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Liberty to buy and sell may mean liberty to become bankrupt.
The individual who has a guardian to forbid him to do any
bargaining whatsoever may be saved from bankruptcy.

Advantages and disadvantages of freedom of contract. We
saw in the last chapter that when farm products are over-
supplied, as they were in the early nineties of the last century,



CONSTRUCTIVE LIBERALISM 577

the farmer is at a disadvantage in bargaining. When he was
compelled to take low prices for his products, in many cases he
was impoverished. There are only two possible ways out of
such a difficulty : the first way is to restore the equilibrium
between the demand and supply, so that the prices of products
shall rise to a remunerative level and the farmer be enabled to
bargain advantageously; the second is for the government to
exercise its power of compulsion in favor of the farmer and
against those who have the advantage on the market. At the
present time (1917) the reverse of these conditions exists. The
consumer is the one who is at a disadvantage, since he is trying
to buy undersupplied goods. Again, there are two ways out:
first, to increase the products and restore the equilibrium
between the demand and supply ; second, for the government-
to resort to some sort of compulsion in favor of the consumer
and against the farmer or the dealer. The liberalist is one who
prefers to restore the equilibrium and then allow the free
bargaining process to go on.

In much the same way there has been what seems like a
chronic oversupply of the lower grades of unskilled labor.
This has made it difficult for the unskilled laborers to secure
remunerative wages ; that is, wages high enough to support their
families in comfort. At the present time in the United States
of America (1918) there appears to be a scarcity, or at least
there is no longer such an oversupply, of labor as formerly
existed. Immigration from Europe has almost ceased, owing
to the European war, and at the same time the country is try-
ing to expand various lines of production.

In ordinary times, however, for some hundreds of years
back, the unskilled laborer has been at a disadvantage. A great
many sympathetic people have assumed that there was some-
thing inherent in the nature of labor that put the laborer
at a disadvantage, and something inherent in the nature of
capital that put the capitalist at an advantage in the bargain-
ing process. This is not true, although, as we have seen above,



578 PRINCIPLES OF POLITICAL ECONOMY

conditions have generally been more favorable for the capitalist
than for the unskilled laborer. But whenever and wherever
unskilled labor has been hard to find, the advantage has been
quite as much on the side of the unskilled laborer, and the
disadvantage quite as much on the side of the employer.
Whenever it has been possible for an employer to hang out
his shingle saying " Men Wanted " and have ten men apply
for each position, the conditions have been favorable for the
employer and unfavorable for the laborer. The fact that there
are more men applying for jobs than there are jobs to be had
is a sure indication of an oversupply of labor. The case is
parallel to that which would exist if a buyer of wheat could
hang out a sign " Wheat Wanted " and have many times more
wheat offered than he could buy. That would be a sure indi-
cation of the oversupply of wheat. On the other hand, if a
farmer should put up a sign which read " Wheat for Sale "
and find that many more buyers than he could supply were
coming to purchase wheat, that fact would indicate an under-
supply of wheat. Similarly, if a laborer, by putting out a sign
" Job Wanted " should have several employers coming after
him, this fact would indicate an undersupply of labor.

Making the advantages even on both sides. The policy of
the constructive liberalist is indicated by these observations.
It is his opinion that conditions can be created under which
the average employer will find it as hard to get a man to
work for him at liberal wages as the man will find it to get
an employer to hire him at those wages. When that is accom-
plished, the advantages in bargaining will be about even.
Labor would no longer be under a handicap in the bargaining
process. Laborers will no longer feel the need of some com-
pulsory restriction upon bargaining but will feel quite able to
take care of themselves without help from the government or
any other compulsory agency.

A program looking in this direction may take a little longer
to work out, but from the point of view of the constructive



CONSTRUCTIVE LIBERALISM 579

liberalist the results once achieved are vastly preferable to any
achieved under a compulsory system. There is an old story
about a wagoner, one of whose wagon wheels got into a deep
rut. Instead of trying to extricate it he sat down by the side
of the road and called upon Hercules to aid him. The story
goes that Hercules replied that if the man would put his
shoulder to the wheel, he could get out of the difficulty with-
out calling on outside help. This, according to the liberalist,
represents a general tendency in human nature. The govern-
ment is our Hercules, and whenever we get into difficulties
we are in the habit of sitting down and crying vociferously
for the government to come and do something. Even though
we have only the vaguest ideas as to what the government
could do, we still insist that it do something or other. To be
sure, there are some things which only the government can
do. No other agency than the government can be intrusted
with any kind of compulsion ; and if compulsion is necessary,
of course we must then call upon the government. To
paraphrase an old remark, the individual's extremity is the
government's opportunity.

" Doing something " for people. Beneficence is, of course,
a characteristic of good government ; but many of us, accord-
ing to the liberalist, have never reached the point where we
can understand that a " beneficent letting alone " is sometimes
the most beneficent thing the government can give us. There
are many people who feel that when they are ill the doctor
must " do something." They do not realize that sometimes
the most beneficent thing the doctor can do is to do nothing.
A doctor whose desire is to please his patients may feel under
some compulsion to do something for them, even if it is noth-
ing more than to give them bread pills. From the standpoint
of the liberalist much of our so-called social legislation consists
of bread pills.

Sometimes, however, it is really necessary that the doctor
should do something. The doctor whose skill consists in his



580 PRINCIPLES OF POLITICAL ECONOMY

ability to cure sickness rather than to please patients will have
enough to do, provided the people know enough to appreciate
him. The same may be said of a government. There are a few
really vital things that a government may do. If it succeeds
in doing these few things well, it will then be unnecessary to
do the thousand and one trivial things that it is asked to do.

So far as this country is concerned, probably the most far-
reaching and constructive piece of legislation in the last genera-
tion has been the restriction of immigration. This is one of the
few acts of the government which go directly to the root of
the difficulty of low wages and poverty. It is an act which
definitely aims at reducing the oversupply of unskilled labor.
It is true that it does not go far in this direction, but at least
it indicates to the public that the government has recognized
the source of the difficulty and is no longer proceeding on
general guesswork in an attempt to overcome it. If it will go
a little farther in the same direction, it will make unskilled
labor so scarce and hard to find that the unskilled laborer will
no longer be at a disadvantage, but can bargain on even terms
with employers and secure living wages for himself without
help from anybody.

A low standard of living and a high birth rate. But immi-
gration from Europe and Asia is not the only source of over-
supply of unskilled labor. The inordinately high birth rate
among the ignorant and unskilled is another large source of
cheap labor. Nothing, apparently, but a rise in the standard
of living will reduce the volume of this stream. A rise in the
standard of living means an increase in the number of things
which the average man or woman thinks necessary to the
support of the family. The more things they feel they must
have before they can marry and support a family, the longer
they will postpone marriage. The longer they put off marry-
ing, the smaller number of children there will be in the family,
partly, at least, because the child-bearing period of the wife is
reduced. If the age of marriage is raised on the average from



CONSTRUCTIVE LIBERALISM 581

eighteen to twenty-three, there are five less years during which
the wife may bear children.

Families too small among the educated classes. The restric-
tion of immigration among the ignorant and unskilled, of
course, has nothing to do with the restriction of immigration
among the educated and skilled. The latter are as free to come
as when immigration was unrestricted. Similarly, a rise in the
standard of living among the ignorant and unskilled has nothing
to do with the marriage and the birth rate among the educated
and skilled. Among the latter classes the reform ought to
proceed in quite the opposite direction. There is no doubt
that among these people marriages are postponed too long,
and the average families are too small.

Increasing the supply of employers. The decrease in the
number of people born with the heredity and prospective train-
ing which fit them for skilled positions, and for positions in the
ranks of the employing class, tends to reduce the demand for
unskilled labor. Hitherto, unskilled laborers have suffered from
two causes : the fact that there have been too many unskilled
laborers, and the fact that there have been too few employers.
It is as though, in the badly balanced ration of an individual
or an animal, the too abundant ingredient, say starch, were to
be increased more and more, and the too scarce ingredient, say
protein, were to be decreased more and more. The combined
result of increasing the one and decreasing the other would pro-
duce a more and more unbalanced ration, to the detriment of
the man or the animal. The continuous increases in the ranks
of the unskilled laborer through immigration and the high birth
rate, and the decrease in the highly skilled and managerial labor
through the postponement of marriage, and various other causes,
has produced a progressively unbalanced population, tending
to make unskilled labor very cheap and highly skilled and
managerial talent very dear.

Fortunately the effect of this combination of processes has
been offset, at least partially, by our system of popular education.



582 PRINCIPLES OF POLITICAL ECONOMY

Such a system of universal and popular education has the
effect of redistributing talent, of taking young people who
would otherwise have remained in the ranks of the unskilled
and training them for the ranks of the skilled, the managerial,
and the entrepreneur class. This tends to reduce the supply
of ignorant laborers and increase the supply of educated workers.
If the system of popular education continues to improve, and
greater and greater restrictions are placed upon the importation
of unskilled labor, and a higher standard of living is acquired
by our own unskilled laborers, the combined results of these
three changes will tend to make unskilled labor scarce and
hard to find, and to make jobs abundant and easy to find, and
give the unskilled laborer the advantage not only of retaining
his liberty of contract but of prospering under it. If we carry
out our educational policy to its logical limit, and train not only
skilled laborers but also managers and employers, and at the
same time create a more rational standard of living and better
moral conditions among these classes, the combined results of
these two policies, that is, training men for the high positions
and encouraging larger families among them, will so increase
the numbers of the managerial class as to take away their
present advantage in the bargaining process. By following
this general process throughout all ranks of society we may
expect in a short time so to even up the advantages of bar-
gaining as to give us something approximating equality without
substituting compulsion for freedom.

Thrift and the laborer. The encouragement of thrift will
tend in the same direction and will accelerate the process of
putting unskilled labor in a position to prosper under freedom.
It is through thrift that capital accumulates. When capital be-
comes so abundant that the average owner of capital has great
difficulty in finding an opportunity to use it, he will have to be
content with a smaller share in the products of industry.

The encouragement of productive enterprise, the frank
acknowledgment of our obligation to the man who shows the



CONSTRUCTIVE LIBERALISM 583

ability to plan a new enterprise and, what is vastly more im-
portant, to make it actually succeed, will do a great deal to ex-
pand the opportunities for those of us who do not possess that
kind of ability. The more such men we can develop in our
midst, the more our industries will expand and the more oppor-
tunities for remunerative employment there will be for the
rest of us.

Poverty easily curable under freedom. We need not have
poverty in our midst a generation longer than we want it.
By setting to work deliberately to balance up our population,
making ignorance and lack of skill to disappear, and making
technical training and constructive talent to increase, we can,
in a short space of time, make low wages and poverty a thing
of the past. What is even better, we can do this and still
leave everyone a free man. This is the gospel of the new, or
constructive, liberalism which is destined to bring relief, if
not to this nation, at least to some nation which has the wis-
dom to adopt it, and which, when adopted, will keep that nation
in the position of leadership among all the nations of the earth.



A LIBERALIST'S PROGRAM FOR THE COMPLETE ABOLITION
OF POVERTY 1

I. LEGISLATIVE PROGRAM

A. For the redistribution of unearned wealth.

1 . By increased taxation of land values.

2. By a graduated inheritance tax.

3. By control of monopoly prices.

B. For the redistribution of human talent.

i . By increasing the supply of the higher, or scarcer, forms of talent.
(a) By vocational education, especially for the training of

business men.
(ff) By cutting off incomes which support capable men in idleness.

1 Compare the author's work entitled " Essays in Social Justice," Chapter
XIV. Harvard University Press, 1915.



584 PRINCIPLES OF POLITICAL ECONOMY

2. By decreasing the supply of the lower, or more abundant, forms
of labor power.

(a) By the restriction of immigration.

(b) By the restriction of marriage.

(1) By the elimination of defectives.

(2) By the requirement of a minimum standard income.
(c} By a minimum-wage law.

(d) By fixing building standards for dwellings.

C. For the increase of material equipment.

1 . By increasing the available supply of land.

2. By increasing the supply of capital.

(a) By encouraging thrift versus luxury.

(b) By building up savings institutions.

(c) By making investments safe.

II. NONLEGISLATIVE PROGRAM

A. For raising the standard of living among the laboring classes.

1. The educator as the rationalizer of standards.

2. Thrift and the standard of living.

3. Industrial cooperation as a means of business and social education.

B. For creating sound public opinion and moral standards among

the capable ; for example,

1 . The ambition of the family-builder.

2. The idea that leisure is disgraceful.

3. The idea that the productive life is the religious and moral life.

4. The idea that wealth is tools rather than a means of gratification.

5. The idea that the possession of wealth confers no license for

luxury or leisure.

6. The idea that government is a means, not an end.

7. Professional standards among business men.

C. For discouraging vicious and demoralizing developments of public

opinion ; for example,

1 . The cult of incompetence and self-pity.

2. The gospel of covetousness or the jealousy of success.

3. The idea that the capitalization of verbosity is constructive

business.



INDEX



Adams, H. B., 294
Adams, Henry C., 503, 507
Advertising, 253
Agricultural credit, 314
Agriculture, 215
Anarchism and socialism, 555
Animal power, 238
Armageddon, the real, 499
Authority, exercise of, 57

Bacheller, Irving, 49, note

Bagehot, 50

Balance-of-trade argument, 340

Banana, the, 1 50

Bank check, origin of, 306

Bank of England, 309

Bank notes, 309

Banks, essential work of, 305

Bargaining, comparative advantages

in, 400 ; collective, 402
Bastiat, Frederic, 73
Brands and trade-marks, 326
Buckle, Henry T., 80, 81, 150, note
Bullock, C. J., 223, note

Capital, how increased, 99 ; definition
of, 155; productivity of, 167, 425;
reason for scarcity of, 429

Cattle trail, the Texas, 201

Civilization, the pent-up versus the
expanding type, 151

Clearing house, 306

Closed shop, 405

Collective bargaining, 402

Communism, meaning of, 531 ; rela-
tion of, to anarchism, 532 ; experi-
ments in, 533 ; American experi-
ments in, 535 ; results of, 539



Communistic societies, American, 536
Competing power, formula for, 496
Competition, 42
Competitive consumption, 45
Compulsion, elimination of, 506; ver-
sus voluntary agreement, 47 ; versus
freedom, 531 ; occasional necessity
for, 546 ; necessity for, in war time,

574

Confidence and economy, 53
Conflict, of interests, 36 ; forms of,

38

Consumers, idle, 68

Consumers' goods, classes of, 472

Consumption, meaning of, 453 ; im-
portance of, 454

Cooperation, where successful, 44 ;
fields for, 46; limiting factor in,
178

Corporation, the, 169; some weak-
nesses of the, 170; character of
the, 171 ; size of the, 172

Cost, 283 ; is disinclination, 284 ;
kinds of, 286 ; pain, 287 ; increas-
ing, 288 ; of war, 525

Country people, self-employment of,
216

Crime, meaning of, 40

Crops, location of, 79 ; advantage of
heavy-yielding, 148

Demand and supply, 274
Dependableness, 106
Desires, expansion of, 281
Diminishing returns, law of, 21 1 ; and

increasing cost, 288
Diminishing utility, 278
Division of labor, successive, 381



585



PRINCIPLES OF POLITICAL ECONOMY



Double taxation, 507
Dunbar, Charles F., 307
Durable goods, preference for, 457 ;
as investment for future, 463

Economic crises, list of, 331
Economic goods, 12
Economics, branches of, 2
Economy, meaning of, 3 ; necessity

for, 4 ; enforced, 522
Effort, irksomeness of, 283
Ely, Richard T., 229
Employers, increasing supply of, 581
Energy, solar, 137
Enterprise, the lure of, 442
Exchange, 9, 264 ; advantages of, 338
Extractive industries, instability of,

207

Factors of production, 366

Fallacies, characteristic, 523

Farm machinery, 84

Farmer, independence and depend-
ence of, 215

Farming, intensive, 147 ; intensive,
and poverty, 148

Federal Farm Loan Board, divisions

of, 3iS

Federal Reserve system, 311
Federation of trade unions, 404
Financial crises, 329
Financing a war, 514
Fish culture, 220
Fishing, 198
Forestry, 219
Forethought, 104
Freedom of contract, advantages and

disadvantages of, 576
Freedom versus compulsion, 531, 572

George, Henry, 565
Getting and spending, 6
Gold prices, 296
Goods, 15



Government, 256
Government control, 61, 488

Hadley, A. T., 233, note

Heredity and training, 115

Home market, 342

Human interests, conflict of, 359, 559

Humboldt, 150

Huntington, Ellsworth, 82, 332

Immigration, effect of, 397
Income and expenditure, 7
Industrial depressions, 330
Industries, the indoor, 150; the out-
door, 208 ; the genetic, 208
Infant industries, 343
Interest, functional theory of, 437
Interest, relation to value and price,

436

Interest in others, 27
International competition, 498

James, William, 115
Johnson, John, 293
Jones, Edward D., 331
Joy in work, 467

Kipling, 8 1

Labor, 93; division of, 119; advan-
tages of, 120; organization of, 130

Labor union, 404

Laborer and capitalist, 162

Land, 96 ; economic properties of,
142 ; differences in desirability of,
410

Land tax compared with single tax,
568

Law, need for, 50

Leisure versus luxury, 493

Leisure class, 67

Liability, limited, 170

Liberalism versus socialism, 543, 545 ;
policy of, 578



INDEX



587



Libertarians and compulsorians, 553
Lumbering, 203
Luxuries, 475

Luxurious consumption, effect on
labor, 492

McCulloch, J. R., 477

Machinery, advantages of, 1 22 ; farm,
135 ; and production, 223

Malthus, 395

Man power, conservation of, 460 ;
sources of, 521

Manufacturing establishments, 221

Margin of cultivation, 411

Marginal productivity and average
productivity, 371

Market value, criticisms on, 267

Marketing, essentials of, 318 ; cooper-
ative, 320

Marriage, age of, 117

Marshall, Alfred, 223, 351, note, 474

Mechanical power, 239

Merchandising, 249

Middleman as a timesaver, 246

Mill, John Stuart, 258, 477

Mineral lands, 98

Miser and spendthrift, 463

Military defense, 346

Mining, 206

Money, one form of social capital,
157 ; a labor-saving invention, 292;
substitutes for, 293 ; qualities in
material of, 295 ; kinds of, in United
States, 298 ; speeding up circula-
tion, 515 ; amount necessary in war
time, 516

Monopoly, 290

Morality, teaching of, 65 ; reasons for,
557, 558

National banking system, 311
Necessaries, 472
Niggardliness of nature, 281
Noncompeting groups, 398



Occupation, influence of, 214
Opportunity cost, 285
Ox, displacement of, 133; historical
importance of, 135

Partnership, 168

Personal utility, 245

Peschel, 81, 82

Physiocrats, 563

Population, geographical redistribu-
tion of, 1 88

Population, law of, 395

Poverty, how curable, 583

Power, animal, 132; kinds of, 141

Precious metals, 296

Prices, control of, 176

Producers' and consumers' goods,
260, 261

Production, definition of, 87 ; length-
ening process of, 165 ; combination
of factors of, 165

Productive, meaning of, 356

Productive life, promotion of, 52

Productivity, great law of, 212

Profits, definition of, 441

Protective tariff, 348

Railway, monopolistic character of
a, 242

Railways, 240; public or private, 241-
243 ; short- and long-distance haul-
ing, 242

Religion, 81

Rent, definition of, 409 ; reason for,
409 ; economists' theory of, 564

Residual share, 447

Revenue system, marks of a good, 507

Revenues, classification of, 503

Ricardo, 564

Risk, irksomeness of, 443

Risk-taking, necessity of, 443

Robinson, E. V., 188, note, 455

Ross, E. A., 54, 512

Rothamsted experiments, 373



588



PRINCIPLES OF POLITICAL ECONOMY



Savings banks, 305

Scarcity, causes of, 281 ; of labor,

causes of, 391

Scientific management, 186
Self-centered appreciation, 29
Self-interest, definition of, 22 ; and

public uses, 35

Sexes, interdependence of, 218
Shaw, Albert, 230, note
Single tax, 563, 569-571
Skill, cost of acquiring, 390
Small industries, decay of, 229
Smith, Adam, 61, 119, 120, 130, 256,

474, 511, 564
Smith, J. Russell, 147
Sobriety, 108
Social income, distribution of, 10 ;

utilization of, 1 1
Socialism, and communism, 541 ; and

populism, 543 ; and liberalism, 543,

545

Society, the cooperative, 177
Spartan communism, 534
Spencer, Herbert, 556
Sprague, O. M. W., 307, note
Standard of living, 344, 393, 461, 495 ;

and birth rate, 580
Standard money, 300
Standardization, 252 ; and economy, 55
Steam engine, 140
Strike, the, 406
Struggle for existence, 37
Sumptuary laws, 486

Taborites, 534

Talent, waste of, 70

Tariff, paid by consumer, 348 ; paid

by foreign producer, 349 ; when

prohibitive, 350
Taussig, F. W., 124, note
Tax, definition of, 504
Taxation, canons of, 51 1 ; progressive,

511 ; repressive, 512



Taxes, inheritance, 509

Thrift, 105 ; and the laborer, 582

Tillage, 210

Token currency, 301

Tools, compared with machinery, 121 ;
compared with consumers' goods,
1 60; as consumers' goods, 467 ; as
inducement to work, 468

Trade union, 403

Transportation, 233 ; types in use,

23?
Trust, the, 175

Unemployed, the, 66
United States, geographical advan-
tages of, 82

Unskilled labor, scarcity of, 392



Online LibraryThomas Nixon CarverPrinciples of political economy → online text (page 47 of 48)