The rent of a building, however, is entirely.different from the rent of land. A building is a capital good creatcd by man's labor and sacrifice-saving and the supply of buildings is susceptible of indefinite in crease. Like a machine, it lasts for only a certain period of time, so that an entrepreneur who needs a building for the manufacture of his article must figure among his costs the price he pays for the use of that capital good. Some economists do not altogether agree with the view here expressed and the subject will be more fully discussed in the chapter on rent.
11. Expenses of the business world men always think of the cost of production in terms of money. In figuring their costs they simply add up the sums of money paid out for the hire of labor, for the purchase of raw materials, for insur ance, for rent, etc., and a certain percentage of the cost of their plant or fixtures to cover depreciation.' In this way the business man gets the surn total of his money outlay and does not seek to know more. He is anxious of course to have his workmen and his ma chines produce as many goods every day as possible, and for that reason in many industries manufacturers keep a careful record of the time required for various productive processes. But in their final computa tion of costs all the labor and capital consumed or em ployed are reduced to terms of rhoney.
As we shall see later, money does not possess sta bility of value. It fluctuates in value just as does wheat or corn or any other commodity, altho for rea sons ,which we cannot discuss here its fluctuations are less rapid and violent. But its value does fluctuate, that is to say, its general purchasing power varies. For example, on account of the great increase in the world's stock of gold the value or purchasing power of gold declined 50 per cent in the two decades follow ing 1897. This means that prices in countries using the gold standard were 100 per cent higher in 1917 than in 1897, so that one dollar in 1917 had no greater purchasing power than fifty cents had twenty years before. The reader will easily see that the money costs of producing an article must have risen during this period even tho its production called for the em ployment of no more labor and no more capital, that is to say,even tho its real cost had not changed.
13ecause of this instability in the value of money, economists as a rule designate money costs of produc tion as the expenses of production. This seems to
be necessary in order to avoid confusion of thought. The business man year by year is interested in his money costs of production, for upon them and upon the market prices depend his money profits. The economist is interested in the same matter, but he is perhaps more deeply concerned about real costs of production, for their reduction is one sign of economic progress and lie knows that the real costs of produc tion may be declining during a period when money costs are advancing. For' example, because freight rates have been advanced in recent years the aver age man thinks of the costs of transportation as be ing higher. Yet the real cost of moving a ton of' freight one hundred miles is probably considerably less today than it was twenty years ago, for labor has not lost in efficiency while the capital goods em ployed in transportation, such as locomotives, rail road tracks, coupling and signaling devices, ter minal and unloading facilities, have been considerably improved. When an economist says that the cost of transportation has declined he means that it in volves the employment of less labor and the use and destruction of less capital. This is sometimes spoken of as the real cost opposed to the money cost.
12. Competition.—In civilized countries today both the production and conswnption of wealth pro ceeds in the main under conditions of competition, each individual being permitted under the law to produce and consume as he will. The great econ omist, Adam Smith, was the first to point out the advantages of competition a.s compared with govern mental control and regulation of industry. The es sence of his argument in behalf of free trade as op- _ posed to protection lies in the advantages of inter national competition. All trades and callings should be freely open to all the people of a nation in order that each may choose the one for which he is best fitted. Then the wealth of the nation will increase at the highest possible rate, for the men best fitted for lead ership will get to the top and direct the great ma chinery of production. Governments should not in terfere as they do when they enact protective tariffs, for then they compel a nation to devote part of its capital and labor to the production of things which it might get more cheaply from abroad.