disposal of the general money income. But quite as important as their relations inter se are their relations to the great body of bankers, brokers, money-lenders, middlemen of all sorts and degrees, whose business it is to make advances to the more immediate directors of business affairs. The banks of discount and deposit find their chief function in such advances and are the great types of this factor in the industrial world. Side by side with them are to be found, in every considerable centre, other parts of the same credit organization. Brokers place loans wherever they find funds offering for investment over those short periods for which the regularly recurring debts of the business manager are contracted. The great wholesale houses are a most important and effective part of this organization. They buy on credit, make advances on consignments, nurse this producer and drive to the wall that one; themselves meanwhile borrow largely from the banks and play a most influential part in settling when and how and where money income shall flow into the hands of those who are, in the more direct and obvious sense, the directors of production and the employers of labor.

In other words, the body of persons whose judgment and discretion determine how the gross income shall be used, and what part shall be turned over to laborers, is much larger than the group of their immediate employers. The immediate employers are thought of as the only persons who decide primarily how and where laborers shall be hired, and whose resources determine what direct advances of wages shall be made them. In fact, the immediate employer is controlled, in greater or less degree, by his relations with this large and complex body of lenders and of middlemen. He can sell rapidly to the merchants who are his first customers if their judgment approves of his wares, and he can get advances from them if they have faith in his capacity and integrity. Similarly, he can borrow from the bankers and brokers according to his repute for success and character. If a long career of successful ventures and punctual probity has given him, not only large means of his own, but a high standing in the business world, his immediate resources are almost limitless; he can secure at a moment's notice the command of millions. On the other hand, a rumor of disaster, a revelation of dishonesty, may practically wipe out his

means.

The employing capitalists-we may now mean by that phrase the varied body which directly or indirectly is active in business management-were supposed to own all the capital. Separate from them, in

the main, there stands in the modern world a great mass of investors who own capital and derive an income from it, but take no direct part in its management.

The investors have made loans to the active entrepreneurs. They have received an engagement for the payment of interest at stated terms and for the eventual repayment of the principal. They may be conceived, for many social purposes, as the owners of a great part of the community's capital. When a plant is erected with borrowed capital, the lender is in so far virtually its owner. Legally, he is only a creditor; while, in the eye of the economist, he is to be regarded for many purposes as an owner of real capital. As it happens, however, the legal relation fits exactly the economic relation for the purposes of the present inquiry into the working of the machinery of distribution. If it is asked, Who in the end owns the capital of the community? the answer must be, the idle investor as well as the active business manager. But if it is asked, Who controls the capital of the community and first becomes owner of its total income? the answer must be, the active manager, indebted though he may be to his creditor. The output becomes his as it goes to market, and is sold; and the gross money income passes first into his hands. He must simply pay the stipulated interest to his creditor. In so far only is he subject to a direct and immediate limitation in his control. of the inflowing money receipts.

6. A VIEW OF INDUSTRIAL SOCIETY IN A STATE

OF EQUILIBRIUM'

Figure represents capitalistic production in a self-contained industrial society brought to a state of normal equilibrium. In it are represented in successive and connected compartments the three great branches of production: the extractive industries, manufacturing, and transportation and trade. Raw materials, the products of the extractive industries, flow through from left to right, being enriched as they pass along by the addition of form, place, time, and possession utilities. On leaving the hands of dealers they are separated into two great streams, one the replacement fund, which flows back to repair and renew capital goods worn or destroyed in the process of production, the other, consumption goods, which begin immediately to gratify wants. The consumption-goods stream is again sub

I

Adapted by permission from H. R. Seager, Principles of Economics, pp. 189-91, 284-85. (Henry Holt & Co., 1913.)

divided, one branch conveying the second and subordinate replacement fund needed to repair and renew the durable consumption goods whose presence is indicated at the top of the diagram and which give off a continuous stream of utilities to mingle with those afforded by transient consumption goods, the other and larger branch into which the main consumption-goods stream is divided. The net product represented in this diagram consists in part of raw materials, in part of manufactured goods, finished and unfinished, and in part of the utilities subsequently added at the stage "transportation and trade." Only a very limited part is sufficiently advanced to be flowing out

with the stream of consumption goods to minister directly to human wants. On the other hand, it is from this stream of consumption goods that the entire real income for which the money income is exchanged is drawn. Although the identical goods constituting the real income are thus for the most part other than the goods constituting the net. product, the latter consists of exactly similar utilities quantitatively and qualitatively as the former. At each point the streams of goods flow on evenly and unbrokenly so that the "transient consumption goods" that are allowed to escape, and which constitute the real income, are exactly replaced by the goods included in the net product. The diagram thus represents movement without change. It depicts the circulation of goods that is going on in actual industrial society with the elements of change and monopoly eliminated.

In order to state the laws determining rent, wages, and interest, it will be necessary to advert to the relations that would prevail

in an industrial society brought to the state of normal equilibrium. In such a society the relation between production, distribution, and consumption would be extremely simple. The whole matter may be represented graphically by Fig. 2.

In Fig. 2 production is represented as subdivided into three great stages. The extractive industries, depicted at the extreme left, turn out raw materials. Manufacturing takes these and transforms them into manufactured products. Transportation and trade

deliver these finished products to purchasers, who may be either consumers converting their money incomes into real incomes, or enterprisers converting the free replacement fund into capital goods to restore the wastes incidental to production. The figure represents movement without change. Goods are flowing continuously from stage to stage. At the last stage the stream is divided, an unvarying volume of capital goods flowing one way and an unvarying stream of consumers' goods flowing the other. The capital goods exactly replace the goods destroyed in the course of production and the consumers' goods exactly remunerate the owners of land, workmen, and owners of capital goods for the productive services which they or their possessions have rendered.

7. ORDER, NOT CHAOS1

Some would have us believe that there is at present no organization at all. They use hard words, such as "scramble for wealth," "suicidal competition," "exploitation," "profit-hunting," and say that the present state of things is "chaotic." Now, whatever our present state may be, however unsatisfactory it is, it is certainly not chaotic. If it were really chaotic, everyone who goes to his daily work tomorrow must be a fool, since he would be just as likely to get his daily bread if he stayed at home or went elsewhere to amuse himself. The very fact that we all know as well as we do that certain results will almost certainly follow upon a certain course of action shows that we are not living in chaos. Our system may be a bad system, but it is a system of some sort; it is not chaos. If a man holds a book too close to his nose, he cannot read it, and so it is with the world of industry. If we look at it from too close a standpoint, we can only see a blur.

Let us imagine a committee of the Economics Section of the Saturnian Association for the Advancement of Science reporting on what they had been able to see of affairs on our planet through a gigantic telescope big enough for them to see human beings moving on its face. Would they be likely to report that poor Mundus seemed quite chaotic? Would they report that everyone was scrambling for himself to the disadvantage of everyone else in such a way that the general good seemed entirely neglected? Would they say that all the land in the most convenient situations was lying idle, that nobody had a roof over his head, and that everyone was running about aimlessly or sitting idle, in imminent danger of starvation? They might report something of this kind if they could carry on a conversation with certain people here and believed all they were told, but certainly not if they judged by their own observation.

They would be much more likely to report that they had seen a very orderly people co-operating on the whole with a wonderful absence of friction, that they had seen them come out of their homes in the morning in successive batches and wend their way by all sorts of means of locomotion to innumerable different kinds of work, all of which seemed to fit somehow into each other so that as a whole the vast population seemed to get fed, and clothed, and sheltered. They would not, of course, vouch for the perfection of the arrangements. They would see that there were occasional irregularities and hitches. They might see now and then too many vehicles in one street, too many 'Adapted by permission from Edwin Cannan, Wealth, pp. 72–76. (P. S. King & Son, Ltd., 1914.)