Monopolists can affect the prices by controlling the supply of the article. As they have the exclusive right or power to produce the article, they can determine how much shall be placed on the market. By controlling the supply, they can keep up the prices.

Ethical View of Monopoly Prices. - From an ethical point of view, monopoly prices are not unjust when they are fair and reasonable in the estimation of prudent men, and when the profits derived from the sale of the article are not excessive. In regard to many articles that contribute to the comforts or the luxuries of life, no one is obliged to buy the articles. Those who desire them may be supposed to be willing to pay even an exorbitant price. No injustice, therefore, is done the buyers when high prices are fixed for such articles of luxury.

It may be, however, that a monopoly will be secured in regard to some of the necessaries of life. These things the people must have in order to live, and when advantage is taken of this general need and prices are made exorbitant, justice as well as charity may be violated.

Price Fixed by Law. The Classical School, which repudiates all intervention of the state in matters economic, denies both the right and the propriety of the state to fix the prices of commodities. This view has been generally accepted on the supposition that prices are determined by principles which work out their fulfillment irrespective of all action of the state. The state cannot control these principles.

In recent times, this view has been modified, and governments have claimed the right to regulate prices in certain cases. The Railroad Commission, for example, exercises the right to determine the freight and passenger charges of railroads. The intervention of the government, however, has hitherto been limited to corporations performing a public service of some kind.

The state can indirectly affect prices by restraining the unjust aggressiveness of trusts and monopolies, by condemning oppressive combinations that limit competition, and by oppos ing speculation in natural products.

Some writers claim that because the state is the guardian of justice and the protector of the feebler elements that compose it, it has the right and at times the duty of curbing the avarice and rapacity of dealers and of determining a maximum price, at least when there is question of the necessaries of life. Such may be said to be the view of the Catholic School.

QUESTIONS

1. What are the different methods of studying Economics? What are the main subdivisions of the subject? Why are wealth, value, and price studied before production?

2. What is the difference between the popular sense of wealth and the economic sense? What is public wealth? Private wealth? Give examples of public wealth.

3. Does a want have to be based on a rational motive in order to be a want in the economic sense? Explain what is meant by capacity to satisfy a want. Show how air, water, sunshine, can become objects of wealth. Give examples of objects that are not wealth because not exchangeable.

4.

Should immaterial things be considered as wealth? Is money wealth? Which of the things in the list on page 37 are wealth?

5. What is meant by subjective and objective value? What is the difference between value in general and economic value?

6. Illustrate by practical examples how different things, such as a coat, corn, iron, diamonds, have value, showing how the various causes of value affect them.

7. Disprove the theory that labor is the sole cause of value in things.. Explain marginal value by a concrete example.

8. Explain the difference between value and price. What is the Scholastic doctrine of price? Why is it called the Scholastic doctrine ?

9. Where would you find the market prices of vegetables and fruits? 10. Explain dealings in stocks in the New York Stock Exchange. What is a "bucket-shop"? The "curb"? A "corner"? Give an illustration, fanciful or real, of stock manipulation.

II. Give historical instances of variations in general prices. Explain the system of Index Numbers.

12. Give practical examples in illustration of the laws of variations in prices. To what general principle may the laws be reduced?

13. Show by example that the law of supply and demand does not work . out rigorously. Illustrate by examples the secondary causes of fluctuations in prices (p. 56).

14. What is the effect of competition on prices? on cost of production? Explain the laws affecting competition and prices. What effect on the laws is produced by the power to multiply the commodity at will? Illustrate.

15. What are the different kinds of monopoly? What determines a

monopoly price?

16. Discuss the question whether the state should fix the prices of any commodities.

CHAPTER III

PRODUCTION. FACTORS OF PRODUCTION

I. PRODUCTION

THERE is an immense amount of wealth in the world.. The source of all this wealth lies primarily in the materials supplied by land and water. Innumerable forces are set at work upon the materials thus supplied, and these forces, under man's intelligent direction, produce economic utilities or things possessing value and constituting economic wealth. The study of the production of wealth will lead, therefore, to the investigation of the various factors that are capable of creating economic value in things otherwise worthless, and to a review of the numerous mechanisms, such as exchange, money system, banking, insurance, trade, transportation, corporations, that have been called into existence by product on.

The study of production will show us how wealth is created. But the scope of economics does not end here. It must proceed to consider the problems that surround the consumption of the wealth produced, and to attempt to answer the difficult questions of how and in what proportions the created wealth is to be distributed among the several agents that have created it. We begin with the study of Production.

"the

Definition and Factors. Production is defined as operation by which man creates or augments economic utility in material goods." (Antoine, Cours d'économie sociale, p. 300.)

Other writers define it as "the creation of economic utilities by the application of man's mental and physical powers to the materials of nature" (Ely, Outlines of Economics, edit. 1908, p. 121); or, "The origination by conscious human act of wealth

or of direct gratifications such as commonly proceed from wealth." (Andrews, Institutes of Economics, p. 34.)

The factors that produce wealth are Nature, Labor, and Capital.

Nature means all that nature offers to man, the earth or land, its treasures of minerals, its forces.

Labor means the mental or physical acts of man applied to the materials or the forces offered by nature.

Capital is that part of wealth which is applied to the production of more wealth.

If we study the definitions of production given above, we notice that nature and labor enter into the essence of production. For production we must have nature, i.e. the offerings of nature, and labor or man's energy applied to nature. These two factors are interdependent. The things of nature would not produce wealth unless labor were applied to them, and labor cannot be performed unless nature offers the materials. These two are, then, the original factors of all production.

Not so capital. Capital does not enter into the definition of production. It is not in the same class as nature and labor. It is itself a product of nature and labor. It is, however, essential to production, for a laborer must have the means of subsistence, he must have clothing, tools, implements, and machinery. All these things constitute capital in its broad and general sense. The custom, therefore, which gives three factors of production nature, labor, and capital — may well be followed, since it is practically universal.

Kinds of Production.

Production may be considered as

Public or National and Private or Individual.

Public production means production by a nation or the sum of all productions by the individuals composing a nation. Private production means production by an individual or a set of individuals.

Product. That which immediately results from the cooperation of the three factors of production, nature, labor, and capital, — is product.