family lives. While there is a tendency everywhere for
a family of certain grade to seek the same relative home
in proportion to income, it is not sufficiently constant to
show any positive relation. Are rents higher in Massa-
chusetts than in Great Britain for the same quality of
house ?
Inducements to Save.
Inducements that persons have held out to them for
saving are, that the same articles may be consumed in
another way, yielding a larger amount of satisfaction.
When the standard of life is once established, it requires
a certain amount of various articles to satisfy it. If the
standard is raised, there must be a larger expenditure in
certain lines for its satisfaction. Economy in this respect
consists in saving from useless or needless expenditure,
with the expectation of receiving a larger benefit from the
goods expended in some other way.
Spending and Saving.
There are those who hold to the doctrine that spending
should be practiced freely in order to make times good;
that is, the more we spend the greater will be the circula-
tion of money and the better will trade be. This, however,
has its limitations. Money expended in the gratification
of rational wants, it is true, will lead to rational production
and proper consumption; but money or wealth expended
in uselessness may create as much evil as good, and if all
were to squander alike with prodigality there would be no
wealth used for the purpose of carrying on the processes
of production.
280
ECONOMICS.
Luxury.
The term luxury is relative. In an economic sense it
must be confined to extravagance and prodigality. There
is no general law telling what luxury is, for luxury to one
person might not be luxury to another. The luxuries of
one individual may be the commonplace articles of another,
and the luxuries of one generation may become the neces-
saries of the next. The money that is expended in riotous
living is a direct waste, and the money expended in excess-
ive luxury might be devoted in a larger return to society.
The millionaire's palace might build a hundred good homes
for people of ordinary means and taste, and it is a question
whether his life-work demands any such outlay, or whether
it is necessary for his best interests. Viewed in this light,
it appears that much of the expenditures of life are useless.
The luxurious wine supper cannot yield a sufficient pleas-
ure for the amount of waste incurred, hence it is a luxury.
Whisky, beer and tobacco are worse than luxuries, they
are a waste, because of the evil effects on the body. The
wants of a community are never satisfied, for as we go on
developing we increase the number of our unsatisfied de-
sires, which are limitless. Luxurious expenditure can only
be justified when results are obtained in proportion to the
sacrifice. A man might burn a house for the sake of
amusing himself with the play of the flames. It is evi-
dent that the small amount of gratification has cost a very
large expenditure, and is out of all proportion to real
economic consumption. Though the house were his own,
he would violate moral obligations in consuming materials
which had cost years of labor and might be made useful
in many ways.
ECONOMICS. 281
Economic Expenditure and Waste.
The person who, having to consume articles of useful-
ness, does this in a careless and wasteful manner, violates
his moral obligations to the community. Hence the hu-
man race would be greatly benefited if we could have
economy of food consumption. Now economy of food does
not mean that the body should be stinted, but only means
that economy should be used in its selection and in the
proper preparation for its proper use. Thus we should
have the largest return for the expenditure. This is what
is meant by saving ; it is not hoarding articles for the pur-
pose of gratification of bare possession, but for the purpose
of seeking out the largest return for goods in hand. There-
fore, when persons put money in savings banks it is for
the purpose of getting a larger return in some other way
than by the gratification of present desires. If a person
refrains from buying a hat when he does not really need
it, it is for the purpose of spending the money for some
want yet unsatisfied. Hence, saving is a relative term,
and economy is economy in use. In the use of food, for
instance, there might be selected expensive foods contain-
ing little real nutriment ; or foods might be selected which
would not satisfy the wants of the family; or food could
be wasted, thrown away, and badly prepared; and again,
there might be a great deal of expensiveness in its prepara-
tion. All of these things are absolute waste.
The Desirability of Saving.
There are very many reasons why saving represents an
economic advantage. It teaches the individual thrift and
frugality, including habits of caring for himself, which is
an insurance against the destruction of labor by poverty
282
ECONOMICS.
and sickness. It is an insurance against reverses in busi-
ness, which tides the individual over in times of apparent
stress, but it also enables the use of large amounts of wealth
in a productive enterprise which otherwise would be con-
sumed at once. Nevertheless, the question of saving may
be carried too far. If one continues to save to the detri-
ment of his everyday business or his everyday work, it
may be in the long run a hindrance to economic progress.
Sometimes saving is carried on to the extent of impairing
a business by diverting free capital from one channel into
another. Examples of this kind are found where excessive
life insurance is. taken, or where a business is entered
which requires excessive payments or assessments.
It is sometimes argued by individuals that it is a good
thing to spend, because it puts money into circulation and
makes times good. While this is not a good argument
taken as a whole, there are elenjents of truth in it. A com-
munity may be crippled by diverting free capital into
channels for the purpose of yielding an ultimate benefit,
but which in reality is at an expense of prosperity. If
there is a large amount of manufactured goods on the
market, the consumption of these goods will have a tend-
ency to quicken the wheels of industry in old established
lines and create a surplus of income which may be used
to create new business. But if by strict economy living
expenses were cut down one-half, consumption falling off
to the same extent, in order to save this amount from a
given enterprise to expend in another business which
would take years for an income, it is plain that the com-
munity would suffer loss. It is a good thing for a com-
munity to live well, to keep up the standard of life, for
this is true economy. Such savings as may be had over
ECONOMICS.
283
and above this good living will not only be an immediate
but an ultimate advantage to the community.
National Consumption.
National consumption is a better estimate of national
prosperity than national production, if different groups of
individuals are considered. It is what an individual has
and enjoys that estimates his standard of life. When we
say that the per capita wealth of the community is $1,000,
we mean that the accumulations or savings of wealth
amount to that much. Now in what form do we find this
wealth ? It is in money, lands, houses, furniture, clothing,
books, machinery, implements, etc. It means that we
have that amount at hand not consumed. Nevertheless,
nearly all of this is in the process of consumption. If all
of these goods could be stored in a warehouse awaiting the
use of the people and there was no demand for them, it
is easily seen that the wealth of the community would be
small. It is through consumption that the value of all
goods is estimated. If consumption were to keep up with
production, day by day, there could be no such thing as
national wealth, and from the fact that consumption does
not keep up with production we have a surplus on hand
which is called capital. This accumulation is dependent
upon the excess of production over consumption.
It still remains true that the prosperity of a nation is
dependent upon the perpetual use of this wealth in legiti-
mate consumption. In other words, the condition of
national consumption, that is, the use of all the surplus
earnings of a nation, will be an index of the national pros-
perity. Hence it is the height of economy to encourage
legitimate consumption of goods. Therefore the legitimate
284:
ECONOMICS.
consumption of wheat, corn, clothing, furniture, houses,
and in fact all goods, will be an index of the prosperity of
the nation. Care should be used to discriminate between
the large service of goods and the waste of goods. Every-
thing must be put to its highest possible use if we wish
to reach the highest prosperity. If a large part of the sur-
plus earnings of a community passes into savings, it may
thereby curtail expenditure in such a way as to destroy the
well-being of the community. While the encouragement
of saving by individuals in the form of life insurance or
laying up funds for future use may in the long run lead to
greater opportunities for the support and production of
life, yet even this may be overdone to the extent of destroy-
ing the working funds of the community and detracting
from its well-being.
In the United States, enormous consumption of goods
has as much to do with the prosperity of the nation as the
excessive industrial power which produced the goods.
While the opportunity to consume goods must logically
follow the production of the goods, it is after all the stim-
ulus to production, and after all the evidence of the well-
being of the community. The following table illustrates
the national consumption of certain classes of goods in the
United States, for the fiscal year 1905.
Article.
Production.
Home, Consumption.
Wheat
552,399,517 bu.
510,985,324 bu.
Cotton
6,994,281,731 Ibs.
2,749,291 082 Ibs
Corn
2,464,480,934 bu.
2,377,202,894 bu.
Pig iron
22,992,380 tons.
16,561 277 tons
Coal
(Calendar year 1904)
314,562,881 tons.
244,051,103 tons.
Wool
295,488,438 Ibs.
(Bituminous)
542,062,536 Ibs.
Malt liquors, and dis-
tilled liquors
1,718,203,292 gals.
1,694,392,765 gals.
Suerar . .
584,888 tons.
2.632.216 tons
ECONOMICS. 285
It is evident that the large amount of the consumption
of liquors must be to a great extent a detriment rather
than an advantage. And also the waste in the use of flour
or meat in the home consumption could not be considered
in an estimate of well-being, but that this produce repre-
sents the possibility of well-being to the nation.
Reform in Consumption.
As consumption influences production, the improvement
of the economic methods will be more readily made by
reforming our system of consumption. There is competi-
tion in buying or consumption as well as in selling, and
the consumers who compete perpetually for lower prices
influence manufacturers in making a cheaper article. A
retail dealer in shoes was one day asked why he did not
furnish a better quality of children's shoes. " Simply be-
cause," he said, "the people do not wish to pay the cost of
their making. Children's shoes are defective in manufac-
ture to a large extent, and as a child's shoe costs more than
a grown person's shoe in proportion to the material in it,
parents are not willing to pay the actual cost of a well-
made child's shoe. They always ask when shown a certain
grade, ( Have you not something cheaper ? ' Then the
dealer says to the manufacturer, 'Can you not furnish me
something similar to this of a much cheaper grade, to
supply the demand ?' " And so the cheaper shoe is made.
Thus competition in buying is productive of adulterated
goods in almost every line. Goods are made in these days
to suit not only the volume of commerce, but also the tastes
of the consumer. If we demand substantial, well-made
goods, in which there is no cheat or deceit, we must be
willing to pay the cost of production with a margin for
286 ECONOMICS.
handling the goods. In other words, we must have healthy,
well-fed laborers, working under a high standard of life,
which means high wages and a fair price for the goods.
Consumption can influence production to a considerable
extent. It is not intended here to argue against cheapness
of articles, for this is a blessing to the poor. The applica-
tion of modern invention and machinery to the production
of goods permits us to produce substantial, well-made .arti-
cles at a low price and by fair wages. But the excessive
cheapness of manufactured articles is to be avoided.
Sweating System.
There is what is known as the sweating system, or the
method of taking articles to be manufactured in the homes
or in small dingy apartments, on a contract to do so many
pieces at a certain very low price. The prices paid for
labor are so low under such circumstances that work must
be slighted in order that people who consume these goods
will have a cheap article. In the long run this cheapness
is a detriment to both consumers and producers, as well as
laborers. If it yielded an ample return to the consumer
there might be a grain of sense in forcing the producer to
grind the laborer to create the cheap article designed. But
this cheapness is of no benefit to the consumer, because it
gives virtually an article without service at a low price.
Consumers scarcely think of this when they go to the
stores to purchase, with a tendency to beat down the prices
of goods to the lowest notch, that is, demanding cheaper
and cheaper made goods. To avoid this, "consumers'
leagues" are formed for the purchase of goods made by
reliable houses where labor is paid full living rates, and to
avoid the purchase of all sweat-made garments, which arc
ECONOMICS.
287
created under the influence of the poverty and wretched-
ness of low-grade labor.
Waste in Consumption.
It is a difficult thing to purchase goods properly in the
market to satisfy our own immediate wants. Our wants
are so many and so varied that with limited means we
must weigh the possibility of satisfying first one, then the
other. This is especially true among the poorer classes.
They cannot always tell which they want the most, or if
they can, in their purchases they frequently fail in getting
what they want. To be a good purchaser in the market
with modern competition is to know what one wants, and
then estimate the ability to pay for it in making the pur-
chase.
But having purchased the article, its use for consump-
tion is even of greater importance. Take, for instance,
the food that is brought into the kitchen. In the first
place there is lack of economy in its preparation and in its
cooking, and finally in its actual consumption. The Amer-
icans are proverbially an extravagant, wasteful people in
this respect. It is said they waste enough to support an-
other population equal to their own. This comes about
not entirely through carelessness, but through lack of
knowledge and training in the art of consumption. A
farmer will leave his implements out in the storm the
year around, and then complain of hard luck. He will
leave his cattle without shelter and poorly fed, and then
wonder why he loses in the business. We waste in clothing
by our perpetual change in fashion, and we wear our
houses out long before their time, because we refuse to
288
ECONOMICS.
keep them in proper repair. And so for all that we use in
life, there is a waste in consumption.
It is not that we desire to have a small consumption of
goods, for it is highly desirable that there should be a
large consumption; but it is only through economy that
we are permitted to have a large consumption. If Mr. A
takes care of one pair of boots he may have sufficient
wealth to buy a hat or a coat, which he otherwise would
not be able to purchase, or else invest his money in a
better way. With economy of the flour and potatoes al-
ready purchased, people might purchase in addition apples
and other things.
This principle is frequently carried into the process of
consumption. Business firms seeking to enlarge their
production and increase their income frequently lose be-
cause of their excess of expenditures, simply because their
processes of consumption were imperfect.
Mr. Bullock, in his Introduction to the Study of Eco-
nomics, shows that waste of foods may occur in the follow-
ing ways: First, needlessly expensive foods, containing
little real nutriment; second, failure to select foods best
suited to the needs of the family; third, a great deal
wasted which ought to be used; fourth, bad preparation
of food, which causes it to lose its nutriment; fifth, the
immense loss of fuel through badly constructed ovens.
The author estimates that in this way at least one-fifth of
all the money spent for foods is absolutely wasted. This
waste of material could be carried into every department
of economic life. As business becomes more exact, there
is greater care in consuming all of the material. The
by-products in a gas factory or in a smelter frequently
ECONOMICS. 289
yield a large revenue. The saving of cotton seed, which
formerly was wasted, adds much to the productivity of
cotton-fields. The large packing-houses at Kansas City
are good illustrations of the economy of consumption, for
every part of the slaughtered animal is saved and turned
to economic use.
References: Bullock, Introduction to Economies ; Phillippovich,
Grundriss der Politischen Oekonomie; Seligman, E. R. A., Principles
of Economics ; Fetter, Frank O., Principles of Economics.
19
BOOK III.
EXCHANGE AND INDUSTRY.
(291)
CHAPTEK I.
UTILITY AND DEMAND.
Struggle for Wealth.
The object of wealth is to satisfy wants, and the ceaseless
struggle for existence is simply a want-satisfying process.
We exploit mines for the sake of iron to be used in build-
ings and implements ; for gold and silver to be made into
money and ornaments; copper and lead and zinc for
utility in the industrial arts; we till the soil to produce
grains, fruits, and cattle for food; we exploit the forests
to yield lumber for building purposes ; and we use steam,
water, electricity, to propel great machines for the trans-
formation of raw materials into articles of beauty and
usefulness. The more we have to work with and to live
for, the more we want; our desires are never satisfied.
Increased wealth that is, an increase of economic goods
gives us increased power, and we need larger wealth and
more means to satisfy this power.
Utility.
We desire these economic goods on account of their
utility, and by utility we mean their want-satisfying power.
Its only test is actual service. If a person wants an
article, it is because it has an individual utility. If many
want the same article, it has a social utility. The utility
of goods is what brings them into market and disposes of
them wherever they perform the greatest service, and thus
(293)
294: ECONOMICS.
goods are distributed among the people wherever they are
demanded and in proportion to the demand.
Demand Schedule.
If a single individual and a single commodity on the
market are considered, it will be found that (desire for
the goods diminishes as the supply increases. While there
is an endless variety of wants, there is a limit to each sep-
arate want, and it diminishes with every increase in the
amount of the thing which supplies it. There is in each
separate case a diminishing utility respecting every article.
There is in the rational desires of every person a law of
satiable desire. The total utility of an article or of a com-
modity on the market, which is the same as the total want-
satisfying power, increases with every increment of a per-
son's stock in it; but it does not increase as fast as the
stock increases. Thus, four horses will give a greater
total utility than two, but the utility is not doubled by
the purchase of the two additional horses. If the pur-
chaser continues to add to his stock, each separate horse
of the same grade will be valued less than the former,
until he reaches a place at which he will not pay anything
for a horse, but would keep him if given to him. Thei
last increment which he is just induced to buy is called'
the marginal utility. Thus, the marginal utility of a
quantity of anything diminishes with every increase in
the amount which he already has. (See illustration of
Marginal Utility, Fig. I.)*
*NOTE. The diagrams used In illustrating demand, marginal utility, value, etc.,
are suggested by the advocates of mathematical economics, such as Cournot and
Jevons, and so extensively used by Marshall and adopted by Ely, Commons, Hadley,
and other American economists. It is the universal method of applying mathematics
to economy, and is used in this work for illustration and with no idea of demon-
Btration,
Let ab, in Fig I, represent the quantity of satisfaction
obtained from the first increment of food, and ac from
that of clothing. Then let the diminishing scale of utility
of food follow the line bm, where the actual food-supply
will be represented by the line ae. At the point e, where
no more food will be required for any purpose whatever,
em will be called the marginal utility. Let ck be the
diminishing line for the clothing scale and the actual sup-
ply represented by ah. The marginal utility in this case
is gh. It is easy to see in this case that though the first
increment of food is much greater than that of clothing,
yet the marginal utility of clothing is greater than that
of food, on account of the increased service it performs to
humanity. If the line ck extends to /, and ai represents
the actual supply of clothing, fi will represent the mar-
ginal utility of clothing. If this is brought about by an
increased desire for clothing relative to food, the marginal
utility of food will rise from me to nd; then the marginal
utility of food and clothing is the same. When two
296
ECONOMICS.
articles are compared in this way, each individual con-
stantly estimates the want-satisfying power of each article
demanded.
Law of Demand.
Each individual thus has his demand schedule for every
article. Give an intelligent child a quarter and send him
to a toy store and he will spend hours looking over various
articles, estimating which will give him the largest amount
of satisfaction for the money which he has to spend ; for
demand in this case, as in all other cases, represents the
V
D
ability and willingness to pay a given price for any article
offered in the market, and each individual will take an
amount of any given article until the demand for that
article is met by a greater demand for some other article.
In Fig. II, lay off on the line AX the distances Am,
ECONOMICS.
297
An, Ao, Ap f Aq, Ar, As, and At, respectively representing
the amounts of a given article demanded by a single person
at various prices. Then erect perpendiculars ma, nb, oc,
pd, qe, rf, sg, and th, representing prices corresponding
respectively to the amounts demanded. Then the person
will take Am goods at ma valuation, An goods at rib val-
uation, etc. If a curve be passed through the extremity of
these lines it will be called a demand curve, which grad-
ually approaches the line AX as the want-satisfying power
of the article falls, and approaches the line AY as the
want-satisfying power rises. If the value of hats falls it
may not affect every one, but will affect a few people at
least, and the demand for hats will increase. A fall in the
value of sugar will have a tendency to induce Mr. A to
purchase more, a rise in the value will cut off his demand.
Every decline in valuation on the market will be met
with a larger sale, but the sale is not necessarily propor-
tionate to this fall. There is not an exact ratio between
a fall in prices and an increased demand. A fall of one-
tenth in price may increase the sales by only one-twentieth,
or it may increase them one-fourth, or it may even double
them.
The law of increased demand may be stated as follows :
A decrease in the supply, the demand remaining the same,
will cause the values to rise; an increase in the demand,
the supply remaining constant, will cause values to rise;
an increase in the demand with a corresponding increase
in the supply will permit values to remain unchanged; a
decrease in the demand, the supply remaining constant,
will cause prices to fall; an increase in the demand and a
decrease in the supply will cause prices to rise rapidly;