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Economics - Volume II









1. Material resources of the nation

2. The present economic system


3. Nature, use, and coinage of money

4. The value of money

5. Fiduciary money, metal and paper

6. The standard of deferred payments


7. The functions of banks

8. Banking in the United States before 1914

9. The Federal Reserve Act

10. Crises and industrial depressions

11. Institutions for saving and investment

12. Principles of insurance


13. International trade

14. The policy of a protective tariff

15. American tariff history

16. Objects and principles of taxation

17. Property and corporation taxes

18. Personal taxes


19. Methods of industrial remuneration

20. Organized labor

21. Public regulation of hours and wages

22. Other protective labor and social legislation

23. Social insurance

24. Population and immigration


25. Agricultural and rural population

26. Problems of agricultural economics

27. The railroad problem

28. The problem of industrial monopoly

29. Public policy in respect to monopoly

30. Public ownership

31. Some aspects of socialism



The present volume deals with various practical problems in economics,
as a volume published a year earlier dealt with the broader economic
principles of value and distribution. To the student beginning
economics and to the general reader the study of principles is likely
to appear more difficult than does that of concrete questions. In
fact, the difficulty of the latter, tho less obvious, is equally
great. The study of principles makes demands upon thought that are
open and unmistakable; its conclusions, drawn in the cold light of
reason, are uncolored by feeling, and are acceptable of all men so
long as the precise application that may justly be made of them is
not foreseen. But conclusions regarding practical questions of public
policy, tho they may appear to be simple, usually are biased and
complicated by assumptions, prejudices, selfish interests, and
feelings, deep-rooted and often unsuspected.

No practical problem in the field of economics can be solved as if
it were solely and purely an economic problem. It is always in some
measure also a political, moral, and social problem. The task of the
economist "as such" is the analysis of the economic valuation-aspects
of these problems. We may recall Francis A. Walker's comparison of the
economist's task with that of the chemist, which task, in a certain
case, was to analyze the contents of a vial of prussic acid, not to
give advice as to the use to make of it. Accordingly, in the following
pages, the author has endeavored primarily to develop the economic
aspects of each problem, and has repeatedly given warning when the
discussion or the conclusions began to transcend strict economic
limits. In many questions feeling is nine-tenths of reason. If the
reader has different social sympathies he may prefer to draw different
conclusions from the economic analysis.

The outlook and sympathies that are expressed or tacitly assumed
throughout this work are not so much those personal to the author as
they are those of our present day American democratic society,
taken at about its center of gravity. When the people generally feel
differently as to the ends to be attained, a different public policy
must be formulated, tho the economic analysis may not need to be
changed. Therefore, in some cases, the author has discussed merely the
economic aspect, or has referred to the general principles treated in
volume one, and has purposely refrained from expressing his personal
judgment as to "the best" policy for the moment.

The present volume was planned some years ago as a revision of a part
of the author's earlier text, "The Principles of Economics" (1904).
The intervening years have, however, been so replete with notable
economic and social legislation and have witnessed the growth of a
wider public interest in so many economic subjects, that both in
range and in treatment this work necessarily grew to be more than
a revision. Except in a few chapters, occasional sentences and
paragraphs are all of the specific features of the older text that
remain. Suggestive of the rapid changes occurring in the economic
field is the fact that a number of statements made in the manuscript a
few months or a few weeks ago had to be amended in the proof sheets to
accord with recent events.

The author's debt for information, inspiration, and assistance in
various phases of the work is a large one. The debt is owing to
many, - authors, colleagues, and students. A few of the sources that
have been drawn upon will be indicated in a pamphlet following the
plan of the "Manual of References and Exercises in Economics," already
published for use in connection with Volume I; but the limits of space
will prevent a complete enumeration. I wish, however, in particular,
to acknowledge gratefully the aid and friendly criticisms given in
connection with the chapters on money and banking, on labor problems,
and on the principles of insurance, respectively, by my colleagues,
E.W. Kemmerer, D.A. McCabe, and N. Carothers.

In completing, at least provisionally, the present work, the author
cherishes the hope that it will be of assistance not only to teachers
and to students in American colleges, but also to citizen-readers
seeking to gain a better and a non-partisan insight into the great
economic problems now claiming the nation's conscience and thought.


Princeton, N.J., October, 1916.





§ 1. Politico-economic problems. § 2. American economic problems
in the past. § 3. Present-day problems: main subjects. § 4. Attempts
to summarize the nation's wealth. § 5. Average wealth and the problem
of distribution. § 6. Changes in the price-standard. § 7. A sum of
capital, not of wealth. § 8. Sources of food supply. § 9. The sources
of heat, light, and power. § 10. Transportation agencies. § 11. Raw
materials for clothing, shelter, machinery, etc.

§ 1. #Politico-economic problems.# The word "problem" is often on our
tongues. Life itself is and always has been a problem. In every time
and place in the world there have been questions of industrial
policy that challenged men for an answer, and new and puzzling social
problems that called for a solution. And yet, when institutions,
beliefs, and industrial processes were changing slowly from one
generation to another and men's lives were ruled by tradition,
authority, and custom, few problems of social organization forced
themselves upon attention, and the immediate struggle for existence
absorbed the energies and the interests of men. But our time of rapid
change seems to be peculiarly the age of problems. The movement of
the world has been more rapid in the last century than ever before - in
population, in natural science, in invention, in the changes of
political and economic institutions; in intellectual, religious,
moral, and social opinions and beliefs.

Some human problems are for the individual to solve, as, whether it is
better to go to school or to go to work, to choose this occupation or
that, to emigrate or to stay at home. Other problems of wider bearing
concern the whole family group; others, still wider, concern the local
community, the state, or the nation. In each of these there are more
or less mingled economic, political and ethical aspects. Economics
in the broad sense includes the problems of individual economy, of
domestic economy, of corporate economy, and of national economy. In
this volume, however, we are to approach the subject from the public
point of view, to consider primarily the problems of "political
economy," considering the private, domestic, and corporate problems
only insomuch as they are connected with those of the nation or of
the community as a whole. Our field comprises the problems of national
wealth and of communal welfare.

What then are our politico-economic problems in America? They are
problems that are economic in nature because they concern the way that
wealth shall be used and that citizens are enabled to make a living;
but that are likewise political, because they can be solved only
collectively by political action.

§ 2. #American economic problems in the past.# With the first
settlements of colonists on this continent politico-economic problems
appeared. Take, for example, the land policy. Each group of colonists
and each proprietary landholder had to adopt some method of land
tenure whether by free grant or by sale of separate holdings or by
leasing to settlers. In one way and another these questions were
answered, but rapidly changing conditions soon forced upon men the
reconsideration of the problem as the old solution ceased to be

In large part our political history is but the reflection of the
economic motives and economic changes in the national life. Thus
the American Revolution arose out of resistance to England's trade
regulations, commercial restrictions, and attempted taxation of the
colonies. The War of 1812 was brought on by interference with American
commerce on the high seas. The Mexican War was the result of the
colonization of Texan territory by American settlers and the desire
of powerful interests to extend the area of land open to slavery. The
Civil War arose more immediately out of a difference of opinion as to
the rights of states to be supreme in certain fields of legislation,
but back of this political issue was the economic problem of
slave labor. Illustrations of this kind, which may be indefinitely
multiplied, do not prove that the material, economic changes are the
cause of all other changes, political, scientific, and ethical; for in
many cases the economic changes themselves appear to be the results
of changes of the other kinds. There is a constant action and reaction
between economic forces and other forces and interests in human
society, and the needs of economic adjustment are constantly changing
in nature.

§ 3. #Present-day problems: main subjects#. The particular economic
problems in America at this time are determined by the whole complex
economic and social situation. Two main factors in this may be
distinguished: the objective and the subjective, or the material
environment and the population composing the nation. The one is what
we have, the other is what we are, as a people. These factors are
closely related; for what we are as a people (our tastes, interests,
capacities, achievements) depends largely on what we have, and what we
have (our wealth and incomes) depends largely on what we are. We may
consider the following phases; the first two of the objective factor,
and the last two of the subjective factor.

(a) The basic material resources, consisting of the materials of the
earth's surface and the natural climatic conditions which together
provide the physical conditions necessary for human existence, and
which furnish the stuff out of which men can create new forms of

(b) The industrial equipment, consisting of all those artificial
adaptations and improvements of the original resources by which men
fit nature better to do their will. These two (a and b) become
more and more difficult to distinguish in settled and civilized
communities, and become blended into one mass of valuable objects, the
wealth of the nation.

(c) The social system under which men live together, make use of
wealth and of their own services, and exchange economic goods.

(d) The people, considered with reference to their number, race,
intelligence, education, and moral, political, and economic capacity.

The particular economic problems which are presented to each
generation of our people are the resultant of all these factors taken
together. A change in any one of them alters to some extent the
nature of the problem. The problems change, for example, (a) with the
discovery or the exhaustion (or the increase or decrease) of any
kind of basic material resources; (b) with the multiplication or
the improvement of tools and machinery or the invention of better
industrial equipment; (c) with changes in the ideals, education, and
capacities of any portion of the people whether or not due to changes
in the race composition of the population; (d) with the increase or
decrease of the total number of people, and the consequent shift in
the relation of population to resources. Many examples of such changes
may be found in American history, and some knowledge of them is
necessary for an appreciation of the genesis and true relation of our
present-day problems.

§ 4. #Attempts to summarize the nation's wealth.# If we seek to
compare the material resources of the nation at one period in our
history with those at another period, we find that it is impossible
to find a single satisfactory expression for them. Let us examine
the figures for the (so-called) "wealth of the people of the United
States",[1] as it has been calculated by the census officials.

total per capita
Population. "wealth." wealth.

1850 23,200,000 $7,136,000,000[a] $308
1860 31,400,000 16,160,000,000[a] 514
1870 38,600,000 24,055,000,000[a b] 624
1880 50,200,000 43,642,000,000 870
1890 62,900,000 65,037,000,000 1,036
1900 76,000,000 88,517,000,000 1,165
1904 82,500,000 107,104,000,000 1,318
1912 95,400,000 187,739,000,000 1,965

[Footnote a: Taxable only; all other figures include exempt.]

[Footnote b: Estimated on a gold basis.]

A detailed comparison of the classes of concrete things making up the
totals is possible only in the last three sets of figures (1900 to
1912), and they are here given (omitting 000,000).

1900. 1904. 1912.
1. Real property (excepting
some items below) 52,538 62,331 110,700
2. Irrigation enterprises [a] [a] 360
3. Agricultural equipment
(livestock, tools, etc.) 3,822 4,919 7,706
4. Manufacturing equipment 2,541 3,298 6,069
5. Transportation agencies 11,249 14,434 22,360
6. Telegraph and telephones 612 813 1,304
7. Waterworks (privately owned) 263 275 290
8. Electric lighting plants 403 563 2,099
9. Products (still in trade)[b] 8,294 10,212 21,577
10. Direct goods in use[c] 6,880 8,250 12,758
11. Gold and silver 1,677 1,999 2,617

[Footnote a: No figures for these years.]

[Footnote b: The main items are agricultural and mining products and
imported merchandise.]

[Footnote c: The main items are clothing, personal adornment, furniture,
and carriages.]

§ 5. #Average wealth and the problem of distribution#. The foregoing
figures make a most satisfactory showing, and appear to indicate
that mere economic problems are rapidly being solved by the growth
of national wealth. But unfortunately these figures have little
significance in connection with such an inquiry, if indeed they are
not badly misleading.

In the first place, the final figures of "per capita wealth" are
merely averages; a per capita increase, therefore, may appear when
total wealth increases, altho the total may be due to the growth of
comparatively few very large fortunes. The fact is evident that vast
numbers of individuals and families are nearly propertyless and in
so far as this is true there is involved one of the greatest of our
socio-economic problems, that of the distribution of wealth and income
among the people. The more unequal the distribution, the greater, in
all likelihood, is the discontent; and the greater the effort of many
men to find some methods by which greater equality may be attained.

§ 6. #Changes in the price-standard#. These figures, moreover, are
expressed in terms of the monetary price-unit, in dollars of the
gold standard, and therefore the increasing total figure (and
correspondingly, the increasing per capita) may be but the reflection
of a change in the value of the monetary unit. It is well known that
the gold dollar has now less purchasing power than in 1880, and less
also than at any intervening time.[2] To the extent that this is true
the increase in the figures of wealth (total and per capita) is only
nominal and does not indicate increase in the quantity and betterment
in the quality of real wealth. This fact is so evident that it would
seem unnecessary to call attention to it, if it were not constantly
overlooked in citing these figures.

§ 7. #A sum of capital, not of wealth#. Consider further, that the
figures here given for wealth really express but the sum of capitals
of the individuals (or private corporations) of the nation. These
do not constitute a sum of social wealth in any proper sense of the
term.[3] Arithmetically it is a fallacious kind of a total, for the
sum of the individual capitals contains some items that should
be canceled to find the sum of wealth. Moreover, capital is an
acquisitive concept. It is an expression of the value of a man's
possessions, and not of the utility[4] of them. It measures intensity
of desire for goods and not necessarily the degree of welfare. Such a
total, therefore, embodies the difficulties of the paradox of value;
in some cases increased value reflects a growing scarcity and not
greater abundance.[5]

For example, between 1900 and 1915, with the growth of population, the
total number of improved acres in farms in the United States increased
but little, and the per capita number diminished. At least in part
as a result of this fact, the prices of nearly all kinds of food rose
rapidly, as did also the price of farm land. The prices (and estimated
values) of farm lands are the expression of the individual capitals,
which formed each year an increasing statistical total of so-called
wealth. The people had less land per capita, and were poorer per
capita as respects this item of landed-wealth, had less meat per
capita, and had to give more labor in exchange for food, at the same
time that the statistical per capita of land values increased.

So it may be as respects forests, coal, cotton, and eventually iron,
copper, and many other things. When forests were plentiful, lumber and
fire wood were free goods in many neighborhoods. Forests entered into
the total of national "wealth" in 1850 and 1860 at a comparatively
small sum. But in 1910 when the forests had been half used up they
appeared as a greater total and probably as a greater per capita
item of "wealth" than in 1850. The figures reflect changes in the
paradoxical section of the scale of values, and express scarcity
rather than wealth.

Altho the wealth of a nation may not be expressed as a single sum of
values that accurately reflects the weal-bringing things composing its
environment, some conception of the situation is to be gained by an
enumeration of goods in their kinds and quantities and by studying
their relations to the life of the people. Objects of wealth may be
grouped in various ways. The following may serve our purpose of a
general survey of our present resources.

§ 8. #Sources of food supply#. The land area of the country in 1910
was about 1,900,000,000 acres, of which 879,000,000 acres were in
farms, this being 46 per cent of the total area. A very small part
of the remainder is used for residential and commercial purposes,
the rest being barren mountains, deserts, swamps, and forests. Of the
total in farms a little more than one-half was improved, 478,000,000
acres altogether, a per capita average of 5.2 acres; and a little
less than one-half was unimproved, 400,000,000 acres altogether, a
per capita average of 4.3 acres. The improved land produced not merely
food but many kinds of materials, such as cotton, wool, hides,
and lumber, while much of the unimproved land was either in farm
wood-lots, or in rough range pasture. Of course the kinds and amounts
of produce per acre vary with the climate, particularly with sunshine
and rainfall; possibly the proportion of the area of the United States
that is true desert and infertile mountain land is greater than that
of any other equal area in the temperate zones. The actual productive
capacity per acre of the lands of America cannot be expressed in a
very helpful way as a general average per acre, but each area must be
carefully studied in respect to its climate, rainfall, and possibility
of irrigation and drainage. It is evident that a very large number of
economic problems must arise in connection with the land supply
for food: such as problems of land-ownership, taxation, irrigation,
drainage, forestry, and encouragement or limitation of population. We
are just beginning to awaken to the needs in this direction.

The rivers, lakes, and ocean waters near our coasts are other great
sources of food, but no statistics are available to show adequately
their yield. Few of them are in private possession and they do not
appear at all in a total of "capitals," yet they are more important to
the nation than a large part of the land area. They are only beginning
to be developed artificially by the propagation of oysters, clams, and
fish. The development of a proper policy in this matter is one of our
economic problems.

There were in 1910 (mostly on farms) about 64,000,000 beef and dairy
cattle, 60,000,000 swine, 56,000,000 sheep and goats, and there were
raised in the one year nearly 500,000,000 fowls of all kinds.

§ 9. #The sources of heat, light, and power#. The law of the
conservation of energy expresses the fundamental likeness of heat,
light, and power. The principal sources from which man derives these
agencies are coal and falling waters, tho wood is of importance as
fuel in some localities. About 500,000 square miles of land (about 13
per cent of the area of the country) are underlaid with coal. These
deposits are widely distributed, so that nearly every part of the
country is within 500 miles of a mine. The enormous deposits if used
at the present amounts per year would last probably 2,000 to 4,000
years, but if used at the present increasing rate (doubling the
product every ten years) they would, it has been estimated, last but
150 years. What shall be the actual rate as between these extremes
is a question whose answer depends on our economic legislation as
to ownership, exploitation, prices, use, and substitution. This is
another of our important socio-economic problems.

The one great available substitute for coal as a source of heat and
light and power is water power. It is estimated that in 1908 but
5,400,000 horse power was being developed from water falls, whereas
about 37,000,000 primary horse power[6] was available; but, by
the storage of flood waters so as to equalize the flow, at least
100,000,000 horse power, and possibly double that amount, could be
developed. As it requires ten tons of coal to develop one horse power
a year in a steam engine by present methods, there is here a potential
substitute for coal equal to two to four times our present annual use
of coal (about 500,000,000 tons in 1912).

But this does not mean that it would be economical, at present costs
of mining coal and of building reservoirs, to make this substitution
now. To determine when, how far, and by what methods to develop this
water power from lakes and rivers for the use of the people and to
make this substitution, is another of our great economic problems.

Petroleum and natural gas, of which our original reservoirs were
perhaps the richest in the world, are being rapidly exhausted. These
may be merely mentioned as being related to coal in the source

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