Emily Greene Balch (1867-1961) was a winner of the Nobel Peace Prize in 1946 together with John Raleigh Mott. She was recognized for her lifelong work for disarmament and peace. She joined the faculty of Wellesley College in 1896, becoming full professor of sociology and economics. However her contract was not renewed in 1919 because of her anti-war activism.
This post includes two items: the first is an excerpt from the autobiography of one of her American classmates who attended economics classes with her in Berlin during the year before Balch started teaching at Wellesley. The next item is a published outline of economics, presumably for instructional purposes. I have tried to match Balch’s indentation scheme here.
The Emily Greene Balch Papers are found at the Swarthmore College Peace Collection.
Addition: From the Program Bryn Mawr (1891), p. 11.
Emily Greene Balch, Holder of the Bryn Mawr European Fellowship, 1889-90.
Jamaica Plain, Mass. A.B., Bryn Mawr College, 1889. Collège de France and Sorbonne, 1890-91.
First stop in the secondary literature is the excellent paper by Robert W. Dimand: Emily Green Balch Political Economist published in The American Journal of Economics and Sociology, Vol. 70 No. 2 (April, 2011), pp. 464-479.
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Studying economics in Berlin 1895-96
and attending the International Socialist Trade Union Congress (July 1896) in London
From Mary Kingsbury Simkhovitch’s autobiography
Soon I met Emily Balch as a fellow student and we had many pleasant hours reading Kant in the park as well as meeting at lectures. Those were the days of Schmoller and Wagner. I attended their lectures and was admitted to their seminars, though no credits for degrees were given to women at that time in Berlin. Schmoller was the best-known exponent of the “historische Methode.” We were supposed to be very practical and realistic. One evening when we were pursuing the development of “die Stückerei,” little samples of worsted were passed around from hand to hand; everyone solemnly gazed at them until the American students began to laugh. However, our study of the worsted industry was really all to the good, and the analysis of processes induced an additional respect for detail that Lindsay and Ashley had already inculcated. No one is above detail. The person who has no detailed knowledge has no knowledge at all, and in this respect for meticulous care Schmoller grounded us day by day.
Adolf Wagner was more political-minded. He was always lecturing to crowded “publicums” about danger from the East (meaning Russia) and how Germany should be the central empire in Europe running from northern to southern shores. To see Wagner coming across the campus shaded by his famous little green umbrella was a memorable sight. They said of him that on his third wedding journey he finished his “collected works.” He was particularly caustic in regard to the so-called science of sociology, and when I was called upon in his seminar to review some sociological treatise he half sprung from his chair and said, “Ja, die Soziologie! Was heisst, aber, die Soziologie? Das heisst, meine Freunde, die Amerikanische Wissenschaft!” (What is sociology? That, my friends, is the American science.) With which blast he looked around to see whether we were duly squelched. But he was a kindly man, even though somewhat excitable, and his lectures were crowded with students from all over the world. Russians, Poles, Bulgarians, Italians, English, Japanese and Americans flocked to hear him. There were Fräulein Sonya Daszisskaia, who afterward interested herself in labor legislation in Poland, and Bertrand Russell, with his American wife Alice Pearsall Smith; Walter Weyl, to whom we owe New Democracy (1927); and Frank Dixon, later at Dartmouth, and Peter Struve, who played a big role later in Russia’s political life, were among the Americans who attended Wagner’s lectures. In the Russian group was my husband-to-be, Vladimir Simkhovitch, who went to Halle before coming to America in 1898.
Sering lectured on the American agricultural situation, of which he had personal as well as theoretical knowledge. He had many American friends to whom his scientific comments were enlightening and useful. Then too there was Georg Simmel, perhaps first among the social psychologists, whose analysis of human conduct under the impact of varying factors was fascinating. A famous anthropologist, Professor Bastian, used to get so excited that his shirt would get unfastened and a red flannel “chest protector” worn in that era would emerge. He would face the blackboard to write a few headings or illustrations and forget to turn around again, lecturing in a kind of ecstasy which took no note of his audience, whether we were many or few, or whether indeed we had not slipped out for the remainder of the hour.
The students of economics had a club of their own, and in this “Staatswissenschaftlicher Verein,” organized by my husband and two of his friends, great arguments went on, especially during the famous government strike of 1896. Liebknecht was just out of prison and he greeted enthusiastic audiences. Large public meetings were held, but it made the blood of the American and English students boil to see the two policemen sit on the platform to prevent any “Majestätsbeleidigung” (criticism of the emperor). We felt that this infringing of men’s liberties was intolerable. We had never seen, as we were to see in later days both in America and elsewhere, the intolerance and violence of wartime. This attitude, reinforced by the prevailing custom for civilians (women as well as men) to step aside to allow military officers right of way on the sidewalks, was repellent to us. We had no hint of how mild this bit of militarism was to seem in comparison with that of these later Nazi years. The period of German life from 1895 on was the time of great industrial upswing, of scientific advance, and yet no less of respect for culture. It was a golden period of prosperity, of ambition without hatred, an of welcome to students from all over the world, who came, as my teachers at Boston University and Radcliffe and later at Columbia had come, to thin and work as free scholars in an expanding world.
[…]
At the end of the last semester we left Berlin with great regret, and so to Paris and to London. There my mother left me to return home, and Emily Balch and I remained in London for the last great International Socialist TradeUnion Congress. Emily Balch had a press ticket, and through a London friend of Karl Marx, who revered his memory and told us tales of his life in England, I got one too. This gave us a wonderful chance to hear all the debates and see at close range famous labor and socialist leaders of that time. Jaurès was there and the Avelings, Marx’s daughter and son-in-law; from America Charlotte Gilman with her cameolike beauty, and Ferri from Italy — eight hundred delegates in all. One poor delegate had walked from Serbia to the Channel only to be turned back on his arrival at the Congress because he was an anarchist. The rules for admission were orthodox and strict. This was the first time that a Russian delegate appeared. I talked with a “bobby” about the Congress. Did he anticipate trouble? But he was frankly bored and said, “We let ’em talk as much as they like, ma’am.” I wondered if a meeting like this could take place in America, with so great indifference on the one hand, and at the same time sponsored by eminent economists. For the Webbs were there, and Shaw from the Fabian Society, and Keir Hardie from the Independent Labor party, as well as the leaders of the trade-unions. And at Percy Dearmer’s church every morning during the session the intention of the Mass was for the Congress and its members. This combination of persons and views so natural to the English was frankly surprising to a young American visitor who was accustomed to more definite line-ups.
It was the last session, however, of the old International. Divisive forces were at work, and soon many of the leaders died and their influence passed away. Prophecies of socialist writers failed to materialize. The prosperity of advancing capitalism was more marked than its adversities. The following decade saw great wealth amassed, inventions perfected, engineering problems mastered. It seemed as if the volume of production and the scientific advance that accompanied it, and which was at least part of its cause, were to bring in case and plenty for everyone.
Source: Mary Kingsbury Simkhovitch, Neighborhood: My Story of Greenwich House. New York: Norton, 1938, pp. 50-3, 55-56.
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OUTLINE OF ECONOMICS
EMILY GREENE BALCH
Wellesley, 1899
Cambridge: The Co-operative Press, 1899
CONTENTS
PART I. — PRELIMINARY
PART II. — PRINCIPLES OF ECONOMICS
Chapter I. Production
1. Natural Agents
2. Labor
3. Capital
4. Enterprise
5. Conditions affecting Production
Chapter II. Consumption
1. Individual Problem of Consumption
2. Social Problem of Consumption
3. Apportionment of Income
Chapter III. Value and Exchange
1. Determination of Value
2. Money
3. Credit
4. Prices
Chapter IV. Distribution
Population
Shares in Distribution
1. Rent
2. Interest
3. Profits
4. Wages
The Principle of Distribution
Chapter V. The Economics of Government
1. The Economic Functions of Government
2. Public Revenue
PART III.— SCOPE AND METHOD OF POLITICAL ECONOMY
Chapter I. Development of Economic Thought
Chapter II. Scope and Method
* * * * *
PART I.
Preliminary.
Political Economy, or Economics, treats of man in his relation to wealth. The subject is commonly divided into Production, Exchange, Distribution, and Consumption; (convenient headings, but an imperfect analysis).
Consumption, the gradual or instantaneous using up of a commodity, may be either
Direct (final) consumption,
Indirect (or productive) consumption.
Note that much final consumption is also productive.
Final consumption is the object of all production and of all indirect consumption. Final production which is also productive is doubly desirable.
Production, the production, by combination and re-arrangement, of utility; form utility, place utility, time utility, services.
Exchange, the transfer of commodities either directly by barter or indirectly by means of money; properly a kind of production. It involves questions of value, money and price.
Distribution, the apportionment of the product among those co-operating to produce it, whether personally, or indirectly by contributing the use of land or capital. Questions of rent, interest, wages and profits come under this head.
Correlation of economic activities.
The same individual consumes, produces, exchanges.
All these activities interact.
The conception of an economic organism — unconscious and conscious coöperation — how regulated.
Natural basis of economic phenomena:
Man’s wants, imperative and expansive;
Limited natural supply of means of satisfaction;
Consequent cost, in effort and sacrifice, to increase the supply.
The economic object of man is to secure the maximum of satisfaction with the minimum of cost. This necessitates comparison of utilities with one another and with costs, and of costs with one another. All economic action is determined by such comparisons.
Note psychological character thus given to the subject.
Wants: Primary, due to physical needs (subsistence wants).
Secondary, due to desire for pleasure (or avoidance of pain).
Note and criticize tendency to growth and diversification of wants.
The satisfaction of wants is progressive (Weber’s law).
Note recurrence of want after an interval.
New wants are substituted for those satisfied.
Utility: power to satisfy a want (even if satisfaction is ultimately injurious). Utility not an inherent quality, purely relative to human want, decreases as want is progressively satisfied.
Marginal utility (final utility): utility of last unit supplied.
Relation of marginal utility to amount of supply can be conveniently expressed by a diagram (“utility curve”).
Note that where supply is unlimited (i.e. more than is wanted) the marginal utility is nothing.
Cost may be either Effort or Sacrifice of something desirable. (It may be regarded as negative utility).
Labor — how far to be regarded as cost?
Sacrifice of alternative use of material, time or opportunity.
Note distinction between individual and social cost.
Wealth: means of satisfying wants are wealth
if not “free,”
if transferable.
PART II.
Principles of Economics.
CHAPTER I.— PRODUCTION.
Main forms of production; extractive industries, manufacturing, commerce.
Historical stages of production; Hunting and gathering of natural products, Pastoral life, Agriculture, Manufacture and Commerce.
Object of production; first Consumption, later Exchange (“household economy” versus “market economy”).
Note historical growth of the market (field of exchange).
Factors or agents of production:
Natural agents or resources, of which land is most important.
Note that word “land” often denotes this whole class.
Labor, or human agency.
Note that management or enterprise may be considered either as a kind of labor or as a fourth factor of production.
Capital; wealth produced by past labor used in producing more wealth.
1. Natural Agents.
Natural agents contribute site, energy, material.
Natural agents are
(1) Unappropriated (either because not appropriable or because not scarce);
(2) Appropriated.
Character of the supply:
Of the nature of a fund (measured by amount);
Of the nature of a flow (measured by rate).
Note that land as basis of agriculture partakes of both characters.
Moreover, the supply may be
Unlimited;
Limited absolutely;
Subject to increase by human effort.
Note that land as basis of agriculture belongs to last class.
Problem of the economic use of land as regards economic proportions of land, labor and capital (i.e.) how much labor and capital should be spent on a given piece of land).
Note that the following discussion refers to agriculture only.
On a given piece of land in a given state of agricultural art there is a certain expenditure of capital and labor which will give the greatest possible return per unit of expenditure.
Note that return is measured here by amount of product, not by value of product.
Note that capital and labor are reduced to common terms as expenditure.
If less than this had been expended an increase of expenditure would increase returns more than proportionately (“increasing returns”).
Note that expenditure and returns are not commensurable, but rate of increase of expenditure and rate of increase of returns are commensurable.
If more than the first amount had been expended the returns per unit of expenditure must have been less, i.e.beyond that point an increase of expenditure means diminishing returns.
Law of diminishing returns:
Expenditure of more than a given amount of labor and capital on a given piece of land results in a diminished amount of product per unit of expenditure.
The point of diminishing returns
is that degree of expenditure which cannot be exceeded without diminishing returns in proportion to cost.
Illustrate with three similar fields cultivated (1) up to this point, (2) not up to this point, (3) beyond this point.
Note 1.
The point of diminishing returns may differ
for every differing piece of land,
for every different use the land may be put to,
with every change in agricultural art.
Note 2. Soil may grow more or less fertile as it is used. Any change in fertility may alter the point of diminishing returns but there will be such a point in every case.
What would be the result if a field had no point of diminishing returns.”
Note 3. The value of the product may alter. This will alter the degree of expenditure which will pay best but not the degree of expenditure which will give the greatest proportion of product to expenditure. — Suppose a field yielding diminished returns with increased profits.
Consider the same problem with regard to other uses of land, e.g. for mining, building, fisheries, water power.
2. Labor.
Productive labor, that which conduces to the production of utility, is alone to be considered.
Note narrower sense given to the term productive labor by J. S. Mill (labor productive of wealth). What labor is excluded by the former definition? by the latter?
Production depends on the number of laborers, on the duration of their labor, and on its efficiency as regards quantity and quality of product.
Efficiency depends on personal causes and external causes.
Personal causes are chiefly the physical, mental and moral capacity and disposition of the worker, determined by his
Natural character and ability,
Training and education.
Standard of living,
Incentive (either economic or non-economic).
External causes of efficiency include
A. Organization and combination of labor in
Simple coöperation,
Division of labor (“division of employment”) as between different (i) Objects of production, (2) Processes or functions, (3) Localities.
Note narrow limits of efficiency of unaided individual.
B. Material for labor.
C. Auxiliaries;
Tools,
Machinery.
Note tendency to specialization of labor and elaboration of machinery. Advantages and disadvantages of each.
3. Capital.
Capital: wealth produced by past labor and devoted to production.
Note difference between this (“economic capital”, “social capital”) and capital in the ordinary sense of wealth used as a source of income (“private capital”).
Origin of capital in difference between amounts produced and directly consumed; capital may be multiplied by extension of production or by restriction of consumption.
Note use of the term “abstinence” or “saving” to characterize this. In what sense justified?
Object of capital: to make production more efficient by providing
Tools, Material,
Support for labor.
Note that indirect processes are often most efficient.
Note historical tendency of production toward more indirect, complex and “capitalistic” forms.
The consumption of capital, immediate or gradual, is involved in its use.
Circulating capital is consumed in one use.
Fixed capital is consumed gradually.
Note the necessity of replacement of capital at once or by a sinking fund to cover waste.
Note that the use of capital on the average adds to the efficiency of the product more than enough to pay for its consumption.
4. Enterprise.
Enterprise: the contribution to production of the entrepreneur or responsible undertaker.
Forms of enterprise:
A. Individual; independent producer, slaveowner, employer.
Note tendency to differentiation of factors of production.
B. Collective; e.g. Cooperation, Partnership, Business Corporations, Public Administration (National, Municipal, etc.)
Note advantages and disadvantages. Note that Socialists desire to see the latter form supersede all others.
Large scale versus small scale enterprises.
Note relative advantages in Manufactures, Agriculture.
5. Conditions affecting Production.
Production is affected by almost everything that affects society but notably by legal institutions as to Property and Industrial Freedom.
Property:
Property in Slaves, ancient and modern.
Property in Land;
Collective,
Feudal,
Private.
Property in Capital.
Property in “consumers’ goods.”
Note the existence of property not embodied in any material thing but consisting of certain valuable rights.
Note limitations on private property and rights of society as regards it, e.g. right of taxation, eminent domain, alteration of property rights (including question of compensation for vested interests, question of damages and betterments).
Note economic advantages and disadvantages of private property of different kinds. Arguments for collective ownership of land and capital.
Industrial Freedom.
Historical tendency away from custom and regulation toward freedom.
Note restrictions imposed, even under regime of free contract, from considerations of finance, police.
CHAPTER II. — CONSUMPTION.
Consumption is determined by considerations of maximum net utility.
- Individual Problem of consumption.
Where no question of cost or limitation of supply is to be considered consumption will be carried to the point of complete satisfaction.
Where the only consideration is sacrifice of alternative satisfactions comparison of marginal utilities will determine consumption.
Where cost is involved the consumer must consider marginal utility, cost and the means of meeting cost. Consumption will be carried to the point where in each case the marginal utility secured at least equals the cost and where no further extension would in any case be worth while.
Note that the amount of a purchase will vary directly with the marginal utility, inversely with price, directly with wealth of purchaser.
Note similar comparisons of cost and marginal utility made to determine how far to carry production.
Where present and future satisfactions must be compared a want in the future regularly counts for less than the same want in the present.
Note that this is due to the uncertainty of the future and also, apparently, to a psychological disposition to undervalue the future; this tendency lessens with growth in intelligence and self-control.
Provision for future wants by
Hoarding;
Investment;
Insurance.
- Social Problem of Consumption.
Comparison of consumption by one person with consumption by another.
How far is such comparison possible?
Would equal consumption give maximum utility?
Note transfer of means of consumption from ethical motives, and vast amounts consumed through charity.
Possible divergence of estimate of utility and cost from individual and from social point of view.
Note responsibility of consumer for conditions of production. How far is purchase equivalent to an order to produce .”
Productive versus unproductive consumption.
What exceptions to the rule that the former is socially preferable?
Consider the limits and functions of luxury.
Collective consumption, advantages and disadvantages.
Regulation of consumption.
Note various motives, ethical, political, etc.
Note various methods, sumptuary laws, taxation, prohibition, etc.
- Apportionment of Income.
“Engels [sic] law” as to variation of relative expenditure with income.
Compare results of Le Play, Dr. E. R. L. Gould.
The economic function of the housewife.
Historical changes in standard of living.
The element of custom and fashion (advantages and disadvantages).
Waste: individual and social point of view.
The effect of insurance.
CHAPTER III. — VALUE AND EXCHANGE.
Origin of Exchange: Differences in desires, Differences in opportunities and abilities, Advantages of division of labor.
Note primitive peoples with no conception of exchange.
Note historical increase in importance of exchange.
Machinery of exchange: Numeration, Weights and measures, Standard of value. Medium of exchange, Transportation, Middlemen.
Note disadvantages of barter.
Value (“value in exchange”).
The value of a thing or a service is measured by what can be got in exchange for it.
Price is value in terms of money.
To have value a thing must have marginal utility (the supply therefore cannot be “free”).
1. Determination of Value.
A. Market Value (and Market Price): that which will result from a given state of the market, a particular relation of demand and supply.
Demand: the amount effectively demanded at a given price.
Note that demand is sometimes used to mean the aggregate price offered for a given amount.
The demand of the individual varies with marginal utility and wealth and inversely with price.
Market demand: the sum of the individual demands affecting a given market.
The demand schedule: the series of different amounts demanded at different prices. Demand is elastic or not according as it varies much or little with price.
Supply: amount offered for sale at a given price.
Note distinction of supply and stock (i.e. total amount available for sale).
Supply schedule.
Competition in Exchange.
If necessary, buyers overbid one another, sellers underbid one another.
Higgling of buyer and seller.
Perfect competition implies perfect intelligence, perfect information, perfect mobility and purely economic motives.
Note that in real life competition is never theoretically perfect. Where most nearly so?
Competition may be replaced, more or less completely, by custom or combination.
Law of Market Price.
The market price will be that which equalizes supply and demand.
Case I. Demand fixed, supply variable.
Case II. Supply fixed, demand variable.
Case III. Supply and demand both variable.
Note that at the market price all willing to sell for less and all willing to buy for more are provided for, so that competition has no tendency to either raise or lower the price from this point.
Note possibility of indeterminate price; of more than one market price.
Law of Indifference of price.
Apparent exceptions, (i) in imperfect market, (2) where dealers offer different guarantees of quality or different accessory advantages.
Note endeavor to get different prices by method of sale (auction, Dutch auction).
B. Normal value (and normal price): that which will result when time is given to adjust supply, the value in the “long period” (Marshall).
Note that normal value as distinct from market value only appears if the supply can be increased indefinitely (but not gratuitously).
Normal value will equal cost of production, (cost including sufficient profit to induce production).
Analyze employer’s cost and compare with social cost.
Note and criticize theorem that value equals labor cost.
(a) Where cost is uniform normal value equals this cost.
(b) Where an increase of supply is produced at greater cost normal value equals cost of most expensive part of the supply demanded and rises as demand increases (unless counteracted by other causes).
Note that the law of diminishing returns brings agricultural products under this head.
(c) Where an increase of supply decreases cost normal value falls as demand increases.
Note that manufactured products come generally under this head.
C. Monopoly price: where there is no competition among sellers the price can be fixed with sole regard to maximum net return (i.e. at the “revenue point”).
Note that this may coincide with the price under competition.
Note that if the monopoly price is higher than this the amount sold will be generally less.
Note that the seller may demand the higher price directly or produce it by restricting supply. Under what circumstances would it be advantageous to destroy part of the supply? Advantageous in what sense?
Varieties of monopolies:
Monopolies may be due to Personal advantages, Legal privileges, Possession of limited natural resources. Nature of certain enterprises, Combination.
Public policy in regard to monopolies.
Advantages and disadvantages of competition and of combination.
Consider Stuart monopolies, modern patent rights, business trusts, exclusive public enterprises.
D. Further modification of normal prices by
Custom;
Misadjustment of production;
Note case of overproduction when large fixed capitals are involved.
Joint production of several products (“by-products”);
Aggregate price must cover aggregate cost but the price with conditions of sale.
Rearrangement of prices for purposes of advertising;
Partial combination;
Legislation.
Note limits of possibility of regulation of prices by law.
Note that hitherto in discussing exchange, value and price have been treated indiscriminately on the tacit assumption of no change in the value of money.
2. Money.
Functions of Money: as medium of exchange, common measure of value, standard of deferred payments, store of value.
The material used for money should be valuable, portable, indestructible, homogeneous, divisible, of stable value, easily recognizable.
Note variety of historical mediums of exchange.
Government functions in regard to money; the government may monopolize coinage, regulate nature and amount of currency, declare certain moneys legal tender.
Note development of art of coinage.
Value of money.
The value of money is measured by the goods the money will buy. A rise of prices denotes a fall in the value of money and vice versa.
The value of money is determined in the short period like that of any commodity by the relations of demand and supply.
The demand for money depends on the total of the sales to be effected by means of money so that it is affected both by the goods to be sold and by the number of times they are sold.
The supply of money is, similarly, affected both by the amount of money available and the rapidity of its circulation.
Note that a general rise or fall of prices often occurs but a general rise or fall of values is impossible.
Note the difficulty of ascertaining the appreciation or depreciation of money; the conception of “the general level of prices.”
The value of bullion (the metal material of money) varies, like that of any other commodity, primarily with demand and supply, ultimately with cost of production.
The value of money equals the value of the bullion if coinage is free and gratuitous; it equals the value of bullion plus seigniorage if coinage is free but not gratuitous.
Note that the value of money thus follows the usual law, viz.: that where supply can be indefinitely increased value equals cost of production.
Note that cost of production is here cost of production where greatest (case (b) above).
Note the slowness and imperfection of adjustment of value to cost owing to durability of metal and slow increase of supply and to speculative nature of mining.
Note the mechanism of adjustment of supply of bullion to market conditions.
Changes in the value of money.
Effect on creditor, on debtor, of
Appreciation;
Depreciation.
Note injustice in each case.
Effects of rising and falling prices on business.
The problem of a standard of deferred payment.
Note the proposition of a tabular standard f multiple standard”).
Gresham’s law. “Bad money drives out good,”
If moneys of equal legal tender power and different actual value circulate together the less valuable will disappear.
Note however that a limitation of supply may give a coin of lesser bullion value an actual value equal to that of the better coin and that they may then circulate together.
Note that this is the principle on which the value of fractional coinage (token coinage) depends.
Note that it is only on condition of such limitation of supply that the simultaneous circulation of two metals (bimetallism) is possible.
3. Credit.
Forms of credit:
Promises; e.g.book credits, promissory notes, bank notes, stocks, government bonds, etc.
Orders; e.g. checks, bills of exchange and drafts (foreign and domestic), letters of credit, etc.
Use of credit: saves use of money except for payment of balance: best exemplified in “clearing” of checks, and in foreign exchange where money is shipped to settle the balance only. The rate of exchange indicates the amount of balance and to whom owed.
Note tendency to compensation in effect of export of money metal on prices and therefore on trade.
Note that credit operations are essentially barter.
Credit agencies.
The Bank.
Functions: Deposit, Discount, Issue of Notes.
The Clearing House.
Credit money (“representative money”).
Bank notes.
Government notes.
1. Paper money as a promise to pay, convertibility being maintained:
Advantages; saves waste of precious metals, convenient.
Disadvantages; danger of over issue, resulting in loss of precious metals and debasement (“inflation”). Danger increased by advantage of depreciation to debtors (including an indebted government), and by general ignorance of the subject.
2. Paper money as fiat money, inconvertible.
Theoretically it is possible to maintain its value if the issue is carefully limited. Practically there are the same dangers as above, only much aggravated.
Note historical experiments with paper money.
4. Prices.
Action of credit on prices: the use of credit replaces money and acts as the addition of an equivalent amount of money would do.
Trade tends to equalize prices as between countries and to distribute the precious metals accordingly.
Tendency to periodicity in business and recurring crises. Increase of production, rising prices and extension of credit are followed by glut of the market, falling prices and shrinkage of credit
Note in what sense “overproduction” is impossible.
Historical variations in prices due to changes in the supply of gold and silver.
Money famine of the middle ages.
Sixteenth century revolution of prices.
Nineteenth century discoveries of precious metal.
Note also widespread changes in prices due to modern methods of cheapening production.
CHAPTER IV. — DISTRIBUTION.
Distribution varies in its methods and results
with the stage of development of industry,
with the provisions of law and custom,
with the distribution of property,
with conditions as regards population.
The present study is confined to distribution under the conditions of modern industry, marked by
(1) private property in land and capital,
(2) competition and free contract,
(3) more or less complete differentiation of landlord, capitalist, undertaker and laborer,
(4) production for market not for use.
Note that distribution is here determined by competitive bargaining and that its problems are primarily special cases under the laws of exchange.
POPULATION.
Malthus first called attention to the question of the relation of the rate of growth of population to the rate of increase of the means of subsistence.
Malthusian theory.
Population tends to outstrip subsistence, but is kept in bounds by “positive checks” and to some degree by “preventive checks.”
Note[:]
(1) Importance of Malthus’ work as a matter of method;
(2) Explanation of exaggerations of Malthus by conditions in England in his time;
(3) Many historical movements referable to pressure of population;
(4) Relation of Malthusianism and law of diminishing returns.
Counteracting influences:
More land available,
Greater skill in using land,
Greater productivity in secondary pursuits,
Decreasing birth rate of advanced populations,
More favorable composition of population.
Note that a relative excess of population is possible where there is no absolute excess; a problem of adjustment.
Note tendency to increase of urban and suburban population.
SHARES IN DISTRIBUTION.
The net returns of production are distributed as Rent, Interest, Wages and Profits.
1. Rent.
Rent: the share of the product received in return for the use of land or other natural agents.
Note contrast of the technical sense with the ordinary sense of payment for anything hired.
The competitive rent of land will equal the difference between the value of its product and the cost of production (including in cost “ordinary” profits). The value of the product is determined in the “short period” by the demand and supply, in the “long period” by the cost of production of the most costly part of the supply demanded. This is the cost on the margin of cultivation, (extensive or intensive). Land on the margin of cultivation (extensive) bears no rent (“no rent land”). For exceptions see below.
Note effect of increasing population and rising demand on price, on margin of cultivation, on rent.
Ricardo’s law of rent (another form of statement of the above). The rent of any given piece of land is determined by the excess of the value of its product over that which the same application of labor and capital could secure from the least productive land in use.
Note Carey’s criticism (that instead of progressive recourse to poorer lands poorer lands are historically cultivated first).
How far is this valid as a criticism of the law of rent?
Where the supply of land for a given kind of production is so limited that the product is limited and sells for more than cost the rent will still equal the difference between the value and the cost of the product, but there will be no “no rent land.”
Note that where the poorest land that is good for one use bears rent for another use there is no “no rent land” for the first use.
Rent does not determine the price of the product (“enter into price”) but is itself determined by price except in the case of monopoly rent.
Monopoly rent: where a given kind of land is all controlled by one interest a rent may be asked that will force prices up; in this case rent determines price and is itself determined solely on the principle of maximum net advantage.
Note case of rent where land is used for building or business purposes;
case of quarries and mines;
case of improvements of land.
The selling price of land is a capitalization of its rental value.
Property in land.
The difference between property in land and other sorts of property has generally been recognized and modes of land-holding have varied widely in different times and places.
Compare the economic advantages and disadvantages of
communal tenure;
servile tenure;
peasant proprietorship;
metayage;
cotter holdings, as in Ireland;
tenant farmers as in England.
Note American conditions.
Criticism of private property in land.
The argument based on the “unearned increment,”especially in case of urban land.
Proposal of nationalization of land.
Proposal of a “single tax” on land equal to rental value.
2. Interest.
Interest: the share of the product received in return for the use of capital.
Note that capital may be “business capital,” not capital in the proper economic sense.
The market rate of interest is determined by demand and supply.
Demand depends on the marginal utility of capital in terms of the productivity of capital in productive use, or of preference for present over future use in consumption.
The normal rate of interest depends on the cost of supply in terms of sacrifice of productivity of capital in owner’s use, or of sacrifice of present for future use.
Note that the determining cost is the cost of the most expensive part of the supply required.
In addition to interest proper the borrower must generally pay insurance for risk (often as an indistinguished addition to interest rate).
Loans may be
Loans of capital (for instance in the shape of mortgages, investments in stocks and bonds, subscription to public loans, etc.);
Loans specifically of money. The rate is here determined by the demand and supply of money, i.e. the condition of the money market.
Note the rate of discount on business paper, the rates on money “on call,” etc.
Note the tendency to equal returns to capital in whatever shape, (short term loans, permanent productive investments, or leases of durable consumers’ goods).
History of Interest.
Middle ages — high rates of interest, all taking of interest condemned as usury; due (1) to misunderstanding of the nature of capital (originated with Aristotle, perpetuated by Aquinas), (2) to small scope for productive loans.
Note tendency of usury laws to raise the rate of interest. Usury laws are still on many of our statute books. Is there any justification for their retention?
Progressive decline of rate of interest (with fluctuations); due to lessening marginal utility of increased supply counteracted by new opportunities for use of capital.
Note that the effect on accumulation of a decline in the rate of interest may be either to lessen it or to stimulate it. The older economists allowed for the former effect only.
Socialist theory of interest as due to “exploitation” of labor, as unjustifiable both economically and ethically.
3. Profits.
Profits: the share received by the undertaker (entrepreneur) of a productive enterprise; consists of the excess of value over cost (i.e. undertaker’s cost).
Necessary or minimum profits (ordinary profits) include
Wages of management,
Insurance for risk.
Note that the capitalist and undertaker were formerly regularly one person and that the older economists (e.g. J. S. Mill) include interest, insurance on capital and wages of management all under the general head of profits.
Differential profits, or pure profits, appear when goods can be produced at less than normal cost or sold for more than normal price. Such profits, like rent, are the measure of differential advantage and do not enter into price.
Note. The term rent is sometime: used in a broad sense for all this class of receipts (“rent of ability”, “rent of opportunity”)
The advantage may be a passing one or relatively permanent.
Repeated profits above the ordinary tend to be cut down by competition unless protected (as e.g.by patent rights, ability).
Tendency of profits to an equality.
Profits tend to be equal as regards the same ability or opportunity but not as between different abilities or opportunities.
Note however that competition is here peculiarly imperfect owing to lack of information as to the profits obtainable.
Walker’s analysis of profits; the “no profits entrepreneur,” and his cost to society.
4. Wages.
Wages: the share of the product received in return for labor.
Different labor systems: (1) no division of product; extreme types — independent, self-employed (autonomous) labor and slavery; (2) product divided according to custom or contract; types — serfdom, wage labor, profit sharing, coöperation.
[The following discussion deals only with wages in the narrow sense of payment of hired labor under a regime of free contract.]
The wages of any particular kind of labor vary primarily with demand and supply.
The demand for labor arises from the difference between cost and utility to the employer. Where labor is employed to produce for the market the demand depends on
Productivity of labor,
Demand for product,
Cost of labor,
Available capital.
On what does the demand for labor for direct use (as e.g. of domestic servants) depend?
Wages fund doctrine, excessive emphasis on supply of capital.
How far is the wage fund a fixed amount?
Note effect of opportunities for self-employment on demand for labor.
Cost of labor is not measured by wages alone, low wages may mean dear labor.
Experiments of Brassey and others as to relation of cost and wages, “the economy of high wages.”
Note that there may be no inducement to the employer to pay “economic” wages; contrast free laborer with slave or domestic animal in this respect.
The supply of labor depends on (1) the number of laborers, (2) the kind of labor of which they are capable, (3) its duration, and (4) its intensity. The conditions governing the supply are peculiar in various respects,
(1) The number of laborers increases and falls off for non-economic reasons, though also affected by economic conditions.
The Malthusian theory of increase of labor leads to the Ricardian theory of wages (“iron law of wages”). Wages tend to fall to subsistence point because population increases, depressing wages, till checked by lack of subsistence.
Note that this theory assimilates labor to any freely producible commodity (normal price equal to cost of production).
Note the possibility of wages permanently below subsistence point.
Note that any given “standard of living” maybe substituted for mere subsistence if a class of labor refuses to reproduce itself except under conditions making this possible.
Note the tendency of a change from a given standard in either direction to perpetuate itself if long enough continued.
Distinguish real from nominal wages.
(2) The supply of labor tends to distribute itself among different employments so as to secure equal returns to equal efficiency, with compensation for outlay, risk and waiting, and with some allowance for peculiar advantages and disadvantages, but this adjustment is very imperfect.
Note that training is only partly controlled by economic motives. Causes of over investment in education, of under investment.
Note scarcity value of (1) work requiring higher grades of ability, (2) work accessible to a privileged group only, (3) work controlled by a combination, tacit or acknowledged.
Note relations of non-competing groups and cumulative competition in unskilled work; note conditions of adjustment of supply to changed demand.
(3) The supply of labor instead of shrinking with diminished demand often increases, especially in point of the number of hours worked.
Note desire to counteract this tendency, to “spread the employment,” by restricting hours either by law or agreement.
The wage contract.
Forms of wage contract are very various. Compare the advantages and disadvantages of time wage, piece wage, task wage, progressive wage, sliding scales, profit sharing, group payment and subcontracting, coöperation.
Restrictions on competitive regulation of labor contract.
Competition may under certain circumstances work injuriously with no tendency to compensation.
Note conditions of English factory labor early in this century; conditions in sweated industries.
This is partly due to peculiarities as regards the sale of labor — labor is inseparable from the laborer, labor cannot be stored, the laborer generally cannot afford to stand out long for better terms.
Competition may be controlled or replaced by
(1) Custom.
Note historical tendency to diminished influence of custom, fields in which still operative.
(2) Legislation. e.g.Statutes of Laborers.
Note limits to what law can effect.
Modern factory legislation.
Note that competition is not done away with, but that the plane of competition is controlled.
“Living wage” resolutions of public authorities,
(3) Combination.
(a) Combination of employers (cf. Adam Smith, Wealth of Nations, I, chap. viii).
(b) Combinations of employers and employed to control conditions in a given trade.
Cf. mediaeval gilds and some modem experiments.
(c) Combination of employees in trade-unions, etc.
Trade Union functions:
(1) Mutual insurance;
Note especially effect of “out of work” benefit.
(2) Regulation of labor contract;
Effort to regulate supply of labor by limiting (a) access to trade, (b) access to union, (c) output;
Efforts toward collective bargaining.
Weapons; the label, boycott, strike.
Conciliation and arbitration: Advantages and disadvantages of trade unions.
THE PRINCIPLE OF DISTRIBUTION.
Present principle — competitive bargaining with private property in land and capital; open to much just criticism. Other possible or proposed principles are —
Status (custom);
Equality;
Adjustment to services; (how measure?)
Adjustment to needs; (how measure?)
What do you mean by “justice “in distribution?
CHAPTER V. — THE ECONOMICS OF GOVERNMENT.
The point of view as regards wealth; distinguish private, governmental, social. The effort to harmonize private and public interest; the theory of natural harmonies.
Note the conception underlying the “Wealth of Nations.”
1. Economic Functions of Government.
Note assumption that government activity is inexpedient unless demonstrably expedient.
A. Protective functions:
Protection against outsiders,
Protection of person, property, contract, etc..
Protection against disease, physical and social.
B. Developmental functions:
Education,
Recreation,
Investigation,
Development of natural resources.
C. Industrial functions;
Grants of exclusive industrial privileges;
Conditional requirements for exercise of industrial activities; as
Proof of competency,
Payments.
Regulation of conditions of production or terms of contracts (in interest of equity, public health, morality, general welfare).
Public industrial administration;
Public domain,
Public industries.
2. Public Revenue.
Government activity almost inevitably involves expenditure which must in some way be provided for. “The Science of Finance, treats of public expenditures and public income,” (H. C. Adams).
Note that finance does not deal with economic considerations alone.
Public Revenue is of three kinds;
Direct, drawn from public domains and public industries;
Anticipatory, drawn from the use of public credit;
Derivative, drawn from the income of citizens, mainly by means of taxation.
Taxes.
Problem of equity in taxation:
Principle of equal payment;
Principle of payment according to cost of service;
Principle of payment according to benefit received;
Principle of payment according to means (proportional taxation);
Principle of progressive taxation.
Kinds of taxes:
Indirect taxes;
Direct taxes.
Subjects of taxation:
Polls;
Property;
Income;
Business;
Transactions;
Inheritance taxes.
Effects of taxation.
Incidence and shifting of taxes.
Taxation for ulterior ends, e.g. as a means of regulating
Commerce;
Production;
Consumption;
Distribution;
Protective tariffs.
PART III.
Scope and Method of Political Economy.
CHAPTER I. — DEVELOPMENT OF ECONOMIC THOUGHT.
A. Previous to the eighteenth century there is only unsystematic thought on particular economic matters, closely limited by contemporary economic conditions.
(1) Classic antiquity.
Basis, slave economy,
Xenophon’s Oiconomicus.
Passages in Plato and Aristotle.
Technical treatises by Roman writers De Re Rustica.
(2) Middle ages.
Basis, household economy or else production by a close body of producers for a limited market.
Canonist writers — theories of just price, of usury.
(3) Mercantile school of sixteenth and seventeenth centuries.
Basis, widening markets, influx of precious metals, increased state need of ready money and interest of governments in commerce and industry as source of funds.
Characteristics, exaggeration of importance of money (“treasure”), effort to secure balance of trade, state regulation of industry, substitution of national for local economy.
A school of statesmen rather than theorists, (notably Colbert in France, Cromwell, Frederick the Great), and of commercial writers like Thomas Mun, Sir Josiah Child, and Charles Davenant in England.
Note beginnings of statistical study (e.g. Sir Wm. Petty, Essays in Political Arithmetick, 1691).
B. Systematic Period. Theories of Natural Liberty.
(1) Physiocrats (Economistes), France, eighteenth century. Believed in a beneficent natural order, reprobated interference (laissez faire, laissez passer); regarded land alone as productive, advocated a single tax on land, helped to bring about abolition of restrictions on trade and industry.
A school of French thinkers led by Quesnay, physician to Louis XV. Turgot attempted to realize these views in his reforms.
(2) Adam Smith and the English Classical (“Orthodox”) School.
The nineteenth century economists of this school believed that self interest under free competition tends to greatest general advantage; were influenced by growth of modern machine industry and modern business methods; were marked by a certain capitalistic bias.
Chief practical achievement abolition of restrictive legislation, especially the corn laws (Manchester Anti-Corn-Law League, led by Cobden, Bright, etc.; “Manchester School”).
Adam Smith, Wealth of Nations, 1776 (first ed’n).
Rev. Thos. Robert Malthus, an Essay on the Principle of Population, etc., 1798 (first ed’n).
David Ricardo, Principles of Political Economy and Taxation, 1817.
The work of the school was summarized for England by John Stuart Mill, Principles of
Political Economy, 1848 (first ed’n).
Note the optimists H. C. Carey (American) and Frédéric Bastiat.
C. Critical period (the last half century).
Influenced by the development of modern industrial problems, by the failure of competition to always work to public advantage and by the obvious insufficiency of analyses of “classical” economics. Marked by criticism and modification (or rejection) of the older views; much fine constructive work done, but no generally accepted synthesis yet attained. Embraces very diverse tendencies; e.g.
Historical movement:
In Germany in the fifties led by Roscher, Hildebrand and Knies, continued at present by Schmoller, Brentano and others.
In England Cliffe Leslie and Bagehot did much to widen the range of economic thinking. Thorold Rogers, Cunningham and Ashley have made notable contributions to economic history.
Note that largely a question of method. See below.
Socialist movement:
German “scientific” socialism, Rodbertus, Karl Marx.
“Socialism of the Chair,” Adolph Wagner, Schaeffle,
English “Fabian” Socialism, Sidney Webb, Beatrice Potter Webb.
Ethical movement:
Increased interest in ethical and social bearings of economics widespread. Cf. influence of Arnold Toynbee, Ruskin.
Note relation of this tendency to the historical and socialist tendencies.
Theoretical work:
The most important contemporary work in economic theory is that based largely on subtler analysis of value and the conception of marginal utility originated (among others) by W. Stanley Jevons, and is represented
in England by Marshall and others,
in America by J. B. Clark and others,
on the continent (and most conspicuously) by the “Austrian School,” Böhm-Bawerk, and others.
Note the tendency of this school to psychological analysis and mathematical expression.
CHAPTER II— SCOPE AND METHOD.
A. Scope of Political Economy.
Different conceptions of the science at different periods; reflected in definitions and names.
Note etymology of economy.
Pure and applied economics (political economy as a science or an art).
How far can action be based on economic considerations alone?
Relation of economics to technology, ethics, politics, law, sociology.
[B.] Appropriate method.
Deduction versus induction.
The place of observation, hypothesis, experiment.
The postulates of political economy.
The conception of economic law. (Contrast with moral law, statute law).
Statistics.
Historical method, descriptive economics.
Mathematical methods.
Source: One of two copies deposited with the Library of Congress. Emily Greene Balch, Outline of Economics (Wellesley College) published by The Co-operative Press of Cambridge (Massachusetts) in 1899.
Image Source: Emily Greene Balch in Hungary, c. 1900 from the Papers of Emily Greene Balch, Swarthmore College Peace Collection. From Website: massmoments, page “January 8, 1867 Emily Greene Balch Born“.
