be play or amusement) or it may consist in the opportunity to earn money at some other job. In either case one must be paid for doing the thing in question, even though it is neither painful nor fatiguing; otherwise one will avail oneself of another advantageous opportunity.

Pain cost. Of these three forms of cost, pain cost is, in our day, the least important. In a rude society, when conditions were hard and enemies numerous, it may have been different. Nowadays, outside of a few dirty, dangerous, or otherwise disagreeable occupations, there is comparatively little work which is disagreeable in itself. When hours are long work is often fatiguing and irksome for that reason. But as prosperity and well-being increase and general social conditions improve, opportunity cost comes to play a more and more important part. The possession of high wages or a large income creates opportunities for amusement or pleasure which otherwise would not exist. One then finds long hours more irksome than they would otherwise be, not because they are more fatiguing but because they deprive one of those opportunities for pleasure which one's larger income enables one to enjoy. A well-educated man has more opportunity for the pleasurable exercise of his faculties than an uneducated man; therefore he needs more time in which to do these pleasurable things. If his services are desired he must generally be paid more in order to induce him to give up these other opportunities. Far more important than that, however, is the fact that a well-trained man has many more opportunities to earn money than an untrained man. Among these opportunities he will choose only the one which he likes best. Whoever desires his services or his products must therefore bid against all other opportunities which lie before the trained man. Work is not more painful or more fatiguing to the trained man than to the untrained man, but his labor costs more because of the opportunities which he gives up when he decides to do a certain kind of work.

Increasing cost. As population increases or concentrates in certain areas, the natural resources of those areas must either

be worked more intensively or else the means of subsistence as well as the raw materials of industry must be brought from greater distances. To bring them from greater distances obviously requires greater effort unless new and improved methods of transportation are invented. Even with the best methods attainable it costs more to haul longer than to haul shorter distances. To work mines harder tends to exhaust them more rapidly. It is also possible to work land so intensively as to exhaust the soil unless great care is taken to put back in the soil as much plant food as is used up by the crops which are taken off. To exhaust either the mines or the soil will obviously make greater and greater efforts necessary if a large population is to be provided for on the same scale as before the exhaustion took place. Poorer mines must be worked and crops must be grown on poorer soil, where more effort is required to get the

same crop.

Diminishing returns and increasing cost. Entirely apart from the exhaustion of the soil, however, is the great law of diminishing returns from land. This law, which is one phase of the universal law of variable proportions, will be discussed in detail in a chapter devoted to that subject (see Chapter XXXIII). For our present purpose it is only necessary to state and define the law.

It is a well-known fact that land yields more per acre under intensive than under extensive cultivation. By intensive cultivation is meant the application of considerable quantities of labor and capital to each unit of land; by extensive cultivation is meant the application of smaller quantities of labor and capital. While land can be made to yield more when large than when small quantities of labor and capital are used in its cultivation, still there are limits to this rule. In the cultivation of any particular crop there comes a point beyond which it does not seem possible, by any amount of labor, care, or cultivation, to increase the yield appreciably. Long before this point is reached, however, there is a tendency for the land to yield less in proportion to the labor and capital employed, even though it

continues to yield slightly more per acre with each increased application of labor and capital to its cultivation.

As a result of this law more effort is required to get from the soil of a given area subsistence for a large than for a small population. Rather than incur the increasing cost of production which would be necessary if an increasing population should attempt to get its subsistence from the same soil, men have uniformly chosen to spread their cultivation over wider areas (thereby incurring increased cost in transportation) or they have resorted to inferior soils within the boundaries of the original area, or they have done both. There is no good reason in the world why they should ever have done either of these things except that which is furnished by the law of diminishing returns. If they could have doubled, trebled, and quadrupled the production on the original area of good soil by merely doubling, trebling, and quadrupling the labor and capital used in its cultivation, there would never have been any reason for extending their cultivation. But when they found that by doubling the labor and capital they did not double the yield, even though the yield did increase somewhat, then they had an excellent reason for extending the area of cultivation.

We have, therefore, several reasons why increasing effort is necessary to get increasing supplies for an increasing population. The law of diminishing returns is one; the tendency toward the exhaustion of the soil, mines, and other natural resources is another; the necessity of cultivating inferior soils is another; and that of transporting materials greater distances is still another. All of these, however, are closely joined together and mutually determine one another. Add to these the fact that increasing effort becomes increasingly irksome because of increasing fatigue and increasing opportunity cost, and we have what may be known as the law of increasing cost. This law of increasing cost, in turn, is the chief factor in limiting production and keeping the supply of various commodities so scarce as to give them a value.

Monopoly. Among the factors which tend to make commodities scarce nowadays, one of the most important is monopoly. A monopoly is an agency which has sufficient control over the supply of a given commodity to fix its price. Without this control over supply, any attempt to fix prices above that level which would pay the cost of production would merely tempt other producers to enter the field and take the market away from the would-be monopoly. A high price would stimulate the outside and independent producers to increase their output. Until the would-be monopoly is in a position to prevent anything of this kind, it has not won the unenviable privilege of being called a genuine monopoly. Any agency which has succeeded in getting control of the supply of a commodity has become a monopoly, or at least a partial monopoly, whether it likes to be called by that name or not. Aside from the government, probably no such thing as an absolute monopoly exists. A partial monopoly exists whenever an organization exercises sufficient control over the supply of anything to enable it to fix its prices, even within a narrow zone, independently of competition. This means that the power of a partial monopoly over prices is not absolute. It may fix the price somewhat higher, but not much higher, than competition would fix it. Where a monopoly is not absolute, if it attempts to fix prices outside these limits it will create competition and destroy its power to control.

This control may be exercised in two ways: first the monopoly may decide upon the quantity to be produced and then sell that quantity for whatever it will bring on the market, allowing the law of demand and supply to fix the price; second, the monopoly may decide upon the price at which it will sell the product and then produce only as much as can be sold at that price. This is the method usually followed. In either case the supply is limited by the will of the monopoly and not by the cost of production. In a genuinely competitive industry the supply is limited by the cost of production. Producers will stop production rather than sell for any considerable time below the cost of production.

CHAPTER XXVII

MONEY

Money a labor-saving invention. One of the greatest of all labor-saving devices is money. If one will try to imagine the difficulties of carrying on exchange without the use of money (that is, by means of direct barter), one will easily understand how great a convenience money is. Of course, without the use of some kind of money we never could have developed our present highly specialized industrial system, under which each individual does that for which he is best fitted and exchanges his products or services for the products and services of other. people who are likewise doing that for which they are best fitted. But even if we could imagine such an industrial system based on barter, the difficulties would seem almost insuperable. The tailor who had made a coat and desired bread in exchange might find difficulty in finding a baker who happened to want a coat; even if he found such a baker, it would be difficult for the tailor to carry home as much bread as the coat would be worth. By some kind of credit system, of course, the baker could credit him with a large number of loaves of bread, to be called for one at a time. The dairyman who had milk to sell would find it difficult to know how to collect payment for the very small quantities which he delivered to the butcher, the baker, the tailor, etc. These difficulties would be so great that in all probability there would be comparatively little exchange. The farmer would have to be his own butcher, tailor, and shoemaker. Each household, in fact, would have to be almost self-sufficing.

So important is the function of money in modern industrial society that some writers have seen fit to divide systems of economy into two fundamental types, known as the barter economy