Finally, we have efforts to cut down the private receipts of the rent of land. Apart from the agitation of opponents of landed property, we have a pronounced movement in favour of the public ownership of natural treasures and water-power.

We come next to modifications in the treatment of gifts and inheritances. This is one of the great world movements of the age which attracts inadequate attention at the present time. We not only have the taxation of gifts and inheritances, but we have a regulation apart from taxation.

See also 265. Forces Governing the Distribution of Property. 266. Forces Governing the Differences of Incomes from Work.

E. Wealth and Welfare

375. DEMAND AN EXPRESSION OF THE POWER OF
OWNERSHIP1

What is demand? It is simply an expression of economic power and will as determined by all the existing conditions. It is as much the effect as the cause of the actual state of the economic system. Like all our inheritance it comes down from the past in a turbid stream, bearing with it those struggles and compromises that make up human history. All the evils of the economic system, except those which are added in the market process, are already implicit in demand and of course are transmitted to production and distribution.

As to demand being an expression of existing conditions, note, for instance, that it is largely a class phenomenon. From income statistics collected in England and Germany for purposes of taxation it appears that about one-tenth of the population receive half of the income. No doubt we must allow for a larger percentage of saving among the richer classes, but I doubt whether this is not offset by the notorious understatement of large incomes. It seems to me a fair guess, not excessive when judged by ordinary observation, that onetenth of the people in a modern commercial state consume half of the produce. If so, demand is preponderately determined by the economic power and will of about this fraction of the people-a condition to be explained only by taking a view of economic process large enough

Taken by permission from C. H. Cooley, "Political Economy and Social Process," Journal of Political Economy, XXVI (1918), 368–70.

to include the many forces tending to such a concentration of power. Whether this tenth is fit to exercise such a predominance over the whole process I have not time to inquire: it is obvious that something might be said on both sides. It means much waste and misdirection of social resources, but also the fostering of important interests which a more equal distribution of power might possibly neglect.

I need hardly illustrate the statement that demand brings with it all the vices and degeneracy of the actual social system: it calls for drink, for prostitution, for child labor, for currupt politics as loudly as for better things. Are these things the outcome of the inherent corruption of human nature? In one sense, yes; in another they are the outcome of the economic process itself. If productivity as judged on the market is assumed as the righteous or approximately righteous basis of distribution, demand, with all its implications, is accepted as the standard of economic justice. With the further argument, very questionable in my judgment, that competition is, or tends to be, effectual in giving to each man or agent a share proportional to his productivity, I have nothing at present to do: I wish only to note the fatuity of the assumption. If demand itself is organized wrongas in great measure it certainly is-even an efficient process may bind men into this wrong. I need only mention the case of a girl comparing the earnings of needlework with those of prostitution, or of children forced prematurely into monotonous and stunting labor, to show what I mean. And these are not exceptional cases but typical of a great part of the actual working of demand. It would be easy to show that a society might conceivably be quite just according to the law of productivity, and yet vicious, decadent, and with half its population in hopeless poverty. The vices and luxury would be duly paid for according to this law, and the increasing poverty would be justified by the increasing inefficiency which naturally attends it.

376. SOME MISUSES OF THE POWER OF OWNERSHIP' The ownership of the material equipment gives the owner not only the right of use over the community's immaterial equipment, but also the right of abuse and of neglect or inhibition. This power of inhi bition may be made to afford an income, as well as the power to serve; and whatever will yield an income may be capitalized and become an item of wealth to its possessor. Under modern conditions of

I

Adapted by permission from Thorstein Veblen, "On the Nature of Capital," Quarterly Journal of Economics, XXIII (1908–9), 106–11.

investment it happens not infrequently that it becomes pecuniarily expedient for the owner of the material equipment to curtail or retard the processes of industry-"restraint of trade." Except for the exigencies of investment, i.e., exigencies of pecuniary gain to the investor, phenomena of this character would have no place in the industrial system. They invariably come of the endeavors of business men to secure a pecuniary gain or to avoid a pecuniary loss. More frequently, perhaps, maneuvers of inhibition--advised idleness of plant-in industry aim to effect a saving or avoid a waste than to procure an increase of gain; but the saving to be effected and the waste to be avoided are always pecuniary saving to the owner and pecuniary waste in the matter of ownership, not a saving of goods to the community or a prevention of wasteful consumption or wasteful expenditure of effort and resources on the part of the community. Pecuniary advantage to the capitalist-manager has, under the régime of investment, taken precedence of economic advantage to the community.

But, aside from such capitalization of inefficiency, it is at least an equally consequential fact that the processes of productive industry are governed in detail by the exigencies of investment, and therefore by the quest of gain as counted in terms of price, which leads to the dependence of production on the course of prices. So that, under a régime of capital, the community is unable to turn its knowledge of ways and means to account for a livelihood except at such seasons and in so far as the course of prices affords a differential advantage to the owners of the material equipment. The question of advantageous-which commonly means rising-prices for the owners (managers) of the capital goods is made to decide the question of livelihood for the rest of the community. The recurrence of hard times, unemployment, and the rest of that familiar range of phenomena goes to show how effectual is the inhibition of industry exercised by the ownership of capital under the price system.

Typical of a class of investments which derive profits from capital goods devoted to uses that are altogether dubious, with a large presumption of net detriment, are such establishments as race-tracks, saloons, gambling-houses, and houses of prostitution.

There is, further, a large field of business, employing much capital goods and many technological processes, whose profits come from products in which serviceability and disserviceability are mingled with waste, and in the most varying proportions. Such are the production

of goods of fashion, disingenuous proprietary articles, sophisticated household supplies, newspapers, and advertising enterprise. In the degree in which business of this class draws its profits from wasteful practices, spurious goods, illusions and delusions, skilled mendacity, and the like, the capital goods engaged must be said to owe their capitalizable value to a perverse use of the technological expedients employed.

These wasteful or disserviceable uses of capital goods have been cited, not as implying that the technological proficiency embodied in these goods or brought into effect in their use, intrinsically has a disserviceable bearing, nor that investment in these things, and business enterprise in the management of them, need aim at disserviceability, but only to bring out certain minor points, obvious but commonly overlooked: (a) technological proficiency is not of itself an intrinsically serviceable or disserviceable to mankind-it is only a means of efficiency for good or ill; (b) the enterprising use of capital goods by their business-like owner aims, not at serviceability to the community, but only at serviceability to the owner; (c) under the price system-under the rule of pecuniary standards and management— circumstances make it advisable for the business man at times to mismanage the processes of industry, in the sense that it is expedient for his pecuniary gain to inhibit, curtail, or misdirect industry, and so turn the community's technological proficiency to the community's detriment.

377. DEMAND NOT AN INFALLIBLE REGULATOR1

There are some important cases in which freely determined prices cannot be recognized as being fitted adequately to regulate the use of social resources. In the first place, whenever present action is likely to affect greatly the remoter future, there is always danger that conflict will arise between the immediate advantage of the individual and the long-run advantage of society. Thus, through the powerful call of high prices, the natural resources of a nation, such as its stock of coal, of copper, of lumber, may be too freely consumed in meeting present needs. Again, the labor power of a community may be slowly exhausted by the overworking of women or the too early or too severe toil of children, as also by seriously unfavorable conditions in respect to housing and food. In cases like these it is always possible that the

1

Taken by permission from F. M. Taylor, Principles of Economics, pp. 410-11. (University of Michigan, 1916.)

automatic working of prices will do great harm; that, consequently, it will become the duty of the state to intervene, even perhaps to make a certain industry wholly collectivist, e.g., mining.

Glaring cases wherein freely determined prices fail to secure the proper guidance of economic action arise in fields where extreme ignorance and credulity on the part of consumers are almost certain to be present. Particularly notable examples are supplied in the medical field. The services of quacks, the nostrums of patent medicine companies, are products for which the market demand is high, while they almost always involve a waste of social resources and often great positive injury to consumers.

Another particular in which freely determined price cannot be recognized as an adequate guide to our action is in the suppression of not a few forms of anti-social action. Thus there are many forms of vice, and very hurtful vice, which flourish like a green bay tree if left to the regulation of price. Again, certain conditions the elimination of which is assumed as a part of the very basis of the present order can be rooted more and more strongly into that order through the free working of price. I have in mind certain types of fraud, evasion of law, evasion of contract obligation, even violence, and so on. These may be promoted by an order which makes the use of our capacities follow the lines pointed out by demand prices, for the man who wishes to accomplish these anti-social results can often bid very high for the natural resources or personal services necessary to accomplish his ends. If common opinion is to receive any credence, the corporation attorney is often paid a large salary to assist his company in violating law, or at least in running as close to doing so as is possible without disastrous results.

Another case in which social control through prices is often inadequate arises when there are extreme discrepancies between needs as expressed in demand prices and those needs as measured by an impartial observer. Demand prices represent not absolute needs but only needs as these are estimated by the persons immediately concerned; and, since persons differ greatly in their temperament, taste, needs, and above all in their buying power, demand prices are far from representing needs in any absolute sense. Now society is not primarily interested in supplying needs in accord with their absolute magnitude the general good demands, not that the price expression of needs shall coincide with the absolute magnitude of those needs, but rather that they shall coincide with the significance of those needs