Frank A. (Frank Albert) Fetter.

Manual of references and exercises in economics for use with volume II. Modern economic problems online

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GIFT OF
MICHAEL REE&E




MANUAL

OF REFERENCES AND EXERCISES
IN ECONOMICS



MANUAL

OF REFERENCES AND EXERCISES
IN ECONOMICS



FOR USE WITH

VOLUME II. MODERN ECONOMIC PROBLEMS



BY

FRANK A. FETTER, PH.D., LL.D.
>

PROFESSOR OF ECONOMICS, PRINCETON UNIVERSITY




NEW YORK

THE CENTURY CO.

1917



FOREWORD

This Manual follows the lines of the "Manual of References and
Exercises," published in the autumn of 1916, to accompany the volume
on Economic Principles.

The literature of the field treated in "Modern Economic Problems"
is now so vast that no more than a few of the titles could be included
in the following lists. The references given are usually the more
recent of those that would be helpful to students desiring to go more
deeply into the subjects.

The collection of questions and exercises is based upon the list
printed, first in 1904 and much enlarged in 1910, in the author's
"Principles of Economics." Much material has been added that had
been shaped and used in class work at Princeton University, and a
few other problems have been drawn from, or suggested by, other
published lists. The plan of indicating the original sources of a num-
ber of these questions has been found to be too difficult to be com-
pleted for the present edition. Indeed, it appears that numerous test
problems have become a common heritage for economic teachers, and
one can hardly be sure when one has traced the ideas to their original
sources. Some of them have appeared in somewhat differing forms in
various lists for a half century past.

Particular acknowledgment is made to my colleagues, Professors
Adriance and McCabe, who devised a number of the questions for class
use; and to Dr. Stanley E. Howard, who has given most valuable aid
in the preparation of this Manual in its present form.

F. A. .F

Princeton, N. J., February, 1917.



MANUAL



OF REFERENCES AND EXERCISES
IN ECONOMICS



MANUAL



OF REFERENCES AND EXERCISES
IN ECONOMICS

CHAPTER 1
MATERIAL RESOURCES OF THE NATION

REFERENCES. (Those marked with an asterisk (*) are the shorter
assignments that are most applicable.)

Adams, G. C., Commercial geography. 1906.

Marsh, G. P., Man and nature: or physical geography as modified
by human action. 1864. (Later editions under the title, "The
earth as modified by human action.")

*Materials, 58-61 (Extract from Mason, 0. T., Technogeography, or
the relation of the earth to the industries of mankind. Ameri-
can Anthropologist, 7: 135-158. 1905); 61-66 (extract from Sem-
ple, E. C., Influence of geographic environment. 1911.)

Smith, J. R., Industrial and commercial geography, 1913.

* Source Book, 292-302 (extract from) ; Daniels, W. M., Economic
causes as affecting the political history of the United States.
Accountants' Magazine, May, 1907.

Teele, R. P., Irrigation in the United States. 1915.

Trotter, $., the geography of commerce. 1903.

United States Census, 1910. Volume on wealth, debt, and taxation.

Van Hise, C. R., Conservation of natural resources. 1910.

QUESTIONS.

1. What relation can be observed between general industrial con-
ditions and the per capita wealth? Between the character of the
people and the per capita wealth? Can countries be grouped geo-
graphically according to per capita wealth?

2. How does the United States compare with other countries with
respect to the estimated amounts and values of cereal products?
Textile fibres? Coal? Iron and copper ore? Present the results of
your study in tabular form.

3. From the reports of the Thirteenth Census prepare a statement



10 MANUAL OF REFERENCES

in tabular form showing the geographical distribution of our chief
dome.- f ic aouixes oC s-ujplv of the leading cereals, .of neat cattle, of
textile fibres, of coal, iron ore and copper ore, and of water power.

4. What physical conditions account for the greatness of ancient
Egypt, of Venice, of Holland, of England, of the United States?

5. Has the isothermal line any relation to the number of million-
aires?

CHAPTER 2
THE PRESENT ECONOMIC SYSTEM

REFERENCES.

Cooley, C. H., Human nature and the social order. 1902.

Cooley, C. H., Personal competition. Amer. Econ. Assn., Econ.
Studies, 4: 78-173. 1899.

*Ely, R. T., Competition: its nature, its permanency, and its benefi-
cence. A. E. Assn. Pubs., 3d ser., 2: 55-70. 1901.

Ely, R. T., Evolution of industrial society. 1903.

Ely, R. T., Property and contract in their relation to the distribu-
tion of wealth. 1914. (2 vols.)

Giddings, F. H., The economic ages. P. S. Q., 16: 193-221. 1901.

*Gray, John H., Economics and the law. A. E. Rev., 5 (no. 1,
supp.) : 3-23. 1914.

Ririley, David, The renewed extension of government control of
economic life. A. E. Rev., 4 (no. 1, supp.) : 3-17. 1914.

Schmoller, Qustav, The mercantile system. Trans, by Ashley, 1896.

QUESTIONS.

1. State briefly and criticize the theories of the origin of private
property.

2. What have been the theories put forward to justify the system
of private property in the past?

3. Under private property, can men complain of the use made by
others of their wealth on the ground merely that it was unwise?

4. What are the recognized limitations upon the right of private
property? Are these limitations in opposition to the principle by
which private property is now generally defended?

5. Is the right of bequest a necessary condition of private property?

6. Do you know of any father who created more wealth because
he could bequeath it to his son?

7. Does the son work as hard when he inherits his father's wealth?

8. What is the effect of private property on saving?

9. What is meant by the "Factory System."

10. Through what historic stages has production passed?



AND EXERCISES IN ECONOMICS 11

CHAPTER 3
NATURE, USE AND COINAGE OF MONEY

REFERENCES.

Jevons, W. 8., Money and the mechanism of exchange. 1875. Chs.

III-VII, XIII.

*Johnson, J. F., Money and currency. 1905. Chs. I, II, IX.
* Phillips, C. A. (Ed.), Readings in money and banking. 1916.

Chs. i-ni, xiv.

Walker, F. A., Money in its relations to trade and industry. 1st ed.
1879. Chs. I, II.

White, Horace, Money and banking illustrated by American history.
Ed. 1914. Bk. I.

QUESTIONS.

1. What are the qualities of metallic money?

2. What is the difficulty in deciding whether to call the following
money: gold ingots, gold coin, silver dollars, copper cents, greenbacks,
bank-checks, chalk-marks to keep account?

3. Who makes coins? Would jewelers make better ones?

4. What are the advantages and disadvantages of a seigniorage tax?



CHAPTER 4
THE VALUE OF MONEY

REFERENCES.

Fisher, Irving, The purchasing power of money. 1911.

Gibson, Thomas, Special market letters on the increasing gold sup-
ply and its effect on security values; interest rates; commodity
prices, etc. 1908.

*Johnson, chs. Ill- VIII, X.

Kemmerer, E. W., Money and credit instruments in their relation
to general prices. 2d ed. 1909.

Magee, J. D., Money and prices. J. P. E., 21:681-711, 798-818.
1913.

"Phillips, chs. VIII, XI.

Round table discussion, Money and prices. A. E. Assn. Bui., 4th
ser., 1 (no. 2) : 46-70. 1911.



12 MANUAL OF REFERENCES

* Source Book, 303-313. (Extract from report of the Secretary of

the Treasury, 1911.)

United States Secretary of the Treasury, Finance report, 1911.
Walker, F. A., chs. IV, V.

QUESTIONS.

1. What are the functions of money?

2. What are the principal things besides money uses that cause a
demand for gold and silver.

3. Why do you value money? Do you value it more than the
things it buys ?

4. When goods are exchanged for money or money for goods, what
is the gain?

5. If money is a tool, what does it make?

6. When gold comes out of the mine is the gain to the community
greater or less than when the same value of grain is harvested?

7. Are men wealthy in proportion to the money they have? Are
countries ?

8. Would a nation be poorer, if, like Sparta, it prohibited all
money ?

9. Is a community poor because it has little money in circulation
or does it have little money in circulation because it is poor?

10. Could a country better do without money, horses, or roads?

11. Why does nearly all the gold produced in California leave the
state? What keeps any of it there?

12. The mint price of an ounce of gold, .900 fine, is alike at San
Francisco and Philadelphia, $18.604. Why is gold ever shipped from
California to New York?

13. Does gold cost the day-laborer as much in California as in New
York?

14. Note any habits of friends that result in their carrying more
or less money than others of the same income.

15. What determines the amount of money needed by different per-
sons, towns, states, and nations?

16. Give examples of things that increase the demand for money.

17. On an isolated island would it make any difference as to the
value of money if there were but one gold-mine or several competing
ones, supposing that the output were the same?

18. What per cent, of the total money in the world is the yearly out-
put of gold; of silver; of gold and silver? Stat. Abst.

19. Is the value of gold and silver due to the action of govern-
ment?



AND EXERCISES IN ECONOMICS 13

20. In what ways may the government determine the value of the
monetary standard?

21. If all the different denominations of media of exchange were
doubled in number, exchanges remaining unchanged, what would be
the effect upon prices?

22. Is it true of all commodities that changes in supply affect their
value proportionally? Is it true of money? If in your opinion there
is any difference, explain it.

23. If the amount of coal in a country should be increased twenty-
five per cent., in what percentage would you expect the value of coal
to change? Give reasons. If the amount of money in a country should
be increased twenty-five per cent., in what direction and in what
percentage would the value of money change? Give reasons. (In each
case the condition is "other things being equal.")

24. If in a given community all watch cases were made of gold, and
each case contained one ounce of gold, would you expect the value
of watch cases to fall by exactly one-half if the number of watch
cases in the community were doubled, all other things remaining the
same? If in another community (at another time) all exchanges
were made exclusively by the use of gold coins, each containing an
ounce of pure gold, would you expect that prices in general would
be exactly doubled in case no change occurred in the community ex-
cept a doubling of the number of coins in circulation?

25. Why might an increased resort to barter produce upon the
general level of money prices effects similar to those produced by an
increased use of credit media of exchange?

26. What gives rise to the belief sometimes held that money is an
invariable standard of value?

27. Define depreciation and appreciation of the currency. What
causes may produce either? What are the effects of either? More
generally, what determines the value of the currency?

28. If gold were to become as plentiful as iron, would it be worth
more or less than iron?

29. A nation having no foreign trade had originally in circulation
1,000,000 coins, each called a florin, and each containing an ounce
of pure metal. To this original coin circulation the government adds
500,000 florins each containing one-half ounce of pure metal, and at
the same time the government adds to the circulation 600,000 florins
in the shape of inconvertible paper. Both the half ounce florin and
the paper florin are by law made legal tender for a full weight florin.
In the absence of any tendency to discriminate between accepting dif-
ferent kinds of florins in domestic trade, and with no other changes



14 MANUAL OF REFERENCES

in the money situation except such as are necessitated by the afore-
said additions to the circulating medium, tell, first, what ultimately
will be the number of florins in circulation, and give your reasons; and
tell, second, of what kinds of florins and in what proportions the ulti-
mate circulating medium will be composed.

30. Assume a country using gold alone as money and having in
circulation 2,000,000 coins, under a system of free coinage. What
would be the effect of closing the mints and issuing 1,500,000 new
coins containing nine-tenths as much gold as the coins above men-
tioned, assuming that the number of goods exchanged remains the
same? Explain clearly. What is the total quantity of such new
coins the government can issue and keep in circulation? Explain
clearly.

31. A country using gold money as its sole medium of exchange,
under free and gratuitous coinage, makes the following change: it
imposes a seigniorage charge of ten per cent., but without giving up
free coinage or reducing the amount of fine gold in the coin. To what
extent and in what direction will the value of money change, if at all

(a) if the number of goods exchanged gradually increases
five percent.;

(b) if the number of goods exchanged gradually increases
twenty-five percent.?

Give your reasons clearly.



CHAPTER 5 .
FIDUCIARY MONEY, METAL AND PAPER

REFERENCES.

*Jevons, chs. VIII, XVII, XVIII.

* Johnson, chs. XIII-XVI.

Kemmerer, E. W., Modern currency reforms. 1916.

* Phillips, chs. IV, V, XII.

United States Director of the Mint, Annual reports.
Walker, chs. VIII-XII.
White, Bk. II, chs. Ill- VI.

QUESTIONS.

1. When 5160 grains of standard gold (i.e., by weight nine-tenths
fine, with the other tenth composed of the alloy used in gold coin
of the United States) sell in New York for $201.25 has the money
"saturation point" been reached or exceeded, and will bullion be taken
to the mint or coin melted down or exported?



AND EXERCISES IN ECONOMICS 15

2. Define legal-tender as applied to money. What is meant by fiat
money ?

3. Is a United States standard silver dollar commodity or fiduciary
money? What determines its value? Of what importance is its legal
tender quality?

4. Is the provision of law whereby the fractional silver coins of
the United States are of less proportionate silver content than the
standard silver dollar necessary to-day? Is it useful? Give your
reasons.

5. Under what conditions will "bad money" fail to displace "good
money" from circulation?

6. Under what circumstances will money that is not in fact con-
vertible into other money have greater value than the material of
which it (the first mentioned money) is made? Give an example
from the monetary experience of the United States.

7. In a country which has hitherto had free and gratuitous coin-
age of gold, the government institutes a seigniorage charge of five
per cent, by reducing to that extent the amount of gold put into each
coin; the gold withheld by the government is not coined. What will
be the effect of this seigniorage charge upon (a) prices in that country,
(b) the comparative value of the gold in a new coin and the same
weight of uncoined gold? Make your reasoning clear.

8. If a nation's entire money circulation consisting of 1,000,000
coins, all of them debased by a seigniorage charge of 50 per cent., were
at once increased by the government's putting into circulation 300,000
pieces of inconvertible paper money, each piece of the same demonina-
tion as each coin, what effects might be anticipated on the basis of
Gresham's law or otherwise, it being presupposed that the full amount
of full weight coin required to conduct the nation's exchanges is only
900,000? Give your reasons.

9. A certain island has no silver mines and no foreign trade.
It effects all its exchanges by the actual use of silver coin whose
coinage is free and gratuitous. It has no banks, and does not resort
either to barter or to credit. Silver is also used in the shape of plate
in the island. Originally it had 100,000 silver coins in circulation, each
containing one ounce of pure silver. After a certain date, as these
coins were paid into the government treasury for taxes, at the rate
of 5,000 one-ounce coins per week, the one-ounce coins were melted
and the resulting bullion was recast, each new coin weighing 2 ounces
and bearing the same name as the original one-ounce coins. Thereafter
all coins struck at the island Mint contained two ounces of silver, and
at that standard coinage continued free and gratuitous. When the



16 MANUAL OF REFERENCES

government first pays out the new 2-ounce pieces, will they remain in
circulation with the old one-ounce coins and have the same purchasing
power? Give reasons.

10. If the above-described process of reminting 5,000 one-ounce coins
per week continues for twelve weeks and then stops, how many old
and how many new coins will at the end of the twelfth week be in
circulation ? Reasons.

11. The government of the island of Guernsey having no money, is-
sued paper-notes to pay for the building of a market. They circu-
lated and were gradually taken up as the market earned its cost,
during ten years. When they were all redeemed and burned, the
island had the market free of cost. Explain how this could be done.
(From Sumner's Problems in political economy.)

12. Suppose a nation has 1,000,000,000 gold coins, each weighing
one ounce (Troy) as its only circulating medium. Suppose that the
government enacts that henceforth coins will be uttered containing
only 99 per cent, as much pure gold as heretofore, the government
taking one per cent, for its own use.

Suppose "other things remain the same." What effect will this
action have on the number of coins circulating?

Will prices be affected?

Now suppose the demand for money increases. Will bullion owners
bring their bullion to the mint for coinage?

Suppose this government had continued to utter coins of the same
weight and fineness as before, but had kept back one per cent, of the
bullion brought to the mint for its own use. Answer these three
questions in the light of this supposition.

13. Tabulate the index numbers, the greenback price of the gold
dollar, and the gold price of the greenback dollar, from 1861 to 1879.

14. Show the difference between convertible and inconvertible money.

15. Contrast the position of the commodity money theorists with
that of the fiat money theorists.

16. In a gold-standard country, one-half of whose monetary circula-
tion consists of silver dollars (which are unlimited legal tender) and
of silver certificates payable on demand in silver dollars (and sup-
ported dollar for dollar by silver dollars in reserve), and whose
mints are closed to the free coinage of silver, how would the money
value of the silver dollars and silver certificates be affected if the
gold price of silver should fall (1) 10 per cent.? (2) 50 per cent?
(3) 5 per cent.? How would it be affected if the value of gold
should fall 10 per cent? (Free coinage of gold is assumed). Explain
the principles involved in your answer.



AND EXERCISES IN ECONOMICS 17

CHAPTER 6
THE STANDARD OF DEFERRED PAYMENTS

REFERENCES.

Fisher, Irving, Appreciation and interest. A. E. Assn. Pubs.,

11:331-442. 1896.
Fisher, Irving, A remedy for the rising cost of living standardizing

the dollar. A. E. Rev., 3 (no. 1, supp.) : 20-28. 1913. Round

table discussion of above, 29-51.
Fisher, Irving, Objections to a compensated dollar answered. A. E.

Rev., 4: 818-839. 1914.
*Jevons, ch. XXV.

* Johnson, chs. XI, XII, XVII.

Kinley, David, Objections to a monetary standard based on index
numbers. A. E. Rev., 3: 1-19. 1913.

* Materials, 787, 788 (extract from Brown, H. <?.,), 788, 789 (extract

from Clark, W. E., in "How to invest when prices are rising."

1912).

Noyes, A. D., Forty years of American finance. 1909. Chs. I-III.
Patterson, E. M., Objections to a compensated dollar. A. E. Rev.,

3:863-874. 1913.
*Phillips, chs. VI, VII, XIII.
Taussig, F. W., The plan for a compensated dollar. Q. J. E.,

27:401-416. 1912-1913.

United States Bureau of Labor Statistics, Bui. 173. 1915.
Walker, chs. Ill, VI, VII.

QUESTIONS.

1. In which year between 1890 and the present year would a fixed
salary of $1,000 have gone farthest? In which year would its purchas-
ing power have been least? If a sum of $1,000 loaned in 1897 was
returned in 1902, what was the difference in its purchasing power
on its return and when it was loaned?

2. Will a day's work of A common laborer buy more to-day than
it would a half century ago? Why?

3. The Bureau of Labor's index number for 1912 was 133. What
was the percentage change in the value of money from the base period
to 1912? Give your reasons and your work.



18 MANUAL OF REFERENCES

4. Average prices for

years 1860-65. Prices for 1900.

Coffee, Ib $ .12 $ .18

Coal, ton 3.00 3.60

Sugar, Ib 08 .06

Wool Ib 30 .20

Wheat, bu 80 .90

Upon the basis of the prices of the above commodities estimate the
general price level for 1900, showing the percentage of its decline or
advance from the basal price level. Indicate some of the causes which
may have brought about this decline or advance.

5. At a given time the following commodity prices prevailed:
cotton (raw), $.10 per Ib. ; wheat, $1.00 per bu. ; sugar, $.07 per Ib. ;
potatoes, $1.00 per bu.; beef (for roasting), $.25 per Ib.; shoes, $5.00
per pair; cotton cloth of a standard grade, $.12 per yd.; woolen cloth
of a standard grade, $1.25 per yd.; men's hats, $4.00, and coal, $7.00
per ton.

At a later date the prices of the same commodities were respectively
as follows: $.13, $1.05, $.06, $1.10, $.30, $5.75, $.15, $1.20, $4.50
and $6.50.

Tabulate these facts and compute index numbers, which will show:

( 1 ) changes in the price level of all ten commodities.

(2) changes in the price level of the articles of food.

(3) changes in the price level of the articles of clothing.

6. In the preceding exercise, do the data afford sufficient grounds
for saying that the cost of living has moved either upward or down-
ward ?

If an affirmative answer be assumed, what has been the change in
the value of money?

7. Assign to each of the commodities listed above a "weight"
which represents, in your opinion, its importance as an article of
popular consumption. Using this system of weights compute index
numbers to show changes in the price levels of the same groups of com-
modities. How does the weighting affect your first conclusions regarding
the changes in the cost of living. What is the importance of a system
of weighting?

8. If the world's annual production of gold should suddenly in-
crease five-fold, what would be the probable effect: upon the welfare
of a stock exchange speculator as compared with the welfare of a
teacher; upon the welfare of the creditor class as compared with that
of the debtor class; upon prices?

9. What is the function of the standard of deferred payments?



AND EXERCISES IN ECONOMICS 19

What is that standard now in America? What change in it has lately
been going on? How is this affecting the incomes of various classes?

10. What ought to be the characteristics of a standard unit of
value ?

11. Can you get a kind of money that will make the things that are
sold, dearer, and the things that are bought, cheaper?

12. Is the fact of one man's gain and another man's loss by chance
of any economic or political importance?

13. If every piece of money should miraculously be doubled in a
night, whose interests would be affected?

14. Compare the effect of an increasing gold output upon the price
of outstanding bonds with its effect upon the price of common stock
already issued.

15. X is an isolated industrial country with a certain volume of
money. Its government on a given day doubles the amount of cur-
rency. What will be the effect upon the rate of interest.

(a) of long-time loans,

(b) of short-time loans, and

(c) of demand loans?

16. The rate of interest on long-time investments in a certain
isolated community has been six per cent. The amount of money in
this community is increased so as to raise the general level of prices
by 100 per cent. Assuming that the increase in money has come
wholly from the more copious output of money-metal from the mines,
to what extent will this rise in the general level of prices affect the
rate of interest when thereafter capital is loaned for long-time periods?

17. Could a railway in the United States advantageously float a
large issue of 20-year bonds in the year 1916? Give reasons for your
answer. Show clearly what you mean by "advantageously." Would
a railroad wish to float such an issue if it could? Why?

IS. Is there anything in the nature of mining that keeps the ratio
of the supply of gold and silver nearly uniform?


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