Principles of Economics with Applications to Practical Problems

<h2>CHAPTER 3</h2> <h3>WEALTH AND WELFARE</h3> <h4>§ I. THE RELATION OF MEN AND MATERIAL THINGS TO ECONOMIC WELFARE</h4> <div class="sidenote">Man is the center of economic reasoning</div> <p>1. <i>The gratifying of economic wants depends on things outside of the man who feels the wants.</i> Man is to himself the center of the world. He groups things and estimates things with reference to their bearing on his desires, be these what are called selfish or unselfish. If we were discussing the economics of an inferior species of animals, things would be grouped in a very different way. But economics being the study of man's welfare, everything must be judged from his standpoint, and things are or are not of economic importance according as they have relation to his wants and satisfactions. Things needful for any of the lower animals are spoken of as "ministering to welfare" in the economic sense only in case these animals are useful to men. Examples are the mulberry-tree on which the silkworm feeds, the flower visited by the honey-bee. In the same view some men are seen to minister to the welfare of other men and therefore bear the same relation for the moment to the welfare of the others as do material things. In any case we study man's welfare as affected by the world which surrounds him.</p> <div class="sidenote">Physical nature is an unchangeable fact</div> <p>2. <i>Material things and natural forces differ in kind and nature.</i> This is an axiom which we must take as a basis for reasoning in economics. Things have certain physical qualities quite apart from any action or influence of man.<span class="pagenum"><SPAN name="Page_16" id="Page_16">[Pg 16]</SPAN></span> They are operated on by mechanical laws; the force of gravitation causes them to fall at a certain rate under given conditions. They differ in specific gravity, reflect the rays of light, absorb or transmit heat. All these things are for man ultimate physical facts, but unless he knows these facts he cannot take full advantage of the favorable qualities of things or weigh properly their importance to his welfare. Things differ in a multitude of ways in their chemical qualities. Niter, charcoal, and saltpeter, combined in certain proportions, give certain reactions; different combinations give various results. Solids combine to form gases, and liquids unite to form solids, and these qualities and reactions of material things are for man ultimate truths of chemistry. Likewise many things have certain physiological effects. Sunshine acts on living bodies, whether plant, animal, or man, in certain ways. Some plants are nourishing to man, others are poisonous. If man were not on the earth, things would have the same physical and chemical qualities, mechanical laws would be the same as at present so far as we can conclude. Man cannot change the nature of things; but he can acquaint himself with that nature and then put the things into the relations where a given result will follow.</p> <div class="sidenote">But economics has to do with psychological effects</div> <p>3. <i>As a result of these differences, things have different relations to wants.</i> These various qualities, physical, chemical, physiological, are important in an economic sense only as they produce psychological effects, that is, as they affect the feelings and judgments of men. We come to some general thoughts which it will be well to define.</p> <div class="sidenote">Some definitions</div> <p>Gratification is the feeling that results when a want has been met. Feelings are hard to define in words; the best definition is found in the experience of each individual. We can only say, therefore, that gratification is the attainment of desire, the fulfilment of wants. The word that has usually been employed in this sense in economic discussion is "satisfaction"; but by its derivation and general usage satisfaction<span class="pagenum"><SPAN name="Page_17" id="Page_17">[Pg 17]</SPAN></span> means "the complete or full gratification" of a desire, and this meaning is quite inconsistent with the thought in many connections in which the word is used. We shall therefore prefer here the word gratification, and its corresponding verb, gratify.</p> <p>Wealth is the collective term for those things which are felt to be related to the gratification of wants. The word is applied in economic discussion to any part of those things, no matter how small. We shall have occasion later to define and discuss this term more fully.</p> <p>Welfare, in an immediate or narrow sense, is the same as gratification of the moment; in a broader sense, it means the abiding condition of well-being. We have here a distinction very much like that often made between pleasure and happiness. If we think of only the present moment, welfare is the absence of pain, and the presence of the pleasureable feeling; but if we consider a longer period in a man's life or his entire lifetime, it is seen that many things that afford a momentary gratification do not minister to his ultimate, or abiding, welfare. Moralists and philosophers often have dwelt on this contrast. The difference is illustrated by the thoughtlessness and impulsiveness of a child or savage as contrasted with the more rational life of those with foresight and patience.</p> <div class="sidenote">Economics first studies wealth</div> <p>Wealth, in the general economic sense, is judged with reference to gratification rather than with reference to abiding welfare. It is the first duty of the economist not to preach what should be, but to understand things as they are. He must, in studying the problem of value, recognize any motive that leads men to attach importance to acts and things. He will therefore take account of abiding welfare and of immediate gratification to exactly the degree that men in general do, and the sad fact is that the present impulse rules a large part of the acts of men. Whether tobacco or alcohol or morphine minister to the abiding happiness of those who use them does not alter the immediate fact that<span class="pagenum"><SPAN name="Page_18" id="Page_18">[Pg 18]</SPAN></span> here and now they are sought and an importance is attached to them because of their power to gratify an immediate desire.</p> <div class="sidenote">Then wealth and welfare</div> <p>5. <i>In studying the question of social prosperity, however, we must rise to the standpoint of the social philosopher and consider the more abiding effects of wealth.</i> Wants may be developed and made rational, and the permanent prosperity of a community depends upon this result. Any species of animal that continued regularly to enjoy that which weakens the health and strength would become extinct. Any society or individual that continues to derive gratification, to seek its pleasure, in ways that do not, on the average, minister to permanent welfare, sinks in the struggle of life and gives way to those men or nations that have a sounder and healthier adjustment of wants and welfare. We touch here, therefore, on the edge of the great problems of morals, and while we must recognize the contrast that often exists in the life of any particular man between his "pleasures" and his health and happiness, we see that there is a reason why, on the whole, and in the long run, these two cannot remain far apart. The old proverbs, "Be virtuous and you will be happy," "Honesty is the best policy," and "Virtue is its own reward," have a sound basis in the age-long experience of the world. Cynics or jesters may easily disprove these truths in a multitude of particular cases.</p> <div class="sidenote">Freemen are not economic wealth</div> <p>6. <i>Wealth does not include such personal qualities as honesty, integrity, good health.</i> Some economists speak of these as "internal goods," but it is far better not to speak of free men or of their qualities as wealth. Many difficulties arise from such a use of the term in practical discussion. One of the most important of all distinctions to maintain in economics is that between material things and men. Only in the case of human slavery may persons be counted as economic wealth. It is a different thing, however, to consider human services as wealth of an ephemeral kind at the moment they are rendered. We are, thus merely recognizing<span class="pagenum"><SPAN name="Page_19" id="Page_19">[Pg 19]</SPAN></span> that men may bear at the given moment the same relation to our wants as do material things.</p> <h4>§ II. SOME IMPORTANT ECONOMIC CONCEPTS CONNECTED WITH WEALTH AND WELFARE</h4> <div class="sidenote">Popular meaning of useful</div> <p>1. <i>Utility, in its broadest usage, is the general capability that things have of ministering to human well being.</i> The term is evidently one without any scientific precision. It expresses only a general or average impression that we have in reference to the relation of a class of goods to human wants. Every one would agree to the statement that "water is useful," thinking of the fact that it is indispensable to life and that it ministers to life in a multitude of ways. But what of water in one's cellar, water soaking one's clothes on a cold day, water breaking through the walls of a mountain reservoir and carrying death and destruction in its path? The poison that is doing what we at the moment desire, we call useful; that doing what we would prevent, we call harmful. Noxious weeds become "useful" by the discovery of some new process by which they can be worked into other forms, though they may still continue to be noxious in many a farmer's fields. The utility of anything, therefore, is seen to be of a relative and limited nature. The term "utility" in popular speech is very inexact. It can be employed in economic discussion only when carefully modified and defined.</p> <div class="sidenote">Kinds of goods</div> <p>2. <i>Goods consist of all those things objective to the user which have a beneficial relation to human wants.</i> They fall into several classes. We may first distinguish between free and economic goods. Free goods are things that exist in superfluity, that is, in quantities sufficient not only to gratify, but to satisfy all the wants that may depend on them. Economic goods are things so limited in quantity that all of the wants to which they could minister are not satisfied. The whole thought of economy begins with scarcity; indeed,<span class="pagenum"><SPAN name="Page_20" id="Page_20">[Pg 20]</SPAN></span> even the conception of free goods is hardly possible until some limitation of wants is experienced. Practical economics is the study of the best way to employ things to secure the highest amount of gratification. The problem itself arises out of the fact that many things are used up before all wants dependent on them are completely satisfied.</p> <p>A distinction is often made between consumption and production goods, or it may be better to say immediate and intermediate goods. Consumption goods are those things which are immediately at the point of gratifying man's desires. Production goods are those things which are not yet ready to gratify desires; some of them, being merely means of securing consumption goods, never will themselves immediately gratify desire.</p> <div class="sidenote">Value is utility given precision</div> <p>3. <i>Value, in the narrow personal sense, may be defined as the importance attributed to a good by a man.</i> The vagueness and inexactness of the word "utility," or the word "good," disappears when we reach the word "value." It is not a usual relation or a vague degree of benefit sometimes present and sometimes absent, but it refers to a particular thing, person, time, and condition. Value is in the closest relation with wants, and in this narrow sense depends on the individual's estimate. From the meeting and comparison of the estimates of individuals, arise market values or prices, which are the central object of study in economics.</p> <hr class="chap" /> <p><span class="pagenum"><SPAN name="Page_21" id="Page_21">[Pg 21]</SPAN></span></p> <div style="break-after:column;"></div><br />