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Production and Consumption From a Communistic Point of View
The economic welfare of each individual depends upon what share of these finished products he has the privilege of withdrawing, and upon nothing else. Now, as a first step towards understanding what causes affect the power of the individual to withdraw commodities from the reservoir, we shall have to make a distinction between causes which affect only the general welfare and those which affect individuals, or special classes.
Changes in the Social Organism with the Advance of Society
Thus we may see that the commercial supremacy of New York is entirely a result of habit and of convenience. Men from all parts of the country send there to buy their goods, because they know that they can make a better selection and be more likely to find exactly what they want there than they can anywhere else.
The Mechanism of Exchange of Money
The necessity of exchange arises from the division of labor. If there were no such division, then every man would make all things necessary for human wants, and hence might supply all his own wants. He would then not need to exchange with other persons.
The Mechanism of Exchange - Banks and Credit
In a primitive state of society every payment of money is made by the payer actually delivering the money into the hands of the payee. In modern mercantile operations this transaction would involve a heavy tax upon the resources of the community. Large sums in possession of the owner would be in danger of being lost, stolen, or burnt.
Organization of Banks in Detail
Since all the profits which banks can pay their stock-holders are derived from the interest on the moneys loaned, and since all the coin in the vaults is so much dead capital drawing no interest, there is a certain tendency on the part of banks to make the largest loans on the smallest available cash reserve.
The Clearing-House and Foreign Exchange
In the great financial centres the banks have a system of balancing their accounts, the study of which is instructive to the student of economics, because it shows an ideal system by which we might imagine the accounts of every individual with the community to be balanced in the actual commerce of the world.
Conclusions Respecting the Volume of the Currency
Currency is something quite different, and may include all credits and money actually used in payments. At the same time, its actual meaning in commerce is very vague. Commonly it means only material money, coin and notes in actual circulation. Sometimes it means paper money, in contradistinction to coin.
The Conception of Value
Value has already been defined, and the method of measuring it described. We have now to consider value as expressing a certain relation between men and their wants as the one term, and wealth and its capacity for gratifying those wants as the other term.
The Measure of Value by an Absolute Standard
Suppose the price of everything to be twice as high this year as last, while the quantity produced remains the same. In ordinary language, it would be said that all values had doubled. But it is clear that really nothing would have been any more valuable or useful than before.
The Relation of Price and Demand
The laws which we have to consider in this chapter are so wide-reaching in their operation that they may be justly regarded as the fundamental ones of economic science. In accordance with a general principle of scientific method, we have to begin the study of these laws by showing how they operate in the simplest cases.
Monopolized Requisites of Production
The second great class of monopolies consists in the private ownership of natural requisites of production. As already shown, the laws of all civilized nations recognize, establish, and protect this ownership. Such natural requisites are land, and the coal, iron, and other minerals which are beneath it.
The Rent of Land
The ownership of land comes within the definition of a monopoly, as given in the preceding chapter. For land, that is, the acres on the earth's surface, is a product of nature and not of human skill. It is also a product limited in supply.
On Competition as Determining Cost
It is a current opinion that prices are necessarily kept down to nearly their lowest limit wherever free competition is permitted. The reason is briefly this : If the dealers in a commodity do not sell it at the lowest paying price, others will step in and offer the same commodity at a lower price, and thus draw away all the custom from those whose charges are too high.
Preservation of Equilibrium Between Supply and Demand
It has been shown that if the net cost of producing a commodity exceeds the price it will command in the market, its production must cease. Hence the price asked must be above the cost of production by an amount sufficient to make good all the expenses connected with the sale in the market.
Equilibrium Between Supply and Demand in Absolute Monopolies
Let us first suppose that a single individual or company has the exclusive command of some natural requisite of production, a mine of nickel or the right to make a patented machine. Then, having the sole command of the market, such a person can fix the price at his own pleasure.
International Supply and Demand
The operations of international supply and demand are governed by the same general principles with those which govern home supply and demand. The differences between the productive capacities of different countries are of the same general nature as between different iron or coal mines.
Effect of Taxes on Production Upon Supply, Demand, And International Trade
The only taxes which we need consider for the present purpose are those levied upon production; that is, the taxes which a producer may be obliged to pay as a consequence of having added to wealth. Since transportation is an act of production, it follows that import duties are to be included in our list.
The Causes Which Determine the Rate of Interest
The question of usury has been one of the stumbling-blocks of mankind in all ages. Except in the most intelligent society, and in recent times, the taker of usury has been generally looked upon as one who unjustly made a profit without rendering any service in return.
The Monetary Flow
We call to mind that under our present system every exchange is a double transfer of ownership—money passing in one direction, and the ownership or enjoyment of wealth in the other direction. We thus have two separate processes of transfer, one of money and the other of wealth or its enjoyment.
The Equation of Societary Circulation
There is a certain maximum amount of labor which, whether applied to production or exchange, cannot be exceeded without disadvantage to the individual. Every man must be his own judge of, this maximum, because it depends upon his health, habits, the wants of his family, and his own desire for wealth.
Variations in the Equation of Societary Circulation
The absolute value of the total volume of currency circulating in a social organism is equal to that of the total industrial circulation of the organism during the average time that apiece of money remains in one man's hands.
The Measure of Demand by Absolute Value
Regarding the principal places or combination of places which we take as our market, and the period of time, as fixed quantities whose changes we have no need to consider, we see that the amount of the demand will depend upon and vary with the third and fourth conditions, namely, (1) the price charged, and (2) the condition or wants of the public in relation to that commodity.
Individual Income and Expenditure
By the annual income of a person is meant the net sum of his wages, gains and profits during a year, whether derived from his own labor, his business management, or the interest upon bis capital. To find its amount we must subtract from the sum total of moneys received by him in payment the amount which he has had to expend in order to transact his business and keep up his capital.
Demand as the Director of Industry
The members of the community generally believe that the public interests are deeply affected by the way in which people spend their money. This belief arises from the supposition that the spender confers a marked benefit on the person from whom he buys. It is supposed that if he spends his money in clothing, tailors are benefited.
Effect of Diminution in the Flow of the Currency
Now if the money prices of all commodities or services were fixed by any law whatever, whether a legislative enactment or a provision of nature, then this diminution of the industrial flow would be not only the immediate but the permanent result of every diminution in the flow of the currency. But such is not the case.
Effect of Labor-Saving Improvements in Production
Every person familiar with industrial operations is aware of the contests which so often arise between artisans and the introducers of labor-saving processes. These contests are being continually waged in one shape or another. The general rule is that whenever a machine is introduced for making what was before made by hand, the workman opposes its introduction by every means in his power.
The Functions of the Capitalist
There remains to be considered the effect of investing money in the increase of capital. In the popular mind, one who invests his money is supposed not to expend it. Hence it might be supposed that the effect of the investment of money would be that described in Chapter VII., through the money being withdrawn from circulation.
The Relation of Capital to Labor
As society is constituted, employment can be given to labor only by and through the instrumentality of capital. That is to say, no person can employ labor unless he has money saved up which he does not want for his own immediate use, with which to pay the laborers their wages.
Laws of a Heterogeneous Currency
In our consideration of monetary operations we have hitherto not taken account of any distinction between the effects of the various kinds of currency which may be in circulation. We have supposed that every dollar which a man received was paid out by him as soon as he could satisfactorily spend it, and that he spent it in the same way whether it was a gold, silver, paper, or credit dollar.
Of Economic Fallacies
In a former chapter certain fallacies in economic method were described. These consist in a generally incorrect way of viewing the subject in its logical bearings, and do not therefore necessarily lead to erroneous practical conclusions. We have now to consider fallacies which lead men into incorrect views of public policy, and opinions of governmental action.
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