Part 15

Not only, then, are the minute details of Labor specialization merged in Productive wholes and delivered in their completeness to ultimate consumers by means of Trade, as we learned in the next preceding Lesson, but, also by means of Trade, the two great divisions of Wealth (Wages and Rent) are assigned respectively to Labor interests and to Land interests in proportions determined by comparisons of Value.

Individual deliveries, in contrast with Distribution into the two basic categories, Wages and Rent, consist in the delivery of Wealth to individuals in proportion to the effective demands of each. Their demands are limitless, for when satisfied with quantity they naturally demand quality. But there is a limit to all effective demands. The limitation on the one hand is the producer’s ability to produce, and on the other the consumer’s ability to obtain in Trade. Ability to produce depends in high degree at any time upon the general productive knowledge of the time. Ability to obtain depends upon the Economic power in Trade of the individual seeking to gratify his wants. If he is isolated from all the rest of mankind, he is outside the Economic circle and can obtain only what he himself directly produces. If he is one of an absolutely free community, he can obtain what others are willing to give him in Trade for the service he renders directly or indirectly to them. If Production be arbitrarily obstructed, whether by impediments to Natural Resources or to Trade, his ability to obtain Wealth is not so much according to what he produces or to the service of any other kind that he renders, but according to his command over the sources of Production and the channels of Trade whereby he may levy tribute or escape it.

As human services naturally tend to exchange at par for equally desirable human services, so do different forms of Wealth, each product of human service, tend to exchange at par for equally desirable forms of Wealth; and as Wealth in the Rent category and Wealth in the Wages category are alike service-products of Labor applied to Land, exchanges of every kind of Wealth tend to be effected on the basis of equality in the expenditure of Labor for their Production.

Let it now be carefully observed and faithfully remembered in this connection, that however various the kind and the amount of Wealth that individuals receive, each variety is but a subdivision of Wealth as a whole, and is therefore either Wages or Rent, those being the two primary divisions of Wealth in Distribution. A “captain of industry” may get a large share of Wealth for his service while a skilled laborer gets a small share for his; but each will take his share from Wages, not from Rent. On the other hand, the owner of a rich mining opportunity may get a large share of Wealth and the owner of a small area of farming land or a village building-lot may get a small share; but each will in that respect get Rent, not Wages. To the extent, however, that the “captain of industry” derives any part of his income from Natural-Resource privileges, that part is Rent; and to the extent that the mine owner or the farm owner or the village lot owner derives any part of his from his service, that part is Wages.

Thus the factor in Production technically termed Land is represented in Distribution by the Wealth element technically termed Rent; whereas the factor in Production technically termed Labor is represented in Distribution by the Wealth element technically termed Wages.

IV. MONEY

All allocations of Wealth, from the two primary ones--Wages and Rent--to the least of all that are secondary to either of those two, are made through Trade, and in the course of Trade are measured by comparisons of Value, which is the universal regulator of Trade. And as in Production so in Distribution, for Value measurements Money is the more or less stable yardstick and Money terms the spokesmen.

Would we know the Value of Wealth in any of its distributive allotments, we must look for it in terms of Money. Would we know the Value of any of the various kinds and degrees of Labor that have produced it, Money terms offer us the only language we can use or understand. Would we know the Value of any of the various kinds and degrees of Land from which and upon which such Wealth has been produced by Labor--whether identified by the term Rent as in Economics or by such colloquial or business terms as “groundrent,” or “selling price,”--Money is our sole interpreter, defective though it be. Would we place any or all of this information on record, we must do so in terms of Money.

What, then, is Money--this prestidigitateur of both Production and Distribution? Is it coin? Is it a promise to pay? Is it a fiat of Value? Is it a magic signal?

Before considering whether or not it is coin, let us think of how slightly coin is used in Trade. Before suggesting promises to pay, let us reflect upon the variability and questionability of promises. Before falling back upon “fiat,” let us know somewhat of the wisdom and responsibility behind the “fiat.”

If we probe deep, as in these Lessons we have tried to do, shall we not find that the only level of Value is the Labor level?

Not Labor time. That varies in Value with individuals. But Labor service or product. And do not the market prices of stable Labor products come as near to the Value level as may be necessary for all the purposes of Trade relations?

An absolute level of Value is doubtless as far beyond the possibilities as an absolute sea level. But as we adopt a “mean level” of the sea, why not a “mean level” of Value? And why not express the relations of this level in terms of Money properly stabilized?

The most conspicuous method yet suggested for realizing such a Value level takes the specific form of a proposal to determine Money standards by frequent comparisons with the Price level of simple types of Wealth. Resting nominally upon the Value in Trade of such staples, this method rests fundamentally upon the Economic fact that Labor, as the continuous producer of all Wealth, is the real source and regulator at all times of all Values in the channels of Trade, and that Money is the measuring rod and its terms the language.

To go farther into this Economic field would necessitate a surface survey of Economic intricacies, and these pages aim only at clarifying fundamentals. Having returned from the Basic Facts, upon which all Economic details rest, to the Money surface with which it began, our common-sense primer for advanced students is at the end of its task.

SEVENTH LESSON

REVIEW

The science of Economics, having now been traced from its surface to its three Basic Facts and back to the surface, let us, for the purpose of bringing the whole subject compactly within its narrowest limits, retrace our steps briskly but thoughtfully by way of review.

Economic accomplishments are measured by Money standards and expressed in Money terms. Resting on the surface, those standards and terms spread over the whole Economic area.

Beneath that surface we first find Trade, for which Money is the medium or the means of expressing relative values and adjusting balances. Trade consists essentially in interchanges of commodities, inclusive of natural resources and of human service. It is not an arbitrary custom or set of customs, but a phenomenon of natural law through which artificial objects are produced to completion and final delivery. But Trade, though lying beneath the Money surface of Economics, is not a basic fact of that science.

Only by piercing through the Trade surface as well as the Money surface, can the bottom level of the Basic Facts of Economics be reached. Those facts consist of distinct categories which comprehend in generalized forms the myriads of miscellaneous facts with which the Science of Economics is concerned.

Of those categories or Basic Facts there are in number neither more nor less than three--Man, Natural Resources, Artificial Objects.

All Artificial Objects are produced by Man from and upon Natural Resources. The technical term for the activities of Man in that connection is Labor; for Natural Resources, Land; and for Artificial Objects, Wealth. In technical Economic terms, therefore, all Wealth is produced from and upon Land by Labor.

Many colloquial and business subdivisions of those three categories may be useful provided they be not mixed in their meanings.

One of those subdivisions is Capital, which, in its technical meaning, is distinctively a part of Wealth produced by Labor from and upon Land. It is, however, often used loosely to include Land, the technical term for Natural Resources. Even slaves, and by Economic as well as by private business classification, have been placed in the subcategory called Capital, a form of Wealth; and this notwithstanding that as units of the human factor, slaves belong in the Labor category of Economics. Although such loose distinctions may be of use in private business accountings, they are intolerable in the science of Economics, which, like every other science, demands precision in the differentiation of terms.

The application of Man’s powers of body and mind to Natural Resources for the production of Artificial Objects--of Labor to Land for the production of Wealth--is the Productive Process in Economics. It involves such subcategories as business enterprise, professional service, invention, hired-man work--in a word, every grade of useful activity. These subcategories are developed by industrial specialization, or, in technical Economic terms, Division of Labor, which necessitates another subcategory. This is Trade.

Without Trade, products of Labor specialization would remain forever useless; but through Trade the most minute and incomplete of those products is brought to its useful place in the aggregate of Wealth--ploughshares to ploughframes, for instance, or ore to the steel of the factory, or wallpaper to the interior of the house.

The Productive Process though intricate through specialization and Trade, is readily observable by generalization into the three major categories, Labor and Land and Wealth. In observing that Process care must be taken to distinguish delivery from Distribution. Delivery is part of the Productive Process. No Wealth is completely produced until it has been delivered to ultimate consumers. But Distribution has to do with Wealth apportionment.