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profitably. Unless someone were able to invent superior methods of production which required the exercise of those qualities they would be of comparatively little economic advantage to those who possessed them.

Here we have an example of a class of cases which continually perplex the amateur student of economics. There are cases where two or more factors are absolutely necessary to get a given result. Fundamentally the problem is no more obscure than that involved in the formula 2 x 3 = 6. The students will agree that 2 is just as essential as 3, and 3 as essential as 2, in getting 6. Other problems of a similar kind are found in every field of science as well as in arithmetic. Oxygen and hydrogen are equally necessary to the formation of water; air and gasoline must be mixed in the carburetor in order that there may be an explosion in the gasoline engine. One is as essential as the other. The upper and the nether millstone must work together in the old-fashioned mill to grind wheat. Two sets of rollers are necessary in the modern flour mill.

In the higher realms of economics we find numerous examples of the same type of problem. Forethought and inventiveness are examples of mental qualities which are combined to secure mechanical progress. However inventive men may be in contriving mechanical improvements, unless someone is willing to perform labor long in advance of the consumption of the products of these mechanical improvements, or pay someone else for performing that labor, all these mechanical contrivances will remain either in the brains of the inventors or in museums.

When one has spent his money for iron ore, or for tools of any kind, one has become a capitalist. He has bought something of no immediate use to him as a consumer, but something which is a means by which in the future he may get consumers' goods. Because there are, in any community, men who are willing to do this, there is a market for the genius of the inventor. Similarly, because inventors will devise mechanical appliances and improvements, there is an opportunity for the investor to become a capitalist,-a buyer of tools and contrivances.

These two functions-that of the inventor and that of the investor-are absolutely necessary, whatever the type of social organization may be. Even in a communistic society the work of the inventor amounts to nothing unless the society as a whole undertakes what, in the present order of society, the individual capitalist undertakes; namely, to set men to work at making tools and to pay them wages while they are about it. One important difference between socialism and individualism is this socialism proposes that society as a whole shall do precisely what in an individualistic society the capitalist does as an individual.

The productivity of capital. There are some extreme socialists who deny that the capitalist performs any necessary function. If that were true it would be hard to frame an argument to show that society as a whole should do precisely what the capitalist is doing. The socialist would then have to admit that the capitalist, instead of performing a useless function, performs a most important one,-so important that society as a whole should take it over. To say that society should do its own investing is to say that it should become its own capitalist. This would present a question to be debated. The question. might be stated as follows: Can the useful function of coördinating labor performed at different times be done more economically and satisfactorily by the state, or by society as a whole, than by private individuals? Or the question might be put in this way: What forms of investment and ownership should be undertaken by society as a whole and what should be left to private individuals? Only extremists would refuse to discuss this question. There are, however, some who are so very extreme as to deny that the state or society should do any investing or own any capital. Others go to the opposite extreme by denying that the individual should do any investing or own any capital. Wisdom probably lies somewhere between the two extremes. The real difference, therefore, between the reasonable socialist and the reasonable individualist is one of degree. The reasonable individualist will maintain that, in the absence of a

special or convincing reason to the contrary, the individual should be allowed to invest and to own capital, and that the case must be proved against him before he is forbidden to do so. The reasonable socialist, on the other hand, holds that the presumption is in favor of public and against private ownership of capital,—that, unless special and convincing reason to the contrary is shown, the public and not private individuals should own capital. He places the burden of proof on the one who wishes to own private capital.



The ultimate purpose of thrift. That increasing supplies of capital, either public or private, are necessary to the attainment of the highest national prosperity, can scarcely be denied. Unless the public should undertake the task of setting aside by law a portion of the national income for the purpose of increasing the fund of capital, it must be done by the action of private individuals. This calls for the exercise of the virtue of thrift.1

What is thrift? In order to get a clear idea of the relation of thrift to the strength of the nation it will be necessary to analyze the nature of thrift. To begin with, it should be perfectly clear that thrift does not mean the hoarding of money. To hoard money is one of the most thriftless things one can do with it. The miser of romance who kept his money in a secret hoard where he might gloat over it and enjoy the sensations of feeling, hearing, and seeing it was, in the strictest possible sense, a thriftless consumer of wealth. Instead of using money as a tool of production or instrument of business, he was using it as a means of direct physical enjoyment. To use it for the adornment of his body would scarcely have been more frivolous, thriftless, or selfish.

Spending money wisely. Thrift, no less than extravagance, consists in using money; that is, in spending it. The sole difference is in the purpose or purposes for which it is spent. To spend money for immediate and temporary gratification is extravagance; to spend it for things which add to one's power, mental, physical, moral, or economic, is thrift; to spend it for

1 See monograph by the author, entitled "War Thrift." Carnegie Endowment for International Peace, 1919.

tools of production wherewith one may increase one's productive power is thrift. For a farmer to spend money on a luxurious automobile, when he needs a tractor with which to cultivate his land, is extravagance; to spend the same amount of money for a tractor, when he needs one with which to cultivate his land more thoroughly and increase his productive power, is thrift. Money is spent as truly in one case as in the other. It stimulates business as effectively in one case as in the other. But when money is spent extravagantly it adds nothing to the productive power either of the individual or of the nation. To spend it thriftily is to add to the productive power of both the individual and the nation.

What if everyone were thrifty. It is sometimes argued, of course, that if everybody spent all his surplus income for tools of production and nobody spent anything for luxuries, there would soon be overproduction; that is, the community would soon have such a supply of tools of production as to enable it to produce more than its thrifty consumers were willing to buy. Whatever validity this argument may have sometime, it would obviously not apply to normal conditions when the danger is not of overproduction but of underproduction; when the problem is not how to consume the things which are produced but how to produce the things which are necessary to the building up of the country; not how to give the people the largest number of pleasurable sensations but how to develop the maximum national strength.

Effects of thrift. The fear of overproduction is groundless, even in normal times. The tendency in a thrifty community is for capital (that is, the tools of production) to increase and become so abundant as to reduce the rate of interest, giving the owners of capital a smaller share of the product and consequently giving the other participants in production a larger share. In addition there is a larger production in a thrifty community because such a community is well supplied with all tools and instruments of production. The danger that there should be an oversupply of capital (that is, of tools) is counter

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