things, the amount that can be saved, and the disposition to save. Every laborer, in whatever class he may be, receives a definite compensation for his labor. Of this a certain portion must go to the procuring of the necessaries of life, food, clothing, shelter, for self and family. Another portion will be expended in procuring the decencies and comforts of life. All beyond this may be saved and go to make up capital. This surplus will depend on the amount received by the prospective capitalist. When profits and wages are high, the amount which may be saved by the employer and the employee will be greater. The increase of capital, however, will naturally depend on the disposition to save. This disposition is not manifested equally by all. The untutored savage lives for the day and foresees not the needs of the morrow. Prudence and foresight, the principle of present self-denial for the future enjoyment, and the ambition for the betterment of one's condition all come with education. Every one can save a little, if he will but learn to restrict his wants. This presupposes a degree of self-denial which can become possible only when one conceives the future advantage to be gained as more important than the present gratification. QUESTIONS 1. Define production. What are the factors of production? What are the kinds of production? What is product? 2. What items enter into the cost of production? 3. What is the general classification of the productive industries of the United States? 4. Considering the end of production, what are the laws affecting production? 5. Why is nature necessary as a factor of production? What characteristics of land add to the productive capacity of a nation? In what degree is the land of the United States possessed of these characteristics? 6. What connection is there between the law of diminishing returns and production? What is intensive production? Extensive production? Illustrate by an example. 7. What is labor? What are the requisites of labor? Explain each by 8. What helps to increase the efficiency of labor? What have the laws of this country done to increase the efficiency of labor? 9. Give the classification of the different forms of labor in view of their economic utility. Why is agriculture put first? 10. Why should a wise government encourage agricultural pursuits? 11. Explain the doctrine of Malthus. Why should the doctrine be rejected? 12. What are the hindrances to production? 13. How has division of labor been brought about? What are its kinds? What are the advantages and the disadvantages of each? 14. Was the introduction of machinery an advantage to society? 15. Explain how capital is always less than wealth. What is required in order that an object of wealth may become capital? Give examples. What does capital furnish to the laborer? 16. Can capital produce wealth by itself? How is capital consumed? What are the kinds of capital? On what does its increase depend? CHAPTER IV EXCHANGE Explanation of Exchange. Production is not limited to the objects which satisfy the producers' own and immediate wants. Many things are produced which the producers will never use. The producers produce for others. This brings about that feature of Political Economy called Exchange. Exchange is universal. It makes possible the division of labor already spoken of. By reason of exchange individuals may apply themselves to one trade or to one part of a trade, trusting to receive from others all the various things which they need. Advantages of Exchange. The advantages of exchange are manifest: 1. Exchange brings into use a large amount of wealth which otherwise would remain unused. All countries produce various commodities in much larger quantities than are called for by the wants of those countries. Thus, England produces more coal and manufactures than it consumes; the United States produces more wheat and cotton than it consumes. Again, in the United States, the New England states produce more manufactures than are demanded by the dwellers in the New England states; the South, more cotton than it needs; the West, more farm products than could be consumed by the inhabitants of the West. All these objects are wealth, and if exchange did not exist, the surplus of all these commodities would go to waste or indeed would not be produced at all. But by means of exchange, a commodity can find markets outside of the immediate places of production, and for that reason it is extensively produced and brings into employment an immense amount of capital and labor. 2. Exchange enables men to utilize in the best way the productive capacities which they may have. A great number of productive industries are required to supply man with all the things he needs for a comfortable existence. If exchange did not exist in any form, every man would have to apply himself to each of these industries in order to supply his needs, and for such universal production he would be but illfitted. But, because of exchange, he may apply himself to some single kind of productive industry for which he has greater aptitude, relying on exchange to furnish him with the various objects which he himself does not produce. And thus it is that while the individual is laboring for others, the whole world is laboring for him. As De Laveleye says: "The poorest workman consumes the products of two hemispheres. The wool for his clothes comes from Australia; the rice for his pudding from the Indies; the wheat for his bread from Illinois; the petroleum for his lamp from Pennsylvania; his coffee from Java; the cotton for his wife's dress from Egypt or from Alabama; his knife from Sheffield; the silk of his necktie from France." (Éléments d'économie politique.) 3. Exchange places each object where it has greatest value. The tastes and customs of people differ. One man or one community may value what another cares little for. 4. Exchange increases the production of wealth. It increases the number of the markets. Mechanism of Exchange. - Exchange has brought about the establishment of a vast mechanism necessary to facilitate it, including: 1. The traders or middlemen who devote their whole time to the work of exchange. 2. Thé extensive systems of transportation, -wagon roads, railroads, and merchant vessels. 3. The weights and measures used in trade. 4. The money and credit required by trade. 5. The system of legislation affecting debts, bankruptcy, the regulation of railroads, the inspection of various products, and the establishment of Consular Agencies in foreign countries for the promotion of commercial interests. Middlemen or Traders. special study. The middlemen or traders deserve The first kind of middleman to appear is the traveling trader, who carries about the wares he has purchased from the producers to dispose of them to the consumers. The caravans of the East still conduct trade in this manner. The village peddler is still to be found in our midst. As civilization develops, the traveling trader gives place to the shopkeeper, who advertises his goods and attracts the consumers to him. (1) Advantages. - Society derives certain advantages from the trader: 1. The trader serves as a middleman between the producer and the consumer, and saves each the trouble of seeking out the other. 2. The trader buys goods wholesale from the producer and sells them retail to the consumer, thus facilitating trade on both sides. 3. The trader keeps goods in stock, and so holds the market normal. (2) Disadvantage. A disadvantage may arise because of the trader, when the number of traders becomes very great. When the cost of production of an article is diminished through the introduction of machinery and the various economies that may be found possible in the continued production of an article, the price of the article does not always decrease; on the contrary, the prices of some such articles have risen. This may be brought about in some measure by the great number of middlemen engaged in the retail business. Each addition of a middleman tends to increase the price. The fact may be explained by the following example: |