The Principles of Economics Part 5

[Sidenote: Time relations of goods to wants]

2. _Goods may be ranked by their relation to wants in time._ The relation in respect to time is measured by the period that must elapse before the utility of an agent results in, is converted into, gratification. No agent or influence intervening, a thing may yet be removed a long way from gratification. A tree may not be fitted to bear fruit for ten years to come. Meantime, there are many other possible uses for the tree: it may be used for fuel, or to make a canoe with which to catch fish, or to follow some other indirect method of production. Evidently the technical and time relations of goods are very different. The number of steps has no necessary relation to the time. A number of technical steps may be taken in half an hour, or a process of a single technical step may last a year. In the mechanic arts the technical relations are of primary significance, but in economics the time relations are mainly to be considered.

3. _Economic goods may be cla.s.sified as immediately enjoyable goods and durable agents._ Enjoyable goods are goods in a final form, producing gratification or just ready to give gratification the next moment, as the cool draft of air made by a fan on a hot day, the cup of coffee steaming on the table.

[Sidenote: Enjoyable goods and durable agents]

Many goods of just the same form as the foregoing may not be affording current gratification (except that afforded by thrift and forethought), but are kept because later they will gratify a more intense want or gratify a want better. Apples and potatoes are kept in a cellar so that their use is distributed throughout the winter; cider and wine are kept till they get a quality that appeals more to the palate. Coal, wood, and stocks of goods, are thus kept in the form of enjoyable goods, destined to be physically destroyed when at length they yield a gratification.

Evidently they must be storing up meantime a certain additional utility, for otherwise there would be no reason why they should be kept for the future. Such goods as these are sometimes called unripened consumption goods, but until ripened they bear in part the character of durable agents.

Abiding sources of economic enjoyments are called durable agents. The inhabited house is a source of continued gratification in each moment's shelter it affords; but, further, it is the durable source of a series of future uses, as yet unripened. The hammer, the hoe, the tree, the field may all be considered as agents to secure consumption goods. Some of these are but one step removed from direct gratification, as the hoe helping the gardener to get food for his own use. Other agents are bound by many technical links to the ultimate gratification.

[Sidenote: Degrees of durableness]

4. _This cla.s.sification of goods is abstract, in that it is a cla.s.sification, not of concrete goods, but of qualities shared in some degree by nearly all goods._ Most goods unite in some degree both characters, but in varying measure. This is, therefore, a continuity cla.s.sification, the varying cla.s.ses of goods grading from those whose durableness is zero (just at the moment of consumption) to those most durable, which yield an endless series of uses or products. Yet the cla.s.sification is practical, corresponding as it does with thoughts which men have in the use of goods. By repairs and other methods goods become, and are looked upon as, durable sources of a series of uses.

It is to be noted further that the enjoyable goods pa.s.s over into psychic income, that is, they are the stream of objective utilities that is each moment detaching itself as income from the great ma.s.s of wealth.

The durable goods are those utilities which for the time remain, not yet ripened or ready to be converted into psychic income.

-- II. CONDITIONS OF ECONOMIC WEALTH

[Sidenote: Income as affected by climatic conditions]

1. _The bounty and variety of the natural supply of indirect goods in the material world are the prime conditions of a bountiful income to society._ The effect of climate on the supply of goods available for man is complex. Climate is itself a direct source of gratification. As temperature must be adjusted to man's need, climate satisfies wants directly. Health, energy, the beauty of noonday woods and of sunlit clouds are conditioned on the favor of nature. Climate affects, further, the supply of material economic goods. All the earlier civilizations arose in warmer countries. But, after man had gained a certain mastery over the obstacles of nature, he was able to soften the harsher features of climate, and with better shelter and clothing, with better stocks of winter food and fuel, the more favorable features of the temperate zone could be utilized. So civilization moved northward from Egypt and India to Greece and Rome, to northern Europe and America.

[Sidenote: By natural resources]

Soil conditions for vegetable life determine first the amount and kind of animal life. Animal life from one point of view is a parasite, living on the vegetable; it is only the vegetable that has power to a.s.similate most inorganic compounds. Water being a need of plant life, the amount of rainfall is one of the most important conditions of industry. Man, therefore, depends on the resources of the soil directly or indirectly; a fertile soil furnishes him either directly a supply of vegetable food, or indirectly a supply of animal food.

Natural supplies of metals, of coal, and of timber are important consumption goods, but they are also indirectly the condition for a vast variety of other goods. The industry that could exist without iron, copper, and coal would be of a very low grade.

[Sidenote: By flora and fauna]

The variety of flora and fauna, and their fitness for man's needs, largely condition the possible production. If, in the course of evolution, it had chanced that wheat and corn, the horse and the cow, had been crowded out in the struggle for existence, we should have had a very different civilization. The possibilities of civilization in Peru, and those of all the Indians on the American continent, were limited for lack of domestic animals. Animals that are fit for domestication are a necessary intermediate agent by aid of which man can appropriate and turn to his use the fertile qualities of the soil.

Not content with the material world about him, even when it is at its best, man alters it in many ways. He enriches the soil, improves the varieties of animals, he even in some slight degree affects the climate, and by the use of a mult.i.tude of artificial bits of matter called tools, works profound changes in the world in which he lives.

[Sidenote: By motion and energy]

2. _A large part of the utility of goods is conditioned on motion and energy._ It has been said that man's power in production is limited to moving things. The outer world is to man the sole source of motive forces. He can bring things together and they produce the result.

Further, it may be said that nearly every kind of utility is conditioned on motion. It is man's aim to secure a constant inflow of goods. To secure this either he must move to get the goods, or he must cause goods to move toward him.

The law of "conservation of energy" helps to explain economic action; the supply of energy in the universe cannot be increased or diminished, but may take on new forms. So a limited supply in man's control may take on various forms and so have different effects on gratifications. One and the same source of energy may be converted into the different forms of heat, light, motion, electricity, etc. But there must be some source.

Man's desire is directed to getting force at the right place and in the right degree. If light or heat is too intense, it causes pain; the glare of the sun blinds instead of giving keener vision. A moderate force applied to any of the senses gives the maximum clearness or pleasure.

Man is constantly endeavoring to secure forces from the outer world and to adjust motion so that it will directly or indirectly best serve his purposes.

[Sidenote: By food, animals, and fuel]

3. _Among the main sources of power used by men are food, domestic animals, and fuel._ In eating food man stores up force in his own body.

When he draws the bow he puts force into it to lie latent until liberated at the right moment. There must be a source of energy likewise that mental action may go on, and the power of sunbeams, stored for a time in food, is liberated in the processes of thought.

This first natural mode of liberating energy within their own bodies does not satisfy the growing needs and aims of men. Such a mode is "labor," which becomes at times painful and distasteful. In the earliest societies known, some sorts of domestic animals are found supplementing man's efforts and acting upon the material world to alter it for man.

The dog joining in the chase guards his master's safety, and helps to bear his burdens. The draft-beast in the field turns the heavy soil, and aids in the final harvest. The trained elephant does the work of twenty men piling logs, loading ships, or carrying burdens.

Man further increases his control over the material world by making other men do his bidding. Domestic slavery, where wife or child serves the father of the family, or chattel slavery, where the vanquished toils for the victor, are all but universal in early communities. Such a method of increasing one's control over the forces of the world requires only superior strength, no special intelligence in mechanics, and is thus one of the first crude devices in a primitive civilization.

Fuel has been, up to the present time, perhaps the most important source of energy. Fire in the hands of savage man gave him dominion over the forests and over the metals. In this age of steam the liberation of the energy of the sun, stored up in coal in ages past, is still the indispensable condition of our developed industry.

[Sidenote: By the energy in wind and flowing water]

4. _The greatest and most exhaustless reservoirs of power for man's use are in wind and water._ While the supply of fuel is being used at a progressive rate and will soon approach exhaustion, there are elsewhere exhaustless stores of energy awaiting man's command. To make use of the wind for sailing a boat, only the simplest arrangements are needed; a windmill fixed at one place requires more ingenuity and machinery. The energy of the wind is derived from the sun and will last until the sun loses its heat. If some means can be found for equalizing the flow and for storing the power of the wind, it may yet become a great agency of industry. The force of falling water, long used in a petty way by the old water-mills, is just beginning to be employed on a large scale at such points as Niagara. Where fuel is high, as on the Pacific coast, wave motors have been successfully used in a small way, but wave motion is too irregular to serve well the needs for power. But the constant motion of the tides offers, at some favored points, a source of power that will remain as long as the earth revolves upon its axis.

[Sidenote: By the intelligent utilization of all these agencies]

5. _Man studies and compares the durable goods that give him command over enjoyable goods, and attaches value to them._ Thus energy is found dissipating itself throughout the world in ways useless to man, and in places where it cannot serve his purposes. As man grows in power of control over nature, he seeks to apply these forces in forms and at places he has selected. If he can arm himself with the energies of mine and torrent, he can react with giant strength on the material world. He ceases to accept pa.s.sively its conditions, and to live on its grudging gifts; he becomes its fashioner, in a sense its creator. His intelligence and his wants are most important factors determining what the form of the physical world about him shall be.

But all the efforts of men in the most developed economy cannot make to disappear the differences in the quality of goods and agents. Desirable goods to consume are limited in quant.i.ty, and they vary in quality; hence they have value and some higher than others. Likewise, durable material agents and sources of power are limited in number and vary in convenience of location and efficiency. As men seek to gratify their desires, they attach importance to these agents of power. Each is valued for its service or its series of services. When anything is seen to contain a series of uses, it becomes a rent-bearer, and the economic problem of rent arises, one step more complex than the problem of valuing simple consumption goods.

CHAPTER 8

THE RENTING CONTRACT

-- I. NATURE AND DEFINITION OF RENT

[Sidenote: Temporary use and permanent possession of agents]

1. _The temporary use of materials and power and their sources is necessary to bring most enjoyable goods into being._ Indirect goods have value solely because they help to get direct goods. The apple-tree is valued because it bears fruit, and the orchard because the trees give promise of yielding a succession of crops for years to come. There are thus two problems of value in connection with durable goods: that of the value of a temporary use for a brief period, as for a year; and that of the value of a thing itself, the use-bearer, for a long series of years or in perpetuity. To explain what fixes the value of the temporary use is the problem of rent; to explain what determines the value of long-continued use or of permanent control and ownership of a use-bearer is the problem of capitalization.

[Sidenote: Origin of the term rent]

2. _The term rent is used in a number of senses, which must be carefully distinguished._ The original meaning of rent was any regular income or revenue arising from wealth. The word comes from the low Latin _renta_ from _renda_, in turn from _redditus_, that which is given, yielded or given back, or _rendita_, that which is given or returned. The French _rendre_ (English render), to give or return that which belongs to one, is used very early. Chaucer used "rente" as an income. "Cattle had he enough and rente," cattle probably meaning property (chattels), and rente income. Rental is a collective term for a number of rents. The total yield of an estate was called its rental or rent-roll, and a list of the various sources of income, including all payments from tenants in money, produce or services, const.i.tuted its rental.

[Sidenote: Popular and special meaning of rent]

3. _The popular meaning of rent is the amount paid for the use of material things which must be returned to the owners after the time of use agreed upon._ We speak of the rent of a house, boat, etc., using the word as a synonym for hire. In the European languages the word is used more frequently in that sense. In the French _la rente_ means the income from any kind of property; but corporate securities and national bonds came particularly to be called _les rentes_, because they are a form of investment yielding a permanent income. The one who has a perpetual income from bonds or rents is called a _rentier_. In German the term _Rente_ is used more broadly than in English, as an income of any sort, _Grundrente_ meaning the rent of land, and _Capitalrente_ the income usually in England called interest.

A restricted meaning has long been applied by economists to the word: the income yielded by lands, etc. This was put in contrast with interest for money and capital, and with wages of labor. This meaning is now being abandoned by economic students.

A wider meaning recently given to the word by many economists turns on the supposed relation of some portions of price to cost of production.

Thus, frequent use is made of the expressions: consumer's rent, producer's rent, buyer's rent, seller's rent, etc. In the well-founded opinion of some recent critics this usage rests on a mistaken reasoning.

However, in the midst of this wide variety of usage the student must be forewarned and alert. Doubtless agreement will at length be arrived at.

Meantime, no economist can dictate what meaning is to be attached to the term, but one may suggest the definition that seems to him most expedient. Throughout this work we shall endeavor to use the term rent uniformly and consistently as it is now to be defined.