All true charity, even equity, requires that the object of distribution of wealth shall be the greater efficiency of each individual. If there shall ever be a community of individuals gaining equal enjoyment, it will be made up of those possessing essential equality in personal powers and attainments, and in acc.u.mulated capital as well.

Chapter VII. Methods Of a.s.sociation.

_Simple a.s.sociation._-While the absolute equality of individuals referred to in the preceding chapter is practically impossible, the community of interests as civilization advances becomes much closer through various plans of a.s.sociation of individuals in common work. Indeed, the community is a community because a mult.i.tude of individuals work together. The simplest form of a.s.sociation is seen where men work in gangs, all acting alike, as in lifting a log or a rock, hoeing the field, or in building an embankment by shoveling. Among farmers the habit of exchanging work, so common in pioneer settlements, ill.u.s.trates the advantage of combination.

This may be called simple a.s.sociation, by which many hands make light work.

_Complex a.s.sociation._-A more complex a.s.sociation is found in even the rudest settlement when one man undertakes a particular kind of labor for all his neighbors, they in turn doing a different kind of work for him. A farmer in a new settlement found the children of himself and neighbors without a school, and agreed for several winters to teach a school as many days as his neighbors would chop in his clearing. This a.s.sociation cleared the land and supplied the school. Such exchanges of labor develop rapidly in every growing community and form the basis of a most extensive commerce. When "Adam delved and Eve span" the family was far better provided for than if both had undertaken to delve and spin. The fair exchange of products makes each man's product more useful to both himself and his neighborhood. Such a.s.sociation is less noticeable in a community of farmers, where all are seeking essentially the same products, than in almost any other community. Yet the presence of the blacksmith, the shoemaker, the wagonmaker and the tailor contribute very largely to the comfort of all concerned.

One chief disadvantage of farms remote from villages is the want of ready exchange, or a.s.sociation by different employments. The part which such exchange plays in the acc.u.mulation and distribution of the wealth of the world is so great that several chapters will be needed to present its importance. The study of exchanges is sometimes thought to cover the whole question of wealth. It is often treated as separate from production. But its advantages and disadvantages are most easily seen by considering all its bearings upon the increased product of a mult.i.tude of workers.

_Compound a.s.sociation._-A still closer a.s.sociation, sometimes called compound a.s.sociation, is found where several workers combine efforts of different kinds in a single finished product. It is easily ill.u.s.trated in an ordinary dairy, where one of the family drives up the cows, another does the milking, another sets the milk and cares for the purity of all utensils, another perhaps skims the milk and churns the b.u.t.ter, and still another works and packs it. All this labor of many hands has its importance represented in the b.u.t.ter packed for use. The particular advantages of this division of labor will be treated in a future chapter.

_Aggregation of forces._-A still further advance in a.s.sociation appears when many laborers in many ways, with mult.i.tudes of tools and machinery, are combined in a huge establishment in such a way as to employ all efficiently. This is ill.u.s.trated in the so-called bonanza farms of the west, but more distinctly appears in the great manufactories, or in any extensive cooperation or great enterprise. A study of these will also require a future chapter.

While all these methods of a.s.sociation blend with and into each other in every kind of community, a careful a.n.a.lysis of each is necessary to a full understanding of their relation to welfare. For this reason it is best to a.n.a.lyze and ill.u.s.trate each by itself. The succeeding chapters will take up all the intricacies of exchange before presenting the special advantages and disadvantages of technical division of labor and of great corporations.

Chapter VIII. Exchange: Advantages, Limitations And Tendencies.

_Exchange in production._-The immense importance of exchange in promoting the welfare of communities is easily granted, and is ill.u.s.trated in every village store or even in every simple farming community. Today the market for farm products is easily felt to be the most important consideration, and weighs in every farmer's mind when buying or selling his farm. When a state like Kansas raises from six to ten times as much wheat as its people can use, exchange is evidently an essential factor in every farmer's welfare.

The mult.i.tude of everyday wants in most households supplied only through commerce shows the extent and importance of this exchange of labor throughout the world. The great advantages, however; may be seen by a little more careful a.n.a.lysis of the growth of individual powers under a ready system of exchange. Every laborer becomes effective by experience in some particular industry. A thousand years will not perfect a single worker in any of the thousands of employments needed to supply his wants.

Every farmer knows the weakness of a beginner in farming, coming from any other business; and without exchange, every workman must always be a beginner in everything. Exchange is one of the chief motives to acc.u.mulation, since others' wants as well as our own are kept in view. The "hand to mouth" liver is almost always a man of all work, thinking little of exchange. It is especially a stimulant to saving, since it makes capital itself more useful and brings it directly into compet.i.tion with all other forces. Products stored in the granary have their significance because of exchange.

Still more important is the cultivation of special abilities, impossible without exchange. The indefinitely varied powers of human nature are made most useful where each can devote his talent to a definite business; and usually the talent best fitted to a business is attracted toward it.

Habits, too, which are the chief labor-saving characteristics in human nature; become all-important, and enable an individual to do a large part of his work with the least possible care. The routine of everyday life is followed with little effort or pain. The more regular the routine the easier it is to follow.

A still greater advantage to communities is found in the enlargement of the range of wants in all individuals. The superiority of enlightened men over savages is largely due to their greatly increased needs, since necessity, the mother of invention, compels exertion and finds the way to satisfaction. It seems, however, that exchange contributes most extensively to welfare by combining individuals into a community, and smaller communities into a larger, until the whole world is brought into sympathy. Thus every human being gains the advantage of growth in mind and character through some contact with every other human being within the commercial world. If ever a reign of peace and plenty shall extend over the world, no one doubts the importance of commerce and intimate exchange in bringing that time. The full advantage of free exchange in promoting human welfare cannot be over-estimated.

_Exchange limited by powers._-With all its advantages, there are certain obstacles in the way of its extension, always more or less effective in limiting its range. A community can have few exchanges among individuals if all are busied in the same or similar trades. A farming community has little need of buying and selling among the farmers. A horse trade or an exchange of one brute for another may supply all necessities. In larger communities similar limitations are found where abilities are similar, or where habits in education, government or religion are very uniform. In such cases opportunities for exchange are limited, and commerce itself grows slowly.

The story of pioneer settlements is uniformly one of slow and uncertain commerce for want of the variety in wants and abilities which makes the very foundation of exchange. Sometimes "day's work for day's work" is the limit of exchange throughout a whole region or country. In the world at large limitations often arise from hostile feelings between nations, and as yet the highest freedom of exchange between people under different governments has seldom been reached. The United States affords the brightest example of people with varied characteristics developed through the stimulating effect of ready exchange.

_Commerce over-estimated._-So rapid has been the advancement of systems of exchange within the last half century that men are p.r.o.ne to over-estimate the importance of commerce and its interests. The amount of wealth in motion exaggerates the importance of wealth itself, so that mult.i.tudes overlook the foundation in productive industry, and become mere bettors upon the market, attempting to catch a part of the moving wealth as it pa.s.ses. Any speculation in mere commercial transactions may become a very serious obstacle to legitimate industry by its effect upon both the industry itself and the incentives to industry among the people. This danger is increased by the greatly extended interest in exchange among the rural population.

Scarcely a farmer in our country is beyond the effect of any extensive commerce throughout the world. The crops of South America and of the Russian plains are now as important to a farmer of Dakota as his own, since all must find a common market in the manufacturing countries of Europe. Speculation on the Chicago Board of Trade is likely to be as interesting to a farmer in Nebraska as to members of the Board. He is even tempted to try his hand at speculation, either directly through a commission house or indirectly through the marketing of his grain. In either case he is caught by the dangerous motion of modern commerce. The chief remedy for these tendencies must be found in a wider acquaintance with the facts of commercial life and a clearer perception of what is genuine commerce.

Every farmer needs to distinguish, and distinguish carefully, the actual, necessary machinery of trade and the principles underlying it, that he may appreciate the genuine and oppose the false. On this account several chapters are given to questions of exchange, with an effort to bring into more prominent light the ways in which all commerce affects the farmer's life.

Chapter IX. Value The Basis Of Exchange.

_The nature of value._-Perhaps no question in the discussion of wealth is of greater importance than the nature of value. Certainly the measurement of value in all our property is the basis of all exchanges, of all book accounts, and of all inventories. The worth of any piece of property in such estimates always involves some comparison, either of things possessed or of exertion required or of satisfaction yielded. In comparing an apple and a peach, both equally attainable, we may value the peach most highly because it gratifies desires in higher degree. Thinking of future uses, we may value the apple more highly because it will keep longer, and so be available for future wants. In considering all the kinds of satisfaction to be provided for, we may think of the peach as desired by more people who are likely to render us service, and therefore more readily exchangeable, and so of higher value. Again, the peach may be at the top of the tree and the apple within reach, in which case we may think whether the peach will give enough greater satisfaction to make it worth the greater exertion to get it. In this way a single individual, who has wants to be gratified only by exertion, forms an idea of value as founded upon some relation between his wants and his powers, between the desires to be gratified and the qualities of the object expected to give satisfaction.

Since wealth always implies an acc.u.mulated store of good things, every one comes to think of the worth of his acc.u.mulation as estimated by what it will do at any time, in any place, in satisfying any need. So, most naturally, we a.s.sociate our ideas of value with trade. An exchange of horses brings in not only the present qualities of each horse for present service, but all the qualities and circ.u.mstances affecting the possibilities of disposing of the horse whenever something else is needed more. An expert judge of horses not only knows when the horse is sound in wind and limb, and what are the signs of docility, speed, etc., but also what the rest of the world considers the qualities of a satisfactory horse. In all experience peculiar circ.u.mstances, varying the relation between wants and satisfaction, affect immensely our estimate of value.

When an ancient king shouted, "My kingdom for a horse!" he was doubtless moved by the uselessness of a kingdom to one about to lose his life in battle for want of a horse and also by the difficulty at that particular moment of gaining a horse.

In ordinary experience everybody estimates value by some comparison with what he can obtain in exchange. A picture of a friend may be priceless in two senses: first, of so great importance to its owner that nothing can buy it; second, of so little importance to anybody else that n.o.body will give anything for it. In any inventory of wealth the picture could not be counted; it is valueless. But in any judgment of personal welfare it may be beyond price. So, in the universal experience, the term value has come to be used as essentially connected with exchanges and with property as stored to meet all kinds of wants.

_Value in services._-In a similar way experience has developed the idea of value with reference to services. A service may be invaluable, as when a physician saves the life of his patient, but the value of that service is estimated by the return expected in the community where the physician and his patient live. Many services of highest usefulness and most important in welfare cannot be valued in terms of wealth, because no wealth can secure them. Love and patriotism and philanthropy cannot be had for wealth. But in comparison of two services rendered for hire, both are measured by their general utility, either directly or indirectly, and even this estimate is modified by the readiness with which either service can be secured. One who seeks the service of an artist who stands alone among ten thousand people, may be willing to give the services of a thousand other men, which can be had for a trifle, because they are everywhere abounding.

_Essentials of value._-Experience seems, therefore, to settle upon three conditions for value in any article of wealth or any service rendered.

First, the article or service must have utility-that is, it must be useful in satisfying somebody's wants, either present or future. Second, those wants must be of such a nature that effort on the part of some human being will be necessary to gratify them. Nothing which can be had at all times by mere desire of it can have value. Third, the object must be of such a nature as to command other services or exchange of other wealth. For this reason it must be transferable from one owner to another.

_Utility as related to value._-While utility is a basis of all values, it is not the chief element in measuring the value of wealth. The things of highest utility, like air and water, have no value as long as trifling exertion will bring them. Even land is without appreciable value so long as any person can obtain it by settling upon it.

In general, we measure utility by the relation between the nature of any object and human nature as expressed in wants. A bushel of wheat has utility equal to the number of loaves of bread it will furnish to hungry humanity. In this respect every bushel may have the same utility as every other. This would be true if every bushel of wheat was wanted by hungry people able to exert themselves in securing it; but if five bushels of wheat are sufficient for each human being in a year's supply of bread, a distribution to all the world of more than five bushels to each would make some of the wheat useless. So if the world's product of wheat more than supplies the world's want, the extra amount will be without utility unless some means of storing against future want is devised. In that case the utility of the stored portion will be lessened by the extra exertion required to store it until the need comes. One may be glad to pay twenty-five cents for a good dinner, but an equally good dinner offered immediately afterwards will have no utility, unless he can save it for supper. If the dinners offered are so many as to imply that several will be useless, the value of each is likely to be affected by this estimate of lost utility in some. Dinners in that case are liable to be furnished for what they are worth for cold suppers.

If any article of commerce, like wheat, has its highest utility in one way of meeting wants, as in bread, that utility will have a strong influence upon value as long as the supply of wheat is not too great for this want.

If the supply of wheat should be so great that only a small portion could be used for bread, other utilities would be sought. It would be used for feeding hens, and perhaps for cattle feed. If still the amount is too great to be consumed, it might be used for starch. In this case the least useful portion is likely to furnish the estimate of value for the whole.

Both the raiser of wheat and the user will consider the lowest use as the probable basis for sale.

Before the opening of the Erie ca.n.a.l a farmer in northern Ohio drew a load of wheat twelve miles in hope of a market. The dealer said: "It isn't worth anything, since n.o.body has any use for it. If you had a load of sand, I could pay you for that, to fill the mud-hole in front of my store." Since the utility of some wheat was nothing, the value of all wheat tended to nothing. On the other hand, if wheat is scarce in the community, it will be used only to meet the wants of the delicate or the fastidious, whose comfort and life may depend upon it. In that case its general value will be estimated by its higher utility, whatever other use it is put to. That is called a final utility, which, in any particular case, is the lowest use implied in consuming the supply. And this final utility is the only one influencing the estimate of value.

It is possible, therefore, that the total utility of anything, like a paper of tacks, for instance, may be greatly increased, since it has indefinitely more uses than when tacks were first made. Yet the supply of tacks is so enormous that to consume them we must use them for trifling purposes; and therefore their value is a trifle. When we have water to throw away, its value is nothing. When water is limited to culinary uses, its value is considerable. When water is sufficient only to slake extreme thirst, its value is beyond price. Even the prospect of a future supply diminishes the utility of any commodity, since time is an important element in satisfaction. Thus a store of potatoes in early spring, however well preserved, has its final utility lowered, and therefore its value lessened, by the prospect of new potatoes.

On the other hand, the present value of a field of grain or the young orchard is dependent upon its utility in meeting a future want. Everything which enhances prospective utility of any article enhances its value; and everything which diminishes the chance of such utility, like bad weather, insects or plant diseases, diminishes the present value. In this way risk diminishes the value of wealth subject to it and increases the value of wealth which has pa.s.sed by it.

In general, the usefulness of anything is no criterion for measuring value, because other elements of value are more important. Henry C. Carey says, "Utility is the measure of man's power over nature; value is the measure of nature's power over man." This may be a striking way of saying that great utility implies a discovery of uses, while great value often indicates only difficulty in securing what has great usefulness.

_Exertion as related to value._-Since utility, however essential to value, is not its measure, we are led to consider whether the exertion required to obtain any article desired may not measure its worth. This is certainly a matter of prime consideration, and many have been led to suppose the cost of production, by which is meant all the exertion necessary to bring any commodity to its final consumer, to be the sole and absolute measure of value.

This supposition, if ever correct, is subject to great modifications. None know better than farmers that a bushel of wheat from one field may have cost twice as much as a bushel from another field, without any possible distinction in value. Every mechanic knows that what he has accomplished with great exertion may have been duplicated by some labor-saving device with half the exertion, the two values being essentially equal. Nothing is more common than to find articles in the market sold without regard to cost because they are superseded by more desirable articles. Indeed, the most ardent defender of cost as the sole basis of value is obliged to notice mult.i.tudes of exceptions to the rule. Yet it must be granted that only those articles involving effort in securing them have value at all, and in general the amount of effort actually put forth has some relation to our estimate of value.

In general, men do not exert themselves more than necessary to meet wants, and in any exchange with others estimate the value of what they have produced by the exertion expended. Yet, as products of the same kind exchange in the same market without regard to their individual cost, it is evident that some other principle must be discovered. Nevertheless, no farmer will continue indefinitely the raising of a crop which brings in the market less than a fair average return for his labor in raising it. In a series of years he expects his wheat to return a fair compensation for labor expended. In the same way every manufacturer expects a full return for all cost of all his efforts, and would not continue his work from year to year without such expectation. Moreover, when for any reason the market value of anything is much above its cost, somebody is ready to increase the supply of that particular article, and more will add their efforts in the same direction until its value approaches nearly the general cost of production as compared with the cost of other products selling in the same market.

_Normal value._-In this way the cost of production is said to fix the normal value of any article of commerce capable of production in indefinite quant.i.ty and within limited time. For this reason farmers are interested in finding the average cost of production of wheat, corn, etc., within a region supplying their market. They are even interested in knowing the conditions for wheat raising in India, South Africa and Australia, since the cost of production there may influence the value of wheat throughout the world. The normal value of products capable of indefinite multiplication tends always toward the value of the least costly. This is shown in the effect of labor-saving machinery upon the value of cloths and other goods. It is equally true in agriculture that wheat raising upon cheap land with extensive use of machinery and economical methods of culture and harvesting brings down the normal value.

So long as more land can be applied to wheat raising with these advantages, the less productive methods may be too costly for the market.

On the other hand, if any production cannot be largely extended so that the supply in market barely meets the requirements of purchasers, the tendency of normal values is toward the cost of the most costly part of the product required to meet wants. This is because the supply is kept up only by the exertion of the greater amount of labor as well as the less.

If farmers in western prairie country can raise corn at an expense of 15 cents per bushel, as they can upon an average, so long as that region can raise all the corn required no less productive region can force the normal price above what will keep western farmers raising corn. When the western crop fails, the price is far above normal value, and may even go above the cost of the most costly corn in market, under a principle called the law of supply and demand.

Since improvements in method so constantly lessen the normal value of products, Mr. Carey made the effort to measure value by "cost of reproduction," meaning, I suppose, that any article produced at any time and place is likely to bring in any market a price equal to the cost of similar articles produced under the most improved methods anywhere used in the present. This, of course, does not apply to articles not desired in the present, because deteriorated or out of fashion or less useful than some new device for a similar use, but only to those articles of full utility in having all the qualities needed to meet the desire of purchasers. Even a diamond like the famous "Kohinoor" would have its almost priceless value reduced to the cost of securing similar jewels equally desirable if a process of crystallizing carbon were suddenly discovered. It is easy to see, then, that cost measures value only so far as it is directly connected with the available supply in any market. Under ordinary circ.u.mstances the supply cannot be increased unless the cost is met, but the rule is modified by any peculiarity of season, or conditions of trade, or production by cheaper methods or cheaper labor, or by the changing wants of a community. The application of all these influences may be studied under the so-called law of supply and demand.

_Supply and demand; markets._-The law of supply and demand is only a statement of the general fact that market value tends to increase with increase of demand and to decrease as the supply to meet the demand increases. It must be understood that a market means a particular spot where buyers and sellers of any article of commerce meet at a particular time. The supply is the amount offered for sale at a given price. The demand is the amount buyers will purchase at the same price.

Thus, if on a certain day sellers offer in Chicago 10,000 hogs, with a willingness to take $5 per cwt., they represent the supply. If on the same day in the same place buyers are willing to take 10,000 hogs at $5 per cwt., $5 will be the market price, and the supply and demand will be equal. If, however, only 5,000 hogs would be bought at $5 per cwt., 5,000 hogs will be without buyers, and their owners will seek, by lowering the price, to find buyers at $4.50 per cwt., if necessary. Since all the sellers will feel the same pressure, the tendency of market value will immediately be downward. Buyers willing to pay $5 per cwt., finding many sellers, will expect a reduction in price, and the price will certainly go down until the hogs purchased equal the entire supply. And that will not be until the buyers are stimulated by reduction of price, so that as many hogs are wanted as there are for sale. If that point is reached at a price of $4.50 per cwt., the market value is found there. The limit of time within which this reduction takes place will depend upon the ability and willingness of sellers to wait. If the product offered is perishable, or costly in keeping on the market, the reduction will be speedy. Otherwise it may be held indefinitely with the hope of compelling buyers to come to the higher prices, in which case it is practically taken out of the market. Only those commodities are practically in the market which are held for sale at the market price. Only those buyers practically enter the market who are able and willing to give the market price.

_The higgling of the market._-The process of reaching an agreement between buyers and sellers is called the higgling of the market, and represents the conflict between the wishes of sellers to get the most possible for their products, and the wishes of buyers to get the most possible for their money. In fact, both buyers and sellers have the same motive: to make their own exertions go as far as possible in supplying their own wants. The fact that money enters into the transaction makes no difference with the bargain. Two farmers trading horses have exactly the same desire: to get the full worth of the horse to be given. A genuine bargain usually benefits both parties. Even in a horse trade each owner expects to be benefited by the exchange; and only a jockey seeks that benefit in taking advantage of his neighbor's ignorance or inexperience.