QUESTIONS AND EXERCISES 1. Does the following statement agree with the definitions in the text? "The true basis for an estimate of a nation's wealth is to be found in the enjoyments of its members." Hadley, Economics, p. 4. 2. Are the following wealth: air? whisky? a copyright? Lake Michigan? skill as a carpenter? good health? 3. Discuss the following: "Among the motives which lead men to accumulate wealth, the primacy, both in scope and intensity, therefore, continues to belong to this motive of pecuniary emulation." Veblen, Theory of the Leisure Class, p. 34. 4. State the significance of the following: "A horse is not wealth to us if we cannot ride, nor a picture if we cannot see, nor can any noble thing be wealth except to a noble person." Ruskin, Munera Pulveris, p. 10. 5. Discuss the following statement: "In 1770 Arthur Young reckoned the income of England to be £120,000,000; in 1901 the income may be roughly set down at £1,600,000,000. Making correct allowances for population and for prices, this growth of income would signify a large increase of commodities per head; but would it tell us that we are working and living somewhat better than our ancestors?" Hobson, The Social Problem, p. 43. 6. How does the Federal Income Tax law (as interpreted by the Treasury Department) define a person's income? REFERENCES CANNAN, EDWIN. Wealth, Chap. i. CLARK, J. B. The Philosophy of Wealth, Chaps. i and iii. ELY, R. T. Property and Contract, Vol. i, Chap. iii. FISHER, IRVING. HADLEY, A. T. The Nature of Capital and Income, Chaps. i and ii. HOBSON, J. A. The Social Problem, Book i, Chap. ii. KING, W. I. The Wealth and Income of the People of the United States, Chaps. ii and v. LESLIE, T. E. C. Essays in Political Economy, Chap. i. MARSHALL, ALFRED. Principles of Economics, 6th ed., Book ii. MITCHELL, W. C. "Human Behavior and Economics: A Survey of Recent Literature," Quarterly Journal of Economics, Vol. xxix, pp. 1-47. PIGOU, A. C. Wealth and Welfare, Part i, Chaps. i and ii. RUSKIN, JOHN. Munera Pulveris, Chap. i. SIDGWICK, HENRY. The Principles of Political Economy, Book i, Chap. iii. SMART, WILLIAM. Studies in Economics, Chap. viii; and Distribution of Income, Book ii. TAUSSIG, F. W. Principles of Economics, Vol. i, Chap. i. VEBLEN, THORSTEIN. The Theory of the Leisure Class, esp. pp. 24-34; and The Instinct of Workmanship, Chap. i. Special Census Reports on Wealth, Debt, and Taxation. Production Defined. CHAPTER VIII PRODUCTION Man creates no new matter. Neither the farmer nor the merchant adds one atom to the existing material of the earth. Yet they are both properly called producers because they increase economic utility. Production, then, means the creation of economic utilities by the application of man's mental and physical powers to the materials of nature. The act of production can be reduced to the following three operations: (1) changing the form of things, or combining or rearranging them, (2) changing their place, and (3) keeping them until such times as they are wanted; in other words, production adds to the materials of nature, form or composition utility, time utility, and place utility. Production thus defined includes the rendering of direct personal services. It has seemed to some that the farmer is more truly a producer than the manufacturer, and the manufacturer than the merchant; but such is not at all the case. All of these industrial classes help at some stage in the process of getting the materials of nature ready for consumption. The miner gets iron ore from the ground, the manufacturer transforms it into stoves, the railway company transports them, and the merchant acquires a stock of them and keeps them until they are wanted. One stage is as essential as another if wants for stoves are to be satisfied. It may well happen that the utilities produced by the merchant could be produced with a smaller expenditure of economic force, and that by a better organization of the factors of production saving could be effected; but this is no justification whatever for the popular impression that he is not a productive worker. Things are not fully "produced " until they are in the form in which they are wanted, at the place at which they are wanted, and at the time when they are wanted. In books on political economy we are likely to find that much more is said about the distribution of wealth than specifically about its production. The reason for this is partly that the problems of production are to a very considerable extent a matter of technical progress. How to increase the yield per acre is not specifically an economic problem. Nevertheless the economist is interested in the volume of production compared with the growth in population and in changes in the character of production. Misdirected production is thought to have something to do with economic crises, and changes in the production of gold may explain widespread changes in prices, so that production has in reality received a good deal of attention from economists in connection with their discussion of other subjects. In this book, for example, the relation of population to agriculture is considered in the chapter on Wages. The close relation between production and distribution may be further illustrated by the subject of "scientific management " in industry. This means such an arrangement of work, selection of methods, and measuring of individual efficiency within a factory or elsewhere as to produce the maximum output per man. Take the simple operation of shoveling coal or cinders, where this must be done by hand. It has been found that the amount handled per day per man will depend on the weight of the shovel, its size, the amount taken at each lift, and the number of movements per hour. The largest shovelful is not likely to be the most economical. Such inquiries obviously have a relation to the wages which may equitably be paid to different workmen, and representatives of trade unions have looked upon the movement toward the utilization of scientific management with considerable suspicion and hostility as a system of driving men to greater exertion. It would seem that if there is coöperation between managers and trade union officials, total production may be increased and wages may be increased by scientific management without detriment to the individual workingman. On the whole, it is probably true that the subject of production has in recent years been unduly neglected by economists. The conservation movement, looking toward the less wasteful utilization of our natural resources, had its origin outside of economic circles. In recent years, however, the economists are very properly placing more emphasis upon the obvious fact that economic progress depends upon increasing the annual per capita production of wealth as well as upon improving the way in which wealth is distributed among its producers. The Production of Values. We have said that production means the increasing of economic utility. This is precisely equivalent to saying that it means the rendering of services. that lead directly or indirectly to the satisfaction of human wants. And since we are not willing to pay for things that we do not want, it follows that every service for which we are willing to pay must be classed as productive. All money-making pursuits are, therefore, productive. Except through inheritance or gift or gambling or fraud or theft one cannot gain an income unless one gives a quid pro quo by rendering productive services or by permitting the use of some productive agent which one owns or controls. But it does not follow that money-making is a measure or gauge of the amount of productive service rendered or that production and acquisition always go hand in hand. For the amount of money that will be paid for commodities and services will depend upon their value rather than upon their utility; and scarcity, as well as utility, is a factor in determining the value of things. Men can sometimes increase the value of things by curtailing the supply of them, although, of course, this decreases their aggregate utility. In the case of a monopoly, where the power to control the supply of a product is lodged in the hands of a single producer or group of producers, this often becomes a matter of much importance. The case of the Dutch East India Company, which is said to have destroyed half of its spice crop, because the remaining half would have a greater value than the whole would have had, has been cited by many economists. In some fishing centers part of an unusually large catch is destroyed or sold as fertilizer in order that the market price may not be unduly lowered. Most commonly, of course, limitation of supply is effected by merely producing less than might have been produced and sold at a price high enough to cover expenses. In competitive enterprises, however, no one producer can control the supply of the product, so that in general the only way in which a producer can increase the value of his output is by increasing its quantity and, consequently, its utility. But it should be clear that we may get very different results if we measure the results of productive effort in terms of values from what we should get if we used utility as our measure. From the point of view of social welfare, the production of utilities is, of course, what we are interested in. But we have to recognize that in our modern exchange economy the production of values is what producers are mainly interested in. In later chapters we shall have to consider more carefully the extent to which these two principles of production are in harmony, and the ways in which they are in conflict.1 Factors of Production. It has been customary to speak of three factors of production - nature, labor, and capital. Under nature are included all forces external to man, as the wind, the movement of water, attraction of gravitation, cohesion, etc. Frequently these things furnished by nature are called simply land, because, of what belongs to external nature, it is with land that we have principally to do in political economy. Of the total land surface of the United States all but about 15 per cent had been appropriated or reserved in 1913. The unappropriated and unreserved portions were largely in Nevada, Arizona, Wyoming, and New Mexico. Of the total land surface, 46.2 per cent was in farms in 1910, and of these farms only 54.4 per cent consisted of improved land; that is, only 25.1 per cent of the total land area was improved farm land. "Improved farm land includes all land regularly tilled or mowed, land pastured and cropped in rotation, land lying fallow, land in gardens, orchards, vineyards, and nurseries, and land occupied by farm buildings." If all of the improved land were equally 1 In a literal sense neither utility nor value is "produced." The things produced are commodities and services, which have utility and value because they satisfy human wants that would otherwise be unsatisfied. |