Economics Books

"The common good, so far as it is a question of material welfare, is evidently best served by an unhampered working of the industrial system at its full capacity, without interruption or dislocation. But it is equally evident that the owner or manager of any given concern or section of this industrial system may be in a position to gain something for himself at the cost of the rest by obstructing, retarding or dislocating this working system at some critical point in such a way as will enable him to get the best of the bargain in his dealings with the rest... Sabotage of this kind is indispensable to any large success in industrial business."

"Business is a pursuit of profits, and profits are to be had from profitable sales, and profitable sales can be made only if prices are maintained at a profitable level, and prices can be maintained only if the volume of marketable output is kept within reasonable limits; so that the paramount consideration in such business as has to do with the staple industries is a reasonable limitation of the output. "Reasonable" means "what the traffic will bear"; that is to say, "what will yield the largest net return.""

"It should be added, as is plain to all men, that these ordinary and normal processes of private initiative never do provide employment for all the men available. In fact, unemployment is an ordinary and normal phenomenon. So that even in the present emergency, when the peoples of Christendom are suffering privation together for want of goods needed for immediate use, the ordinary and normal processes of private initiative are not to be depended on to employ all the available man power for productive industry. The reason is well known to all men; so well known as to be uniformly taken for granted as a circumstance which is beyond human remedy. It is the simple and obvious fact that the ordinary and normal processes of private initiative are the same thing as "business as usual," which controls industry with a view to private gain in terms of price; and the largest private, gain in terms of price cannot be had by employing all the available man power and speeding up the industries to their highest productivity, even when all the peoples of Christendom are suffering privation together for want of the ordinary necessaries of life. Private initiative means business enterprise, not industry."

"The system of free competition, self-help, equal opportunity and free bargaining which is contemplated by the modern point of view, assumes an industrial situation in which the work and trading of any given individual or group can go on freely by itself, without materially helping or hindering the equally untrammeled working of the rest."

"The business man's place in the economy of nature is to "make money," not to produce goods. The production of goods is a mechanical process, incidental to the making of money; whereas the making of money is a pecuniary operation, carried on by bargain and sale, not by mechanical appliances and powers. The business men make use of the mechanical appliances and powers of the industrial system, but they make a pecuniary use of them. And in point of fact the less use a business man can make of the mechanical appliances and powers under his charge, and the smaller a product he can contrive to turn out for a given return in terms of price, the better it suits his purpose. The highest achievement in business is the nearest approach to getting something for nothing. What any given business concern gains must come out of the total output of productive industry, of course; and to that extent any given business concern has an interest in the continued production of goods. But the less any given business concern can contrive to give for what it gets, the more profitable its own traffic will be."

"To the spokesmen of "business as usual" this rating of current production under the pressure of war needs may seem extravagantly low; whereas, to the experts in industrial engineering, who are in the habit of arguing in terms of material cost and mechanical output, it will seem extravagantly high. Publicly, and concessively, this latter class will speak of a 25 percent efficiency; in private and confidentially they appear disposed to say that the rating should be nearer to 10 percent than 25."

"To avoid any appearance of an ungenerous bias, then, present actual production in these essential industries may be placed at something approaching 50 percent of what should be their normal productive capacity in the absence of a businesslike control looking to "reasonable profits." It is necessary at this point to call to mind that the state of the industrial arts under the new order is highly productive, -- beyond example."

"Today (October, 1918) -- it is to be admitted with such emotion as may come to hand -- this question is one which can be entertained quite seriously, in the light of experience. In the recent past, as matters have stood up to the outbreak of the war, the ordinary rate of production in the essential industries under businesslike management has habitually and by deliberate contrivance fallen greatly short of productive capacity. This is an article of information which the experience of the war has shifted from the rubric of "Interesting if True" to that of "Common Notoriety.""

"The resulting question is, therefore, not whether the rest of the community loses as much as the business men gain, -- that goes without saying, since the gains of the business men in the case are paid over to them by the rest of the community in the enhanced (or maintained) price of the products, but rather it is a question whether the rest of the community, the common man, loses twice as much as the business concerns and their investors gain."

"The result of a businesslike management of industry for private gain in America has on the whole been a fairly high level of prosperity. For this there are two main reasons: (a) the exceptionally great natural resources of the country; and (b) the continued growth and spread of population, (a) Business enterprise, that is to say private ownership, has taken over these resources, by a process of legalized seizure, and has used them up as rapidly as may be, with a view to private gain; all of which has gone to make private business profitable to that extent, although it has impoverished the underlying community by using up its natural resources, (b) The continued growth and spread of population, by natural increase and by immigration, has furnished the business men of this country a continually expanding market for goods; both for goods to be used in production and transportation and for finished articles of consumption. Hence the American business men have been in the fortunate position of not having to curtail the output of industry harshly and persistently at all points."

"As is true of the divine right of kings, so also as regards the divine right of nations, it is extremely difficult to show that it serves the common good in any material way, in any way that can be formulated or verified in terms of tangible performance."

"Does the total net loss suffered by the community at large, exclusive of the owners of these intangibles, exceed two-hundred percent of the returns which go to these owners? or, Do these intangibles cost the community more than twice what they are worth to the owners? -- the loss to the community being represented by the sum of the overhead burden carried on account of these intangibles plus the necessary curtailment of production involved in maintaining profitable prices. The overhead burden is paid out of the net annual production, after the net annual production has been reduced by so much as may be necessary to "maintain prices at a reasonably profitable figure.""

"There is another curious question that will also have to be left as a moot question, in the absence of more specific information than that which is yet available; more a question of idle curiosity, perhaps, than of substantial consequence. How nearly is it likely that the total gains which accrue to these prosperous business concerns and their investors from their conscientious withdrawal of efficiency will equal the total loss suffered by the community as a whole from the incidental reduction of the output?"

"And, finally, there should be some gain of serenity in realizing how singularly consistent has been the run of economic law through the ages, and recalling, once more the reflection which John Stuart Mill arrived at some half-a-century ago, that, "Hitherto it is questionable if all the mechanical inventions yet made have lightened the day's toil of any human being.""

"These supernumerary and preferential gains, "excess profits," or whatever words may best describe this class of free income, may be well deserved by these beneficiaries, or they may not. The income in question is, in any case, not created by the good deserts of the beneficiaries, however meritorious their conduct may be."

"A trade-secret may also be profitable to the concern which has the use of it, and the special process which it covers may be especially productive; but the same article of technological knowledge would doubtless contribute more to the total productivity of industry if it were shared freely by the industrial community at large. Such technological knowledge is an agency of production, but it is the monopoly of it that is profitable to its possessor as a special source of gain. The like applies to patent-rights, of course. Whereas monopolies of the usual kind, which control any given line of industry by charter, conspiracy, or combination of ownership, derive their special gains from their ability to restrain trade, limit the output of goods or services, and so "maintain prices.""

"After the analogy of good-will, it has been usual to trace any such special run of free income to the profitable use of a special advantage in the market."

"But while intangible assets represent income which accrues out of certain immaterial relations between their owners and the industrial system, and while this income is accordingly not a return for mechanically productive work done, it still remains true, of course, that such income is drawn from the annual product of industry, and that its productive source is therefore the same as that of the returns on tangible assets. The material source of both is the same; and it is only that the basis on which the income is claimed is not the same for both. It is not a difference in respect of the ways and means by which they are created, but only in respect of the ways and means by which these two classes of income are intercepted and secured by the beneficiaries to whom they accrue. The returns on tangible assets are assumed to be a return for the productive use of the plant; returns on intangible assets are a return for the exercise of certain immaterial relations involved in the ownership and control of industry and trade."

"The very large aggregate value of such assets indicates how imperative it is for the conduct of industrial business under the new order to restrict output within reasonable limits, and at the same time how profitable it is to be able to prevent the excessively high productive capacity of modern industry from outrunning the needs of profitable business. For the prosperity of business it is necessary to keep the output within reasonable limits; that is to say, within such limits as will serve to maintain reasonably profitable prices; that is to say, such prices as will yield the largest obtainable net return to the concerns engaged in the business."

"Intangible assets are the capitalized value of income not otherwise accounted for. Such income arises out of business relations rather than out of industry; it is derived from advantages of salesmanship, rather than from productive work; it represents no contribution to the output of goods and services, but only an effectual claim to a share in the "annual dividend," -- on grounds which appear to be legally honest, but which cannot be stated in terms of mechanical cause and effect, or of productive efficiency, or indeed in any terms that involve notions of physical dimensions or of mechanical action."

"Good-will has long been known, discussed and allowed for as a legitimate, ordinary and valuable immaterial possession of men engaged in mercantile enterprise of all kinds. It has been held to be a product of exemplary courtesy and fair dealing with customers, due to turning out goods or services of an invariably sound quality and honest measure, and indeed due to the conspicuous practice of the ordinary Christian virtues, but chiefly to common honesty. Similarly valuable, and of a similarly immaterial nature, is the possession of a trade-secret, a trade-mark, a patent-right, a franchise, any statutory monopoly, or a monopoly secured by effectually cornering the supply or the market for any given line of goods or services."

"And all the while the owner of the equipment is some person who has contributed no more than his per-capita quota to this state of the industrial arts out of which his earnings arise. Indeed the chances are that the owner has contributed less than his per-capita quota, if anything, to that common fund of knowledge on the product of which he draws by virtue of his ownership, because he is likely to be fully occupied with other things, -- such things as lucrative business transactions, e.g., or the decent consumption of superfluities."

"In this connection, and under the existing conditions of investment and credit, "reasonable returns" means the same thing as "the largest practicable net returns." It all foots up to an application of the familiar principle of "charging what the traffic will bear"; for in the matter of profitable business there is no reasonable limit short of the maximum. In business, the best price is always good enough; but, so also, nothing short of the best price is good enough. Buy cheap and sell dear."

"It may well be that the frame of mind engendered by this training in matter-of-fact ways of thinking will presently so shape popular sentiment that all income from property, simply on the basis of ownership, will be disallowed, whether the property is tangible or intangible. All that is a speculative question running into the future."

"They are apparently moved by a feeling that so long as the established arrangements are maintained they will come in for a little something over and above what would come to them if they were to make common cause with the undistinguished common lot. In other words, they have a vested interest in a narrow margin of preference over and above what goes to the common man. But this narrow margin of net gain over the common lot, this vested right to get a narrow margin of something for nothing, has hitherto been sufficient to shape their sentiments and outlook in such a way as, in effect, to keep them loyal to the large business interests with whom they negotiate for this narrow margin of preference."

"It is not that these and their like are ready with "a satisfactory constructive program," such as the people of the uplift require to be shown before they will believe that things are due to change. It is something of the simpler and cruder sort, such as history is full of, to the effect that whenever and so far as the time-worn rules no longer fit the new material circumstances they presently fail to carry conviction as they once did. Such wear and tear of institutions is unavoidable where circumstances change; and it is through the altered personal equation of those elements of the population which are most directly exposed to the changing circumstances that the wear and tear of institutions may be expected to take effect. To these untidy creatures of the New Order common honesty appears to mean vaguely something else, perhaps something more exacting, than what was "nominated in the bond" at the time when the free bargain and self-help were written into the moral constitution of Christendom by the handicraft industry and the petty trade. And why should it not"

"There are all degrees of this helplessness that characterizes the common lot. So much so that certain classes, professions, and occupations -- such as the clergy, the military, the courts, police, and legal profession -- are perhaps to be classed as belonging primarily with the vested interests, although they can scarcely be counted as vested interests in their own right, but rather as outlying and subsidiary vested interests whose tenure is conditioned on their serving the purposes of those principal and self-directing vested interests whose tenure rests immediately on large holdings of invested wealth."

"The great distinguishing mark of the common man is that he is helpless within the rules of the game as it is played in the twentieth century under the enlightened principles of the eighteenth century."

"The income which goes to these subsidiary or dependent vested interests is of the nature of free income, in so far that it is drawn from the yearly product of the underlying community; but in another sense it is scarcely to be counted as "free" income, in that its continuance depends on the good will of those controlling vested interests whose power rests on the ownership of large invested wealth.Read more at location 2162"

"Invested wealth in large holdings controls the country's industrial system, directly by ownership of the plant, as in the mechanical industries, or indirectly through the market, as in farming. So that the population of these civilized countries now falls into two main classes: those who own wealth invested in large holdings and who thereby control the conditions of life for the rest; and those who do not own wealth in sufficiently large holdings, and whose conditions of life are therefore controlled by these others. It is a division, not between those who have something and those who have nothing -- as many socialists would be inclined to describe it -- but between those who own wealth enough to make it count, and those who do not."

"Things have changed in such a way since that time, that the ownership of property in large holdings now controls the nation's industry, and therefore it controls the conditions of life for those who are or wish to be engaged in industry; at the same time that the same ownership of large wealth controls the markets and thereby controls the conditions of life for those who have to resort to the markets to sell or to buy. In other words, it has come to pass with the change of circumstances that the rule of Live and Let Live now waits on the discretion of the owners of large wealth. In fact, those thoughtful men in the eighteenth century who made so much of these constituent principles of the modern point of view did not contemplate anything like the system of large wealth, large-scale industry, and large-scale commerce and credit which prevails today. They did not foresee the new order in industry and business, and the system of rights and obligations which they installed, therefore, made no provision for the new order of things that has come on since their time."

"But the gravest significance of this cleavage that so runs through the population of the advanced industrial countries lies in the fact that it is a division between the vested interests and the common man. It is a division between those who control the conditions of work and the rate and volume of output and to whom the net output of industry goes as free income, on the one hand, and those others who have the work to do and to whom a livelihood is allowed by these persons in control, on the other hand. In point of numbers it is a very uneven division, of course."

"All these peoples that now hope to be nations have long been nationalities. A nation is an organization for collective offence and defense, in peace and war, -- essentially based on hate and fear of other nations; a nationality is a cultural group, bound together by home-bred affinities of language, tradition, use and wont, and commonly also by a supposed community race, -- essentially based on sympathies and sentiments of self-complacency within itself."

"So also it is plain that national pretensions in the field of foreign trade and investment, and all the diversified expedients for furthering and protecting the profitable enterprise of the vested interests in foreign parts, run consistently at cross-purposes with the keeping of the peace."

"So also such a matter-of-fact project of reconstruction will be likely materially to revise outstanding credit obligations, including corporation securities, or perhaps even bluntly to disallow claims of this character to free income on the part of beneficiaries who can show no claim on grounds of current tangible performance. All of which is inimical to the best good of the vested interests and the kept classes. Reconstruction which partakes of this character in any sensible degree will necessarily be viewed with the liveliest apprehension by the gentlemanly statesmen of the old school, by the kept classes, and by the captains of finance. It will be deplored as a subversion of the economic order, a destruction of the country's wealth, a disorganization of industry, and a sure way to poverty, bloodshed, and pestilence. In point of fact, of course, what such a project may be counted on to subvert is that dominion of ownership by which the vested interests control and retard the rate and volume of production. The destruction of wealth, in such a case will touch, directly, only the value of the securities, not the material objects to which these securities have given title of ownership; it would be a disallowance of ownership, not a destruction of useful goods. Nor need any disorganization or disability of productive industry follow from such a move; indeed, the apprehended cancelment of the claims to income covered by negotiable securities would by that much cancel the fixed overhead charges resting on industrial enterprise, and so further production by that much. But for those persons and classes whose keep is drawn from prescriptive rights of ownership or of privilege the consequences of such a shifting of ground from vested interest to tangible performance would doubtless be deplorable."

"But the kept classes also comprise many persons who are entitled to a free income on other grounds than their ownership and control of industry or the market, as, e.g., landlords and other persons classed as "gentry," the clergy, the Crown – where there is a Crown -- and its agents, civil and military. Contrasted with these classes who make up the vested interests, and who derive an income from the established order of ownership and privilege, is the common man. He is common in the respect that he is not vested with such a prescriptive right to get something for nothing. And he is called common because such is the common lot of men under the new order of business and industry; and such will continue (increasingly) to be the common lot so long as the enlightened principles of secure ownership and self-help handed down from the eighteenth century continue to rule human affairs by help of the new order of industry."

"But the divine right of national self-direction also covers much else of the same description, besides the privilege of setting up a tariff in restraint of trade. There are many channels of such discrimination, of diverse kinds, but always it will be found that these channels are channels of sabotage and that they serve the advantage of some group of vested interests which do business under the shelter of the national pretensions. There are foreign investments and concessions to be procured and safeguarded for the nation's business men by moral suasion backed with warlike force, and the common man pays the cost; there is discrimination to be exercised and perhaps subsidies and credits to be accorded those of the nation's business men who derive a profit from shipping, for the discomfiture of alien competitors, and the common man pays the cost; there are colonies to be procured and administered at the public expense for the private gain of certain traders, concessionaires and administrative office-holders, and the common man pays the cost. Back of it all is the nation's divine right to carry arms, to support a competitive military and naval establishment, which has ceased, under the new order, to have any other material use than to enforce or defend the businesslike right of particular vested interests to get something for nothing in some particular place and in some particular way, and the common man pays the cost and swells with pride."

"And it is a divine right of the nation to use its discretion and offset this inordinate efficiency of its common stock of knowledge by adroitly crippling its own commerce and the commerce of its neighbors, for the benefit of those vested interests that are domiciled within the national frontiers."

"At home in America for the transient time being, the war administration has under pressure of necessity somewhat loosened the strangle-hold of the vested interests on the country's industry; and in so doing it has shocked the safe and sane business men into a state of indignant trepidation and has at the same time doubled the country's industrial output."

"He knows, of course, that the profits of business go to the business men, the vested interests, and to no one else; but he is still beset with the picturesque hallucination that any unearned income which goes to those vested interests whose central office is in New Jersey is paid to himself in some underhand way, while the gains of those vested interests that are domiciled in Canada are obviously a grievous net loss to him. The tariff moves in a mysterious way, its wonders to perform."

"So long as industry is managed with a view to a profitable price it is quite indispensable to guard against an excessive rate and volume of output. In the absence of all businesslike sabotage the productive capacity of the industrial system would very shortly pass all reasonable bounds, prices would decline disastrously and overhead charges would not be covered, fixed charges on corporation securities and other credit instruments could not be met, and the whole structure of business enterprise would collapse, as it occasionally has done in times of "over-production." There is no doing business without a fair price, since the net price over cost is the motive of business. A protective tariff is, in effect, an auxiliary safeguard against overproduction. Incidentally the fact that its imposition does not result in insufferable hardship serves also to show that the new order of industry is highly productive, quite inordinately productive in fact."

"Already the vested interests are again tightening their hold and are busily arranging for a return to business as usual; which means working at cross-purposes as usual, waste of work and materials as usual, restriction of output as usual, unemployment as usual, labor quarrels as usual, competitive selling as usual, mendacious advertising as usual, waste of superfluities as usual by the kept classes, and privation as usual for the common man."

"But it is not usual to speak of the kept classes as the uncommon classes, inasmuch they personally differ from the common run of mankind in no sensible respect. It is more usual to speak of them as "the better classes," because they are in better circumstances and are better able to do as they like. Their place in the economic scheme of the civilized world is to consume the net product of the country's industry over cost, and so prevent a glut of the market."

"Ever since these enlightened principles of the modern point of view were first installed in the eighteenth century as the self-evident rule of reason in civilized life, the industrial arts have also continued to gain in productive efficiency, at an ever-accelerated rate of gain; so that today the industrial methods of the machine era are highly productive, beyond any earlier state of the industrial arts or anything that is known outside the range of this new order of industry. The output of this industrial system yields a wider margin of net product over cost than has ever been obtainable by any other or earlier known method of work. It consequently affords ground for an uncommonly substantial vested interest in this disposable net margin."

"No part or fraction of the community is a productive factor in its own right and taken by itself, since no work can be done by any segment of the community in isolation from the rest; no one plant or works would be a producer in the absence of all the rest. The total product is the product of the total community's work; or rather it is the product of the work of that fraction of the people who are employed in productive work, which is not quite the same thing, since there is much work spent on the consumption of goods, and on ways and means for such consumption, as well as on their production. Indeed, it is by no means certain that there is not more time, strain and ingenuity spent on the consumption of goods than on their production. Apart from sports, menial service, fashionable dress and equipage, pet animals and mandatory social amenities, there would also have to be included under the ways and means of consumption virtually all that goes into salesmanship and advertising. Virtually all of these things have to do with the organized consumption of goods; and virtually all are therefore to be written off as waste motion, so far as regards their effect on the net productive efficiency of the industrial community, or of the industrial system whose tissues are consumed in enterprise of that kind. The amount which is to be written off as consumptive waste in this way is approximately the same as the net margin of product over cost; and according to the enlightened principles of self-help and equal opportunity, as these principles work out under the new order of industry, it is for the investors to take care of this consumptive waste and to see that no unconsumed residue is left over to cumber the market and produce a glut."

"So inordinately productive is this familiar new order of industry that in ordinary times it is forever in danger of running into excesses and turning out an output in excess of what the market -- that is to say the business situation -- will tolerate. There is constant danger of "overproduction," So that here is commonly a large volume of man power unemployed and an appreciable proportion of the industrial plant lying idle or half idle."

"Men at work turn out a net product because they know how and are interested in doing it; and their output is limited by the industrial methods which they have the use of. But the output is limited in such a way that it always exceeds the cost by more or less, barring accident. By and large, throughout past time the industrial arts have been gaining in efficiency, and the ordinary margin of net product over cost has consequently gone on widening. This is much of the meaning of "an advance in the industrial arts.""

"In later times, and particularly in modern times and in the civilized countries, those immemorial principles of privilege equitably vested in the master class have fallen into discredit as being not sufficiently grounded in fact; so that mastery and servitude are disallowed and have disappeared from the range of legitimate institutions. The enlightened principles of self-help and personal equality do not tolerate these things. However, they do tolerate free income from investments. Indeed, the most consistent and most reputable votaries of the modern point of view commonly subsist on such income."

"The state of the industrial arts, therefore, is the indispensable conditioning circumstance which determines the productive capacity of any given community; and this is true in a peculiar degree under this new order of industry, in which the industrial arts have reached an unexampled development."

"Intangibles of this kind, which represent a "conscientious withdrawal of efficiency," an effectual control of the rate or volume of output, are altogether the most common of immaterial assets, and they make up altogether the largest class of intangibles and the most considerable body of immaterial wealth owned. Land values are of much the same nature as these corporate assets which represent capitalized restriction of output, in that the land values, too, rest mostly on the owner's ability to withhold his property from productive use, and so to drive a profitable bargain. Rent is also a case of charging what the traffic will bear; and rental values should properly be classed with these intangible assets of the larger corporations, which are due to their effectual control of the rate and volume of production. And apart from the rental values of land, which are also in the nature of monopoly values, it is doubtful if the total material wealth in any of the civilized countries will nearly equal the total amount of this immaterial wealth that is owned by the country's business men and the investors for whom they do business. Which evidently comes to much the same as saying that something more than one-half of the net product of the country's industry goes to those persons in whom the existing state of law and custom vests a plenary power to hinder production."