Copyright
University of Chicago. Dept. of Political Economy.

Outlines of economics online

. (page 1 of 14)
Online LibraryUniversity of Chicago. Dept. of Political EconomyOutlines of economics → online text (page 1 of 14)
Font size
QR-code for this ebook















tii



^1 HB

™m 171



dup.

Chicago.



»t



Southern Branch
of the

University of California

Los Angeles

Form L I

HB
CA-3



This book is DUE on the last date stamped below



APR

... t



/fl






-=^0



r



Oer 2 6 1925
v^ 3 1925

1 5 192&
7 192b



9



JAN 31 l92i§9C|T 7 1f94g



3CT iO



FEB 5 1935

WAR 1 5 193f
juu 17 1935

>/AiV 6 tgj^

.JP^2 -^-

TEB 4 19?P
JAN 3 193tf

WAR 13 193S
APR 4 1345

IftAR 2 8 1946



JUL I REQJ



KIX'O






OUTLINES OF KCONOMICS



THE UNIVERSITY OF CHICAGO PRESS
CHICAGO, ILLINOIS

Hgents

THE BAKER & TAYLOR COMPANY

NEW YORK



THE CAMBRIDGE UNIVERSITY PRESS

LONDON AND EDINBURGH



OUTLINES OF ECONOMICS

DEVELOPED IN A SERIES
OF PROBLEMS



BY MEMBERS

OF THE DEPARTMENT OF POLITICAL ECONOMY

OF THE UNIVERSITY OF CHICAGO



, . * » - ^ o ; , - ' ' - ' • ■> . ^ •









THE UNIVERSITY OF CHICAGO PRESS
CHICAGO, ILLINOIS



59231



Copyright 1910 By
The University of Chicago



All Rights Reserved



Published September 1910

Second Imijression February 1911

Second Edition September 1911



Composed and Printed By

The University of Chicago Press

Chicago, Illinois, U.S.A.



44- ti



^ PREFATORY NOTE

. This book, which has been revised, expanded, and to a consider-
able extent rewritten since its first publication in tentative form a

^ year ago, is the outgrowth of a three years' experiment in elementary

' economic instruction. The problem with which this experiment has
had to do is sufficiently familiar to teachers of introductory economics:
the problem of imparting the essentials of economic theory to college
students who, at the same time that they condemn such generaliza-
tions as remote and unpractical, betray in many ways how limited
is their own understanding of practical, commonplace, economic
facts. Fortunately, it is possible not only to link economic theory
with descriptive material, but in a measure to build the theory up
out of the famihar events of economic life. This procedure the
authors have attempted to embody in a series of problems designed
to guide the student in his reading and to give definiteness and direc-
tion to classroom discussion.

The method of the book has been called inductive; but it is induc-
tive in only a very limited sense. Questions and answers could hardly
enable beginners in the subject to arrive independently at the con-
clusions which economic scholars have accepted. The instructor
must still hold the discussion to a true course. Yet questions can

. and, as experience shows, do serve to arouse interest, to point the
way in which a sound conclusion lies, and to give a basis for discrimi-
nating and independent judgment respecting the adequacy of the con-
clusion which, under guidance, is reached. A student is well on his
way to understand the fundamentals of economics so soon as he learns
to reflect intelligently upon what is hai)pening every day in the world
of affairs about him.

It is not intended that the Outlines shall lake the place of a text-
book. Rather they have been designed to })arallel some text, with
its systematic presentation of economic theory, and they may well
be further supplemented by readings of a descriptive character.
A "case-book" of illustrative material is already in preparation for
use with the Outlines.



VI OUTLINES OF ECONOMICS

The authors have been aided both in the writing of the book
and in the experimenting which led to it, by co-operation, criticism
and suggestions from many teachers of economics in their own Uni-
versity and in other institutions. In particular they wish gratefully
to acknowledge the assistance rendered by Professor J. Laurence
Laughlin, Professor A. S. Johnson, and Professor R. F. Hoxie, of the
University of Chicago; Professor F. M. Taylor, of the University
of Michigan; Professor A. B. Wolfe, of Oberlin College; and Professor
T. N. Carver, of Harvard LTniA-ersity.

Leon C. Marshall
Chester W. Wright
James A. Field



CONTENTS



A. Introductory i

B. Economic Wants, Motives, and Choices .... 3

I. The Characteristics of Wants 3

II. Means of Satisfying Wants 4

C. Preliminary Survey of the Economic System ... 7

I. The Evolution of Industrial Society ... 7

II. Certain Characteristics of the Present Eco-
nomic System 9

1. Private Property .10

2. Freedom of Competition 10

3. Co-operation through Exchange of Goods 11

4. The Money Economy 12

D. The Productive Process 14

I. The Meaning of Production 14

II. Natural Agents and the Productive Process . 15

1. The Function of Natural Agents in tlie Productive
Process 16

2. The Increase ol Pr(Kkiclion as Determined ijy Land 16

a) Physical Limitation of Land

b) Exhaustion of the Powers of Land

c) The Law of Return

3. The Conservation of Natural Resources . 17

III. Labor and the Productive Process 19

1. The Definition of Labor 19

2. The Elements of the Labor Power of a Community 19
a) The Number of Laborers (see tlu' topic "In-
crease of Population "" below)

vii



VI 1!



OUTLINES OF ECONOMICS



b) The Efficiency of Each Individual

i. Health and Strength

ii. Mental Qualities
iii. Moral Qualities
iv. Social Conditions

c) Time of Labor

d) Division of Labor (treated under "Organiza-
tion")

3. The Conservation of Human Energy

4. The Increase of Population

a) Natural Increase ....
i. The Problem of Numbers

ii. The Problem of Quality .

b) Immigration

IV. Capital and the Productive Process

1. The Definition and Function of Capital

2. The Accumulation and Conservation of Capital

V. Organization and the Productive Process

1. Specialization

a) Specialization in Relation to Exchange

b) The Separation of Occupations

c) The Division of Labor

d) Territorial or Geographical Specialization

i. Grouping of Related Industries
ii. Grouping of Many Plants of the Same In-
dustry

e) Factors Limiting the Degree of Specialization

i. The Nature of the Industry

ii. The Extent of the Market
iii. Social Institutions
iv. Financial Organization

2. Ths Economic Proportioning of the Productive
Factors



PAGE



20

22

22
22

23
24

25

25
26

27
28



29



CONTENTS ix

PAGE

3. Present Forms of Industrial Organization 30

a) Forms of Business Organization ... 30

i. The Individual Firm
ii. The Partnershij)
iii. The Corporation

iv. Co-operative Enterprise (treated under
"Social Reform")

b) The Size of the Most Efficient Unit . . . 31

4.. Modern Organization Exemplified by Certain In-
dustries 32

a) Agriculture 32

b) Transportation 34

i. Transportation in General .... 34

ii. Railroad Transportation 35

(a) The Development of Railroad Trans-
portation 35

(b) Characteristics of the Railroad Industry 35

(c) Railroad Rates 36

c) Manufactures: Large-Scale Industry — the
Trusts 38

i. The Origin of the Trust Problem ... 39
ii. The Trust Movement in the United States . 40
iii. The Promotion and Organization of a Trust 40
iv. Analysis of the Causes of the Growth of
Trusts and the Results of the Trust Organi-
zation 41

V. The Lines of Procedure in Dealing with the

Trust Problem 42

Exchange 44

I. Markets 44

II. Value 45

1. The Nature of Value and Price .... 45

2. Demand and Supply in Relation to \'alue 46

3. Normal Value and Normal Price .... 48



OUTLINES OF ECONOMICS



PAGE



O



52

S3
53

54



4. Analysis of Demand 49

a) Meaning of Demand 49

b) Determinaiits of Demand 49

i. Desire

(i) Individual Determinants of Desire 50

(2) Social Determinants of Desire 50

ii. Effectiveness of Desire — Purchasing Ability 51

iii. Persons Affected

c) Certain Characteristics and Special Forms of
Demand

i. Elasticity of Demand 53

ii. Alternative Demand: The Principle of Sub-
stitution

iii. Derived Demand 54

iv. Composite Demand 55

v. Joint Demand . ■ • • 55

5. Analysis of Supply 56

a) Meaning of Supply 56

b) Determinants of Supply 56

i. Cost of Production, Simphfied Treatment . 56
(i) Uniform Cost per Unit of Product:

" Constant Cost " 57

(2) Different Costs for Different Units of

Product 58

(a) "Increasing Cost"
{b) " Diminishing Cost "
ii. Indeterminate Cost of Production 59

(i) Direct Cost and Indirect Cost 59

(2) Joint Cost 60

(3) Effects of Progress in Methods of Pro-
duction

(4) Appreciation and Depreciation
iii. Physical Limitation of Supply
iv. Monopolistic Limitation of Supply

V. Social Determinants of Supply
(i) Formal Social Control
(2) Informal Social Control



60
61
61
62

63



CONTENTS xi

PAGE

c) Certain Special Forms or Manifestations of

Supply 64

i. Perishable Goods 64

ii. Joint Supply and By-Products ... 64

iii. Composite Supply 65

6. The Marginal Utihty Explanation of Value . 65

7. General Questions on Value 66

III. The Mechanism of Exchange 69

1. Money Exchange 69

a) The Nature and Functions of Money 69

b) The Characteristics of a Satisfactory Money
Good 70

c) The Forms of Money 71

i. Standard Money
ii. Token and Subsidiary Currency
iii. Credit Money

d) The Value of Money 72

i. The Value of Standard Money ... 72

ii. The Value of Other Forms of Money 74

e) Gresham's Law 74

/) The Kinds of Standard 75

i. The Single Standard (monometallism) 75

ii. The Double Standard (bimetallism) 75

iii. The Limping Standard 77

iv. The Tabular Standard and the Method of

Index Numbers 77

V. The Paper Standard (iial money) 78

2. Credit Exchange 78

a) Credit and Credit Instruments .... 78

b) Credit Institutions (with particular reference

to banking) 79

i. Principles of Banking 79

ii. Clearing-House Operations .... 81

iii. Comparison of Banking Systems . 82
iv. Foreign Exchange (treated under " Interna-
' tional Trade'')



XII OUTLINES OF ECONOMICS

PAGE

IV. International Trade 83

1. The Principles Determining International Trade 84

a) Trade Based upon Insuperable Differences of
Economic Conditions

b) Trade Based upon Differences Constituting Re-
ciprocal Superiority

c) Trade Based upon Differences Constituting
Relative Superiority

2. The Balance-of-Trade Idea 86

3. Foreign Exchange and International Payments 87

4. Regulation of International Trade (with particular
reference to the protective tariff) .... 88



F. The Distributive Process
I. Introductory .
II. Rent .

I. Introductory



91
91

93

93



2. The Differential Return (without necessary refer-
ence to any particular system of ownership) . . 93

3. The Relation of Economic Rent to Contract Rent
under a Regime of Private Property ... 96

4. Rent and Cost of Production 97

5. Rent in Relation to Taxation 98

6. Rent and Social Reform 98

7. Economic Phenomena Analogous to Rent . 99

III. Wages and Trade Unionism 100

1. The Demand for Labor . . . ; .100

2. The Supply of Labor loi

3. Some Practical Apphcations of the Principle of
Demand and Supply to the Subject of Wages 102

4. The Specific Productivity Theory of Wages .104

5. Trade Unionism 106

a) Causes of Trade Unionism 106

b) Trade Union Organization and Demands . 107



CONTENTS



Xlll



c) Trade Union Theory

d) Trade Union Policies and Methods

e) The Social Problem of Unionism



IV. Interest

1. Introductory ....

2. The Demand for Capital

a) The Demand for Capital Goods

b) The Demand for Funds

i. Long-Run Demand .
ii. Mom.entary Market Demand

3. The Supply of Capital

a) The Supply of Capital Goods

b) The Supply of Funds

i. Long-Run Supjjly

(i) The Savable Surplus
(2) The Motives to Saving

ii. Momentary Market Supply

4. General Questions on Interest .

V. Profits

1. Introductory ....

2. The Risks of Industry

a) The Nature of Industrial Risks

b) Si)eculation in Relation to Risks

c) Insurance in Relation to Risks

3. General Questions on Profits



PAGE
107
108
109

IIO

no

112
112
112
112

114
114
114
I.I4



116
117

118
118
119
119
120

124



Public Finance and Taxation .
I. The Forms of Public Expenditure

II. The Sources of Public Revenue

1. Public Loans

2. Public Domain

3. Public Industries and Investments

4. Fees and Assessments .



1 26
126

126

126
128
1 28
128



XIV



OUTLINES OF ECONOMICS





PAGE


129




129




130


T


130




131




131




132




132




133




133




134




134


^


135


Order


13s



5. Taxation

a) Canons of Taxation

i. The Principle of Benefit .
ii. The Principle of Ability or Faculty

b) Forms and Incidence of Taxation

i. The General Property Tax
ii. Customs Duties
iii. Excise Taxes . . .
iv. Income Taxes ....
V. Inheritance Taxes
vi. Corporation and Business Taxes

c) Tax Reform

H. Social Reform

I. Criticisms or the Present Industrial Order

1. Economic Defects

a) Defects of the Productive Process

i. Wastefulness and Duplication of Effort
ii. Artificial Stimulation of Wants
iii. Production for Sale Rather Than for Service
iv. Carelessness in Conserving Human Energy

b) Defects of the Distributive Process

i. Great Inequalities in Possessions and Incomes
ii. The Unfortunate Situation of the So-called

Lower Classes
iii. The Consequences

2. Resulting Social and Political Defects

a) Corruption, Favoritism, and Inefficiency in
Government

b) Militarism

c) Vice and Crime

3. Difificulty (impossibility?) of Remedying These
Evils under the Present System

Remedies Which Have Been Suggested .
I. Individual Reform — the Development of Different
Ideals



II.



137



137



CONTENTS XV

PAGE

a) The Significance of Individual Reform

b) The Agencies of Individual Reform

Social Reform 138

a) Reforms Involving No Vital Change in the

Present Order 138

i. Reforms of the Immediate Conditions of In-
dustry

(i) On the Initiative of the Persons to Be
Benefited

(a) The Trade Union Mo\'ement

(b) Co-operative Enterprises

(2) On the Initiative of Other Persons
(a) Profit-sharing

(3) On the Initiative of the State

(a) Regulation of the Conditions of Work

(b) Workingmen's Insurance and Pen-
sions

ii. General Economic and Social Reforms
(i) On the Initiative of Private Persons
(a) Philanthropic and Charitable Enter-
prises
(2) On the Initiative of the State

(a) Direct Aid to the Needy — Poor-Re-
lief

(b) Tax Reforms

(c) Enlarged Educational Facilities

(d) Provisions for the Public Health

b) Reforms Practically Amounting to Revolution 140

i. Land Nationalization (dealt with under

''Rent")
ii. Anarchism
iii. Communism
iv. Socialism

(i) The Sociahst Philosophy as Exemplified
in
(o) Utopian Socialism



xvi OUTLINES OF ECONOMICS

(b) Christian Socialism

(c) State Socialism

(d) Marxian Socialism

(i) The Materialistic Conception of

History
(ii) The Marxian Theory of Ex-
ploitation
(iii) The Doctrine of Capitalistic

Contradictions
(iv) The Class Struggle and the

Social Revolution
(v) The Co-operative Common-
wealth
(2) The Socialist Movement

(a) The Socialist Program

(b) The Organization and Extent of the
Movement

(c) The Aids and Hindrances to the
Movement

III. Suggested Ideals of Distributi\^e Justice . . 142

1. The Aristocratic Ideal

2. The Communistic Ideal

3. The Socialistic Ideal

4. The Competitive Ideal



A. INTRODUCTORY

Economics is the scientific study of the activities of men in the
process of getting a living. As such, it is one of the social sciences;
for the methods by which men attempt to make a Hving depend on
the way in which men live together in society. All modern business
involves a high degree of co-operation, and is to that extent social in
character. Certain industries and trades are possible only under special
social conditions: elevated railways and subways do not pay except
in large cities; shopkeepers can sell only those goods which conform
to the fashion and usage of the day; saloons and lotteries are subject
to the public sense of right and wrong, expressed in law. To differ-
entiate economics sharply from the other social sciences would in
fact be impossible. Each of these social sciences, investigating its
own special problems, is, in its attempt to explain them, driven to
study the forces now operating in society as a whole. All the social
sciences deal with the process, the evolution, of society; recognize its
momentary aspect as but one phase of a continuous change ; and seek
in the past history of social institutions an indication of the forms
they may be expected to assume in the future. In so far as separate
social sciences are to be distinguished, the distinction is not in fixed,
exclusive boundaries, but rather in a difference of emphasis and
viewix)int. Working within the common field of organized social
relations, each science treats primarily and centrally a problem
characteristically its own.

The economist, in studying the process of getting a Hving, is
I)rimarily interested in the manner in which men endeavor to satisfy
their wants — typically, though not exclusively, the material wants, of
food, clothing, and other necessary or desira])le commodities that we
make, and sell, and buy, and use. Consequently, in what follows we
shall study (i) the nature of wants and the a])plicati()n of go(Kls to
their satisfaction (generally called consumption) ; (2) the ])ringing into
existence of the means of satisfying wants (generally called produc-
tion) ; (3) the valuation set upon goods in the process of exchanging
them (generally called exchange); and (4) the apportionment or shar-
ing of these goods among the members of society (generally called
distribution). Of course some wants are satisfied without effort on
our part, e.g., our want for air. As such cases present no problem,
the economist does not concern himself with them. In most cases,
liowever, nature does not spontaneously satisfy our wants, and this
one commonplace fact goes far to exi)lain all human social activity.



2 OUTLINES OF ECONOMICS

Questions

1 . What do you consider the ten most important questions of the
day? Which of these are essentially economic questions? How
many directly or indirectly involve economic matters ?

2. Name some of the laws passed by our legislatures that have
economic consequences. Can you mention any important legisla-
tion that is without economic effect ?

3. Try to estimate how large a portion of our life is given over to
the attempt to satisfy economic wants.

4. "To attain better satisfaction of our wants we might do several
things: (a) diminish the number of our wants; (b) change the char-
acter of our wants, e.g., develop altruism; (c) provide for larger pro-
duction and better distribution of wealth." Are any of these being
done today ? What part of the problem falls to the economist ?

5. What social problem primarily interests the student of political
science ? of history ? of ethics ? of social psychology ? How is each
of these problems related to the central problem of economics ?

6. If men were never in danger of hunger or other pressing want
would they work, or steal, or go to war ? Are work, and crime, and
war economic phenomena ?

7. Would far-reaching economic changes, such as the change from
good times to hard times, be Hkely to have political consequences?
Would such changes be likely to affect the average man's attitude
toward life ?

8. Do you believe that you can form a satisfactory judgment upon
a given historical period, e.g., the colonial period in America, without
having a knowledge of the economic conditions of the time ?



B. IXONOMIC WANTS, MOTIVES, AND CHOICES

I. The Characteristics of "Wants
II. Means of Satisfying Wants

This phase of economics is commonly known as The Consumption
of Wealth, or, more briefly. Consumption.

I. The Characteristics of Wants

Since political economy is concerned with the effort to satisfy
wants, some idea must be gained of the characteristics of wants,
motives, and choices. This section of the work is, of course, largely
a discussion of social psychology. Our main concern is with the con-
sequences of this psychology in so far as these consequences are
economic.

Questions

1. Try to draw up a classified list of our wants. Are they confined
to things which enter into commerce ? Are they confined to material
things ?

2. In the case of most of our wants it is said that a "law of dimin-
ishing utility" or "law of satiety" applies.

a) State this law, gix'ing particular attention to a formulation
of the conditions under which it is true.

b) What practical results of the working of this law appear in
the industrial world ?

3. It is said that "the sum total of human wants cannot be
sated."

a) What evidence can you advance concerning the validity of
this statement ?

b) What practical results of the working of this law appear in
the industrial world ?

4. It is said that "wants arc (K'Urmiiu'd largi'ly by social
standards."

a) What evidence can you advance concerning the validity of
this statement ?

b) What practical results of the working of this law appear in
the industrial world ?

5. Are our wants wholly under the control of our reason ? Do
we always desire those things which are l)eneficial ? Worthy ? Can
you give cases where wants seem to flow from llie action of habit?
custom ? social inheritance ? instinct ?



4 OUTLINES OF ECONOMICS

6. Do pi'()])lL- actually apportion their expenditures for the articles
they buy in accordance with their abstract opinions of what would be
judicious expenditure ?

7. Since you must make choices, you probably seek first to gratify
your most pressing desire, x. Can you tell why x is at the moment
the most pressing of your desires ? Would it always be ?

8. Suppose you had $100 to spend. Would you spend all of
it at once ? What would you buy ? Would you buy the same things
at all times and under all circumstances?

9. If you had $200 to spend, would you include among your
purchases all the things you would have bought for $100 ?

10. A spends annually $600. B spends annually $60,000. Is it
likely that B spends just 100 times as much for clothing as A does ?
Following out this suggestion, classify the expenditures of the ordinary
family under half a dozen general heads and indicate what proportion
of the total expenditure might fall under each of these heads in the
cases of A and of B.

11. Make a list of reasons why men engage in industry and trade.
Are they ever actuated by altruism, love of power, or patriotic desire
to contribute to the welfare of their own community? Should the
economist deal with such motives as these ?

12. Should the economist deal with "economic wants, motives,
and choices," or with all wants, motives, and choices which have
economic significance ? Is economics the only science which is con-
cerned with human wants ?

13. Do you think of any form of economic activity which is not
consciously directed toward the satisfaction of wants ?

XL Means of Satisfying Wants

Means of satisfying wants are called goods. Goods, which may be
material or non-material, are characterized by the quality of utility —
the capacity to satisfy wants.

The following diagram suggests a descriptive classification of
goods :

/ Material (wealth)

(Economic Goods
(have utility, are scarce i
and appropriable) \ Non-Material (services)

ivj cans 01 saiisiymg /

Wants-Goods \ /Material .

\ „ ^ , \ I [The economist does

\ Free Goods ^^^ ^^^^^^^ ,^j^_

(haveutdity) .^ self with these]

\ Non-Material



ECONOMIC WANTS, MOTIVES, AND CHOICES 5

Questions

1 . Does every good possess utility ? Is everything which possesses
utility a good ?

2. Have the following utility: whiskey, a gambler's pack of cards,
clothes of an obsolete fashion, opium, grand opera, air?

3. Which has the greater utility, a diamond or a barrel of Hour?
an uncut copy of a rare book or a copy that has its leaves cut and may
be read ? Why ?

4. Are the following appropriable: (a) a loaf of bread; (b) a coal
mine; (c) sunshine; (d) the Mississippi river; (e) a public park; (/) a
band-concert ? What is meant by " appropriable" ?

5. Give examples of non-material economic goods, of non-material
free goods, and of material free goods.

6. Should the economist be as much concerned with non-material
as with material economic goods? Can we say that one class is
more important than the other ?

7. Make a list of things which are clearly wealth.

8. Make a list of 'things which are clearly not wealth.

9. Make a list of things concerning which you are in doubt
whether they are wealth.

10. Define wealth.

11. Are the following wealth: an ocean steamship; a pleasure
yacht; a ship on the bottom of the ocean ; gold in the mine; gold, to a


1 3 4 5 6 7 8 9 10 11 12 13 14

Online LibraryUniversity of Chicago. Dept. of Political EconomyOutlines of economics → online text (page 1 of 14)