Similar variations in rates of interest are found between different

classes of borrowers, due to the variation of risk. Thus promises to pay

on demand, with personal security of two good paymasters, will usually be

accepted at very low rates of interest, since the owner of wealth so

loaned feels sure of having the wealth when he wants it. Government loans

in times of peace and prosperity being essentially without risk, approach

very near the same low rate of interest, since the owner of these

securities believes himself at any time able to command the use of his

wealth for any purpose by a transfer of these securities. If for any

reason, official or legislative, public confidence is disturbed, rates of

interest on such securities rise proportionally through the sale at a

discount. Even a law prohibiting such sale would have exactly the contrary

effect to that intended, because of creating additional distrust. Loans

upon time, if secured by productive landed estate not subject to unusual

risks, can usually be made at moderate rates, and form a fair basis for

judging the normal interest in any region. Loans secured by chattel

mortgage bring higher rates, because the chattels involved are a less

certain means of payment than landed estate. Loans secured upon

unproductive lands, whether in prospective farms or city lots, are made at

high rates, not only because these lands fail to furnish in themselves the

means of interest payment, but because they represent the speculative

energy of their owners with unmeasured risk. All these variations and

fluctuations are found in every community, and grow out of the natural

wants of borrowers and the natural feelings of lenders. Custom may have

something to do with rates in special cases, as it has to do with wages

and retail prices, but in the range of frequent dealing between borrowers

and lenders rates follow the higgling of the market as truly as prices of

commodities.

_Usury laws._—It has been the custom for ages to distinguish between

interest and usury, interest being supposed to be a fair payment for use

of borrowed wealth and usury a larger payment in the distress of a

borrower. Usury once meant only use, the equivalent of interest, but since

it was once prohibited by law in England, the name is now attached to what

is still prohibited by law, an interest above a definite rate prescribed

by statute. The object of such legal restrictions is evidently protection

of the borrower against extortion. Yet it is practically proved by

experience of the world that such restrictions operate against the

borrower by limiting lenders in open market and sometimes closing the

market entirely. The would-be borrower, under adverse conditions in the

market, is obliged to find in some byway a lender whose scruples against

infringement upon the law may be overcome by extra payment. Under such

circumstances there is no market rate, and borrowers bind themselves in

numerous ways to special payments not in direct conflict with the letter

of the law. Evasions of restrictions under such circumstances are

inevitable. A farmer buys a hundred-dollar horse, giving a note, payable

in one year without interest, for $120; or he sells his note to a neighbor

at what he will give; or he goes to a broker and pays him a commission for

securing a loan at the legal rate of interest. Even at a bank, prohibited

by law from taking more than the legal discount on the pain of losing its

charter, a borrower may give his note for $500, tacitly agreeing to leave

on deposit a fifth of the sum, thus paying interest on $500 for the use of

$400.

All these forms of evasion are easily adopted with very little possibility

of conviction, even when usury is charged. Even in the most flagrant

violation of laws the chances of conviction are greatly restricted by the

fact that a prosecuting witness, who, after making a contract in violation

of law, takes advantage of that law to violate his contract, destroys all

credit for himself, and so comes under the ban of society. The best

methods of public restriction against extortion of any kind in interest,

in rent or in prices of commodities are those that provide for publicity

of contracts. Where no legal restrictions upon rates of interest are

fixed, current rates are much more likely to be public and widely

advertised, and extortion is less possible than where the law encourages

secret contracts by the need of evasion. It is quite possible that society

will find a way of securing against the extortion of pawn-shops and secret

brokerage by a public organization competing honestly for the same

patronage. Such companies have been organized in a few cities with success

in meeting the wants of the distressed, under such restrictions of charter

and management as insure fair dealing. It seems as possible to regulate

such matters by license and inspection as it is to control the hack-men of

a whole city.

_Loan associations._—It is proper in this connection to refer to loan

associations, the growth of recent years. The purpose of such associations

is direct coöperation in borrowing and lending among neighbors similarly

situated as to property. They are especially adapted to assist

wage-earners in securing comfortable homes, for which they can pay

gradually from their earnings. The system, however, has been widely

extended, to the advantage of different classes of property owners, even

to the establishment of coöperative banks among farmers. The essentials to

success and safety in such associations are, first, that they shall be

strictly local, confined to territory within which mutual acquaintance can

give a fair basis for genuine credit; second, the objects sought by

individual borrowers must be fairly equal in risk as well as in ends to be

served; third, the management must be thoroughly trustworthy, with a

genuine interest of all shareholders in the selection of officers; fourth,

all shareholders should have similar relations to the association as both

borrowers and lenders, and each shareholder’s responsibility should cease

at the final settlement of his obligation; fifth, provision should be made

for frequent auditing of accounts, official reports and inspection.

_Uses of interest._—In closing the subject of interest, it is well to

recall the fact that interest exists in the very nature of productive

energies, and that ability to transfer the use of property in any form of

capital without transferring the interest is most useful to society. It

sustains the aged, who must otherwise be wholly dependent, and the

childhood of the race in all development of body, mind and soul. Interest

sustains the mass of educational and charitable institutions, as well as

the individual life of multitudes whose present earnings could not keep

body and soul together. Moreover, the possibility of paying interest

secures to the enterprising young men of the world the opportunity to make

their highest energies productive. Thus the matter of interest pervades

the thrift of society as well as the sustenance, and cultivates everywhere

that present economy which provides for the rainy day. The fact that

nearly one-fifteenth of the population of the United States are depositors

in savings banks alone proves the extent and importance of interest to the

general welfare. With added facilities for depositing small savings in

postal savings banks, the advantage would be still more widely felt, and

the general economy in the use of both earnings and capital would be

promoted. All this extension of interest-bearing increases the tendency

everywhere noticed to a diminution of current rates. With a multiplication

of capital in any community, the rates of wages increase, while the rates

of interest diminish. Both tendencies are natural effects of the same

cause.

Chapter XXII. Principles Of Land Rent.

_Rent values of land._—The general character of rent, as connected with

the use of fixed capital and so associated with interest, has already been

touched upon. In that sense it depends upon the fact that possession of

wealth is universally an advantage in production of future wealth and is

subject to all the peculiarities affecting interest. But land rent, as

represented in the value of farms, city lots, mineral claims, fisheries,

water privileges, wharves, etc., has peculiarities of its own. Its

connection directly with rural wealth in the value of farm lands makes it

of special importance in this discussion. While rent, as such, is

comparatively unimportant to farming interests in the United States, where

most of the land is worked by its owners, the principle is involved as

fully in the transfer value of farms as it is in countries where land is

almost universally rented for farm purposes, like England and Ireland. It

is simply necessary to remember that the rent question in such a country

as England, where land is seldom transferred from owner to owner (but all

values are expressed in the terms of annual rental), is quite different in

form from the question in our country, where transfer of landed property

is free and common, and the rental is regulated largely by current rates

of interest upon land values. In England, too, the rent question involves

long standing relations between the people and landed proprietors who, for

generation after generation, have been rulers of the people as well as

landlords, and are still the natural magistrates over the renters upon

their estates. Yet the principal occasion for rents in such countries is

exactly the same as that for varying values of land in the United States.

Peculiar intricacies of methods of rent-paying and of terms in leases,

varying with the customs of different countries, have little importance in

the United States, except for comparisons.

The United States afford superior advantages for the study of land values

fairly independent of restrictive laws or customs. The rapid settlement of

wild lands by farmers and the rapid building of cities under free

competition give the fairest illustration of tendencies in land values to

be found in the world. The fact that the government for the past fifty

years has encouraged the settlement of new land at the bare cost of

establishing ownership makes the problem almost as simple as if the

government had no voice in the distribution.

It may be proper to recall the conditions under which any individual has

been able to secure the absolute control of land as a proprietor: First,

by preëmption, involving temporary residence until the land is purchased

and patented, at the nominal price of $1.25 an acre, or $2.50 within ten

miles of such railroads as may have been subsidized by a gift of one-half

the land within the same limits. Second, by homestead preëmption, by which

any head of a family, present or prospective, can secure 160 acres of land

by payment of certain registration fees, amounting in all to less than $20

upon the average, and making his residence upon the land for a period of

five years. The issue of a patent at the end of the five years establishes

ownership. The soldier’s homestead, offered to those who had served as

volunteers in the army of the nation, varied from this only in a reduced

term of residence. Third, homesteaders, as well as others, could secure

additional lands under a provision for tree culture on the treeless

prairies, the requirement being the planting of a few acres of trees and

the maintenance of culture on those acres for a period of eight years.

Even the establishment of trees in permanent growth was not a requisite.

Fourth, by certain outlay for irrigation purposes in arid lands a tract of

640 acres could be secured. In addition to these, certain land grants to

the several states led to the issue of scrip, entitling the possessor to

locate on government lands upon payment of only fees of registration.

Certain states, within whose borders public lands did not exist, being

unable to hold lands in other states or territories, sold scrip at less

than half the price asked by the government for lands.

All these methods operated not only as a stimulant to the settlement of

new territory, but as a check upon rising values of land in the older

communities. Nevertheless, this rapid development has given the best of

opportunities for watching the tendencies of land values.

_Propriety of land rent._—The right of property in land, like every other

property right, rests upon its advantage in the welfare of communities.

Among savage tribes individual control of plots of ground would interfere

with welfare, as hindering the only use to which the land is put in

hunting. Among people living by herding no nice dividing lines are needed,

though strife between herdsmen, since the days of Abraham and Lot, results

from the mingling of herds upon the same feeding grounds. With the actual

tillage of soil, control of the space tilled becomes absolutely necessary,

and more necessary with every improvement in agriculture which takes the

nature of permanent improvement upon the soil. No agriculture beyond the

merest skinning of the surface has ever existed without permanent

occupation. Even where the land is distinctly owned, but used under

temporary leases, few permanent improvements in agriculture are possible.

The necessary permanence of control over the products of toil makes an

essentially permanent control of land necessary to the common welfare. For

this reason the progress of civilization everywhere demands more distinct

boundaries of landed property, and this in the interest of the whole

community, which shares in the progress. The more intensive and far-seeing

the methods of farming become, the greater the necessity for fixed

boundaries. This necessity is recognized in all provisions for exact

surveys, complete records of transfers in ownership; and finally for

government guaranty of title. Such ownership underlies all prudential

consumption of wealth for future returns. The loss to communities from

want of it is seen in the waste of game in unappropriated countries and

the destruction of the seals in the seal fisheries. Yet this ownership is

still subject under all circumstances to the law of welfare for the entire

community. The community’s right of eminent domain has always been

recognized in the need of public highways and other public improvements,

and is likely to be still further recognized with any new necessity, like

the control of injurious insects or quarantine against disease. Yet none

of these restrictions diminish the necessity of ownership, in the sense of

individual control for all purposes of agriculture, manufactures, commerce

and social relations. This individual control is intimately connected with

our ideas of rent, and would be still, though all the lands were managed

under one proprietorship, and that a public one. Rent would accrue and be

paid, though the whole people held title to the land.

_The sources of land values._—The value of land, like every other value,

is the result of comparisons. Whatever advantage is given to a producer by

his possession of land is likely to form his estimate of its value. In the

comparison of two farms of equal dimensions every difference in fertility,

location as to drainage, exposure, or convenience to market or social

advantages, adaptability to improved methods in agriculture and

convenience of arrangement, will enter into the estimate of worth. If one

of the farms can be had for the asking, the other will be worth just what

its advantages will add to the power of the owner in the production of

wealth, provided both are considered alike as simply machines for

producing food. Usually, however, economy in the consumption of wealth is

considered also. In a new country lands most easily accessible and readily

tillable are chosen first. With added demand for food, less accessible or

less easily tillable lands are occupied. At once the more accessible have

a value equal to the greater ease with which the same product can be

offered in market. If the difference were only a mile of hauling all

produce and all commodities for which produce is exchanged, that cost of

transportation would make the value of the nearest land. If the difference

is simply in yield for a given amount of labor, the land which yields

thirty bushels of wheat to the acre, when land which yields twenty bushels

can be had for the taking, will be worth ten bushels of wheat a year, and

its value will be estimated in dollars at a sum which securely at interest

will bring a similar return. If, by and by, the demand for food or

improvement in transportation or an easier method makes it worth while to

cultivate land yielding only ten bushels of wheat to the acre, the annual

value of land yielding twenty bushels will be ten bushels, and that of the

land yielding thirty bushels will have become twenty bushels.

Thus the rent, and correspondingly the value of farms, increases with the

increasing demand for farm products, whether that demand results from the

increased number of eaters at hand, from the increased ability of these

eaters to supply their wants, or from ready transportation to eaters

elsewhere. Many influences in various directions affect the tendency to an

increase of land values with the increase of population. Some have been

led to the assumption that only the multiplication of food-eaters,

increasing the need for land, makes rent possible. Connecting it with the

theory of Malthus that population tends to increase in geometrical ratio,

while food can increase only in arithmetical ratio, they have denounced

rent as a price paid to monopolists under stress of danger from

starvation. These forget that rent is payable as truly out of increasing

abilities of individuals to meet increasing wants as under the spur of

more distressing wants. Indeed, starvation, or the approach to it, never

pays rent, however strong an incentive it may be to promise rent.

_Rent in price of products._—Does the value of the land upon which my

wheat is raised enter into the price of my wheat? If all land values were

destroyed, would the wheat of the world be cheaper, because its cost would

be diminished? The price at any time is just enough to bring the supply to

market and keep it there. A portion of the supply has cost even more than

it brings to its owner. If any brings more than cost, the difference goes

either to the energetic raiser using improved methods, or to the fortunate

receiver of timely showers, or to the possessor of the fruitful field.

Neither the profit of the raiser, through his method and the shower, nor

the rent of the fertile field has made a bushel of wheat less or more

valuable in market. The value of the wheat in the market makes both the

profit and the rent. If the value of wheat falls, the value of best wheat

lands sometimes follows; but land values do not directly affect prices of

products, though they may be directly dependent upon those prices.

Indirectly, however, the value of land may affect prices of products.

Land, in certain speculative movements of society, gains a value for

future use. If the fertile fields are held for speculative purposes, less

fertile fields must furnish a limited supply at increased price. If the

fields are wanted for homes, the supply must come from a distance at

greater cost, or be raised on fewer acres by more costly tillage, and will

not come till the price is increased. Thus high rents, or land values, if

maintained by outward forces may diminish the total product, and so affect

prices. But no conspiracy of land holders can affect the price of their

products so long as their lands are employed in supplying the market.

_Variation in land values._—Rents vary in different countries under

various customs of those countries, and so land values can be compared

only by knowing the customs and laws which influence the transfer of

landed property, either by deed or by lease. Differences in value are

often due to considerations entirely distinct from production. Farms are

homes as well as machines; and the privileges of home life, with all the

relations of family, friendship and patriotic associations, may rouse

competition that greatly influences the market value of farms. In any

community, whatever custom or law hinders competition in farming affects

the relative value of farms in productive industry. Peculiarities in the

method of holding lands have much to do with their value. The hopes and

expectations of the people have large influence. Whatever stimulates

enterprise and increases speculative energy enlarges the estimate of land

value. Whatever depreciates abilities or discourages enterprise diminishes

land value. Whatever encourages permanent improvements and far-sighted

plans in farming increases land prices. Whatever discourages the spirit of

improvement reduces such prices.

In some of these ways it is possible to account for great differences of

value in regions apparently equal in natural advantages. Thus nobody wants

lands in Turkey, however fertile, in comparison with lands in a free

country like ours. Countries under a poor system of agriculture with

inefficient labor cannot maintain high value of land. Ignorance and

thriftlessness in a community of laborers operates in the same way. Thus

the habits of the people, as well as their laws, enter into the question

of rent. In countries where large estates are parceled out to renters,

generation after generation, the customary terms of leases as to time,

method of payment, adjustment of improvements, restrictions as to methods

of tillage, and requirement of capital, enter largely into the question of

rents. In some the fear of eviction under arrearages cuts a prominent

figure; in others the confiscation of improvements destroys all

enterprise. Upon the continent of Europe, in some places, the payment of

rent in produce,—what we call working of land upon shares,—greatly limits

individual enterprise, though it gives to the land owner a direct control

in the methods employed on the land. Restrictions of law or of custom upon

transfer of ownership always have the effect of diminishing the general

productiveness by hindering the natural competition of productive

enterprise. The result of all laws of entail, by which enormous estates

are held from generation to generation under control of the same family,

is universally deprecated because of its interference with the natural law

of supply and demand as to farms and homes. All such restrictions favor

the spirit of monopoly and cultivate arbitrary power, which in every way

hinders progress.

_Recent decrease of land values._—In the United States during recent years

there has been a decided shrinkage of land values in most of the country.

Several evident causes appear worthy of mention. The most evident is a

rapid increase of farms on the western plains, recently bringing their

products into the competition. These prairie regions give the largest

range for farming in the world. In the same connection is the

introduction, upon these immense fields of cheap land, of extensive

machinery by which the productive power of labor is multiplied. The labor

of one man for 300 days is said to have produced in California 5,000

bushels of wheat, so that one man’s labor on many acres gives to each of

1,000 people a barrel of flour a year. Next to this is the opening of new

agricultural enterprises in South America, Australia, India and South

Africa, with still greater prospects in Siberia—all the result of great

improvements in transportation, opening to these regions the world’s great

markets. This has pushed the supply of staple products toward the

condition of over-production. The same cause has diminished the demand for

our staples by greatly stimulating the consumption of foreign fruits and

nuts. Most recently has come the depression from loss of confidence in

enterprise, through excessive speculation and waste of capital,

undermining the market for land as well as for all the machinery of

production. In these conditions the whole world has shared.

_Population drifting to cities._—The drift of farm population toward the

cities is a symptom of the changed conditions, not a cause. If, as decided

by an expert investigator, three men on a farm do the work that fourteen

did forty years ago, the farms can well spare to the cities an increasing

number of its boys and girls. The drift is real and permanent, diminishing

rural population in 100 years from 96 per cent of the whole to 70 per

cent, though exaggerated in figures through arbitrary division between

towns and cities. This movement has been noticed the world over since

1848, when machinery began to affect agricultural production.

That this drift is wholesome is evident, if we look at the diversity of

employment resulting and the improved welfare of all. A simple comparison

of figures from the United States census will show the readjustment of

employment. No one can doubt the advantage gained in the entire nation.

_Abandoned farms._—The most disturbing feature of this readjustment is the

desertion of some farms in the rougher parts of New England and the drier

parts of the West. These lands will find a profitable use in the woodlots

through the East, and in grazing ranges through the West, with slight

permanent loss. They are not signs of poverty, but of a developing thrift,

just as the abandoned country woolen mills tell the story of immense

growth in the factory methods. While individuals seeking profit in sale or

rent of their farms may suffer in any such shrinkage of local values, it

must not be forgotten that the total of rural welfare is not necessarily

diminished. Land values, aside from improvements, are everywhere evidence

of limitations to welfare in some special direction. If human enterprise

and invention and thrift lessen such limitations, the world is better off.

The great mass of farmers, who think more of their homes than of property,

will suffer little from lower prices of land unless such low prices result

from a general lack of thrift and of adaptation to new circumstances.

While the changes in price which affect reduction of rent values do

require readjustment of plans and methods, the farmer who keeps in touch

with the world’s work will not suffer, but gain, in the general

advancement. In many instances, the low condition of farm property is due

to unthrifty neglect of farmers in whole neighborhoods. Bad roads, short

schools, weak fences and poor stock are as often a cause as an effect of

low prices of land. Whole regions in our country suffer in this way from

unthrift, whatever the price of farm products or of lands.

_Farms in the United States._—These are under conditions best suited to

attend the general thrift of the world in every way. Ownership is not

complicated in any way with magisterial duties or prestige or entailment,

as in England. It is not so distinctly hereditary as to embarrass

agriculture by extreme subdivision of farms, as in France and other

portions of Europe. It is in no danger of combination into great estates

under absentee landlords, as in Ireland. Its laws of transfer and guaranty

are growing more and more simple and direct, while protection to homestead

rights is strong. Farmers themselves have such responsibility in state and

nation as to make their genuine interests felt everywhere, and no system

of caste can make them a peasantry, as in most of the Old World. Indeed,

the farmer in every region makes his farm; and the enterprising, educated

farmer of the next generation in our country will find in himself the

forces at work to give value to his land. The speculative movement in land

holding will be outgrown when genuine farm homes are more prized for their

welfare than for their wealth; but this very welfare will maintain a

stable value in lands.

PART III. CONSUMPTION OF WEALTH.

Chapter XXIII. Wealth Used By Individuals.

_Wealth to be consumed for welfare._—The only economic motive for the

accumulation of wealth is its use in promotion of welfare. While the old

maxim says, “A penny saved is worth two gained,” every one recognizes the

penny as absolutely worthless except in view of some utility to be gained

in spending it. So with every form of wealth. All economic value

disappears when the thought of use is wanting. Such use, whether

practically instantaneous, like the destruction of the gunpowder

projecting the bullet, or extended through hundreds of years, as in the

wearing out of a castle, or a bridge, is properly called consumption of

wealth.

A majority of the great problems concerning social welfare are connected

with the use of wealth, and therefore fall under the discussion of

consumption. Indeed, so long as there is little accumulated wealth, as in

the savage state, social problems have little significance. The statement

of the Apostle Paul, “The love of money is the root of all evil,” while

not confined in application to wealth already accumulated, has its most

important bearing in the fact that wealth accumulated is itself a power to

be used or abused by whoever controls it. The saying of Emerson, “The best

political economy is care and culture of men,” applies most strictly to

the uses of wealth and the methods of its consumption. The great question

of today in every civilized land is, How can the accumulations of power in

the shape of wealth made by this generation be used to establish a

continuous welfare, not only for this generation, but for its successors?

The wants of society today include not only a reasonable provision for

life and health and wisdom and virtue during the life of those who are now

active, but an equal provision for the same wants increased with each

succeeding generation. In all thought of consuming wealth, we must

remember that power in this form is rightly used only when power in some

other form results. Thus wealth is consumed, according to natural laws,

either for reproducing itself in more advantageous form or for sustaining

human power in form of health or wisdom or virtue.

We have social welfare as the result of wealth consumed, or used up.

Society is interested in all the wealth accumulated, and the methods of

its accumulation and its fair distribution are a part of social machinery;

yet these have their chief significance in the final consumption. It is

not what we have, but what we do with it, that makes society interested in

our possessions. It is not what society has, but how it uses it, that

settles the chief questions of welfare or illfare. Not only gunpowder, but

every conceivable power in material wealth, has blessing or bane in the

use to which it is put. So the welfare of a community cannot be judged by

the amount and kind of wealth produced or by the methods in production or

by the distribution of ownership. These may be significant in showing the

trend of social customs as to individual control, but the last inquiry

will still have to be, What welfare comes to the entire community when all

this wealth is used? Moreover, no analysis of qualities in any substance

called wealth can measure the welfare involved in its use. Its relation to

the individual using it and his relation to the whole community, with a

careful analysis of wants met and character developed, must be considered.

The final question is, How many and what kind of wants are satisfied?

_Use of wealth individual._—It is necessary to realize that the social

organization is maintained solely for the sake of individuals. All study

of welfare and illfare is a study of individual human beings. The mutual

relations of these human beings in society are means to individual life,

growth and enjoyment. Even the total power of a generation in society is

dependent upon how the individual wants of individual members of that

society are met. Some of the greatest mistakes in estimating social

welfare arise from overlooking the essential individuality of wants, upon

which all wealth depends for its use.

This individuality makes the proper consumption of wealth largely a

question of right and wrong. The possessor of any form of wealth is

obliged to recognize his place in society as a promoter of welfare, and

society compels, as far as it is able, a recognition of individual needs.

Yet the very nature of consumption, as concerned with individual wants,

makes individual judgment supreme in the use of wealth. It is my ideal of

good health, high culture and sound morals that must be met for my

enjoyment. My welfare, so long as I have rational powers, is the meeting

of my ideal. Society rightly hesitates to interfere with my ideals by

force as long as my actions do not disturb the welfare of my neighbors.

The necessity of human liberty for actual welfare limits the control of

society to very evident infringements upon others’ welfare in every

activity, including the use of wealth as well as other powers. This very

restriction is in the interest of highest total enjoyment of welfare in

the whole community.

_Individual responsibility for use of wealth._—In estimating the proper

uses of wealth, it is necessary to remember that mere animal existence is

a very small part of human welfare. It would not be enough for any human

society that every individual in it be fed, clothed, warmed and maintained

in reasonably long life. The highest uniformity of mere animal enjoyment

would not make a society worthy to be called human. Even uniformity of

wants far higher, with uniform supply for those wants, would give but

little organization and but little total welfare if that uniformity was

brought by curtailment of natural powers or by constraint that hinders

growth. The most natural fact among human beings, as in all the rest of

nature, is variety; and every conception of proper consumption of wealth

must involve this thought of variety of individuals in wants and powers

left free to grow. It is a purely false assumption that the ideal

community toward which all ought to strive is a community of equals in

either ability or capacity. That is the ideal community which gives to

every member of it opportunity to make most of himself; that is, to make

himself most useful, and able to enjoy the truest use of his powers.

Hence we find the tendency in every community, with reference to wealth as

to other individual forces, to recognize early and complete personal

responsibility. This personal responsibility makes the question of

consumption of wealth a question of morals as well as of wisdom. The whole

discussion here turns upon the wisdom or unwisdom of certain personal uses

or social uses of what the world has accumulated. We can ask what use of

wealth is prudent, what imprudent; then what social organization best

develops the wisdom which secures a prudent use of wealth; and finally,

how far and in what ways society can act as a unit in the place of

individuals. The machinery of government then becomes a part of every

person’s welfare, and his relation to its maintenance by contribution of

his wealth is a part of prudent consumption. The economic question in

consumption, then, involves not so much what one can get from society as

what he can give to society, since his welfare comes largely through

organization in the use of accumulated wealth.

Chapter XXIV. Prudent Consumption.

_Prudent uses of wealth._—It has already been suggested that a proper use

of wealth looks always beyond the present. We accumulate, not only to

spend, but to spend in such a way as will give larger abilities in the

future. The name prudential consumption has been given to all that use of

wealth which has for its end the maintenance of individual powers at

highest efficiency for the longest life and provision for a more efficient

posterity with more efficient instruments of production.

It is prudential use of wealth to gather into the farm, not only such

machinery in the shape of buildings, fences and roadways as will make the

future labor more effective, but all possible fertility that will make the

future owners of the farm a larger welfare in possession. All wealth put

into the form of productive capital is prudentially consumed. All

so-called permanent improvements which look to the better satisfaction of

future wants fulfil the condition of prudent foresight. All public

improvements are really such, when this far-seeing provision for future

wants and abilities of society is made. Such methods are the genuine

economic saving in which the community should be encouraged. A saving

which merely stores against a future personal want contributes less to

general welfare, and does not stimulate the natural growth of wants in the

individual, which is the chief source of increasing power. The one who

saves that he may have better tools with which to do more for his future

satisfaction, not only adds to his physical abilities to meet his daily

wants, but adds the strongest stimulant to energy in his work. The supply

of ordinary wants being provided for, new wants arise.

In the spirit of prudential consumption such wants are encouraged as give

greater and greater abilities. Thus the ideal of life is constantly

raised, and the struggle is not for existence but for higher enjoyment and

more genuine welfare. The wealth which comes in this accumulation of

capital for larger accomplishment aids true philanthropy. The whole world

gets more of welfare with every addition made by farmers to their working

capital. In the same way all increase of capital in machinery, tools,

warehouses, ships and other means of transport contribute to a

philanthropy that makes society richer.

Such saving is entirely opposed to the miserly spirit which hides wealth

because of mere love of possession or fear of future want. It is the true

way of both spending and having, since it expends earnings for that which

continues to aid in bringing larger returns to meet increasing want. That

social system is most prudent for the world which accumulates productive

capital without reducing any part of society to poverty. Prudence,

however, requires that this capital saving be adjusted to the abilities of

the community in which it is to be used. The building of an enormous

factory, where skill has yet to be developed and where a market is

wanting, would be the height of imprudence. Such waste is sometimes seen

under the false stimulant of a bounty or a restrictive tariff. Just so,

great public improvements upon rivers, harbors and highways are a part of

economy and prudent investment of wealth only when a community is able to

use them to advantage. The test of prudence in capital saving is in its

nice adjustment to the abilities of the users.

_Prudent adjustment of capital._—A still further adjustment is required by

prudence between the capital put into fixed forms and the circulating

capital needed for best use of the more lasting machinery. A farmer is

said to be stock poor when he overloads his farm or crowds his farm

buildings with growing stock. Having all his capital in stock, he is

unable to handle it to advantage, and must readjust his capital in live

stock to his capital in the farm and machinery by selling some of his

stock and adding to the value of his farm. On the other hand, many a

farmer is land poor, where the bulk of his capital is invested in land,

while he cannot command circulating capital in stock and wages sufficient

to make the land useful. He needs, in the spirit of prudence, to sell some

of his land for the sake of current funds to invest in live stock and in

labor. The same principle applies to all investments of capital. A

railroad may so exhaust the funds of the community in building it that it

cannot be fairly manned for work. Sometimes a whole nation invests so

largely in permanent forms of capital as to bring distress and poverty

from want of means to use the great machine.

Prudence also requires a further adjustment between the amount of labor

directly producing wealth and that employed in what may be called the arts

of consumption, contributing directly to personal comfort and enjoyment.

The neatness of a farmer’s yard, outbuildings, fences and machinery is a

part of his welfare. It also indicates a certain thrift, which enhances

the value of the farm. But it is a proper sign of such thrift when it

grows naturally out of the productive energy employed upon the crops and

the stock. The wealth used in maintaining this neatness is not wasted, but

it will not reproduce itself. It must be supplied from other sources in

direct production. All services in the household, in contributing to

bodily comfort of the family, make an essential part of human welfare, but

prudence requires such an adjustment of these services to the total

wealth-producing energy that they may be maintained without reducing the

total power. All public expenditures in the care of streets and parks are

an essential to welfare so long as the sources of wealth production are

kept the more active from such advantages. The test of prudence in all

such adjustment is the increase of power in wealth-production, along with

increasing welfare.

_Provision for future wants._—True prudence is largely foresight, and so

is the enterprise of speculative energy which provides any product for a

future market. No more careful adjustment is necessary than that which

secures such a product of farm or factory as the world will need when it

reaches its actual market. The greatest wisdom is needed in studying the

conditions of a community with reference to its future wants, and the

supply actually accumulating for meeting those wants.

Farmers need, as truly as any producers, to know the wants of the world

for which they are producing food. The crops they plant in the spring will

actually be consumed in large measure during the following year. Prudence

suggests that they plant such crops as will be most in demand. If they

judge by the market today, they are in danger of two errors: first, of

overestimating the future demand, which may be satisfied before the new

crop comes; second, of diverting from ordinary staple crops too large a

portion of the crop-raising force. Common experience has taught that a

high price of hops or onions or broom corn has almost certainly wrought a

reduction of the price for succeeding crops below the normal cost. Still

larger foresight is needed with reference to the raising of live stock,

which requires more than a single season’s investment of capital. To stock

a farm with hogs, sheep, cattle or horses, requires from one to five years

of accumulated capital. The record of farm stock shows successive waves of

such production in direct opposition to prudence. (Chart No. 4, p. 83.)

The manufacturing world has similar experiences of imprudent consumption

in the effort to forestall a market. But the record of failures in this

respect is scarcely as marked, because of more business-like collection of

information for the guidance of judgment. Farmers too generally follow the

lead of their neighbors in adjustment of crops or stock. Manufacturers

more generally try to do what their rivals are not doing. Success in

producing what is not finally wanted we call overproduction. While the

whole world is warned against this, each individual producer fails to

study as well as he might the means of avoiding it.

Prudential consumption does not properly provide for those speculative

dealings which end simply in a readjustment of wealth by gains on the one

side through losses on the other. All these imply an actual waste of

wealth and energy, whether they are exhibited in a gambling machine or a

board of trade. But there are certain great enterprises, like wonderful

inventions, which involve a prudential consumption of wealth. The wealth

consumed in developing the electric telegraph system, or in laying the

Atlantic cable, everyone would judge to be well invested. Every thought of

prudence sustains such expenditure. Yet the spirit of invention, as a mere

venture in desire to hit upon something which may chance to be wanted,

shows lack of prudence, and the world suffers by great waste of energy in

this direction. The only test of prudential consumption in provision for

the future market is in the careful study of all conditions, favorable and

unfavorable.

_Consumption for growth._—True prudence in public improvements has just

been mentioned, but such prudence has a larger range in promoting the

permanent growth of human powers and capacities. Every wise father wishes

his children to know more, be more efficient in the arts of life, and

enjoy more of true welfare than he does. Communities which show no

advancement in these respects are called dead, and decay is sure to

follow. Prudence looks after all educational interests by expending wealth

upon the means of education; not only sustaining schools, but making more

permanent provision and increasing facilities for instruction. This is not

only a means of preserving and wisely using the wealth accumulated, but a

means of increased production. Such prudence suggests large endowments for

public education, including the support of government machinery for

uniformity of education. A similar prudence sustains the philanthropic

spirit which maintains all the means of philanthropy. The endowment of

asylums for the weak and afflicted and the support of religious

institutions are prudent ways not only of caring for present welfare, but

of increasing the welfare of the future. The next generation will be

stronger and happier for the prudent foresight of this generation in

overcoming obstacles to health and wisdom and virtue. To leave wealth thus

invested is far better for successors than to leave it in form for ready

consumption upon temporary wants. Thus all prudent consumption of wealth

has for its basis the genuine welfare of a continuous society of human

beings subject to improvement. Any forming community looks surely to

future welfare when it invests wealth in good homes, good schools and good

churches.

Chapter XXV. Imprudent Consumption.

_Society interested in imprudence._—This fact, that the wealth of each

generation is so largely dependent upon the prudence of the preceding,

emphasizes the importance of public sentiment in favor of prudential

consumption. Public criticism naturally attacks the most noticeable

failures of prudence, and it therefore seems worth while to consider some

of those imprudent forms of consumption which society may seek to prevent.

It is also proper to consider the ways in which society may act for

prevention of imprudence.

_Luxurious consumption._—The question of luxury in the same society with

extreme poverty is always prominent. Luxury is supposed to be extravagant

expenditure in meeting individual wants. Though such wants may be real and

legitimate, lavish expenditure by any portion of a community seems at

first sight a trespass upon common welfare. Some have considered that

person wanting in good will to his fellows who expends upon his own

comfort more than his neighbors can afford. Others define luxury to be

expenditure for living above the average expenditure in the whole

community. Still others regard any expenditure a luxury which is not

needed to maintain physical powers.

It is easy to see that all these efforts at definition are imperfect,

because the idea of luxury implies such a mode of life as does not

contribute to the total welfare, and each one’s idea of total welfare

enters into his definition of luxury. It is an evident fact that the

so-called luxuries of one generation become the actual necessities of the

next. This is because the life of the race means more and includes more

with each succeeding generation. To live in the twentieth century will

mean, as it has always meant in the past, to have such exercise of every

ability as circumstances permit. Luxury is therefore always relative to

the duties one has to perform, as well as to the society in which one

moves. Moreover, luxury is relative to individual abilities and individual

plans. It would be luxury for a farmer to go without a needed plow for the

sake of buying a lawn mower. It would be luxury for a student to own two

coats, if he must go without a dictionary to buy the second.

It is easy to settle the luxuries of others, but less easy to so define

luxury that the public can agree in the definition. In general, it is

described to be a meeting of fanciful rather than real wants. Any

individual in society is spending his wealth in luxury if he allows his

imagination to conjure up adornments of person or household which

contribute chiefly to display rather than to comfort or enlightenment. All

such adornments of person, or home, or the public streets, as cultivate

genuine taste and inspire to more of energy contribute to the general

welfare far more than mere expenditure for food can do. Yet in times of

starvation the food must come first. The world sometimes sneers at the

desire among very poor people to cultivate flowers and maintain a canary

or other pets; yet every philanthropist knows that these desires are among

the strongest incentives to greater thrift and keener exertion.

_Legal restrictions upon luxury._—With all this difficulty in definition

and the certainty of change from age to age, there is nevertheless a

disposition on the part of society to restrict actual luxury. Again and

again this has led to enactment of laws prohibiting expenditure in certain

definite forms. The dress of ladies of rank has been restricted as to

style and quantity of material and ways of making. The variety upon a

dinner table has been limited to a certain number of dishes and certain

kinds of food.

All of these have been egregious failures, from the impossibility of

measuring results upon the general progress of civilization. The indirect

effects of ingenuity in dress and cooking have been on the whole so

beneficial that the world cannot afford to hinder it. The intricacies of

French cooking seem to an ordinary household extreme luxury, yet that very

ingenuity has cheapened the cost of living, to a large portion of the

world, by rendering palatable the coarser vegetables and cheaper meats

which lie within the reach of the poor.

No real student of human nature would now attempt, unless it be in the

emergency of a great famine, to restrict expenditures by law upon the plea

of luxury. Still, society as a whole has some voice in directing the

judgment of individuals. Public opinion is an effective check upon

desires. The good will of the multitude is more important to the mass of

men than any particular gratification. It is proper, therefore, to discuss

at any time and at all times the limits of luxury, both for ourselves and

for our neighbors. The sole cure for imprudent expenditure in luxuries is

individual culture of mind and heart and conscience, so that each may do

his best to secure, not only the good will of his neighbors, but their

welfare.

_Wasteful consumption._—Wasteful expenditure through ignorance or

recklessness is more common and more weakening than luxury. Its limits

cannot be described, since it covers expenditures of every kind, from the

simplest provision for food and clothing to the most elaborate structures

and wildest schemes of development. Though noticeable wastes are seen in

the households of the rich, they are relatively larger among the poor.

Yet any attempt to regulate such waste by law is futile, chiefly from the

fact that it ignores the personal responsibility and wants which make

individual character. It is properly applied to the imbecile and the

insane, as well as to children and youth, through the appointment of a

prudent guardian. Society can protect itself only by fostering more

complete systems of education in the arts of life. The tendency of our

times toward a more technical education, especially in reference to the

home and the common industries of life, marks the growth of public opinion

toward a clearer ideal of prudence against waste. The study of economic

principles in every department of life, and especially the clear

understanding of everyday facts as to the things men handle and use,

cannot but give wisdom for preventing waste.

_Vicious consumption._—It is customary to distinguish from all other forms

of imprudent consumption of wealth such vicious indulgence of appetites as

not only consumes accumulated wealth but diminishes power in production.

Such vicious indulgence is the result of cultivating unnatural and

destructive appetites. Familiar illustrations are those connected with the

drink habit, the opium habit, or any other vice whose chief effect is seen

upon the individual life of the one indulging himself. These involve the

very highest wastefulness, because they destroy not only wealth, but

ability. Nobody can begin to compute in terms of money the actual waste of

our country through indulgence in strong drink. The value of liquors

consumed is no measure of the entire wastefulness. Yet this is more than

enough to furnish all with bread.

The wrongfulness of such indulgence, from its harm to society through

reducing the power of the race, is seldom disputed. Yet the right of

society to restrict the individual indulgence is quite generally disputed.

The larger need of freedom in the exercise of judgment among mature

members of a community outweighs the need of preventing even vice. Society

does well to bring the restraints of law upon the immature, whose judgment

is not yet formed, thus supplementing by law the directive energy of

parental control. It may yet go further, and prohibit such indulgence to

all who have lost the power of self-control. But in general it has been

found impossible to enforce restriction upon vicious indulgence except

where such acts occasion direct suffering upon others, or help to maintain

an immoral business. The right of restraint and constraint, even to

prohibition, of that which fosters vice and extends its range must be

admitted by all thoughtful persons. Still, the right to prohibit and the

power to prohibit are not identical. The only sure preventive is early

education of public conscience through the training of youth to a clear

understanding of the vicious practices and their relation to the poverty

and weakness and crime of humanity.

_Destructive consumption._—A more obvious trespass upon prudential

consumption is criminal destructiveness of every kind. Until society

outgrows a condition in which fraud, theft, robbery and murder must be

warded off by locks and bars, by immense bodies of policemen and armed

militia, its wealth cannot be wholly invested for welfare. The possibility

of such crimes as arson or train obstruction and destruction shows the

condition of the best of modern communities to be far from ideal. Nobody

pretends to measure the actual waste in society resulting from such

criminal purposes. It extends to almost every detail of production and

trade, and occupies a large portion of the inventive and executive energy

of the people. Organized society attempts to restrain such waste by its

police force, or by restraining laws and in actions enforced by severe

penalties. Every honest man is financially interested in the conviction of

every knave. Sympathy with fraud, even in trifles, is contributing toward

such destructive waste.

In this connection the enormous expenditure in maintenance of standing

armies and navies for the protection of national boundaries is of special

importance. Reduction of this waste of wealth and power should be desired

by every class of society. Though war has been the means by which human

liberty has grown, it has also been the means of crushing it. It would

seem that every incentive is offered each citizen to make an appeal to

arms and the maintenance of armies a most remote necessity. Yet it seems

that the mass of men of every rank are tenacious of national honor. While

most communities have abandoned the duel as both wasteful and immoral in

personal difficulties, the spirit of the duel is still rife in the

differences between nations. A clearer perception of mutual interests in

national welfare will bring nations, like individuals, to accept some

method of enforcing neutral judgment for settling disputes, in place of

war. The farmers of a country, being nearly 50 per cent of its people, and

bearing a large proportion of the expense of armies and wars, have a

tremendous interest in maintaining peace. This can be done not so much by

reducing the provision for armies as by cultivating the spirit of fair

settlement, against the false patriotism which claims everything for one’s

own nation.

_False notions of waste._—Wasteful expenditure and luxury and possibly

even vicious indulgence are often excused with the plea that expenditures

of this kind make employment for labor, and so aid the poor. While it is

true that multitudes are employed in catering to the vices of others, all

must grant that the same wealth might be much better employed in other

occupations. More than that, the larger wealth resulting from accumulation

in place of waste would provide capital needed for fuller employment of

all who can work. All imprudent expenditure reduces the power of society

to accumulate wealth for giving occupation to all who will work. Moreover,

such wastefulness creates a tendency toward thriftless character among the

people. The welfare of the whole community depends upon the thrift of the

whole community. The thriftlessness of rich men’s sons is more damaging

than the thriftlessness of tramps, because it is more tempting to others.

Any man who lives simply to spend, however busy he keeps himself, is one

of the wasteful ones in the community, unless he has some higher object

than gratifying his desires. The energetic idler may be doing his worst

for the community without being ranked as a spendthrift, because he makes

such idleness respectable. It should be the desire of all good citizens to

increase the ability of every other citizen, not only to live, but to live

well. This thriftlessness can be overcome only by a strong public

sentiment that corrects the early tendencies of youth to waste of means

and energy.

_Waste in rivalry._—There is another kind of wastefulness resulting from

excessive competition for a particular business or a particular trade.

Immense amounts are expended upon rival advertisements, all of which enter

into the general cost to consumers. A multitude of retail dealers maintain

stocks of goods entirely out of proportion to the needs of the community,

because they are rivals in trade. Very likely the business rents are

higher than they need be because of such rivalry. Not only is there a

strong competition for a place, but also for showy equipment and elegance

of display. All this could be saved by better organization. A still more

evident waste is from the multiplication of agents and middle men of all

kinds, employed simply in catching trade. Some of them act simply as

interlopers, hoping to gain a small commission without the use of capital

or painstaking in their business. These are the useless middle men

maintained at the expense of the community. Full market reports and

general information of buyers and sellers greatly reduce such waste.

Chapter XXVI. Social Organization For Consumption.

_Individualism._—While the social organization is necessarily thought of

as a group of individuals, whose individual wants and plans and growth and

character must be the chief incentive for action, it is necessary to avoid

the extreme of individualism. In escaping from the false analogy implied

in considering society an organism, there is a tendency to make the

individual not only of final importance but independent of association.

Excess of competition is represented in the maxim, “Every man for

himself.” In the effort to carry out this maxim and in opposition to

restraints of society, whether by law or by custom, many are led to

advocate an abolition of organization, leaving all welfare to be secured

by appeal to the individual judgment and conscience of men. It is true

that back of all law is the law of righteousness in individual souls.

Under the name of “autonomy” theorists propose to appeal to this

conscience of individuals, making every soul a law to itself. Such

theorists assume that every human being will be wise and virtuous, or take

the consequences of his failure. They forget that all organizations for

constraint are a part of the natural consequences of failure in

self-control.

Under the name of “anarchy” groups of people all over the world have

united to destroy what they consider arbitrary rules in government.

Anarchists differ from autonomists in putting foremost the destruction of

existing governments. Their ideals of right and wrong and their methods of

individual action for individual welfare are left for the future to

develop, after the rule of the present has become no-rule. Their present

organization, as far as it is public, appears to be, in almost direct

contradiction of their principles, an absolute despotism. The same idea

has gained followers in some countries, particularly in Russia, under the

name of “nihilism.”

While in some instances such movements may be but a natural reaction

against tyranny, the view of human wants and human welfare which all these

advocates present is far from being correct. The grand economic fact that

groups are superior to individuals in actual efficiency is beyond dispute;

and it is equally true, though not so often stated, that groups gain

greatest satisfaction for a given consumption of wealth. It is only when

great numbers share in satisfaction that the highest range of wants can be

gratified. Moreover, even individual wants are largely social. Each finds

his highest pleasure in the society which nature has provided. The chief

reasons for accumulating wealth are in what men can do for each other. Any

individualism which overlooks these principles is opposed to welfare, and

so self-contradictory.

The famous French phrases, “laissez faire” and “laissez passer,” which

represent the individualistic side of economic theory, are often extended

beyond the intent of the phrase makers. They mean essentially, let do, let

go, and have their proper application in an appeal to conservative society

to so modify laws and customs that individual enterprise, ingenuity and

thrift shall be stimulated to its best by freedom. Freedom from

restrictions in right-doing, under the evident motive furnished by general

welfare, is an ideal for society. In economic directions it has great

importance. No thinker can fail to see the trend of civilization toward

such freedom. So far in the history of the world the enlargement of

individual responsibility, by freedom from constraint among the mature

members of society, has been the chief mark of progress. Yet the

constraint of welfare, and of the general judgment as to what is welfare,

as well as the necessity for agreement as to ways and means of reaching

it, are better recognized today than ever before. The extreme of

individualism destroys the natural constraint of a common judgment.

_Socialism._—The opposite extreme is the assumption that common wants are

of supreme importance and common judgment absolutely efficient. Under the

name of “communism” it stands in direct contrast with anarchy. Anarchists

and communists may unite upon a platform of a single plank, opposition to

existing institutions; but in all ideals and purposes and plans for future

welfare they are absolutely opposed to each other. The natural community

of interests so evident in society gives a fair basis for the general

principles of communism. No doubt the welfare of all is the interest of

each, and the world is growing to recognize it. Among a group of beings

perfectly wise and virtuous there could be no clashing of either interests

or judgment. The ideal of Louis Blanc, “From every man according to his

powers, to every man according to his wants,” would represent the natural

activity of such a group. But in application to humanity, as it is and is

bound to be by its weakness and waywardness, it seems abstractly ideal. In

fact it is only roughly applicable in ends to be served, and suggests

almost nothing as to ways and means. Like the golden rule, it applies to

the disposition and purpose of the actor, but leaves the acts to be

decided by individual judgment.

The numerous phases of opinion in application of this principle cannot be

presented even by name in this short chapter. They are worthy of study as

indicating a growth of opinion and sentiment in recognition of the mutual

dependence of all human beings. They are also worthy of study as

indicating how arbitrary a zealot may become in enforcing his opinions

upon others. All of them are grouped somewhat loosely under the name of

“socialism,” but there are many gradations in the supremacy of the social

ideal over the individual welfare. There are also many shades of opinion

as to how the final result of social supremacy shall be reached. Many are

expecting a revolution by force of arms to establish the ideals of the

leaders. More are opportunists, snatching every opportunity in

legislation, in decision of courts, and in executive power, to apply their

methods.

Under the name of “collectivism” appeals are made to the multitude to

combine their energies under leadership: first, to overcome present

restraints; and then to secure combined action in all modes of production

and consumption. “Nationalism” is more familiar to our thought in the

United States, as embracing the aim of a somewhat noisy party to bring

about the compulsory organization of all industries under the control of

the nation, even to placing all property and all methods of consumption

under an official despotism.

Few recognize the actual logic of their views as compelling complete

subjection of every individual to others’ judgment, and fewer still have

any idea of the official machinery needed for such control. The great

majority are satisfied in seeing evils which might be cured by greater

social accord, expecting at once to vote into existence the necessary

machinery. Most of these are misled into considering wealth and its uses

to be the chief elements of welfare. They forget that wealth is only a

means of accomplishing one’s purposes toward his fellows and himself. The

greed of power and position and praise are far stronger as evil motives

than greed of wealth. If wealth were distributed by omniscient wisdom and

power according to the maxim of Louis Blanc, the higher welfare would

still be as far away as ever, unless the same omniscience should control

all actions. Such control by outward force would banish the very idea of

virtue, the highest of all welfare.

It is easy to see that every form of socialism, in practical methods,

involves a leveling process inconsistent with human nature and its

surroundings. Equality of environments is possible only by reducing all to

the lowest condition. Equality of aspirations reduces all toward the most

brutal of the race. Even equality of efficiency reduces all to the power

of the least efficient. So the whole range of method, assuming equality of

wealth as important to welfare, lowers the welfare of the whole by

destroying the best abilities and the best capacities for enjoyment in

order to prevent inequality.

And yet it has not been proved that equality in any of these particulars

is desirable. It is equally beyond proof that actual equality is possible.

The most absolute communism implies the greatest inequality in official

power. Even the pleasing phrase, “Equality of opportunity,” will not bear

analysis as applied to human nature and human welfare, under the very

highest ideals of social unity. Indeed, the lesson of facts in all

activity is that inter-dependence of _unlike_ and _unequal_ forces makes

the true unity of organization, and the surest welfare of multitudes. That

each individual should have the best opportunity possible for his own

development is best for each and for all in a community; but that such

opportunities shall be equal in any other sense no wisdom can contrive.

Most socialistic theories presuppose almost immediate change of human

nature under the new form of administration. But for this supposition

there is little ground in the history of the race or of all nature. Growth

there will be, and evolution of ideals; but the administration grows out

of these, instead of being their cause.

_Socialistic tendencies._—Socialistic theories gain adherence under the

provocation of certain tendencies in society. First, they appear whenever

by oppression or fraud of any kind a community is made up of one class

possessing wealth directly opposed to another class without wealth, with

no extended middle class, and therefore with no ready means of transition

from one class to another. As long as the doors are open for real progress

in power of accomplishment, all the way from poverty to wealth, society

has a unity in its variety that is better than any communism promises. At

present in our own country, with the great multitude of farmers’ families

furnishing not only the necessities of life, but the larger part of human

energy that goes into every calling and every rank, socialism does not

appeal to any large number. An earnest, thriving farmer’s family will

never believe advantage to come either to themselves or to the race by

making them all practically mere wage-earners.

Second, a common cause of socialistic views is separation, under extreme

division of labor and opposing organizations sustained by it, of the

workers in very distinct fields of labor. The jealousies arising between

these classes, or guilds, or between employers and employed, foster the

revolutionary spirit which jumps at any promise of relief from

unsatisfactory conditions.

In the third place, a political revolution, if it has destroyed landmarks

of the past and any natural sentiments growing out of social relations,

leaves a mass of people at sea with reference to the nature of rights.

Under such circumstances socialism offers an apparent solution of

difficulties unprovided for. Though any practical effort to apply these

theories under such circumstances usually results in despotic assumption

of authority by a few, the people are moved by the pleasant-sounding

phrases. If, in the settling of social affairs after a revolution, an

earnest effort is made to agree upon set phrases embodying principles of

constitutional liberty, the chances are in favor of some sweeping

statements, too general to control action, but over-emphasizing individual

rights in comparison with individual duties. Action under these

declarations usually conforms to the necessities of the case, accepting

the immediate welfare of the society as a guide to more complete welfare.

All these conditions are abnormal, wholly unfavorable to a fair

consideration of what will promote welfare. Even if socialistic methods

might work fairly well when all were favorably disposed, there is great

question whether they would work as well as present social methods, under

equal good will. It must not be forgotten that every scheme of

nationalization, for its own sake, implies the government of every

individual by everybody else, thus hampering under petty regulations and

by force of multitudes the growth of every individual. No scheme for

national direction provides as natural tests for merit, ability,

enterprise or necessity as present methods are known to do wherever fraud

and tyranny are abolished.

_Coöperative consumption._—In the natural order of social development

there is room for much more general association in the consumption of

wealth than we sometimes think. The world has made great progress in this

direction during the last fifty years, through voluntary organizations for

prudent expenditure. The only limit to such community of organization for

special purposes is in the nature of the work and the relation of the

workers. Coöperative stores, banks, building and loan associations,

laundries and even kitchens are within the range of actual experiments. We

have already seen how such coöperative interests may operate in simple

investment of capital for production. The chief obstacles in them all are

the lack of certain characteristics of prudence in a multitude. In general

the best management does not accord with the judgment of the mass.

A few brief maxims may indicate the natural restrictions upon such

methods. Coöperative consumption is successful: first, where those

coöperating are fairly equal in wants and abilities, or closely related

through kinship or friendship; second, where the range of coöperation

includes common wants; third, where no one is given the advantage of

credit; fourth, where mutual confidence selects and sustains a continuous

management; fifth, where frequent and full reports can make the business

plain to all concerned. It would be interesting to follow the growth of

coöperative stores and banking associations from small beginnings to

enormous enterprises, but the limits of this volume will not permit. This

extension may be realized from the statement that the Rochedale

coöperative societies of England now number nearly two thousand, with more

than a million members and nearly seventy-five million dollars of capital.

Chapter XXVII. Economic Functions Of Government.

_Governmental limits._—All society recognizes certain universal wants and

the necessity of meeting these with essential order and the best economy.

These universal wants enforce the organization of society under some form

of government. Such an organization grows out of the necessity rather than

the will of humanity. Hence government, local or more general, is the

direct effort of individuals in society for the general welfare. Usually

the best test of general welfare is the assent of the majority of mature

and intelligent members of the community. In the history of the world,

however, the importance of the object to be gained has overcome obstacles

in the will of the governed as much as any other. Among children the right

of the parent to govern for the welfare of the family is never questioned

until character and wisdom are doubted. Among crude and disorganized

bodies of people, superior wisdom and earnest purpose make leadership. Yet

always, in the end, the ideal of welfare in any community implies growth

of individuals into authority over themselves as one of its main objects,

if not its chief one. Thus the best government for any community at any

stage of its advancement is the one that best secures the welfare of all

in existing circumstances.

It must be remembered that the chief elements of welfare are above

government. All the kindly affections which make the chief bonds of

society are to be cultivated by good government, but cannot be forced by

any law, either positive or prohibitive. Individual character in all its

proportions is individual growth, which can be fostered but not forced.

All the catalogue of virtues is made up of elements of character, not one

of which can be made by force. So government of every grade fosters the

highest welfare of individuals by sustaining virtuous motives and

restraining vicious ones, or rather by encouraging right action in its

enjoyment of welfare and restraining wrong action by deprivation of

welfare. Government, therefore, is best when its aims are distinctly

confined to universal welfare. The distinctly personal wants can be best

provided for by affording the best conditions for free exercise of

individual powers. Governments can never wisely do favors for a class,

since such favors weaken the power of government for promoting general

welfare. What government does for any it needs to do for all. What it does

for all it must secure to each in fair proportion. In any effort to extend

the range of governmental action this natural limit of universal welfare

for individuals must be considered.

_Ends of government._—In this view of the reasons for organized government

and its natural limits, certain universal wants can be clearly perceived.

Most obvious is protection against external foes, personal or material.

This universal need, in the presence of personal enemies, is so plain as

to make the crime of treason notorious. The internal peace of society is

just as evidently a universal necessity, and so any infringement upon the

order of society, as agreed upon either by express statute or by the

common law of established precedent, is punished as a crime against all.

Personal violence, even in the shape of private vengeance for wrong done,

is a menace to internal order, and so a crime against the whole

organization. The mutual dependence of each upon all and all upon each in

every-day transactions enforces the interest of the organization in

personal contracts, and makes the government a partner with every

right-doer against every wrong-doer in all attempts at fraud or abuse of

power of every kind. This guardianship of personal freedom makes necessary

the bulk of criminal law and most of the machinery of courts. The

arbitration of disputes between interested parties is a natural sequence

of the effort to prevent violence. Government does not and cannot right

wrongs; it barely saves a remnant of good to the individual wronged, and

furnishes a warning to others against future wrong.

_Universal needs._—Every force, external or internal, which is likely to

be injurious to the whole community, the whole community through its

organization is obliged to combat. Hence the necessity for quarantine

against infections diseases wherever found, and provision against

destructive storms wherever possible. Protection against the ravages of

insects falls into the same list, and so does every safeguard in which the

whole community is interested. The same principle applies to positive

provisions for welfare in economical ways of meeting universal wants. The

universality of the need makes the water supply and the lighting of cities

a proper work for the city organization. If the same machinery can provide

most economically for larger personal wants without infringing upon the

rights of all, simple economy invites it, and the principles of good

government sustain it. The question of municipal lighting is simply one of

true economy for the entire body of citizens.

For the same reason, that everybody needs it, the government is obliged to

have control of the means of transit so far as ease and safety and economy

to all require. Government must maintain highways suited to the needs of

the community at all stages of its development. The question of city

management of street car lines, beyond such control as secures safety and

essential justice, is purely one of economy for all concerned; that is,

for the entire community. This economy is not settled for one community by

the conditions of any other. It must be decided in each community whose

interests are to be served by the actual need and abilities of that

community.

The same may be said in regard to all methods of providing ready

communication of wants and abilities as needed for mutual welfare. The

postal system is a natural government machine, because every citizen needs

to be within reach of every other citizen in the same community. If

government does not furnish the machinery, it must control it to the same

end. The extent of the machine must be decided by the extent of the want.

If the want is sufficiently universal, the organization cannot avoid

providing the machinery. This principle applies to every form of

communication devised or discovered. The question of government ownership

of telegraph or telephone connections becomes one of simple economy,

whenever the community finds such means of communication a matter of

universal want. If economy or vested rights of individuals prevent such

provision, government must still guard these universal interests by

inspection and control. The exact point where government ownership becomes

economical and legitimate must be decided by a careful weighing of the

general interests of the whole community.

_Universal education._—The necessity for universal intelligence is so

evident that governments not only recognize and foster benevolent efforts

of individuals for education, but rightly make the organization itself a

direct force in maintaining educational institutions. Public schools are

now universally recognized by most enlightened people as meeting a

universal need, and therefore one of the essentials of good government.

How extensive such provision should be is still an unsettled question. In

fact, it can never be finally settled in any growing community, because

the universal need of the community becomes more and more extended. So far

as universal intelligence depends upon the higher intelligence of leaders

in the community, the whole mass is interested in the training of that

higher intelligence. The very nature of education, shedding its light over

all in its neighborhood, makes every member of the community a sharer in

the advantages of university training. Hence governments rightly and

economically administer educational systems which involve the welfare of

all. The same responsibility makes improper the use of public funds in

support of private institutions without such restrictions as insure the

good of all.

The propriety of governmental control of churches and religious training

must rest upon the same basis of principle. Religion is of such a personal

nature, so wholly a matter of conscience, that it cannot be said in any

proper sense to be universal. Yet the need of religions sentiment and

freedom in development of that sentiment is universal. The state does well

to provide security for religious thought, practices and fostering

influences in all governmental machinery. On this ground the civil law

protects a Sabbath. The state church has had its apparent reason for

existence, and still has in many parts of the world, from the close

connection between religious training and popular education. Naturally

state churches emphasize the educational side of religions institutions.

The world is coming to see more clearly the dividing line between

information or thought about religion and religious action in faith, its

common basis, and can leave the latter for individual growth.

_Government wards._—The welfare of the whole reaches finally to a

guardianship over such individuals in the community as endanger, either by

weakness or by wickedness, that welfare. For this reason government can

maintain asylums for the weak or diseased, or even the extremely ignorant,

not simply to protect these individuals, perhaps not chiefly for that

purpose, but to protect the whole. It can rightly and wisely enforce such

protection by health regulations and officers, and by truant laws and

officials. Upon this principle it may rightly constrain even the friends

of insane persons to give up control of the insane to the safer public

provision in asylums. When any community realizes a similar need with

reference to inebriates, it will assume the same constraining authority.

In dealing with the problem of personal wickedness, a community must still

draw the line between universal and individual welfare. The criminal

injures all; therefore all must constrain him, and effort is made to

measure that constraint by the evidence of opposition to public welfare.

Vices are more distinctly individual. They touch the universal welfare in

those forms which propagate vice in neighborhoods. Governments universally

fail to enforce laws against personal vices wherever the danger to upright

character in other persons is not clearly perceived. All restrictive

legislation upon vicious habits, like intemperance, gambling or other

immoral practices, is naturally aimed first at the places contrived to

foster such habits, and therefore to attack the innocent. The actual

working of such legislation in preventing the growth of vice is the only

final test of its wisdom. What it _can_ do is what it _ought_ to do. In

general the actual public sentiment in local communities must be the main

dependence for executing such laws.

_Protection of the weak._—The common statement that government must

protect the weak against the strong is subject to the same principle of

universal welfare, and is applicable only where society has definitely

recognized rules of good order which somebody is violating. Any attempt to

supply to the weak a strength which they cannot wield is necessarily a

failure. But society as a whole rightly shields children and youth, and

even women of mature years, from burdens which may injure the general

health or wisdom or virtue of the community. Laws prohibiting contracts

which involve such burdens can be enforced so far as the community

appreciates the evil of such contracts. So, to a certain extent, weakness

from ignorance may be protected by any method that tends to remove the

cause of weakness. All such action of government must be carefully guarded

against becoming such a protection as will render the weak weaker.

_Public responsibility._—The organization of community is best for the

mass of the people when all desires are allowed to give their proper

impulse to action, and when every enterprise is encouraged by freedom

until it is seen to infringe upon the general welfare. Any system of

government which checks natural impulses and hinders individual

enterprise, without clear evidence that all must suffer from such freedom,

is harmful. The genuine application of the phrase "laissez faire" is in

giving honest efforts free course, because these efforts secure the

largest good. It really means, leave humanity free until injury is

attempted. In general, government has to deal with all necessities which

are identical throughout the community. Provision for those necessities

and those only it is bound to make.

All questions of nationalization of industries or of community consumption

must be brought to the test of universal need. What the whole community

wants the whole community has a right to provide in the way which brings

most good with least expenditure of exertion in any form. No other

question can outweigh in importance this one of public need or public

welfare. Every producer and every consumer is interested in seeing that

such welfare is not overlooked by the public, or infringed upon by any

individual or combination of individuals in his community. This must be

done by emphasizing personal responsibility, even in public enterprises.

For the statement is beyond dispute, that the attempt to substitute

corporate responsibility for personal responsibility ends in no

responsibility at all. Above all things it is necessary to remember that

all the progress yet made from the starvation and degradation of barbarism

has been by organized interest of the whole community in protecting first

individual life, second individual liberty, and third individual property,

as the foundation of universal welfare. Yet society holds all these rights

of individuals subject to the same higher law of welfare by restricting

the purpose of individuals when possible, and action always, if it opposes

the total welfare.

Chapter XXVIII. Economic Machinery Of Government.

_Resources of government._—All expenditures of government are as subject

to economic laws with reference to consumption of wealth as are those of

individuals. Actual result in welfare is the only reason for such

expenditure. Hence the same tests of economy are applied. Government makes

but few expenditures for the immediate purpose of reproducing and

increasing wealth. So far as its investments sustain productive industry,

and the products of that industry enter into the world’s market, they are

subject to the same economic laws of supply and demand that govern all

production of wealth. If in any case they are not, it is because of

government monopoly cornering the market, or because of unnatural

conditions of government production undermining the market. In general,

government is simply expending for the common welfare a part of the wealth

produced by individual effort.

Its resources are in small part derived from fees for special services

rendered to individuals of the community. Such are fees for registration

of deeds and mortgages, and of the same nature, though for convenience of

collection paid in a different way, is the revenue from sale of postage

stamps and stamped envelopes. Revenue may come from pay for certain

special privileges or franchises established by license or patent. These

are supposed to be not so much in payment for special service as for

sharing in responsibility and cost of protection. Another source of

revenue is in the shape of money penalty, or fine, for minor trespasses

upon good order. Such revenues are accidental, and diminish as the

government becomes more perfect. Under peculiar circumstances of

opposition by citizens or bodies of citizens to the general order,

government confiscates property used in such opposition. A good

illustration of this is connected with smuggling, where the introducer of

foreign goods opposes government in its revenue laws by fraud or violence,

and suffers the confiscation of goods so introduced.

None of the foregoing sources of revenue, unless it be the license, and

this is sometimes a mere method of taxation, can serve to any great extent

the purposes of government. All government expenditures for general

welfare must finally be met by some system of distributing the burden over

all the people. This method of distribution is called taxation. The

principal revenue is raised by taxation of possessors and producers of

wealth, in anticipation of current public needs.

If for any reason government expenditures exceed its revenues, the

government, like any individual, becomes a borrower. It may borrow by

contract to pay at some future time for construction of buildings or

machinery, or by issue of scrip in the shape of promises to pay at some

definite or indefinite time in the future, or more distinctly still by

sale of bonds, which are definite certificates of indebtedness, negotiated

like the notes of individuals in great banking centers. Yet all of these

are only methods of postponing the taxation which must support the

government in its necessary machinery. Government can live upon credit in

the same way, and only in the same way, that individuals can. The economic

reasons for such credit must be the same as in individual experience.

_Principles of taxation._—Since taxation in general is simply a way of

distributing expenses to those for whose benefit expenditure has been

made, the first question is one of fairness in distribution. The benefits

from government expenditure ought to be universal, but are not necessarily

equal. Like all the good things of nature, the benefits of the government

are not appreciated by all alike. No one would probably suggest the

possibility of distributing the expenditure exactly in accord with

advantage received. Wherever the service is distinctly personal, as in the

regular mail service, an attempt is made to charge each person the average

cost of the service. Even the large miscellaneous mail distribution at

less than cost may be fairly borne by those who use the mail for personal

advantage, since this is likely to be in proportion to the intelligent

activity shown in correspondence. Some few taxes upon special commodities

of questionable advantage to the multitude, like liquors and tobacco, are

supposed to be paid by those who gain the only advantage received by

anybody in protecting their use.

Some more general principle, however, must be found for adjusting the

burden of general expenses so that each individual will bear his share. If

the burden belongs to all, it should rest fairly upon all. Hence equality

is usually given as the first principle of taxation. But it is evident

that in this case equality means equity, not a mathematical division by

the number of taxpayers. The interpretation is therefore “according to

ability.” According to Professor Rogers, the student of economic history,

“_Equality of sacrifice is the only honest rule in taxation_.” This means,

in practice, that any system of taxation should be planned with distinct

effort to distribute the common expenses according to the ability of

different members of society to meet them.

It is evident that no exact gauge of ability is at hand. If the actual

income of every citizen could be distinctly known, and the burdens of a

dependent household clearly expressed, a basis for equal sacrifice, so far

as wealth is concerned, might be reached. But no such basis has been or

can be actually found. If found, it would not give an accurate gauge of

sacrifice, because the actual wants for comfort of different individuals

are so widely varied. Two distinct approximations toward this equity are

found. The first is in the total annual consumption of the individual

taxpayer, especially of such articles as meet wants above the mere

maintenance of healthy existence. In this the government assumes that all

will spend according to their ability. The second is in a total

accumulation of property. In this the government assumes that every man

saves for future consumption all that he gains above his present needs.

Both assumptions are untrue in individual cases, and only approximately

true anywhere. In many instances the expenditure of a given year upon more

continuous wants than ordinary, like a home or farm buildings, will count

also as wealth laid by. So, in any combination of the two systems of

taxation, the more thrifty and far-seeing will bear a double burden. Yet

even this combination may not transgress the rule of equity, since such

foresight is itself proof of ability.

To this first principle of equity we may add others, less fundamental, but

equally important in practice. _Taxes must be sufficiently definite to be

understood and provided for by every taxpayer._ This is needed for

maintaining the interest of every citizen in both the necessity and the

economy of public expenditures. _Taxes must be so levied and collected as

to be conveniently paid._ This means that private enterprise shall be

hindered as little as possible in making assessments, and that times and

places of collection shall be suited to the convenience of taxpayers. _The

collection of taxes must be by such methods as will involve least outlay,

either in salaries of officials or in machinery of the collecting

process._ These four principles of taxation were announced by Adam Smith

more than a hundred years ago, and have commended themselves to students

of the subject ever since. It is evident that the last three are more

explicit methods for carrying out the first. Most briefly stated; they

imply equity, definiteness, convenience of paying, and economy in

collecting.

Most legislation with reference to taxes shows some effort to carry out

one, if not all, of these requirements. It is evident that a tax may be

conveniently paid in connection with ordinary expenditures, and at the

same time be very indefinite and quite inequitable. Many taxes upon

articles of every-day use in the home are of this nature. A very equitable

tax may be so inconvenient from its interference with private interests,

and require so many officials for collection, as to make it a serious

burden to all. Such a tax would be one levied upon net income, supposing

it possible to discover the exact facts for such a levy. Taxes levied

without consideration of these principles are defended as means of

checking extravagance or vice, as equalizing other conditions of welfare,

or as correcting inequalities from other existing methods of taxation.

Even these last assume the necessity of equity in the entire system or

group of systems.

_Direct and indirect taxation._—For convenience of study, taxes are spoken

of as either direct or indirect; that is, a tax may be levied upon one

whose property or earnings must be reduced by the amount of the tax, or a

tax may be levied upon one whose property when sold, or whose service when

rendered to another, will be worth as much more as the burden of the tax

he has paid. A poll tax, an income tax, a tax on the farm, or a tax on

household goods and jewelry, is assumed to be paid by the owner or user,

without reimbursement. But a tax on stock in trade—like the farmer’s live

stock—or upon the machinery of production or service—like railroads,

insurance companies and banks—is assumed to be transferred as an

additional expense to the one who finally enjoys the wealth.

It is easy to see that such a distinction is difficult. Every owner of

wealth will consider taxes connected with its possession a part of the

cost of such wealth, and wherever possible in the conditions of the market

will count a tax in the selling price. It is impossible to judge from the

form of wealth or the nature of the service when the tax can be

transferred to a final user. A farmer’s wheat may be the source from which

he pays the total cost of raising it, including taxes upon the land

employed. If, in the condition of the wheat market, he has still a profit

upon his management, he will assume that the wheat buyers have paid the

taxes. If the market price is so low as to not cover the cost, he will

emphasize the fact that he pays the taxes. Yet probably the fact is the

same in both cases, that the owner of the land has his profits diminished

by the actual amount of the tax. More strictly, the tax is taken from the

rent of his land. In any case of over-production, when land gives no rent,

the tax will be paid by the producer out of other income. So far, however,

as farm products conform to the principle of cost of production in the

tendency of prices, there will be a corresponding tendency to shift the

tax upon the final consumer.