This adds greatly to his leisure, and to a more complete
social development. The race has multiplied into great
family groups, which settle down in the more or less per-
manent conditions to hunt and fish and tend their flocks.
Wealth is now more easily created and consequently more
abundant, and there is less necessity for want and strife.
The social organization of men becomes more compact, and
the conditions of labor begin to prevail. This leads to
more definite cooperation in wealth-producing.

Agriculture.

Soon a new period of progress is entered upon as the
knowledge of seed-planting and harvest leads to agricul-



ECONOMICS. 23

ture. The fertile soil now adds to the food product and
increases the means of human welfare, making possible
a more perfect economic life. Man is rapidly becoming
a cooperative animal. His residence becomes fixed, and
his wandering ceases. Settled laws and customs prevail,
and the tribal ownership of land gives security to all.
More goods can now be acquired than are needed for bare
subsistence, and the conveniences and comforts of life ap-
pear. New economic relations spring up, and the divisions
of labor begin to be prominent as each follows a special
occupation. In its effect upon civilization agriculture
has a vast influence in developing a more perfect social
life and a better political organization.

Manufactures.

With increased food-supply the desires of men for a
variety of implements, instruments, wearing apparel, and
a larger equipment of dwellings, demand the especial ser-
vices of part of the community in manufactures. And so
we find that individuals employ their whole time in the
creation of certain lines of goods to exchange for goods

of other lines.

Trade.

This creation of more goods than can be used by the
producer leads to trade. The surplus goods of each indi-
vidual of each group are now exchanged for articles more
desirable, and barter, the first form of exchange, appears.
As society becomes more complex, the method of barter is
too clumsy for carrying on the trade of different com-
munities. This leads to the introduction of money, which
becomes an instrument of exchange. Usually, money was
some common commodity whose value was quite well



** ECONOMICS.

known to all traders or exchangers of goods. By means of
the use of money, trade was greatly stimulated, and conse-
quently manufacturing increased. In seeking those arti-
cles which are most desirable for money on account of
convenience when large values must be considered, the
tribes of the nations of the world finally adopted the
precious metals as money.

Commerce.

The habit of exchanging surplus goods leads to the devel-
opment of commerce, which brings a special group of
people to attend to the work of trading. ~Not only do indi-
viduals deal with individuals, but tribes with tribes, and
nations with nations. Caravans are used on land and ships
on sea for carrying the surplus goods, and each new ex-
change stimulates desire and develops the energy of men
in supplying wants already created. Thus does the eco-
nomic life become broadened and the desire of men for
more wealth becomes intensified.

Economic Organizations.

In the early period of development we find society
arranging its own economic groups, the agriculturists, or
those who till the soil; shepherd class, or those who tend
the flocks and herds; and the trading or merchant class.
But we find those who, on account of their skill, spend their
entire time in the manufacture of goods. The two latter
classes divide into many special groups, the traders deal-
ing in a single article or group of articles, and the manu-
facturers confining their skill to a single product or group
of products. As economic society grows more complex,
the manufacturers and traders group themselves in towns
and cities. The farmers are usually collected in villages



ECONOMICS.



25



and country hamlets. Economic life shifts again, and the
manufacturers and laborers in special industries live to-
gether, and subsequently become organized into guilds,
which represent the first artificial industrial organizations.
As the number and kinds of industries multiply and the
divisions of labor increase, society tends more and more to
arrange itself in groups. The small towns and villages
grow into great cities, which become the means of new
associations. The guilds in these cities represent the or-
ganization of the manufacturers and laborers in the same
commodity or the same industry in one group for their
own protection and for the advancement of their own in-
terests. The importance of all these divisions of labor
is seen in the rapid development of economic society in all
branches. Wealth is rapidly increased by the facilities for
its production and the excited desire of mankind every-
where for a larger supply of economic goods. Men have
more to live for, more to live upon, and yet are more de-
pendent upon the exertions of their fellows for what they
accomplish in the general processes of production.

Industrial Stage.

With the impetus now given to economic life, man enters
upon what is known as the industrial stage, which con-
tinues to the present. Prior to this, nearly all of the manu-
facture of articles was dependent upon the muscular efforts
of man and beast. Machinery was used to a limited extent,
but the chief manufacture was by hand . However, the in-
troduction of power manufacture was the beginning of a
new industrial life. By the use of machinery and the con-
trol of the powers of nature, rapidity of manufacture was
increased a hundred fold. This caused the introduction



26 ECONOMICS.

of new methods of production, and changed to a great
extent the conditions of economic life.
Industrial Revolution.

The result of the introduction of machinery was, that
instead of the manufacturer working in his home, sur-
rounded by his apprentices and journeymen, great fac-
tories were established, with improved machinery, in which
were congregated large groups of laborers who worked for
wages. Buildings and machinery were provided by the
combined efforts of capitalists, and laborers worked under
the direction of a master. Economic society now arranges
itself in new groups or classes: there are laborers, mana-
gers, and capitalists.

Under the old method goods were manufactured in the
shop in small quantities and placed in stock for sale.
Under the new method large quantities of goods are created
in a single factory and sold to dealers. The laborers
receive their remuneration in the form of a daily wage
and supply their own homes, living apart from the manu-
facturers and capitalists. In fact a large number of the
manufacturers of the old method became laborers in the
factories under the new. This was the formal beginning
of the wage system which is nearly universal at present.
The divisions and subdivisions of labor became so great
that it took a large number of workmen to complete a
single article. After it was necessary to have buildings
and machinery to carry on industry, and as laborers could
not furnish these without a system of cooperation, which
had not been introduced, they were obliged to rely upon
others called capitalists to construct buildings and furnish
machinery and raw material, while they accepted a daily



ECONOMICS. 27

remuneration for their services, called wages, taking no
risks of loss and participating in no gains. The rapid de-
velopment of manufacturing interests with the use of
steam and improved machinery, the increased facilities
of transportation by means of canals, waterways, and rail-
roads, caused such constant and radical changes in eco-
nomic life as to be termed an industrial revolution. The
large amount of business transactions brought about the
credit system, and with it the banking industry. Manu-
factured products increased enormously, the agricultural
area was greatly extended, trade and commerce expanded
in extreme proportions, divisions of labor were greatly in-
creased. Facilities for transportation kept up with the
general improvement in other lines, while industrial en-
terprises reached greater and greater magnitudes.

Free Competition.

At this stage of progress another economic phase ap-
pears. Under the old guild system prices were regulated
largely by custom or by the consent of the guilds. As the
guilds had much influence in the government of the cities
this method of fixing prices became a law. There was
known the just price and the fair price in the market, fixed
by custom, or agreement, and finally by legal enactment.
On account of the scarcity of labor at certain periods the
wages varied to so great an extent that the price of labor in
the market was also fixed by custom, agreement, or law.

In the industrial stage these restrictions and barriers
were broken down. All tradesmen and manufacturers
now compete with their fellows in the market for the sale
or purchase of goods, and prices are regulated by free
competition. Laborers too seek the highest wages their



28 ECONOMICS.

services will bring, and wages, instead of being established
by custom or law, are now regulated by the law of supply
and demand or by market rates. The abuses which crept
in through the attempt to regulate wages and prices by law
brought forth a great reaction. It was finally urged by
economic thinkers that if each man will seek his individual
interests he will best promote the common interests and
the common good of society, a doctrine true only in part,
for the immediate interest of the individual may not always
be his ultimate interest and consequently not the ultimate
interest of the community. But the famous " laissez-faire "
assumption that government should cease to regulate
prices or wages by law after it had expanded into the
doctrine of non-interference in economic processes, leaving
all regulation to free competition, finally prevailed. For
many years this was the prevailing doctrine, and indeed
the actual practice in England, and became the formal basis
of modern political economy. The rapid economic changes
occasioned by what is known as the industrial revolution
brought great injustice by the irregularities of industry,
and in many instances much suffering occurred because
people could not adjust themselves to the new conditions
caused by these sudden changes. Also, the rapid produc-
tion of wealth led to its excessive power, created discontent
thereby, and finally led to a reaction in favor of restrictive
measures. Experience demonstrated to many that the
largest conceivable amount of economic freedom was only
secured to all by wise restrictive measures. This is as
true of economics as of politics; so it was that labor
organizations sprang up for the protection of the rights
of the laborers; just laws are passed protecting laborers



ECONOMICS. 29

and capitalists, securing the rights of both, and greater
activity on the part of the state in the supervision of
industry and in the protection of the industrial and eco-
nomic interests of its subjects has obtained.
Competition in Groups.

General competition, which began so severely between
individuals, finally changed, through the process of shift-
ing industry, into competitive groups which are consid-
ered as high-pressure and low-pressure groups. That is,
while all wage-earners are competing with one another
for position, this competition becomes intense as it is nar-
rowed down to a single industry, and reaches its maxi-
mum when several are competing for the same occupation
in a given factory. Thus the hands in a cotton mill
have a very general competition with the hands in a
woolen mill, and much less with the hands of an iron
foundry, but the cotton-mill hands are in a sharp competi-
tion with one another, and this becomes a high-pressure
group when there is a large number of laborers in the
cotton industry seeking employment, in comparison with
the number of places to be filled ; and when a single occu-
pation in the mill is considered, this competition becomes
narrow and intense. Thus in the iron factory we find
another competing group of laborers, and within this many
other smaller separate competitive groups.

The whole effect of the division of labor at first is to
render it immobile. Each individual seeking for employ-
ment learns to do one thing well, which may be a small part
of the manufacture of a single article. If he is thrown out
of employment he must seek a place in other competing
groups of the same industry. Failing in this, he will seek



30 ECONOMICS.

other employment in the same groups, and failing in this,
he will endeavor to enter other industries, for which he
has no skill; consequently he must take a lower position.
But failing in all of these, he seeks employment among
the great body of unskilled laborers. The secondary
effect of the excessive division of labor is to break down
the barriers of groups, because the very minuteness of the
division makes it possible for the laborer to prepare him-
self in a short time for the occupation; hence, laborers
may more readily pass from one group to another.

The division of labor has become so minute that it
takes a man of intelligence but a little while to learn how
to polish a boot-heel, or a woman to make a certain portion
of a shirt, or of a laborer to attend a bolt-cutting machine.
Therefore, while the introduction of the so-called labor-
saving machinery has a tendency to disarrange competi-
tive groups and throw laborers out of employment, the
minute division of labor allows them to shift more readily
from one industry to another.

Organization of Capital.

The introduction of power manufacture has brought
about the need of carrying on productive enterprises on.
a great scale, and this has led to the organization of capi-
tal, usually in the form of corporations, for the manufac-
ture of goods, the development of mines, the building of
railroads and canals, and the purpose of trade. All this
has tended to bring about a momentum in capitalistic
production. The absolute necessity for the use of capital,
and the fact that capital takes the initiative in all modern
manufacturing processes, gives it an immense power in the
modern economic life. The momentum of capital in itself



ECONOMICS. 31

is also great, and it has moved forward with unrelenting
selfishness in seeking its own interests. Hence it is not
on account of the undue influence of any individual or
class of individuals, but on account of economic conditions,
that the overweening power of capital exists.

Labor Organizations.

To offset this, laborers have organized themselves into
groups to protect their own interests. They seek to meet
the monopolistic power of capital with the monopolistic
power of labor. While they realize that capital is essen-
tial to modern productive processes, they also know that
nothing can be done without labor. They claim that capi-
tal has received more than its just reward of industry, and
to obtain what belongs to labor they must act as a unit;
that is, as a monopoly. They propose to raise the rate
of wages by forcing employers to comply with their de-
mands, and by shutting out of a given territory all com-
petition of labor. These two facts of capitalistic and labor
organizations have brought into the economic life many
questions of great importance. Two forces whose interests
are essentially the same in the process of production have
become suddenly antagonistic on account of supposed dis-
crepancy in distribution. But the combined influence of
conscious and unconscious organization has tended to
readjust economic conditions of life.

The State and Industry.

The apparent irregularities in the shaping of modern
economic society caused by industrial organization has
led many people to look to the state as the regulator of
all industries, until the relation of private economics to
public economics has become one of the great questions of



0* ECONOMICS.

modern political economy. Fundamentally the state is
the protector and regulator of all industrial cooperation
in all economic enterprises. At least, its policy must be
so directed as to secure the largest amount of economic
freedom compatible with economic justice to all groups
and classes. To what extent the state must go in industrial
management to secure this end is one of the problems of
modern economic life. At present the industrial revolu-
tion, or more properly the industrial evolution, still goes
on with ever-increasing rapidity, slowly changing the as-
pect of modern economic life. Notwithstanding the tend-
ency to government interference or regulation, the eco-
nomic life rests to-day essentially upon the exercise of free
competition. Industrial activities have been greatly multi-
plied ; industrial life has been greatly extended ; wealth
has increased in enormous proportions, until the study of
economic life and the laws and principles controlling it
has become of vital importance.

References: Ely, R. T., Outlines of Economics ; Ashley, W. J.,
English Economic History and Theory ; Cunningham, W., Growth
of Engliih Industry and Commerce ; Ingram, J. K., A History of
Political Economy ; Toynbee, Arnold, Industrial Kevolution ;
Blackmar, The Story of Human Progress ; Carl Biicher, Industrial
Evolution ; Ely, R. T., Studies in the Evolution of Industrial Society.



ECONOMICS. 33



CIIAPTEK II.

THE NATURE AND DEFINITION OF POLITICAL
ECONOMY.

Political Economy Treats of Economic Life.

Political economy considers the principles arid laws
of economic life, or, in other words, the principles involved
in production, distribution, and consumption of wealth,
and in fact all the activities of economic society, in what-
ever direction they may operate. It has to do especially
with wealth, and for this reason is sometimes called the
science of wealth, for by this is meant the observation,
classification, and logical arrangement of economic phe-
nomena and the principles arising from man's wealth-
getting and wealth-using capacities. But it seeks to inter-
pret the phenomena that arise from man's entire economic
activity. While the accumulation of wealth may be the
primal and logical idea in political economy, it is better
to place man in his economic activity in the foreground.
He is the central figure in economic life, and the distribu-
tion of wealth has become an important phase of political
economy. The principle of distribution, too, is one of
the most difficult and important of all within the scope
of political economy. While the production and distribu-
tion of wealth must always be carefully considered, the
effect of these processes on economic society must not
be neglected.
3



34 ECONOMICS.

Political Economy Arises from Concrete Economic Life.
It has been observed that in his attempt to obtain
wealth, man has arranged himself in groups or classes.
A multitude of industries have been developed which
fall into two groups arising from manufacture or pro-
duction of wealth, and from trade or the exchange of
wealth. Production and exchange are dependent some-
what upon the consumption of wealth by individuals, and
the various departments of industry are characterized by
the distribution of wealth or the amount of the net
product which each one receives, whether he be laborer,
landlord, capitalist, manager of business, or cooperator.
A study of these various relations of man in the economic
process has brought to light certain principles which con-
trol the production, distribution, exchange, and consump-
tion of economic goods. These principles form the main
topic of political economy. They are ascertained through
observation of concrete instances of social groups and
social activities in the economic life. These principles
are abstracted from the concrete, and become an inde-
pendent body of knowledge or of science called political
economy.

Principles Arising from Man's Economic Activity.
What then is the nature of the principles which ariss
from man's economic activity ? Political Economy would
consider production not only an effect, but would find
out its processes and the principles controlling it. It would
seek not only to find the means of production, but the
methods of production which yield the highest returns
to human effort. It would discuss not only those fac-
tors and powers engaged in production, but would find



ECONOMICS. 35

out the relative importance of each and the service each
performs; it would seek also the effect of the actual re-
turns to each factor. In so doing it would find that the
attempt of man to satisfy wants has pursued a zigzag
course and is followed by the laws of production, ex-
change, and distribution.

Relation of Man to Wealth-Getting and Wealth-Using.

Seeking to obtain wealth is one of the primal conditions
of economic life ; seeking to use it is another. It is the
relation of man to these two ideas which lays the founda-
tion of political economy. How society obtains wealth
and how it uses it are the first principles. These ideas
give rise to the multitude of conditions of life, and tend
to demonstrate principles which may be formulated.
Wide Range of Economics.

Political economy, although a compact body of laws
and principles, touches a wide range of subjects. It treats
of the methods of increasing wealth and the distribution
of the same among the various classes of producers; of
the exchange of economic goods and of their consump-
tion. It treats of capital and interest, labor and wages,
of money and its circulation. In its broad scope it em-
braces exchange, credit, and the principles of taxation.
In considering the laws of wages it treats of strikes and
combinations. In the consideration of the factors of pro-
duction it has to do with social organizations and many
other economic problems. But in all this it does not con-
sider the technology of wealth-getting.

Technology of Wealth-Getting.

Political economy is interested in the production of
coal and iron, but it does not deal with the technical pro-



36



ECONOMICS.



of their manufacture and sale at a profit to the opera-
tor. It may tell how a nation grows wealthy, but it will
not instruct the individual in the process of the accumula-
tion of goods on his own account. It is interested in the
manufacture of goods, but it will not explain to a person
the process of cotton manufacture, nor tell how he can
make a margin in wheat. It is interested in the wheat
product of the country as a source of wealth, but has noth-
ing to do with instruction in the best processes of agricul-
ture. It makes no attempt to say whether a farmer should
raise wheat or corn in a given year, or whether the manu-
facturer should make a certain grade of goods for the mar-
ket, but it does investigate the laws of supply and demand
and the conditions of wealth-getting and wealth-distribut-
ing to such an extent that a person studying these princi-
ples may have a larger intelligence in the technology of
wealth-getting. It does direct the thoughts toward the
business world, and present many phases of the economic
life with which the business man and the citizen should

be familiar.

Creation of Utilities.

The production of wealth consists in the creation of
utilities. Anything that is useful in exchange is economic
wealth. Man cannot make new material; he can only
change the form of that which already exists, making it
more adaptable to human needs. The timber of the for-
est is changed into furniture, buildings, and articles of
use, and when thus changed these articles become wealth
or economic goods. So too in the production of raw
material on the farm, man cooperates with nature, and
the substance of the soil and of the air is changed into
corn and fruits; under his direction and care, nature



ECONOMICS. 37

works for him. Whatever is used by man to satisfy hu-
man needs is utility, is wealth. But political economy has
to deal with those things about which we economize.
Things in a state of nature may be beneficial to man as
well as essential to his life and existence. That is, they
may be so free, like sunshine and water, as not to be con-
sidered as wealth. We economize about those things of
which we have not enough without the effort of man.
It is well also to distinguish between that which is useful
merely and that which is beneficial. Many articles of
wealth may be greatly desired by people and at the same
time may not be beneficial to them nor conducive to the
higher welfare. The whole process, then, of the creation