is slight. The modern family and the law of capital
have been checks on population. A change in economic institutions
changes the average character. Sec. 60.

Natural selection and functional adaptation alone cannot regulate
population, individual responsibility can. Sec. 61.

We must look out for the poor and unfortunate though the pro-
cess of natural selection be hampered. The ethical loss would far
outweigh the gain. Sec. 62.

Criminals should not reproduce. If the pauper wont work he is a
criminal. Whether he can work, will work or can't find it demands
different treatment. Sec. 63.

Indiscriminate charity fosters pauperism. Sec. 64.

Wilful paupers should be separated from the rest. Sec. 66.

The work test determines the kind of pauper. The attempt to
make the work useful is good, but it must not interfere with its
character as a test. Sec. 67.

These efforts take three forms, i. Public works. 2. Labor
colonies. 3. Advances or loans of money to be repaid. None have
succeeded. Sec. 68.

It is asserted that public works preserve the laborer's self-respect.
They cannot be constructed in the winter when this need is greatest.
It diverts from other employment some who would have found work.
The preservation of self respect is more apparent than real. It is a
queer notion of self-respect that leads a man to accept money out of
the public treasury through political chicanery. In agriculture, how-
ever, there is no particular attraction, and the danger of undue
diversion from other trades, and of political chicanery is slight. Sec.

Labor colonies do not reach the right people generally. They do
not teach men self support. They become places of refuge for the
vicious poor. No association of w^orkmen is in a position to guar-
antee the utility of its future product. If the advances by the state
were to be confined to agriculture the danger would be much less.
England recently has lent money to the poor to buy land. The plan
is good but not of sufficient standing to insure success. Sec. 70.

The German bureaus of information have been quite successful,
because the police system is so efficient. It is impossible to provide
food and lodging for those seeking work without great danger that
such relief will be misused. Much pauperism is due to the stub-
bornness on the part of the individual against taking certain kinds
of work. Sec. 71.

Compulsory insurance is another means of reducing pauperism.
The laborers are required to contribute to the fund while they work.
The saving may be out of the necessaries, luxuries or savings. If
this compulsory saving is out of his necessaries it lessens his labor
power and that of his children. If it is out of his luxuries, all well
and good, but it generally does not come from this source. If it
comes out of his savings it tends to make him dependent instead of
self supporting, because it takes away the stimulus to save, which
makes the labor self responsible. Sec. 72.

Compulsory saving does not give the moral and educational results
which voluntary saving gives. Sec. 73.

There is also danger that the amount of accidents and sickness
will increase. Already the number of railroad accidents in Germany
has increased. This shows that the diminution of personal respon-
sibility lessens the incentive to work. Factory insurance can be


carefully supervised. Government insurance cannot be easily
guarded against fraud. Sec. 74.

Insurance tends to decrease individual responsibility. This is not
good either ethically or economically. Sec. 75.


As society advanced trade increased. As this went on prices be-
gan to be regulated by the law of demand supply instead of by cus-
tom. Sec. 76-77.

As machinery replaced hand labor the division of labor became
greater. Sec. 78.

Freedom in production and trade is accompanied by increased
freedom of consumption. All business which is injurious to other
business is for the most part prohibited by law. Prostitution and
the sale of liquor are tolerated because the doctrine of " laissez
faire " has gained such strength. Sec. 79.

Public opinion and knowledge can enforce those laws where vio-
lations are public. Much compulsory legislation has to be supported
by the state; e. g., public schools. Sec. S0-81.

Custom and public opinion determine what people shall buy for
the most part. Sec. 82.

Formerly wealth was reckoned in cattle, land, etc. Now it is
reckoned in the ability to command a price. Price, in its broadest
sense, is the quantity of one thing which is exchanged for another.
Sec. 83.

Money facilitates trade. It must be homogenus an invariably
acceptable. Prices are at present measured in money. Sec. 84-85.

Isolated transactions are bargaining ones. Sec. 86.

Competition is the effort of rivals to dispose of their goods. It
may be suspended by a monopoly, by custom, ignorance and senti-
ment. Sec. 87.

The place where prices are determined by competition is a market.
The essential thing in a market is that the buyer and seller know
the prevailing rate. Sec. 88.

The supply of an article is the amount available at a given price.
The demand is the amount that will be taken at a given price.
Where demand equals the supply, there is the market price. Sec.


A curve may be made to represent this. Where the supply curve
cuts the demand curve, there is the market price. Sec 91.

Additional increments in quantity of the article of consumption
do not bring proportionate increase of enjoyment or utility. Sec. 92.

The relation of demand to supply varies with different articles. As
the supply increases people are willing to pay less and less for it.
With some articles no increase in the supply will increase the de-
mand. Sec. 93.

In a state of competition, price is fixed by the self interest of the
buyers. In the absence of competition prices are fixed by law or cus-
tom. In the latter case there is no variation in price possible which
would mark a scarcity in the supply. Besides a price which is fixed
by law or custom prevents often, by its injustice, an adaptation of
the quantity of service to the needs. Sec. 97.

If the supply exceeds the demand while prices remain the same
either by custom or law, the sales will be fewer than the supply.
This will accumulate stock which either will have to depreciate or
form such a glut on the market that it will have to be sold at a sac-
rifice. Receding prices warn producers that there is an increased
supply. Sec. 98.

Competition tends to make the price proportional to the cost of
production. This price is the normal. Commercial competition fixes
the market price. Industrial competition adjusts supply and de-
mand. This results in the approximation to the normal price. Sec.


This process is prevented (1) by the absolutely fixed quantity of
some articles ; (2) by the monopoly of some articles ; by the uncer-
tainty of the phrase " expense of production." The " normal "
generally is measured by the expense of producing additional sup-
plies by those who go into the business at a disadvantage ; {4) bye-
products. It is hard to estimate their cost ; (5) the process of invest-
ment is so slow that new inventions may often create a new normal
before the original readjustment is made. The expense and the
slowness of starting a railroad is an example. Sec. loi.

The adjustment of market price to the normal is important. Sec.

A price is a fact. Value is an estimate of what the price ought
to be. It often means a proper or legitimate price. In this sense
value means worth. A theory of price explains business. A theory
of value passes judgment on its morality or advisability. Sec. 104.


There are two theories of value, the commercial or competitive,
and the socialistic theory. The former bases value upon what the
buyer is willing and able to offer. The socialistic theory bases value
on what it has cost the seller in the way of toil and sacrifice. The
competitive theory explains price as the value it would command
under perfectly free competition. Sec. 105.

The socialists allege that the relative effects of free competition
are unfair. The most disagreeable task ought to be the highest
paid. Expense in money is very different from expense in human
toil and sacrifice. Trade consists in getting goods for less than
their value and selling them for more. Profits are unfair extortions.
Sec. 106.

We admit that labor is not paid by its agreeability. We admit
that there is an inconsistency between our doctrine of equal political
rights and the facts of the industrial world. If you reward labor
according to its difficulty of execution you will have no means of
easily determining when the supply equals the demand. The Gov-
ernment would have to establish the number in each trade. This is
industrially and politically a very bad method. Under the present
regime able men have a chance to rise honestly. In socialism the
chance would be by political influence. Sec. 107.

The socialistic theory takes away the premium for efficiency.
Time which was wasted would count for as much as time well spent.
Trade is not robbery. Almost all large incomes are deserved. The
commercial theory is better because it puts a premium on efficiency.
Sec. 108.


Law and moral sense look down on gambling as an evil. Sec.

The man who risks one half of his income risks the loss of a large
amount of comfort for an even chance of gaining a smaller amount
of comfort. It is a poor business investment. It also tends to des-
troy the sense of moderation and self-respect. Gambling is, for the
most part, an attempt to get something for nothing. Sec. no.

Insurance is a form of gambling in so far as it is a wager as to
one's lifetime. It is justifiable because it puts money, when it is
needed, where it has a high utility to society and to the individual.
The possibility of securing it is a source of security and industrial
efficiency. Sec. in.


All trade is more or less of a speculation. It is a question
whether speculation is gambling or not. It depends on the indi-
vidual cases. This is why the socialist legards trade as an evil.
He admits that it does a necessary work of distribution, but they
say that the profits between the buying and selling are unjust and
extortionate. Sec. 113.

The speculator does a service to the community when he buys
goods when cheap and sells them when dear. He lessens the bur-
den which would fall on the community by the increased cost of
goods. Sec. 114.

Anything which tends to prevent the fluctuation of goods undoes
the service of distribution (putting goods where they are needed).
Sec. 115.

The less accurately the comparison can be made of the relation of
demand and supply in different markets, the more speculative the
trader's possible profit becomes. Sec. 116.

Formerly business was more speculative for this reason. Now it
is an "arbitrage " (mutually beneficial exchange). Sec. 117.

Formerly speculation existed by taking advantage of differences
of prices of different places. Now it is by taking advantage of the
differences in prices of different times. Sec. 118.

This kind of speculation tends to diminish the fluctuation of mar-
ket prices if it is legitimately carried on. Sec. 119

The man who purchases grain for the excitement of the wager is
just like the man who bets on the horse race. Speculation on
" margins " is just like this. Sec. 120.

A corner is where a man or body of men get hold of all the avail-
able supply of a commodity, and compel those, who have made con-
tracts to deliver it, to pay an exorbitant price. This hurts honest
speculators, producers and consumers. The harm to business
methods and morals is much though it is indirect. Sec. 120.

Legislation must limit only the illegitimate speculation. Much
legislation in the past has defeated its own objects. Sects. 121-122.

The difference between legitimate and illegitimate legislation is in
the tention not in the form. Public opinion, and a strict enforce-
ment of the law, would be beneficial. A man should use his own
capital; this makes him less rash. Sec. 124.

With borrowed capital a man can be as reckless as he will. Pub-
lic opinion should check his career. No law will be required in
that case. Sec. 125.


The employers of labor are those who are able ami willing to
speculate in the products of labor. The more remote the realization
of the speculation the more uncertain it is, and the more speculative.
Sects. 126-127.

Great undertakings could not be undertaken under the socialist's
regime, because the utility in the future would not be known until
it had been built. If every man was paid by the work he had done
in making utilities, he would have to receive nothing for his work if
his work proved useless. The uncertainty of new projects is well
seen in impractical inventions. Sects. 127-128.

The inventor uses his own capital. The inventor's success is
large, to compensate risk, and to attract inventors. Sec. 129.

Property is an incentive to gain control of the industrial actions
of other men. Sec. 130.

This motive has three effects: (i) An increase of accumula-
tion, which, by its investment, increases public wealth. (2) A pro-
cess of natural selection which preserves those able to manage
capital. (3) Increased intensity of speculation which results from
the prose and greater competitors. Sec. 131.

Profits are not immoderate. They are fast becoming less in pro-
portion to the capital invested. Sec. 132.

This system has resulted in industrial profits. The losses it has
entailed are its severest indictments. Sec. 133.

If natural selection does not preserve the men who best serve
themselves by serving the public, we may let socialism look after
the responsibilities attached to great wealth. Sects. 134-135.


Wages are advances of capital to the laborers. .Sec. 136.

Their security is necessary to society. Law often makes them
exempt from attachment in order to better protect the laborer.
Sec. 137.

The risk of production should be borne by the capitalist and not

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