Routledge Revivals: Economics for Beginners (1921)

M.C. Buer

• Publisher: Routledge
• Year: 2016
• eBook ISBN: 9781351981002
• Topic: Business
• Subtopic: Accounting
• Index: Business

First published in 1921, this book is intended to provide a comprehensive overview of economics to beginners, with only the more intricate and controversial subjects — such as economic rent — being omitted for the sake of clarity. The subject is dealt with as concretely as possible with extensive descriptions and examples provided to further elucidate the subject while avoiding unnecessary technicalities. The arrangement of the material is based on the author's experience of teaching economics and postpones the more difficult elements to the end of the book in order to provide a more thorough grounding in the essentials before introducing them to the reader.

Part I

Chapter I
Introduction

IF a spectator stands on London Bridge any ordinary weekday morning he will see a steady stream of men and women hurrying to work in office and factory. If he asks what induces them to spend long hours engaged in monotonous, sometimes hard and often distasteful toil, the answer would, of course, be—"Because they have to earn their living."

Every Friday or Saturday the majority of these workers will be paid a sum of money for their week's labour. This sum of money they (or their wives or mothers) will pay out again in return for house room, fuel, food, clothing, etc. And these various things will be ready for them to buy because others have worked to prepare them, the motive of these others being also "to earn a living." Many of the latter live the other side of the world, the Londoner's beef comes from South America, his mutton from Australia, his tea from India, and so on. And in order to bring these goods to the Londoner the united work not only of those who tended the cattle or the crop is required but that of sailors, railway men, shipping managers, shipping clerks, merchants, shopkeepers and many others.

All this is common knowledge, so common that the wonder of it is never considered; as we take the sunrise as a matter of course so do we our daily food.'*

In war time a few sometimes remarked that it was wonderful that, in spite of enemy submarines, we were still fed; but in peace time the routine of life goes on without consideration. If some mighty world monarch had planned this scheme by which millions in all classes work together to supply their needs, well might his courtiers have sung his praises; it is perhaps no less wonderful and certainly less easily explained that the whole system has grown up without conscious aim.

One well-known economist has defined Economics as "a study of mankind in the ordinary business of life."† Another describes it as " having to do with material welfare."‡ These definitions emphasize different aspects of the subject. The economist explains how the wheels of the vast machine of "the ordinary business of life" go round, and at the same time throws light on the causes of differences in material well-being at different times and between different persons. Some superior persons have held the discussion of material welfare to be sordid, but these persons would probably be the first to complain if their own material welfare suffered through any breakdown in the economic machine. Others think the discussion of the ordinary business of life both unnecessary and uninteresting. As to the first contention it will be seen in later chapters that there are at present proposals on every hand for modifying and altering the present economic organization. On these proposals the ordinary citizen is supposed to have an opinion; it is surely advisable that this opinion should be based on knowledge. That does not mean that if everyone studied economics all would hold the same opinion on these matters. We all know that doctors disagree, but that does not prevent the majority of us preferring in illness to consult a doctor rather than a person who has had no medical training.

As to the interest of the subject perhaps, as the old proverb says, the proof of the pudding is in the eating. Tastes differ and not all will be equally attracted. But as nature study reveals the marvels of the teeming life of the ordinary hedgerow so economics, properly studied, reveals the marvels of the work-a-day human world. New light will be thrown on everyday happenings and a new and unsuspected interest will be discovered in small items in the newspaper and in casual observations made during the daily round, and quite ordinary persons become, unsuspectedly, mines of information.

Perhaps the salient features of the complex economic organization which has grown up within the last three centuries can be best appreciated by contrasting it with a much simpler organization; for example, the medieval English manor or a modern village community in some backward part of the world.

We find that the village community is supplied with a few very simple necessities, and that, since there are very few trades and professions, everybody performs many different tasks during the year, though there may be some division of tasks between the young and the old and between men and women. As we shall see in the next chapter the lack of variety in products is the direct result of the absence of specialization or division of labour.

* See Adam Smith's well-known peroration at the end of the first chapter of the Wealth of Nations. He was describing a society that was simplicity itself compared with ours.

† Marshall, Principles of Economics.

‡ Cannan, Wealth.

Chapter II
Division of Labour

MAN is a social animal and he has always found it to his advantage to work in co-operation with his fellows. By what is sometimes called simple co-operation, i.e., when several people unite in performing the same task, labour is lightened and impossible tasks become possible. Several men hauling a rope can remove an obstruction which one man alone could not. Such a simple co-operation is also extremely useful when it is important for a task to be quickly completed, such as getting in crops before rain. But the advantages of simple co-operation are comparatively limited; it is from complex co-operation, generally known as division of labour, that the chief fruits of man's social qualities are reaped.

In division of labour different tasks are performed to the same end; for instance, when one person addresses envelopes and another puts circulars into them.

Modern social organization is distinguished by an immense extension of division of labour which alone renders possible our great output of goods and services. In thinking of division of labour we must not confine ourselves to the sub-division within employments, as for instance when one man cuts out the uppers of boots, another cuts out soles, another makes button holes, and so on. The existence of the separate employment of boot-making is also division of labour. It is common knowledge that division of labour leads to increased output and a favourite example with economists is the one on pin-making quoted by Adam Smith (Wealth of Nations, Bk. I., Ch. I.). Similar examples could be given from other industries.

It is important to note that the expression "increased output" means that more goods are produced per worker in the same period of time. In some cases better quality rather than increased quantity may result.

The reasons why division of labour leads to an increased production for a given expenditure of effort are fairly obvious.

In the first place constant repetition of a task, whether manual or mental, leads to great dexterity. It is only necessary to watch the work of a skilled book-folder or of a trained accountant to see the truth of this. In some cases the necessary fineness of touch can only be obtained after years of practice and is speedily lost by disuse. Most pianists exercise their hands every day, even when on a holiday.

Secondly, division of labour avoids the waste of time and energy involved in passing from one task to another.

Thirdly, division of labour makes it possible to have elaborate tools and machinery appropriate for each task. Where there is very little division of labour, it is impossible to have such machinery, because it would be lying idle for a great part of the time. If one man performed all the processes in boot-making a machine for cutting out soles would be idle all the time that the worker was engaged in making the uppers and finishing the boots. But if one man does nothing but prepare soles, it is possible to have a machine constantly in use while other workers are making the rest of the boot.

The development of labour-saving devices in domestic work is retarded by the small amount of division of labour in that employment due to the small size of the average household.

Fourthly, division of labour should enable persons to be employed in the tasks for which they are best suited by age, sex, physique, or natural ability. If a person is employed in a multitude of tasks, quite apart from lessened dexterity it is probable that his natural aptitude will be less in some tasks than in others. However, though division of labour should enable natural ability to be employed in the appropriate task, it is by no means the case that this desirable end is always attained, for trades and professions are chosen for many other reasons than natural aptitude for them.

But perhaps the most important result of division of labour is that it has rendered possible a vast accumulation of knowledge. The carpenter and doctor can spend several years of their lives learning their work, and so acquire dexterity. Without division of labour this would be impossible. Moreover numerous persons, teachers, writers, research scholars and others spend their lives in increasing or passing on knowledge of various kinds. Their work again is only rendered possible in its fullest development by printed books and scientific instruments, things which could not possibly be produced without division of labour. In the sphere of knowledge as elsewhere the tendency is towards greater and greater division. It has been remarked that Sir Isaac Newton knew all the science and mathematics that it was possible to know in his time and was Master of the Mint and a currency expert besides. But now not only have the different sciences (such as chemistry and physics) become separate subjects of study, but it is only possible for one man to know a small branch of the subject in complete detail. This particular development of division of labour has been rendered necessary by the sheer growth in the volume of knowledge, and at the same time makes possible its further growth, but it doubtless tends to a certain narrowness of outlook. Similar disadvantages are found in humbler spheres, both in manual and mental work. It has been rightly said that it is a poor thing to spend one's life punching holes or sewing on buttons, and to spend it adding up columns of figures is surely not much better. Increased production may sometimes seem to be bought with too great a price. To great monotony ma even lead to decreased production through the lack of interest and consequent carelessness on the part of the worker. It is said that in some of the Government war departments, where a vast amount of routine work had to be done, such as sorting forms and copying figures, it was found advisable to frequently change the junior clerks from one section to another in order to slightly relieve the monotony and so lessen the errors. However, as tasks become more monotonous, so it is likely that machines will be invented to perform them. It is true that machine tending itself is monotonous, but it is not strenuous, and becomes more skilled as the machines become more elaborate.

No doubt extreme division of labour also leads to careless work because the worker seldom sees the result of his labour. The worker in a shoe factory can never take pride in a finished shoe as can the village cobbler, nor does he see it on the foot of the wearer and hear his opinion as to its comfort. Individual pride in a well completed piece of work is to a great extent denied under a system of minute division of labour, but with good management corporate pride in good production may to some extent be substituted.

Chapter III
Localization of Industry

ONE reason why division of labour leads to increased output was not dealt with in the previous chapter; that is that it enables the different kinds of production to be carried on in suitable places. The division of labour between groups of people living in different places is sometimes known as territorial division of labour, but more often as localization of industry. An industry is said to be localized in a particular area when normally more of the product is produced than is needed by the inhabitants of the area, the surplus, of course, being sent elsewhere. For instance, the laundry industry is not localized in London, though it is a very large industry, but the readymade clothing trade is. The causes of localization of industry are very largely geographical. Obviously some industries can only be carried on in particular places; coal mining can only take place where coal is found and so on. But many industries are localized which could be carried on elsewhere, but not so advantageously. One of the best known examples of localization of industry is that of the manufacture of cotton goods. Cotton goods could be manufactured in parts of England other than Lancashire and indeed cotton factories at one time existed in Nottinghamshire, but the great natural advantages of Lancashire made it impossible for them to survive. Localization of industry may be due to suitable climatic conditions, accessibility to raw material and fuel, and so on, and these advantages must be great enough to counteract the disadvantage that the finished goods will have to be conveyed some distance. Every development of transport lessens this disadvantage and so makes localization of industry easier. Once an area has specialized in a particular industry its advantages tend to cumulate. A tradition is built up, workers in all grades become skilled in the different branches, subsidiary industries supplying specialized machinery and so on are established, and traders in the raw material and in the finished article congregate in the area. So that a new area, having, perhaps, greater natural advantages, would find it difficult to rival an old established and well organized centre. The division of labour between different districts, even in the same country, is not the same as it would be if some all-wise despot were dividing the work afresh.

Though the localization of an industry in a particular area is generally due to some natural advantage, there are cases where the origin would seem to be mere historical accident, such as the caprice of a monarch. Again in some cases the original advantage has become obsolete owing to changed methods of production. Yet the area continues to specialize in the product owing to the influence of gathered tradition and custom. Division of labour between countries is affected by the difference of laws and taxation. For instance, a country might have great natural advantages for the development of a particular industry, but if the government of the country was such that there was no security, the industry would probably develop better in another country with fewer natural advantages but a better system of government.

Localization of industry leads to more division of labour in the narrower sense. There can be little division of labour in a village smithy, but a great deal in the huge engineering works which supply agricultural tools and machinery to all parts of the country.

World-wide territorial division of labour has rendered possible the colossal increase of output of modern times. It has enabled immense populations to specialize in industry and commerce whilst drawing their food supplies from the so-called new countries. It is, of course, this territorial division of labour which enables the inhabitants of the great cities of Europe and America to enjoy the specialized products of every part of the globe.

Chapter IV
Income

IT necessarily follows from the small amount of division of labour in primitive societies that the majority of the workers are engaged in producing the actual food, clothing, etc., which they themselves require, and their well-being will depend on the amount which they are able and willing to produce. But in our society, with its complex division of labour, the vast majority are working to produce things which will be used by others. The great exception to this is the work done by women in their own homes. If, therefore, we were to attempt to compare the material well-being of two individuals in a village community we should examine the goods in their barns, the state of their crops and so on; but if we wished to compare the material well-being of two individuals in our society, almost certainly the first question asked would be, what is the amount of their respective incomes.

The word "income" to some extent explains itself. It is that "which comes in." When we speak of a man's income we nearly always think of a sum of money which he receives during a period of time. This period is usually a year. We say Mr. Smith's income is £500 a year, but sometimes, particularly if we are speaking of manual workers, we talk of a weekly income. Not every sum of money which is received is part of the recipient's income. Gifts, legacies, occasional earnings, or for instance, a sum obtained by letting one's house furnished on an isolated occasion, are excluded because income is something which has a certain permanency, and so-called casual receipts are excluded. For instance, if a man bought a house for £5,000 and sold it again shortly afterwards for £5,500, the £500 would not be taxable as income unless he made a practice of buying and selling houses for profit, in which case it would be.

Gifts, even if regular, as in the case of allowances, are not strictly the income of the recipient but of the giver. Legally they belong to the giver, who can withhold them at any moment, and are therefore considered his by the tax collector. For the same reason thefts are not income, quite apart from the obvious fact that most thefts are kept secret.

We usually think of income as a sum of money, and the majority of the receivers of income in modern England receive it in money. Nevertheless, many people receive part of their income, not in money, but in goods or services; that is "in kind." Domestic servants, resident teachers and others are paid partly in food and lodging. Bank managers and caretakers receive house room and sometimes fuel and light; agricultural labourers receive a free or low-rented cottage and sometimes fuel and food-stuffs; farmers and their families consume some of the farm produce. But these are exceptions; the vast majority receive their income in the form of money. But a moment's thought will show that money is only acceptable because it can be changed into other things as required. The major part of most incomes is exchanged for goods and services very quickly after the income is received; the money is a symbol or token, the thing which matters to the individual is the quantity and quality of the goods he receives. Thus we get the conception of real income, i.e., of a flow, not of money, but of the goods and services received over a period. But though some real income is directly received the vast bulk is obtained by spending money income, hence it is natural to think of income as a sum of money.

Further, when we discuss income we are generally doing so for the purpose of comparing the income of one person with that of another or of one group of persons with another group, perhaps because it is desired to alter the taxation of the ...

Table of contents

• Cover
• Title
• Copyright
• Original Title
• Original Copyright
• Contents
• PART I
• PART II
• PART III