many millions of bushels of each of the cereals, so many millions of tons of coal and pig iron, so many millions of pounds of sugar, and these commodities must be exchanged at such rates as will satisfy the wants of individuals. Value is this power which a good has to command other goods in exchange for itself, or the rate at which it will exchange for other goods. Value theory is fundamental in economics, because it aims to explain the exchange relations between goods. It explains the process by which all producers turn over their output to individuals who want such commodities, and in return receive the kinds of commodities needed for their own consumption.

The values of goods are expressed in prices. That is to say, a bushel of wheat is exchanged for money, and the money in turn is exchanged for a pair of shoes. Prices are the amounts of money for which goods can be exchanged. This pecuniary aspect of value dominates all business transactions. Consequently, we find it necessary to supplement a study of physical exchange of goods with a study of pecuniary exchange. The emphasis in this respect is upon the part which money plays in the whole value system of modern life. The most significant part of value theory tends to be the part which shows the importance of money and prices in the whole wide universe of buying, selling, and exchanging.

Distribution deals with the sharing of wealth and income by different classes and individuals. By distribution, we do not mean marketing of goods. Rather, we mean the dividing of the national product so that each individual has a certain share. The landlord derives a share which we call rent. The capitalist derives a share which we call interest. The laborer derives a share which we call wages. The business organizer or enterpriser derives a share which we call profit. Our task is to study the forces governing the shares assignable to each of these factors. Moreover, personal inequalities of wealth and income. appear on every side. The rich and the poor, the leisure class and the submerged tenth, exist side by side. Distribution theory provides an explanation of these personal inequalities. The subject may be viewed in its physical, pecuniary, social, or subjective aspects, just as production, consumption and exchange are viewed. Distribution is not only a sharing of actual goods, but is also a sharing of money incomes, and a division of opportunity, leisure, and well-being. In the chapters dealing with distribution, these various aspects of the subject are emphasized.

A broad perspective of the logical steps in economic analysis requires a correlation of production, consumption, exchange, and distribution. This time honored division of the subject matter gives a framework for detailed discussion. All phases of economic study may be fitted into these four great categories. Although many new developments have occurred in economics, nevertheless none of these is incompatible with the four basic classifications of subject matter which have been outlined.

CHAPTER II

THE HISTORICAL BACKGROUND OF ECONOMIC SOCIETY

The first step toward an understanding of economics is to know how modern economic society has come to be what it is. In attempting this task, the historian adopts the basic principle that every invention and every economic institution represents an accumulation of discoveries and achievements reaching back not merely into the nineteenth century but into the stone ages. The marvels of science and machinery in the twentieth century seem so far separated from the crude tools of antiquity that the temptation has commonly been to belittle the primitive material cultures and to dismiss them as belonging to an age of savagery.

The anthropologist has demonstrated, however, that instead of marveling at the crudities of the primitive peoples, we should marvel at the degree of advancement of their mental capacity and of their material equipment for making a living. What primitive man had to contribute to the growth of economic society is fully as important as what scientific man has to contribute in the twentieth century. Modern attainments are but the culmination of long lines of progress, and the original pattern of economic culture, created by the hand and brain of prehistoric man, has not been lost but continues to dominate the form and design of economic culture at the present day. The cumulative aspect of economic evolution emphasizes the importance of the earlier stages of the cumulative process as a key to the understanding of the modern stage.

This process of economic development includes three broad phases of growth: a technology of production, an organization of methods, and a standard of consumption. The dominating factor in this group is the technology of production, since both organization of methods and standards of consumption are an outgrowth of technology and a means of adaptation to it. Technology of production refers to the kinds of tools and implements which man knows how to make, to his skill of craftsmanship in the use of tools, and to his technical knowledge of the properties of matter and of the laws of applied science. The state of these industrial arts largely determines the kind of economic organization and system which prevails and the level which the standard of living and consumption attains. Everything in economic society centers around the state of the industrial arts, around the degree of advancement in the technology of production. The history of economic institutions runs largely in terms of this cumulative development of the applied science of tools and machines.

Stages in Economic Evolution.-Many attempts have been made to classify economic history into definite stages. The most common of these classifications divides history into five main stages: (1) the hunting and fishing, or direct appropriation stage; (2) the domestication of animals, or pastoral stage; (3) the agricultural stage of settled community life; (4) the stage of handicraft manufacture, with growth of towns, and limited growth of trade; (5) the industrial stage of machine manufacture, metropolitan populations, and complex development of commerce. This classification, and others which might be cited, are not without value. However, these more or less arbitrary divisions suffer from the danger of oversimplifying the processes of history. History can not be cut up into neat divisions. It is much truer to the nature of historical processes to adhere to the notion of cumulative growth of economic society, with immense variety and general defiance of hard and fast uniformity in rigid divisions and stages.

The technology of production, which has already been pointed to as the central force in economic evolution, may advantageously be viewed from this standpoint of cumulative growth. Starting with a discovery of the crudest form of tools, man gradually and tediously added bit by bit to his store of practical knowledge. His tool-making grew more and more complex over many centuries of time, and at last attained the most complex form of all, the machine. Modern technology is a machine technology, and dates approximately from the latter part of the eighteenth century. The technology of the tool takes its origin from a date roughly estimated as more than a thousand centuries ago. It took mankind more than a hundred thousand years to bring the tool technology up to the level of the eighteenth century; then the machine technique usurped the field and a little more than two hundred years of applied mechanical science have created the modern machine economy. More than ninety-nine one-hundredths of man's existence went to building up sufficient technical knowledge to enable him to invent the first modern machines. Thousands of crude discoveries, of progressive inventions, of growing bits of knowledge about the properties of matter, were prerequisites for the greater discoveries of applied science which ushered in the machine age. This stock of earlier knowledge, handed down from generation to generation, constituted the technological heritage of the race, and gradually reached a point which made possible the release of scientific imagination and inventive power which underlies modern economic society.

The Primitive Technology of Production.-For upwards of three hundred to four hundred thousand years, making a living was on a crude level not far removed from a mere animal existence. Clubs, wooden spears, stones accidentally shaped for easy cutting or for throwing, constituted the equipment of the race. Out of the suffering and struggle of this vast stretch of time evolved the first implement genuinely formed and fashioned by the hand of man,-the coup-de-poing, or fisthatchet. This flint stone, chipped to a crude cutting and scraping edge,

without handle or attachment of any sort, was the first tool invented by the brain of man. Considering the meager background of the primitive mind and the difficulties under which the invention was made, we must rank the greatness of the event as of equal importance with the modern discoveries of electricity or chemistry. The achievement dates back approximately 125,000 years ago, and marks the beginning of what are known as the Stone Ages.

The ages of stone tools lasted in Europe until about 2000 B.C. The last 10,000 years of the period are called the New Stone Ages in recognition of certain marked advances over the forepart of the period, called the Old Stone Ages, but it is interesting to note that the greater part of the ages of stone tools-more than nine-tenths of the total period-belongs to the Old Stone Ages. During the vast expanse of time represented by this earlier part of the period, achievements in economic civilization were made which are of fundamental importance. The broad significance of these achievements is concisely stated by A. L. Kroeber as follows: "Many of the outlines of what civilization was ultimately to be had been substantially blocked out. Most of the framework was there, even though but a small fraction of its content had yet been entered.'' 1

A brief outline of the major achievements of the Old Stone Ages may be drawn up as follows:

1. Tools. Refinement of fist-hatchet through sharpening by pressure rather than by chipping. Invention of implements of bone, wood, reindeer-horn and stone, such as needles, scrapers, knives, spears, hammers, chisels, wedges, harpoons, throwers, and daggers.

2. Clothing. Practice of sewing skins for clothing. Dress designed in part for protection from cold, and in part for ornament.

3. Food. Improvement of diet by introduction of cooked meats and of cooked wild vegetation.

4. Fire. Discovery of artificial methods of kindling fire, and of use of fire for cooking, for protection from wild animals and for relief from cold.

5. Homes. Use of caves and cliffs of river edges as houses.

6. Art. Development of high artistic skill, shown not merely in drawings on cave walls, but in the shape and design of tools, and in decoration of the weapons of hunting, fishing and fighting.

7. Skill. The definite fruition of the faculty of invention and of creative imagination. The elaboration of the skill of hand coördinated with brain. The close identification of art with work, and the clear connection of a sense of symmetry and beauty with craftsmanship. The accumulation of practical knowledge of the habits of animals and of the properties of matter.

The importance of these attainments is lost sight of if we dismiss this period as one of fruitless savagery and barbarism. The real mean1 Anthropology, p. 179.

2

ing of the attainments is forcefully expressed in H. F. Osborne's observation that, "During this age, the rudiments of all the modern economic powers of man were developed." Later inventions down through the brilliant mechanical discoveries of the machine age are properly to be viewed as but an elaboration and a refinement of these rudiments. New combinations and recombinations of the original basic elements have been made, but the astonishing feature is that so large a part of the later complex technique is after all merely an elaboration of these rudiments of primitive life.

With this preparation, a transition to a more complex technology of industry was possible. This new and growing technology is the distinguishing feature of the New Stone Ages, dating in Europe approximately from 12,000 to 2,000 years B.C. The main aspects of this progress may be briefly outlined as follows:

1. Tools. Discovery of grinding and polishing as methods of sharpening tools encouraged a great increase in the variety of tools. In comparison with the stock in trade of a modern hardware store, the list of tools of these New Stone Age men was astonishingly complete.

2. Spinning and Weaving. Linen clothing supplemented that made from the skins of wild animals. "Every house had its loom," remarks the anthropologist, referring to a typical village of the period.

3. Food. Improved cooked foods were introduced to the human diet through the making of pottery from baked clay.

4. Building. Constructive and engineering skill was illustrated in the lake villages, pit-dwellings, log huts, wattle huts, fortified villages, gigantic tombs and gallery chambers, boats built from hollowed logs, stone mills for grinding grain, and factories for the making of stone implements.

5. Agriculture. The most significant of all attainments was the domestication of animals and the development of agriculture. As Shotwell observes, "The greatest social revolution of primitive mankind came about when man, settling on the soil instead of wandering, and so accumulating goods which required foresight, began to calculate for a future." Farming and peace displaced hunting, fishing, and pillage.

6. Economic Organization. Productive capital originated in the necessity of saving and accumulating farm equipment. Property took form in the ownership of fields, animals, and products. The act of settling down meant more peace and less war, more production and less exploitation, and by creating the necessity for protecting property and life, developed the authority and police power contained in the economic functions of government.

7. Division of Labor. Territorial division of labor resulted from local specialization in flint mining, manufacture of stone tools, cloth-making,

2 Men of the Old Stone Age, p. 501.

3 John M. Tyler, The New Stone Age, p. 83.

4 James T. Shotwell, The History of History, p. 40.