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The Law Of Population
The Limits Of An Economic Society
Perpetual Change Of The Social Structure
Value And Its Relation To Different Incomes
The Law Of Accumulation Of Capital
Effects Of Dynamic Influences Within The Limited Economic Society
Organization Of Labor
Boycotts And The Limiting Of Products

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Production A Synthesis Distribution An Analysis
Leading Facts Concerning Money
The Foregoing Principles Applied To The Railroad Problem
The Measure Of Consumers' Wealth
Capital As Affected By Changes Of Method
Conditions Insuring Progress In Method And Organization
Land And Artificial Instruments
Further Influences Which Reduce The Hardships Entailed By Dynamic Changes
Summary Of Conclusions
The Socialization Of Industry

The Law Of Accumulation Of Capital

Adam Smith and many others have noticed that the growth of capital
varies with the intelligence and the foresight of a population. It
should therefore increase in rapidity as intelligence increases. A
high valuation of the future is a mark of intelligence, and there is
no reason why an entirely rational being should value a benefit
accruing to himself in the future any less than he does a benefit
accruing at once. Perfectly rational estimates of present and future,
if there are no influences affecting the choice except these mere
differences in time, mean that the two stand at par. It was once
supposed that the disposition to save from one's present income varies
directly as the rate of interest of the capital which is thus accrued,
and in the main this is still regarded as a nearly self-evident
proposition. Abstinence imposes a present cost on anybody that
practices it. Whosoever saves a dollar misses the gratification which
that dollar might bring. He may regard that sacrifice as fixed. It
causes him to go without his marginal gratification, whatever that may
be. If interest for a year amounts to twenty-five cents, the man has
at the end of the year one dollar and twenty-five cents, with which to
do whatever he may choose. He may spend it, if he will, and get all
the gratification that a dollar and a quarter can bring. If interest
stands at five per cent per annum, his abstinence will bring him only
one dollar and five cents a year, and that, or whatever he can get by
means of it, is a smaller benefit than the one he could get for one
dollar and a quarter. If it is barely worth while to go without
something now in order to have a dollar and five cents in the future,
it is more than worth while to do it in order to have a dollar and a
quarter at the same future date. If a man is induced to save only a
dollar, for the sake of having a dollar and five cents at the end of
the year, why should he not save two dollars, in order to have two
dollars and a half at that time? Why should not the amount of his
present privation increase, when the surplus of benefit he can gain by
it at a future date grows greater? Such is the reasoning, and it seems
entirely plausible, if we assume that what the man loses is the
gratification he might have by spending his dollar, and that what he
gains is the benefit of spending it and its accumulation of interest
at the end of the year. The assumption is that the man proposes at a
certain future date to spend the principal or the capital which he
acquires by saving in the present, together with whatever it may have
earned as interest; that he measures the personal benefit which he can
get by this spending, and finds the larger benefit better worth a
fixed sacrifice in the present than a small one.

The Actual Purpose of Abstinence

Most capital is saved with no
expectation of ever spending the principal. The motive is a perpetual
income, which the capital will earn. What the man appraises in his own
mind is not the personal benefit he can get by spending a dollar and
five cents at the end of the year; it is the benefit that will come
from spending five cents at the end of the first year, another five
cents at the end of a second, and a more or less similar amount at the
end of every year that shall follow. It is a perpetual income, and as
the man's life is limited, the greater part of it must accrue to
others than himself. The satisfaction which he will get from it near
the close of his own life comes altogether from the prospect of
passing the principal unimpaired to others and in assuring to them and
to their successors the perpetual income which the foundation yields.

Even on this basis it might be supposed that a large perpetual income
would offer a greater inducement to save than a small one, and
therefore that the amount of saving would be greater when the rate of
interest was higher. This would be true if the importance of the
perpetual income could be estimated in this simple way by the mere
amount of it.

Conditions affecting the Importance of a Future Income

importance of a future income may be large because of the prospective
helplessness or poverty of the one who expects to enjoy it. A workman
may save at a great present cost to himself in order to provide for
old age or sickness, in which case the income from the savings, and
often the savings themselves, would be the means of averting a great
calamity. To make one's self secure against privation in the future is
worth more than to add to one's comforts in the present. If a certain
minimum amount were needed to avert starvation at the end of a man's
life, he should secure that amount at all hazards, however much that
may trench on his present comforts. Now, as the amount which he can
have at the end of his life depends largely on the rate of interest
which his savings will earn, during such time as they may remain in a
productive shape, it will take more positive abstinence on his part to
keep himself from starvation when the rate of interest is low than it
will when the rate is high. If there were no interest at all, he would
have to put by from his income his entire old-age fund. If the rate
were a hundred per cent per annum, taking a very small part of the
fund out of the income of his active years would suffice, since the
fund itself would earn the remainder. Is the income which is provided
for the future to be treated as a variable amount in addition to some
other income, or is it to be regarded as a fixed amount, which is
needed for some definite purpose? On the answer to this question
depends the entire issue as to whether a low rate of interest or a
high one affords the larger incentive for saving.

Future Incomes More or Less Fixed usually Needed

Recent writers
have called attention to the fact that in many cases saving has the
providing of a definite future income in view. The owner of a landed
estate, who intends to leave it to a son, may try to provide from his
rents an endowment which will save from want or from an unhappy
approach to want his daughters and his younger sons. He might
accomplish this, indeed, without any present saving by putting rent
charges or mortgages upon his land, but that would trench on the
income which his heir can derive from it. It would reduce the
establishment which the heir can maintain and cause him to fall out
of the class to which his father has belonged. Rather than do this,
the present owner will usually reduce the present standard of living
of the entire family and try to make sure that its future standard
shall not fall below the one thus established. It seems better to
maintain the somewhat lower standard through a series of generations
than to make the present mode of living more luxurious at the cost of
unclassing one's self and one's heirs at a later date.

This Fact heretofore Underestimated

To the writers who have cited
this familiar fact it appears to require merely a partial amendment of
the general proposition that a high rate of interest insures more
saving than a low one, and the inference which one naturally draws
from this supposed fact is that growing wealth, as is still supposed,
reduces the incentive for the accumulation of more wealth. Such an
accumulation is an essential part of general progress and is
practically necessary for sustaining the rate of wages. Here, then, if
this supposition is true, we might see an important influence tending
to bring progress to a standstill. Great wealth as the result of
progress, a reduced motive for acquiring still further wealth, a
retarding of progress--such would be the sequence. Dynamics would thus
be, in a very important respect, self-retarding if not self-halting.

Future Standards of Living the Important Element

The actual fact,
as we may venture to affirm, is that the standards of living which
need to be maintained in the future are the all-important element in
the case. To the laboring man it is necessary to avoid starvation or
the workhouse; to the well-paid artisan it seems necessary to do this
and to make for his children a provision which will keep them in the
same class with himself. To the capitalist who by successful business
has raised himself above the artisan class it seems necessary to keep
his children above the rank from which he has lifted the family; and
the same principle applies to all the wealthier classes. The tenacity
with which a man holds to a station in life outweighs his desire to
add to his own present luxuries, and his ambition to keep his children
in a certain station far outweighs his desire to add to their present

The Importance of Future Standards not affected by the Fact that Men
differ in Altruism

This does not at all raise the question how many
people care as much for their children as they do for themselves. That
is not the principle at issue. In so far as men do care for their
children the end they seek for them is to enable them to avoid what
seems like a disaster, rather than to make positive gains in the way
of comfortable living. Even in the case of those who have little
altruism, such provision as they make for descendants is inspired by
the desire to keep them within a certain class more than by any
computation of how many comforts or luxuries a surplus income of any
amount might give them. Whatever provision for children a selfish or
dull person makes is dictated by the same motive that incites him to
make provision for his own future, and in both cases it is chiefly the
maintenance of a standard that he usually has in mind.

The Principle not invalidated by the Fact that Forethought is often

All the motives for saving may be unduly weak. The man may
care far less for the future than he should do, and may make an
unreasonably small provision for it. Incapacity to estimate the
importance of this provision, as well as the degree of selfishness
which excludes the exercise of self-denial for the benefit of others,
are not the only reasons for this disregard of the future. There is an
optimism which is natural; and a religious faith which bids one not to
take unduly anxious thought for the morrow may occasionally be carried
to the harmful length of justifying a neglect of coming years and
their needs. An intelligent trust in Providence, however, incites a
man to do his own full duty, and it is the better men who do the most
to avert future evils from their families. The principle that we are
maintaining applies as completely in the cases of those who make small
provision for the future as it does in any others. In the majority of
cases whatever they do save is set aside chiefly for the maintenance
of some standard of living by those who get the benefit of it; and to
maintain any standard whatever, whether high or low, requires a larger
fortune when interest is low than it does when interest is high.

Forethought limited in the Length of Time it Covers

There is
little danger that we make any mistake in ascribing to the dread of
falling below a standard of living more influence on the accumulation
of capital than any other motive exerts. This will be clearer if we
look at the actual manner in which present and future are estimated
and compared. The fact is not that most people care unduly little for
all future benefits as compared with present ones, as it is that they
throw off responsibility for all the future beyond a limited period.
The perspective does not reduce the size of remote objects unduly as
often as it cuts off the view of them altogether. In looking through
coming years a man is subject to a certain economic myopia. One might
compare what he sees with what a man sees in a foggy atmosphere, if it
were not for the fact that the view of comparatively near objects is
clear. It is as though a circle of fog surrounded him and cut off
somewhat abruptly the view of everything that was far away. For a
short distance the man sees everything with comparative clearness, but
the limitless spaces that lie beyond he sees not at all. We have seen
that the amount of abstinence he will practice now for the sake of
what he or others will gain later varies as he is rational or foolish,
unselfish or selfish, and it is also true that the length of his
outlook into the future varies in the same way. There are all
gradations of far-sightedness among those who create capital; but even
comparatively near-sighted ones usually provide for the maintenance of
some standard or other during the period that falls within their range
of vision, and this requires that they should save more when interest
is low than they do when interest is high.

Marginal Capitalists

In this connection, however, it is to be
noted that economic myopia may go to the extreme length of making men
nearly indifferent to all future standards. In this case they
constitute an exception to the general rule, since whatever they save,
if they save at all, is likely to be more when interest is high than
when it is low. They are marginal capitalists, who are not influenced
by any benefits except immediate ones and only inquire how much an
investment will, from the day when it is made, add to their own
incomes. The higher rate is then the greater lure. Moreover, other
capitalists, who are influenced mainly by regard for future standards
of living, are somewhat affected by the immediate benefit which
marginal savers have exclusively in view. To the extent that they are
so, the higher the rate of their immediate returns, the more strongly
are they impelled to "abstain" and accumulate. The essential fact is
that marginal capitalists are few numerically, and their savings count
for little as they enter into the general fund, and that most
capitalists, including nearly all who save great amounts, do it
chiefly from a desire to maintain themselves and their descendants on
an established level of living. In the main the social motives for
saving are those we have described.

Enjoyment largely Teleological

There is a special reason why a
rational man, if offered an enjoyment now or later, at his option, is
quite likely to take it later. Enjoyment is mainly teleological. It
consists in a conscious approach to a desirable end. The knowledge
that one's efforts to attain a desired goal are successful and that
the good thing is really coming, sheds a light on the present. Indeed,
it is anticipation and memory which prolong any enjoyment, and of
these anticipation is the more effective. The knowledge that one is at
a certain time to sail for a foreign tour confers before the sailing
an enjoyment which is often more than a foretaste. It often rivals the
pleasure that is consciously taken in the trip itself. A man may be
happy for years in the prospect of a business success or a prospect of
election to a public office, and many years of hard labor in
scientific investigation may be illuminated by the expectation of the
ultimate discovery and its consequences. There is a good reason why
even an average man, as well as a wise one, will wish to distribute
his expenditures over the different periods of his life, and to give a
preference to the future whenever that is necessary in order to enable
him to hold through his earlier years the comfortable assurance that
his later ones are well provided for.

If the line AB represents by its distance above CD a fixed
standard of living during a period of ten years, the highly rational
man will prefer to take something from the enjoyments of the first
five and bestow them on the second five. The consciousness of
improvement, of the fact that every year will bring a new enjoyment
never before experienced, makes the whole life brighter than it could
be with any other disposition of the available means of pleasure. The
man's standard of living during the whole ten-year period will be
represented by the rising dotted line EF.

The Effect of Robbing the Future

If a man pursued the opposite
course, of taking something from the future to add to the
desirableness of the present, thus establishing a falling standard of
living, he would have to relinquish every year something to which he
was accustomed, which would cause him a keen pain. The very excessive
gains of the present would thus become sources of unhappiness at a
later period, while the anticipation of the later unhappinesses would
throw a shadow over the present. The men who in spite of all this live
recklessly and waste their present substance do so, not so much
because they undervalue so much of the future as falls within their
purview, as because they are so extremely short-sighted that over
nearly all of the future they have practically no vision at all.

The Actual Conduct of a very Reasonable Man

The real fact in the
case of a reasonable man is represented by the following figure:--

Line EF measures fifty years and line FG another fifty. The heavy
line AB, rising toward the right, represents the rising standard of
living which the man's reason makes him maintain during the period
over which his vision is clear, while the dotted line BC represents
the standard for which, in an imperfect way, he makes provision during
the next fifty years. Over later periods his vision does not extend at
all. It loses clearness after the point B is passed, and in the same
proportion it loses influence over the man's conduct. He therefore
reconciles himself to whatever standard may prevail, even though it
were a stationary one during the latter part of the time. Very seldom,
however, would the man consciously lower the standard even during
this later period.

The Effect of Limited Vision on the Valuation of a Perpetual

This failure of vision, or economic myopia, accounts for the
fact that the infinite series of payments of interest that a sum of
invested capital will earn do not overbalance, in the man's estimate,
the principal which he must refrain from spending in order to get
them. If interest is at five per cent, abstaining from using a hundred
dollars for present pleasure will put into the man's hands, in twenty
years, a sum equal to the principal, in twenty years more another like
sum, and so on ad infinitum. The man who considers whether he shall
save a hundred dollars or spend it might be said to be comparing the
importance of a hundred present dollars with that of an infinite
number of future ones. In his consciousness the number is not
infinite, because his vision does not extend over much of the future.
The fact of most importance, as determining whether low interest
causes small savings, is that in weighing the importance of the
dollars which will be used during the period over which his vision
ranges the average man is influenced by a desire to maintain some
standard of living, which involves the more saving, the lower the rate
of interest.

The Action of the Motive for Saving on Minds of Varying Degrees of

Not only the man who looks a little way forward, but
the man so constituted that he can content himself with a falling
standard, is impelled to save more if interest is low than he is if
interest is high, so long as he deems it necessary to maintain any
standard at all; but much importance still attaches to the question
whether the standard which the man hopes to maintain is a rising, a
stationary, or a falling one. The average man, indeed, does hope to
maintain at least a stationary standard during so much of the future
as he cares much about. This mode of distributing pleasures appears in
matters both small and great. In taking a walk for pleasure one is
more likely to go up a rising grade first and descend afterward than
he is to go down at first and afterward bear the fatigue of climbing.
While there may be those who would rather play in the forenoon and
work in the afternoon, when the choice is presented at the beginning
of the day, there are certainly more among the classes that society
depends on for capital who would put the work in the forenoon and the
pleasure in the afternoon or evening. If a man were taking a canoeing
trip on a swiftly flowing stream, he would paddle his boat up the
stream and then come down with the current, rather than let it float
down with the current and then paddle it back. If it be thought that
this is true of only a specially rational mind, one may say that the
capitalist class represents men who in this respect are more than
ordinarily rational. They are generous, foresighted, and in their
relation to descendants affectionate. The men who really do the saving
for society have more to make them think and act in the intelligent
way we have described than do ordinary men. The miser, the paragon of
abstinence, can hardly be said to be the man who thinks too much of
future enjoyments, for he contemplates no such enjoyments that call
for spending money, for he never means to spend it. He is an abnormal
type and fortunately a rare one. With him there is a standard of
possessions to be maintained, rather than one of enjoyments, and it
is always a rising standard, since he cares for nothing so much as to
see his possessions increasing. To make them increase at any given
rate when the direct earnings of capital are small requires severer
abstinence than it would if the capital yielded a larger return.

The Effect of an Increase in the Number of Persons who seek to
maintain a Rising Standard of Living

While it is true that even the
half-evolved intellects that care little for coming years do, if they
care for them at all, find themselves impelled to save more capital
when interest is small than they do when it is large; it is also true
that minds of a high order save more than minds of a low one. In order
to live during one's latter years just out of danger of the workhouse,
one does not need to trench deeply on the comforts and pleasures which
he is able to enjoy during the greater part of his life; but if he is
determined to live to the end of his days as well as he has done at
any time and to help his children to do the same, he must practice a
severer self-denial and accumulate a larger fund. Still sharper
becomes the abstinence and still greater the accumulated fund where
men provide for a future mode of living that shall surpass the present
one. The importance of this fact lies in this: the condition which
brings with it a low rate of interest does so because of the great
number of men who do thus value a future standard of living that shall
be at least stationary if not positively rising. The growing size of
the social capital implies a more general appreciation of the
importance of future well-being. Because men's economic psychology has
become what it is and because it is still changing for the better
there is a second reason for expecting that the accumulation of
capital will not hereafter be retarded. We make here no extravagant
claim as to the number of persons in a community who take the more
rational views as to present and future. The number of each class is
what it is; but facts show that the maintenance of some standard is
the most efficient motive for saving in the case of each one of them,
and that low interest therefore calls for large accumulations. They do
show that the number who take the more rational views is a growing
class, that they accumulate more than other classes, and that every
addition to their relative number makes for more rapid accumulation
within the society of which they are members. Two decisive reasons,
then, exist for thinking that the growth of capital will never end or
check further growth. There are still further facts, however, which
have a bearing on this problem.

The Importance of the Character of the Increases which are the
Largest Sources of Accumulation

If one has a doubt whether the
large sums which enter into the capital which is steadily accumulating
are saved under the influence of a desire to maintain a standard, this
doubt will be removed by a consideration of the source from which
great accumulations come. They come most largely from the net profits
of the entrepreneur. Next to that they come from the earnings of
what must be classed as labor, though much of it is labor of a special
and very superior sort. The salary which the head of a corporation
receives, the fees that its lawyers get, the fees that come to eminent
surgeons or engineers, are all payments for labor; and these, taken
together with the earnings of well-paid artisans, successful farmers,
and very many others, constitute the second contribution to
accumulating capital. Savings from simple interest itself constitute
the third contribution.[1]

[1] Gains which come from holding land which rises in value
more rapidly than the interest on the price of it
accumulates, is to be rated as part of net entrepreneur's

Now, of these sources of income, net profits and the wages of superior
labor are transient, and the profits are particularly so. The man
whose mill earns fifty per cent in a particular year would be foolish
in the last degree if he used all that as income. That would mean
brief and riotous enjoyment, followed by a most painful fall from the
standard so established. He will naturally spend some part of the
phenomenal dividend and lay aside enough of it to afford a guarantee
that his future income will not fall below the present one. The man
who during the best years of his working life enjoys a salary or
professional fees amounting to a hundred thousand dollars a year would
be almost equally foolish if he were to spend it all as he earns it,
leaving his family unprovided for and his own later years exposed to
the pains of sharp retrenchment. Transient incomes suggest to every
one who has any degree of reason the need of establishing and
maintaining some future standard of living, and of investing enough to
accomplish this. This is more true, of course, when the rate of
interest is low.

The Importance of the Need of Enlarging a Business

There is a
special reason why legitimate business profits are morally certain to
be to a large extent laid aside for investment. The man would say that
he "needs them in his business." They come at a time when there is an
inducement to enlarge the scale of his profitable operations. The man
who is getting a dividend of fifty per cent per annum must make hay
while the sun shines, and he can do it by doubling the capacity of his
mill. What he makes and what he can borrow he uses for an increase of
his output, which it is important to secure during the profitable
time. All this means a quick increase of the total capital in

The profits of a monopoly are not transient, but are likely to be both
long-continued and large, and it might seem that they would constitute
a larger source of addition to capital than those profits which come
from technical improvement. There are several reasons why this is not
the fact. In the first place, what we are discussing is the addition
that profits make to the total capital of society, rather than to the
capital of any one person or corporation. The monopoly makes its gains
by taking something from the pockets of the general public, and in so
far it reduces the power of the general public to save.

It might be alleged, however, that since a monopoly reduces wages and
interest, adds to profits, and creates enormous incomes for a few
persons, it really diverts income from a myriad of persons who would
save very little of it, and puts it into the pockets of a few persons
who are likely to save a great deal of it. This might conceivably add
to the capital of society were it not for the fact that the more
secure and regular gains of monopolies are made the basis of large
capitalization. A company that earns twenty-five per cent of its real
capital per annum may have its stock diluted with four parts of water
and pay only five per cent in dividends on its capitalization. This
looks like interest and is apt to be treated as such by those who
receive it. It is, therefore, not a more favorable income from which
to make accumulations of capital than is the interest on real
capital. The sudden gains which promoters and manipulators of
consolidated companies make are, indeed, transient gains and may be
largely added to capital. The introduction of a regime of monopoly may
insure a period of much saving by the class that profits by it; but
the later career of the monopoly is unfavorable to the growth of

The Special Effect of a Prospective Fall in the Rate of

If interest which continues steadily at a low rate affords
an especially strong incentive for saving, it follows that a falling
rate, one that begins low and steadily becomes lower, affords a still
stronger one. The average rate during the years of the future for
which a prudent man makes provision is made, of course, lower than it
would be if the rate were stationary. This influence is probably not
as effective as it would be if the remote future were included in the
view of those who are securing capital. On account of the
near-sightedness to which attention has been called, a rate of
interest that begins at four per cent and falls very slowly to three
and a half presents to those who have this defective vision the same
incentive to saving as one that begins at four per cent and remains
steadily at that figure. What is true, however, is that a falling rate
is to be expected, that this fact acts as a stimulus for saving in the
case of the more far-sighted classes, and that the number of persons
in these classes is increasing.

In so far as the increase of capital is concerned society is secure
against the danger of reaching a stationary state. Progress in wealth
will not build a barrier against itself by stinting the resources on
which hereafter labor must rely. When we examine the sources from
which capital mainly comes, we shall further test the probability that
the instrumentalities which add productive power to human effort will
increase through the longest period that science needs to take account

[2] For a somewhat similar view of the effect of a fall
of interest on the accumulation of capital, see Webb's
"Industrial Democracy," Vol. II, pp. 610-632.

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