cussion. Many of these must be indorsed or repudiated either solely or largely upon economic grounds; and because of these facts, the economist cannot, even if he would, refrain from passing judgment upon laws and political policies. Nevertheless, as was stated before, economics does not undertake the complete and systematic study of law, ethics, and politics, and its conclusions must almost always be supplemented by non-economic considerations which the economist may not have taken into

account.

Principal Divisions of Economics. This view of the inevitably practical character of economic science is carried out in the treatment of the subject in the following pages. The history of the evolution of economic society, sketched in Book I, is followed, in Book II, by a discussion of the production, consumption, exchange, and distribution of wealth. These subjects are treated in close connection with those illustrative economic problems of which the so-called "economic theory," at its best, is but a more comprehensive and consequently more abstract analysis. Book III has been reserved for the subject of public finance, and in an appendix is given a brief sketch of the history of economic thought.

QUESTIONS

1. What is the most essential characteristic of economics? Define economics.

2. Is man or goods the more prominent thing in economic study? Does economics teach the student how to succeed in business?

3. What determines ultimately whether a man is poor or not? What kinds of poverty are there?

4. What is meant by "dear labor"? Is it a good thing for society in general? for employers in general? for an individual employer?

5. What is the difference between natural and artificial selection? Which applies to human society?

6. Are practical ethical and political judgments the chief ends and products of economic science?

7. Is economics concerned with the negro question? bank notes? prohibition? anti-trust laws? race suicide? protection?

8. What is a scientific law? Contrast with a statutory law; with a moral law; with the laws of mathematics.

REFERENCES

CAIRNES, J. E. The Character and Logical Method of Political Economy. COSSA, L. An Introduction to the Study of Political Economy.

DUNBAR, C. F. "The Academic Study of Political Economy," in his Economic Essays.

INGRAM, J. K. A History of Political Economy. Chap. vii.

KEYNES, J. N. The Scope and Method of Political Economy.

MARSHALL, ALFRED. Principles of Economics, 6th ed., Appendixes C and D. MILL, J. S. Essays on Some Unsettled Questions of Political Economy. SIDGWICK, HENRY. The Scope and Method of Economic Science.

WAGNER, ADOLPH. "On the Present State of Political Economy," Quarterly Journal of Economics, Vol. i.

CHAPTER II

THE CHARACTERISTICS OF THE PRESENT

ECONOMIC SYSTEM

Our Environment. — Lying back of all of our economic activity is the fact that we live in an environment in which the things that we desire are not furnished spontaneously in unlimited quantities. Whether it be looked upon as due to the niggardliness of nature or to the insatiability of human wants, the fact is that, for the most part, the material things that we use must be economized. We must put forth effort and exercise self-denial in order to enjoy the good things of life. Those human arrangements which help to determine how much of effort, of self-denial, and of enjoyment is to fall to the lot of each of us are the characteristics to which we now turn our attention. There are, however, a number of social institutions which do not fall within the scope of the present chapter. We deal here only with the social conditions directly underlying our economic activity, which is but one aspect of our social life. We must leave to the sociologists and other students of society a discussion of such topics as the family, religion, morality, ceremonial institutions, and the nature of government, although, to be sure, these also have their effect upon the economic sphere and are in turn affected by it.

Private Enterprise and State Activity. We live in an age when private enterprise, for the most part, is relied upon to furnish us with the necessities and enjoyments of life. The cultivation of the soil, the exploitation of the mines, transport, the various stages of manufacture, and the distribution of the finished product are all left mainly1 to private initiative. The

This applies especially to the United States and England so far as transport is concerned; it would not hold true of every country.

discovery of new processes, invention, and experimentation are carried on mostly by private individuals or corporations who take upon their own shoulders the risk of failure. The State, on the other hand, participates in this activity in a variety of ways. It maintains order, promotes the public health and safety, provides roads, and takes complete charge of some industries. In its educational institutions the State, through its agents, undertakes various experiments, and encourages the growth and diffusion of knowledge, an indispensable condition of continuous advancement in our economic life. The state university and the experiment farms may be mentioned, and also the large and extremely useful Department of Agriculture of the United States, with its annual expenditure of about twenty million dollars. Certainly in the vast majority of the enterprises with which we are familiar, private and public activities are combined in varying proportions.

In speaking of "State" activity, the reference is to organized society acting through any one of the various governmental agencies, such as the township, city, or national governments, and not merely the political unit which we know in this country as the state government. The term "governmental activity" is sometimes employed but is less desirable. The word "government" suggests to the ordinary mind a power apart from and superior to the people a restraining or punishing power- whereas the modern concept of the State is that of a coöperative institution, maintained to safeguard and promote the general welfare. "Private" activity, it should be noted, is a broader term than "individual" activity. It includes all forms of joint or associated action except those which constitute the activities of the State.

Let us take the case of an industry which is as nearly private, perhaps, as any we can find that of agriculture - and notice the part which public activities play in securing the farmer's result. First, we may say that the farmer owns the farm that he cultivates; this is private property. But how comes it that the farm is his? Why does not a stronger man drive him off and take the farm himself? Plainly because the State protects him in the possession of the farm. When he bought the farm, he took his deed to a government official, who recorded it, and thus gave him an additional guarantee of possession. A neighbor's dog

kills his sheep, and an appeal to the State compels the neighbor to redress the grievance. Another, far below, dams a river and backs the water up so that it overflows his land. Another appeal to the State removes the dam or secures compensation. When wheat is raised, the farmer hauls it to market by a road built, not by private, but by public, activity. The railway lowers the price of his wheat by a discriminating rate, and again government interferes in his behalf. But manifold and important as are the regulations of the government, State activity seems very much restricted when we reflect that it might extend over the entire industrial field. Today the distinctive characteristic of our economic life is private, not public, enterprise.

Division of Labor and Exchange. It is commonly taken for granted that every man should prepare himself for some special occupation, that one should plow while another builds or sings. Hardly any civilization seems possible without some industrial specialization, but our own age is peculiar on account of the extent to which this has been carried. The introduction of machinery and the development of large-scale production have split up the work of men so minutely that the products which they turn out are not only of no immediate use to themselves in most cases, but they are also useless to any one else until combined with the results of other men's labor, often performed years before or afterwards. It is a long and complicated process from the man who mines the ore which is to reappear in a steel plow, to the man who bakes the bread. This specialization of employment has some far-reaching results:

1. It implies the exchange of goods. If we produce things we do not need, we must find some one else who does want them and some one who has the things we desire. Money, banks, and transportation agencies could largely be dispensed with if each family produced for itself alone. There would be none of the complex problems that center about the question of how much each of us is to receive in exchange for his services. One of the striking characteristics of this process of exchange is the great extent to which it is automatic. There is no government official whose business it is to discover how much of each commodity