The Principles of Economics, with Applications to Practical Problems

by Frank A. Fetter

FUTURE TREND OF VALUES

§ I. PAST AND PRESENT OF ECONOMIC SOCIETY

Definition of economics recalled

1. The meaning and scope of economics can be better seen at the end than at the beginning of its study. The proposition with which this inquiry opened may well be recalled in the closing chapter. The words of the formal definition of economics should at this point convey a fuller meaning. In the wide range of subjects passed in review has been sought the answer to one question: What determines and affects the values of good?

Influence of economics on practical life

Perhaps now also can be better appreciated what the influence of such a study might and should be on practical action. At times economic students have gained the ear of statesmen and rulers, and have exercised much influence upon practical politics. It is sometimes bemoaned that economists have to-day so small a direct part in the government of our republic. They certainly have a greater part to-day than they had twenty years ago, but if they had not, there would be small occasion for regret. The immediate influence of the specialist on those in authority is at most times less in a republic than it is in a monarchy, at those rare times when a ruler shows the students his favor. That influence in America is mostly indirect, but it is no less sure and lasting. The results of the earnest pursuit of economic inquiry in the universities and outside of them are already appearing, not in dramatic ways, but in the more subtle, surer form of an intelligent public opinion.

Examples of mistaken social prophecy

2. Economic science has not reached a stage that permits of much prophecy. Prediction is sometimes given as the test of science. This test, however, is one that only astronomy can meet in any remarkable degree. Chemistry can tell much of what will happen in the laboratory, but nothing of the date of future powder-mill explosions. Geology answers the question "What?" with surmises, and "When?" with an estimate of a few million years more or less. Is it surprising that in human affairs still less prediction is possible? There are countless unmeasured factors in human action. Such generalizations as are possible must be based on actions that appear and reappear with practical constancy. Though a number of facts unite to suggest some conclusions as to the immediate future, the experience of the last century bids one beware of sweeping predictions. The close of the French Revolution was a period marked by much speculation regarding the future of society. The optimists, with faith in the perfectability of human nature and of society, believed that all social ills were due to bad government; if despotism were but overthrown, man's nature would develop, untrammeled, to perfection. The economists of that day were sceptical, because, looking deeper, they saw sources of misery in the scantiness of man's environment, and in the sloth, ignorance, and incapacity of human nature. The pessimists—the communists, and socialists of that day—seeing the same evils, had other explanations to offer. While the economists of that day believed the conditions of poverty and misery to be inevitable, the pessimists pronounced them unendurable, and advocated a radical social change as the only hope of saving the masses from starvation. In such a variety of mutually contradictory views there must have been much error, but likewise much truth if it could be disentangled.

Economic prophecies of the nineteenth century

3. The unexpected changes in transportation and in industry altered the course of economic development in the last century. Much of the economic theory of that day appears absurd in the light of history. The inventions of the period, from Adam Smith's writings to Ricardo's (1776 to 1820), were mostly for use in manufacturing. This suggested to the minds of that time the progressive cheapening of cloth, iron, pottery, and of all other products of machinery, but not the cheapening of food. Indeed, the situation in western Europe then suggested strongly the opinion that the products of the soil would steadily become more difficult to get. The railroad was not of practical importance until after 1830; the steamboat was not applied to ocean travel until 1837. The opening of a rich continent and its annexation, by these new agencies, to the available resources of the older countries were not dreamed of. It was not fully appreciated that a great change in social standards, controlling the growth of population, was in progress. This was the panorama of the progress of society as seen by both the conservative economists and the socialists of less than a century ago: continued invention, an increasing population, low wages, scanty food, growing wealth for the few, and growing poverty and misery for the masses.

Unexpected course of development in the nineteenth century

4. The actual course of economic development in the nineteenth century falsified the predictions alike of optimists, economists, and pessimists. Not foreseeing the great supplies of natural resources soon to be made available for the older countries, the men of that day naturally thought of the supply of land as limited and fixed. Supply in the economic sense means the amount available at the given time in the market; but despite the great areas since brought into the world-markets, the false idea of a century ago still persists in the text-books, and shapes economic reasoning. It is vain to say that the circumstances have been unique and that the general principle is still valid. Much of the so-called orthodox economic analysis was essentially erroneous as applied to the conditions of the past century; it is erroneous to-day and will be so for years to come, if it ever fits the facts. New continents are about to be opened. The building of railroads the length of South America and to the center of Africa will make available new mineral wealth, rare woods, enormous forests, and some of the greatest food-producing areas on the globe. Population in Christendom has increased more rapidly than ever before in the history of the world, but it has not overtaken the progress in resources. The rate of increase of population is slackening. The result of this combination of events has been a general rise of the conditions making for popular welfare. Despite the problems and the abuses that every new change brings, the civilized world undoubtedly is more prosperous to-day than ever before. The greatest misery and discontent is in the more backward communities. This is past and present; what of the economic future? Is the present condition a normal one—is this prosperity likely to grow or to decline? Thus far, surely, the economic student may question the oracles; for though the distant future is veiled from man's view, the role of economic theory is to show causal relations, to convert mystery into reason, and thus to give a lamp to the feet of the present.

§ II. THE ECONOMIC FUTURE OF SOCIETY

Exhaustion of certain natural resources

1. Present industrial progress is largely due to material conditions, temporarily favorable. Many of the materials now being destroyed in immense quantities have been slowly stored up through the ages and are not renewable.[4] Till modern times man knew little of the world beneath its crust. Living, he scratched the earth's surface, and dying, left his bones to fertilize the soil. But to-day, man exhausts the stores in the interior of the earth, burns the treasures of the carboniferous age, casts the fertilizing elements into the ocean, and leaves the world an empty shell. Forests are being so rapidly cut off that the price of fuel-wood and lumber in many parts of the United States has, within twenty years, been multiplied by three. The world's store of iron ore is not yet fully known, but much of it has been measured, and of the deposits known to be within the United States over one half are said to be owned by one corporation, and they are enough to continue its present output no more than sixty years. Many other natural products are in like manner gathered by civilized man from a stock created long ago. While the supply of vegetable food promises to be ample, the supply of meat will be maintained with difficulty as population becomes denser.

Possibilities of other resources

2. Many other inexhaustible sources of essential materials have not yet been developed. What has just been said is the darker side. The coal-mines can be emptied, but so long as the sun shines and the rains fall, Niagara will remain as a source of light, heat, and power. The tides flow on forever. In every thunder-storm enough force is dissipated to run thousands of factories. The heat in the center of the globe, though not inexhaustible, would suffice for man's needs for many centuries. The force in Mount Pelée, if chained and utilized, would run a million factories a million years. It is not too much to hope that engineering skill will some day reach and utilize these sources. Such a cheapening and diffusion of power would put a new face on many of the problems of industry. New sources of materials undoubtedly will be developed. It is reasonable to hope that before iron ore has become extremely scarce, a cheap and practicable method of extracting aluminium from clay will have been perfected. Secure of these permanent sources, civilization will stand on a firmer foundation.

Effect on values of shifting centers of power and materials

A great displacement of local values must accompany this shifting of the centers of power and materials. When the coal districts are heaps of slag and cinders, industry will be found near the water-power. Because of distance from raw materials, New England even now finds herself hard pushed in her rivalry with the Southern states in the manufacture of textiles. The industrial map of our country will be greatly altered a hundred years hence. The possession of rich natural resources to-day does not insure a community enduring prosperity.

Effect of accumulating wealth

3. The mass and quality of wealth will increase rapidly if social and political conditions remain stable. The main method of increasing wealth must be the putting of energies and resources into more abiding forms. In order that a motive for saving may be present, there must be stable conditions. Increasing subordination of present to future will be accompanied by a fall in the rate of interest. The growth of wealth means a higher quality of all artificial productive agents. A larger part of the energies of men will then be directed merely to supervising the developed machinery. Man will live in a better environment, in a better and richer world. Wages must rise as the quality of tools and machinery improves. Population most probably will not increase proportionately and the relation of the labor-supply to the resources with which it works should be more and more in favor of the laboring classes. The difficult problems of the concentrated control of industry and of the control of wealth must be solved in the interests of all.

Social progress vs. race progress

4. Improvement of the race biologically, through selection of the ablest individuals, has been a great factor in human progress. Social progress is not necessarily the steady biological betterment of the native ability of men. The education of the average member of society is becoming yearly better; it is doubtful whether the innate capacity of a new-born babe in Europe and America to-day is greater than it was among our Germanic ancestors in Roman times. Indeed, the progress of the past two thousand years has been in social organization, in the enlargement and simplifying of the mass of knowledge which has to be reappropriated by each new individual, rather than in race-breeding and in quality.

Nature vs. culture

Few thoughtful persons now hold the view that the race can be rapidly improved biologically by the process of educating the individual. Education is cumulative in so far as it builds up a better environment into which other children will be born, but the betterment is not due to the inheritance by the child of the acquired knowledge and skill of the parent. If this question is open to dispute among biologists, it is only as regards a minute increment of improvement. Practically, selection is the only means of improving the innate capacity of any species in any large measure. Many forces were at work in the past to lift man above the brute, and especially to increase the average brain-power of the human race. The weak, the ignorant, the incapable in primitive societies were ruthlessly killed off. The strong, the sagacious, and the enterprising left the largest numbers of descendants.

Decrease of the successful elements

5. Progress will be checked if the native quality of the race declines. Under modern conditions, especially within the last quarter of a century, the successful elements of society are becoming less fertile. Large families were the rule among the capable pioneers of America; now they are rare except in the lower industrial ranks. Democracy and opportunity are favoring this process of increasing the mediocre and reducing the excellent strains of stock. Caste and status kept successful generations of capable men in humble social ranks from which only by chance some remarkable individual could rise. In a democracy, those of marked ability can more easily move into the better-paid callings and professions. This individual good fortune, however, reduces the probability of offspring. In the higher social ranks are more bachelors and old maids than in the lower ranks, and fewer children are born to each marriage. The president of our oldest university has shown that one fourth of the graduates of the last generation have remained single, and that the average number of children of the married graduate is two. That group of men, therefore, has left only three fourths enough descendants to maintain its numbers, and as the population has doubled within the same generation, that class represents only three eighths as large a proportion of the American stock as formerly.

The menace to progress

This sterilization of ability has cumulative results. If society were composed in equal parts of two distinct strains of stock, not intermarrying; if the total population kept intact from one generation to another (say each period of thirty years), but the superior strain contributed only three fourths of its own number, at the end of five generations it would have sunk from one half to a little more than one eighth of the population. A period brief in the life of nations would serve to leave it an almost negligible factor in social life. There can hardly be a doubt that at present our society is on the average increasing far more from the less provident, less enterprising, less intelligent classes. There has not yet been time for many of the cumulative effects of this process to appear. Progress is threatened unless social institutions can be so adjusted as to reverse the present process of multiplying the poorest, and of extinguishing the most capable families.

Sympathy and selfishness in relation to progress

6. If progress is to continue, there must be left a wide field for the ambitions and for the competition of individuals. The results of any given ability are dependent upon the energy with which it is used. The social machinery finds its motive force in the nature of men. In taking economic wants as the starting point of our study, it was not implied that men were entirely selfish. Sympathy widens; economic wants include family, friends, and, in a growing measure, humanity. The happiness of a truly socialized man consists in part in the happiness of his fellows. As social sympathy broadens, the sense of duty becomes a stronger economic force. Men change, but not rapidly, and not always for the better. It is unsafe to overestimate the generosity of men. Individual wants and interests must, so far as can now be seen, continue to be among the stronger forces that move society. Progress is made because to exceptional ability in general is now presented the hope of large rewards.

Status endangering progress

Envy endangering progress

These dynamic forces making for progress are at present, however, threatened from two sides. Enterprise is threatened from the side of privilege or status. The avoidance of certain kinds of work which, by social convention, come to be regarded as degrading, takes much ability out of business. The freedom of America to so great a degree from this disdain of honest labor has been a large factor in her progress, but it is endangered when men become timidly conservative of social position. Progress is threatened, secondly, by democracy, with its tendency to carry the notion of literal equality over into industry. When democracy becomes envious, it denies to exceptional ability an exceptional reward. The line of growth must be the resultant of the positive forces in these two principles. The energy of the social reformer must be directed along rational lines. If this can be done, the economic outlook is for a great development of wealth and popular welfare. Economics must be looked upon as the study of the forces in human nature as much as of the material resources of the world.

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