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Rent tends to adjust itself to changes in any of these conditions. Custom and lack of knowledge tend to maintain rent at the old level, whether it be too high or too low.

It is not intended to give a complete list of the conditions which should be considered, but to express the belief that if we use the work of Ricardo as a starting point for further investigation, following out one by one the various forces in operation, we may make economics a useful science.

The philosopher attempts to construct a complete and unified system of thought.

The scientists strive to see forces in operation without attempting a complete explanation and unification of knowledge.

The philosopher would use the Ricardian statements as а foundation for a superstructure of economic doctrine. The scientist should use Ricardo's work as a partially trusted guide in the early stages of an exploration into the realms of actual life, with a view to a better comprehension of the great complex of forces which drive and guide the wheels of industry and commerce. The function of the economist is to study economic forces in operation, to describe these forces, and where possible to measure them. When this process has gone far enough, economics will find a place among the sciences. So long as the minds of economists are obsessed with philosophies which obscure the facts, economics will fall short of rising to its true position as a science.




The subject of this paper is one of much importance to commerce and it is well that before this assembly of economists it should be considered first from its theoretical aspect, namely, the economical principles involved in determining the cost of any given article of manufacture. These principles are not so generally understood as they should be, and experience tends to show that ignorance of them is one of the causes of excessive and detrimental competition. In discussing this subject it is necessary to refer to first principles which to some of you may appear elementary.

The term "manufacture" must here be used in its widest and most theoretical sense as including every operation necessary to convert a natural product to the use of mankind. In this sense it will be seen that it must also include transportation as an element which enters largely into the cost of all articles offered for sale, even if it be only the conveyance of natural products from the garden into the house. In other words, manufacture is any operation which renders a natural product available for use and by so doing gives it a value based upon cost in excess of that which it had in its natural state.

The elements that enter into this process of manufacture as so defined are:

1. The natural product itself, or Material.

2. The subsistence necessary for the labor or service employed in converting it to use in the place where it is required, or Labor. 3. The period during which the natural product has to be used or the subsistence has to be provided until by the sale of the finished product an exchangeable value is obtained therefor, or Time.

In these elements nothing in the nature of profit is involved, for the reason that it is represented by the difference between the actual cost of labor and the value which the combination of labor with material has given to the finished product, this being dependent on the demand for and supply of the particular article.

The resultant value so fixed may at any moment be more or less than the cost of the primary element, and if it exceeds this cost there is a profit which is divisible among the three elements represented by—

1. The owner of the natural product, whether it be the state or a private individual.

2. The individuals whose joint efforts have converted this natural product into the shape for which and to the place where the demand exists, i. e., labor.

3. The owner of the accumulations which are used to provide for the subsistence of the owner of the natural product and of the labor during the period of manufacture, i. e., the capitalist.

If, on the other hand, the selling value falls short of the cost the loss must fall upon the owner of the natural product and the capitalist, labor merely going without profit. The owner of the natural product is in fact also a capitalist, so that for practical purposes the division of profit is between capital and labor only, and the loss is borne entirely by capital which also in practice bears an additional loss because labor is usually able to obtain more than mere subsistence cost, that is, to obtain in advance a definite sum in lieu of its share of the prospective profit.

The continued conflict between labor and capital thus resolves itself into a fight between these two naturally opposed bodies for a more equitable division of the profit remaining over actual cost, each side as a rule honestly believing that the other is getting too large a share.

At first sight it may appear that this elementary description loses sight of the important part which land, buildings, plant, and machinery play in the process of manufacture. A little consideration will show that this is not so; but that these too fall naturally into the elements already given, each item involving the use of a natural product and its conversion by means of labor over a period of time necessitating the provision of subsistence by a capitalist. For instance, the conversion of ore into manufactured steel involves the following operations:


Natural products consumed, i. e., ore, coal, timber, etc. 2. Natural product used but not consumed, i. e., land upon which to carry on operations.

3. Labor

(a) Extracting ore in some very primitive way.

(b) Smelting this ore in some equally primitive way,

and with the use of fuel of some sort, both these processes being carried out as by savages with no provided facilities.

(c) The manufacture of some kind of tools by using the natural products so far developed and so gradually and over long periods of time constructing plants suitable for manufacture.


The actual manufacture of the articles which are of use to the community and have an exchangeable value out of which profit can be realized.

A more detailed consideration of the three elements of material, labor, and time will serve to bring out the principles involved in their determination.

Materials are either mineral, vegetable, or animal. Minerals are exhaustible and no methods are known of replacing them in any conceivable period of time. Vegetables, including principally timber, either perpetuate themselves or are capable of reproduction with the aid of labor in a reasonable period, subject to certain limitations as to soil and climate; while animals increase and perpetuate themselves in natural ways subject to natural laws and to the risk of extermination by other animals, particularly man.

Material cost consists in the first instance of the labor employed in obtaining possession of it in its natural state, but the value is fixed from day to day by man's estimate of the probable supply and demand and the difficulties and cost of making it available. The purchase price so fixed is in practice accepted as the cost, although it necessarily involves profit to the original possessor and to subsequent owners through him, who are able by virtue of the limitation in quantity available at any time to demand a sum down rather than wait for the uncertainties of future profit. The purchase price thus forms part of the cost and should be recouped on sale before any profit can be ascertained. Unfortunately in the case of many natural products, particularly of the vegetable kind such as timber and agricultural products grown on virgin soil, one most important element of cost has been largely overlooked, and that is the necessity of replacing or perpetuating the supply. In our own country we have evidences of this fact always before us in the wasteful destruction of splendid forests with little or no attempt at replanting, and in the worked out soils on the western prairies where crops have been grown for a generation by extracting all the natural wealth of the soil and

leaving behind exhausted land. The same process has gone on in other countries from the most ancient times and a warning against a continuance of the present conditions may be found in the dry, waterless plains in northern Africa, which have resulted from the wholesale consumption and destruction of timber by the Romans and their successors. In most European countries, as well as in India, this waste has been largely remedied by careful and systematic preservation of natural resources; and the federal government here has shown in recent years that it is alive to the vital importance of a policy of conservation.

Labor is a direct element of cost, represented by the provision of at least subsistence to those who perform it. The agitation in some countries for the payment of what is known as the "living wage" would seem to imply that all labor does not receive such subsistence. This, however, is really a question of the degree of comfort involved in the term subsistence and of the relative habits and customs of different classes of workers in different countries. Whether this standard should be higher or lower is not a question for economists but for social reformers; and it is sufficient here to note that the cost of labor, while theoretically limited to bare cost of subsistence, varies in fact, by reason of the supply of or the demand for labor of different classes, from the bare cost of living to a very comfortable sum in excess of that cost, permitting the workers to accumulate considerable savings. In effect, then, whatever share of ultimate profits the workers might eventually receive is in the majority of cases compounded for by a payment in advance, leaving the entire surplus profits to accrue for the benefit of capital, which on the other hand also has to suffer the loss if any. This exclusion of labor from all share in the ultimate profits in defiance of economic justice is no doubt a fundamental cause of the continued warfare between labor and capital, and a remedy would seem to lie in the direction of a return to the elementary principles of profit sharing, always having due regard to the fact that while capital may suffer a total loss labor at any rate is sure of its subsistence. Profitsharing schemes, under which labor can obtain a reasonable share of the ultimate residue if any, and will thus suffer in a measure if there is no such residue, are now in operation in many important industries; and in the extension of such schemes undoubtedly lies great hope of a steady improvement in the relations between capital and labor.

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