nomic experiment of uncertain outcome. Under what is called the "new economic policy," the Soviet authorities have made many concessions to private capital in both commerce and manufacture. munistic and capitalistic enterprise have expanded side by side. Com (e) Japan. The other European nations offer variations in modern. industrialism, but fundamentally their economic life fits into the conditions and forces established by the industrial system of the Great Powers. The same system has likewise established a firm foothold in the Orient. Following Commodore Perry's visit to Japan in 1853 and the bombardment of Japanese ports in 1863 by European and American fleets, Japan discovered that the only means by which she could protect herself from European industrialism was to adopt that same industrialism and to rival Europeans in their own technical arts. The Industrial Revolution was thus a deliberate strategy of defense. The Imperial Government abolished feudalism in 1871, and encouraged in every way the rapid adoption of the new industrial system. Within the space of a generation, economic life had been transformed by machinery, factories, railroads, steamships, foreign commerce, electricity and science. The deliberate and systematic plan which the Japanese followed out is unique for its thoroughness and swiftness in industrializing a nation. Japan today is the dominant power in the Orient. However, in basic resources Japan is not well endowed and she faces a dependence upon foreign resources, particularly those of China. China has, therefore, been the victim of a strong policy aimed at control of her rich mines of coal and iron. Japan needs China both as a source of raw materials and as a market outlet for her manufactures. Other nations have in the past attempted to seize portions of China's great wealth, but such rapacity has been held in check by the insistence of the United States upon the policy of the Open Door in China. China has attempted to absorb machinery, factories and capitalism, and the beginnings of the Industrial Revolution are already accomplished. Her greatest domestic weakness is the lack of an effective central Government. China comes under the tutelage of Japan much as parts of Latin America come under the tutelage of the United States in its application of the Monroe Doctrine. The introduction of Occidental capitalism in the Orient has tended to shift the center of economic power from the Atlantic to the Pacific and has made the trade routes of the Pacific among the most important anywhere in the trade world. (f) Backward Countries. The last decade has witnessed a penetration of the Industrial Revolution among the so-called backward peoples of the world. Textile machinery, railroads, electrical engineering, and factory capitalism have gained a clear foothold in India, in parts of Africa and in all of Latin America. These countries were formerly dependent almost entirely upon industrial nations for supplies of manufactures, but more and more they are carrying on their own manufacturing in domestic factories. Industrialism is in process of transforming the economic life of all peoples, no matter how remote or how backward they may have been in the past. The Industrial Revolution has become a World Revolution. The progress of individual nations is but a tributary to the main current of world economic development. The position of each separate nation is not one of independence and isolation, but one of interdependence and solidarity with all the nations of the world. World-wide Industrialism.-Since 1870 more than one-half of the habitable area of the globe has been appropriated for economic purposes by European nations and the United States. This enormous expansion has been the natural outgrowth of the application of machine technology throughout the world. This technology involved both a struggle for raw materials and a struggle for markets. In this struggle, the Great Powers vied with each other in carving out for themselves spheres of influence, protectorates, and colonial empires. Diplomacy allied itself with business, and big armies and navies were found necessary to protect large scale investments of capital overseas. Nationalism and Imperialism were leading characteristics of this great economic expansion, and both went forward under the moral justification implied in the phrase, "the white man's burden." Industrialism had enlarged its scope until it embraced all nations and all peoples. As Shotwell has said, "The thing we call civilization has drawn the isolated communities of the old régime into a great world organism, with its afferent and efferent nerves of news and capital reaching to its finger tips in the markets of the frontier." In the midst of extreme Nationalism and commercial rivalries, interdependence has also been rapidly increasing. The bulk of foreign diplomacy has to do with commercial questions. The main clauses of international treaties concern themselves with matters of trade. Repeated international conferences are required to smooth out economic differences between nations. The majority of the nations have bound themselves together through League of Nations and World Court compacts. The Versailles Treaty of Peace projects the future economic map of Europe into the forefront of international problems. From many angles, nations are acting upon the assumption that the world is an economic unit and that the nations are bound together by mutual ties of economic interdependence. The science of economics must analyze modern industrialism on this world scale of operation. BIBLIOGRAPHY ASHLEY, W. J., The Economic Organization of England. BECKER, C., The United States an Experiment in Democracy. BUCHER, C., Industrial Evolution. DAWSON, W. H., Evolution of Modern Germany. DAY, CLIVE, History of Commerce. FAULKNER, H. U., American Economic History. GRAS, N. S. B., Introduction to Economic History. HOBSON, J. A., The Evolution of Modern Capitalism. LIPSON, E., An Introduction to the Economic History of England. LOWIE, R. H., Primitive Society. MCVEY, F. L., Modern Industrialism. MARVIN, F. S., The Living Past. OGG, F. A., The Economic Development of Modern Europe. ROBINSON, J. H., Medieval and Modern Times. TOYNBEE, A., The Industrial Revolution. TURNER, E. R., Europe, 1789-1920, Chapters I, XIV, XV. TURNER, F. J., The Significance of the Frontier in American History. USHER, A. P., The Industrial History of England. WRIGHT, CARROL D., Industrial Evolution of the United States. PART II PRODUCTION AND CONSUMPTION CHAPTER IV THE THEORY AND NATURE OF PRODUCTION The Meaning of Production.-Production is the creation of utilities. This process does not involve the creation of new matter or of new energy, but consists of the reshaping of matter and of the conversion of energy from one form to another. The science of physics definitely states the law that man creates no new matter or energy, but merely transforms them into shapes and conditions suited to human use. As the physicist understands the word, production is strictly confined to this refashioning of things already in existence. As the economist understands the word, however, production involves a process of creation. It is aimed at the creation of the capacity to satisfy human wants. The conversion of raw cotton into cotton clothing is production because it embodies in the material the qualities which satisfy the want for clothing. The conversion of pig iron into automobiles is production. because it embodies in the material the qualities which satisfy the want for locomotion. These processes are creative in the economic sense, because they create utilities embodied in goods for the satisfaction of human wants. Goods cannot be created, but utilities can be. Economic production is putting matter and energy into forms such that men can. use them. Utilities may arise from changes in the form, place, time, or possession of goods. Manufacturing illustrates the creation of form utilities; transportation illustrates the creation of place utilities; storage illustrates the creation of time utilities; merchandising illustrates the creation of possession utilities. Changing goods from one form to another, moving them from one place to another, holding them over from one time to another, transferring them from one owner to another, these are the creative activities which constitute economic production. Services as well as material goods may embody utilities. Whether the utilities are in the form of tangible objects or in the form of intangible services, they are equally the evidence of production. Immaterial utilities as well as material utilities enter into the reckoning. Services which satisfy human wants are productive. The Measurement of Production.-Utilities as such are utterly incommensurable. There is no unit of dimension which can be applied to them. They are subjective phenomena and working concepts for the economist. They have neither length nor breadth, nor width nor weight. They are psychological satisfactions and defy any form of measuring rod. However, indirectly it is possible to take measurements of production. One method is to measure the physical volume of the goods which embody economic utilities. For this purpose, the units of measurement may be tons, bushels, yards, or cubic feet. The results are expressed in pounds of food, tons of coal or pig iron, yards or bolts of cloth, millions of bricks or of pairs of shoes, numbers of automobiles, square feet of building area constructed, cubic feet of stone quarried, board feet of lumber produced, ton-miles of transportation, bushels of farm crops. The aggregate of such physical measurements is the total volume of production of the country over a given period of time. A second method of measuring the results of production is in terms of dollars and cents. Money measurement in terms of prices is involved. The price expresses the amount of money for which utilities may be exchanged. Dollar values of goods and services provide a common unit of reckoning which is universal as an economic measuring device. All goods and services are reducible to one common denominator, the price denominator. This pecuniary scale of measurement is of primary importance in all questions involving the making and spending of money incomes. An Index of Production.-The physical volume of production must be measured before it can be interpreted and controlled. The growth of production over a long period of years and the fluctuation of production from one year to another both require measurement. An index of production for this purpose does not tell the absolute amount of product in any one year, but does tell the relative changes between years. It is purely an index of the rise and fall of production, based upon relative changes rather than absolute amounts. Present indexes agree in showing that during the quarter century ending with 1924, production doubled in volume in the United States. Since population increased only about one-half during the same period, it is obvious that production increased much faster than population. The production per capita was fully a third greater at the end of the period than at the beginning. As an average, the increase of production has been steady and persistent. The indexes show an average yearly rate of increase of between 3 and 4 per cent. This per cent has been the normal rate of growth for half a century. It represents a measuring rod of increasing national efficiency, increasing quantity of goods and services, increasing material well-being. The normal rate of progress was somewhat impeded by the disturbances of the World War. After 1917, for five years, production at |