ECONOMICS 



1918 



ECONOMICS 



pendent on the help of the races on the other 

 side of the globe than our grandfather's grand- 

 father was on that of his next-door neighbor; 

 the interruption of trade by the War of the 

 Nations caused economic distress even in far- 

 away Brazil. 



If there were no artificial restrictions the 

 world would soon reach the stage where every 

 person in it would cooperate to some extent 

 with every other person. Just as it would be 

 foolish for each of the two on the island to 

 gather his own berries and his own eggs, so to 

 economists it seems useless for a nation to 

 attempt absolute independence of other na- 

 tions. If France can make silk better and 

 more cheaply than it can be made in Canada, 

 and Canada can raise wheat more easily than 

 can France, both countries will have more 

 wealth if they accept each other's help. 



Distribution of Wealth. The complex di- 

 vision of labor in the modern world increases 

 the difficulty of knowing what is the just re- 

 ward of each factor. If you borrow a saw 

 from your neighbor to build a bench, it is 

 plain that the added value given the lumber 

 in its new form is partly due to your labor and 

 partly to the saw, for each is indispensable. A:; 

 the owner of the saw either made the tool 

 himself or bought it with other products of 

 his labor, other labor than your own enters 

 directly into the building of the bench. In 

 economics the saw is called capital, as it is a 

 product of past labor used for further pro- 

 duction, and the reward to which the owner 

 of it is entitled is interest. Ordinarily we think 

 of capital as money, but if your neighbor lends 

 you money to buy a saw he is in effect lend- 

 ing you a saw; the reward is interest, whether 

 the saw or the money is loaned, the word rent 

 being restricted in economics to land. The 

 conflict which goes on the world over between 

 capital and labor is only an enlargement of 

 the difficulty which you and your neighbor 

 will have in determining a just interest for the 

 saw. 



Over the third factor, land, there is less 

 dispute, principally, no doubt, because land 

 owners and capitalists in many countries are 

 as a rule the same people. Nevertheless, by 

 some economists most of the poverty in the 

 world is ascribed to. the institution of private 

 ownership of land, which is not, like capital, 

 the product of past labor. 



Supply and Demand. In general, as eco- 

 nomics shows, value is regulated by supply 

 and demand. Thus diamonds, though not so 



useful as potatoes, are more valuable because 

 the demand for them always exceeds the sup- 

 ply, while there are usually enough potatoes 

 for all. Demand and supply act and react 

 throughout all industry. Suppose the supply 

 of laborers in a country becomes scarce; wages 

 then rise. In one business, let us say clock- 

 making, most of the manufacturers find that 

 if they pay an increased wage in order to se- 

 cure men they will lose money. Therefore 

 they leave the clock-making business, and as 

 a result there are fewer clocks made. At first 

 this gives greater profits to clock-makers who 

 have remained in the business, for they are 

 able to charge higher prices. But the increased 

 profit attracts other men to making clocks, 

 and soon the supply is greater than ever. This 

 may result in two things: (1) a greater cost 

 of making clocks, due to the increased demand 

 for labor and materials; (2) a lower selling 

 price for clocks. This again reduces the profits 

 and drives out the weakest clock-makers. But 

 it does not bring us. back to our starting point, 

 for the low price of clocks means that people 

 who never owned them before can now buy 

 them, and this increased demand is sufficient 

 to keep some of the new manufacturers in the 

 business and eventually to lead others into 

 adopting it. 



Money. You and your companion on the 

 island would find little difficulty in dividing 

 your berries and eggs. But if the castaways 

 numbered fifty you would no doubt find it 

 necessary to adopt some system of shell money. 

 Money, as economics teaches, exists as a help 

 in exchanging the products which we make for 

 one another, but too often we think of it as a 

 thing to be desired for itself. On the contrary, 

 the presence of too much money in a country 

 may be harmful. After the Franco-German 

 War of 1870, France was obliged to pay to 

 Germany an indemnity of about $1,000,000,000 

 within three years. When, as a result, the sup- 

 ply of money became less in France, its value 

 became greater, and a franc went farther in 

 wages than before. In Germany, of course, 

 the reverse was true. Thus, because of the 

 high wages they had to pay, German manu- 

 facturers were not able to sell their goods to 

 the world as cheaply as the French could sell 

 them, and the world witnessed what Bismarck 

 called an absurd miracle France prosperous 

 and Germany in difficulties because of their 

 respective loss and gain of money. (The sub- 

 ject of money is fully treated under its own 

 title.) C.H.H. 



